BAKU, Azerbaijan, Feb.13. Trend's exclusive interview with Rana Karadsheh, Regional Director of the International Finance Corporation for Europe.
- What was the purpose of your recent visit to Baku and what was the outcome?
I have recently made my first visit to Baku as IFC’s Regional Director for Europe to hear from the government, the private sector, and development partners about new private sector opportunities and how IFC could support Azerbaijan. The meetings were extremely productive, providing important insights and highlighting new opportunities.
- What do you exactly mean by “new opportunities”?
Well, over the last 30 years, Azerbaijan has transformed to an upper-middle-income country, now helping the poorest countries through the World Bank's International Development Association. Growth was driven by the oil and gas sector, which brought in around 90 percent of Azerbaijan’s export revenues in 2021. But oil and gas reserves are depleting globally, triggering price fluctuations, especially with major changes in geopolitics and energy systems in the region. Moreover, we also are increasingly realizing that, regardless of a country’s level of oil and gas resource, energy diversification is simply important for overall resilience.
Decarbonization is crucial. It needs to be fast-tracked. While oil remains a pillar, optimizing the non-oil economy is high on the country’s agenda. Azerbaijan’s 2030 national development vision focuses on maintaining a competitive and sustainable economy, leveraging the power of the private sector.
- What are IFC’s plans on cooperating with Azerbaijan this year and which sectors look most promising and attractive for IFC?
IFC sees potential in several sectors – especially in supporting private sector participation in infrastructure. Through both investment and advice, IFC aims to help boost green growth, strengthen transport corridors and connectivity, boost financial inclusion and agriculture.
To increase the role of the private sector, IFC, in partnership with the Swiss State Secretariat for Economic Affairs SECO, is working with Azerbaijan’s government to make it easier for companies to invest in the non-oil economy.
Most recently, with IFC’s advice, Azerbaijan adopted three laws. The Law on Tourism aims to introduce new methods, including market and competition-based means of regulation and quality assurance, which are expected to reduce time and cost for the private sector. In addition, the Law on Food Safety is designed to bring new concepts to control the entire food chain and modernize the national food safety management system. The Law on Investment Activity aims to provide for investment protection guarantees and is expected to contribute to attracting more investment.
These changes were all built on IFC’s long-term work in Azerbaijan. Over three decades, IFC has contributed to fundamental investment reforms, including registration, inspections, licensing, and permitting systems, supporting the country with legal, institutional, and technical reforms.
Looking ahead, fintech is an emerging area that can support financial inclusion, which is fundamental to development. As an overview, in emerging markets globally, 1.6 billion people and 200 million small businesses do not have access to formal financial services.
One way to change this is to optimize financial technology, which is why IFC has partnered with the Azerbaijan Fintech Association to help companies provide faster, cost-effective, and efficient financial services. This is familiar territory for IFC.
Over the years, in partnership with SECO, we have worked with the government on regulatory reforms to strengthen financial infrastructure and boost access to credit for smaller businesses. IFC advised Azerbaijan on its first private credit bureau and on a movable collateral registry, allowing smaller businesses to use their movable assets—inventory, equipment, and so on —as collateral. This supported the unlocking of an additional pool of borrowers.
Based on this, IFC recently launched its Asset-Based Finance, or ABF, project to support the enhancement of the legal framework governing prudential regulation of ABF products, as well as the setting up of a national ABF platform and the development of an ABF product program for financial and non-banking financial institutions.
- You’ve emphasized improving access to credit for small businesses. What are the priority areas for cooperation in the financial sector?
Banks and financial institutions are the main source of finance for smaller businesses, which account for 45 percent of employment and a 15 percent share of value added in Azerbaijan.
That’s why IFC has a strong focus on supporting the financial sector. On the one hand, we work with financial institutions and relevant agencies to increase the capacity to provide the services their customers need. On the other hand, we provide funding, so that banks can on-lend to small businesses, especially the underserved, such as women entrepreneurs or customers in rural areas.
Just last month we signed a financing package of up to $40 million to Bank Respublika to boost the bank’s lending to micro, small, and medium enterprises (MSMEs). The funding comprises $20 million by IFC, which will also mobilize up to $20 million more. Around 50 percent of the proceeds will be earmarked for on-lending to women-owned MSMEs. This project is supported by the IFC Women Entrepreneurs Finance Initiative and the Women Entrepreneurs Opportunity Facility.
- Agriculture is a key sector globally. What are IFC’s plans in Azerbaijan?
IFC, through its Agricultural Financing Project, implemented in partnership with SECO, has supported local financial institutions in launching value-chain financing products and helped the selected value chains on strawberry and hazelnut crops increase their competitiveness in export markets. Value chain financing was an important step to enable farmers to access finance without real estate collateral and with strong trust in crops exported to Gulf or European markets.
IFC is cooperating with the government of Azerbaijan to introduce innovative financing instruments to grow agriculture in Azerbaijan and connect smaller farmers to global value chains. These instruments are crop receipts, which allow farmers to obtain pre-harvest finance against a promise to produce a certain quantity of crops, and warehouse receipts (post season financing), which can be used to provide financing in the form of short-term loans or guarantees.
The government, farmers, financial institutions, and other players see the benefits, and there are draft laws at the consultation stage to enable these instruments.
- While visiting Baku, you launched a partnership with Azerbaijan’s Alat Free Economic Zone authority. What results are you expecting?
As Azerbaijan focuses on a competitive and sustainable economy to drive growth, the Alat Free Economic Zone (AFEZ) will be a unique export-led industrial zone, designed to attract and grow value-added and manufacturing activity.
Close to the Baku International Sea Trade Port and transport corridors, AFEZ has the potential to become a regional industrial hub, boost economic diversification, and ensure sustainable economic growth. To support this, IFC signed a memorandum of understanding with the AFEZ Authority to create a framework for advisory and early-stage project development support for companies interested in locating their operations in AFEZ. IFC, in partnership with the Austrian Federal Ministry of Finance, and in collaboration with the AFEZ Authority, will advise and support AFEZ’s tenants. The goal is to help companies identify and develop investment projects that focus on supporting the country’s net-zero transition and its climate-resilient development path.
- While green transition is the buzzword in Azerbaijan, what will a greener future look like? What are the government’s and IFC’s cooperation priorities in the area of decarbonization?
Accelerating decarbonization is crucial for competitiveness and future prosperity. According to an analysis by the World Bank Group’s Energy Sector Management Assistance Program, the estimated technical potential of Azerbaijan’s offshore wind potential is 157 gigawatts, which is massive compared to the current total installed capacity of around 8 gigawatts.
As a private sector-led growth model is pursued, developing offshore wind generation will help improve competition in the power sector, strengthen essential infrastructure, and help tackle climate change. Azerbaijan could transfer infrastructure, equipment, knowledge, and its workforce to offshore wind.
An offshore wind roadmap, released by Azerbaijan’s Ministry of Energy, the World Bank, and us at IFC, shows Azerbaijan has the potential to install 7 gigawatts of offshore wind power by 2040. This could create over 69,000 full-time equivalent years of employment and up to $7 billion in local gross value added.
Utilizing the potential will also allow Azerbaijan to become an exporter of renewable energy to its neighbors and to the rest of Europe, improving energy security, contributing to the decarbonization of the European continent and increased connectivity.
IFC and the World Bank are now working with the government on how to implement the roadmap, to initiate offshore wind development, and attract developers and private investors to the country. Overall, implementing the roadmap could allow Azerbaijan to emerge as a regional renewable energy powerhouse. IFC is well-placed to work with Azerbaijan in this area and help it reach the next level, by also leveraging private investment.
- What is your assessment of the so-called Middle Corridor for Azerbaijan?
As global supply chains are still adapting to the disruptions caused by the COVID-19 pandemic, the Russian invasion of Ukraine has further complicated matters. The Trans-Caspian International Transport Route or the Middle Corridor—this is a partnership between Azerbaijan, Georgia, Kazakhstan, and Turkey—could serve as an alternative route. IFC is looking at opportunities to support infrastructure through the expansion of transport infrastructure in Azerbaijan.
- What’s the total amount of funding allocated by IFC to Azerbaijan?
Over three decades, IFC has invested more than $500 million, including close to $100 million through mobilization, financing projects across sectors, including financial services, infrastructure, and manufacturing. IFC supported Azerbaijan with around $100 million in trade through its trade finance program, provided $250 million for the Baku-Tbilisi-Ceyhan pipeline in 2004, and implemented almost a dozen advisory projects to boost private sector growth.
IFC is committed to its partnership with Azerbaijan, and we are excited to be part of its dynamic journey.