Azerbaijan: A sustainable shift

Fikret Huseynov describes the developments away from fossil fuels in Azerbaijan, and how going back to agriculture is creating its own sustainable challenges

Azerbaijan is a country in Eastern Europe on the coast of the Caspian Sea, about the size of Scotland but with the population of about 10 million. Until recently, Azerbaijan's economy had been largely based on oil and gas production – but that is changing, thanks to a recent shift to take advantage of its agricultural potential. Statistics show the transition has boosted the agricultural sector by 25% in the country's GDP from 2014 to 2017 and further agricultural growth is forecasted. This is a positive sign for a country with low-income rural population. However, it is a matter of concern whether the transition will indeed spark sustainable and resilient agroindustry.

Huge oil and gas resources have attracted large foreign investment since early 1990s, shortly after Azerbaijan became independent leaving its socialist past behind; including major UK companies and contractors. Similarly to other young and developing nations in their first years of independence, Azerbaijan has had issues with mismanagement of resources, poor urban and rural planning, weak environmental governance and monitoring systems, especially at the local level.

Despite the growth forecasts and positive social changes, there are environmental impacts arising from the rapid shift to agriculture. This is especially evident against the climate change backdrop, as water stress imposed by the growing agroindustry is increasing. The non-point source water pollution, cumulative impacts from the petrochemical industry, increased effluents into the water bodies, especially the vulnerable Caspian Sea, need to be on the agenda to avoid adverse environmental effects. With 55% of its land resources fit for agriculture, land-use management will also raise concerns regarding biodiversity. A few solutions here could include raising awareness on environmental protection and social responsibility in the agricultural sector, improved public engagement, use of efficient technical equipment and know-how that can translate into an advantage as the local industry is on the lookout for potential overseas exports.

Oil and gas legacy

Although oil and gas boast a dominant position in Azerbaijan's GDP, recent oil price fluctuations have hit the local currency, manat, leading to its depreciation in 2015 and 2017. Agriculture emerged as a lifebuoy, keeping the country's economy afloat, giving it a critical lifeline while the economy recovered. The estimated revenue from the agriculture will provide a steady financial boost to the nation with a GDP of around $75bn (£58.5bn).

About half of Azerbaijan's population lives on 2110 km² of the oil-rich Absheron peninsula. The capital, Baku, located on that peninsula as well, struggles with its ever-increasing transport and urban infrastructure stress. The links from the capital to agricultural regions have seen major improvements and construction projects, including motor and railway transportation hubs. The construction boom driven by the oil revenues in mid-2000s drove a large workforce influx to the capital from the regions.

Port infrastructure, including maintenance and service is well established for freight shipping and oil-and-gas industry vessels around Baku. Railway freight in Azerbaijan has been emerging as another significant transport link connecting Europe and Turkey with the Asian partners reviving the ancient Silk Way trade route.

Oil and gas production sharing agreements (PSA) sparked a significant improvement in the infrastructure and social conditions. However, welfare, water supply and sanitation systems elsewhere in the agricultural regions need quality improvement. Environmental pollution has not been a long-term top priority either, despite the public and non-governmental efforts to raise ecological awareness and effectively remediate the contaminated lands.

Agricultural background

Favourable factor endowments such as soil quality and mild climate have been among the critical yardsticks for foreign investment in wine production, with the joint European businesses already exploiting this market niche effectively. Vegetables, fruit, preserves and tea production has progressed steadily for the last five years, yet overseas exports are relatively low despite good produce quality. The country's cotton producing regions, once major suppliers of the biggest socialist economy just a few decades ago, are experiencing revival as part of the governmental programme, but the economic and recurring environmental stakes are high, as cotton cultivation in semi-arid regions remains highly sensitive to the water resources and climate change.

Powering agriculture is cheap because of low fuel and energy prices and large renewable capacity. One of the lowest fuel prices globally (about £0.30/l diesel), public funds and subsidies encourage farming. The farmers can get funding not only for the fertilisers, but lubricants and fuel for their machinery as well. Despite vast wind and solar resources, especially in the coastal areas, these renewables are not gaining ground due to low return on investment and natural gas lock-in powering greenhouses across the country. Industrial-scale biomass facilities in agriculture are not widespread either.

Challenges and opportunities

Soil erosion, surface and ground water contamination with poorly treated farming effluents are among the major threats to human health, biodiversity and sustainable resource use. Cotton production has already faced water supply challenges due to previous resource mismanagement practices, poor planning and a lack of transparent and efficient public engagement. Catchment management and biodiversity protection programmes and their integration to the inter-regional planning systems are clearly lacking.

Another issue is setting up the farming-focused environmental management systems as the local farmers will face tough sustainability requirements if they look forward to developing their competitive exports. Similar to other transitioning economies, the ability to plan, manage and monitor funding and revenues effectively is still limited, and sustainable farming can be questionable unless the effective environmental regulations are enforced, equitable social policies and inclusive institutions are set up and efficiently run.

Azerbaijan's advantages for developing sustainable agriculture are its natural reserves, renewable energy as well as low-cost labour. The country also provides a shortcut to Central Asia and onwards to China, with its tremendous market and trade potential. And this geostrategic location gives agricultural investors an opportunity to explore that shorter route to Asia on the backdrop of global trading developments.

Business development

The combination of petrochemical sector focus and neglect of other sectors resulted in serious effects on Azerbaijan's economic development. Foreign currency influx into the economy did drive rather unbalanced growth and development – but in the long run, the social and infrastructural developments funded and maintained by the oil and gas revenues could not be sustained effectively unless other, sustainable sectors were encouraged for parallel development.

Azerbaijan tries to mitigate that resource curse through active economic diversification, investing in agriculture and focusing on hospitality and tourism – worldwide famous Formula 1 has been held in Baku since 2016 – for an equitable distribution of income among its other non-oil sectors. But such steps need cooperation and state-of-the-art know-how from the experienced international partners.

Azerbaijan is an attractive place for the UK environmental and agricultural businesses to work, given their worldwide expertise, for example in biomass facilities, organic farming, agricultural advisory and environmental consulting. The local business and public are open and interested in such sustainable business efforts.

Fikret Huseynov is an environmental consultant

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