**CHAPTER V - OPPORTUNITIES ANDTRADE BARRIERS**

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**I.  OPPORTUNITIES**

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Oil/gas,construction, infrastructure projects, environment and agriculture are thesectors most often cited as offering the best foreign investment opportunities,when reference is made to a need in the Azerbaijani marketplace.   The key factor, however, is theavailability of funding for each and any project undertaken.  ****

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**EXPORTS ANDINVESTMENT - BEST U.S. PROSPECTS**

 

According to theU.S. Commercial Office in Baku, the best U.S. opportunities are found in thefollowing sectors:

 

             1 - Oil/gas field machinery: Fifteen consortia are currently working inAzerbaijan developing Caspian offshore and several onshore fields.   With projected investment bythese consortium in the double digit billions of dollars over the next tenyears, their purchases of foreign equipment and foreign investment in jointventures with local equipment producers present viable opportunities.  

              2 - Oil, gas, mineral production/exploration services: Very few of thecurrent consortia are at the production stage of their oil and gasoperations.   International interest in obtaining exploration and development rightsto new  reserves is keen, andrequirements for exploration services and subsequent production services willgrow.

              3 - Oil-gas-related construction machinery/equipment: with the majorpipeline activities underway, there will be a  market for construction machinery and equipment. Theexisting stock dates from the Soviet era but American companies will face stiffcompetition, and sometimes local content requirements  from Russian, Japanese and European firms. New pipelines from Baku to the Black seacoast and to Turkey areprojected to carry Caspian oil to Western Export Markets.

              4 - Pollution control equipment: Azerbaijan faces extremely seriouspollution problems on the Apsheron peninsula.   Each of the consortia is expected to purchase state-of-the-artpollution abatement equipment for its operations. Smaller oil companies mayinvest in pollution control equipment under terms of their contracts.  International funding is forthcomingfor environmental remediation.

              5 - Telecommunications: Azerbaijan is still working to establish acommercially viable internet node, and has established a National Program forDevelopment of Telecommunications for 1997-2010, focused on upgradingexchanges.  The U.S. - AzerbaijaniCaspian-American Telecom LLC was just signed in spring 1999. 

              6 - Construction of hotels, apartments, office blocks is needed.  Turkish and British construction firmsare operating in Azerbaijan. Although foreign firms have encountered some tax problems (a problem notlimited to this sector), the construction industry is thriving in Baku.American construction equipment exports will face stiff competition fromEuropean and Asian manufacturers.

              7 - Agricultural equipment: As agricultural land is privatized, farmerswill be looking to improve production through the introduction of advancedtechnology and equipment.  The European Union is already offering substantial aid programs in the agricultural sectorthrough its TACIS program (which maintains offices in the Ministry ofAgriculture).

              8 - Electrical Power Infrastructure:  Azerbaijan must replace most of the

electricalgeneration system within the next few years. This project will cost about $500million and require imported equipment;

   9 -  Drugs/pharmaceuticals: Azerbaijan facesa chronic shortage of basic drugs.. Imports by humanitarian organizations, theGovernment of Azerbaijan, and private individuals have been heavy in thepast.  

  10 - Other: TransportInfrastructure: Airports, port facilities, rail and road links and associatedfacilities; health care equipment and services.  

 

**II.   TRADE BARRIERS**

             

Despite thecountry's desire to see more foreign investment, the combination of aninadequate legal system,  highlybureaucratic regulatory structures and the uncertain political situation(Nagorno-Karabakh, Section 907, succession) makes investing in the economyprecarious.   Other barriersinclude:

 

--- Azerbaijan=s tax structure and legal regime are majorbarriers to trade.  Taxes are highenough to be considered investment disincentives.  Commercial laws are developing slowly, as are accountingstandards and capricious tax administration.  

 

--- Licensing andregulatory practices are characterized by lack of transparency.   

 

--- Findingmarketing mechanisms, identifying local partners, contracting and corruption,as in other countries of the CIS present challenges.

 

--- Bureaucracy is abarrier to foreign investment, particularly the difficulties with contacts andcommunications, access to information, and slow processing of requiredpaperwork.  

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