After the discovery of oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiyev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury)" The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.
In 1997, incomes increased by 27% compared to 1996 and amounted to 136 thousand manats per head of population, that is, $34 per month. This increase was not significant for the budget of the average citizen of the country, the more so because the minimum consumer basket was worth 340 thousand manats (about $90). However, compared to 1994, when the average salary was only 7 dollars, it was a breakthrough.
For the re-equipment of industrial enterprises, large investments were required. There were no funds for this purpose in the country. Large foreign currency earnings from the "Contract of the Century" were expected only in 2003, i.e. not for at least another five years. The number of unemployed by the end of 1997 reached 1 million people, 500 thousand of them refugees. 30 thousand unemployed appeared out of the oil industry (a large part of them had been skilled workers of mechanical-engineering enterprises producing oil equipment). Political-structural reforms were going on, and a policy of favoring foreign investment was being carried out. In the country small-scale privatization was completed, but the privatization of medium-size and big enterprises continued. Economic growth in 1997 was planned for 7%, inflation - no more than 4 to 5%, while investment in the economy was planned for about 1.5 billion dollars. In 1996, GDP grew by 1.3%, and in 1997 this figure rose to 5.8%. For comparison, in 1992-1995 annual GDP dropped by an average of 20-22%. In 1997 the privatization of 7500 small and medium-sized enterprises brought 143 billion manats to the state budget, and 2.1 times more was invested in the economy of the Azerbaijan Republic than in 1996.
The main legislative acts regulating the involvement of foreign investment in Azerbaijan - the "Law on the Protection of Foreign Investment" and the " Law on Investment Activity of the Republic of Azerbaijan" - were aimed at attracting and efficient use of material and financial resources and advanced foreign equipment and technology. These laws determined the legal and economic principles of foreign investment in the country and ensured investor protection. In order to attract foreign investment, the government also concluded bilateral intergovernmental agreements.
According to the Ministry of the Economy, of investment in 1997 (1 billion 307.3 million dollars) direct investment amounted to 1.111 billion, and 196.3 million was credits. The bulk of investment, directed into in the oil sector, was constantly changing in relation to the non-oil sector, especially in 1996-1997. Investments in republic's economy annually increased. If in 1996 foreign investment outside the oil sector and the loans international financial organizations amounted to 101.8 million dollars, in 1997 this index reached 330.9 million dollars.
When evaluating the results of 1997, even the opposition admitted certain developments in the oil industry, meaning:
- The improved rating of the republic and the decrease in the investment risk index (Azerbaijan's rating in 1997 in the magazine Euro Money rose several points);
- Improved qualifications of those working in the sector (due to educational programs, including programs abroad);
- Increased number of employed citizens of Azerbaijan (their number reached 2000);
- Development of the banking sector and growth of foreign loans and investment;
- The arrival of small and medium-sized foreign companies to Azerbaijan, investment in the oil sector stimulated a dramatic development of the related branches of the economy;
- Development of the oil sector as a whole and its integration in the global economy;
- Growing volumes of humanitarian aid;
- Stimulation of reforms and the development of a market infrastructure. However, in our opinion, the country still had to protect itself from the following risks:
- Misbalance of development similar to Dutch Disease;
- Improper use of contracts' profits. In March 1997 the Azerbaijani parliament discussed the results of the previous year, stressing the importance of the growing foreign investment.
Analysis of the realization of this contract allows us to draw conclusions pertaining to the other contracts in the Azerbaijani sector of the Caspian Sea:
1. Azerbaijan has a wide network of enterprises and plants producing equipment for the oil industry, but all of them need modernization to meet world standards. The Azerbaijani government, inspired by the early oil extraction, announced that production and export of oil equipment and services for the entire Caspian region and other countries would be an urgent task. This task meant the renaissance of the oil industrysector in Azerbaijan and the creation of thousands of jobs. The completion of the AIOC's early oil program and the decline of production until the next stage resulted in a decrease of employment.
2. Azerbaijani workers and specialists were quick to learn new skills and approaches and the quality of their work, supported by the proper financial compensation, met world standards.
3. The analysis of the meteorological and seismological characteristics of the Azerbaijani sector of the Caspian sea proved that the technical standards of the Oil Information Agency could be applied to the concrete territories of AIOC without change.
4. The government of Azerbaijan and SOCAR fully fulfilled their obligations and supported AIOC at all levels.
5. In case of proper organization and a favorable investment climate, Azerbaijan is competitive not only in the Caspian region but also on the global markets. This can be confirmed by the activity of Caspian Geophysical, Azfen (SOCAR\Tekfen), MacShelf, Macdoc (SOCAR, McDermott), Azlab, Azeri Fugro and the Caspian Drilling Company (SOCAR- Santa Fe) [1]. The total value of works offered by the Azerbaijani and joint companies within the project's realization reached 140 million dollars.
