Prospects glowing for Azerbaijan-Germany industrial cooperation
Anaysis by Caliber.Az

ANALYTICS  16 March 2023 - 17:13

Germany is among the few European countries which enjoy maximally diversified economic ties with Azerbaijan. In addition to the energy component, cooperation in the non-oil sector between the two countries is developing very dynamically. Activities of German business in Azerbaijan have traditionally been notable for broad coverage of different areas of the non-oil economy and participation in major industrial projects. Promising vectors of Azerbaijani-German cooperation were indicated during the working visit of President Ilham Aliyev to Germany on March 13-14, 2023. Within the framework of this visit, the 9th meeting of the Azerbaijani-German high-level working group on trade and investment was held in Berlin.

Germany has the largest national economy in Europe. Last year, its GDP exceeded 4.3 trillion euros. The Federal Republic also holds one of the leading positions in research, registered patents, and know-how developments and is rapidly expanding its high-tech in industry, agriculture, construction, transport, the IT sector, etc.

In this regard, trade and economic cooperation between Baku and Berlin are quite multifaceted and equally diversified. In particular, Azerbaijan now accounts for the bulk of Germany's trade relations with the South Caucasus region. Last year alone, Germany ranked eighth in Azerbaijan's total foreign trade figures and fourth in terms of volumes of imports to our country. Trade turnover between Azerbaijan and Germany in 2022 exceeded $1.25 billion, the countries enjoy a trade balance: a slight predominance of German imports - $663.5 million and $591.3 million of Azerbaijani exports, which is quite comparable.

The basis of the Azerbaijani exports is oil supplies, of which $563.7 million was shipped to Germany last year, making it one of the top 10 buyers of this raw material in our country. Since the Southern Gas Corridor that delivers Azerbaijani gas to Europe was launched, Uniper has been one of the main buyers on the market. However, although energy resources account for the lion's share of Azerbaijan's exports, domestic businesses have increased cooperation with German companies in recent years in food, petrochemicals, and non-ferrous metallurgy, as well as in the promotion of tourism and transport services.

There are hardly any economic areas in which the two countries have not been able to establish mutually beneficial business cooperation for the last 30 years since diplomatic relations were established. And this partnership is based on an extensive legal framework: the two countries have signed 77 documents, and seven more are under consideration. And no wonder, since in addition to the extensive trade, the two countries have also actively developed a manufacturing and technology partnership. It is not the first decade when German companies have been contractors for numerous projects in the oil and gas extraction sector and construction of power stations (in 2009 Siemens commissioned a 525 MW combined cycle power plant in Sumgayit), substations, and renewable energy facilities. Equipment and technologies for modernization of the domestic petrochemical complex, production of building materials, as well as agricultural, ferrous, and nonferrous metallurgy, mining, and transport sectors, were supplied from Germany to Azerbaijan. German business is very active in light industry, services, ICT, banking and insurance, implementation of purification technologies, other environmental initiatives, etc. Moreover, German companies are not limited to the role of technical consultants and equipment suppliers in some projects, they also act as investors or participants in joint ventures. Overall, there are over 200 German companies registered in Azerbaijan, and about 170 of them are members of the Azerbaijan-German Chamber of Commerce.

Further prospects for Azerbaijani-German business cooperation were discussed during President Ilham Aliyev's visit to Germany these days, in particular during his talks with German President Frank-Walter Steinmeier and Federal Chancellor Olaf Scholz.

Amid the geopolitical crisis in Ukraine and the breakdown of traditional transport and logistics links in the vast Eurasian space, Baku and Berlin are particularly keen to further bolster cooperation on transport projects. "Last year, the transit of goods through Azerbaijan increased by more than 75 per cent. Today we allocate additional funds to expand the capacity of our seaports and railway infrastructure, and, of course, we hope that our partners in this area will be German companies," the Azerbaijani leader stressed.

Cooperation between the two countries also looks promising in projects to restore Azerbaijani territories liberated from Armenian occupation. In particular, this topic was discussed at the ninth meeting of the Azerbaijani-German high-level trade and investment working group in Berlin, and German companies were invited to participate in infrastructure and investment projects in Karabakh. This process is gradually gaining momentum: a German company has taken part in the construction of the Fuzuli airport. In turn, the working group, headed by co-chairs - Azerbaijani Deputy Economy Minister Sahib Mammadov and Trade Director of the Federal Ministry of Economy and Climate Protection Dominic Schnichels, discussed opportunities for German companies to operate in Azerbaijani industrial clusters and the Alat Free Economic Zone. As a matter of fact, these processes had already started last September: Alat FEZ opportunities were presented to a number of German specialized companies, including SAP and Siemens Mobility, presentations were also organised at the Federal Association of Economic Development and Foreign Trade of Germany, the Association of Independent Industrialists and Business People (MÜSİAD Berlin), etc.

Industrial cooperation is generally regarded as the most sought-after and promising area of Azerbaijani-German business relations, and real progress has been made recently here as well. It is worth mentioning two major industrial projects that are currently being implemented: State Oil Company SOCAR and its partner - German gas trader Uniper SE, which established a joint venture SOCAR-UNIPER, are expected to complete a project for upgrading the steam and power generation complex at the ethylene-polyethylene plant of Azerkimya in Sumgayit in the summer of 2023. Another capital-intensive manufacturing venture is also promising: in July 2022 Azerbaijan Industrial Corporation (ASK), Azeraluminium LLC, and German company Achenbach Alpha GmbH signed a contract for the establishment of a joint venture and construction of a plant for the production of aluminum rolling. The two phases of the project will bring the production of aluminium up to 105,000 tonnes per year and enable the production and export of alumina. The total investment cost of the project is estimated at $451.2m with $132m invested in the first stage.

The working group also discussed in Berlin the further development of cooperation in the fields of alternative energy, "smart" technologies, and transport projects. German companies are interested in the development of the huge potential of Azerbaijan in the field of renewable energy sources (RES) and are ready to offer the most advanced technologies in solar power generation, wind energy, and the production of green hydrogen. The German business community has also expressed a desire to participate in projects such as the development of sustainable and energy-efficient smart cities with renewable energy elements and IoT (Internet of Things) solutions in the residential and municipal sectors. Among promising undertakings is the participation of German companies in projects to digitalise the economy, modernise the water supply system and develop the Baku metro.

Caliber.Az