Azerbaijan, IDB outline new vectors of cooperation Analysis by Caliber.Az

Azerbaijan's sustainable economic growth and position as an energy and transport hub in the Caspian region has been in the limelight of international donors for decades. Our country has been successfully cooperating with one of such structures - the Islamic Development Bank (IDB) for almost 31 years and during this period the Bank has provided funds for various projects for more than one billion US dollars.

According to the country programme, in the coming years, the bank plans to beef up financing for green energy, transport, ICT, participate in the reconstruction of liberated regions, etc. Aspects of cooperation with the IDB were discussed in Baku the previous day during the meeting of representatives of the Ministry of Energy of Azerbaijan with a delegation of the Islamic Corporation for Insurance of Investment and Export Credits (ICIEC).

Founded in December 1973, the Islamic Development Bank is now recognised as the main international financial structure providing concessional lending to the countries of the Islamic world, in particular loans and technical assistance for capital-intensive, energy, infrastructure, industrial and agricultural projects, as well as fully supporting Islamic financing mechanisms. The IDB is headquartered in Jeddah, apparently because Saudi Arabia is the largest shareholder among the 57 member states of the IDB.

Since Azerbaijan gained full membership in the IDB structure in 1992, our country has received over $1.2 billion in loans, grants and technical assistance to implement nearly seven dozen transport, energy, infrastructure, financial, agrarian and other projects covering social sphere, water supply, ecology, trade and private business.

The Islamic Development Bank directly accounted for the bulk of financing - $956 million, while the rest of the country portfolio - a total of about $315.5 - was provided by the Islamic Corporation for the Development of the Private Sector (ICD), the International Islamic Trade and Finance Corporation (ITFC), as well as other IDB funds and branches.

The main donor structure of the Islamic world is among the four leading global financial organisations (IFIs) along with the World Bank, the European Bank for Reconstruction and Development and the Asian Development Bank in terms of financing socio-economic and infrastructural initiatives in Azerbaijan.

IDB's activity in Azerbaijan has slightly decreased in recent years due to the post-crisis (energy crisis 2014-2018) policy of the government to limit external borrowing and attract loans only for projects of strategic importance. The difficulties of the pandemic period also had a negative impact on the dynamics of cooperation. However, despite the above challenges, in 2019-2022, the IDB's active portfolio in Azerbaijan totalled about $265 million and included three projects.

These are the rehabilitation of water supply and sewerage systems in six cities (Astara, Dashkesan, Tartar, Gadabay, Samukh and Gazakh), integrated development of irrigated agriculture and technical assistance for preparation of the legal framework for Islamic finance. Thus, Azersu OJSC became the main beneficiary, which attracted the main volume of Islamic Bank financing - $200.05 million for the improvement of the water supply and sewerage system.

In August this year, one of the components of the project was completed: the water and sewerage infrastructure of Gazakh city was modernised, where 83 km of sewerage network and 3.8 km of collectors were constructed, and a water treatment plant was built.

In this area, a water distribution network 119 kilometres long was put into operation, 9 kilometres of main water supply lines were stretched, 12 sub-artesian wells were drilled, two water reservoirs with a total capacity of 10,000 cubic metres were built, etc. In general, 45 thousand residents of Gazakh district benefited from this project, including 26 thousand subscribers of the city provided with clean water.

It is noteworthy that since the beginning of this year, the structures belonging to the Islamic Development Bank Group showed an increased activity: during repeated visits to Azerbaijan and meetings at the governmental and departmental levels, the Bank's representatives have expressed their desire to participate in large-scale endeavours implemented in our country.

The meeting of Azerbaijani Energy Minister Parviz Shahbazov with the delegation of the Islamic Corporation for Insurance of Investment and Export Credits (ICIEC), headed by its director Osama Al-Qaisi, held in Baku the previous day was another step in this direction. The key topic of the talks with ICIEC (a member of the IDB group) was the development of renewable energy sources (RES) in our country and the prospects of attracting financial resources from the Islamic Bank to this sphere.

Among other things, the IDB is interested in financing the Green Energy Corridor project, which envisages laying a power cable along the bottom of the Black Sea, which will pass through Azerbaijan, Georgia, Romania and Hungary.

During the talks, ICIEC delegations provided detailed information on the strategic goals reflected in the "National Priorities of Socio-Economic Development: Azerbaijan 2030", on projects implemented in the territories of the country liberated from occupation, including plans to create a "green energy" zone in the Karabakh region and, in general, to develop the RES segment in our country.

It is noteworthy that in January this year, ICIEC accepted Azerbaijan as its 49th member state, and along with the energy cluster, the structure intends to work closely with the government of the republic in projects on the development of economic and social infrastructure, trade, agriculture, municipal infrastructure and urban services, as well as with the private sector - to improve its access to financing. To date, ICIEC has provided Azerbaijan with $92.5 million in business insurance and $75.5 million in new insurance liabilities.

It should be noted that active cooperation with ICIEC, acting as an investment partner, provides certain confidence and encouragement to other potential investors looking for business opportunities in our country. Azerbaijan's full membership in the ICIEC structure provides the private and public sectors with access to modern risk mitigation and credit enhancement solutions offered by ICIEC. At the same time, these opportunities will expand the country's export potential by facilitating the inflow of foreign direct investment.

In general, during the numerous visits of IDB delegations this year, the basic directions of cooperation for the medium term were formulated: along with promising investments in the RES sector, the IDB's readiness to participate in financing the revival and development of the Karabakh region and the creation of sustainable infrastructure in the territories liberated from occupation was noted.

Among other directions, the possibility of attracting favourable funds from the IDB by the Small and Medium Business Development Agency (KOBIA), the Entrepreneurship Development Fund (SIF), and the Azerbaijan Investment Company (AIC), as well as expansion of cooperation between the Bank and the relevant structures of Azerbaijan in the field of digital economy, transport and ICT was mentioned.

In particular, among the projects under discussion is the possibility of financing aviation, railway transport, development of "cloud" technologies. It is also expected that IDB specialists will complete and present a plan for the development of the halal industry in Azerbaijan by the end of this year and organise a special seminar on this topic.