Baku, Tashkent boosting agro-industrial cooperation Review by Caliber.Az

Large-scale reforms implemented in Uzbekistan and Azerbaijan, participation in integration endeavors of the Organization of Turkic States (OTS), and regional transport set the stage for the expansion of business cooperation between the two countries. While actively boosting trade, in the last two years Baku and Tashkent have embarked on joint projects in the automotive industry, agrarian sector, and light industry. Prospects for the development of Azerbaijani-Uzbek business ventures were discussed during the March 1 meeting of Azerbaijani President Ilham Aliyev with Uzbek President Shavkat Mirziyoyev, who arrived in Baku to attend the Non-Aligned Movement's Contact Group summit in response to COVID-19.

Until about five years ago, economic relations between Azerbaijan and Uzbekistan were largely limited to participation in Silk Road transport projects and relatively limited bilateral trade. Against the backdrop of large-scale transshipment of hydrocarbon raw materials and non-commodities, including transit goods, Azerbaijan's trade and economic relations with Kazakhstan and Turkmenistan looked much more ambitious. However, the situation began to change radically with the beginning of market reforms and the policy of openness and regional integration pursued by Uzbek President Shavkat Mirziyoyev, as well as the reciprocal efforts of the Azerbaijani government to expand economic ties with Central Asian (CA) countries.

"There is very active interaction in all directions, and 2022 was a record year for the development of relations between our countries. I have visited Uzbekistan three times and new ideas and projects were discussed. Today in the sphere of industrial cooperation, agriculture, urban development - in all areas there are processes, which should be implemented between the brotherly countries," President Ilham Aliyev said during a meeting with the leader of Uzbekistan on March 1.

In recent years, the friendly relations between Uzbekistan and Azerbaijan have acquired a strategic depth, and this has helped boost the dynamics of business initiatives. A large-scale treaty and legal base comprising more than 130 interstate, intergovernmental, and interdepartmental agreements have served as a basis for this. Last year President Ilham Aliyev visited Uzbekistan three times - as part of a state visit, as well as to attend summits of the Organisation of Turkic States and the Shanghai Cooperation Organisation. During that period, a number of important documents were signed between the two states, including a Declaration on deepening strategic partnership and expanding all-round cooperation, and an intergovernmental agreement on creating a joint investment fund with a capitalisation level of $500 million to implement promising industrial and agrarian projects.

The effectiveness of recent trends is best illustrated by trade statistics: while Azerbaijan's trade turnover with Uzbekistan was a relatively small $31.2 million in 2017, last year it reached $182 million, having increased by more than half compared to the previous year's level. At the same time, the two countries aim to increase bilateral trade to $1 billion over the next five years.

However, the main result of these efforts has been a qualitative change in the structure of Azerbaijani-Uzbek business ties, where the emphasis has begun to shift towards the implementation of joint production with a significant investment component. Thus, the number of joint ventures has quadrupled: a total of 238 enterprises with Azerbaijani capital operate in Uzbekistan, including in trade, mechanical engineering, metalworking, finance and insurance, real estate, energy, jewelry, food and light industry, pharmaceuticals, and services. In turn, there are 53 Uzbek companies operating in Azerbaijan, with which numerous projects are being implemented.

"Our countries have a huge potential for cooperation, Baku and Tashkent are working on joint projects worth $800 million," President Shavkat Mirziyoyev said during a meeting with President Ilham Aliyev. In particular, the head of Uzbekistan noted that a big project in the oil and gas industry is being prepared with the State Oil Company of Azerbaijan (SOCAR), and today its feasibility study is being developed, as well as a serious result on joint initiatives in the automotive industry, the agreements on the development of the cotton cluster and in several other areas will be reached soon. Particularly, in February this year a memorandum of understanding and cooperation agreement was signed between AzerGold CJSC and Uzbekistan's Ministry of Mining and Geology to conduct joint exploration and development of gold and other precious metals deposits in Uzbekistan. A memorandum of understanding between Mega Invest Industrial and NABUCCO A&C and a cooperation agreement between Cahan Industrial Complex LLC and Azimut Plus were also concluded.

However, the most effective cooperation between Baku and Tashkent is currently underway in the automotive industry: the joint venture (JV) of "SamAvto" LLC, created by the Uzbek company UzAuto Motors and the Azerbaijani JSC Azermash, launched a semi-knocked down assembly production of Chevrolet cars in the Hajigabul industrial quarter on September 17, 2021. In the first stage, the assembly of Chevrolet Nexia, and Chevrolet Cobalt models started here, and in the second stage - Chevrolet Lanos and Chevrolet Labo, and later on Chevrolet Onix and Tracker models will be added to them. The Hajigabul plant currently produces around 2,700 units of Chevrolet vehicles.

"Soon, a serious result will be achieved in car production: these are new models of cars of a completely different quality, the production of these cars will begin in March this year and will be increased in September," said President Shavkat Mirziyoyev. In 2023, the joint venture participants have set a goal to increase production to five thousand cars by transitioning from semi-knocked down assembly to a full production cycle, including the localisation of automotive components, such as dashboards, exhaust systems, chassis components, and so on. At the same time, UzAuto Motors has recently launched production of a new car model Chevrolet Onix - production of 50,000 such cars is scheduled for 2023, and moreover, the company plans to establish assembly of the model at the Azermash plant by late March. At that, the localisation of car assembly in Azerbaijan is not oriented only to meet domestic demand - given the republic's location at the crossroads of Europe and Asia, supplies of Chevrolets assembled in Hajigabul could be carried out in neighboring countries in the future. To this end, Baku, Tashkent, and Astana are making efforts to form an automotive industry conglomerate, and Uzbek company UzAuto Motors, Azerbaijani company Azermash and Kazakh company Saryarka Automotive LLP have already agreed to strengthen cooperation to assemble Chevrolet cars from Uzbek-made components. In the future, the participation of the two countries in the conglomerate will help to pursue a balanced pricing policy, strengthen horizontal communication in the automotive industry of the three countries, and expand localisation of production. In particular, over time, the production of materials and components required for auto assembly (for example, rolled steel and aluminium, polymers, plastics, and chemical fibres) may be set up in Azerbaijan and Kazakhstan, where petrochemical and metallurgical industries are well developed.

Another key area of business cooperation between the two countries has been the expansion of transport and logistics activities. Landlocked Uzbekistan is extremely interested in participating in transit routes to Türkiye and Europe through Azerbaijan, and in recent years Uzbek shippers have been actively using the potential of the Baku-Tbilisi-Kars (BTK) railway corridor and Baku International Sea Trade Port in Alat. Already in 2021, the volume of freight traffic on this route has doubled, and last year several block trains with container cargoes of Uzbek industrial enterprises passed through. In the spring of last year, the railway authorities of the two countries set up a working group to increase the transshipment of cargo, especially container trains, as part of the multimodal route: Asia-Pacific countries - China - Kyrgyzstan - Uzbekistan - Turkmenistan - Azerbaijan - Georgia - Türkiye - Europe.

Investment-technological cooperation between the two countries in the production and processing of agricultural raw materials is also seen as significant: the largest producer of cotton-cleaning equipment in Central Asia, Uzbek company "PAHTAMASH" plans to build a primary cotton processing plant in Azerbaijan, as well as provide assistance in training highly qualified personnel in the cotton industry. In the future, "PAHTAMASH" is ready to equip the factories to be built in the Karabakh region. At the same time, talks are underway with investors and the relevant associations in Uzbekistan - Uzbekipaksanoat and Uztekstilprom - to establish a silk-production and textile cluster in our country.