World Bank: Bet on Azerbaijan's "green" economy Review by Caliber.Az

The pandemic, food, and energy crises observed for the last three years, the consequences of which were aggravated by the Russian-Ukrainian war, significantly reduced the activity of international financial institutions (IFIs) in the post-Soviet space. Having timely assessed the new trends, Azerbaijan is now actively cooperating with donor organizations to attract soft financing to "green" energy and industry, innovative initiatives, as well as joint projects in the Karabakh region.

The World Bank (WB) is very active in these areas: its new country priorities were announced during the visit of the WB Regional Director for the South Caucasus Sebastian Molineus to Baku, which ended on December 9.

Azerbaijan has been a full member of the World Bank since 1992: over the past three decades, our country has received about $4 billion of soft loans for 50 projects implemented in the country by this donor structure. With the WB financial support numerous initiatives aimed at the development of the agricultural sector and rural communities, development of water infrastructure, transport sector, mining sector, and energy were implemented; assistance was rendered for the realization of various institutional reforms of the government, implementation of advanced legislation, etc.

Nevertheless, in the last two years, given the series of global crises and changes in the market environment, most IFIs have begun to change their funding structure, diversifying credit flows within the post-Soviet space. The new priorities of international donor structures are based on the fact that Azerbaijan has partially reduced the demand for long-term financing of capital and infrastructure projects, including traditional energy and oil and gas logistics. Accordingly, in the medium term, IFIs are shifting the focus of the financial vector to projects in the field of alternative energy and energy efficiency, solid waste management and creation of an industry for environmentally friendly recycling of recyclable materials, rehabilitation of polluted areas, economic diversification to develop "green" innovation, supporting initiatives in digital transformation, forming the basis of Industry 4.0.

These new trends affected the visit of the WB delegation to Baku on December 7-8: the country reports of the Bank were presented to the government of the republic, and the currently implemented and planned projects were discussed. During the visit, formal meetings were held, and presentations on "Azerbaijan: on the way to green growth" and "Economic memorandum on the country".

In the coming months, the WB and the government will start preparing a new medium-term strategy for partnership, during which the basic directions of cooperation for the next five years will be outlined, and specific projects to be included in the work plan will be considered.

It is expected that a certain agreement on the country's strategy will be reached by the spring of 2023. However, the basic directions in financing and technical support of which the World Bank and donor structures belonging to its financing group, including the International Finance Corporation (IFC), are already outlined today. "One of the WB's main tasks in cooperation with Azerbaijan is to support the country on the way to green transition, which opens new opportunities for economic diversification of the country", Sascha Eichberger, senior WB specialist for the environment and climate finance, stressed recently at the presentation of the report "Azerbaijan: on the way to green growth". According to him, the WB experts analyzed the consequences of climate change and other factors, and then provided recommendations for successful profile reforms and studies in Azerbaijan. So, in the prospect, the production and export of low-carbon hydrogen fuel and the development of wind energy in the Caspian region can play an important role in the development of the country, and the Ministry of Energy is developing profile roadmaps with the support of IFC experts (WB department).

The WB is ready to support our country in the field of development of the road map on the expansion of "green finance" opportunities. According to Eichberger, state support for "green investment" instruments can bring stability to capital markets and financial institutions, and take a key role in combating social and environmental problems in the short term.

Earlier the WB expressed its readiness to participate in the implementation of projects in the field of "green" economy and energy in the liberated territories of Azerbaijan. The prospects of "green" initiatives were examined this spring during the visit of a mission of experts from the UN and the World Bank, as well as the European Union, who evaluated the needs for rehabilitation and reconstruction in the liberated territories of Azerbaijan on the basis of the World Recovery and Development Assessment (RPBA). The mission visited areas liberated from occupation in the Aghdam, Fuzuli, and Jabrayil regions.

At the same time, in February this year, the WB together with the relevant EU organizations signed an Administrative Agreement on the Instrument of Operational Technical Assistance (AZTAF) with the allocation of grant assistance to the government of Azerbaijan with a total budget of 5.25 million euros. Among other things, the program includes components for the development of green energy in the Karabakh region.

These directions are the most important component of the strategic program "National priorities of socio-economic development: Azerbaijan 2030" and the "Strategy for socio-economic development of Azerbaijan 2022-2026", adopted at the beginning of the year. According to WB regional manager Sara Michael, the Bank will support Azerbaijan in the implementation of a number of initiatives of the state strategy outlined for the period until 2026. "The Smart Cities and Villages projects implemented by the Azerbaijani government in Karabakh contribute to economic activity in the agricultural sphere and help level out urbanization processes," Michael said at the international conference "Innovative Approach to Urban and Rural Development: Smart Cities and Villages" held in November, stressing that the population of "smart" villages will not aspire to cities, as such settlements will provide jobs and all necessary information resources, including for effective education, as well as the creation of new jobs. All of this is important to accelerate the implementation of the Great Return strategy.

"Currently, the government is discussing the issue of WB participation in financing projects in Karabakh, and, in principle, the bank has expressed its willingness to provide such support," Finance Minister of Azerbaijan Samir Sharifov said. Earlier President Ilham Aliyev also expressed the need to cooperate with the World Bank in the matter of attraction of loans on special concessional terms to finance Karabakh recovery projects. The issue was also discussed in September 2022 in Baku during the meeting of the head of state with the WB regional vice-president for Europe and Central Asia Anna Bjerde.

In the future, the WB intends to support priority projects on the development of a "green" economy, IT start-ups, IoT technologies, and other elements of the digital society in other regions of Azerbaijan. In particular, the republic will be supported to develop human potential - the most important condition for successful implementation in the field of a "green" economy, the use of IT technologies in the future "smart" villages and cities, and the implementation of other innovative projects.