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I-2 To Move or Not to Move, This Is the Question of Political Regimes in South Caucasus

Oligopoly and Political Feudalization in Azerbaijan

Yu Tachibana (Hokkaido University)

tachibana.yu@gmail.com

Introduction

This article presents an analysis of the process of political feudalization in post-soviet

Azerbaijan. It is obvious that post-soviet transition was not to democracy, but to another types of

authoritarian regime (hybrid regime (Diamond, 2002), semi-authoritarianism (Ottaway 2003),

competitive authoritarianism (Levitsky and Way 2010), etc.). Azerbaijan is also pointed out its

authoritarian tendency (Guliyev 2005). Many scholars point to the importance of control over oil

resource for Azerbaijan’s regime stability. Azerbaijan’s economy grew rapidly after the year 2000

(table 1), because of its intensive oil exports. Oil and gas production, which accounted for only 20%

of Azerbaijan’s industrial production in 1991, made up more than 70% of total industrial production

in 2006 (Franke et.al 2009, pp. 120-121). Thus, Franke said Azerbaijan can be identified as

“post-soviet rentier state” as Kazakhstan.

1995 1996 1997 1998 1999 2000 2001 2002 2003

88.2 101.3 105.8 110.0 107.4 111.1 109.9 110.6 111.2

2004 2005 2006 2007 2008 2009 2010 2011 2012

110.2 126.4 134.5 125.0 110.8 109.3 105.0 100.1 102.2

The State Statistical Committee of the Republic of Azerbaijan

Table 1Growth rate of GDP relat ivety to prev ious year (%)

Rentier state theory is the idea that focuses on the relationship between external rents

(natural resources, foreign financial aid, transit rents for pipelines or foreign rents) and autocracy.

Rentier state financially depends on external rents, and get support from citizen by rent allocation. At

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the same time, rentier economy prevents from diversification of domestic economy (Matsuo 2004).

“Rentier state theory” and the idea of “Post-soviet rentier state” are very important for

understanding Azerbaijan’s “petro-state” character. However, there are two points we should

consider. First, we have to pay attention to the fact that “oil- boom” in Azerbaijan triggerd rapid

growth of non-oil sectors. Table 2 shows Azerbaijan’s GDP breakdown in each sector. From 2007

non-oil sectors grew rapidly. “Azerbaijan's high economic growth during 2006-10 was attributable to

large and growing oil and gas exports, but some non-export sectors also featured double-digit growth,

including construction, banking, and real estate1”. It is not correct to say that “non-oil sectors have

attracted little attention (Franke et.al 2009, p. 121)”.

2000 2001 2002 2003 2004 2005 2006

GDP total 4,718.1 5,315.6 6,062.5 7,146.5 8,530.2 12,522.5 18,746.2oil-gas sector 1,371.0 1,668.2 1,882.3 2,149.1 2,672.0 5,520.9 10,091.8non oil sectors 3,055.9 3,229.0 3,693.9 4,447.6 5,242.5 6,055.1 7,630.0

2007 2008 2009 2010 2011 2012*

28,360.5 40,137.2 35,601.5 42,465.0 52 082.0 53 995.015,914.2 22,251.3 16,065.5 20,409.5 25 829.9 24 509.610,576.1 15,197.3 16,726.0 19,179.0 23 196.1 26 165.4

The State statistical committee of the republic of Azerbaijan

GDP (current price, million manat)

Table 2oil sector and non oil sector in GDP

Second, although many scholars pay attention to “sectoral” asymmetrical development in

Azerbaijan, we should more consider about “regional” asymmetry. Azerbaijan have huge

development gap between the center (Baku) and periphery, aswe can see in table 3. Such economical

gap and highly centralized administrative structure form “double gap”, which affect goverment’s

ability to control against regions.

In the shadow of “non-oil-boom”, Azerbaijan economy is on track to oligopoly by a

handful of business groups.

1 CIA World Factbook [https://www.cia.gov/library/publications/the-world-factbook/geos/aj.html]

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2002 2003 2004 2005 2006 2007

Azerbaijan-total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Baku 71.79% 74.01% 74.61% 77.64% 79.59% 80.79%Ragions-total 28.21% 25.99% 25.39% 22.36% 20.41% 19.21%

2008 2009 2010 2011 2012

Azerbaijan-total 100.00% 100.00% 100.00% 100.00% 100.00%Baku 79.56% 78.00% 77.93% 72.61% 68.29%Ragions-total 20.44% 22.00% 21.64% 23.04% 25.28%State Statistical Committee of the Republic of Azerbaijan

Table 3National accounts

Product ion of goods by regions in main branches of economy (current prices, thsd. manat)

Oligopoly in Azerbaijan

November 2010 Wikileaks began on publishing leaked United States embassy cables.

There are some cables from US Baku embassy in these documents, and include documents titled

“WHO OWNS WHAT?”, which inform about some big business groups (oligarchs) in Azerbaijan2.

About the same time, such terms as “oliqarx (oligarch)”, “qruplaşma (grouping)”, “monopoliyalaşma

(monopolization)” were used increasingly in the local media. Recently some scholars focus on the

links between the structure of the economy and inter-elite relationships in Central Eurasia. One of

them, Junisbai (2010) argued that Financial Industrial Groups (FIGs) played a key role in

Kazakhstani politics in the last years, rather than “historical cleavages” such as inter-clan or

center-periphery rivalries. In Russia, FIGs, especially bank-leading (unofficial) FIGs, formed

oligarchy and affected politics in Yeltsin era. Azerbaijani FIGs are also controlled by banks.

However, it is very important that oil-gas industries in Azerbaijan are controlled by the president

through state companies, while Russian and Kazakhstani FIGs targeted Natural Resource-Related

Industries. It is the first feature that Azerbaijani FIGs are flourishing in non-oil sectors.

Appendix show prominent FIGs in Azerbaijan. Azerbaijan has a legal framework for FIG,

but I can’t identify such “official” FIG. Thus, in this paper, I pick up a group combined financial

companies with industrial capitals as an example of FIG.

2 For example, “10BAKU54, AZERBAIJAN: WHO OWNS WHAT? PART 1” [http://wikileaks.org/cable/2010/01/10BAKU54.html].

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When did Azerbaijani FIGs start breaking out in the country? Some groups note that their

flourish started from the mid-2000s in their corporate history. Jamil Muradov (Cəmil Muradov, Tahir

oğlu), the General Director of “Gilan Holding” said “since the establishment of the country's

sovereignty, transition to new market relations, adoption of necessary entrepreneurship laws, GILAN

ММС has significantly expanded its business activity and gained leading positions in the home

market…Following the Decree of President Ilham Aliyev "On State Programme on Social-Economic

Development of Regions for 2004-2008" dated February 11, 2004, GILAN ММС decided to make

its contribution to economic development of the regions in Azerbaijan”3. Local Media also reported

the beginning of the stage of oligopolization as “5-6 years ago4” or “5-10 years ago5”.

The Second feature of Azerbaijani FIGs is that government officials control or give the

protection for paticular FIGs. The Appendix table shows the linkages between government officials

and FIGs. In some cases, minister’s relatives own holdings. It is said that ZQAN Holding, the third

largest oligarchy in the country, was named after the familiy members of transport minister (Ziya,

Qənirə-wife, Anar-son, and Nigar-daughter) 6. Such a close connection between ministers and FIGs

results in the cozy relationship. The local media pointed out that ZQAN monopolized big projects of

the ministry of transport7. Thus, a ministriy’s jurisdiction is tightly connected with interests of FIGs

via minister who own FIGs.

Feudalization mechanism

“It is no longer the rare case that Azerbaijani oligarchs plunder regions like their properties.

High officials seeking to use their positions for making money were known as small owners at the

beginning. However today they have grown as larger owners who can control the whole regions.

Today people use the terms like “Kamaladdin Heydarov bank”, “Vasif Talibov8 factory”, and

3 “Gilan Holding on a Way to Stable Progress,” Caspian Energy, Vol. 42. [http://old.caspenergy.com/42/42_40_e.html], accessed January 25, 2011. 4 Ölkə qəzeti, February 18, 2011[http://www.olke.info/index.php?option=com_content&view=article&id=1390:nazirlrin-boelueduerdueyue-mmlkt&catid=47:guenuen-icindn&Itemid=95] 5 Yeni Müsavat qəzeti, August 23, 2009 [http://www.musavat.com/new/Gündəm/58839-ZİYA_MƏMMƏDOV_SUMQAYITI_ƏLƏ_KEÇİRİR] 6 Yeni Müsavat Qəzeti, May 11, 2011[http://www.musavat.com/new/Yazarlar/100250-BB]。 7 Azadlıq Radiosu, January 26, 2011[http://www.azadliq.org/content/article/1896083.html] 8 The head of Nakhchivan Autonomous Republic, from 1995.

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“Beyler Eyyubov9 restaurant”, to describe the regions10”. This is the result of feudalization of

Azerbaijan which emerged in recent years. The powerful “owner-ministers” affect the president's

power of appointment of the heads of local executive branches. For example, Rauf Habibov, the

head of Guba region until the beginning of 2012, was a reliable crony of the minister of transport,

therefore was appointed the head of the region where the minister “supervise”11. The powerful

ministers also affect the ruling party’s selection of the electoral candidates. The ministers invest in

“their regions” through “their FIGs” as the owners, and seek to control over the regional economy. In

this way, Azerbaijani oligarchs individually feudalize their country.

Conclusion

The political feudalization in Azerbaijan is the result of the centralization by “double gap”

in the economic and administrative spheres. The rapid growth of Azerbaijan economy from 2000

triggered “non-oil boom” from the mid-2000s. The president allocated non-oil sectors to the political

elite. In this context, FIGs owned by the powerful elite seek to oligopolize given sectors, and

nowadays, “owner-ministers” seek to supervise some regions politically and economically. Such new

political-economic interests are making new dynamics of inter-elite relation.

References

Diamond, Larry (2002) Thinking about Hybrid Regimes, Journal of Democracy, Vol. 13, No. 2, pp.

21-35.

Franke, Anja, Gawrich, Andrea and Alakbarov, Gurban (2009) Kazakhstan and Azerbaijan as

Post-Soviet Rentier States: Resource: Incomes and Autocracy as a Double 'Curse'in

Post-Soviet Regimes, Europe-Asia Studies, vol. 61, No. 1, pp. 109-140.

Guliyev Farid (2005) Post-Soviet Azerbaijan: Transition to Sultanistic Semiauthoritarianism? An

Attempt at Conceptualization, Demokratizatsiya, Vol. 13, No. 3, pp. 393-435.

Junisbai, Barbara (2010) A Tale of Two Kazakhstans: Sources of Political Cleavage and Conflict in

9 The head of the presidential guard, from 1993. 10 See note 5. 11 Vətəndaş Həmrəyliyi, October 16, 2010, [http://www.vhpress.az/index.php?mod=article&cat=Gündəm&article=475&page_order=1&act=print].

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the Post-Soviet Period, Europe-Asia Studies, Vol. 62, no. 2, pp. 235-269.

Levitsky, Steven and Way, Lucan A. (2010) Competitive Authoritarianism: Hybrid Regimes after

theCold War, Cambridge University Press.

Matsuo, Masaki (2004) Rentier kokkaron to wanganshokokuno “minshuka”(Rentier state theory and

‘democratization’ of Gulf states), Gendaino chuto, No. 37, pp. 19-31.

Ottaway, Marina (2003) Democracy Challenged: The Rise of Semi-Authoritarianism. Washington,

D.C.: Carnegie Endowment for International Peace.

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Appendix:Prominent FIGs in Azerbaijan