Oligopoly and Political Feudalization in Azerbaijan

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.
Table 1
Growt h rat e of GDP relativ et y t o prev ious y ear (% )
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
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
1
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)”.
Table 2
oil sector and non oil sector in GDP
GDP (current price, million manat)
GDP total
oil-gas sector
non oil sectors
2000
2001
2002
2003
2004
2005
2006
4,718.1
1,371.0
3,055.9
5,315.6
1,668.2
3,229.0
6,062.5
1,882.3
3,693.9
7,146.5
2,149.1
4,447.6
8,530.2 12,522.5 18,746.2
2,672.0
5,520.9 10,091.8
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 53 995.0
15,914.2 22,251.3 16,065.5 20,409.5 25 829.9 24 509.6
10,576.1 15,197.3 16,726.0 19,179.0 23 196.1 26 165.4
The State statistical committee of the republic of Azerbaijan
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]
2
Table 3
National ac c ount s
P roduc t ion of goods by regions in main branc hes of ec onomy
(c urrent pric es , t hs d. manat)
2002
A z erbaijan-t ot al
2003
2004
2005
2006
2007
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
B ak u
71.79%
74.01%
74.61%
77.64%
79.59%
80.79%
Ragions -t otal
28.21%
25.99%
25.39%
22.36%
20.41%
19.21%
2008
2009
2010
2011
2012
A z erbaijan-t ot al
100.00% 100.00% 100.00% 100.00% 100.00%
B ak u
79.56%
78.00%
77.93%
72.61%
68.29%
Ragions -t otal
20.44%
22.00%
21.64%
23.04%
25.28%
State Statistical Committee of the Republic of Azerbaijan
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].
3
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-boelue
duerdueyue-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_KEÇİR
İR]
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.
4
“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
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The head of the presidential guard, from 1993.
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=pri
nt].
10
5
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
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