IFC to engage in formulating new WB Partnership Framework for Azerbaijan - Director

Trend's exclusive interview with Wiebke Schloemer, IFC Director for Europe and Central Asia

Question: Which spheres are in focus of the IFC’s partnership with Azerbaijan at the moment?

Answer: One of IFC’s strategic priorities in Azerbaijan is to support the country’s shift to a new growth model led by the private sector. This would support the country’s efforts to diversify away from oil and gas, while creating jobs and stimulating economic growth. As part of the efforts, IFC will engage jointly with the World Bank in formulating the new the World Bank Group’s Country Partnership Framework.

To support Azerbaijan’s non-oil economy, IFC continues to help create a conducive business environment to make it easier for companies to do business and make investments in the country. This includes a long-standing cooperation for the past decade, which over the past several years focused on the development of a new legislative framework on investments and strategy for investment promotion, as well as several legislative and regulatory initiatives focusing on agriculture, small and medium enterprises (SMEs), tourism, food safety, inspection, licensing and other areas of business activity, including reforms related to Doing Business indicators.

These initiatives are being implemented within several cooperation agreements and memorandums signed between IFC and relevant government agencies, including the Ministry of Economy, Agriculture, Labor and Social Protection, Food Safety Agency, State Commission on Improvement of Business Environment and International Rankings and Center for Economic Reforms Analysis and Communication. The work is part of IFC’s Azerbaijan Investment Climate and Agribusiness Competitiveness project implemented in partnership with the Swiss State Secretariat for Economic Affairs SECO and the Austrian Federal Ministry of Finance.

In addition, with advice from IFC, the government of Azerbaijan has implemented a series of regulatory reforms to improve the country’s financial infrastructure and enable more small businesses to access credit.

As part of these efforts, the government adopted a modern law on credit bureaus, enabling the creation of the country’s first private credit bureau in 2018. That has helped improve the quality and range of credit information, reducing financial institutions’ risks and facilitating more lending.

IFC has also helped develop a secured transactions law that allows small businesses, which often lack assets like real estate, to use their movable assets, including inventory, accounts receivable, and equipment, as collateral. As a result of the reform, a movable collateral registry was created.

That work was driven by the Azerbaijan Financial Infrastructure Advisory Services project, a 10-year effort implemented in partnership with SECO.

Increasing the reach and breadth of financial services to people who currently have limited or no access to these services on a massive scale is one of IFC’s objectives. While digitalization presents tremendous opportunities and challenges, IFC actively champions and supports responsible, innovative solutions to reach unserved and underserved populations at scale. We help financial institutions leverage technology to serve market segments that are too costly to reach with traditional banking.

In sync with the times, IFC’s Electronic and Digital Financial Services project — in partnership with SECO — works to promote financial inclusion by improving access to digital financial services for individuals and smaller businesses, helping them grow and create jobs.

As part of the efforts, IFC works on an agent banking initiative with Azerpost, which along with postal services, offers financial services under a limited banking license. The cooperation helps Azerpost provide selected financial services as an agent of other financial institutions and educate its customers on how to use digital financial services. The initiative will make it easier for individuals and small businesses, especially those in rural areas with no access to bank branches, to make payments and get access to basic banking services electronically, without having to visit banks.

IFC continues to explore opportunities for direct investments in private sector companies in the country as well as in financial institutions for on-lending to SMEs.

Going forward, we are keen and well positioned to support the government in structuring pilot public-private partnership projects.

Q.: What is the volume of investments made by IFC in Azerbaijan since the start of the cooperation?

A.: For a sustainable and inclusive economy, IFC leverages the private sector’s power to help diversify Azerbaijan’s economy, create jobs, and boost growth. IFC has been supporting the country’s private sector for over 25 years, investing close to half a billion USD, including mobilizing funds from other lenders, in various sectors such as tourism, retail, processing, oil and gas, banking, and micro, small, and medium enterprises (MSMEs). In addition, IFC has supported around $100 million in trade through its trade finance program and provided $250 million for the Baku-Tbilisi-Ceyhan pipeline.

Providing advice is a critical part of IFC’s strategy to create markets and mobilize private investment. Through this work, we help establish the necessary conditions that will attract private capital, enabling the private sector to grow. For many years, IFC’s investments in Azerbaijan have been complemented by a range of advisory projects, thereby building capacity within the banking sector in various areas, including on-lending to MSMEs; supporting the development of financial market infrastructure; promoting good corporate governance and improving business environment.

IFC has helped Azerbaijan implement a series of regulatory reforms. This has allowed more small businesses in the country to register through a one-stop shop for business registration, to obtain licenses and permits, and access credit.

The State Oil Fund of the Republic of Azerbaijan (SOFAZ), Azerbaijan’s sovereign wealth fund, has committed $350 million to three funds managed by the IFC Asset Management Company. Through this cooperation, SOFAZ can steward Azerbaijan’s oil wealth to benefit future generations in Azerbaijan and support development in emerging markets.

Q.: Could you please provide some details about your cooperation with Azerbaijan in the energy sphere? Is IFC ready to support Azerbaijan in the implementation of new energy projects? Azerbaijan is very actively engaged in developing its renewable energy sphere as well. How could IFC assist Azerbaijan in its renewable energy transition process?

A.: We are interested in supporting Azerbaijan’s energy transition through both investments and advisory services. At IFC, we believe that efficient use of renewable energy is at the heart of sustainable development. This is good news for Azerbaijan because an analysis from the World Bank’s Energy Sector Management Assistance Program (ESMAP) found the technical potential of the country’s offshore wind energy is up to 157 gigawatts. This represents immense potential when compared to the country’s total installed capacity of around 8 gigawatts.

By unleashing this potential and transitioning away from oil and gas, the country can reduce both its greenhouse-gas emissions and vulnerability to volatile fuel prices. The development of offshore wind generation is also expected to spur competition in the power sector and strengthen Azerbaijan’s infrastructure.

Just recently, IFC has signed an agreement to help Azerbaijan expand its offshore wind energy sector, which would in turn support the country’s energy resource diversification strategy. IFC’s work is part of its joint initiative with the World Bank’s ESMAP to scale offshore wind energy in emerging markets.

As part of the cooperation, IFC will initially work with the Ministry of Energy to create a roadmap for the industry.

As we progress, we expect to continue our collaboration with the Ministry of Energy to support preparation of projects for potential private sector involvement in offshore wind generation — partnerships that could help turn Azerbaijan into a renewable energy powerhouse.

I am glad that our first phase of cooperation with the Ministry of Energy is going well. Our teams have had a productive discussion with the team in the ministry on the scope, timing, and options for offshore wind development.