China invests in Azerbaijan: new investment direction

On November 13, in Beijing, Azerbaijan Metal Company, a subsidiary of Dashkesan Demir Filiz LLC, and the Chinese company Sinosteel Equipment & Engineering Co., Ltd signed a contract to prepare a bank feasibility study for the construction of a hot briquetted iron (HBI) plant with a capacity of 2 million tons per year. The plant is scheduled to be commissioned in 2029, and production will reportedly be based on environmentally friendly technologies.

The development of the feasibility study is a key stage in the construction and subsequent operation of the GBJ plant, which is planned to be built on the territory of the Shamkir district. The total value of the contract is 1,510,000 dollars. The decision on financing the project will be made by international financial institutions based on the document being developed.

On the eve of the signing, the management of AzerGold CJSC, Dashkesan Iron Ore LLC (DDF) and Azerbaijan Metal Company LLC met with representatives of China Export & Credit Insurance Corporation (Sinosure) and Sinosteel Equipment & Engineering Co., Ltd (Sinosteel).

It should be noted that Sinosure is a Chinese export credit insurance corporation, which is an element of the "One Belt, One Road" initiative. The largest shareholder is the Central Huijin Investment State Investment Corporation. And Sinosteel is a Chinese state-owned company engaged in mining, trade, equipment manufacturing and engineering.

The institutionalization of the project began in August 2020, when Azerbaijani President Ilham Aliyev signed an order on measures in connection with the commissioning of the iron ore deposit in Dashkesan. By another order of the President of the country, DDF LLC, a subsidiary of AzerGold, began operating. The purpose of all these decisions was to ensure the commissioning of the iron ore deposit in Dashkesan in a short time and to provide raw materials for the production of high-quality metallurgical products. We are talking about products with high added value. According to preliminary calculations, the volume of necessary investments in the establishment of the enterprise should amount to 1.2 billion dollars.

In July 2021, President Ilham Aliyev visited Dashkesan district. During the trip, he gave an interview to national television, in which he touched upon specific plans related to the traditional development of iron ore deposits in Dashkesan. This area, the head of state stressed, will generate very large revenues. Thousands of jobs will also be created and dependence on imports will be reduced. In the previous five years alone (as of 2021 - ed.), the country spent 1.7 billion on the import of iron products. manats. Thus, the development of the industry will dramatically reduce dependence on imports, create a high-value chain, and increase export opportunities, President Ilham Aliyev said.

The mining, metallurgical and other industries of Azerbaijan have recently aroused great interest from the Chinese side. China invests in the country's metallurgy through cooperation, including the construction of a metallurgical plant and other projects, but there is no specific data on the volume of investments in this sector. Chinese companies are interested in participating in Azerbaijani industrial projects, for example, in the construction of a full-cycle metallurgical plant.

On the sidelines of the first Azerbaijan International Investment Forum held in September, President of the Chinese Association for Overseas Development He Zhenwei said that Chinese enterprises are showing growing interest in investing in Azerbaijan. Special attention, he noted, is being paid to waste-to-electricity recycling projects. One of the Chinese enterprises, one of the three world leaders in this field, has built more than 70 factories in China and has already agreed to build five facilities in Uzbekistan. Now it is planned to invest in the creation of a waste recycling plant in Azerbaijan, Mr. He said. The Chinese side is also interested in projects in the field of renewable energy, transport, logistics, and digitalization. The reason for this interest is, first of all, the favorable investment climate and the strategic role of Azerbaijan in the development of transit corridors. Both of these factors play an important role in the growing interest of Chinese companies. The head of the Chinese Association for Overseas Development refuted the popular opinion that Azerbaijan can only be interested in oil. In fact, there is a large field of activity for foreign investors.

In July, the international rating agency Moody's upgraded Azerbaijan's sovereign credit rating to Baa3 from Ba1, thus assigning the country an investment rating. The rating forecast was confirmed as positive. It was noted that the increase in the rating was the result of Azerbaijan's efforts to reduce the dependence of the economy and fiscal policy on the oil and gas sector.  Other factors also played a role.

20 Chinese companies representing 12 provinces of China have recently expressed interest in investing in Azerbaijan. Overall, China is currently the third largest investor in the world. The country's foreign investments have been among the three largest in the world for 13 years, their share in 2024 amounted to almost 12 percent of the global volume. Today, the Chinese side prefers non-oil industries, which coincides with Baku's priorities.

The total volume of China's direct investments in Azerbaijan from 1995 to the present day has amounted to almost 950 million dollars. As of the first seven months of this year, the trade turnover increased by 26 percent. More than 370 Chinese companies operate in Azerbaijan, and our country is China's largest trading partner in the South Caucasus. Azerbaijan is also investing in China. The two countries have signed several memorandums of understanding on investments in the digital economy, smart logistics, industrial digitalization, technological innovation, etc.

Returning to the project of the metallurgical enterprise, in which the Chinese side is interested in investing, we note that the plant will be built to meet the opportunities provided by the bowels of Azerbaijan. The confirmed reserves of iron ore in underground formations are estimated at about 190 million tons. That is, there is a potential for 15-year operation of the deposits. In 2023, the Dashkesan deposits were reassessed using modern technologies, and as a result, their potential was increased by 70 million tons.

China's investments can play the role of a driver in the development of Azerbaijan's metallurgical industry. The contract signed in Beijing in November is an important step in this direction.