Export to Azerbaijan

The Russian Federation is a key foreign trade partner of the Republic of Azerbaijan.

The Republic of Azerbaijan has a commodity export structure similar to Russia. About 88% of it is occupied by goods of the 27th group – oil and oil products. However, this does not hinder active trade cooperation between our countries. According to the results of 2020, it was Russia, despite Azerbaijan's close ties with Turkey, that became the main importer for the Transcaucasian country with a share of over 18%. Of course, this is largely facilitated by the common economic space inherited from the former USSR, but it is encouraging that even after 30 years, cooperation and foreign trade between the countries are actively developing. How Russian businesses not yet operating in the Azerbaijani market can participate in this process is discussed below.

Established Practice of Foreign Trade between Russia and Azerbaijan

The Russian Federation and the Republic of Azerbaijan are significant foreign trade partners for each other.

As noted above, Russia is the main importer in Azerbaijan (in 2020, Russia's exports to Azerbaijan amounted to 2075 million US dollars). At the same time, Azerbaijani goods are far less important for the Russian market, which is logical given the scale of the countries. In 2020, Azerbaijan ranked 43rd in the ranking of countries importing goods to Russia, equivalent to 814 million US dollars. Thus, Russia had a positive trade balance of 1261 million US dollars.

What main commodity groups do domestic companies export to Azerbaijan? There are quite a few; let's consider the most significant ones.

Firstly, these are cereals. The export amount was over 307 million US dollars (15% of the total volume of Russian product supplies to Azerbaijan). The main contribution came from wheat (285 million US dollars). Other significant types of cereals are barley (10 million US dollars), corn (8 million US dollars), and rice (5 million US dollars).

The second export item is electrical machines and equipment (177 million US dollars or 9% of the export structure). In this commodity group, communication equipment leads (86 million US dollars), followed by monitors and projectors (45 million US dollars), and transformers (9 million US dollars).

In third place, with a slight gap, is wood and wood products (175 million US dollars or 9% of exports). Azerbaijan actively purchases sawn wood from Russia (95 million US dollars), plywood (30 million US dollars), particle board (21 million US dollars), and fiberboard (14 million US dollars).

Ferrous metals ranked 4th in 2020 (168 million US dollars or 8% of total exports). Mainly, Azerbaijani industry requires non-clad rolled products (55 million US dollars), iron and non-alloy steel bars (54 million US dollars), and clad rolled products (18 million US dollars).

In fifth place in the export structure is mechanical equipment (91 million US dollars or 4%). The main commodity items are washing machines (24 million US dollars), refrigerators and freezing equipment (18 million US dollars), and pumps (11 million US dollars).

As seen from the data presented, the top five positions account for 45% of all imports of Russian products into Azerbaijan. These are primarily grain, engineering products, wood, and ferrous metals.

Among other important goods imported from Russia to the Azerbaijani market are fertilizers, animal fats and oils, ferrous metal products, sugar, paper, cocoa products, plastics, and pharmaceutical products.

Consequently, it is in these commodity markets that Russian entrepreneurs have the best prospects for importing products, but there are also many other niches worth considering.

It is also interesting to answer the question – what products mainly go in the opposite direction – from Azerbaijan to Russia – because it is logical to assume that they would be less in demand in the exporting country. In this aspect, import analysis is relevant.

The two leading groups are fruits and nuts (279 million US dollars) and vegetables (249 million US dollars). Totaling 528 million US dollars or almost 2/3 of all Russian imports from Azerbaijan. These are the traditional agricultural products that have been imported into our country from the Transcaucasus for many decades.

The contribution of other commodity groups is much less significant. We can mention oil refining products, plastics, as well as textiles, some processed plant and animal products.

Everything else is exported from Azerbaijan to Russia in relatively small quantities, therefore, it could potentially be of interest to Azerbaijani buyers.

Azerbaijan as a Promising Market for Russian Products

The promise of the Azerbaijani market for Russian products is confirmed by the established practice of export activity, described above. What are the reasons for such interest from our companies in the commodity markets of this country, and why is it so import-dependent on Russian products?

First of all, Azerbaijan is a sufficiently developed state, especially compared to other countries of the former Soviet Union. The country's population is approximately 10.2 million people. In this indicator, Azerbaijan is comparable to countries like Sweden or the United Arab Emirates. Speaking of the post-Soviet space, Ukraine has a larger population (about 44 million people), but doing business with this state is currently quite difficult for political reasons, as is the case with Uzbekistan (approximately 34 million people) and the Republic of Kazakhstan (about 19 million people).

In other countries, the population is smaller. In Tajikistan and Belarus, not by much – about 9.5 million people each, but Azerbaijan significantly surpasses others – Kyrgyzstan has 6.5 million people, Turkmenistan – 6 million people, and so on in descending order. It is worth noting that the two neighboring Transcaucasian countries – Armenia and Georgia – have a combined population of about 7 million people, which clearly speaks in favor of Azerbaijan as the most interesting market in the region.

However, if a Russian company is more focused on the industrial market rather than the consumer market, then an assessment of the industrial potential of countries through the indicator of industrial production volume is important.

The best in this indicator (excluding Russia) among the former USSR states is Kazakhstan (estimated at 163 billion US dollars in 2020), followed by Ukraine (106 billion US dollars), and in third place – Azerbaijan (92 billion US dollars). Thus, for companies focused on B2B markets, Azerbaijan is of significant interest as a country with a developed industrial sector.

We can also mention the relatively high solvent demand, characteristic of both the population and enterprises. This is evidenced by a number of data, but one can look at least at the last analyzed indicator. With a production volume comparable to Ukraine in value terms, Azerbaijan's population is 4 times smaller. This is largely due to the well-developed oil extraction and refining sectors, which form the basis of the state's industrial potential.

In recent years, Azerbaijan has shown the best economic growth rates among CIS countries. Assessments of the ease of doing business in the country are also quite high, and in this regard, it is second only to Georgia.

Despite all this, Azerbaijan shares a land border with Russia, logistics supply channels are well developed, which is also facilitated by the possibility of cargo transportation through the ports of the Caspian Sea, which both Azerbaijan and Russia possess.

Collectively, these and many other factors of the socio-economic development of the Republic of Azerbaijan determine good prospects for exporters from Russia offering quality goods in demand in both consumer and industrial markets.

Features of Exporting to Azerbaijan

Sales to the Republic of Azerbaijan are full-fledged exports (not as easy an option as with countries of the Customs Union), but there are many conditions that simplify this process for domestic producers. Looking ahead, the number of barriers here is small.

When importing Russian products into Azerbaijan, import duties are generally paid, but a significant number of commodity subheadings can be "cleared" at a zero rate. This gives certain advantages to Russian producers and must be analyzed when developing an export project.

The second feature is the high degree of socio-economic centralization of the country. According to various estimates, from one-fifth to a quarter of Azerbaijan's population lives in the capital, Baku, where the central offices of most companies determining the country's economy are located. Therefore, one way or another, almost all important business decisions are made in Baku, which simplifies the entry process for new players in terms of time and effort spent on travel, search, and negotiations with potential foreign partners. This also makes it organizationally and financially easier to conduct territory sensing.

The next topic to discuss is business culture and business communication.

The language of negotiations can be either English, Russian, or, of course, Azerbaijani. This depends on the specific situation, but a general trend is the gradual decrease in the number of country residents who speak Russian. Among the population over 40, Russian is common, but in younger age cohorts, it is much less common. Of course, the level of education, type of employment, and place of residence are determining factors. Russian, as well as English, is more often and better spoken by residents of Baku compared to the rest of the country, people with higher education, those running their own business (professional managers), or qualified specialists / middle managers.

A typical situation is that in business communications, there is a high probability of no problems communicating in Russian or English, but regarding sellers, taxi drivers, and other low-skilled workers, many of them only speak Azerbaijani, as they come from the provinces to Baku to earn money. In Azerbaijan, secondary education institutions are still divided into Azerbaijani and Russian sectors, and graduates of the latter type of schools know Russian and English quite well.

As a consequence of the above, for preparing commercial proposals, it is better to use the Azerbaijani language; this, among other things, can emphasize the seriousness of intentions and show respect, but materials in English and Russian may also be in demand, especially when dealing with B2B markets and technically complex products.

Communication with potential business partners in Azerbaijan is built quite traditionally for a country with a predominantly Muslim population but being secular in nature (with the vast majority of Muslims in Azerbaijan being Shia). That is, one should behave with dignity and not express offensive opinions on sensitive topics. This will be quite sufficient not to harm business negotiations.

There is also no pronounced gender discrimination in Azerbaijani business. In some sectors – medical or household services, food production – there are many female managers. However, in key industries – the oil sector, chemical complex, and the public sector – men, of course, predominate. And it is good if negotiations from the Russian side are also conducted by a man. But this is not a critical factor, especially compared to the Gulf countries, even advanced ones like the United Arab Emirates.

Negotiations in the Republic of Azerbaijan are not always easy, but with a prepared proposal, they can be very productive. Therefore, it is extremely important to prepare for them, at a minimum, by conducting a brief desk marketing research of the country's commodity market. This will allow forming a clear understanding of how it works and what pricing proposal will be adequate and competitive. If the proposal generates interest, the reaction can be very quick. In this case, it is necessary to provide feedback because the emotionality of counterparts also contributes to a quick loss of interest in the proposal if no response is given.

From the point of view of product distribution, one must be prepared that trading companies directly interacting with buyers, or end consumers of industrial products, are rarely ready for direct import. The import function is performed by separate companies specializing in this, and they are not always easy to find remotely. In such a case, involving intermediaries who know the market well and have the authority to organize negotiations may be justified.

As with other countries with an "Eastern" trade culture, direct and "live" contacts work well in Azerbaijan, facilitated by visits to the territory, as well as inviting potential partners as guests. This is helped by direct and reverse business missions, as well as exhibition events regularly held in Baku on the topics of main industries.

In conclusion, it can be noted that choosing Azerbaijan as a country for potential export of Russian products is often reasonable, and therefore, when prioritizing foreign markets, one should not forget about this option for developing export activities.