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Azerbaijan: Energy, reforms, COVID-19 and optimism

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When Azerbaijan became the elected member of the United Nations Security Council in 2012-2013 for the first time in its independent history the achievement may have seemed surreal for this small country in the South Caucasus region. However, it was a long road for Azerbaijan to having overcome many imponderables along its way to make it to the top. Today Azerbaijan has managed to establish itself as an energy state, but not only the mere exporter of the crude, but also as the exporter of energy security. Azerbaijan is active on many international fronts and its trust on multilateralism, balanced and pragmatist foreign policy has earned it many friends and strengthened its partnerships.This piece aims to explore some important aspects of Azerbaijan’s current development, focusing first and foremost on energy and navigating from there to touching upon the reforms, then covering the country’s battle with COVID-19, alongside offering optimism from the bleak picture created by the pandemics.

Energy

Since the inception of its independence Azerbaijan has built reliable partnerships not only within its neighbourhood, but also with the EU, the U.S. and other countries in the West as well as East. Azerbaijan’s multi-vectored and pragmatic foreign policy, which is also very well aligned with its national (including economic) interests enabled it to build equally strong, well-thought and balanced relations with all partners. The only exception from this list is the neighboring Armenia, with whom Azerbaijan has no relations due to the existence of unresolved conflict over Azerbaijan’s Nagorno-Karabakh region. Azerbaijan’ s successful model of collaboration with its western partners has begot its ever-evolving energy cooperation with Europe. Together with some large multinational corporations that are its international partners in the West, Azerbaijan has established a successful model of energy cooperation through the construction of the Baku-Tbilisi-Ceyhan and the Baku-Tbilisi-Erzurum oil and gas pipelines—both of which transport hydrocarbons extracted from the Caspian Sea to international markets. It is on the cusp of commencement of the multimillion megaproject – the Southern Gas Corridor that stands as a valuable contribution to Europe’s energy security by not only being a mere provider of crude energy, but also by ensuring diversification of sources and routes. Azerbaijan’s energy strategy thus, during the last 25 years aimed at contributing to stability, cooperation and mutually beneficial partnerships in its neighborhood and beyond.The revenues acquired from Azerbaijan’s hydrocarbon resources have been channeled to the socio-economic development of the country; as a result, every aspect of Azerbaijan’s statehood has flourished.

Azerbaijan’s trajectory of becoming an “energy state” could be considered to be rather natural and therefore linear. The country became the motherland of the first industrially drilled oil well in the world in 1846. In 1899Azerbaijanwas the world frontrunner in oil production and refining and provided the half of oil production volume. It provided 75% of all fuel for the tanks, aircrafts and all sorts of artillery of the Soviet Army during the World War II in the fight against fascism. Azerbaijan has managed to become self-sufficient and economically independent state by virtue of its oil and gas projects upon the signature of the “Contract of Century” in 1994, despite the fact that it also had to deal with the occupation of its territories and bear the socio-economic burden of large army of refugee and IDP population created in the consequence of Armenia-Azerbaijan conflict. Its reliance on oil should therefore come as natural escape to deal with variety of challenges to its statehood.

Beyond oil, the weight of natural gas, which is a low carbon energy source is lately increasing, including in Azerbaijan, in the overall global energy balance. The growing role of natural gas in the 21st century has increased the importance of issues related to diversification of sources and routes as well as energy security. Azerbaijan, which has made its name largely as an oil country, has been working intensively to build international partnerships towards exploration of the country’s gas resources.

The estimated gas reserves of the country are 2,6 trillion cubic meters. The existing Baku-Tbilisi-Erzurum gas pipeline did not suffice for the exploration of these fields and transportation of large production volumes. The necessity to explore these reserves and turn them into a strategic commodity for energy security of a broader region begot the strategic project such as the Southern Gas Corridor.

Thus, the Southern Gas Corridor project, initiated in 2013 and inaugurated in May, 2018, has become an important chain of energy security, economic development and global partnership. This Corridor of 3500 km length consists of four integral parts – “Shah Deniz-2” project, Southern Caucasus Pipeline Extension (SCPX), Trans Anatolian Pipeline (TANAP), Trans Adriatic Pipeline (TAP). The significance of this project is also enhanced due to fact that it is the first tangible megaproject existing in Europe that unites all components of energy security. It involves close cooperation of seven nations – Azerbaijan, Georgia, Turkey, Greece, Bulgaria, Albania and Italy, participation of numbers of international oil and gas companies as well as the support of major financial institutions, like the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and Asian Development Bank (ADB).Together with its partners and through the Southern Gas Corridor, Azerbaijan is working towards the creation of European gas market that envisages competitiveness and diversification of sources and routes. This project requires solid partnership, continuous political and donor support.

In the spirit of this cooperation and respect for its commitments, Azerbaijan’s priority is to deliver first gas to Europe in 2020. Strategic importance of the Southern Gas Corridor is not only confined to Azerbaijan and the countries involved. This megaproject has the potential to expand to Balkans, Central and Western Europe as well, to attract new supplier, transit and consumer countries. BRUA project (Bulgaria-Romania-Hungary-Austria gas pipeline), IGB (Interconnector Greece Bulgaria) and IAP pipeline (Ionian Adriatic Pipeline) are the potential interconnecting pipelines that could deliver Shah Deniz gas to other destinations through the Southern Gas Corridor. The completion of the TAP as expected in 2020, will enable the import of about 8,8 billion cubic meters of Azerbaijani gas to Italy, with potential growth capacity of more than 10 billion cubic meters per year.

The works on all four segments of the Southern Gas Corridor project are successfully implemented. The inauguration of TANAP became the bedrock of the Southern Gas Corridor. Turkey is already receiving volumes of gas since the formal inauguration of the Southern Gas Corridor and as the completion of the project as this fall as expected, Europe will also start receiving 10 billion cubic meters of Azerbaijani gas per year. As of June 2020 Turkey is set to receive 6 billion cubic meters of gas. With the onset of the final implementation stage of the Southern Gas Corridor, successful completion of works on TAP become ever more important, since it is an essential element to deliver gas to Europe. With the completion of TAP, Azerbaijan will contribute to the energy security of Italy as well as of the countries in South Eastern Europe and will ensure the diversification of routes and sources and contribute to the de-carbonization efforts of the continent.

The Corridor was built with the real vision so that the future opportunities can also be explored. This is an expandable diversification network with the capacity to expand up to 31 billion cubic meters in SCPX and TANAP and doubling up to 20 billion cubic meters for TAP. It is stated that market demand tests for the Corridor’s possible extension are already being carried out and if conditions are suitable additional gas volumes could reach the EU and South-East Europe already within this decade. Such plans could though be challenged by virtue of the fact that the EU’s energy policies maybe changing in a long-term future with the adoption of the “Green Deal” which sets the stage for Europe’s becoming carbon-neutral by 2050. With EBRD becoming a “climate bank” and mostly focusing on public and private “green” investments, it will therefore not invest in any future fossil fuel projects, including gas, starting from 2022. However, it is stated that the situation with already functional projects like the Southern Gas Corridor could be assessed differently. As was voiced by the EU officials themselves, becoming carbon-neutral in fact does not mean that the EU will no longer need natural gas. Natural gas is also said to be a significant back up commodity for the renewables for some time.

The Southern Gas Corridor project also brings social benefits, such as new employment opportunities in the countries through which the Corridor passes, which doubtlessly, has positive impact on the economy of these countries.

The latest, 6th meeting of the Advisory Council on the Southern Gas Corridor that took place on 28 February, 2020 in Baku, offered another valuable opportunity to review the achievements in this field. It was reported that works were progressing at a steady pace and TAP is almost complete (93,5%as of March 2020). Growing number of countries joining the Advisory Council each year also testifies to the increasing interest to the project. Azerbaijan is about to complete this megaproject, which is a great stride towards strengthening Azerbaijan’s regional and global stance as an energy exporter. However, Azerbaijan acts not only as a mere exporter of crude energy, but also as an exporter of energy security by providing alternatives and diversification of routes and sources of energy.As President Ilham Aliyev said during the opening ceremony of the Southern Gas Corridor on May 29, 2018: “We are implementing such giant projects together with our partners and redrawing the energy map of the world”.

Looking beyond oil and Reforms unleashed

Beyond energy, Azerbaijan’s economy has also been witnessing major transformations since 2014. They say global trends are called “global” because of their global ramifications. Azerbaijan had to suffer two currency devaluations in 2015, nevertheless, it was not something that happened only to Azerbaijan. It was the period of economic perturbations in many countries brought by fluctuating oil prices in global oil markets since 2014. However, the country adapted fast by undertaking necessary measures to adjust to the associated challenges. Putting more premium on the development of non-oil sector of the economy and embarking on the development of its renewable energy sector in order to increase the share of renewable energy in overall energy balance of the country are some, however very direct examples of how Azerbaijan manages the challenges associated with fluctuating oil prices.

Before the onset of COVID-19 pandemics and the worldwide lockdowns that negatively affected everyday and economic life, including in Azerbaijan, forecasts on Azerbaijan’s economy was very optimistic and positive. For instance, in October 2019 the then Minister of Economy Shahin Mustafayev declared that “In 2020, real growth in Azerbaijan’s GDP will be three percent, including 1.6. percent for the oil sector and 3.8 percent for the non-oil sector. The growth of the non-oil industry is projected at 8.8. percent, and agriculture – at 4.8 percent”. His successor, a young and western educated former Minister of Taxes Michael Jabbarov later also reiterated this objective with a new and steady commitment to achieve more. Azerbaijan’s unemployment rate has dwindled from 5,02 percent in 2018 to 4,99 percent in 2019 and was projected to further decrease in the years to come. On another front, Azerbaijan aims to increase the share of renewable energy resources in the overall energy consumption balance of the country by 30% till 2030, while currently this number is 18-19%, including hydropower stations. It aims to hold auctions in 2020 in order to attract the best business partners for the development of renewable energy projects (mostly solar and wind) at specifically allocated sites of the country. In January 2020 it has signed implementation agreements of pilot projects on renewable energy with two leading companies of Saudi Arabia and United Arab Amirates – “ACWA Power” and “Masdar”, respectively, and more such undertakings could come in future.

Azerbaijan’s relations with the European Union – one of the biggest economic actors – is also developing dynamically. EU-Azerbaijan Strategic Partnership Agreement, unlike the Association Agreements and Deep and Comprehensive Free Trade Agreements envisaged by the Eastern Partnership (EaP) is based on more equal conditions for partnerships that capitalizes on mutually beneficial partnership for both sides, having thus, eliminated the need for Azerbaijan to one-sidedly comply with EU standards and expectations. The successful conduct of the second round of EU-Azerbaijan Security Dialogue in Baku on 19 December 2019 once again underscored common positions on political, economic, security and energy related issues, while also stressing the importance of continuing to work towards the finalization of EU-Azerbaijan Strategic Partnership Agreement. The open chapters within the Agreement are currently being negotiated and there is a genuine interest on both sides to find a common denominator soon.

Moreover, the country is undergoing a comprehensive reform process in all areas of its statehood and the very nature of the current reforms in all political, economic, administrative strata of Azerbaijan implies the peaceful transition of state management to younger generation that carry more zest and energy alongside also being competent for such a leadership. This does not, however, obviate the fact that older generation are also given their due respect and recognition for their service and their experience are valued and kept at hand’s reach if needed. This evolutionary example of “rejuvenation” of state management while maintaining the synergy of “institutional memory and experience” with “youthfulness and energy” is thought to deliver the needed results in the overall scheme of things.

The reforms have brought number of palpable changes in the state administration, the results of which are already showing in terms of concrete achievements and progress attained in various areas. The leadership of the country has chosen the path of “evolution” in its efforts to adapt the country to ever changing nature of international relations and boost the country’s resilience in the face of evolving global political, socio-economic and other challenges. The snap parliamentary elections held on 9 February was therefore also an important achievement that reshaped the composition of the Parliament and attracted many young parliamentarians. 1314 candidates (independents and representatives of 19 parties) were registered in the race for 125 seats in the Azerbaijani Milli Maclis and 50 per cent of the candidates were under 40 years old. For the first time in the history of independent Azerbaijan a female speaker of the Parliament, Sahiba Gafarova was elected.

COVID-19 and Azerbaijan’s response

Despite the positive picture above, when the scales of global pandemics acquired bigger proportions, Azerbaijan did not also remain immune to the contagion. The news about the first infection case broke on 28 February and the government was swift to close down country’s borders, restrict international and domestic transportation, schools in early March, and all the shopping malls restaurants, etc. gradually. The entire country was put into the lockdown and quarantine was enhanced incrementally as the situation so demanded. From 5 April onwards, people are only allowed to leave their houses for basic needs, like grocery shopping, pharmacy needs, attending the funeral of the closest family member via the SMS permission system. As of this writing there were 1197 coronavirus patients in the country with 351 cured, 13 dead and 833 active patients.

The special Coronavirus Support Fund was established with 19 March 2020 Presidential Decree and the government, and other type of organizations, entrepreneurs were very swift to extend financial support to the Fund. Moreover, the government prepared 9 programs worth 2,5 billion manats – 3 % of the GDP to support the economy and the entrepreneurship as well as social benefits containing compensations for unemployed population as well as educational fee rescue package for socially vulnerable parts of the population in the aftermath of the total lockdown of the economy. The idea is to put the economy back on track as soon as possible and weather the COVID-19 storm with minimum losses.

Obviously, pandemics has affected not only global health but also global economy. Some even compare its magnitude and potential effects to those of the Second World War, while others predict severe economic crisis unseen since 1929-1930. Azerbaijan obviously is not immune to the consequences of the pandemic. Granted, the acute slump in oil prices as a consequence of worldwide lockdowns and therefore suppressed demand for crude, and the failed OPEC+ endeavor to find a common denominator on 6 March, put further strain on the economy, which otherwise was on an upswing before the COVID-19. Azerbaijan’s 2020 budget has envisaged 55 USD per barrel of oil. However, with oil prices in the first two months of the year being above 60 USD and budget proceeds surpassing the expenditures for about 400 million manats in January alone, plus the proceeds from tax and customs services testifies to the increasing income to the state budget. Azerbaijan’s strategic currency reserves are estimated to be over 50 billion USD, which provides extra fiscal security. The overview of the extra financial reserves acquired since beginning of the year in fact enables to compensate for the losses incurred due to the coronavirus induced decline in oil prices.

This is more so, in the light of the recent OPEC+ deal, which pledged to reduce oil production by 9,7 million barrels per day (bpd) in May and June of 2020 (plus 300 thousand barrels the US will cut instead of Mexico’s proposed share), plus voluntary reductions up of 2,7 million bpd by Saudi Arabia, Kuwait and United Arab Amirates planned for April. The US, Canada, Indonesia, Norway and Brazil are thought to also cut their output by 4-5 million bpd, while oil production in Iran, Venezuela and Libya is expected to drop by 2,8 million bpd. as well. In total, 20 million bpd. oil is expected to be withdrawn from the markets, which should help to stabilize the market and maintain balance between supply and demand. Further cuts will be 7,7, million bpd. from July till end 2020 and 5,8 million bpd from January 2021 till April 2022.It is yet to be seen how the deal will operate under the current conditions and in future, but early market reactions have been rather positive.

The ramifications of COVID-19 and its impact on world economy and everyday lives of citizens are yet to be seen as the debate is still ongoing. However, one thing is clear that there will be no winners and losers of this global calamity as everyone is affected. So is Azerbaijan. However, Azerbaijan’s strong standing before the outbreak as an energy and reformer state and swift measures to contain the virus as well as operationalization of state support mechanisms can offer the cause for optimism that the country could quickly return back to normal and continue the works interrupted with greater rigor. There definitely is a political will and hopefully the way will be unhindered soon too.

Dr. Esmira Jafarova is the Board Member of the Center of Analysis of International Relations (AIR Center), Baku, Azerbaijan.

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Eastern Europe

Latvia becomes a victim of the East-West confrontation

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The foreign policy of Latvia has been providing a surprising case of balancing policy between economic wisdom and political situation for some decades. Being the EU and NATO member state, Latvia managed to fulfill its commitments and at the same time Riga maintained fruitful relationship in the economic sphere with neighbouring countries – Russia and Belarus. And this despite the fact that these two countries are seen by the European Union and the Alliance as opponents rather than friends.

But cooling of the EU and NATO’s relations with Russia made such a balance impossible and forced Latvia to take such political decisions that totally harmed its economy. Thus, Latvia has gradually become a victim of the East-West confrontation.

Only one of the negative results of this confrontation is dramatic reduction of transit cargo. Russia’s cargo volume has fallen sharply.

Russia’s decision to build its own ports and divert traffic to them has become a direct consequence of the EU economic sanctions imposed against Russia.

In October, the largest decrease in Latvian ports was for coal transported to the main coal terminal on the Russian Island in Riga. Of the planned average of 118 wagons, only 39 were received per day.

The more so, in October, the Russian side did not coordinate 94% of the requested amount of coal cargo – customers wanted to receive more than 4,800 coal wagons to Latvian ports, but got only 279. In November, 100% of the requested amount was not agreed, which means a complete stop of coal cargo delivery. And it is clear that gradually less and less cargo will pass through Latvia and maybe not at all because of the destructive foreign policies toward relations with Russia.

On the one hand, Latvian authorities understand that the country needs Russian cargoes. Latvian Minister of Transport Tālis Linkaits points out: “It is the need of the Latvian state to ensure the operation of the infrastructure of “Latvijas dzelzceļš”. And we are interested in every ton of cargo that could come through Latvia or to Latvia.” On the other hand, during the annual Rīga Conference which took place in November Latvian Prime Minister Krišjānis Kariņš and NATO Secretary General Jens Stoltenberg both emphasized that Russia remains a threat. “Russia remains a great big problem,” Kariņš said. Latvia as well as other Baltic States deployed NATO troops on its territory and thereby endangering good neighborly relations with Russia and regional security in general. Russia has taken measures to build up its military capabilities as well.

Former President of Latvia Valdis Zatlers says: “Prayers will not help. This is Russian policy.”

Foreign Minister Edgars Rinkevichs admitted: “I don’t understand what we sometimes have in Latvia, that it is somehow difficult for us to drive in the middle of the road – to be proportionate, to be principled in matters of principle, to be practical, but not to carry from one ditch to another.”

So, Latvia maneuvers between politics and the desire not to lose important partner. Russia in its turn does not hide its intention and is not going to play along. If Latvia’s political views prevent it from developing fruitful partnership with neighbour states, this is Latvia’s choice. Latvia’s economy today is hostage to its foreign policy.

Latvia’s failure in cooperation with Russia reflects the bleak economic prospects if Russia ceases to see the region as a territory of special economic importance. In recent years, Moscow has already made it clear that it considers the gain in the struggle for the region too small to participate in it.

The situation resembles an old Latin proverb: “Between two stools, one falls to the ground.” Latvia is almost on the ground.

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Eastern Europe

The State of Civil Society in Belarus and Armenia: Challenges and Opportunities

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Large crowds have demonstrated their anger at the results of the presidential election in Belarus. Photo: Kseniya Halubovich

 A vibrant civil society has long been thought to be a crucial instrument for political change in countries in transition and a key component of a democratic society.

While civic activism was critical to the 2018 “Velvet Revolution” in Armenia, and posesformidable challenges to Aleksander Lukashenko’s authoritarian rule in Belarus, a question remains as to whether or not civil societies have the capacities to evolve into powerful agents of democracy in the two post-Soviet countries. 

The two countries share much in come in terms of their communist past and close alliances with Russia, vividly manifested in their being members of the Russia-dominated Eurasian Economic Union and CSTO. Moreover, the post-Soviet transition of both countries has been marred by a series of authoritarian malpractices, ranging from centralization and personalization of power to extensive crackdown on civil liberties and political freedoms

In both countries civil society organizations have been characterized by their organizational weakness, and marginality in terms of their social base, financial assets and influence over policy making.

Controlling the mass media and civil society has been crucial for Europe’s ‘last dictator’ Alexander Lukashenko’s rule. As a result, freedom of association has been extremely limited in Belarus, where the registration of groups remains entirely arbitrary, while the foreign funding to NGOs is treated as interference in the country’s domestic affairs. Only a few human rights groups continue to operate, amid huge harassment by the government. Alarmingly, in 2018, the Criminal Code of Belarus introduced the prospect of large fines for unregistered or liquidated organizations, thus aiming to curbtheir activism.

Moreover, the lack of a vibrant civil society has led to a situation where Belarusians have huge misconceptions about civil society organizations and do not tend to use the available resources within civil society and human rights organizations to defend their rights

The situation in Belarus turned upside down in the wake of 2020 presidential elections, that unleashed a huge wave of civic activism: hundreds of thousands of Belarusians raising their voices and taking to the streets.

The anti-government protests following the 2020 presidential elections show that the Belarusian opposition and civil society have the potential to challenge the status quo meticulously preserved by Lukashenko.

Nevertheless, it would be misleading to treat the successful actions by protesters or even civil society representatives per se as s shift in a robust or “emerging” civil society. The question remains as to if protests are organized by well-established and institutionalized organizations, or do groups emerge spontaneously out of the protests themselves?

By contrast, the Armenian civil society organizations enjoy considerable freedom and face less harassment by the government. While civil society played a critical role in the “Velvet Revolution,” the absence of an umbrella organization or clearly reform-oriented movement in Armenia, seems to leave the fate of the societal coalition that brought Nikol Pashinyan to power uncertain. Not surprisingly, the societal coalition started to break into pieces as Armenia endured tremendous setbacks in the war against Azerbaijan in November 2020. Overall, the demonstrations leading the revolution showed the “Velvet Revolution was a one-time fairy tale, rather than a feature of a vibrant civil society. Meanwhile, civil society organizations and activists need to move beyond the victory in the street and pursue victory in town halls and elections, with the growing realization that the “Velvet Revolution” now needs to be in people’s minds and behavior rather than in downtown Yerevan .

Despite the growing number of civil society organizations (there are more than 4,000 registered civil society organizations, mainly non-governmental organizations (NGO), absolute majority of them are inactive with little to no potential to represent certain interest groups. NGOs are especially weak in terms of their social base, funding and heavily depend on foreign donors. 

Arguably, the Russian oversize influence over Belarus and Armenia has been one of the core challenges to a vibrant civil society advancement in both countries. Of all the Eastern Partnership countries, Armenia and Belarus is by far the most vulnerable to Russian influence. This reflects its structural dependence on Russia in the economic, energy, security, geopolitical, as well as socio-cultural spheres, particularly in case of Belarus.

Belarus displays a series of characteristics that allow Russia to have a strong impact on civil society. These include a weak national identity, issues around language, the prevalence of Russian information in the media, exposure to Russian information warfare, as well as the presence in Belarus of Russian government-organized NGOs (GONGOs) and the Russian Orthodox Church.

Notably, within its strategy of promoting Eurasian integration within the Eurasian Economic Union and beyond, Russian propaganda would frequently target Armenian NGOs by framing those which are Western-funded ones as threats to Armenian-Russian relations. Such claims would be followed by the calls for ‘neutralizing’ them through information campaigns and other methods, including through the legislature. Not surprisingly, the 2017 amendments to existing NGO legislation in Armenia, with imposed restrictions on their activities, would be largely viewed as a direct result of the mounting pressure emanating from Russia.

Boosting CSOs Actorness

Studies show that the path to a vibrant and consolidated civil society has two main dimensions. The first dimension boils down to the changes in the nature of civil society relations with the state and society and its potential and ability to induce reform, or what is often referred to as “change on the outside”. This has much to do with increasing their impact on public policy and practice, not least through engaging more with their constituencies and improving their interaction with public institutions and actors. It has not been uncommon for post-Soviet societies to treat civic associations as threat to the power and stability of the state together with the conviction that the state bears the responsibility for the wellbeing of the society.

Moreover, the CSOs’ tendency to prioritize relations with Western donors over engagement with citizens would result in their treatment as donor-driven, rather than community-oriented organizations. Meanwhile, greater engagement and effective communication with various social groups is critical to breaking down the public misconceptions about CSOs and their activities.

Thus, the “change on the outside” is instrumental in dissolving the apathy of the wider public leading to their shift from spectators to actors.

A major impediment to civil society in both countries is prevailing post-Soviet “informality” in the form of behavioral practices, such as considerable tolerance towards informal governance, the use of informal networks and connections in exchanges of favors, phone justice, corruption, etc. The latter has long condemned both countries to a vicious circle of underdevelopment and bad governance. Even though it would be an oversimplification to contend that graft is a way of life it takes a long time for deep rooted behavioral practices to change. Therefore, both governments, as well as CSOs have a crucial role in eradicating the informality and culture of corruption in both societies, not least through promoting liberal values and good governance practices.

The second critical dimension is “change on the inside”, related to the nature of civil society per se: such as the way it is organized and operates. This in turn has a great deal to do with the development of adequate institutional and professional capacity in civil society organizations and networks as a vital tool for influencing policy making. The institutional development at the organizational level includes building organizational capacities for governance, decision-making, and conflict management, as well as clarifying organizational identity, values and strategy of impact.

The latter is of crucial relevance as a lot of CSOs in both countries were established in response to certain needs or funding priorities with no predefined mission, strategic plans and organization structure. That said, they were doomed to failure in terms of addressing the specific needs of their constituencies.

Overall, these changes and reforms are vital to the advancement of a vibrant civil society that can become an agent of democracy in both countries.

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Eastern Europe

Can economic cooperation contribute to sustainable peace in Karabakh?

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A major step has taken towards the Karabakh conflict on November 10, 2020. The century-old conflict between Azerbaijan and Armenia has undoubtedly, entered a different phase with the signing of a trilateral statement by Azerbaijan, Armenia, and Russia. Before this, in late September, Azerbaijan has launched a successful counter-offensive to implement the UN Security Council Resolutions (822, 853, 874, 884) through liberating its territories that were under Armenian occupation for almost 30 years. As a result of the military campaign, Azerbaijan was able to get back the majority of the strategic points in Karabakh including the historic city of Shusha. 

While the protests broke out in the Armenian capital Yerevan, when PM Pashinyan publicly declared that he was obliged to sign the agreement to prevent its army from a total collapse, the Azerbaijani side enjoyed the victory by massive celebrations in Baku. The President of Azerbaijan Ilham Aliyev signed the statement on a live broadcast, and right after, addressed the nation and familiarized the Azerbaijani public with the context. As the details revealed by President Aliyev, it became obvious that the agreement was the capitulation of the Armenian side.

Afterward, the consequence of the “44-day war” was described as “a defeat both on the battlefield and in the diplomatic arena” by the Armenian President Armen Sarkissian. Namely, the agreement comprised the unconditional withdrawal of the Armenian troops from the occupied territories within a definite schedule, the return of all refugees, and the deployment of the Russian peacekeepers in the several points of Karabakh. Furthermore, the cardinal element of the statement is that there was not a word about the status of Nagorno-Karabakh. Apparently, the overwhelming military advantage of Azerbaijan induced the Armenian government to come to the negotiation table and finalize its illegal military presence within the boundaries of a neighboring sovereign state.

The agreement further articulates the opening of all communications, restoration of economic and transport links. Due to the stipulated economic notions, the statement possesses a significant role for lasting and sustainable peace. In this context, if Armenia would ensure adherence to the principles of the trilateral statement, the possible economic consequences will encapsulate in two dimensions: regional and global.

The regional dimension or local basis encompasses joint initiatives and shall include Georgia as well. For instance, the “South Caucasus Economic Union” could emerge to build high-quality cross-border infrastructure, to establish intraregional supply chains, and to form stronger financial links. The project rationale derives from the recognition that the development of an integrated South Caucasus, which can guarantee peace and spur growth in all fields, requires multiple, cohesive, and long-term efforts. Thus, the fundamental prerequisite for Armenia is to terminate all the hostilities with neighboring countries.

In the mutually assured peace environment, Azerbaijan and Armenia would strongly benefit from enormous savings on conflict-related fiscal expenditures. Military expenditures could be lessened by 2% of annual GDP in both countries to a reasonable level as in the countries at peace. Besides, Azerbaijan could eventually save expenditures for supporting refugees amounting to 0.4% of annual GDP, thus diminishing total expenditure by 2.4% of GDP yearly. Armenia could save annual expenditures of 0.9% of GDP for supporting the local economy in Nagorno-Karabakh and 0.1% of GDP in interest payments, thus saving 3% of GDP every year. Such massive fiscal savings would enable both countries to avert the budget-related issues and at the same time substantially increase spending in social spheres by eliminating any budgetary pressures.

In the global dimension, South Caucasus is capable of creating opportunities for sustainable growth. The ongoing conflict was generating an elevated extent of risks, which were constituting several constraints for the capital flow to the region. Since an opportunity has emerged to settle the conflict thoroughly regarding the trilateral statement, the effect that it would create in the future on ratings, risk premiums on bonds, loans and equity, investment, and finally, economic growth are likely to be very positive.

The South Caucasus region, acting as a link between the Middle East, China, Russia, and Europe, has immense strategic significance. Previously opened the Baku-Tbilisi-Kars railway, today serves as the shortest way to deliver Chinese goods to Turkey and reduces delivery time to Western Europe. This project was developed within a larger Trans-Caspian International Transit Route, as part of the Belt & Road Initiative.

Within the scope of the agreement, Azerbaijan gained a corridor that links the mainland to the exclave Nakhchivan Autonomous Republic through the Zangazur region of Armenia. The new corridor seems to be a more efficient alternative from distance and timing aspects. Thus, the agreement can be characterized as pivotal since it will not only stimulate the regional development credibly, it will transform the region into a hub of the international supply chain system, as well.

Undoubtedly, the foremost economic issue will be compensation as Armenia officially approved itself as the aggressor state in this conflict with the sign of PM Pashinyan on November 10. According to the United Nations, the overall damage to the Azerbaijani economy has estimated to be around $53.5 billion in 1994. Recently, President Ilham Aliyev stated that foreign experts are going to be invited for the up-to-datecalculations of the total damage as the result of the occupation.

After a longstanding negotiation process, the situation has been exacerbated, and inevitably, processes oriented to the military theatre. This trilateral statement can forestall the risks of resumption of the military operations in this phase. Here, strengthening the capacity to manage the conflict and promote peace through regional economic integration, trade facilitation initiatives, and other policy measures will be on the agenda. There is a plethora of similar practices in the world so that it might lead to a feasible solution.

The Karabakh conflict was making South Caucasus one of the most explosive regions in Eurasia. Nevertheless, from this moment, the focus shall be on the peacemaking process as it yields considerable economic benefits. As mentioned, the flow of investments to the region will tremendously increase, whereby the states in South Caucasus will be able to maximize their economic potentials. For Armenia, it is time to act on facts and realities rather than dreams. So, it should renounce territorial claims and start to rational cooperation with neighbors for a better future.

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Many scholars argue that what is happening between the major powers in East Asia at the present time is what...

East Asia6 hours ago

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Hong Kong’s liberal democracy faces an existential threat, more visible than any time in the past 23 years, as exemplified...

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The World Economic Forum has today released results of a study on how the fintech industry has been impacted by...

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The Third Way for De-Binarization of Foreign Policy Conduct

As the present world order weakens, the mega confrontations have appeared more likely: On its post-Soviet revival quest, Russia becomes...

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