Russian-Ukrainian war changing picture of Azerbaijan's foreign trade

Russia and Ukraine, which are currently in a state of political and military confrontation with each other, play a special role in Azerbaijan's foreign trade relations.

How did the war affect Azerbaijan's non-oil exports to these countries?

Report has asked the head of the department of the Center for Analysis of Economic Reforms and Communications (CAERC), Nijat Hajizada, to comment on the issue.

"Russia and Ukraine are the main foreign trade partners of Azerbaijan. Against the background of geopolitical events, there is a high probability of a decrease in Azerbaijan's trade operations with these countries. The main advantage in trade with the Russian Federation falls on fruits and vegetables, and in trade with Ukraine, oil and oil products are the main driving force. Thus, fruits and vegetables and a number of agricultural products cover about 60% of exports to the Russian Federation, 82.5% of exports to Ukraine are oil and oil products. Although exports of products to both countries will continue, purchasing power will decrease."

Hajizada emphasizes that the decline in purchasing power in the markets that have been a priority so far makes it necessary to look for new export markets.

According to him, the search for new markets for exports or diversification of the geography of exports is always relevant, regardless of whether the geo-economic situation is stable or unstable.

"The main goal of diversification is to minimize risks against the background of possible emergency or conflict situations. The Central Asian region, along with high self-sufficiency in agricultural products, is the main exporter of these products. The business environment in the fruit and vegetable market of the Gulf countries is different. For example, the United States, Britain, China, Brazil, Thailand and brotherly Turkey have a significant share in the imports of fruits and vegetables by the Gulf countries. The conclusion of a free trade agreement between the UAE and Turkey is also being discussed. At the same time, a narrow range of products is exported from Azerbaijan to Russia and Ukraine: for example, 9 products account for 84% of fruits and vegetables worth $546.6 million sent to Russia."

Nijat Hajizada believes that the expansion of the scope of application of the principles of preferential and free trade can affect price competition and increase the potential for diversification.

"Although the export risk for the mentioned countries is directly related only to the Russian Federation, the diversification and diversity of products supplied to Russia and Ukraine, as well as its insufficient industrial and technological capacity weakens the potential for diversification. Also, despite the presence of free trade relations with the CIS countries located in the Central Asian region, the export of vegetables and fruits to these countries over the past 5 years has not been very intensive. When we look at the trade statistics, we do not observe a high share of trade operations in the total volume of foreign trade in this region."

The head of the department emphasized that the war also created difficulties in the import from these countries. In international practice, in such force majeure situations, an import substitution strategy can be traced. In a number of countries, there is a successful and unsuccessful policies of import substitution.

According to him, import substitution should not mean its limitation.

"Having products with high quality and a price advantage over imported products, as well as introducing a value chain in domestic production with cheaper inputs and branding is an important challenge."