International oil projects can introduce a variety of unplanned consequences, including the establishment of a range of bars, pubs, and restaurants set up to catch the flood of foreign oil workers that flow into the country as oil gushes out. “Dave,” the owner of the now closed Fisherman’s Wharf, giving a talk at a Junior Achievement seminar in 2003 said, “Of course there is a cost of doing business in Azerbaijan, there is everywhere. Everywhere there are rules and practices. Here, many of the costs involve cash transactions, but that’s how business is done here. You follow the rules; learn the fees and you can be quite successful — if you have a good idea and a sound business plan.”
Prior to about 2005, much of the informal “cost of doing business,” also euphemistically referred to as “giving respect,” was offered in a manner as might an evening diner thanking a maître d’ for a better table. The process was known and transactions common, but not necessarily discussed at least in overtly direct terms.
In recent informal discussions, some have suggested that these “costs of doing business,” or “costs of getting things done” have been undergoing a shift in terms of their openness on one hand, and their degree on the other. Consider an example offered with regard to the police. In the past, police salaries were known to be low. As in other underpaid professions, a means used to augment salaries (or arguably to exploit an imbalanced system) was to request a cash payment, in this case instead of following the more formal means for paying a fine. With the recent increase in police salaries there is a perception that the frequency with which police demand arbitrary fine payments has decreased. One Azerbaijani government representative suggested that the times he has been stopped while driving were for incidents in which he had indeed made a mistake. He felt that paying the fine directly to the police officer was more reasonable than to lose time navigating the formal system. While the frequency of stops may have decreased, the costs incurred for being stopped seems to have increased. One businessperson suggested that a cash payment that might have been $20 USD in the past has risen to $200 USD today.
Even those working to improve governmental transparency and free expression suggest the system of cash payments is endemic, unavoidable, and at times efficient. Consider the frustrating case of having one’s car towed. Driving and parking in Baku requires excellent reflexes and nerves, as competition for space increases proportionally with the increasing number of SUVs and foreign imports, notwithstanding the repaving and widening of roads leading into and out of Baku’s historic downtown. Parking in the wrong place or sometimes neglecting the red armband attendants can result in at least a lost day of work. After one’s car has been towed, the normal procedure for its return includes traveling outside of the city to the impound lot, paying fees and fines and after receiving a receipt, traveling back into the city to the parking authority to show the receipt. A Claim Check can then be obtained, so that when the return trip is made back out to the impound lot the car can be driven away legally. Instead, so the argument goes, the tow truck driver can be reached directly, the fine paid in cash, and the entire situation resolved cleanly and quickly.
Besides revenue, oil helps bring to Baku establishments with names such as “The Walk About,” “O’Malley’s,” “Finnegan’s,” “Panchos,” “Adam’s,” “Pizza Hat” “Chaplin’s,” “The Rig,” “Tequila Sunrise,” and so forth. The clientele varies depending on whether it is lunch or dinnertime or late at night. The regulars include rig workers, the nouveau riche, the wanna-be-riche, short-term contract workers, and those who enjoy a properly poured Guinness. One evening over Guinness a young and successful entrepreneur offered his views on business practice in Azerbaijan.
As a bank executive his salary is high whether in Azerbaijan or in the US. So when offered the opportunity to invest in a new nightclub with two partners he had little hesitation. After two years of success he sold his share in the business and received over ten times a return on his initial investment. This then allowed him to reinvest in three other businesses and to buy a 150 m2 modern apartment.
“How much is your income tax back in the US, 30%? Well I look at my cost of doing business in the same way: I pay about 30% of my profits also in a form of 'tax,' which allows me not just to continue but to be profitable.” A well-placed acquaintance of his within the Ministry of Tax offered him a job, impressed by the young entrepreneur’s academic training and practical experience in finance. “As part of the incentive, I was offered a chance to run my businesses tax free, no need to pay any income tax on my profits. I was tempted, but government salaries are just too low.”
Everyone living in or visiting Baku understands that the country is experiencing an intense period of growth. The length of time that this growth can be sustained is disputed and its benefits argued. The director of procurement for one of the ministries expressed his sentiments in practical terms. “There is no doubt that we have a lot of leakage. Consider the cost of construction. A building might cost say $1 million to build, although it turns out to have actually cost $2 million. That additional million dollars we can’t track but nevertheless the building is complete. And look at how many new buildings we have. We have growth; maybe it is more expensive than it should be. But construction provides employment and spending along each part of the process and this is something our country needs.”
The Qabala/Qəbələ District in the northern part of Azerbaijan is named for an ancient city founded in the late 4th or early 3rd century B.C. and flourished through Roman, Arab, and Mongol invasions through to the mid-18th century. It was later included within the Sheki province until a new administrative region was created in the 1930s. It is famous not only for its early warning radar system, leased by Russia and offered by Vladimir Putin as a possible site for the U.S.-Russian Missile Defense system, but it is the location for the successful Jale Juice Concentrate Company/ Jalə Gilan Qebele Konserv Zavodu. The Jale juice brand is omnipresent, found in small corner markets to the larger western-style groceries. Juice flavors range from sea buckthorn and blackberry, to pomegranate and pineapple. The retail cost of the juice is competitive. Reasons for the company’s success may include its diverse flavors, cost, and availability. Some add that its success derives directly from its owner, recipient of the Order of the Azerbaijani Banner and considered the second most powerful person in Azerbaijan behind the President, the Minister of Emergency Situations.
A small business owner in downtown Baku offered his take on Jale Juices. “Of course he’s successful. Who do you think is going to touch the second most powerful man in Azerbaijan? Young guys visit me all the time from the Tax Ministry, demanding that I pay taxes on the earnings I am ‘hiding.’ So see here, I keep a careful record of everything I sell. I write down everything that comes in and goes out. I have been keeping this notebook for years, and I show it to them each time.”
Walking back from the corner market, an older woman quietly asked for a few coins. After she received just a few cents she began to sob. “My pension hardly gives me enough to get by, and certainly there is no way I can have a cataract operation on my eye. I depend on these coins to get by….”
As Azerbaijan experiences tremendous material growth, many in and outside the country have faith in the concurrent efforts by government, nongovernmental, and corporate actors to stem the flow of financial leakage, in order to better serve the needs of the wider population.
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