Following is a recent dispatch from subscriber Jonathan Auerbach, who has returned to Azerbaijan in search of investment opportunities:
One hundred years ago Baku provided half the world’s oil. Today, equi-distant from Iran and Russia, this capital of Azerbaijan occupies a Swiss-like privilege knowing that neither state wants to disrupt or would tolerate an infringement of their buffer presence. Nevertheless Azerbaijan is beginning to deal with important considerations of capital market developments as the clever people with whom we met acknowledge that peak oil production could be hit within several years and would begin to diminish the 90% contribution energy related activities provide to GDP. This is a wealthy country of 8 million people with a functional stock exchange which doesn’t trade any equities and should. On my last visit 4 years ago I remarked on the extraordinary Art-Deco and Soviet Suprematist architecture that captured the richness and charm of Baku. This week I was flabbergasted by the dramatic change into a form of ‘Baku Land’ with an 8-lane superhighway from the airport into the city lined with massive newly-built palatial apartment houses which do not appear to be occupied. The city waterfront now includes a gigantic mall, convention center, a requisite 4 Seasons Hotel (soon to open), high-end shops, and broad walkways that at 11 in the evening were packed with strolling locals. Traffic was at times inpenetrable.
Dubai Redux? Hopefully they are not going down this road of de facto statism and we, accompanied by several institutional investors all of whom are looking to broaden their reach in the Frontier world, made a strong case that they must develop the growth of their capital markets on a private basis that will encourage the many wealthy families to diversify their industrial ownership as well as spur the creation of SMEs and needed import substitution businesses. It can happen and in meetings with our partner, Bank Standard, we looked at, for example, an 11% piece of one of the large banks available at less than book with 25% currently owned by various foreign sovereign organizations or an IPO candidate of a local fast-food operation. If you are a believer in our secular viewpoint that we are on the threshold of the reweighting of the global economic playing field then you must assess investments such as these in a market where Fitch just upgraded Sovereign debt to BBB-. I am now back in NY and later this week we’ll provide our on the ground view of Turkmenistan and an overall view of this whirlwind tour of Central Asia