Newsletter

Political transitions in the South Caucasus

  • Europe
  • Delivering Growth and Opportunity
Russia/CIS Riskwatch - Issue 14 - May 2018
Political transitions in the South Caucasus – a tale of two countries 


South Caucasus neighbours Armenia and Azerbaijan have both seen new prime ministers take office in the past six weeks. But that’s where the similarities stop. The causes, context and implications for business could not be more different. 


Business (nearly) as usual in Azerbaijan

Significant political transitions are a rarity in the former Soviet Union.  In most instances, elections are closely controlled by powerful incumbents, and serve only to cement the status-quo. The April presidential election in Azerbaijan was such a case. President Ilham Aliyev, in post since 2003, presided over a non-competitive poll to win 86% of the vote, setting himself up for a further seven years in office. 

Just a week later, President Aliyev removed long-standing Artur Rasizade from the prime ministership, and replaced him with Novruz Mammadov. However, this meant little for policy-making. The 71-year-old Mammadov is an establishment figure who is certain to work under the instruction of Aliyev.. Aliyev, , who enjoys sweeping constitutional and informal powers probably appointed Mammadov because it offered an opportunity for the president to reassert his power by putting in place another compliant loyalist.  

Technocratic rumblings

So far, so insignificant. However, there are some subtler personnel changes going on in Azerbaijan that could be more consequential for the business community. Alongside appointing a new prime minister, Aliyev in April removed a number of older custodians of less high-profile ministerial posts. In their place, he has appointed younger, more technocratic figures who do not have economic leverage or personal commercial interests. The newly appointed minister for agriculture Inam Kerimov, for example, in the past five years oversaw the implementation of the successful and popular ASAN one-stop shops for administrative services. 

Aliyev’s primary motivation behind this change is probably to remove rival ministerial power bases as he continues to consolidate power.  But this new cohort is likely to have a positive impact on the efficiency and professionalism of government services, including in how it interacts with foreign businesses. The day to day experience of businesses is therefore probably set to improve in Azerbaijan. 

However, systemic challenges show no sign of abating. Indeed, Aliyev and his wife Mehriban Aliyeva, since early 2017 the First Vice President, have only reduced political and commercial competition through their consolidation of power. This is only likely to perpetuate opaque business ownership and cronyism in allocating strategically important contracts and commercial opportunities.

All change next door

In neighbouring Armenia, meanwhile, the recent election of a new prime minister represents arguably the most significant political transition of the country’s independent history. The trigger was an attempt by powerful former president, Serzh Sarkisyan to remain in power indefinitely via changes to the constitution that increased the powers of the prime minister. When Sarkisyan was himself elected prime minister in mid-April, unprecedented, sustained and peaceful street protests led by opposition MP Nikol Pashinyan took place. After a tense standoff, Sarkisyan’s governing Republican Party (RPA) on 9 May backed down, and provided enough votes in parliament for Pashinyan to be elected interim prime minister. 

If successful, the demise of the RPA and the rise of Pashinyan could mean a major transformation of the business and operating environment in Armenia, and for the better. Pashinyan is a charismatic figure who has carefully navigated the political landscape to achieve what no opposition activist has hitherto been able to in the face of the all-powerful RPA. His ambitions are not modest. He has pledged to eradicate corruption and break down the informal monopolies that dominate the economy. Much of Armenia’s wealth is believed to be held by politicians and their family members. These vested interests and the lack of transparency surrounding many sectors is probably the greatest source of risk for foreign investors in Armenia. Pashinyan, while a political veteran, is not part of this system, and is likely to be genuine in his desire to remove barriers to open, competitive political and commercial activity.

Bumpy road ahead

However, a huge amount of uncertainty and complexity stands in Pashinyan’s way. Thus far, the transition in Armenia has been entirely constitutional. Pashinyan was elected prime minister by parliament, after all. But he now finds himself in an uncomfortable co-habitation with the RPA, which remains the majority party in parliament. Pashinyan has pledged to hold early parliamentary elections. However, the RPA via its majority in parliament can and probably will block passage of changes to the electoral law that are almost certainly necessary to make any future election legitimate in the eyes of those thousands of people who took to the streets for several weeks. Before that, Pashinyan will have to get his new government programme approved by parliament. 

The weakening of the RPA’s political authority in the coming months will lead to uncertainty for businesses. This will manifest itself both on an operational level – in the form of ministerial reshuffles and changes in public officials – and on a more strategic level, as existing contracts and relationships are scrutinised by new authorities.  He will also have to carefully navigate the treatment of former RPA heavyweights, many of whom have vast commercial interests that they will want to protect.

Meanwhile, while Pashinyan has said nothing to suggest he is not in favour of foreign investment, it remains to be seen how Armenia’s low-regulation and low red-tape business environment will evolve under him, or any eventual elected prime minister. 

Neighbourly relations

And, finally, what of Armenia and Azerbaijan’s tense bilateral relationship? The unresolved dispute over the territory of Nagorno-Karabakh remains a major impediment to a stable security environment for trade and business. Mammadov’s election means little for Azerbaijani’s foreign policy, but Pashinyan’s might mean a lot. He has so far kept on message with his predecessors on foreign relations, including adopting a no-compromise stance on Armenia’s claim to Nagorno-Karabakh. But much could change if he receives an electoral mandate, since his personal foreign policy views are largely unknown.

If change remains incremental in Azerbaijan, it is set to travel at a fair pace in Armenia over the coming weeks and months.

 

Author

  • Eimear O’Casey, Analyst
  • Anna Walker, Associate Director

Find out more

How can our experts help you?

You may also be interested in

Newsletter

Top 5 Risks 2019

Each year, Control Risks’ decides the top 5 Risks for businesses in the coming year. While these are global in scope, here we discuss how they will drive developments in the business environment in the Middle East and North Africa in 2019.