AZERBAIJAN: AMBASSADOR'S ECONOMIC VISIT TO

UNCLAS SECTION 01 OF 03 BAKU 000447

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EAGR EAID ETRD PREL PGOV KFLU AJ
SUBJECT: AZERBAIJAN: AMBASSADOR'S ECONOMIC VISIT TO
ISMAILLY AND SHEKI REGIONS

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION -
HANDLE ACCORDINGLY.


1. (SBU) SUMMARY: Ambassador Harnish traveled to Ismailly and
Sheki March 9 and 10 to open a Regional Information Center
and a renovated pre-school and boarding school funded by the
U.S. During the trip, the Ambassador met with local
government officials and discussed economic and political
development and the local governments' response to the avian
influenza threat. Local officals in both cities are actively
engaged in AI surveillance and have created commissions to
monitor the threat. The Ambassador also visited the
U.S.-funded Junior Achievement economic curriculum at a Sheki
high school that is laying the groundwork for future business
leaders. Both regions are rural and poor and their
agricultural sectors require significant investment. Several
local businessmen told the Ambassador that they are looking
to purchase U.S. equipment. While the investment and
business climate is positive, local business leaders bemoaned
the lack of coordination and means to exchange investment
plans and ideas. END SUMMARY.


2. (SBU) On March 9 and 10, Ambassador Harnish traveled to
the cities of Ismailly and Sheki in northwestern Azerbaijan
to open a Regional Information Center and participate in the
opening ceremony of a pre-school and boarding school funded
by the EUCOM Humanitarian Assistance Program. During the
trip, the Ambassador met with the local governors (ExCom),
local NGOs, visited a local high school Junior Achievement
program and hosted a lunch with Sheki entrepreneurs and
business leaders. Most of the interlocutors during the trip
stressed the need for assistance to continue economic and
infrastructure development. In Ismailly, the Ambassador met
two Peace Corps volunteers at the RIC event and in Sheki he
hosted dinner for the five local Peace Corps volunteers.
Ismailly is a rural city of less than 25,000 inhabitants and
Sheki is an agricultural city of 65,000 that has a growing
tourism sector.

Ismailly ExCom
--------------


3. (SBU) During a brief courtesy call, Rovshan Sadikhov,
Ismailly ExCom, told the Ambassador that he is looking to
develop and expand the economic base of his primarily
agricultural region. Sadikhov said that in 2006 the GOAJ
would begin work on the Baku-Gabala road, which should
increase the region's export markets. Sadikhov said that
other than farming, a privately owned carpet factor and
vineyard provided the only employment opportunities to the
local population. He noted that the majority of private
investment in Ismailly region came from investors from Baku.
Sadikhov noted that Ismailly had more than 150 historic sites
that could provide the base for a small tourism industry to
grow. Sadikhov knew the exact number of Peace Corps
volunteers in Ismailly, even naming one former English
teacher. After the meeting, both the Ambassador and the
ExCom walked to the central library to open the U.S.-financed
Regional Library Information Center.


4. (SBU) Sadikhov raised the subject of democracy with the
Ambassador and said that in Ismailly there was an open
dialogue with the population. He noted that in the past 10
months he has hosted more than 15 meetings with local
citizens. He claimed that the November 2005 Parliamentary
elections in Ismailly were democratic. The Ambassador
responded that local authorities should allow civil society
and political debate to grow. He noted that the ExComs
should encourage dialogue and the improvement of society and
should play a key role in supporting civic activism.


5. (SBU) Turning to avian influenza, Sadikhov told the
Ambassador that he had formed a commission to monitor the
situation and had sent samples to Baku. He added that 90 to
95 percent of the local birds or poultry were "kept safe."
Although he did not know the total amount of commercial
chicken operations in his region, Sadikhov said that one
broiler with 80,000 chickens kept its poultry indoors.

Sheki ExCom
--------------


6. (SBU) Upon arrival in Sheki, the Ambassador called upon
ExCom Nazim Ibragimov and discussed the economic development
of the region. Ibragimov began by noting that Sheki has a

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long history of trading and business and its citizens
"enjoyed making money." Ibragimov said that investment in
Sheki was low and, according to him, the region needed more
than USD 100 million for economic development. He stated
that his first goal was to create a positive investment
climate. Ibragimov inquired about available U.S.
agricultural assistance programs and said that local
companies wanted to purchase U.S. equipment.


7. (SBU) Ibragimov told the Ambassador that Sheki has six
local newspapers and that the ExCom office does not inhibit
freedom of the press. He added that democratic development
requires peace and cooperation. Ibragimov noted that he
maintained a friendly relationship with all citizens in Sheki
and that his door was always open. He was aware of the
number of Peace Corps volunteers and added that Sheki would
accept more volunteers.


8. (SBU) Regarding avian influenza, Ibragimov said that Sheki
had established a commission to monitor the situation and
convey information to the local population. He stated that
he received updates three times a day from local officials.
According the Ibragimov, there have been no die-offs of birds
in the Sheki region. He noted that there were only a few
chicken broilers operating in the region. The Ambassador
raised the idea of providing financial compensation to
farmers affected by AI. Ibragimov agreed that such a
compensation plan was a good idea and that a Sheki
parliamentarian had also raised it during a recent visit.


9. (SBU) Ibragimov told the Ambassador that there were many
commercial opportunities for U.S. companies in Sheki. He
also noted that many local companies had recently purchased
Chinese, Turkish and German manufactured equipment.
Ibragimov noted that U.S.-made equipment was known for its
high quality and thus highly sought after. The Ambassador
mentioned to Ibragimov that there were several different U.S.
programs, including PRAGMA and EXIM financing, available to
assist local businessmen purchase U.S. equipment. The
Ambassador also suggested that the American Chamber of
Commerce might be able to visit Sheki (as it did in Ganja) in
order to identify any agriculture and commercial
opportunities. Ibragimov welcomed any visits from the AMCHAM
and other U.S. business groups.

Junior Achievement & Project Harmony
--------------


10. (SBU) Ambassador Harnish visited Sheki High School number
18 to review a USAID-sponsored Junior Achievement economic
classroom. The Ambassador gave a brief lecture on "labor
productivity" and answered several tough economic questions.
Project Harmony and Junior Achievement Azerbaijan, a local
NGO, have been operating this program since March 2003.
Junior Achievement Azerbaijan has forged a strong
relationship with the Ministry of Education, which has
replaced its own economics curriculum with Junior Achievement
Azerbaijan's Applied Economics curriculum in affiliated
schools. Junior Achievement Azerbaijan has introduced an
economics curriculum for 10th and 11th grade students with
the purpose of educating young people in the principles of a
market economy and the basics of economic theory that will
help them develop as future business leaders and
entrepreneurs. Junior Achievement Azerbaijan has provided
more than 22,000 10th and 11th grade students from SEE
schools with textbooks (translated into Azerbaijani and
Russian) and more than 200 educators with teaching materials.
In addition, participating school students practice applied
Economics through taking part in Management and Economics
Simulation Exercise and receive training on computer usage
and Internet collaboration.

Local Businessmen Discuss Business Climate
--------------


11. (SBU) Before departing Sheki, the Ambassador hosted a
lunch with five local businessmen and entrepreneurs. The
owners of the local silk factory, brick factory, canning
operation, agricultural leasing company and juice factory
told the Ambassador that Sheki businesses need U.S.
equipment, financing and economic assistance. The Ambassador
provided a short briefing on U.S. agricultural assistance
programs, including PRAGMA. All commended the knowledge of
local Sheki employees but lamented the region's overall lack
of capacity and technology. Three of the businesses are

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relatively new, having started in late 2005 with some
assistance from the GOAJ. Some of the business owners had
previous experience during the Soviet Union period and
developed their current businesses as a direct result of
previous business contacts and know-how.


12. (SBU) Most of the businesses export their goods to Baku.
The local brick maker told Ambassador Harnish that current
brick capacity was 30,000 bricks a day, with the majority of
them being transported to Baku. The brick maker noted that
in order to expand his business he need to upgrade his
equipment and make more than USD 1 million in investments.
With recent upgrades, the brick factory should soon increase
production to 50,000 bricks per day. Several of the
businessmen told the Ambassador that they had recently
purchased large equipment from Turkey, Germany and Italy.
The brick factory owner said that he wanted to purchase
cement and brick manufacturing equipment from the U.S.


13. (SBU) The Agroleasing business representative told the
Ambassador that his operation was providing interest free
loans to purchase fertilizer and below market lending rates
for large farm equipment, such as tractors. Agroleasing is
connected to the Ministry of Economic Development and is
charged with developing agricultural activities in the
regions. In addition to the services provided by the
Agroleasing business, the juice factory director told the
Ambassador that his firm had received a USD 150,000 loan from
the GOAJ at a favorable interest rate. The juice factory,
using locally procured berries, is also looking to expand
production capacity. The juice factory owner also noted that
it is selling its "juice-box" products to the Ministry of
Defense.


14. (SBU) The Sheki businessmen told the Ambassador that
there was no local Sheki business or chamber of commerce. In
addition, they noted that the business leaders rarely
gathered together to exchange business ideas or contacts.
While the business climate in Sheki is good, there is a need
for better equipment, technology and training that could
assist the region's development. The role of the GOAJ in
providing low interest loans to farmers and businessmen in
the regions has caused some of the International Financial
Institutions to question the government subsidies. The IFIs
are concerned that the funds are being given to
politically-connected businesses rather than to sectors and
industries that really have a need.
HARNISH