European Tobacco-Baku now country’s biggest taxpayer
Exports quadruple after $60 million facilities upgrade

Dr. Rufat Guliyev is one of Azerbaijan’s foreign investment experts. He has helped create the welcoming environment that foreign investors find in this TransCaucasus country. Guliyev can speak with authority on the subject because he is Chairman of the Board of one of Azerbaijan’s most successful joint-venture companies.

After an attempt by American tobacco giant R.J. Reynolds to establish a joint venture failed in the mid-1990s, British American Tobacco (now European Tobacco) and a local investor company, SOREX Management, Inc., stepped in when the Azerbaijan government re-opened the tender in 1999.

The British American/SOREX group won the bid for 92.5 percent of the joint venture with an investment proposal totaling $49.8 million. Employees of the precursor parastatal tobacco company received vouchers for shares totaling 7.5 percent of the new company.

The European Tobacco/SOREX group had 2.5 years to meet government-imposed conditions regarding factory rehabilitation. They accomplished it all in just four months and 22 days. The company invested $60 million in new equipment, making it one of the largest foreign investments in Azerbaijan.

The company could meet almost all domestic cigarette demand, but estimates that it has about 55 to 58 percent of the market. The company also exports cigarettes to the Middle East, and other CIS countries, as well as to the Free Economic Zones of Turkey, Mongolia, Pakistan, the UAE and other Arab countries.

"We are very competitive," Guliyev says with pride. "My dream was to work for a foreign company in my own country. Now my dream is realized."

European Tobacco-Baku has now become the largest taxpayer in the country, Guliyev says, displacing the cell phone giant, Azercell. Tax payments paid to the central government for the first nine months of 2001 totaled $21 million. "That’s two and one-half percent of the total government budget," Guliyev calculates.

The company produces 23 brands of cigarettes and is proud that it makes cigarettes to international standards, which has allowed the company to steadily increase exports. Exports for the first nine months of 2001 were more than four times the export level for the whole of 2000.

The plant has 700 employees working in its factory, with an additional 1,500 involved in transportation and sales. Moreover, the factory continues to pay an allowance of one-half their former wages to some 250 employees of the old factory. European Tobacco-Baku hopes eventually to expand enough to be able to absorb these redundant workers back into the new company.

Guliyev says proudly: "Altogether, with the 2,500 farmers we buy from, about 5500 families - that’s about 20,000 people - have bread on their tables because of this one factory."

European Tobacco-Baku has sent 15 employees abroad for training, and the company’s international partners have brought foreign technicians to hold training sessions for Azeri employees.

"We are negotiating with the American tobacco company, DIMON, the number two tobacco firm in the world, for a five-year contract to buy Virginia tobacco from America," Guliyev states.

The company already buys some tobacco from Azerbaijan farmers, but imports most of what it uses from Greece, Bulgaria and Africa. A variety of tobacco sources is necessary, Guliyev explains. "Although there may be five or six main types, each cigarette contains a minimum of 12 kinds of tobacco and the most expensive brands contain as many as 18."

The company plans to increase tobacco production in Azerbaijan. Under the Soviet regime, the country produced 60,000 tons annually, but today produces less than 18,000 tons. Operating through local tobacco fermentation plants, European Tobacco-Baku helps finance tobacco production on Azerbaijan’s farms. Guliyev explains, "We work through these agents in the regions who do the initial tobacco processing. They pay the farmers to grow tobacco and then work with them to increase production."

"DIMON can also help us improve growing technology. It can help European Tobacco-Baku increase Azerbaijan tobacco production to 50,000 or even 60,000 tons per year. DIMON has had success in Argentina and Kyrgyzstan," Guliyev says, "It’s a good company that can help us."

After having supplied farmers with seeds for improved plants for the last two years, European Tobacco-Baku is now buying 2,000 tons of Azerbaijani tobacco. "This is the first time that Azerbaijan tobacco has been used to make European standard cigarettes," Guliyev says. "Tobacco must have quality of taste and quality of cutting. The old equipment the Soviets had can’t cut tobacco to meet European cigarette standards."

Guliyev says foreign investors thinking about Azerbaijan should know that they are welcome: "Adam Smith said competition increases quality" - and they should know that Azerbaijan is an open economy. But foreign investors, he advises, must have a long-term outlook. "Our country is small, but it has all kinds of possibilities - in agriculture, fishing, the list goes on and on. President Aliyev has created the right conditions for foreign investment now, even though our economic conditions haven’t been the best in the past."