Friday, January 4, 2013

Agglomeration of population in Baku. Labor Pooling.

Agglomeration of population in Baku: Labor Pooling in action.

by Turan Orujova

 Azerbaijan republic (AR) is one of the biggest countries in the Caucasus region. It is located on the border of Europe and Asia and bounded by the Caspian Sea. The neighborhood countries are Russia, Georgia, Armenia, Iran and Turkey. Total area of Azerbaijan is 86,600 sq km and it is divided into 10 economic regions.

  The major contribution to the economic growth of the country is energy resources (oil). After gaining the independence from the USSR, the Azerbaijan Republic is considered to be a transition economy, with major export sector being oil. From the middle of 90 s the government managed to open up to the international trade and business. During last decade the total FDI into Azerbaijan exceeded $ 25 bn, and from this aspect Azerbaijan is a leading country in the region.

   The reason for enterprises to make equity investments in Azerbaijan is that in general these companies are mostly oil and petroleum oriented enterprises, and abundant natural resources make Azerbaijan an attractive target for such investments. The most interesting fact is that most of these enterprises are located in the capital of the country- Baku. If we look at the country from the point of view of the regional economy, we can easily observe the agglomeration of population in one particular part of the state, - the capital. The population of Baku has changed considerably during the last decade; moreover, there is an escalating tendency of migration to the capital during the last two decades. Below, we can see the changing pattern of agglomeration in the capital, here the increasing tendency of population growth can be observed.

What is the incentive for moving to the capital (Baku)? There are many reasons for agglomeration to occur in the capital and let us observe some of them.

Azerbaijan has access to the Caspian Sea, which oil and gas reserves are considered to be one of the major condensed gas and oil deposits. For the reason that Baku is situated on the seashore, it is a suitable location for the businesses doing oil exportation. In 1994 the ”Contract of the century” was signed, which implied the projected investment equal to $13 bn.  This is how we can explain the increasing tendency of population in the capital. Huge amounts of FDI give government a push for development, thus, creating new workplaces and that pushes people to move. The rapid increase in agglomeration started approximately in 90ts,  when the major 11 companies invested into Azerbaijan oil sector: BP, Amoco (U.S.), LUKoil (Russia), PennzoilUNOCAL (U.S.), Statoil(Norway),Dermott(U.S.), Ramco (Scotland), TPAO (Turkey),DeltaNimir and SOCAR (Azerbaijan).

Consequently, during the last decade there has been a significant drop in the unemployment level. As State Statistics Committee reports, recent time (especially starting from 2003) the unemployment rate fell almost by 3.6%. Such a decreasing tendency of unemployment can be explained by the creation of new workplaces in the industry production. New investors and new firms mean expanding of productions, thus, creation of workplaces, consequently, incentive for people to move from poor rural parts of the country to the capital, where they can easily find a job.

Another reason is the new economic formation with high level of private sector participation. The increased share of private sector (98% in 2001) makes the country’s economy more competitive. Rapid growth of economy, based on the processes of globalization, led to the development of SMEs and privatization. Most of the private corporations are located in the capital, because it is less costly to find educated people, with good knowledge and background. Fine infrastructure of the city makes it convenient to do business with foreign partners, which are attracted to the emerging market with abundance in natural resources.

Finally, as a result of agreement between Azerbaijan, Georgia and Turkey in 2006, The Baku-Tbilisi-Ceyhan pipeline started to function. Since then Azerbaijan started to act on the international market. The international agreement caused migration not only within the country; it became the reason for migration of foreign workers to Baku, in order to participate in the construction of the pipeline.

Thus, on the example of Baku, we noticed that if a country is abundant in natural resources it can cause the agglomeration of people (consequently firms, workplaces, production) in a particular part of the country, which can be considered as the business center of the whole state.


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