May 14, 2014 | Article

In 2012, the Organized Crime and Corruption Reporting Project named Azerbaijani President Ilham Aliyev its corruption “person of the year.” According to the project, Aliyev was awarded this dubious distinction based on extensive reports and “well-documented evidence” that the Aliyev family had used its influence over a period of many years to take advantage of profitable business deals being done in Azerbaijan. As a result, the family held preferential stocks in most of the country’s key economic holdings.

In Azerbaijan, like in most developing countries, corruption is a systemic governance challenge. Governmental decisions tend to be enveloped in a culture of non-transparence. Institutions that can correct this lacuna, such as those that exist in most mature democracies, are either paper tigers or do not exist. Effective mechanisms to punish offenders are simply lacking. And often who is an offender is decided as a function of political criteria – the easiest way get rid of a political opponent is to accuse him or her of corruption. Many of the senior officials successfully prosecuted for corruption in the country have conveniently been those with a recent history of publicly criticizing the government. Similarly, intrepid journalists willing to expose corruption have been known to be arrested on phony drug charges, or subjected to other smears.

A strong dichotomy exists in the country between formal responses to corruption and the actions of many government officials in practice. Formally, Azerbaijan has shown great interest in working to counter corruption. It launched an anti-corruption campaign in 2011 and approved its National Action Plan to Combat Corruption a year later, alongside a National Plan to Promote Open Government. It has also signed a number of international anti-corruption instruments, such as the UN Convention Against Corruption. It was even the first signatory of the Extractive Industries Transparency Initiative.

However, despite this formal posturing, there is no effective oversight over corruption, and Azerbaijan’s elites have continued to take advantage of this failing. As a result, corruption remains an integral part of the country’s social and economic fabric. A case in point: at the same time as President Aliyev was presiding over the country’s anti-corruption action plan, he was also setting-up offshore shell companies – listed in the names of his daughters – to hide his assets.

Why is this so?

First, Azerbaijan is a major oil producer. Its vast oil and gas deposits have made Azerbaijan one of the world’s fastest growing economies of the past decade, with oil production accounting for upwards of half the country’s GDP and 90 percent of its exports – though this number is likely to decrease, as most analysts agree that oil production has passed its peak and will begin to decline in the medium term.

Oil revenues have allowed the government to increase minimum salaries and pensions, while reducing poverty through social transfer programs. However, these revenues have also helped to bankroll the complex patronage networks that President Aliyev relies on to maintain power. We know from the experience of other countries with major resource wealth that such wealth tends to create a playground for corruption.

Second, Azerbaijan has been on a war footing with Armenia since the latter occupied Nagorno-Karabakh in a brief but bloody altercation between the two countries in the early 1990s. Although a formal ceasefire has been in place for 20 years, violations have been frequent and intermittent attempts to resolve the conflict unsuccessful. Armenian-backed troops still occupy approximately 14 percent of Azerbaijani territory. The war with Armenia has engendered a policy of super secrecy on all matters affecting defence and security sector, again a policy encouraging corruption.

Third, Azerbaijan has been a pawn in the Caucasus equivalent of the great game. Russia, even as it signals its continued support of fellow Orthodox state Armenia, tries to simultaneously maintain its credibility with Baku. In 2013, Russia reportedly completed a billion-dollar sale of weaponry to Azerbaijan. The country’s arms trade with Russia, according to another source, was worth 4 billion USD.

America, in turn, tries to cultivate Baku in an effort to offset Russia’s influence. So Washington tends to turn a blind eye to the oversight failings that reign over the Azerbaijan defence and security sector. This tendency is amplified by European countries’ interest in reducing their dependence on Russian energy supplies.

The question we ask ourselves is whether all this is a good deal for Azerbaijan, even for an Azerbaijan that remains fixated on the conflict with Armenia. Our short answer is probably not.

If a country wants to enhance its defence profile, it needs to use the resources at its disposal effectively. This requires a functioning system of oversight. Azerbaijan does not have this. Moreover, if a country wants to retain the support of its population for its security effort, it has to ensure that its people understand that resources being devoted to this effort are being used efficiently and are not disappearing into the pockets of people in and close to power. Azerbaijan fails abysmally on this score.

Strategically, if Azerbaijan is serious about countering Armenia, it makes sense to let Armenia know just what is going in the Azerbaijani defence and security sector. We hasten to add that this is not a call for conflict but one for compromise. Azerbaijan’s defence spending is vastly superior to that of Armenia. The 3.1 billion USD in requested military spending in Azerbaijan in 2013 was reportedly almost one third larger than the entire national budget of Armenia for that year. Clearly demonstrating Azerbaijan’s military spending superiority is an invitation to Yerevan to reconsider how better to proceed: seek accommodation with the bedeviled neighbor or remain a vassal of Moscow.

That said, Azerbaijan’s defence spending superiority might not necessarily be decisive in any altercation between the two countries. Some experts claim that despite significant budget increases and greater investment in the armed forces, Azerbaijan’s military remains fragmented and military capabilities have not increased proportionally to spending. Nonetheless, Azerbaijan’s budget superiority remains an important variable, one that can be useful as a mechanism for deflating conflict potential and moving the two sides to an understanding.

Against this background, it is clear that the lack of transparency and accountability in and over the Azerbaijan security sector undermines the fundamental security interests of the country’s population. This is not good for Azerbaijan, for its relations with Armenia, for the Caucasus as a whole, let alone for the global strategic balance.

Authors

David Law is Senior Fellow and Eric Muller a Research and Communications Intern at the Centre for Security Governance.