Trusting Mothers-in-Law: Travels through Armenia and Azerbaijan

Istanbul, September 2007

Dear Friends and Family,

Greetings from Istanbul. I am on one of those crazy trips where I spend one week in Armenia, take all day to drive into neighboring Georgia (with a change of drivers and cars at the border) to fly into Azerbaijan with just one week in Baku before flying to Istanbul en route to Moldova.

Armenia and Azerbaijan remain locked in war (and thus do not have direct air connections). If the Azeri politicians were to give up Nagorno-Karabakh and the contiguous area with Armenia, they would divide their country in half—and leave an island of Azeris in Armenia. Similarly if the Armenian politicians were to give up the area, they would be accused of abandoning their own people. In the meantime, the two countries maintain a military and economic blockade against each other, which hurts landlocked Armenia far more than Azerbaijan, since Baku sits at the edge of the Caspian Sea.

Perhaps it is because Armenia is landlocked but to me, it is amazing that the Armenian Government supports the the push for transparency of ultimate beneficial owners of the corporate sector. (The Azeris also keen but not to same degree.) Presented to the parliament of Armenia has been legislation on a par with that of western European countries—at least on the issue of transparency of ownership and control of publicly traded companies. When I asked one of my colleagues how they could support such moves towards transparency when so much is under cover, he had a simple explanation. “It is the mothers-in law of Armenia who own the country. Everyone puts their mothers-in-law as the shareholders of their companies.” This is a solution reflecting Armenian social culture. It appears that Armenian mothers-in-law are highly trusted.

One of the reasons I so like Armenia is that the municipal authorities have preserved their historical buildings. Republic Square in Yerevan is one of the most beautiful public places in all the Caucasus. By contrast, Baku in Azerbaijan feels like a city under construction. As one drives in from the Baku airport, it is the number of partially-finished apartment buildings that astonishes the new visitor. From the executive lounge of my hotel, I counted 14 new apartment buildings near the waterfront and six were missing walls, and in some cases, their roof. No doubt, it is oil money that is fueling such expansion in residential construction. Azerbaijan enjoys not just substantial oil and gas reserves but also its central location on the Baku-Tbilisi-Ceyhan (BTC) pipeline, which was built to transport Kazakh oil and gas to the west without going through Russia. The Azeri economy has doubled in less than three years but the serious wealth is concentrated with just a few.

When I was last in Azerbaijan in 2005, the political-economic structure was in flux. The country’s founder had died and his son had been made president in an election that was criticized by the international community--but not too heavily. The problem was the son had not always been presidential material, and as they say, “when he was young and foolish, he was young and foolish,” similar to our own George W. Bush in his early years. As the story goes, the son of the Azeri president had lost ownership of the most prestigious hotel in a gambling contest. In anger, the father closed all casinos in the country to ensure that his son did not lose anything more—or so goes the popular story.

In 2005, the tycoons of Azerbaijan were realigning themselves with the new President. Other threats have also been eliminated. One of the members of the founder’s extended family had been trying to clean up government and force some transparency but he has now been jailed and thus taken out of power. A journalist was trying to investigate and write about government corruption but he was killed in a mafia-style murder.

Much of the story about local politics was confirmed by the director of one of the project implementation units for projects financed by the international community. He wouldn’t even talk to me in our car where the driver would hear. Instead we stood on a downtown street corner, where the cars blow their horns nonstop due to the poor traffic circulation.

The drivers of Baku have good reason to be upset. The littering of the city with apartment buildings has increased the number of cars on the road, of which over one-third seem to be silver Mercedes C and E class. The apartment blocks are built on streets with a single lane of traffic on each side and no parking in the building.

In early September, there was a political crisis as one of the new apartment buildings collapsed. It was not quite finished and so the collapse killed a few workers and interior designers but not a large number of people. The city officials were quoted in the local English-speaking paper as saying that they did not know that the building had been built, suggesting that the building had not been formally approved by municipal authorities.

However that building may not be the only one to fall. Most of the new construction is 17-20 stories high—even though Baku is part of a major earthquake zone that plagues the Caucuses and caused the Armenian tremblings of 1988. From the partly-built sites, it appears that most buildings have just a few steel bars placed among the bricks. Probably they should be using heavily reinforced steel in concrete.

The bigger problem is that, according to the talkative director, all the local construction companies are owned by government ministers. How do you sue your builder for negligence if he (or she) is also a minister of government and can make your life very difficult?

Perhaps it would be better if in Azerbaijan, the mothers-in-law were also the owners of the large companies and could take on ministers who failed to follow city building codes.

Sue