As the Azerbaijani Armed Forces, under the leadership of Supreme Commander-in-Chief Ilham Aliyev, continue to liberate our occupied territories, the post-conflict period—particularly economic development—has come into sharp focus. The Center for Analysis of Economic Reforms and Communication (CAERC) conducts extensive research in this field and regularly disseminates its findings in local and international media in Russian, English, Turkish, Spanish, Urdu, Armenian, Romanian, and other languages. The Executive Director of CAERC, Doctor of Economic Sciences Vusal Gasimli, gave an interview to AZERTAC on the development prospects of Azerbaijan’s economy in the post-conflict period.

– Mr. Gasimli, CAERC previously released a statement on the damage inflicted on Armenia’s economy as a result of the conflict. How will Azerbaijan’s economy benefit from this victory?

– First, the morale boost brought by victory is essential for public self-confidence in Azerbaijani society. For example, after Margaret Thatcher defeated Argentina in 1982 and secured British control over the Falkland Islands within 74 days, the United Kingdom experienced a surge of confidence: the Thatcherite economic model succeeded, Britain began to be called “great” again, and Margaret Thatcher strengthened her global reputation as the “Iron Lady.”

Second, whereas Azerbaijan’s economy previously supported the Army, the Army is now contributing to the economy. Azerbaijan is waging a fifth-generation (5G) war and liberating its legitimate territories. The liberated lands, along with their mineral resources, water, and forest reserves, will enhance Azerbaijan’s economic strength. In particular, the unity of the Azerbaijani people around President Ilham Aliyev strengthens the foundations for further deepening reforms.

Under President Ilham Aliyev’s leadership, Azerbaijan’s regional leadership has been proven over the past 17 years by more than tripling its economy and implementing regional oil and gas as well as transport and logistics projects. In line with Henry Kissinger’s quote that “control oil and you control nations; control food and you control people,” Azerbaijan, while shaping the region’s geopolitics and geoeconomics, needed a final decisive element. Although Azerbaijan ranks 90th in the world by population and 114th by territory, it has risen to 45th place globally according to a report by the reputable US News. To fully consolidate its regional leadership, Azerbaijan’s economic and political advantages as a regional player had to be complemented by confirmation of its military potential. Over the past 10 years, Azerbaijan’s military budget has amounted to around 4 percent of GDP and 11 percent of the state budget.

On September 27 of the current year, in response to Armenia’s provocation, the Azerbaijani Armed Forces launched a counteroffensive that broke through the enemy’s defensive line built over 30 years, and territories occupied between 1988 and 1993—whose occupation had taken years—began to be liberated within weeks. Thus, Azerbaijan succeeded in transforming its economic superiority into military power and dominance over the enemy. Azerbaijan’s emergence as the leading power in the South Caucasus across all parameters—economic, political, and military—is reshaping the region’s geopolitics and geoeconomics. Armenia, which was predicted in advance to be unable to withstand a resource war, faced losses of USD 3.5 billion and around 30 percent of GDP during the first 20 days of the latest war with Azerbaijan. Without external assistance, Armenia would need 10 years to compensate for these losses.

With the support of international powers, Armenia’s occupation of nearly 20 percent of Azerbaijan’s territory for almost 30 years could be considered a “geopolitical lift” for our country, as Azerbaijan mobilized all its resources during this period to eliminate the occupation. These “geopolitical lifts”—oil and gas as well as transport and logistics projects—elevated Azerbaijan to high levels within the North–South and East–West corridors at the center of Eurasia. While Napoleon’s attempt in the 19th century to impose a Continental Blockade on Great Britain failed, Azerbaijan’s policy of excluding aggressor Armenia from regional projects in order to compel it to peace proved effective. Restrictions on sovereignty, chronic deficits in the balance of payments and consolidated state budget, loss of key economic levers, and the fact that a quarter of the population lives below the poverty line make it impossible for Armenia to continue the occupation of Karabakh. Azerbaijan’s military success in September–October of this year starkly revealed one reality for Armenia: 30 lost years. To avoid losing another historic opportunity, Armenia must abandon its occupation policy.

– How will economic reconstruction be carried out in the liberated territories?

– Azerbaijan has sufficient experience in restoring liberated territories. An Agency for the Restoration and Reconstruction of Territories has even been established to coordinate reconstruction efforts and create conditions for the return of internally displaced persons to their native lands. Starting from 2020, the territories liberated by the Azerbaijani Armed Forces will also be restored in an appropriate manner.

After the successful Horadiz operation in 1994, life was restored to 42 settlements in the Fuzuli district. Following the military victory in April 2016, the village of Jojug Marjanly in the Jabrayil district became the starting point of the “Great Return.” As a result of state attention and care, Jojug Marjanly was transformed into a modern and well-developed settlement in a short period. To this end, the President of Azerbaijan signed several decrees consecutively. Today, Jojug Marjanly is more developed than any settlement still under occupation, with better employment opportunities and social services. This demonstrates the difference in approaches to development between Azerbaijan and Armenia.

Reconstruction has already begun on the 29-kilometer road leading to the newly liberated Sugovushan and Talish villages in the Tartar district. In short, as Azerbaijan returns to its lands, life is revitalized. First, liberated territories are cleared of mines and other hazards, then communications are established, and finally residential and production activities are ensured. As territories are liberated, the “Great Return” continues.

– As territories are liberated, evidence once again emerges of Armenian looting and destruction on our lands. What is the scale of damage inflicted on Azerbaijan?

– As a result of the ethnic cleansing policy pursued by Armenian aggressors in the occupied territories between 1988 and 1993, a total of 900 settlements, 150,000 residential houses and apartments, nearly 6,000 industrial, agricultural, and other enterprises were completely destroyed; 7,000 public buildings, 693 schools, 855 kindergartens, 798 healthcare facilities, 927 libraries, 44 temples, 9 mosques, 473 historical monuments, palaces, and museums, 40,000 museum exhibits, 160 bridges, and other infrastructure facilities were destroyed or looted.

In addition, 280,000 hectares of forest, nearly 1 million hectares of fertile land—including 127,700 hectares of irrigated land—34,600 hectares of vineyards and orchards, and 1,200 kilometers of irrigation systems fell into the hands of the occupiers. In five districts outside the occupied territories, 120,000 hectares of arable land were left unirrigated and effectively removed from economic circulation. The occupiers also seized 220,000 head of cattle.

A Working Group was established to assess losses and damage resulting from the occupation of Azerbaijan’s territories by Armenian armed forces. It calculated and evaluated the value of all losses, including underground and surface resources, and created an electronic database. According to data as of 2017, the total value of losses and damage amounted to USD 820 billion. As territories are liberated, Azerbaijan will bring life back to these lands. It is also possible to file compensation claims against Armenia for the damage caused.

– Which sectors have development potential in the liberated territories?

– The occupation of these territories did not bring significant economic benefits to Armenia. Despite their rich underground and surface natural resources—non-ferrous metal ores, gold, mercury, chromite, perlite, limestone, marble, agate, mineral waters, and others—as well as vast resort and recreational potential, Armenia never managed to fully utilize this capacity. Yes, Azerbaijan’s mineral resources in Kalbajar and other areas were plundered through primitive methods that damaged the environment. Those responsible will be held accountable.

AzerGold CJSC and the Azerbaijan Industrial Corporation possess the experience, qualified personnel, and export and investment capabilities to extract and process these resources. By bringing new natural resources into circulation, Azerbaijan has the potential to ensure the development of the western regions, the mining industry, and the metallurgical complex. The development of metallurgy, in turn, will accelerate growth in several industrial sectors, including the military-industrial complex. The domestic defense industry must play its role in supplying the Azerbaijani Army, which possesses 5G technologies.

Forest, water, and land resources in the liberated territories create broad opportunities for the development of agriculture, processing industries, and tourism. Most importantly, the economy of the liberated areas will be rebuilt with the application of new technologies, increasing productivity. After World War II, the two most devastated countries—Germany and Japan—developed rapidly precisely because new technologies were introduced and productivity increased.

For example, most construction materials needed to rebuild liberated Jabrayil are available locally: tuff suitable for cut stone production, gravel, construction sand, clay suitable for brick production, volcanic ash, gypsum, limestone, sand and gravel, jade, chalcedony, and forest resources.

A construction boom is expected in the liberated territories. As a result of the liberation of our lands, we will need to revise our forecasts for non-oil sector development in the coming years. This victory of our Army will also accelerate the growth of the non-oil sector. The complete liberation of territories will have a very significant impact on economic development. Preliminary estimates show that in the coming years, total output in key sectors in the Upper Karabakh and Kalbajar–Lachin economic regions could increase by more than 2 billion manats.

– What are the prospects for agriculture in the liberated territories?

– Before the occupation, these territories accounted for up to 35–40 percent of Azerbaijan’s agricultural output. Under Armenian control, however, the zone proved inefficient. Despite having more than 250,000 hectares of fertile land in Karabakh alone, only 7 percent was used. The location of rivers mainly in the north, agricultural lands in the south, deeper groundwater levels, and the destruction of pre-existing irrigation systems led to underutilization. Crop yields were low—only 10–12 centners per hectare, compared to 21–25 centners before occupation.

Azerbaijan has great potential to develop viticulture, tobacco growing, cotton growing, sericulture, fruit and vegetable production, horticulture, and livestock breeding in the liberated territories. There is also strong potential for processing and food industries.

Liberation will significantly contribute to ensuring food security. Self-sufficiency in livestock products will improve. Currently, self-sufficiency levels are 82.5 percent for meat and meat products and 86.2 percent for milk and dairy products. After restoring economic activity in liberated areas, we expect to fully meet domestic demand. Self-sufficiency in grains (excluding rice) is currently around 70 percent and will improve further.

– The occupied territories are also rich in water resources.

– Access to water resources in the occupied territories is critical, as 72.7 percent of Azerbaijan’s water resources are formed outside the country. These resources will be used for drinking water, irrigation, and electricity generation. Efficient water management will put an end to Armenia’s hydro warfare against Azerbaijan and also provide leverage over Armenia itself. Kalbajar and Lachin districts are particularly rich in freshwater resources; the sources of the Arpa and Bergushad rivers that feed Lake Goycha, Armenia’s main freshwater source, are located there.

Additionally, Azerbaijan’s highest reservoir by dam height (125 meters), with a total capacity of 560 million cubic meters—the Sarsang Reservoir—is under occupation. Previously, it supplied irrigation water to the Tartar, Aghdara, Barda, Goranboy, Yevlakh, and Aghjabadi districts. Armenia used the reservoir to cause artificial floods in spring and autumn, damaging Azerbaijani lands. The Sarsang Reservoir represents a regional ecological and national security threat in Armenia’s hands.

Up to 40 percent of Azerbaijan’s mineral water resources are located in the occupied territories. These can be bottled for sale or used to establish resort and recreational zones. There is significant tourism potential based on two reserves, four protected areas, and historical monuments. The Azikh Cave, one of the world’s oldest human settlements, offers extensive tourism opportunities.

Although Armenia planned to build 30 small hydropower plants in the occupied territories by 2020, only 16 were commissioned. Their total capacity is equivalent to that of the 50 MW Sarsang HPP commissioned in 1976. Since Sugovushan has been liberated and the Madagiz 1 and Madagiz 2 HPPs are out of operation, capacity has further declined. Overall, Karabakh’s energy system remains dependent on Armenia and can meet only 30–40 percent of total demand.

President Ilham Aliyev’s far-sighted agreement with Iran on the construction and operation of the Khudafarin and Giz Galasi dams and power plants on the Araz River is now yielding results. The Khudafarin hydroscheme will enable Azerbaijan to generate 368 million kilowatt-hours of electricity annually and also provide irrigation opportunities.

– What does financing the so-called entity in mountainous Karabakh mean for Armenia’s weak economy?

– Armenia is not prepared for a resource war or an arms race with Azerbaijan. This exhausts and drains the country. Between 1995 and 2020, Armenia’s military expenditures totaled only USD 7.9 billion. Transfers from the Armenian budget also financed the separatist regime. Overall, occupation-related expenditures amounted to approximately USD 8.6 billion—an enormous burden. For comparison, foreign direct investment in Armenia over the same period was about USD 8 billion. These expenditures equal roughly 2.5 years of Armenia’s 2020 budget spending.

The dominance of military spending has created serious problems in financing science, education, healthcare, technology, and the social sector. As a result, Armenia—where one in four people lives in poverty—is among the world’s most militarized economies. Clearly, occupied Karabakh has no economic potential for Armenia; all supposed “development plans” have failed. In other words, Karabakh is an economic burden for Armenia and an economic opportunity for Azerbaijan.

– What can you say about Armenia’s settlement policy in the occupied territories?

– Armenia pursued an illegal settlement policy in the occupied territories, offering financial and material incentives to Armenians from Armenia and abroad—especially Syria, Lebanon, and Iraq—to settle there. This policy failed completely. According to Armenian statistics, about 150,000 people live there; Armenian media cite 40,000–45,000; fact-finding missions indicate only around 25,000. Before occupation, nearly 1 million Azerbaijanis lived in these territories. Clearly, the area was never attractive to Armenians, and Armenia’s economic capacity made fulfilling promises impossible. Facing depopulation, low birth rates, and an aging population, Armenia’s settlement policy collapsed. By contrast, Azerbaijan’s strong demographic fundamentals—one of the fastest population growth rates in Europe—will enable rapid resettlement of liberated territories and the return of our people to their ancestral lands.

The liberation of Karabakh will contribute to the expansion and diversification of Azerbaijan’s economy. As the Head of State has stated, “Karabakh is Azerbaijan!”