According to The Statistical Committee of the Republic of Azerbaijan, the non-oil sector in Azerbaijan accounted for 36.84 % of GDP in 2019. The traditional reliance on oil and gas has triggered the government to invest heavily in non-oil sectors, including transportation & logistics, tourism and agriculture. In the meantime, priorities and tasks were set out by the government in the Strategic Road Map developed by the Center for Analysis of Economic Reforms and Communication of Azerbaijan Republic with the support of McKinsey & Company in 2016.
First change – Oil boom
The first structural change in the labour market was observed after the ratification of the “Contract of the Century” in 1994. In the shadow of entering into a market economy, the world’s major oil companies invested in Azerbaijan in a relatively short time. Oil & Gas (O&G) companies’ high working standards resulted in top down improvement in service quality of contractors, joint-ventures and other entities considering that O&G sector was the core player of Azerbaijan’s economy at the time. A high standard business culture in the upstream contributed to local businesses’ culture positively, and accordingly affected leadership development in every sector. This first cycle of change that Azerbaijan experienced is largely explained by external factors.
Second change – External factors with internal motivation
Azerbaijan’s economy “scored” the maximum points that can be reached with “easy money” based on natural resources. The post-oil era economic conditions made Azerbaijan start the change process once more through external factors, however, this time combined them with internal motivation. This time change occurred bottom up – now change is wanted by individuals and entities which is much more complicated and painful. This cycle of change needs a methodological approach in every dimension of governance and is associated with effectiveness, sustainability, productivity and competitiveness. In this stage, it is observed that organizations start to limit foreign labour to minimum numbers and start to develop national leaders – this was taking place in 2013. Especially the O&G sector approved nationalization strategies and developed leaders who now work both in local and international labour markets. However, it failed to show the same results in other sectors, which is a “red flag” for sustainable labour market development.
Transformation of the governmental leadership
The devaluation of the national currency against US dollar caused by the recent oil price collapse and more recently the COVID-19 pandemic period has once again showed that Azerbaijan is only in the preliminary stage of diversification of its economy. This has forced Azerbaijan to experience a “rejuvenation” in the government sector, which has resulted in more sustainability, diversity, transparency, adequacy, and participation in the decision-making process. On 4th June 2019, the Cabinet of Ministers of Azerbaijan approved a procedure for evaluating the effectiveness of the activities of legal entities where the controlling stock belongs to the state. The Yukselish competition (“Career growth”) was established by the order of President Ilham Aliyev, and signed on 26 July 2019, with the aim of identifying and supporting promising highly intellectual executives with managerial qualities and ensuring the creation of a reserve pool of personnel resources in the country. Very recently, on 20 August 2020, the President of Azerbaijan Republic appointed the Head of Board of recently founded Azerbaijan Investment Holding to manage the state-owned companies more effectively under one umbrella – this is another indicator for adequate mindset and leadership competencies needed in the country.
How the executive market in the private sector was affected
It is crucial for all type of organizations to assemble the right combination of talent, especially to strategic and leadership positions, since vision comes from top down. On the contrary, a significantly important portion of Azerbaijan’s businesses consists of family businesses or businesses constructed on politically exposed persons that resulted in poor leadership competencies. These businesses struggle with empowerment of managers on key strategic roles usually without any relevant competencies. According to the Harvard Business Review, 90% of family businesses fail by the third generation. To escape from this, businesses need to raise productivity, which means accordingly having the right set of competencies in leadership positions.
As an executive search company operating in Azerbaijan we see many educational examples over time. A recent client requested a chief executive from Turkey to win over competitors. This allowed them to bring the accumulated industry knowledge, localize it rapidly and implement it in the market with ready strategies without “trial and error”. In 2017, a local digital company also could not find a General Director in Azerbaijan with 20+ years’ experience, leadership skills and industry knowledge in the digital sector, therefore they changed their mind to search non-local executives. The same trend is being observed in many production areas. The most recent client needed an interim manager from a European country because of the 200 years’ tradition of the target country whereas Azerbaijan doesn’t have enough experienced leaders. All the mentioned examples indicate to the lack of either experience, industry knowledge in scale or leadership skills.
This article is not constructed on the opinion that, Azerbaijan does not have world-class executives. The author also would not deny that, Azerbaijani executives especially in telecommunication sector, O&G industry, or financial professionals who worked in international audit companies, are very competent in both local and international markets. The idea of this article is to point out that Azerbaijan is experiencing change, however, the executive labour market is not developing according to the speed of this change to meet the demand. The government of Azerbaijan is aware of this gap coming from Azerbaijan’s rapid transformation to real competition, but the main agenda of the government is to diversify the economy. Private sector tends to request local headhunting services or bringing executives from abroad which comes from their nature to react with agility.
The main point of this article is to stress the fact that, government of Azerbaijan should take serious actions to focus on local leadership development strategies, which will take the country to the “next level”.
Text by Dayanat Ahmadov, Boyden Azerbaijan, Partner PhD Candidate