The World Bank (WB) has started economic cooperation with Azerbaijan in 2001 with the aim of increasing institutional capacity of the country and building efficient management of oil reserves. WB has reviewed the compliance of the regulations governing SOFAZ’s activities, management of its assets and guidelines for the preparation and execution of the Fund’s budget with internationally accepted standards and has given a positive note.
To better coordinate the management of the Fund’s continually increasing financial assets and cooperation with WB, experts of WB have regularly visited SOFAZ throughout 2006, which in return, paved the way for the implementation of new joint economic projects. SOFAZ’s employees have also attended trainings and seminars in many different fields organized by WB.
Official relations between SOFAZ and WB began on December 6, 2006 through the “Reserves and Advisory Management” agreement. After signing of this agreement on January 31, 2007 SOFAZ gave USD 100 million to the WB for external management.
In the frame of this agreement, SOFAZ’s employees have attended seminars organized by the WB since the beginning of 2007 to improve their skills, abilities and professional practice. Seminars organized by the WB covered the following fields: management and investment policy, management of stable revenue portfolio, portfolio analysis and risk management, investment management and support.
At the same time, the WB organizes regular meetings with Fund's employees to share with them their business experiences.
Cooperation with International Monetary Fund
Business relations of SOFAZ with the International Monetary Fund (IMF) were founded in 2001. IMF has provided technical assistance to Azerbaijan in many areas including expenditure management, fiscal-tax policy and management, banking, monetary policy and statistics. The analysis of the results of long-term oil strategy is the essential part of the cooperation. At the same time IMF gives reviews on economic development of the country, budget forecasting and gives prognosis about the growth rate of the assets of SOFAZ. According to the IMF, during the world economic crisis in 2009, SOFAZ was the only fund among all sovereign wealth funds which has received profits from managing its assets.
The Head of IMF Mission to Azerbaijan Nienke Oomes highly appreciated Fund’s economic policy during 2008-2009 and characterized it as a perfect one. “We positively value SOFAZ's activities in 2009 on management of its assets. SOFAZ demonstrated good risk management, its investment policy and procedures showed vitality and efficiency,” N. Oomes stated.
Cooperation with United States Trade and Development Agency
Relations with the United States Trade and Development Agency (USTDA) began after the visits of high-level delegations from American Chamber of Commerce to SOFAZ in 2002.
The grant agreement amounting to USD 1 091 840 on USTDA, funding the costs required for technical assistance on phase I of the Institutional Capacity Building for SOFAZ project was signed on May 19, 2004. Agreement was signed by Mr. Samir Sharifov, Executive Director of SOFAZ and Mr. Reno Harnish, the U.S. Ambassador to Azerbaijan. The scope of technical assistance envisaged by the grant agreement included:
“Overture Financial Services LLC” company was selected to implement the project.
USTDA and SOFAZ signed a grant agreement amounting to USD 855 075 on USTDA, funding the cost of goods and services required for the technical assistance on Phase II of the Institutional Capacity Building for SOFAZ project on February 7, 2007. Agreement was signed by Shahmar Movsumov, Executive Director of SOFAZ, and Daniel Stein, USTDA Director for Europe. The scope of phase II includes assistance with selection and implementation of the ledger accounting system, portfolio management/accounting system, portfolio performance engine and risk management solutions. Phase II of the Institutional Capacity Building Project was implemented by Overture Financial Services.
USTDA and SOFAZ signed a grant agreement amounting to USD 250 000 on USTDA, funding the cost of goods and services required for technical assistance on Phase III of the Institutional Capacity Building for SOFAZ project on September 28, 2009. The agreement was signed by Shahmar Movsumov, SOFAZ Executive Director and Scott Greenit, USTDA Director for Europe and Eurasia. The scope of phase III includes assistance with selection and implementation of Risk Management and Measurement system and providing trainings.
As in previous phases, Overture Financial Services LLC was the company to perform the technical assistance on phase III of the project on Institutional Capacity Building for SOFAZ. Implementation of phase III of the project was completed in 2010.
Economic cooperation of SOFAZ with International Finance Corporation (IFC) is characterized by participation on private equity funds managed by IFC as an investor. IFC Asset Management Company, LLC ("AMC"), allows sovereign and pension fund investors to co-invest in a private equity format with IFC in growth opportunities in developing country markets.
Private investment funds are included to the class of alternative investments and differ from traditional investment instruments (bank deposits, bonds, shares and other large companies) in a number of characteristics. First of all, successful private investment funds are more profitable than traditional investment instruments. The main reason is that private investment funds invest in newly created small or medium-scale companies, as well as in those without adequate access to capital markets at the beginning of their functioning. Such companies have high potential of income. Another characteristic feature of private investment funds is being long-term, non-liquidity investment instrument. Private investment funds, as a rule are invested for 10 or more years. This is an essential feature of private investment funds.
SOFAZ joined following funds with IFC as an investor:
IFC African, Latin American and Caribbean Fund was established in 2010. It has a target size of USD 1 billion and will be managed by a wholly owned subsidiary of International Financial Corporation, IFC Asset Management Company (AMC). The IFC African, Latin American and Caribbean Fund invested in different companies in emerging markets. SOFAZ committed USD 100 million to this Fund.
IFC Catalyst Fund was established in 2012 and was designed to stimulate the development of funds and projects focused on renewable energy and climate-friendly solutions. The Fund has a target size of USD 346.5 million. SOFAZ committed USD 50 million to this Fund.
IFC Global Infrastructure Fund - was established in 2013 and gave investors access to the investment pipeline of IFC in equity and equity-like investments in infrastructure projects and companies in emerging markets globally. The Fund has a target size of USD 1.05 billion. SOFAZ committed USD 200 million to this Fund.
Partnership with IFC in this venture brings a wealth of operational experience in the developing world and very impressive track records of investment performance in these markets. SOFAZ is considering other opportunities to invest in funds managed by the IFC Asset Management Company in the near future.
The Extractive Industries Transparency Initiative (EITI) is a voluntary initiative, supported by a coalition of companies, governments, investors and civil society organizations. EITI is a global standard to ensure transparency in extracting oil, gas and mining production. Azerbaijan joined this Initiative in 2003 and is the first country to complete validation, the EITI's quality assurance process which verifies compliance with EITI principles and criteria and became the first EITI Compliant country among other candidate countries. As a result, “EITI Award 2009” was awarded to Azerbaijan for the commitment to EITI principles and criteria and its achievements in EITI implementation (for more details: www.eiti.az).
Azerbaijan withdrew from EITI on March 10, 2017.