Azerbaijan has ambitious plans as a producer of defense and security equipment. While this will bring new income to the state budget, it also implies risks related to the conflict over Nagorno-Karabakh involving Azerbaijan and neighboring Armenia.

On January 14, Azerbaijani President Ilham Aliyev stated that “… Azerbaijan’s defense budget in 2011 is 30 percent higher than the total [annual] budget of Armenia … we spend US$ three billion only for military expenses”. In October, Azerbaijan adopted a US$ 3.12 billion military budget for 2011, including a 90-percent hike in military spending in comparison with 2010. “…It means that the difference between the two countries is on a non-comparable level. For the military budget, we can allocate as much [money] as we want, while Armenia will depend only on aid from abroad…”, Aliyev proudly said at the government meeting.

Azerbaijan’s Minister of Defense Industry (MDI) had previously stated that the country’s “armed forces no longer depend on a supply of ammunition from foreign countries”. “All types of ammunition that [our] armed forces demand are locally produced by plants of the MDI”, stated Minister Yavar Jamalov.

According to the December report of the MDI, the total volume of produced defense products in 2010 was 115 times higher than in 2006, when the renovation of former Soviet military plants was launched. In comparison with the level of 2009, this year’s production has been increased almost by a factor of four.

Azerbaijan has since 2009 started to display domestically manufactured ammunition at international exhibitions. Fifty-five types of defense products were displayed at SOFEX-2010 and 67 products at the exhibition “Africa Aerospace Defence-2010”.

The minister noted that the country had already developed a production of long-distance mortars, grenade launchers, sniper rifles, anti-tank mines, aircraft bombs, the pistols Zafar, Zafar-K and Inam and other types of ammunition in accordance with NATO standards. In parallel, the MDI works on modernizing defense equipment left behind when Soviet troops left the country in 1990. 

Jamalov stressed that the MDI works step-by-step to eliminate Azerbaijan’s need for importing other types of equipment as well. The next area for development is armored technology.

In late 2008, the MDI and South Africa's Paramount Group established a formal collaboration on establishing a joint development and production of defense technologies. The Paramount Group is involved in the development and industrialization of many technologies in the aerospace and defense industry. According to the group’s web site, they currently investigate a number of joint production opportunities with the MDI regarding land forces as well as naval and aerospace environments, in order to build on the growing industrial capacity of Azerbaijan.

“We are extremely excited and inspired by President Ilham Aliyev’s vision and we are fully committed to supporting the MDI in the creation of a world class defense and aerospace industry”, Paramount Group CEO Ivor Ichikowitz told the APA news agency. He noted that the company was determined to create a strong export base in Azerbaijan, which is “well positioned to become a strong industrial hub for the region”.   

The Group’s web site says it is working closely with the government of Azerbaijan to facilitate the transfer of “world class” technologies into a new production facility for the manufacture of Matador and Marauder MPVs (armored mine protected vehicles). This facility has now been successfully established and will serve as a technological and export hub for the CIS region.

At the same time, the MDI continues negotiations with Turkish and Israeli producers of defence technologies. Last November, the Turkish newspaper Dunya reported that Turkish companies including Roketsan and Otokar Otomotiv & Savunma Sanayi AS have signed contracts with Azerbaijan’s Defense Ministry for military modernization projects worth about US$ 225 million. The work will include modernization of Azerbaijan’s missile and rocket systems and production of armored vehicles. In addition, Azerbaijan continues to import military aircraft, helicopters and large caliber artillery systems.

The United Nations recently posted the register of conventional arms purchases by Azerbaijan in 2009,  according to which Baku purchased nine Pion 203 mm self-propelled guns of Russian production from Belarus, as well as twenty-nine 122 mm and six 152 mm howitzers from Ukraine. Moreover, Azerbaijan bought five Su-25 aircraft from Belarus along with one MIG-29 UB and eleven Mi-24 attack helicopters from Ukraine.

Azerbaijan’s growing defense budget and armament are clearly a reason for concern to Armenia and its military ally, Russia. A December statement of the Armenian president provided clear evidence of Armenia’s concern over defense developments in Azerbaijan. He threatened to recognize Nagorno-Karabakh as independent if Azerbaijan resorts to force to resolve the conflict. “In the event Azerbaijan unleashes a new military venture, Armenia will be left with no choice but to recognize de jure the Republic of Nagorno-Karabakh and provide for the safety of its population by all means”, Reuters quoted Serzh Sargsyan after the CSTO’s December summit in Moscow.

At the same occasion, the CSTO’s Secretary General Nikolay Bordyuzha said that the organization was concerned over Azerbaijan’s growing defense budget. “A disproportionate growth of Azerbaijan’s defense budget causes certain alarm”, Bordyuzha was quoted by Interfax. He noted that Armenia, as a member of the CSTO, was under “constant information pressure”. This pressure originates from official Baku which repeatedly reminds of its right to recapture occupied territories, including Nagorno-Karabakh and seven surrounding districts, by force.

Ziyafat Asgarov, the deputy speaker of the Azerbaijani parliament said that “Azerbaijan reserves the right to liberate its occupied territories and the military option is always on the agenda”.