UNCLASSIFIED AZERBAIJAN PHOTOBY VUGAR NAGHIYEV COUNTRY DEVELOPMENT COOPERATION STRATEGY (CDCS) MAY 2020 - MAY 2025 APPROVED FOR PUBLIC RELEASE UNCLASSIFIED USAID/Azerbaijan Country Development Cooperation Strategy May 2020 1 UNCLASSIFIED USAID/Azerbaijan 2020-2025 Country Development Cooperation Strategy Contents Executive Summary 1 CDCS Goal 1 Commitment and Capacity 2 Countering Trafficking in Persons (C-TIP) 2 Religious freedom 3 Strategic Choices 3 Results Framework 5 Country Context 6 Regional Actors 7 Top-level Takeaways from the Country Roadmap 9 Country transition planning 10 Strategic Approach 11 The U.S. Government’s relationship with the host country government 11 Use of Host Country Resources 12 Engaging the private sector 12 The role of civil society, media, and citizens 13 Possibility for reforms 14 Gender 15 Countering Trafficking in Persons 15 Efforts of Other U.S. Partners 16 Results Framework Goal Statement and Narrative 17 DO 1: Azerbaijan’s Society is More Capable and Engaged 18 Development Hypothesis 18 How the DO contributes to the Journey to Self-Reliance 19 How the IRs contribute to the DO 19 How Government of Azerbaijan Priorities Align 21 Other development actors 21 Assumptions and Risks 21 Government Policies 22 Local actors 22 Evidence Sources 22 APPROVED FOR PUBLIC RELEASE 2 UNCLASSIFIED DO 2: Azerbaijan's Economy is more Diverse and Durable 24 Development Hypothesis 24 How the DO contributes to the Journey to Self-Reliance 25 How the IRs contribute to the DO 25 How government of Azerbaijan priorities align 26 Other Development Actors 26 Relevant Critical Assumptions and Risk Factors 27 Government Policies 27 Local actors 28 Evidence Sources 28 Special Objective: Dialogue Advances Mutual Commitment on Development and Foreign Policy Goals 29 Special Objective Hypothesis 29 How the SO contributes to the Journey to Self-Reliance 30 How the IRs contribute to the Special Objective 30 How Government of Azerbaijan Priorities Align 32 Other Development Actors 32 Assumptions and Risks 33 Government Policies 33 Local Actors 33 Evidence Sources 33 Monitoring, Evaluation, and Learning 34 Monitoring 34 Evaluation 34 Learning 34 Required Annexes 36 Annex 1: Journey to Self-Reliance Country Roadmap 36 Bibliography 37 APPROVED FOR PUBLIC RELEASE 3 UNCLASSIFIED Executive Summary CDCS Goal The goal of this USAID strategy is an enhanced enduring partnership with Azerbaijan that advances the country’s development progress. The partnership is adapted to the country’s unique socio-economic situation, incorporating U.S. objectives for Azerbaijan’s journey to self-reliance. Over the course of the strategy period, USAID will seek to support the Azerbaijani government’s (GOAZ) engagement with citizens, particularly the most vulnerable; assist the government to create a more diverse and durable economy; and utilize a development dialogue approach to establish the basis for a long-term partnership that serves Azerbaijani and U.S. national interests. With respect to the four pillars in the National 1 Security Strategy ,​ the present document presents an approach designed to protect the homeland, the American people, and the American way of life, promote American prosperity, and advance American influence. The 2018-22 Integrated Country Strategy (ICS) points out that Azerbaijan is surrounded by regional powers that have long sought to increase influence in the region. Keeping Azerbaijan leaning towards the West is important to U.S. national security interests. These interests are rooted in Azerbaijan's critical role in enhancing a strong, prosperous, and free Europe that is energy independent of Russia, and that Azerbaijan is politically independent from aggressive neighbors, and exhibiting a strong partner relationship between Azerbaijan and Israel. Azerbaijan’s role as a major energy provider to Israel and to its immediate neighbors, in particular Georgia, is a key element of stability in the region and beyond. In addition, a stable, independent Azerbaijan on Iran’s northern border also contributes to containment of Iran’s destabilizing influence affecting the Middle East. As a secular, generally Western-oriented state with a Shi’a Muslim-majority population, Azerbaijan could serve as a model throughout Eurasia and the Middle East, provided there is consistent USG and European engagement and support to Azerbaijan’s development trajectory. The goal statement reflects the challenges inherent in this country context and the Mission’s limited budget by focusing on partnership, achieved through a hybrid development and diplomatic approach and resource sharing, as the mechanism through which improved governance and economic growth can flow. USAID will work hand in hand with the host country government, the local private sector, and civil society actors who display a commitment to improving the lives of Azerbaijanis. The Mission will continue to grow its emerging body of data, obtained from our own data collection efforts, programming to date, the Journey to Self-Reliance (J2SR) Roadmap and Metrics, and other key sources to track and adapt interventions and messaging to ensure our targeted geographies and demographics are served. This partnership approach will also allow the Mission to address the government's relatively low commitment to inclusive democratic development in a manner more likely to be accepted by the host country than that employed during the previous Mission strategy. USAID will shift towards an incentives-based negotiation approach that begins with an initial focus on economic growth as the seed through which trust and partnership will grow and USAID can expand that trust and partnership to other sectors. USAID will continue to support democracy and good governance programs in the country. USAID will also work to support Azerbaijan's ability to chart its own independent development course. This measured, long-term approach comports with the longstanding bedrock of 1 ​A New National Security Strategy for a New Era​, the White House, December 18, 2017 1 UNCLASSIFIED our bilateral relationship -- U.S. support for Azerbaijan’s sovereignty. This approach is a critical component of helping Azerbaijan balance its strong economic and other ties to its neighbors with improved ties to the West.. Commitment and Capacity The analytical roadmap that USAID uses to identify and track development trends and needs in all of its partner countries identifies government economic and political commitment as lagging in Azerbaijan. Also, in spite of Azerbaijan’s relatively high capacity scores on this roadmap, capacity gaps exist in government and civil society that limit Azerbaijan’s development trajectory. USAID notes that the roadmap is just one element of comprehensive development policy formulation.. Azerbaijan’s economy is insufficiently diversified and relies on oil and gas, while the government’s and its peoples’ democratic aspirations have yet to be realized. The country shares borders with Russia and Iran, controls energy pipelines that are key export routes to world markets and has the potential to be a key actor to reduce Europe's and Turkey’s dependence on Russian energy sources. Much of its security policy focuses on a protracted conflict with its neighbor Armenia. In light of these complex factors, USAID's approach to development programming in Azerbaijan is framed by Azerbaijan's importance to US foreign policy and security goals. This, coupled with Azerbaijan's combination of commitment and capacity weaknesses as outlined in USAID’s analytical roadmap, means that USAID must carefully match targeted investments in development with equally critical diplomatic engagements with a development focus. To accomplish this and accommodate an admittedly limited budget, USAID emphasizes partnerships focused on redefining the bilateral relationship with the government while also supporting the government to redefine its relationship with its own citizenry, where possible. This is feasible through a co-investment approach that engages the private sector and other stakeholders to commit to the reforms necessary to advance Azerbaijan on its path to self-reliance. Another challenge is inefficient use of government resources. Inefficiency and corruption diverts resources from societal and broad-based economic needs, while deficient democratic processes hinder government accountability efforts. Over-reliance on oil revenues poses a risk to Azerbaijan’s long term prosperity. The business climate should provide more incentives and safeguards to attract broader foreign investment. Policy and governance problems in the financial sector constrain access to capital. Though economic diversification has lagged, the government has taken practical measures to boost its investments through targeted policies to support lagging sectors of agriculture, tourism, internet and communications technology, renewable energy, and trade and logistics. Countering Trafficking in Persons (C-TIP) In 2019, just as the government embarked on a reorganization at its highest ranks to put forth a more youthful, Western educated cadre of leaders in key Ministries and the Presidential Administration, Azerbaijan was placed on the Tier II Trafficking in Persons Watchlist, taking the government by surprise and putting at risk future U.S. assistance. The US has responded energetically to this development and has encouraged the government to adopt measures aimed at improving its performance in the area of prosecution. As discussed in further detail in the Strategic Approach