espite the windfall from oil revenues, the official poverty level in Azerbaijan at the end of 2005 was 29 percent. That is a hefty number for a country on the brink of an economic boom. Influence peddling, embezzlement and illegal decisions should be exchanged for efficiency gains. After all, foreign investors look to allocate capital to markets with working regulatory frameworks and good corporate governance. It pays to be transparent.

Last July, the Commission to Combat Corruption held a meeting in Baku to tackle shortcomings in the economy. Items on the agenda included the privatization of state property, measures to preserve natural resources in the Caspian Sea, and steps to fight the illegal loading of sand from the country’s seashore. To ensure transparency in the privatization of state assets, the authorities need to heighten inter-ministerial cooperation.

The commission also pushed through measures to restore illegally privatized state property. At the meeting, President Ilham Aliyev chaired a committee tasked with addressing the environment in the Caspian Sea, where there is no clear demarcation of borders.

The truth is that investment efficiency is a matter of business climate. According to the Economist Intelligence Unit, the overall business climate in Azerbaijan needs some glamour. The public and private sectors have much work to do in order to broaden the entrepreneurial environment. Public investment, via the State Oil Fund (Sofaz), will benefit not from populist spending but by making money allocations transparent and participatory.

With its heavy reliance on the energy sector, Azerbaijan can set an example in the region. It already has, arguably, by signing the Extractive Industries Transparency Initiative (EITI). But EITI ethics need to extend into other productive sectors of the economy: manufacturing, heavy industry and trade.

Firms like Garadagh Cement have taken important steps to end corruption within its own distribution system. Its plant is an emblem of Azerbaijan’s evolution toward Western practices. Privatized in 1999 and sold to the Swiss-based Holcim Group, Garadagh Cement now complies with ISO 9001:2000 certification for quality management. It sends employees for training in Switzerland. Most importantly, it has changed the rules for doing business.

“Over the past period, important measures have been taken to protect the rights and interests of investors, defend the poor, and establish equal conditions for local and foreign businessmen. They should be able to use their profits in a free manner,” says Minister of Economic Development Heydar Babayev.

To diversify the economy and ensure sustainable long-term growth, Mr. Babayev is a champion of healthy business rules. Legislation is an obvious first step to dampen the temptation of officials. The state program to fight corruption recognizes there is a problem. A major anti-corruption law took effect in 2005. Implementation, however, is the ultimate litmus test.

Since independence, inflows of $20 billion have made Azerbaijan a magnet for FDI. With oilfields like Azeri-Chirag-Gunashli (ACG) going on-stream in 2006, the country will be more highly scrutinized for corruption indices. If it passes the transparency test, more money will be forthcoming.