Ben Aris in Baku -

Central Baku is in uproar due to the manic building works to give the city a facelift ahead of the 57th Eurovision song contest. "It's a nightmare," says one banker who works in central Baku, with good humour. "It should be a 20-minute drive from home to the office, but every day they close off another street for repairs and it is all happening so fast no one ever gets round to working out where the diverted traffic should go before it changes again."

Yet few are losing their tempers over the traffic chaos, because they know it will end on May 26 when the final of the song contest will be held. Azerbaijan was the surprise winner in 2011 when Eldar and Nigar won with their performance of "Running Scared" - only the third time the country had every participated. This year Sabina Babayeva will defend the title with her song "When the Music Dies", and go head-to-head with the likes of Russia's six Buranovskiye Babushki - one of the more bizarre entries in this already pretty surreal competition. "You can't buy marketing like this," says Adil Mammadov gleefully, head of the state promotion agency Azpromo, which is charged with raising Azerbaijan's profile on the international stage.

On the ground, the airport is being fixed up, while the roads are being resurfaced. And the city is getting back some of its Nobel brothers-era glamour as the mansions are decked with lights. Compared with this correspondent's last visit two years ago, the city has been transformed into a gleaming vision of fin de siècle architecture and marble. On a more practical level, some 5,000 new hotel beds have been added and the shorefront Four Seasons Hotel should be open in time to accommodate the 30,000 visitors that are expected for the Eurovision.

Hosting the contest was an unexpected boon for the government, which has thrown itself into organising the best party it can as a once-in-a-lifetime marketing opportunity. The competition is very timely, as tourism is one of the strategic sectors the government is trying to promote as part of its efforts to diversify the economy away from oil. Nine of the 11 climate zones can be found in the country, from snow-capped mountains in the north, to balmy beaches in the south, to the Naftalan oil spas in the west (famous in Soviet times as a treatment for rheumatism). And the state has targeted European as well as Middle Eastern tourists, who already regularly holiday in the republic during the Novruz spring festival, and is building upscale modern facilities up to the highest international standards, like Shakhdakh ski resort in the north, to accommodate them. Like California, Azerbaijan's climatic diversity means you can ski in the morning and spend the afternoon on the beach.

More than oil

The small Caucasian republic of 9m people was a backwater during Soviet times, with the bulk of the population engaged in agriculture. Large oil and gas reserves began to be exploited after independence in 1991, but the country has been struggling to catch up.

The turning point came with the building of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which bypassed Russian soil and connected the giant producing Azeri-Chirag-Guneshli oilfield in the Caspian Sea directly to western markets when it came online in 2005. Money began to pour into the country, propelling economic growth to a phenomenal 35% one year. Today, the issue is not financing. "We are mostly interested in the transfer of know-how and state-of-the-art technology," says Mammadov.

To its credit, the government, rather than squander the windfall, almost immediately launched a programme to diversify the economy away from oil. Half the population works in the agricultural sector and with average wages of $480 a month, the income gap between the urban well-to-do and rural workers remains large.

Azerbaijan's Soviet legacy means that manufacturing and industry are thin on the ground. However, the Sumgait city with its vast petrochemical infrastructure has been made the centre of an industrial park designed to attract more foreign investment. "We are new to the ideas of industrial parks, but we have created a favourable investment environment here and plan to promote the full chain of production," says Mammadov.

There is also a waste management plant on the outskirts of Baku, which has already significantly reduced the smog that used to hang over the capital, that has become the basis of another park, Balakhani technological park. Perhaps more significantly, the state recently signed a joint venture deal with Singapore to build the first Caspian-based shipyard. State oil and gas company Socar's large fleet of ships is aging and needs replacing. And the state will launch its first telecommunications satellite this year, as information technology is another target sector. The state-owned telecom company will use only about 20% of the satellite's capacity and the rest will be opened up to foreign investments.

Food for export

All these projects are making good progress, but the heart of the makeover to Azerbaijan's economy must be in agriculture, by far the largest employer in the country. Already famous in Soviet times for the quality of its fruit and veg, the challenge now has been to add all the bells and whistles of modern marketing, logistics and storage, and in doing so open up new markets.

Soviet agriculture was seasonal and bucolic; the government's first task was to support private companies to build the infrastructure that would allow farmers to transport and store their produce to break the link with the seasons. "We have almost finished this process. We now have modern storage and logistical infrastructure in all the regions of the country," says Mammadov.

The small domestic population means that agriculture has always been an export-oriented sector, with Russia still the main market. However, the government is pushing to diversify export markets, with EU countries topping of the list. Further down the road, the state is helping farmers break into new markets. Azerbaijan recently started exporting pomegranate juice to the US. It sounds like an odd niche product to sell, but it is one of few products where Azerbaijan stands head and shoulders above the rest of the world (and Narsharab, a pomegranate sauce that accompanies kebabs, is both delicious and one of the undiscovered culinary treats of the former Soviet Union). Currently, Israel is responsible for a large share of pomegranate juice exports to the US, but Azerbaijan is ambitious about its prospects for this segment.

The plan is to open a window and then gradually increase the number of products passing through it. "We went with lab tests done in the US to distributors to prove that our pomegranate juice really is 100% pomegranate juice," says Mammadov. "In the West, customers are keen on organic products, but in Azerbaijan all our agricultural products are organic - the trick is to get the certification."