Economy of Azerbaijan

Economy of Azerbaijan

Azerbaijan is an economy that has completed its post-Soviet transition into a major oil based economy (with the completion of the Baku-Tbilisi-Ceyhan Pipeline), from one where the state played the major role. Azeri GDP grew 41.7% in the first quarter of 2007, possibly the highest of any nation worldwide. [] Such rates cannot be sustained, but despite reaching 26.4% in 2005 (second highest GDP growth in the world in 2005 only to Equatorial Guinea), and 2006 over 36.6% (world highest), GDP has been accelerating every year.

It has substantial oil reserves and a significant agronomic potential based on a wide variety of climatic zones. Since 1995, in cooperation with the IMF, Azerbaijan has pursued an economic stabilization program, which has brought inflation down from 1,800% in 1994 to 1.8% in 2000. The national currency, the Azerbaijani manat, was stable in 2000, depreciating 3.8% against the dollar. The budget deficit equaled 1.3% of GDP in 2000.

Progress on economic reform has generally lagged behind macroeconomic stabilization. The government has undertaken regulatory reforms in some areas, including substantial opening of trade policy, but inefficient public administration in which commercial and regulatory interests are co-mingled limit the impact of these reforms. The government has largely completed privatization of agricultural lands and small and medium-sized enterprises. In August 2000, the government launched a second-stage privatization program, in which many large state enterprises will be privatized.

Macro-economic trend

This is a chart of trend of gross domestic product of Azerbaijan at market prices [ estimated] by the International Monetary Fund with figures in millions of Manats.

For purchasing power parity comparisons, the US Dollar was exchanged at 1,565.88 Manats only. Now the new Manat is in use, with an exchange rate of about 1 manat = $1.10. Average wages in 2007 are around $18-21 per day.

For more than a century the backbone of the Azerbaijani economy has been petroleum, which represented 10 percent of Azerbaijan’s GDP in 2005, and is projected to double to almost 20 percent of GDP in 2007 ["Azerbaijan: Energy profile" (Enerpub, 13 December 2007 [] )] . Now that Western oil companies are able to tap deepwater oilfields untouched by the Soviets because of poor technology, Azerbaijan is considered one of the most important areas in the world for oil exploration and development. Proven oil reserves in the Caspian Basin, which Azerbaijan shares with Russia, Kazakhstan, and Turkmenistan, are comparable in size to the North Sea, although exploration is still in the early stages.

External trade

Azerbaijan has concluded 21 production-sharing agreements with various oil companies. An export pipeline that transports Caspian oil to the Mediterranean from Baky through Tbilisi, Georgia to Ceyhan, Turkey (the Baku-Tbilisi-Ceyhan Pipeline) became operational in 2006. The pipeline is expected to generate as much as $160 billion in revenues for the country over the next 30 years. The recent high price of oil is highly beneficial to Azerbaijan's economy as the nation is in the midst of an oil boom. Eastern Caspian producers in Kazakhstan also have expressed interest in accessing this pipeline to transport a portion of their production. In March 2001, Azerbaijan concluded a gas agreement with Turkey, providing a future export market for Azerbaijan.


Through the Soviet period, Azerbaijan had always been more developed industrially than Armenia and Georgia, two neighboring Transcaucasia countries - but also less diversified, as a result of slow investment in non-oil sector. With a history of industrial development of more than 100 years, Azerbaijan proved to be a leading nation in Southern Caucasus throughout the turmoil of Soviet Union collapse in early 1990s until nowadays.

Oil remains the most prominent product of Azerbaijan's economy with cotton, natural gas and agriculture products contributing to its economic growth over the last five years. More than $60 billion was invested into Azerbaijan's oil by major international oil companies in AIOC consortium operated by BP. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997 and now is about 500,000 b/d. People visit petroleum spas (or "oil spas") to bathe in the local crude in Naftalan [ [ Azerbaijani answer to oil glut: Bathe in it - Asia - Pacific - International Herald Tribune ] ]

Azerbaijan shares all the problems of the former Soviet republics in making the transition from a command to a market economy, but its energy resources brighten its long-term prospects. Azerbaijan has begun making progress on economic reform, and old economic ties and structures are slowly being replaced. An obstacle to economic progress, including stepped up foreign investment, is the continuing conflict with Armenia over the Nagorno-Karabakh region. Trade with Russia and the other former Soviet republics is declining in importance while trade is building up with Turkey, Iran, UAE, and the countries of EU. Growth in 2000 should match growth in 1999. Azerbaijan is also a member of the Economic Cooperation Organization (ECO). Long-term prospects will depend on world oil prices and the location of new pipelines in the region.

Environmental issues

Azerbaijan faces serious environmental challenges. Soil throughout the region was contaminated by DDT and toxic defoliants used in cotton production during the Soviet era. Caspian petroleum and petrochemicals industries also have contributed to present air and water pollution problems. Several environmental organizations exist in Azerbaijan, yet few funds have been allocated to begin the necessary cleanup and prevention programs. Over-fishing by poachers is threatening the survival of Caspian sturgeon stocks, the source of most of the world's supply of caviar. The Convention on International Trade in Endangered Species (CITES) has listed as threatened all sturgeon species, including all commercial Caspian varieties. According to Mercer Human Resource Consulting 2007 Health and Sanitation Report, Baku, which is the capital of Azerbaijan, is the world's most polluted city.


In 2007, mining and hydrocarbon industries accounted for well over 95 per cent of the Azerbaijani economy. Diversification of the economy into manufacturing industries remain a long-term issue.

Business Environment

In 2008, Azerbaijan was cited as a top 10 reformer by the World Bank's Doing Business report [cite web |url= |title=Top 10 reformers from Doing Business 2009 |accessdate=2008-09-28 |author=World Bank Group |date= |work= |publisher=] :

Other statistics

Investment (gross fixed):54.4% of GDP (2005 est.)

Household income or consumption by percentage share:
"lowest 10%:"2.8%
"highest 10%:"27.8% (1995)

Inflation rate (consumer prices):9.6% (2005 est.)

Agriculture - products:
cotton, grain, rice, grapes, fruit, vegetables, tea, tobacco; cattle, pigs, sheep, goats

Industrial production growth rate:40% (2005 est.)

Electricity - production:20 billion kWh (2003)

Electricity - consumption:20.25 billion kWh (2003)

Electricity - exports:700 million kWh (2003)

Electricity - imports:2.35 billion kWh (2003)

Current account balance$-2.899 billion (2004 est.)

Exports - commodities:oil and gas 90%, machinery, cotton, foodstuffs

Reserves of foreign exchange and gold$875 million (2004 est.)

Debt - external: $1.832 billion (2004 est.)

Economic aid - recipient:ODA, $140 million (2000 est.)

Currency:1 Manat = 100 gopiks

Exchange rates:Azerbaijani manats per US dollar - 0.85(2008)Azerbaijani manats per Euro - 1.24(2008)

Fiscal year:calendar year


External links

* [ CIA World Factbook]

ee also

* Azerbaijani manat
* Baku-Tbilisi-Ceyhan pipeline
* State Oil Company of Azerbaijan
* Azerbaijan
* Baku
* Military of Azerbaijan
* [ Energy Potential Of Azerbaijan: Can It Be Used As Alternative For Russia?]

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