Economy of Azerbaijan

Azerbaijan is an economy in transition in which the state continues to play a dominant role. It has important 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 a highly successful economic stabilization program, which has brought inflation down from 1,800% in 1994 to 1.8% in 2000. GDP in 2000 grew by more than 11%, the fifth consecutive increase. The national currency, the manat, was stable in 2000, depreciating 3.8% against the dollar. The budget deficit equaled a modest 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.

For more than a century the backbone of the Azerbaijani economy has been petroleum. 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 spots 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.

Azerbaijan has concluded 21 production-sharing agreements with various oil companies. Substantial progress also has occurred on plans for an export pipeline that would transport Caspian oil to the Mediterranean from Baky through Tbilisi, Georgia to Ceyhan, Turkey (the Baku-Tblisi-Ceyhan Pipeline). 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 significant future export market for Azerbaijan.

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.

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Economy - overview: Azerbaijan is less developed industrially than either Armenia or Georgia, the other Caucasian states. It resembles the Central Asian states in its majority Muslim population, high structural unemployment, and low standard of living. The economy's most prominent products are oil, cotton, and natural gas. Production from the Caspian oil field declined through 1997 but registered an increase in 1998-99. Negotiation of 19 production-sharing arrangements (PSAs) with foreign firms, which have thus far committed $60 billion to oil field development, should generate the funds needed to spur future industrial development. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997. Azerbaijan shares all the formidable problems of the former Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its long-term prospects. Baky has only recently 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 nations of Europe. Growth in 2000 should match growth in 1999. Long-term prospects will depend on world oil prices and the location of new pipelines in the region.

GDP: purchasing power parity - $14 billion (1999 est.)

GDP - real growth rate: 7% (1999 est.)

GDP - per capita: purchasing power parity - $1,770 (1999 est.)

GDP - composition by sector:
agriculture: 22%
industry: 18%
services: 60% (1997 est.)

Population below poverty line: 60% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): -6.8% (1999 est.)

Labor force: 2.9 million (1997)

Labor force - by occupation: agriculture and forestry 32%, industry and construction 15%, services 53% (1997)

Unemployment rate: 20% (1999 est.)

Budget:
revenues: $565 million
expenditures: $682 million, including capital expenditures of $NA (1996 est.)

Industries: petroleum and natural gas, petroleum products, oilfield equipment; steel, iron ore, cement; chemicals and petrochemicals; textiles

Industrial production growth rate: 3% (1999 est.)

Electricity - production: 18.062 billion kWh (1999)

Electricity - production by source:
fossil fuel: 90.98%
hydro: 9.02%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 15.508 billion kWh (1998)

Electricity - exports: 1 billion kWh (1998)

Electricity - imports: 1.2 billion kWh (1998)

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

Exports: $885 million (f.o.b., 1999 est.)

Exports - commodities: oil and gas 70%, machinery, cotton, foodstuffs

Exports - partners: Turkey, Russia, Georgia, Italy, Iran

Imports: $1.62 billion (c.i.f., 1999 est.)

Imports - commodities: machinery and equipment, foodstuffs, metals, chemicals

Imports - partners: Turkey, Russia, Ukraine, UAE, Iran

Debt - external: $684 million (1998)

Economic aid - recipient: ODA, $113 million (1996)

Currency: 1 manat = 100 gopiks

Exchange rates: manats per US$1 - 4,342 (October 1999), 4,373 (1999), 3,869 (1998), 3,985.38 (1997), 4,301.26 (1996), 4,413.54 (1995)

Fiscal year: calendar year

Reference

Much of the material in this article comes from the CIA World Factbook 2000 and the 2003 U.S. Department of State website.