Azerbaijan

Capital: Baku

Local time:
It is %T:%M %A in Baku

GDP growth rate: 2.4% in 2013

FDI stock: 9 593 million USD in 2010

Economic trends

Azerbaijan, a country of 8 million inhabitants at located at the crossroads of Europe, Asia and the Middle East, is a major economic player in the Caucasian region due to its great oil and natural gas reseves. It is an economy in transition, where the State continues to play a dominant role. It possesses 0.5% of the world's oil reserves (2012) and a significant agricultural potential. With the help of the IMF, Azerbaijan pursued an economic stabilization program since the end of the 1990s, which led to a GDP growth rate of more than 35% in 2006 and 25% in 2007. Since then, this rate has continued to falter and the international context has led to the end of double-digit growth of the "Emirate of the Caspian," a strategic region between Iran, Russia and Turkey.

In 2011 the growth rate was 0.2%. However, macroeconomic perspectives remain good, with a positive surplus of the state budget, a low public debt (15% of the GDP) and an oil fund, Sofaz, which increased from USD 3 billion in 2007 to USD 20 billion in 2011.

Inflation has been under control since 2011 (8%) and the unemployment rate remains stable around 6% of the active population.

The flourishing economic sectors are f oil export, banking, construction and real estate. The country has recently seen a decrese in the previously high evels of poverty, but the overreliance of its economy on the oil and gas sector remains the key long-term challenge. The problem of corruption still remains unsolved and acts as a real impediment to business development. In 2011, the country was ranked 143rd of the 183 countries rated by Transparency International.

Main branches of industry

The agricultural sector contributed around 5.8% to the GDP in 2011. However, productivity remains low due to the lack of modernization. The main crops are wheat, barley, corn, fruits (wine grapes), potatoes, cotton, silk and tobacco.  The share of the GDP in the agricultural sector has been decreasing regularly year on year, in favor of the industry and services sectors. This trend should continue in 2012.

In 2011, the industry sector (except construction) accounted for over 50.6% of the GDP. In the same year construction represented 8.1% of the GDP. The share of industry in the GDP has been growing markedly every year. The main industrial sectors of the country are gas, oil and its by-products, steel, iron, chemical and petro-chemical products and lastly, textile.  The oil sector accounted for more than 50% of the GDP in 2011. The non-petroleum sector and the share of construction in the country's GDP should continue to rise in 2012.

Currently,  Azerbaijan wants to diversify its economy. The widespread salt springs in the country are progressively turning into flourishing health spa resorts. The old-fashioned craft of carpet weaving is still being practiced with international success and the services are overall increasing their share in the GDP.

International trade

The Republic of Azerbaijan's foreign trade depends extensively on the ex-Soviet block countries. Russia and Georgia are among its main partners. However, Turkey, Germany, the United Kingdom, Italy, Israel, the United States, Iran and China are becoming more and more important in the Republic of Azerbaijan's trade relations. A memorandum signed in November 2010 with Iran could develop a cooperation in the energy and transport sectors.  Azerbaijan exports gas to Iran but the share of Iran in this trade with Azerbaijan was only 1% in 2009.

Azerbaijan is almost completely dependent on its energy sector. The low level of diversification of the local economy (as evidenced by exports which are 90% comprised of petroleum products), the vulnerability of its external accounts to fluctuations in commodity prices, poor management of resources by the authorities, endemic corruption and a deleterious business climate are are characteristics of emerging countries and oil producers which Azerbaijan resembles.

Oil reserves and gas enable the country to have confidence in the coming years but diversification remains a challenge. The main issue in the coming years will be to disentangle the economy from its oil and gas dependency by promoting openness and reducing the power of monopolies.