Azerbaijan's economy: structure and features

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:45

One of the few countries of the former USSR that have maintained a fairly high rate of GDP growth is Azerbaijan. The economy is developing steadily, despite the fact that the 2008 crisis significantly affected all indicators, significantly reducing growth in all areas of production activity compared to the pre-crisis level. Nevertheless, Azerbaijan is still one of the world leaders in terms of GDP growth. The economy survived due to the export of energy resources, and anti-crisis measures were implemented in this country through the use of foreign exchange reserves accumulated in the prosperous pre-crisis period.

Characteristic

The richest country in the South Caucasus is Azerbaijan. Its economy accounts for two-thirds of the GDP of all other countries in the region. From 2005 to 2008, growth actually reached 24.1% annually, the highest since the fall of the Soviet Union. It was a real economic boom, and Azerbaijan became the absolute leader in the world in terms of growth rates. The economy is so bigincreased due to the active use of natural resource potential: new hydrocarbon deposits were developed, energy production increased, foreign direct investment was attracted, oil and gas pipelines were built, and export supplies of petroleum products, crude oil and natural gas increased rapidly. Hence the result: the transformational recession of the nineties was completely overcome, and GDP in constant prices grew by 106 percent by 2008 compared to 1990. The economy of Azerbaijan in 2017 will be considered in comparison with this fertile period.

Foreign direct investment largely determined these successes, and, of course, the bulk (that is, almost completely) of them went to the oil and gas sector. The first decade of the 21st century showed that two-thirds of foreign financing consisted of direct investment, and at times (for example, two years before 2004) their share was more than ninety percent of all foreign loans and investments. That is why the country was able to accumulate funds to overcome the crisis of 2008, and the economy of Azerbaijan in 2017 not only keeps afloat, but, one might say, flourishes. Still would! For several years in a row, direct net foreign investment was pulled to the highest world indicator - about thirty percent of GDP. However, investment flows have undergone significant changes over time. Already after 2004, their inflow into the oil and gas sector began to wane. Moreover, in the period 2006-2008 there was even an outflow. But the deed was already done - the funds were invested,the development of the extractive region was properly stimulated, the state of the Azerbaijani economy became exceptionally stable, and now it was possible to slowly develop at our own expense.

Today

The oil and gas sector dominated until 2007, and it was this sector that was supported by foreign investment, while domestic resources were directed to the development of non-primary sectors, which also had a fairly active growth in the contribution to the Azerbaijani economy. Today, it is they who, for the most part, support the sustainable economic condition of the country. Significantly improved infrastructure - water supply, transport, electricity, the main government spending went here. The economy of Azerbaijan in 2017 was the least affected by the outbreak of the financial crisis. But this could only happen because the infusion of foreign direct investment in the development of deposits was so generous that it was very quickly possible to create and establish production and transportation of energy carriers, and therefore funds were also received for the development of the non-oil sector.

Azerbaijan's economy today rests on the newest system of pipelines that supply oil and gas to the world market. This is the Baku-Ceyhan oil pipeline of 2006, this is the Baku-Erzurum gas pipeline of 2007. This country was and still remains the largest exporter of oil in the Caucasus, and since 2007 has become the most efficient exporter of gas. Oil production almost tripled between 2004 and 2010 - 42.3million tons, and exports grew even faster - three and a half times - more than 35.6 million tons. The entrepreneurial role in the development of the Azerbaijani economy is simply enormous. World oil prices were also growing then, and therefore the rapid increase in oil production led to an almost tenfold increase in oil export profits (2008 - 29.1 billion dollars). Ninety-seven percent of all exports came from gas and oil in 2010, generating nearly forty percent of government revenue for Azerbaijan.

Confrontation

In 2011, two events occurred at once, the reason for which were clearly economic reasons. It is in this connection that one should consider the state of affairs in the confrontation between the two South Caucasian countries: how they spent the last decades after the collapse of the USSR, what they achieved, what they are left with. So, Azerbaijan and Armenia: the economy of countries. The first in 2011 entered the project for the construction of the TANAP gas pipeline (still considered a competitor to our Turkish Stream). And in Armenia, at the same time, mass protests took place against the increase in tariffs from the Electric Networks of Armenia, that is, against the UES of Russia. However, the backdrop to all these events was the political crisis of Nagorno-Karabakh. We briefly analyzed how Azerbaijan started and what it came to over these decades. Now it's the opponent's turn.

Armenia received a very strong legacy from the USSR - the industrial base was extensive and substantial. ownArmenia does not have fuel resources, however, during all the years of Soviet power, this country was among the leaders in the system of distribution of inter-republican benefits. In mechanical engineering, Armenia was ahead of the entire Union (as a manufacturer of many types of machine tools), non-ferrous metallurgy (copper, molybdenum with developed deposits) was well developed, and the chemical industry was well represented. This is only the main part of the Armenian economy by 1991. Nevertheless, such a rich industrial diversity did not save the country from shocks. The economic shock was simply deadly, as, indeed, in almost all republics.

Armenia

All major economic ties fell apart, and in connection with the events of Nagorno-Karabakh, Turkey and Azerbaijan established a blockade - the Armenians even now stop smiling, remembering these "dark years". An energy crisis began, as neither export nor import became possible. When gas and fuel oil ran out, the Yerevan and Hrazdan thermal power plants stopped. And after the Spitak earthquake - back in 1988 - the Metsamor nuclear power plant was closed. By the way, this cataclysm disabled forty percent of the industry of the republic, but the Metsamor nuclear power plant remained unscathed. However, Chernobyl of 1986 was still fresh in my memory, and therefore they decided to close this fully functional station out of harm's way. At the height of the energy crisis in 1993, Armenia decided to ignore the measures taken and restart the nuclear power plant. It must be said that this phenomenon is considered in nuclear energy simplyunprecedented. Two years later, only one block out of two was launched.

And then Armenia began to restore its economy. Market reforms were carried out, although rapid growth was not observed, and where would it come from? The industrial base left over from the USSR was subject to either 100% modernization or scrapping. And with foreign investments in Armenia it was tight (unlike Azerbaijan, which lives from oil products). Let's compare the figures: foreign companies annually invested 1.8 billion dollars in Georgia, four billion in Azerbaijan, and a maximum of nine hundred million in Armenia (and then only once, other years - much less). Moreover, it was mainly the Armenian diaspora scattered around the world that invested. In second place in terms of financial injections is Russia. And in the 2000s, Armenia's GDP showed a good growth - fourteen percent. However, imports continue to exceed exports. Almost no one takes machine tools, but metals are used, agriculture (Ararat cognac), aluminum foil… In principle, the list is almost exhausted.

If there is war tomorrow

Each day of the war between Armenia and Azerbaijan in Karabakh will cost both sides fifty million manats (Azerbaijani money and as a currency are stable). The economy of Armenia, with its not too stable drama, will not withstand such heat if Russia does not "fit in" for it (and it has always "fit in"). Fighting in rocky terrain is expensive. Now the main economic alignment, which neither deputy. Minister of EconomyAzerbaijan in 1990-1993 could not be changed, neither by the minister, nor by the prime minister himself, when there were really large-scale military operations. So, today Azerbaijan has a gold and foreign exchange reserve of fifty-three billion dollars. For example, Ukraine has only eight (it was in 2014), Belarus has twelve. This means that the Minister of Economy of Azerbaijan allocates $7,800 per capita, while even in Russia it is only $3,500, although the gold reserves are ten times more.

It is this economic "subcutaneous fat" that will allow Azerbaijan not to cut social programs even during the war (pensions, salaries, etc.). But Armenia does not have such an opportunity at all. However, Azerbaijan also understands that the consequences of the war can be very diverse, and therefore does not yet begin to return by force the lands that for some reason it considers its own, and, without asking Armenia, pulls its oil and gas pipelines through Nagorno-Karabakh. But preparations are underway for war. An armed forces fund has been created with a very, very considerable amount in the account, which has not decreased by the smallest amount of money over many years. The economy of Azerbaijan in 2016 is very different from 2011, when decisions were made on the construction of the gas pipeline. It is already planned for operation in 2018. The war has not started, but armed clashes on the borders are taking place permanently with the use of artillery and military helicopters. So far, neither Armenia nor Azerbaijan have won.

The country's economy in development

Statepolicy is currently implemented in the field of macroeconomics (social development). State property is being privatized, the entrepreneurial role in the development of Azerbaijan's economy is increasing. Trade flourishes, foreign investment continues to be attracted, and the management of state property after privatization limits monopolies and promotes competition. The Ministry of Economy of Azerbaijan has been headed by Sh. Mustafayev since 2008.

However, this country began to develop not from the time of separation from the USSR, but much earlier, in 1883, when the Russian railway, included in the general network, came from Tbilisi to Baku. At the same time, merchant shipping on the Caspian Sea expanded significantly. At the end of the nineteenth century, Baku was already a major railway junction and a large Caspian port. Oil production began to develop, industrial enterprises, boreholes with steam engines appeared. The first foreign capital appeared here, too, back in the nineteenth century, making Azerbaijan's oil production half the world's share.

Italy

Today, of course, Azerbaijan has much greater opportunities for economic development. Italy plans to significantly expand its investment presence here. She started investing in this country very many years ago, and the first investments were from the field of fashion. Numerous joint ventures appeared, which function to this day. The market is now changing, expanding, and both countries are realizing opportunities for mutual cooperation in the fields of logistics andtransport. Trade turnover after the crisis is starting to recover, infrastructure and construction projects are appearing that can attract significant foreign investment.

Since 2010, the volume of direct investments in Azerbaijan by Italian companies has exceeded one hundred and five million dollars, and from here to Italy even more - one hundred and thirty three, and in 2016 alone, Azerbaijan has invested almost one hundred and thirty million dollars in Italian projects. Now more than twenty companies work together, among them such well-known ones as Tenaris, Technip Italy, Maire Tecnimont, Drillmec, Valvitalia, Saipem and others. In 2017, Italy will increase investments in the Azerbaijani economy. Details are already being published in the press. In 2016, a contract was signed with Danielle, and she has already started working here. In total, the presence of Italian companies in this country reaches a huge number - up to a thousand, and every year it grows. In terms of trade, this state is the most effective partner of Azerbaijan.

Economic regions: Baku

Regions of the Republic of Azerbaijan are characterized by a special economic and geographical position of the country, its territorial and economic unity, unique natural conditions and historically established production specialization are determined. There are ten economic regions, plus a separate territory of the Absheron Peninsula, where the capital of the republic, Baku, is located. The latter includes Khyzy, Absheron regions and Sumgayit. It is the main fuel and energy base of the country, the largest amount of gas and oil is produced here, andalso produces the most electricity.

The chemical and petrochemical industries are highly developed, followed by heavy metallurgy, mechanical engineering, energy, and electrical engineering. Further, there are also significant enterprises in the light and food industries, building materials. The service sector and transport infrastructure are very well developed in this economic region. Agriculture is also present: there is poultry farming, meat and dairy cattle breeding (cattle), sheep breeding. Horticulture, viticulture, floriculture, vegetable growing, according to excellent agro-climatic conditions, allow growing saffron, olives, pistachios, figs, almonds, watermelon, the best grape varieties and much more.

Ganja-Gazakh economic region

Here are two large cities - Naftalan and Ganja, as well as nine administrative regions. This area is very rich in minerals, not only gas and oil are mined here, but also cob alt, sulfur pyrite, iron ore, barite, limestone, alunite, gypsum, marble, bentonite, zeolite, gold, copper and much more. In addition, there are three hydroelectric power stations in these territories, since the Kura flows here. Manufacturing enterprises occupy a huge place in this economic region. These are heavy metallurgy, mechanical engineering, instrument making, plants for the production and repair of agricultural machinery, vehicles and communication equipment. Light industry produces products based on local raw materials: canned meat and milk, cognac, wine.

Many construction companies whereproduce wide panels, reinforced concrete, bricks, expanded clay, marble building materials. The cities produce primary processing of raw materials for ferrous and non-ferrous metallurgy, potash fertilizers, and sulfuric acid. Agriculture supplies crops and potatoes, grapes and other fruits. Animal husbandry, vegetable growing, and horticulture are developed. This area is of fundamental transit importance: pipelines transporting oil and gas are located on its territory. Tourism is well developed, since the natural and climatic conditions are extremely good. There are numerous he alth centers, including those of international importance.

Other economic regions

More recently, economists complained that compared to Baku, other economic regions are underdeveloped, although the government is tirelessly engaged in their improvement. Many territories live on subsidies, because they cannot independently master the path of development. However, scientists see the reason in the fact that they are not trying too hard. The norm of today is the policy of dependency. Although such a fertile country in terms of nature and climate may not have oil, tourism will get rich.

Azerbaijan has strong regions - they are in the minority, as well as weak regions where people cannot live amid almost absolute unemployment and lack of incentives, and therefore such areas may soon become deserted. Entrepreneurial region of Shamkir is doing quite well, even the besieged city of Nakhichevan is graduallydevelops. You can also characterize Ganja, Saatly and five or six other districts. But there are territories where not only industry, but also tourism is completely absent, and agriculture has not yet acquired normal management and does not know how to distribute and properly invest financial resources. However, field work is underway and a development plan has been drawn up. It remains to bring it to life.