Azerbaijan with a territory of 86.600 square kilometers is the largest of the Transcaucasian countries. The country lies on the West Coast of the Caspian Sea and shares land borders with Russia, Georgia and Armenia, Turkey and Iran. The total population of Azerbaijan is approximately 8.2 mln, the majority of who are Turkish Azeris with other ethnic minorities (Russian, Georgian and Jewish). The capital of the country is Baku with 2 mln inhabits (roughly 25% of population). The main cities in Azerbaijan are Ganja (population of over 300000), Sumgayit (240000). The Nackchivan Autonomous Republic of Azerbaijan with a 300 000 population is separated from Azerbaijan proper by a strip of Armenian territory.
Like many others of the former USSR countries, Azerbaijan is still suffering a severe economic decline following the collapse of trade links other USSR-countries. In generally, the economic development of Azerbaijan was initiated by the large scale implementation of the Monetary and Fiscal Policy designed by the International Monetary Fund accompanied by immense financial support of the World Bank. All this actions resulted in the sluggish inflationary and the stable macro-economic growth. For instance the 2001, 2002 and 2003’s figures demonstrated robust economic growth, particularly in the oil-and oil-related industries. The country’s GDP grew by 8.5% in 2001, 9% in 2002 and more than 10% in 2003. As a result the IMF publicly reported that “macroeconomic stabilization continues to proceed well, inflation has remained under control”. The tight fiscal and monetary policies commonly designed by IMF and Azerbaijan’s officials resulted in low inflation of 1.3% and less than 3% in 2001 and 2002 and 2003 accordingly.
It is notable fact that the country’s exchange rate fixed at $1=4907 AZM (Average May Rate) is the most stable in the Commonwealth of Independent States.
Actually the reason for the economy’s speedy turnaround may be attributed to the tremendous amount of foreign capital inflows primarily to the oil/gas sector because of the huge offshore reserves estimated at anywhere between three and twelve billion barrels. There are currently 67 oil fields in the country, of which about 30 are active. The great majority of oil and gas consumption (85%) is extracted offshore from reserves in the Caspian Sea. At the same time the number of reviled gas fields is 141, that are to be 600 bln cubic meters.
Thus the most developed segment of Azerbaijan’s economy is the energy basically presented by the oil/gas extraction and transportation. Today the development largely relies on the speed of the production sharing agreements (PSA) contracts, the number of which reached 22. The most vital one is the Contract of Century signed in 1994 and budgeted at $12 bln. The second ambitious project highly supported by the Azeri Government is the construction of Baku-Tbilisi-Ceyhan Pipe, that scheduled to transit the Caspian Reserves (including Kazakhstan) from 2005. Due to the liberalizations in the energy sector the trend of foreign investment has grown sharply since 1995 and totaled $2.2 bln, 60% of which was in the oil sector.
Also the energy sector is playing the great role in the country’s foreign trade relations, with approximately 120 countries. The country’s export consists of oil/gas (over 65%), non-ferrous metals, chemicals and petrochemicals and agricultural products. The import is presented basically by consumer goods and oil technologies due to the PSAs’ implementations.
Azerbaijan has a low level of indebtness currently estimated at $1.356 bln (or 22% of the GDP for 2003) which is considered to be the lowest rate among the Former USSR countries.
General Industry
There are more than 7000 industrial enterprises in Azerbaijan employing approximately 400 000 people. The country’s main industrial base consists of heavy industry, fuel and energy, machine building, petrochemicals, cotton and light industry. Second to oil production, oil equipment manufacture is Azerbaijan’s oldest industry. For instance during the USSR, the country was highly specialized on above mentioned sector.
The petrochemical industry as well as others is in need of extensive restructuring and modernization. Currently the chain of petrochemicals is basically presented by the state-run AzerChemical Concern that produces a few products, the most are semi-finished and sent abroad (Iran and Turkey) for further processing.
Agriculture
Azerbaijan has fertile land, a unique diverse climate which covers nine of the thirteen climatic zones and a long history of the rural agriculture. Currently the agricultural sector accounts for roughly 23% of the GDP and is the country’s second largest employer. Most of the cultivation is oriented to growing grapes, fruits, vegetables and tobacco. For instance the volume of produced fruits is more than 450 000 tons of per a year. In generally, Azerbaijan is largely self sufficient in basic foodstuffs but it dependent on imports for grain and many processed foodstuffs. Cotton production has been hit hard by shortages and price increase of fertilizers, etc. Grape production has also fallen from 2 mln tones in 1991 till 225 000 thsd today. In contrast to the mentioned segments of agriculture, the fishing industry is flourishing basically due to the needs for sturgeons and caviar. Another profitable trend has been cattle farming. After the privatization in 1996 cattle breeding increased and the dairy farms can actually make profits. Today local companies produce about 15 kinds of dairy products that are largely exported to Georgia and Dagestan (Russia).
Telecom
Proclaimed as one of the national priorities, in practice the telecom sector of Azerbaijan is over forty years old and is inadequate for its growing needs. Despite the designed program of the national telecom sector development, the Ministry of Telecommunication which operates the sector via its agencies, is highly conservative in efforts to improve this sector. Currently the Azeri telecom industry is largely enriched by impediments like artificial difficulties in licensing procedures. But recently the President of Azerbaijan has appointed new minister of communication and information technologies who has good reputation.
In generally, the list of big market-operators includes two cellular operators AZERCELL (Turkey) and BAKCELL (Israel) and Azeurotel Joint Venture (Great Britain). The latter is the leading private telecom service provider in Azerbaijan.
Economic Forecast
The 13% projected growth rate is expected to be driven construction basically related to the oil/gas extraction and transportation, particularly the construction of oil/gas conduits. In response to this, the government of Azerbaijan is trying to ensure that, unlike the Gulf States, the Government officially appreciates the development of the non-oil sectors like agriculture, food processing, telecom, transport, etc. In practice the large amounts of foreign investment in the energy sector have precipitated rapid growth in the others, especially in the services. The decline in the agricultural and non-oil manufacturing sectors has been halted and has exhibited some tentative signs of growth.
For further information on market opportunities in Azerbaijan, please contact Mr. Rafael Abbasov from the Embassy of Israel, Azerbaijan on the following address:
1033 Izmir St.
Baku, Azerbaijan
Tel - 99412 90 78 81/82
Fax - 99412 90 78 92
e-mail: israelembassy@azdata.net