About
Azerbaijan

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 significant agricultural potential based on a wide variety of climatic zones. During the late 1990s, in cooperation with the International Monetary Fund (IMF), Azerbaijan pursued a successful economic stabilization program, with annual growth exceeding 10% since 2000. In 2010 Azerbaijan's gross domestic product increased by 5%. Output expansion has been largely driven by oil-sector foreign direct investment (FDI) and related spillover effects in the construction and transportation sectors, although there have also been substantial gains in agriculture. Inflation remains a major risk that could accelerate in the context of further increases in fiscal spending, high oil prices, and an inflexible exchange rate. Factors attributable to the global financial crisis may mitigate some of the inflationary trend, however. Importantly, the higher inflation also reflects customs restrictions that are in place due to supply constraints that limit import competition and to monopolies that continue to control many sectors of the economy. The national currency, the Manat (AZN), is artificially stable and was allowed to appreciate against the dollar by 6.1% in 2005, 5.4% in 2006, 3.4% in 2007, and 1.1% in 2008. By early 2009, one AZN was worth $1.24, an exchange rate that has remained steady ever since, increasing only slightly since late 2010.

The 2010 consolidated state budget set spending at 13.5 billion AZN, an increase of about 10% over 2009. The IMF has expressed concern about the impact on inflation and macroeconomic stability as well as governance if the capital budget is not well managed. The State Oil Fund (SOFAZ) was established as an extra-budgetary fund to ensure macroeconomic stability, transparency in the management of oil revenue, and the safeguarding of resources for future generations. All oil revenue profits from the development of new oil fields now flow into SOFAZ, and are held offshore. The State Oil Fund continues to play a critical role in promoting macroeconomic stability and in dampening the impact of massive energy revenues upon the economy. As of January 2011, SOFAZ reported assets of $22.7 billion. These assets constitute a 32% increase over SOFAZ's January 2009 reported assets ($10 billion). In 2007, the United Nations awarded SOFAZ a public service award for its transparency, accountability, and responsiveness in the public sector. Nevertheless, SOFAZ's effect is limited since it does not cover SOCAR, the State Oil Company. Both the IMF and the World Bank continue to emphasize the need to coordinate the budget planning process to integrate a medium-term spending framework with financing plans and the government's broader oil-revenue management strategy.

Azerbaijan has made efforts to modernize and reform its economy. 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, limits the impact of these reforms. The government has largely completed privatization of agricultural lands and small and medium-sized enterprises. Azerbaijan is still plagued by an arbitrary tax and customs administration, a court system lacking independence, monopolistic regulation of the market, and systemic corruption.

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, Turkmenistan, and Iran, are comparable in size to North Sea reserves several decades ago.

Azerbaijan has concluded 28 production-sharing agreements with various oil companies. Azerbaijan celebrated first oil for the Baku-Tbilisi-Ceyhan (BTC) pipeline in May 2005, and the official completion ceremony was held in Turkey in July 2006. The BTC pipeline is now operational and has a maximum capacity of one million barrels per day. A parallel Baku-Tbilisi-Erzurum gas export pipeline opened in September 2006. In October 2008, the first tanker carrying oil from Kazakhstan’s Tengiz field departed for Azerbaijan. New pipeline and delivery route systems for natural gas through the southern corridor to Europe are currently being considered and negotiated.

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. CITES imposed a ban on most Caspian caviar in January 2006, but lifted the ban a year later in favor of quotas. A March 2010 CITES conference labeled Caspian beluga sturgeon as 'critically endangered,' but as of yet no changes have been made to current sturgeon fishing quotas.

GDP (2009 est.): $51.79 billion. (Economist Intelligence Unit (EIU) Azerbaijan Country Report)

GDP real growth rate: 5% (2010); 9.3% (2009); 10.8% (2008). (EIU)

Per capita GDP (2010 est., PPP): U.S. $12,920. (EIU)

Inflation rate (2010): 5.7%. (EIU)

Unemployment rate: 6% (2010 est.); 6% (2009 est.); 7% (2008). (CIA World Factbook/IndexMuni)

Natural resources: Petroleum, natural gas, iron ore, nonferrous metals, alumina.

Agriculture: Products--cotton, tobacco, grain, rice, grapes, fruit, vegetables, tea, cattle, sheep, goats.

Industry: Types--petroleum and natural gas, petroleum products, oilfield equipment, steel, iron ore, cement, chemicals, petrochemicals.

Trade: Exports--$27.92 billion (2010); $19.9 billion (2009 est.); $30.6 billion (2008); $6.1 billion (2007): oil and gas, chemicals, oilfield equipment, textiles, cotton. Imports--$6.599 billion (2010); $6.8 billion (2009 est.); $7.6 billion (2008); $5.7 billion (2007): machinery and parts, consumer durables, foodstuffs, textiles. Major trade partners--Italy, Russia, Turkey, Israel, U.S., Iran, other EU, and other countries formerly part of the Soviet Union. (Government of Azerbaijan)

Geography of Azerbaijan

Government of Azerbaijan

Although the Government of Azerbaijan consists of three branches, Azerbaijan has a strong presidential system in which the president dominates the legislative and judicial branches. The executive branch is made up of a president, his administration, a prime minister, and the cabinet of ministers. The legislative branch consists of the 125-member parliament (Milli Majlis). Members, all of whom are elected from territorial districts, serve 5-year terms. The judicial branch, headed by a Constitutional Court, is only nominally independent.

Azerbaijan declared its independence from the former Soviet Union on August 30, 1991, with Ayaz Mutalibov, former First Secretary of the Azerbaijani Communist Party, becoming the country's first President. Following a March 1992 massacre of Azerbaijanis at Khojali in Nagorno-Karabakh (a predominantly ethnic Armenian region within Azerbaijan), Mutalibov resigned and the country experienced a period of political instability. The old guard returned Mutalibov to power in May 1992, but less than a week later his efforts to suspend a scheduled presidential election and ban all political activity prompted the opposition Popular Front Party (PFP) to organize a resistance movement and take power. Among its reforms, the PFP dissolved the predominantly Communist Supreme Soviet and transferred its functions to the 50-member National Council.

Elections in June 1992 resulted in the selection of PFP leader Abulfez Elchibey as the country's second President. The PFP-dominated government, however, proved incapable of either credibly prosecuting the Nagorno-Karabakh conflict or managing the economy, and many PFP officials came to be perceived as corrupt and incompetent. Growing discontent culminated in June 1993 in an armed insurrection in Ganja, Azerbaijan's second-largest city. As the rebels advanced virtually unopposed on Baku, President Elchibey fled to his native province, the Azerbaijani exclave of Nakhchivan. The National Council conferred presidential powers upon its new Speaker, Heydar Aliyev, former First Secretary of the Azerbaijani Communist Party (1969-81) and member of the U.S.S.R. Politburo and U.S.S.R. Deputy Prime Minister (until 1987). Elchibey was formally deposed by a national referendum in August 1993, and Aliyev was elected to a 5-year term as President in October with only token opposition. Aliyev won re-election to another 5-year term in 1998, in an election marred by serious irregularities. A presidential election that took place on October 15, 2003 resulted in the election of Ilham Aliyev, the son of Heydar Aliyev. The election did not meet international standards. Ilham Aliyev assumed the office of president on October 31, 2003. Heydar Aliyev died December 12, 2003.

Ilham Aliyev won re-election on October 15, 2008, taking 88.7% of the vote in an election boycotted by the major opposition parties. While the presidential election marked progress toward meeting Organization for Security and Cooperation in Europe (OSCE) commitments and other international standards with regard to some technical aspects of election administration, the election process failed to meet some OSCE standards, according to the final report of the OSCE/Office for Democratic Institutions and Human Rights (ODIHR) election monitoring mission. In December 2008, the Azerbaijani parliament approved a measure calling for the abolition of presidential term limits. After limited public debate, the measure passed in a March 18, 2009 referendum on constitutional amendments. Observers noted serious shortcomings in voting procedures, and in the counting and tabulation process.

Azerbaijan's first parliament was elected in 1995. The present 125-member unicameral parliament was elected in November 2005 in an election that did not meet a number of international standards. A majority of parliamentarians are from the President's New Azerbaijan Party. The parliament also includes up to 10 opposition members and a sizeable number of nominal independents. Many of these independents are believed to have close ties to government, while as many as 20 others are business leaders whose political affiliations are not clear. Under the 1995 constitution, the speaker of parliament stands next in line to the President. However, constitutional amendments approved in a flawed process in August 2002 included a provision replacing the speaker of parliament with the prime minister in the line of succession to the presidency. The parliament remains a weak body with little real influence. Parliamentary elections in November 2010 did not meet international standards. They were marred by a deficient candidate registration process, limits on freedom of assembly and expression, a restrictive political environment, unbalanced media coverage of candidates, and problems in vote counting and tabulation. No opposition parties were elected in November 2010.

The human rights situation in the country remains poor, with backsliding in some areas, especially media freedom, religious freedom, and political participation. Restrictions on freedom of assembly, expression, and religion continue, as do arbitrary arrest and detention, and the imprisonment of persons for politically motivated reasons. Over the last few years, political space for opposition voices has become more limited. Arrests and detention for unregistered religious activity continues in some localities. In recent years, authorities have also destroyed or closed a number of mosques. Corruption remains pervasive, as does the lack of accountability for torture of individuals in detention, violence against journalists, and excessive use of force against peaceful demonstrators.

Type: Republic.

Constitution: Approved in November 1995 referendum.

Independence: August 30, 1991 (from Soviet Union).

Branches: Executive--president (chief of state), prime minister (head of government), Council of Ministers (cabinet). Legislative--unicameral National Assembly (parliament). Judicial--Supreme Court.

Administrative subdivisions: 78 rayons, 11 cities, and 1 autonomous republic.

Political parties: New Azerbaijan Party, Musavat Party, Popular Front Party, Liberal Party, Democratic Party, National Independence Party, Democratic Reforms Party, Civil Solidarity Party, Hope Party, Justice Party, others. There are more than 40 registered political parties in Azerbaijan and many small, unregistered parties.

Suffrage: 18 years of age; universal.

Principal Government Officials

President--Ilham Aliyev

Prime Minister--Artur Rasizade

Foreign Minister--Elmar Mammadyarov

Ambassador to the U.S.--Yashar Aliyev

Ambassador to the UN--Agshin Mehdiyev

Azerbaijan's embassy in the United States is at 2741 34th Street NW, Washington, DC 20008; tel (202) 337-3500; fax (202) 337-5911

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History of Azerbaijan

Azerbaijan combines the heritage of two venerable civilizations--the Seljuk Turks of the 11th century and the ancient Persians. Its name is thought to be derived from the Persian phrase "Land of Fire," referring both to its petroleum deposits, known since ancient times, and to its status as a former center of the Zoroastrian faith. The Azerbaijani Republic borders the Iranian provinces of east and west Azerbaijan, although they have not been united into a single state in modern times.

Little is known about Azerbaijan's history until its conquest and conversion to Islam by the Arabs in 642 AD. Centuries of prosperity as a province of the Muslim caliphate followed. After the decline of the Arab Empire, Azerbaijan was ravaged during the Mongol invasions but regained prosperity in the 13th-15th centuries under the Mongol II-Khans, the native Shirvan Shahs, and under Persia's Safavid Dynasty.

Due to its location astride the trade routes connecting Europe to central Asia and the Near East and on the shore of the Caspian Sea, Azerbaijan was fought over by Russia, Persia, and the Ottomans for several centuries. Finally the Russians split Azerbaijan's territory with Persia in 1828 by the Treaty of Turkmenchay, establishing the present frontiers and extinguishing the last native dynasties of local Azerbaijani khans. The beginning of modern exploitation of the oil fields in the 1870s led to a period of unprecedented prosperity and growth in the years before World War I.

At the collapse of the Russian Empire in 1917, an independent republic was proclaimed in 1918 following an abortive attempt to establish a Transcaucasian Republic with Armenia and Georgia. Azerbaijan received de facto recognition by the Allies as an independent nation in January 1920, an independence terminated by the arrival of the Red Army in April. Incorporated into the Transcaucasian Federated Soviet Socialist Republic in 1922, Azerbaijan became a union republic of the U.S.S.R. in 1936. The late 1980s were characterized by increasing unrest, eventually leading to a violent confrontation when Soviet troops killed 190 nationalist demonstrators in Baku in January 1990. Azerbaijan declared its independence from the U.S.S.R. on August 30, 1991.

People of Azerbaijan

Nationality: Noun--Azerbaijani(s), Azeri. Adjective--Azerbaijani, Azeri.

Population (April 2010): 9.077 million. (State Statistical Committee of Azerbaijan (SSCA))

Population growth rate (2009): 1.1%. (SSCA)

Net migration rate (2009 est.): -1.4 migrants/1,000 population.

Ethnic groups (1999 census): Azeri 90.6%, Dagestani 2.2%, Russian 1.8%, Armenian 1.5%, other 3.9%. Note: the separatist Nagorno-Karabakh region is populated almost entirely by ethnic Armenians.

Religion: Muslim 93.4% (majority Shi'a), Russian Orthodox 2.5%, Armenian Orthodox Church 2.3%, and other 1.8%.

Languages: Azeri 89%, Russian 3%, Armenian 2%, and other 6%. (Much of the population, particularly in Baku, is bilingual--Azeri and Russian.)

Education: Literacy rate--99.5%. (2010 UN Human Development Report)

Health: Infant mortality rate (2010)-52.84 1,000 live births. Life expectancy (2009 est.)-71.34/62.53 years (women/men).

Work force (April 2010): 4.333 million. Agriculture and forestry--38.3%; wholesale and retail trade; repair of motor vehicles, personal and household goods--16.1%; education--8.5%; public administration and defense, social security--6.8%.