-
Azerbaijan: Country ProfileCountry Profile | 04 Jul 2014
Azerbaijans economy will grow at a moderate but somewhat slower
pace in 2014. Public spending is being scaled back while expansion
in the oil industry is slowing. Consumer spending and growth in the
non-oil sector are the main drivers. The non-oil sector will
continue to be a driving economic force in the medium term but its
dynamism will wane, owing to constraints in production capacity.
Energy production could pick up again in several years if oil
exploration is successful.
KEY POINTS
Real GDP will grow by 5.0% in 2014 down from 5.8% in 2013.
Public spending is being scaled back while expansion in the oil
industry is slowing. Growth of the non-oil sector (expected to be
at least 9% in 2014) will be the main driver. Real GDP grew by 3.2%
in the first quarter of 2014 compared with the same period in
2013.
The budget deficit for 2014 is put at 2.6% of GDP. It is
expected to fall to 2.0% in 2015. A modest programme of fiscal
consolidation began in 2014 but there are concerns that current
spending plans will undermine the governments goal of achieving
fiscal sustainability by 2018. The non-oil deficit is well above
the level which is thought to be sustainable in the longer
term.
Real growth of private final consumption was 11.1% in 2013 and
gains of 11.0% are forecast for 2014. Public spending and
remittances provide considerable support for private consumption.
Bank lending is rising by more than 20% per year with around 40% of
the loans going to households.
The non-oil sector will continue to be a driving economic force
in the medium term but its dynamism will wane, owing to constraints
in production capacity. Non-oil activities are expected to grow by
5-6% per year in the remaining years of this decade.
Chart 1 Real GDP Growth and Per Capita GDP: 2006-2015
Source: Euromonitor International
Note: Data for 2014 and 2015 are forecast. GDP per capita are in
constant 2013 prices
FACTS
Area
86,600 square kilometres
Currency
Manat (M = 100 qapik).
Location
The Republic of Azerbaijan lies in the eastern Transcaucasian
region, bordering the Caspian Sea from Grozny to Baku. It includes
the autonomous provinces of Nagorny-Karabakh and Nakhichevan.
Capital
Baku
GOVERNMENT
Page 1 of 8
-
Head of State
Ilham Aliyev (2003)
Head of Government
Artur Rasizade (2003)
Ruling Party
New Azerbaijan Party (NAP)
Political Structure
Azerbaijan gained its independence in August 1991. The president
is elected by the people for a five-year term. The National
Assembly has 125 members elected for a five-year term in
single-seat constituencies.
Last Elections
Elections to the National Assembly took place in November 2010.
The ruling New Azerbaijan Party (NAP) took 73 seats while
independents won 39 seats. Most of these independents are thought
to be aligned with the NAP. The remaining seats were divided among
several small opposition parties. Presidential elections were held
in October 2013. Aliyev was returned to office with 84.5% of the
vote. His nearest rival, Jamil Hasanli, received 5.5% of the vote.
European observers described the poll as seriously flawed.
Political Stability and Risks
Azerbaijans ruling elite is divided, with several clans (largely
organised along regional and patronage relationships) competing for
control over substantial funds to be skimmed from the oil business.
Income distribution is highly inequitable. Violence and rebellion
in the ethnically Armenian enclave of Nagorno-Karabakh and the
autonomous region of Nakhichevan remain close to the surface. Much
of the countrys economic wealth is concentrated in Baku. The
capital is already home to more than a quarter of the national
population and internal migration continues at a furious pace.
International Issues
Uncertainty over the Caspian Seas legal status hinders oil and
natural gas development. Azerbaijan, Iran, Kazakhstan, Russia and
Turkmenistan have failed to agree on a plan to divide up the seas
resources, including the oil-rich seabed.
Government Finance
Funded by oil export revenues, the government has pursued an
expansionary fiscal policy for several years. The budget deficit
for 2014 is put at 2.6% of GDP. It is expected to fall to 2.0% in
2015. A modest programme of fiscal consolidation began in 2014 but
there are concerns that current spending plans will undermine the
governments goal of achieving fiscal sustainability by 2018. The
non-oil deficit is well above the level which is thought to be
sustainable in the longer term.
With oil production expected to show little or no growth over
the medium term, the ratio of the non-oil deficit to non-oil GDP is
not sustainable. The IMF has recommended a target of 17% for this
ratio by 2017 but authorities do not want to begin a process of
consolidation before 2015.
Public debt amounted to AZN7,937 million in 2013, equivalent to
13.8% of GDP. In 2013, the real value of public debt rose by
23.7%.
Government expenditure on economic services accounted for 30.5%
of the total in 2013 followed by spending on social security and
welfare (25.2%).
Chart 2 Public Debt: 2006-2013
Page 2 of 8
-
Source: Euromonitor International
Note: Data are in constant 2013 prices
ECONOMY
Economic Structure and Major Industries
Agriculture employs 36.8% of all workers. About half of all
households are dependent on farming as their primary source of
income. Output is expected to rise in 2014 as two large irrigation
projects reach completion.
The oil and gas sector is the economys backbone. Exports of
crude oil and oil products make up most of Azerbaijans exports and
account for more than a third of budget revenues. Gas production
will rise significantly during this decade. Recent agreements with
a western consortium include the construction of pipelines to
facilitate the delivery of Azeri gas to Europe beginning in
2018.
The manufacturing sector accounts for 4.4% of GDP and employs
4.6% of the work force. A number of heavy industries that were
established more than 20 years ago make up the bulk of the sector.
The more important of these are steel, aluminium and cement. Policy
makers are trying hard to diversify the sector. They plan to invest
US$3.5 billion in information and communications technology over
the next 10 years. The real value of gross manufacturing value
added grew by 8.4% in 2013.
The service sector makes up 32.8% of GDP. Growth in the sector
is driven by the wholesale and retail trade. Banking is dominated
by two state-owned banks which together account for more than half
of the entire industrys assets. Altogether, the banking systems
assets are equivalent to less than 30% of GDP, a much lower ratio
than in Russia or Kazakhstan.
Overview of the Economy
The economy enjoyed double-digit real GDP growth for several
years driven by oil and gas production and exports. Real GDP per
capita more than doubled between 2003 and 2010. Growth in non-oil
GDP was also brisk with output rising by around 15% per year during
this period. However, the economy contracted in 2011 when the oil
industry faltered. Growth returned in 2012 and the economy grew by
5.8% in 2013 as the energy sector rebounded. The non-oil sector has
also performed well, growing by about 9% (close to its potential)
in 2013. Construction, agriculture and services all recorded strong
gains in 2013.
The government has run an expansionary fiscal policy for several
years. Azerbaijans financial reserves are substantial, exceeding
the countrys external debt. Monopolies in the distribution sector,
especially among state-owned enterprises, have taken advantage of
the strong economy to raise prices excessively.
Foreign Trade
In 2013, exports accounted for 43.2% of GDP, down from 62.6% in
2008. Exports (in dollars) fell by 2.6% in 2013 as lower global
prices reduced oil exports. A fall of 5.0% is expected in 2014.
Azerbaijans excessive reliance on oil exports exposes the
country to considerable volatility. Similarly, the limited
development of the non-energy sector has led to the rapid growth of
imports as disposable incomes and private consumption rise.
The EU is the major market for Azerbaijans exports, accounting
for 48.3% of the total in 2013. Energy exports represented 93.8% of
the total in 2013.
The current account surplus was 16.7% of GDP in 2013. It has
narrowed in recent years as imports of oil equipment and consumer
products rise.
Chart 3 Total Foreign Trade: 2006-2013
Page 3 of 8
-
Source: Euromonitor International
Economic Prospects
Real GDP will grow by 5.0% in 2014 down from 5.8% in 2013.
Public spending is being scaled back while expansion in the oil
industry is slowing. Growth of the non-oil sector (expected to be
at least 9% in 2014) will be the main driver. Real GDP grew by 3.2%
in the first quarter of 2014 compared with the same period in
2013.
Prices are expected to rise by 3.0% in 2014 after inflation of
2.5% in 2013. Upward pressure on prices comes from government
spending increases and capacity constraints in the non-oil sector.
The target range of the central bank is 5-6%.
Azerbaijans strategic geographic location has fuelled the
governments hope to turn Azerbaijan into a transportation hub for
the entire Caucasus and Caspian regions. A railway from Baku to the
Turkish city of Kars, is under construction, and five new
international airports are planned to complement the one already
operating in Baku.
Real growth of private final consumption was 11.1% in 2013 and
gains of 11.0% are forecast for 2014. Public spending and
remittances provide considerable support for private consumption.
Remittances (in dollars) rose by 10.2% in 2013. Bank lending is
also rising by more than 20% per year with around 40% of the loans
going to households.
Unemployment was 5.1% in 2013 and it will remain at that level
in 2014. The jobless rate in urban areas is double that of rural
areas. Skills shortages are another persistent problem. Wages in
the public sector continue to rise at a brisk pace.
Many workers are dependent on the informal sector for jobs. The
extent of the reliance on the informal sector is suggested by the
fact that actual income per capita is known to exceed considerably
the official level. The countrys national accounts also underline
the importance of the informal economy. In most years, aggregate
consumption exceeds GDP by 3%-5% according to the State Statistical
Committee. However, the true figure is estimated to be closer to
17%-20%.
Chart 4 Real GDP Growth: 2006-2015
Source: Euromonitor International
Note: Data for 2014 and 2015 are forecast
Evaluation of Market Potential
The non-oil sector will continue to be a driving economic force
in the medium term but its dynamism will wane, owing to constraints
in production capacity. Non-oil activities are expected to grow by
5-6% per year in the remaining years of this decade. Energy
production could pick up again in several years if oil exploration
is successful. New gas fields should come on line by 2018.
The World Bank puts the potential rate of growth at 6.6%. In the
longer term, economic
Page 4 of 8
-
diversification will have to be pursued more vigorously.
Agriculture, manufacturing, telecommunications and tourism all have
potential for growth. The development of small and medium sized
enterprises will be a crucial part of the diversification process
but at the moment these firms account for less than 10% of output
and an insignificant share of employment.
BUSINESS ENVIRONMENT
By most measures, Azerbaijans business environment is one of the
strongest and most reliable in the Central Asian region.
Nonetheless, many parts of the economy are still dominated by the
state. State-owned enterprises often operate as monopolies in their
respective markets. They set high prices, restrict output and wield
considerable market power when purchasing inputs. The decision to
privatise the International Bank of Azerbaijan is expected to
strengthen competition among banks. The central banks recent
decision to boost lending to small and medium-sized enterprises
should boost the rate of growth in the medium term.
Employment regulations have been modernised, improving labour
flexibility and the regulatory environment has been relaxed. If
Azerbaijan is to become a successful exporter, it needs to reduce
both formal and informal barriers to trade.
Policy makers are struggling to bring legislation in line with
the WTO accession requirements. The pace of reform is especially
slow in the non-oil sector. The judiciary is inefficient and lacks
independence. Corruption and limited access to finance are major
problems.
Table 1 Indicators of Business Environment: 2014
Ease of doing business rank (out of 189) 70
Starting a Business
Time (days) 7
Procedures (number) 3
Dealing with construction permits
Time (days) 212
Procedures (number) 28
Getting Electricity
Time (days) 241
Procedures (number) 9
Registering Property
Time (days) 11
Procedures (number) 4
Employing workers
Standard workday in manufacturing (hours) 8
Paid annual leave for a worker with 1 year of tenure (in working
days) 15
Tax rate
Total tax rate (% profit) 40
Labour tax and contributions (% of commercial profits) 24.8
Time (hours per year) 214
Payments (number per year) 18
VAT (%) 18.0
Exporting
Documents for export (number) 9
Time to export (days) 28
Cost to export (US$ per container) 3,540
Page 5 of 8
-
Importing
Documents for import (number) 11
Time for import (days) 25
Cost to import (US$ per container) 3,560
Protecting investors
Strength of investor protection index (0-10) 6.7
Resolving Insolvency
Time (years) 2.3
Cost (% of estate) 8
Source: Euromonitor International based on the World Bank
Note: Data is sourced from the World Banks Doing Business 2014.
Doing Business presents quantitative indicators on business
regulations and the protection of property rights - and their
effect on businesses, especially small and medium-size domestic
firms. The data for all sets of indicators in Doing Business 2014
are from June 2012 until June 2013 (except for paying taxes data
which refers to JanuaryDecember 2012). Rankings are based on data
sets across 189 countries.
ENERGY
Azerbaijans proven crude oil reserves are estimated to be 7.0
billion barrels. Most of these reserves are located offshore in the
Caspian Sea. Oil production totalled 42.5 million tonnes of oil
equivalent in 2013. The Azeri-Chiraq-Guneshi offshore oil field
accounts for about 90% of all oil exports. The state-owned oil
company (SOCAR) is responsible for all oil and natural gas
resources and operates the countrys two refineries.
Azerbaijan also has 0.9 trillion cubic metres of natural gas.
Exports are from the Shah Deniz field. This offshore field is
thought to be one of the worlds largest discoveries in more than 20
years. Production began in 2006 and in 2013 the country produced
14.2 million tonnes of oil equivalent. The government intends to
invest US$224 million over the next 10 years to increase
production. Output is expected to double by 2025.
Chart 5 Primary Consumption of Energy (% of total): 2013
Source: Euromonitor International
SOCIETY
Population
Azerbaijans population was 9.4 million in 2013 and it will
gradually rise in future. Population growth, however, has been
decelerating in recent decades. Fertility and birth rates have been
gently falling since 2008 and the downward trend will continue
through 2030.
The median age of population was 30.8 years in 2013. Azerbaijani
society is steadily ageing. In 1980-2020, the share of those 65+
will rise from 5.4% of the total to 7.2%.
The ageing of the population presents a long-term challenge for
government finances. In response, the government has begun to boost
the retirement age in incremental steps. In 2009, the retirement
age for men was 62 years while that of women was 57. By 2016,
retirement for men will be raised to 63 years while women will have
a retirement age of 60 years.
Chart 6 Age Pyramid in 2013 and 2030
Page 6 of 8
-
Source: Euromonitor International
Income and Expenditure
In 2013, savings amounted to 4.3% of disposable income. The
ratio will rise to 4.7% in 2014.
Consumer expenditure per capita has been rising at a moderate
pace for several years. In 2013, it was AZN2,567 (US$3,272). In
2014, the indicator will grow by 9.6% in real terms. Spending on
clothing and footwear should rise rapidly over the course of this
decade, boosted by the growing popularity and presence of shopping
centres.
Total consumer expenditure (in real terms) will rise by 11.1% in
2014. In the period 2013-2030, total consumer expenditure will grow
at an average annual rate of 5.7%. It will increase by a cumulative
value of 157% during that period. Total consumer expenditure will
be 43.7% of GDP in 2014.
Disposable income per capita amounted to AZN2,700 (US$3,442) in
2013. In 2014, disposable income per capita is forecast to grow by
10.1% in real terms.
During the period 2013-2030, total disposable income will
increase by a cumulative 171% in real terms growing at an average
annual rate of 6.0%.
Chart 7 Per Capita Annual Disposable Income, Spending and
Savings Ratio: 2006-2013
Source: Euromonitor International
Statistical Summary 2008 2009 2010 2011 2012 2013
Inflation (% change) 20.9 1.6 5.7 7.9 1.1 2.5
Exchange rate (per US$) 0.82 0.80 0.80 0.79 0.79 0.78
Lending rate 19.8 20.0 20.7 19.0 18.3 18.2
GDP (% real growth) 10.6 9.4 4.6 -1.6 2.2 5.8
GDP (national currency millions) 40,137.2 35,601.5 42,465.0
52,082.0 54,743.7 57,708.2
GDP (US$ millions) 48,851.8 44,288.4 52,847.3 65,915.5 69,680.2
73,556.5
Population, mid-year ('000) 8,851.2 8,960.0 9,054.4 9,173.1
9,298.6 9,424.0
Birth rate (per '000) 17.2 17.0 18.3 19.2 19.6 19.3
Death rate (per '000) 6.0 5.9 5.9 5.9 6.0 6.0
No. of households ('000) 1,863.5 1,895.9 1,913.8 1,939.8 1,967.9
1,996.7
Total exports (US$ millions) 30,586.3 21,096.8 26,476.0 34,494.9
32,634.0 31,776.4
Page 7 of 8
-
Euromonitor International 2014
Total imports (US$ millions) 7,574.7 6,513.9 6,745.6 10,166.5
10,417.5 11,155.6
Tourism receipts (US$ millions) 191.0 379.0 657.0 1,287.0
1,444.1 1,728.1
Tourism spending (US$ millions) 343.0 405.0 781.0 1,689.0
1,840.4 2,142.7
Urban population ('000) 4,652.2 4,741.3 4,774.9 4,829.5 4,888.7
4,951.1
Urban population (%) 53.0 53.1 53.1 53.0 52.9 52.9
Population aged 0-14 (%) 20.8 20.0 19.4 19.3 19.6 20.2
Population aged 15-64 (%) 72.3 73.2 73.9 74.1 73.9 73.5
Population aged 65+ (%) 6.9 6.8 6.7 6.5 6.4 6.3
Male population (%) 49.4 49.5 49.5 49.6 49.6 49.7
Female population (%) 50.6 50.5 50.5 50.4 50.4 50.3
Life expectancy male (years) 70.8 70.9 70.9 71.2 71.3 71.4
Life expectancy female (years) 76.1 76.1 76.2 76.5 76.6 76.7
Infant mortality (deaths per '000 live births) 11.3 11.4 12.3
12.6 12.4 12.2
Adult literacy (%) 99.7 99.8 99.8 99.8 99.8 99.8
Imports and ExportsMajor export destinations 2013 Share (%)
Major import sources 2013 Share (%)
Europe 59.7 Europe 73.5
Asia-Pacific 25.6 Asia Pacific 16.1
Africa and the Middle East 8.4 Africa and the Middle East
4.4
North America 4.0 North America 3.6
Other countries 1.9 Latin America 2.0
Australasia 0.5 Australasia 0.3
Page 8 of 8