Publication: Monitor Volume: 7 Issue: 13

According to Azerbaijan’s statistical authorities, the country’s gross domestic product (GDP) rose 11.3 percent in 2000 (Trend News Agency, January 2). This represents an acceleration on the already torrid 7.4 percent growth reported for 1999, not to mention the 10 percent increase registered in 1998. Perhaps surprisingly, the boom was not solely about energy, as the energy sector was one of the slowest-growing parts of the economy in 2000. Instead–in a welcome change for hard-pressed Azerbaijani households–the service sector and agriculture, as well as foreign trade, powered the economic expansion. And, within the industrial sector, manufacturing performed better than the energy complex.

Industry is the largest sector of Azerbaijan’s economy: It accounted for 26 percent of GDP last year. But value added in the all-important oil and gas sector rose only 5 percent. In volume terms, oil production was essentially flat at 14 million metric tons (mmt). This was largely because the State Oil Company of the Azerbaijani Republic (SOCAR) was unable to increase production (Russian agencies, December 29). Increases in oil output should continue to be modest in 2001 while the main international consortium, AIOC, takes a few years to ramp up production from its offshore fields and SOCAR production remains flat or declines. In dollar terms, however, exports of petroleum products surged in 2000 due to high international oil prices. This should significantly reduce the current account deficit of 2000, and has already helped boost the currency reserves of the Azerbaijan National Bank (ANB) to over US$1 billion by the end of 2000. Higher ANB reserves and the government’s new Oil Fund (which received US$271 million in 2000) should provide some insurance against a possible sharp downturn in oil prices, should this occur in 2001 (MPA News Agency, January 4).

A dramatic revival in the manufacturing sector, which was boosted by growing consumption and strong growth in Russia, was another favorable development in 2000. Value added in the machinery branch rose a stunning 78 percent, while growth in light industry was reported at 48 percent. Value added rose a reported 34 percent in the chemicals branch and another 21 percent in construction materials. Retail trade, which rose 10 percent during the first three quarters of the year, was spurred by strong real wage growth and by large increases in personal consumption. The volume of activity in the transport sector was reported up 22 percent in the first three quarters, due to surging exports of Azeri and Kazakh petroleum products. Output in the key agricultural sector–which is almost as large as industry–apparently confounded predictions of drought-related disaster, rising 9 percent in the first three quarters. While the drought may have harmed crop production, livestock output was quite resilient: Milk production was reported up 16 percent, while animals herds rose 15 percent (Turan, January 2).

Azerbaijan’s economic performance in 2000 is not without its flaws. Despite the recovery in rural incomes due to growth in the agricultural sector, rural poverty remains extensive, and Azerbaijan remains one of the poorest countries in the CIS. Investment remained lackluster, as many energy projects were delayed in 2000. Foreigners continue to be highly cautious about investing in the non-energy sector due to bureaucracy, corruption, and many other factors. The lack of investment continues to undermine construction, which had been a driver of growth until 1999. Azerbaijan remains very vulnerable to a downturn in oil prices or in the Russian economy. Still, the continuation of the rapid economic growth recorded since 1998 is among Azerbaijan’s most hopeful developments in 2000.

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at [email protected], by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions