Data recently released by the Azerbaijani National Bank (ANB) and the government show that foreign direct investment (FDI) in Azerbaijan, and the country’s rapid economic growth, continue to slow. At the same time, Azerbaijan’s trade and current account deficits are falling dramatically, thanks to high oil prices and falling imports.
According to government figures, Azerbaijan’s exports surged 202 percent in the first four months of 2000 to US$508 million (Russian agencies, May 29). This follows the 53 percent export growth recorded in 1999, when the trend toward higher oil prices began. Oil accounted for 76 percent of total exports in 1999, and 46 percent of total exports went to the EU (versus 22 percent in 1998). Azerbaijan’s oil bonanza does not reflect growing export volumes, but instead the tremendous increase in oil prices, which rose to US$26.6 per barrel in the first quarter of 2000 from US$11.8 in the first quarter of 1999. (IFS, IMF, June). Booming oil-driven exports have been accompanied by falling imports, which dropped 44 percent during January-April 2000 to US$388 million. This follows the 4 percent decline in imports reported by the government in 1999. The import slowdown reflects a slower economy and a dramatic downturn in investment by oil consortia and other investors.
The dramatic export growth and slowing imports helped to chop 1999’s current-account deficit in half. Balance-of-payments data recently released by the National Bank show the current account deficit in 1999 dropping to US$600 million (15 percent of GDP), from US$1.4 billion (33 percent of GDP) in 1998 (Azerbaijan Economic Trends, TACIS, May). According to the ANB data, the trade deficit in 1999 shrank to US$408 million, down from US$1.0 billion in 1998. While the ANB data also show strong exports growth (51 percent) in 1999, they show imports falling more sharply (17 percent) than the government’s figures. This difference reflects the fact that the ANB’s balance-of-payments data include the import of oil equipment by oil consortia while the government data (which are based on customs figures) do not. The ANB’s import data reflect a scaling back in investment by foreign oil companies.
The ANB data also show FDI dropping to only US$355 million in 1999 from US$948 million in 1998. Oil consortia FDI dropped to US$194 million in 1999 from US$757 million in 1998. This explains not only lower imports but also the slowdown in Azerbaijani GDP growth, from 10.0 percent in 1998, to 7.2 percent in 1999, and to 6.5 percent in the first quarter of 2000. Construction, one of the sectors most dependent on FDI and investment in general, grew only 1.2 percent in 1999, versus 52.1 percent growth in 1998.
While positive trade figures are a favorable trend for the Azerbaijani economy, the fact that imports are down due to much lower FDI raises questions about whether Azerbaijan will be able to maintain the rapid growth of 1998-1999. Should a slowdown in FDI coincide with a sharp downturn in international oil prices, economic growth in Azerbaijan could come to an abrupt halt.
NAZARBAEV IN MOSCOW: SYMBOLIC CONCESSIONS, HARD BARGAINING.