POVERTY DESPITE OIL RESERVES.

Over the past few years, the Azeri economy has ranked among the most dynamic in the CIS, growing by 11.4 percent in 2000 and 9.1 percent year-on-year in January-July. That growth has been achieved mainly due to the oil industry. During the first four months of 2001, exports of oil and oil products accounted for 92 percent of total exports. Proceeds from the oil industry currently account for more than half of the country’s budget revenue.

Most foreign investment has been aimed at the oil sector. Foreign firms involved in oil contracts are expected to invest US$10 billion in Azerbaijan over the next two years according to the Enterprise Development Committee (EDC), which was launched last year by representatives of the oil industry, local businesses, governmental and nongovernmental organizations, and the international community. Nonetheless, an EDC representative pointed out that only 10-15 percent of foreign investment in the Azerbaijan economy reaches the local population, while 85-90 percent is redirected abroad for payments for equipment and salaries of expatriate staff. In its aim of boosting local business, the EDC is striving to keep at least 20 percent of investment in Azerbaijan. That will, however, require the revival of equipment manufacturing enterprises.

Despite the country’s oil boom in recent years, many Azeri citizens continue to struggle with poverty. That is partly due to the refugee problem brought on by the ongoing conflict with Armenia over Nagorno-Karabakh. However, it also appears that profits from the oil industry have benefited only a small portion of the population, while the non-oil sector has been neglected. At market exchange rates, per-capita GDP reached US$631.9 in Azerbaijan last year, compared with US$1,704 in Russia. On a purchasing power basis, per capita GDP was US$2,225 in Azerbaijan versus US$4,960 in Russia. According to a recent statement by the Trade Union Confederation, the average wage of 254,400 manats in July was barely enough to cover basic expenses. Although the official unemployment rate is very low, by International Labor Organization standards unemployment is estimated at 35-37 percent. A large portion of citizens’ income comes from temporary work in other CIS countries, especially Russia.

The international financial community has repeatedly stressed that the Azeri government needs to strengthen growth in non-oil sectors, recommending that oil revenues be used for the development of the non-oil private sector. President Haidar Aliev signed a decree in December 1999 to establish the State Oil Fund, which is aimed at accumulating hard currency and other proceeds from oil and gas exploration and development. By August, the Fund had received US$439.048 million from oil exports, and it is expected to grow to US$30 billion over the next 30 years. The Oil Fund’s proceeds have been invested abroad, boosting public sector foreign assets and reducing net external debt. Nonetheless, it will likely take time before the benefits of the oil boom will be spread to the local population. (World Bank News Release, July 6; Russian agencies, July 16, 23, August 13; AssA-Irada News, June 4, August 11, 16; Azernews, May 30).

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