Azerbaijan is the fastest growing economy globally.
Date: Tuesday, February 13 @ 08:17:56 MST
Azerbaijan achieved stable and rapid growth for 10 consecutive years starting from 1995.
Now the country is one of the most rapidly recovering economies in the world. The GDP annual surplus in 2004 was 10.2%. A record growth for the year 2005 is estimated at 26.4% (highest growth indicator globally for the year). It is highly probable that the country will be the global leader in economic growth in the year 2006 too. Nominal wages grew by 21.9% in the year 2005. Almost all other major economic indicators point out a similar growth pattern.
Baku is the center of Azerbaijani economy and the home for most of Azerbaijan's 3,500 industrial enterprises, Petroleum extraction and refining, metallurgy, aluminum processing, petrochemicals, chemical production are located in the city and its sattelites. Consumer goods production consists of food processing, textiles, and wine production. Baku is also strong in services including banks, hotels & restaurants and logistics. Sumgayit (3rd largest city and Bakuís satellite) production centers on chemical and petrochemical production, textiles, and aluminum smelting; Ganja is the home to an aluminum refinery and also specializes in textiles, machine building and metallurgy.
The effect of the early 1990's economic decline has also been evident in agriculture - a critically important sector in Azerbaijan, employing about 35% of the labor. Cotton is Azerbaijan's leading crop, together with grape (for wine production), fruits, vegetables, and tobacco.
The country is the regional leader not only in the overall economic growth but in direct foreign investment attraction as well. The 2005 UNCTAD Trade & Investment publication quotes Azerbaijan as the No 1 globally as per the FDI Inflow Performance Index. Azerbaijan is also in top 20 in equity capital attraction in absolute terms. This is mainly due to the favorable environment created in the lead sector of the economy i.e. the oil & gas industry. It had been opened for the international business in 1994. Since then a number of international contracts for the oil and gas fields were signed with the principal oil businesses such as BP, Statoil, Total, Exxon, Itochu, Lukoil and others.
The "jewel in the crown" of the economy is the Baku-Tbilisi-Ceyhan oil pipeline connecting the Caspian offshore fields with the Mediterranean Turkish port. It is taking crude from the ACG (Azeri, Chirag, Guneshli) project led by British Petroleum. The pipeline is ready and being filled with crude to be sold at the Turkish port of Jeyhan. The transport capacity of the pipe is over 1 million barrel a day. Azerbaijan adopted the policy of construction of a network of oil & gas pipelines throughout the region to promote international cooperation and trade. The oil & gas projects are to bring substantial cash inflow in the country from the year 2006 onwards.
Notwithstanding this apparently bright prospective the government of the country took a number of steps aimed at the reduction of the country's dependency on the oil revenues and evasion of the so called "Dutch decease". The State Oil Fund, a transparent state agency under public scrutiny is accumulating the oil revenues from the international contracts thus preventing possible Azeri Manat deflation which would potentially be damaging for the local manufacturers and export as well as other possible negative economic trends. The regional development and non-oil economy development strategies aimed at the diversification of the economy are also carried out.
The main source countries of FDI for Azerbaijan are currently the United States, UK and Turkey. The cumulative FDI in the year 2004 amounted for circa 4.800 mln USD. The country received 4.162 mln USD FDI in 2005. Foreign direct investments outside the oil & gas sector currently are mainly in construction, services, transport, telecom and manufacturing.
Azerbaijan is consistently expanding its international trade capacities as well. This was achieved mainly due to two factors: export of ever increasing amounts of Azerbaijani crude and oil products and the expanding internal market which resulted in rise in import of manufacturing equipment and consumer goods in the country. At the moment EU is the main export destination for Azerbaijan, with Russia and CIS countries remaining the main source of import.
The country's domestic product is largely contributed by private business. Its share constituted 76% of GDP in 2005. This is the result of several stages of privatization of the formerly state owned property and development of new privately owned industries. However, a number of key segments of the economy are still state controlled. Many of them are now "open for privatization" by the Presidential Decrees which creates additional investment opportunities. The government uses several methods of privatization with the most popular being the acquisition by a "strategic investor" or via "investment tender".
The Government also uses the "management contract" system for the transfer of the state owned enterprises into private hands. For example, electricity distribution network of Baku was transferred into management by a private foreign company.
Azerbaijan has one of the lowest external debt / GDP ratios in the region and a sound financial system. The National Bank has been pursuing the "stable manat" (local currency) policy consistently for last 10 years with the annual inflation not exceeding one digit figure. The fiscal system is further characterized by a very low deficit of state budget not exceeding 1% of GDP in 2005.