The economy of Azerbaijan is a developing upper-middle-income transition economy that is highly dependent on oil and gas exports, in particular since the completion of the Baku-Tbilisi-Ceyhan Pipeline. The transition to oil production in the late 1990s led to rapid economic growth over the period 1995–2014. Since 2014, GDP growth has slowed down substantially.
Large oil reserves are a major contributor to Azerbaijan's economy. Gas and oil make up two-thirds of Azerbaijan's GDP, making it one of the top ten most fossil fuel-dependent economies in the world. Gas and oil make up 90% of Azerbaijan's export revenues and 60% of its finances.
Azerbaijan's economy is characterized by corruption and inequality. The country's oil wealth has significantly strengthened the stability of Ilham Aliyev's regime and enriched ruling elites in Azerbaijan. The country's oil wealth has enabled the state to host lavish international events, as well as engage in extensive lobbying efforts abroad.
The national currency is the Azerbaijani manat. The private sector is weak in Azerbaijan, as the economy is dominated by state-owned enterprises. More than half of the formal labor force works for the government in Azerbaijan.
Economic history of Azerbaijan
Republic era Oil and gas are the most prominent products of Azerbaijan's economy. More than $60 billion was invested into Azerbaijan's oil sector by major international oil companies in AIOC consortium operated by BP. Oil production under the first of these production sharing agreements (PSAs), with the Azerbaijan International Operating Company, began in November 1997 and was about 500,000 barrels per day in 2006. People visit petroleum spas (or "oil spas") to bathe in the local crude in Naftalan.Azerbaijani answer to oil glut: Bathe in it – Asia – Pacific – International Herald Tribune A leading caviar producer and exporter in the past, Azerbaijan's fishing industry today is concentrated on the dwindling stocks of sturgeon and beluga in the Caspian Sea.
Azerbaijan shares all the problems of the former Soviet republics in making the transition from a command to a market economy, but its energy resources brighten its long-term prospects. Azerbaijan has begun making progress on economic reform, and old economic ties and structures are slowly being replaced. An obstacle to economic progress, including foreign investment, is the continuing conflict with Armenia over the Nagorno-Karabakh region.
In 1992 Azerbaijan became a member of the Economic Cooperation Organization. In 2002, the Azerbaijani merchant marine had 54 ships.
In 2010 Azerbaijan entered into the top eight biggest oil suppliers to EU countries with €9.46 billion. In 2011, the amount of foreign investments in Azerbaijan was $20 billion, a 61% increase from 2010. According to Minister of Economic Development of Azerbaijan, Shahin Mustafayev, in 2011, "$15.7 billion was invested in the non-oil sector, while the restin the oil sector".
In 2012, because of its economic performance after the Soviet breakup, Azerbaijan was predicted to become "Tiger of Caucasus". In 2012, Globalization and World Cities Research Network study ranked Baku as a Gamma-level global city.
In 2015, Turkey and Azerbaijan agreed to boost mutual trade to US$15 billion by 2023.
Macroeconomic trend
The following is a chart of trend of gross domestic product of Azerbaijan at market pricesestimated by the International Monetary Fund with figures in USD. Year Gross domestic product PPP Per capita income (as % of USA) 1995 19,497,000,000 8.78 2000 29,683,000,000 10.01 2005 59,087,000,000 15.52 2010 138,947,000,000 31.78 2015 169,789,000,000 32.15 For purchasing power parity comparisons, the US dollar was exchanged at 1,565.88 Manats only. Currently, the new Manat is in use, with an exchange rate of about 1 manat = $0.59. Mean graduate pay was $5.76 per man-hour in 2010.
The following table shows the main economic indicators in 1980–2017. Inflation below 5% is in green. YearGDP (in bn. US$ PPP)GDP per capita (in US$ PPP)GDP (in bn. US$ nominal)GDP growth (real)Inflation (in Percent)Government debt (in % of GDP)199321.72,8951.3−23.1%1,129.7%n/a199515.82,0662.4−13.0%411.8%19%200024.02,9915.36.2%1.8%13%200549.35,83913.226.4%9.6%7%200668.47,99421.034.5%8.3%5%200787.810,12933.125.0%16.7%4%200899.111,28848.910.8%20.8%3%2009109.012,21144.39.3%1.5%5%2010115.812,86952.95.0%5.7%5%2011118.312,98466.00.1%7.9%5%2012123.213,33569.72.2%1.1%6%2013132.614,16974.25.8%2.4%6%2014138.614,62675.22.8%1.4%9%2015141.414,74053.01.1%4.0%18%2016138.414,25837.8−3.1%12.4%21%2017141.114,38041.40.2%12.9%23%2018151.915,34747.11.5%2.3%19%2019167.216,79848.22.5%2.6%18%2020153.015,34542.7−4.2%2.8%21%2021203.920,33554.85.6%6.7%26%2022228.722,72478.84.7%13.9%17%2023240.423,73472.41.4%8.8%22%2024256.625,03474.44.2%2.2%22%2025267.525,79575.91.4%5.6%20%2026281.326,80078.42.2%6.0%20%
For more than a century the backbone of the Azerbaijani economy has been petroleum, which represented 50 percent of Azerbaijan's GDP in 2005, and is projected to double to almost 125 percent of GDP in 2007.Azerbaijan: Energy profile (Enerpub, 13 December 2007) Now that Western oil companies are able to tap deep-water oilfields untouched by the Soviets because of poor technology, Azerbaijan is considered one of the most important areas in the world for oil exploration and development. Proven oil reserves in the Caspian Basin, which Azerbaijan shares with Russia, Kazakhstan, Iran, and Turkmenistan, are comparable in size to the North Sea, although exploration is still in the early stages. Sectors of the economy
Agriculture, livestock and forestry
Azerbaijan has the largest agricultural basin in the region. About 54.9 percent of Azerbaijan is agricultural lands. At the beginning of 2007 there were of utilized agricultural area. In the same year, the total wood resources counted . Azerbaijan's agricultural scientific research institutes are focused on meadows and pastures, horticulture and subtropical crops, leaf vegetables, viticulture and wine-making, cotton growing and medicinal plants. In some lands, it is profitable to grow grain, potatoes, sugar beets, cotton and tobacco. Livestock, dairy products, and wine and spirits are also important farm products. The Caspian fishing industry is concentrated on the dwindling stocks of sturgeon and beluga.
Some portions of most products that were previously imported from abroad have begun to be produced locally (among them are Coca-Cola by Coca-Cola Bottlers LTD, beer by Baki-Kastel, parquet by Nehir and oil pipes by EUPEC Pipe Coating Azerbaijan).
A new program which is prepared by the European Union is aimed to supporting the economic diversification of Azerbaijan.https://ec.europa.eu/neighbourhood-enlargement/news_corner/news/eu4lankaran-%E2%80%93-new-eu-action-boost-rural-and-regional-competitiveness-azerbaijan_en
Industrial In 2007, mining and hydrocarbon industries accounted for well over 95 percent of the Azerbaijani economy. Diversification of the economy into manufacturing industries remains a long-term issue.
Automobile
Construction
Defense
As of the late 2000s, the defense industry of Azerbaijan has emerged as an autonomous entity with a growing defense production capability. The Ministry of Defence Industry of Azerbaijan is cooperating with the defense sectors of Ukraine, Belarus and Pakistan. Along with other contracts, Azerbaijani defense industries and Turkish companies, Azerbaijan will produce 40 mm revolver grenade launchers, 107 mm and 122 mm MLRS systems, Cobra 4×4 vehicles and joint modernization of BTR vehicles in Baku.Azerbaijan’s Ministry of Defense Industry plans to assume several projects on technical modernization of Armed Forces Azerbaijani Defense Industry Ministry conducts negotiations with Turkish "Otokar" Company on production of armored vehicles
Food
Machinery
Mining
The region of the Lesser Caucasus accounts for most of the country's gold, silver, iron, copper, titanium, chromium, manganese, cobalt, molybdenum, complex ores and antimony. The most prominent mines are Nehrəm mine and Sotk gold mine.
Oil and gas
Two-thirds of Azerbaijan is rich in oil and natural gas. In September 1994, a 30-year contract was signed between the State Oil Company of Azerbaijan Republic (SOCAR) and 13 oil companies, among them Amoco, BP, ExxonMobil, Lukoil and Statoil. As Western oil companies are able to tap deep-water oilfields untouched by the Soviet exploitation, Azerbaijan is considered one of the most important spots in the world for oil exploration and development. Azerigas, a sub-company of state-owned SOCAR, intends to ensure full gasification of the country by 2021.
Silk
Services
Financial and business services
Education
Healthcare
Real estate
Retail
Telecommunications
The Azerbaijan telecommunications sector is embroiled in corruption. Azerbaijan President Ilham Aliyev and his family own two of Azerbaijan's largest mobile providers (Azerfon and Azercell) through offshore companies and potentially control three-quarters of the mobile market in Azerbaijan. The third large mobile provider is Bakcell, which is registered as a company in an offshore tax haven and whose owners are unknown. Ownership of the mobile providers in Azerbaijan enables the ruling Aliyev family to monitor phone calls and internet activity.
Investigative reporting revealed that Azerbaijani President Ilham Aliyev and his family made more than $1 billion when state shares of mobile operators were transferred to a purportedly "local partner" which was in reality owned by the Aliyev family's offshore companies.
Azerbaijan has relatively expensive call rates relative to comparable countries. The high prices are possibly due to consolidated control of the mobile market and a lack of competition.
The Azerbaijan government has stated that it wants to create a high-tech sector in Azerbaijan.
Tourism
Tourism is an important part of the economy of Azerbaijan. The country was a well-known tourist spot in the 1980s. However, the fall of the Soviet Union, and the First Nagorno-Karabakh War during the 1988–1994 period, damaged the tourist industry and the image of Azerbaijan as a tourist destination.
It was not until the 2000s that the tourism industry began to recover, and the country has since experienced a high rate of growth in the number of tourist visits and overnight stays.Azərbaycan Qarabağın turizm imkanlarını təbliğ edir In recent years, Azerbaijan has also become a popular destination for religious, spa, and health care tourism. During winter, the Shahdag Winter Complex offers skiing.
The government of Azerbaijan has set the development of Azerbaijan as an elite tourist destination a top priority. It is a national strategy to make tourism a major, if not the single largest, contributor to the Azerbaijani economy. These activities are regulated by the State Tourism Agency and the Ministry of Culture. The Formula One Grand Prix is held in Baku, the capital city, and has been held here for years.
Infrastructure
Energy
Transportation
The convenient location of Azerbaijan on the crossroad of major international traffic arteries, such as the Silk Road and the International North–South Transport Corridor, highlights the strategic importance of the transportation sector for the country's economy. The transport sector in the country includes roads, railways, aviation, and maritime transport.
Azerbaijan is also an important economic hub in the transportation of raw materials. The Baku-Tbilisi-Ceyhan pipeline (BTC) became operational in May 2006 and extends more than 1,774 kilometers through the territories of Azerbaijan, Georgia and Turkey. The BTC is designed to transport up to 50 million tons of crude oil annually and carries oil from the Caspian Sea oilfields to global markets.