8303512
Azerbaijani (Azeri) (official) 92.5%, Russian 1.4%, Armenian 1.4%, other 4.7% (2009 est.)
BAKU (capital) 2.374 million (2015)
- Conventional long form
- Republic of Azerbaijan
- Conventional short form
- Azerbaijan
- Local long form
- Azarbaycan Respublikasi
- Local short form
- Azarbaycan
presidential republic
- Name
- Baku
- Geographic coordinates
- 40 23 N, 49 52 E
- Time difference
- UTC+4 (9 hours ahead of Washington, DC, during Standard Time)
has not submitted an ICJ jurisdiction declaration; non-party state to the ICCt
Prior to the decline in the global oil prices since 2014, Azerbaijan's high economic growth was attributable to rising energy exports, and some non-export sectors also featured double-digit growth. Oil exports through the Baku-Tbilisi-Ceyhan Pipeline, the Baku-Novorossiysk, and the Baku-Supsa Pipelines remain the main economic driver, but efforts to boost Azerbaijan's gas production are underway. The expected completion of the geopolitically important Southern Gas Corridor between Azerbaijan and Europe will open up another source of revenue from gas exports. Declining oil prices caused a 3.8% contraction in GDP in 2016, reinforced by a sharp reduction in the construction sector. The economic decline has been accompanied by higher inflation and a weakened banking sector in the aftermath of the two sharp currency devaluations in 2015.
- Inflation
- 4.18%
- External debt stocks
- US$ 13,215,285,000
- Total tax rate (% of commercial profits)
- 39.8%
- Real Interest Rate
- 1.539%
- Manufacturing, value added (% of GDP)
- 5.591%
- Current Account Balance
- US$ -1,363,404,000
- Labor Force, Total
- 4,890,239
- Employment in Agriculture
- 36.36%
- Employment in Industry
- 14.06%
- Employment in Services
- 49.58%
- Unemployment Rate
- 5.07%
- Imports of goods and services
- US$ 16,529,046,813
- Exports of goods and services
- US$ 17,580,998,935
- Total Merchandise Trade
- 53.11%
- FDI, net inflows
- US$ 4,499,666,000
- Commercial Service Exports
- US$ 4,340,954,000
fruit, vegetables, grain, rice, grapes, tea, cotton, tobacco; cattle, pigs, sheep, goats
petroleum and petroleum products, natural gas, oilfield equipment; steel, iron ore; cement; chemicals and petrochemicals; textiles
- Commodities
- oil and gas roughly 90%, machinery, foodstuffs, cotton
- Partners
- Italy 19.7%, Germany 10.7%, France 7.5%, Israel 7%, Czech Republic 4.8%, Indonesia 4.2% (2015)
- Commodities
- machinery and equipment, foodstuffs, metals, chemicals
- Partners
- Russia 15.6%, Turkey 12.7%, US 9.2%, Germany 7.5%, Italy 6.4%, Japan 6.1%, UK 6%, China 5.6% (2015)
- Country Risk Rating
- C
- A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.
- Business Climate Rating
- C
- The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.
- Abundant hydrocarbon resources (above all gas)
- Development of new energy transit routes to the EU
- Skilled labor force
- Inadequate economic diversification
- Risk of armed conflict with Armenia
- Governance problems and high level of corruption
Very modest recovery after a year 2016 marked by the first recession in the country for twenty years
The hydrocarbon sector (40% of GDP) especially that of gas, benefitting from a slight recovery in prices on the global market, will drive Azerbaijan's economy in 2017. With the exception of infrastructure projects already launched (notably pipeline construction), public investment is likely to be revised downwards given the budgetary constraints. Activity in services (25% of GDP) and construction (10% of GDP), strongly supported by government spending in recent years, is likely to be hit. The sharp interest rate hike implemented in 2016 (up from 3% in February to 15% in September) and the weakness of the banking sector, which limits lending, will put pressure on private investment.
The contribution of exports is expected to remain weak with both the prices and production of hydrocarbons showing little increase. Household consumption is not likely to be much more dynamic in 2017 than in 2016 because of the policy of spending restraint announced by the government. Moreover, the rise in prices is expected to remain sharp because of the continuing depreciation of the manat against the dollar.
The 2017 draft budget includes a cut in transfers from the Sovereign fund (SOFAZ) for the fourth consecutive year, thus reducing budgetary revenues. Tax revenues are also expected to remain low, given the sluggish growth. Revenues from the hydrocarbon sector (over 50% of the total) are, in contrast, expected to rise slowly, benefiting from a rise, though modest, in prices.
The government has announced a sharp cut in spending after an increase in spending in 2016 which failed to have the hoped for effect in supporting growth. Capital investment is likely to be revised downwards and the wage increases and social spending introduced in 2016 will not be repeated.
Azerbaijan could avoid another current account deficit in 2017, given the slight rise in hydrocarbon prices (95% of total exports). However, export volumes are not expected to grow by much, with oil production having peaked and an increase in gas production not expected before 2018, when the second phase of the Shah Deniz project is launched. Imports are expected to grow very slightly, because of moderating demand and public investment.
Having lost about 50% of its value against the dollar in 2015, the manat's exchange rate continued to weaken in 2016, but much more moderately (-6% between January and early November 2016). The lack of foreign exchange, associated with low export income restrained by low hydrocarbon prices, could persist, implying ongoing downward pressure on the exchange rate. The government's desire to maintain its foreign exchange reserves, which fell by two thirds between early 2015 and late 2016, could lead to another devaluation in 2017, the scale of which will, however, be smaller than in 2015.
SOFAZ assets (around USD 34 billion, or 50% of GDP in October 2016) and reserves which, taken together, remain satisfactory (4 months of imports), limit the country's risk of a liquidity crisis. In contrast, the banking sector, highly dollarized (over 80% of deposits), is exposed to such risk. Another depreciation would further weaken the balance sheets of institutions whose access to foreign exchange is moreover limited by the central bank.
President Ilham Aliyev (55 years old), in power since 2003 and re-elected in 2013, is expected to remain as leader of the country at least until 2020. The result of the referendum, organized in September 2016 (80% of votes cast, in favor) effectively allows him to amend the Constitution and extend his term from 5 to 7 years. His party (New Azerbaijan Party - NAP) will thus continue to dominate the political scene, in the absence of an opposition.
While the government has managed to maintain a degree of social and political stability to date, thanks to significant oil resources, growing inequalities and an economic slowdown are heightening popular discontent. The risks of repression and the weakness of the opposition are, however, limiting protest activity.
Despite some progress, performance on governance remains less good overall than that of the other CIS countries, especially regarding the fight against corruption (ranked 167th according to the World Bank, while Kazakhstan is 158th).
Finally, the risk of regional political instability remains high, because of tensions with Armenia over the status of Nagorno-Karabakh, as evidenced by the resumption of armed conflict in early April 2016. No scenario for resolving the conflict seems to be in sight in the short term.