Azerbaijan: Economic and Political Overview

Economic Indicators

Declining global gas and oil prices and the armed conflict between Armenia and Azerbaijan in Nagorno-Karabakh took a toll on the country’s economic growth in recent years. Following the strong rebound from the pandemic (+4.6% of GDP in 2022), growth moderated to 2.4% in 2023, attributed to a decrease in non-hydrocarbon growth to approximately 3% and a decline in hydrocarbon production. The IMF projects medium-term growth to hover at approximately 2.5%, buoyed by public investment, while the drag from the energy sector may alleviate with new oil production. However, advancements in economic diversification face hurdles due to the significant state presence, restricted financing access, governance issues, and limited non-energy foreign investment.

In recent years, significant efforts were made by authorities to reduce the non-oil fiscal deficit, surpassing targets in 2022 and aiding in curbing inflation. This surplus provided fiscal room for high-priority capital spending in 2023. Consequently, the non-oil primary deficit rose from 22.4% of non-oil GDP in 2022 to around 24.4% in 2023, slightly below the 25% target. The overall budget surplus decreased from 6.3% of GDP in 2022 to 2% in 2023, partly due to lower-than-expected oil prices. Azerbaijan has postponed its commitment to reduce the non-energy primary deficit to 17.5% of non-oil GDP by one year, now targeting 2027, as per its fiscal rule. This adjustment allows for expenditure commitments linked to Karabakh and defense. Additionally, the government has raised its public debt ceiling to 30% of GDP from the previous 20%. In 2023, government debt increased to 21.8% of GDP after assuming 8% of GDP domestic guaranteed debt from Agrarkredit. Fitch anticipates debt to stabilize at an average of 21.6% of GDP during 2024-2025. External government guarantees and on-lending decreased to USD 6 billion (8.2% of GDP) in 2023, primarily associated with the Southern Gas Corridor project, which remains profitable and unlikely to necessitate sovereign support. In 2023, average inflation decreased to 9%, buoyed by a robust manat compared to Azerbaijan's primary trading partners and reduced international food prices. Fitch forecasts a further easing to 4.5% in 2024.

After peaking in 2020, the unemployment rate returned on a downward path and stood at 5.9% in 2023, and is expected to remain stable over the forecast horizon (IMF). In Azerbaijan, inequality is deemed moderate in comparison to other transition and petroleum-rich nations. The majority of Azerbaijani citizens have reaped the rewards of the country's remarkable economic expansion: the GDP per capita (PPP) was estimated at USD 17,828 in 2022 by the World Bank, and according to the Asian Development Bank, only 5.9% of the population lives below the national poverty line.

Main Sectors of Industry

Azerbaijan has a workforce of 5.43 million out of its 10.14 million population (World Bank data). Its economy is based on gas and oil, steel, iron, chemical and petrochemical products, and textiles. Agriculture accounts for 4.8% of GDP and employs 36% of the population (World Bank, latest data available). The main crops include wheat, barley, corn, fruits (wine grapes), potatoes, cotton, tea, silk, and tobacco. The country also produces other potentially valuable crops, including indigenous pink grapes and persimmon. According to the State Statistical Committee, in January–November 2023, Azerbaijan's agricultural production amounted to USD 6.5 billion: crop production in Azerbaijan saw a 2.8% rise to USD 3.4 billion, while livestock production increased by 3.3% to USD 3.4 billion. Furthermore, figures from the Azerbaijan Export and Investment Promotion Agency show that the country’s exports of agricultural reached USD 1.1 billion in 2023, of which USD 878 million accounted for unprocessed agricultural products.

Industry accounts for 55.9% of GDP and employs nearly 15% of the population (World Bank). Besides oil products and their derivatives, Azerbaijan produces cement, machinery, cotton, and foodstuffs. The oil and gas industry accounted for around 95% of all industrial activity in the early 2000s, but the Azeri government has since implemented efforts to diversify the economy. The manufacturing sector is estimated to account for only 5% of GDP (World Bank). In 2023, industrial enterprises and individual entrepreneurs in Azerbaijan produced USD 39.17 billion (State Statistical Committee). According to the Ministry of Energy, in 2023, natural gas production surged by 37% to 48.3 bcm, while crude oil output, including condensate, dipped by 7% to 30.2 million metric tons.

Services account for 32.2% of GDP and employ 49% of the population. Flourishing service sectors include banking, construction, and real estate. The latest figures from the Azerbaijan Tourism Board show that the country welcomed around 1,893,000 international visitors from January to November 2023, marking a 29.8% rise in comparison to the same period one year earlier. The size of the banking sector relative to the economy in Azerbaijan is still small: the ratio of total banking sector assets to GDP stood at 47% as of 2020 (Black Sea Trade and Development Bank – latest data available). Banks are the primary force in Azerbaijan's financial sector, possessing approximately 95% of its total assets.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	34.2	15.4	50.4
Value Added (in % of GDP)	4.8	55.9	32.2
Value Added (Annual % Change)	3.4	0.4	12.8

Source: World Bank - Latest available data.

 

Find more information about your business sector on our service Market Reports.

 

 

Monetary Indicators	2016	2017	2018	2019	2020
Azerbaijanian New Manat (AZN) - Average Annual Exchange Rate For 1 MUR	0.04	0.05	0.05	0.05	0.04

Source: World Bank - Latest available data.

 

 

Find out all the exchange rates daily on our service Currency Converter.

Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:

70,1/100

World Rank:

38

Regional Rank:

23

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

5.19/10

World Rank:

70/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Foreign Trade in Figures

Trade represents 77% of Azerbaijan's GDP (World Bank, latest data). However, its foreign trade still relies heavily on the ex-Soviet bloc countries, especially Russia. Oil and gas represent over 90% of the country's exports. A significant part of the country's imports is made of capital goods, from machinery and vehicles to electrical equipment. Primary imports in Azerbaijan include iron and steel, machinery, vehicles, and predominantly meat and dairy food products. Its oil and especially gas reserves provide the country with a degree of confidence for the coming years, but economic diversification remains a major problem to tackle. Other challenges include promoting more economic cooperation and openness and reducing the power of monopolies.

Azerbaijan's main export destinations are Italy (46.6%), Türkiye (9.3%), Israel (4.4%), India (4.4%), and Greece (3.6%), while the main import partners are Russia (18.8%), Türkiye (15.8%), China (14.4%), Germany (4.5%), and Turkmenistan (3.5% - data Comtrade 2022). As per the Azerbaijani State Customs Committee, trade with Russia increased by 17.5% y-o-y in 2023.

As per the WTO, Azerbaijan saw a significant surge in foreign trade of goods in 2022, with a 55.4% increase amounting to USD 52.7 billion. Simultaneously, the nation recorded a notable rise in total net exports, witnessing a 71.6% year-on-year increase to USD 38.1 billion, along with imports rising by 23.9% to USD 14.5 billion. Exports of services amounted to USD 6.4 billion, against 7.7 billion in imports. The total external trade balance was positive by 33% of GDP in 2022, according to the World Bank. In January-December 2023, Azerbaijan's total exports amounted to USD 33.9 billion, as indicated by the Center for Analysis of Economic Reforms and Communication. Moreover, Azerbaijan experienced a 9.8% increase in non-oil exports in 2023 compared to the corresponding period of the previous year, reaching USD 3.3 billion. The combined export value of agricultural and agro-industrial products surged by 6.2% to reach USD 969.2 million. Notably, the value of agro-industrial products, a substantial component of non-oil/gas exports, increased by 3.2% to USD 201 million.

Sources of General Economic Information

Ministries

InvestBaku - Investment Agency of Baku
Ministry of Finance

Statistical Office

The State Statistical Committee of the Republic of Azerbaijan

Central Bank

Central Bank of the Republic of Azerbaijan

Stock Exchange

Baku Stock Exchange

Search Engines

Search AZ
Azerbaijan Internet links
Azerbaijan International

Economic Portals

The Economist : Azerbaijan
Business Information Service for the Newly Independant States

Any Comment About This Content? Report It to Us.