Azerbaijan Economy

How important are oil and gas for the Azerbaijani economy?The short answer to this question is: very important.The State Oil Fund of Azerbaijan was created in December 1999 “to ensure intergenerational equality of benefit with regard to the country’s oil wealth, whilst improving the economic well-being of the population today and safeguarding economic security for future generations” (State Oil Fund of Azerbaijan Republic, 2009). The fund’s activities include preservation of macroeconomic stability, safeguarding fiscal-tax discipline, decreasing dependence on oil revenues and stimulating development of the non-oil sector. Its assets reached €14.9 billion ($21.7 billion) by October 2010 (State Oil Fund of Azerbaijan Republic, 2010). Azerbaijan’s rapid economic development and significant improvement across several indicators allowed the country to be placed on the list of countries with high human development. For example, Azerbaijan’s ranking in the Human Development Index (HDI) has significantly improved. In 2010 it reached the highest score at 0.713 and the country was ranked 67th among 169 countries. Thus, for the first time in its history Azerbaijan has left the ranks of countries with “medium human development” and joined the “high human development” cohort. Since 1995, Azerbaijan’s life expectancy (one of the indicators of HDI) has increased by 5 years, the expected years of schooling increased by 3 years, and Gross National Income per capita jumped by 338% (HDI, 2010). Main Macroeconomic Trends Azerbaijan has been able to attract foreign direct investments and export its natural resources due to exploration of new oil fields and PSA agreements with foreign oil companies. For the thirteen year period from 1997 to 2009, Azerbaijan’s GDP grew by 14% per year on average (The State Statistical Committee of the Republic of Azerbaijan, 2009a). However, much of the growth was generated by industrial output—mostly in the oil and gas industry that grew by 18.8% on average between 2003 and 2009 (EBRD, 2009; World Bank, 2009a). As a result of the oil boom and inflows of oil revenues, the GDP per capita (PPP) also grew to €3,411 ($4,874) in 2009.1 High oil revenues allowed Azerbaijan’s GDP per capita to reach 54.3% of the 10 EU countries’ average put together (Latvia, Lithuania, Estonia, Czech Republic, Poland, Hungary, Slovenia, Slovakia, Romania and Bulgaria).