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Azerbaijan Economy
 
 
 

After gaining independence in 1991, Azerbaijan became a member of the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, the Islamic Development Bank and the Asian Development Bank. The banking system of Azerbaijan consists of the Central Bank of Azerbaijan, commercial banks and non-banking credit organizations. The National (now Central) Bank was created in 1992 based on the Azerbaijan State Savings Bank, an affiliate of the former State Savings Bank of the USSR. The Central Bank serves as Azerbaijan's central bank, empowered to issue the national currency, the Azerbaijani manat, and to supervise all commercial banks. Two major commercial banks are the state-owned International Bank of Azerbaijan and the United Universal Joint-Stock Bank.

Pushed up by spending and demand growth, the 2007 Q1 inflation rate reached 16.6%. Nominal incomes and monthly wages climbed 29% and 25% respectively against this figure, but price increases in non-oil industry encouraged inflation in the country. Azerbaijan shows some signs of the so-called "Dutch disease" because of the fast growing energy sector, which causes inflation and makes non-energy exports more expensive.

Two thirds of Azerbaijan is rich in oil and natural gas. The region of the Lesser Caucasus accounts for most of the country's gold, silver, iron, copper, titanium, chromium, manganese, cobalt, molybdenum, complex ore and antimony. 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, Exxon, LUKoil and Statoil. As Western oil companies are able to tap deepwater oilfields untouched by the Soviet exploitation, Azerbaijan is considered one of the most important spots in the world for oil exploration and development. Meanwhile the State Oil Fund was established as an extra-budgetary fund to ensure the macroeconomic stability, transparency in the management of oil revenue, and the safeguarding of resources for future generations.

At the beginning of 2007 there were 4,755,100 hectares of utilised agricultural area. In the same year the total wood resources counted 136 million m³. Azerbaijan's agricultural scientific research institutes are focused on meadows and pastures, horticulture and subtropical crops, green 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. 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).

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 km through the territories of Azerbaijan (440 km), Georgia (260 km) and Turkey (1114 km). 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. The South Caucasus Pipeline, also stretching through the territory of Azerbaijan, Georgia and Turkey, became operational at the end of 2006 and offers additional gas supplies to the European market from the Shah Deniz gas field. It is expected to produce up to 296 billion m³ of natural gas per year. Azerbaijan also plays a major role in the EU-sponsored Silk Road Project.

Overview

Economy - overview
Azerbaijan's high economic growth during 2006-08 is attributable to large and growing oil exports, but the non-energy sector also featured double-digit growth in 2008, spurred by growth in the construction, banking, and real estate sectors. However, the current global economic slowdown presents some challenges for the Azerbaijani economy as oil prices have plummeted since mid-2008 and local banks face a more uncertain international financial environment. Azerbaijan's oil production declined through 1997, but has registered an increase every year since. Negotiation of production-sharing arrangements (PSAs) with foreign firms, which have committed $60 billion to long-term oilfield development, should generate the funds needed to spur future industrial development. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997. A consortium of Western oil companies built a $4 billion pipeline from Baku to Turkey's Mediterranean port of Ceyhan which will pump 1.2 million barrels a day from a large offshore field when at full capacity. Azerbaijan shares all the formidable problems of the former Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its medium-term prospects. Baku has only recently begun making progress on economic reform, and old economic ties and structures are slowly being replaced. Several other obstacles impede Azerbaijan's economic progress: the need for stepped up foreign investment in the non-energy sector, the continuing conflict with Armenia over the Nagorno-Karabakh region, pervasive corruption, and potential for a sharp downturn in the construction and real estate sectors. Trade with Russia and the other former Soviet republics is declining in importance, while trade is building with Turkey and the nations of Europe. Long-term prospects will depend on world oil prices, the location of new oil and gas pipelines in the region, and Azerbaijan's ability to manage its energy wealth to promote sustainable growth in non-energy sectors of the economy and spur employment.

GDP (purchasing power parity)
$73.65 billion (2008 est.)

GDP (official exchange rate)
$53.26 billion (2008 est.)


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