The Azeri Economy
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Azerbaijan is less developed industrially than either Armenia or Georgia, the other Transcaucasian states, but the recent influx of Petrodollars is bringing change at a quic pace. It resembles the Central Asian states in its majority nominally Muslim population, high structural unemployment, and low standard of living. The economy's most prominent products are oil, cotton, and gas.

main oil contracts in Azerbaijan (source: Ilham Aliyev)Production from the Caspian oil and gas fields declined for several years, but has been recovering in the last few years. This is the consequence of the negotiation of 21 major field agreements with 33 companies from 15 countries, which have thus far committed $35 billion to oil field development. Such investment should generate the funds needed to spur future industrial development. Oil production under the first of these agreements, with the Azerbaijan International Operating Company (AIOC), began in November 1997.

Azerbaijan shares all the formidable problems of the ex-Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its long-term prospects. Baku has only recently begun making progress on economic reform, and old economic ties and structures are slowly being replaced.

A major short-term obstacle to economic progress, including stepped up foreign investment, is the continuing conflict with Armenia over the ethnic Armenian-dominated region of Nagorno-Karabakh. Trade with Russia and the other former Soviet republics is declining in importance while trade is building up with the nations of Europe, Turkey, Iran, and the UAE. A serious long-term challenge is the maintenance of the competitiveness of non-oil exports in world markets.

Azerbaijan - Baku: old town - friendly builder on a shaky scaffold - construction worker - construction site - photo by M.TorresThe economy is also hampered by widespread corrupt practices at all levels of the administration. This has been repeatedly pointed out by opposition parties, but even the late president Aliyev acknowledged the situation, attributing to "corruption and embezzlement" a fuel shortage in 2000 which caused major electricity cuts across the country and forced Azerbaijan to import oil from Turkmenistan. The government has used corruption allegations to jail opposition members, particularly those loyal to Rasul Guliyev, former speaker of the parliament, currently in self-imposed exile in the US. Among those convicted to jail sentences are Rauf Garayev and Rauf Babayev, former ministers who allegedly pocketed about 30 million dollars!

In 1999, President Aliyev issued a decree creating a State Oil Fund designed to use money obtained from oil-related foreign investment on education, reducing poverty, and raising the living standards of the rural population in Azerbaijan. However, the unresolved Nagorno-Karabakh conflict remains an obstacle to economic progress. Nevertheless after 2005 with the quick increase of oil revenues the effect of oil fund is starting to be felt.

Azerbaijan - Baku: oil derricks and the military harbour - photo by N.MahmudovaAzerbaijan's real (adjusted for inflation) gross domestic product (GDP) contracted 55% in the 1991-1997 period, with the downward trand finally halted by 1997. This decline does not, however reflect the country's underground economy: the World Bank has estimated that 'unofficial' economic activity accounts for half of Azerbaijan overall economy. Fueled by foreign investment in oil and gas, the real GDP rose by 11% in 2001, and such rates growth have been mantained.

Investment (gross fixed): 44.9% of GDP (2006 est.)

Inflation rate (consumer prices): 8% (2006 est.)

Reserves of foreign exchange and gold: $1.8 billion (2006 est.)
Labour force:
  • total: 5.191 million (2006 est.)
  • by occupation: 
    • 7% in industry, 
    • 40 % in agriculture and forestry, 
    • 53% in services (2001).
  • 47.7% of total employment is in the state sector.
  • Unemployment rate:1.2% official rate (2006 est.)
Education Level
(age > 15)
Higher Education
Incomplete Higher Education
Vocational Education
Secondary Education
Basic Education (8th year)
Less than 8th year

Poverty: population below the poverty line - 49% (2002)

- revenues: $6.008 billion
- expenditures: $5.804 billion; including capital expenditures of $NA (2006 est.)

Baku, Azerbaijan: a modern drilling platform to be located in the Caspian sea - photo by G.MonssenIndustries

During World War II, relocated and expanded factories in Azerbaijan produced steel, electrical motors, and finished weaponry for the Soviet Union's war effort. The canning and textile industries were expanded to process foodstuffs and cotton from Azerbaijan's fields. Azerbaijan's postwar industrial economy was based on those wartime activities. Among the key elements of that base were petrochemical-derived products (such as plastics, industrial oils, fuels and tires), oil-drilling equipment, cement and processed foods and textiles.

In 1991 the largest share of Azerbaijan's industrial output was contributed by the food industry, followed by light industry (defined to include synthetic and natural textiles, leather goods, carpets, and furniture), fuels, and machine building. Significant food processing and cotton textile operations are located in Gyandzha in western Azerbaijan, and petrochemical-based industries are clustered near Baku. The city of Sumgait, just north of Baku, is the nation's center for steel, iron, and other metallurgical industries. (source: Library of Congress)

Caspian sea: subsea drill bit - Production, Drilling and Quarters (PDQ) platform - West Azeri (WA) section of the Azeri-Chirag-Guneshli (ACG) oil field - photo by J.FitzpatrickIndustrial production growth rate: 6% (2002 est.)


The major agricultural cash crops are grapes, cotton, tobacco, citrus fruits, and vegetables. The first three crops account for over half of all production, and the last two together account for an additional 30 percent. Livestock, dairy products, and wine and spirits are also important farm products.

In the early 1990s, Azerbaijan's agricultural sector required substantial restructuring if it was to realize its vast potential. Prices for agricultural products did not rise as fast as the cost of inputs; the Soviet-era collective farm system discouraged private initiative; equipment in general and the irrigation system in particular were outdated; modern technology had not been introduced widely; and administration of agricultural programs was ineffective.

viticulture in AzerbaijanOver 80% of Azerbaijan's arable lands, which total over 1 million hectares, are irrigated by more than 40,000 kilometers of canals and pipelines. The varied climate allows cultivation of a wide variety of crops, ranging from peaches to almonds and from rice to cotton. In the early 1990s, agricultural production contributed about 30 to 40 percent of Azerbaijan's net material product (NMP), while directly employing about onethird of the labor force and providing a livelihood to about half the country's population. In the early postwar decades, Azerbaijan's major cash crops were cotton and tobacco, but in the 1970s grapes became the most productive crop. An anti-alcohol campaign by Moscow in the mid-1980s contributed to a sharp decline in grape production in the late 1980s. In 1991 grapes accounted for over 20 percent of agricultural production, followed closely by cotton.

Production of virtually all crops declined in the early 1990s. In 1990 work stoppages and anti-Soviet demonstrations contributed to declines in agricultural production. The conflict in Nagorno-Karabakh, the site of about one-third of Azerbaijan's croplands, substantially reduced agricultural production beginning in 1989. In 1992 agriculture's contribution to NMP declined by 22 percent. This drop was attributed mainly to cool weather, which reduced cotton and grape harvests, and to the continuation of the Nagorno-Karabakh conflict. The conflict induced blockade of the Nakhichevan Autonomous Republic also disrupted agriculture there.

Some state and co-operative farms are still in operation in Azerbaijan, with little actual difference between the rights and privileges of state and cooperative holdings. However many of the collectives and state owned-farms have been privatized under the 1996 'Law on land reform', and about 20.000 small farms comprising 98% of the farmland are private.  Private landholders do not have good access, to the inputs, services, know-how and financing that would maximize their output and the country's primary sector is far from competitive. Many of the food products consumed are imported.

The Azerbaijani Ministry of Agriculture and Food runs procurement centers dispersed throughout the country for government purchase of most of the tobacco, cotton, tea, silk, and grapes that are produced. The Ministry of Grain and Bread Products runs similar operations that buy a major portion of grain production. Remaining crops are sold in the private sector.

Agricultural production: 4.709.000 million AZM. Growth: 7.1% (1999 - 1998: 0.3%, 1997: -6.9%)

(sources: Library of Congress, FAO, BISNIS)

harvesting caviar - AzerbaijanFishing: in the Caspian Sea. Dwindling stocks of sturgeon (russian, beluga and stellate). Producer of caviar. (there's also sturgeon farming). Some fishing in lakes, reservoirs and rivers, of little economic relevance.


see: electricity in Azerbaijan
  • total value: $12.51 billion f.o.b. (2006 est.)
  • commodities: oil and gas, chemicals, oil field equipment, textiles, cotton
  • partners: European Union, CIS, Iarael, Turkey, Iran
  • total value: $5.176 billion f.o.b. (2006 est.)
  • commodities: machinery and parts, consumer durables, foodstuffs, textiles, tobacco
  • main partners: European Union, CIS, USA, Turkey, Iran, UAE

$+200 million

$+707 million

$-471 million

Public debt: 10.4% of GDP (2006 est.)
Debt - external:  $2.483 billion (2006 est.)

Economic aid recipient: ODA, $140 million (2000 est.)

Fiscal year: calendar year

Privatization: Although the legislation that regulates the privatization process went into effect in the beginning of 1993, the rhythm of privatization has been rather slow, except in the primary sector, with about 90% of Azerbaijan's farmland now in private hands. In the secondary and tertiary sectors only small or non strategic assets (e.g. hotels, the Taxi fleet) have moved to private hands (over 10.000 small enterprises). The government is making some effort to accelerate the process. Foreign investors face some restriction in their participation in the privatization process. (The 'State Property Committe and Privatization Agency' is on 20 Safarov street - tel 9274111, fax 989786).
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