Azerbaijan – Economist Intelligence Unit

Azerbaijan – Economist Intelligence Unit

The Azeri economy grew only modestly in 2017. This month the State Committee for Statistics reported that GDP expanded by 0.1% year-on-year after a 3.1% contraction in 2016. The non-oil economy grew by 2.7% while the oil sector shrank by 5%, mostly due to falling production from the main Azeri-Chirag-Guneshli (ACG) offshore field.

The oil sector accounted for 40.1% of GDP, followed by trade and road transport maintenance (10.4%), construction (9.5%), transport and logistics, including storage (6.8%), agriculture (5.6%) and tourism (2.3%). Per capita GDP last year declined by 0.9% to less than US$4,300.

A 3.4% drop in industrial production is mostly a reflection of difficult economic conditions in key export markets, where subdued demand has significantly depressed prices.

The government has put a positive spin on the industrial decline by affirming that it was mainly caused by Azerbaijan’s commitment to the OPEC+ production agreement, adopted in late 2016 and subsequently renewed. Azerbaijan and Kazakhstan are the only post-Soviet states, beside Russia, to participate in the OPEC+ format.

BP, the operator of ACG, has struggled to maintain stable output from declining reserves. Last year’s signing of an extension to the ACG production sharing agreement paves the way for extra capital expenditure to support production, especially if the price of oil rises higher on further action from the OPEC+ group of exporters.

Almost 70% of all industrial production is still tied to the extractive industries, despite the government declaring that economic diversification is advancing steadily. Only 24.7% is in the processing sector and a meagre 4.6% related to production and distribution of electricity and gas.

The ‘resource curse’ is a common phenomenon in oil-rich countries and is not easy to escape from. The problem for Azerbaijan’s economy and the economy of similar countries is not so much their inability to enforce accountable and professional management of oil-derived assets, as structural economic imbalances.

This segment is taken from the Azerbaijan section of our monthly Caspian Focus analysis. If you would like to discuss the article, the region, or receive a free sample, then please contact our consultancy team.