Population 9.195 million
GDP 71.043 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
5.0 |
0.1 |
2.1 |
3.8 |
|
Inflation (yearly average) (%)
|
7.9 |
5.6 |
3.0 |
6.0 |
|
Budget balance (% GDP)*
|
14.6 |
13.3 |
5.4 |
1.3 |
|
Current account balance (% GDP)
|
28.4 |
26.5 |
20.5 |
13.9 |
|
Public debt (% GDP)
|
11.1 |
10 |
11.4 |
11.2 |
| (e) Estimate (f) Forecast * Including transfers from the Petroleum Fund SOFAZ |
||||
STRENGTHS
- Abundance of oil and gas resources
- Development of new energy transit lines to the EU
- Skilled labour force
WEAKNESSES
- Inadequate economic diversification
- Risk of armed conflict with Armenia
- Governance problems and high level of corruption
Risk assessment
Growth now driven by the non-oil sector
2012 was marked by return to growth, which is expected to continue in 2013 but only thanks to non-oil activity. Oil production curbed growth in 2012 (-7%) and is expected to continue to slow the economy in 2013, but to a lesser extent (-2%), provided that the problems encountered by BP in operating the Azeri-Chirag-Guneshli well are resolved. At any event, the pace of growth will be well below the performances recorded during the oil boom (an average of +20% annual growth between 2003 and 2008). Revenues from hydrocarbon exports will enable the government to sustain non-oil GDP growth. Public spending will thus drive domestic demand, particularly investment spending, which will benefit the construction sector. The services sector will also remain buoyant. Household consumption will grow more slowly in 2013, as the rise in real wages will be restricted by a return of inflation, which had been exceptionally low in 2012. A sustained increase in domestic demand and upwardly trending food prices (50% of the Azeri consumer price index) will contribute to this acceleration.
A comfortable financial position thanks to energy revenues
Azerbaijan’s financial situation will remain very comfortable due to the considerable assets accumulated by the oil fund (SOFAZ) since 2001, valued today at over 50% of GDP. The fiscal balance, largely in surplus in 2012, will decline in 2013. However, there is a considerable non-oil deficit (-43% of non-oil GDP in 2012). The 2013 budget will provide for spending targeted on investment (35%). Public debt ratios are contained but the growing dependence of public finances on transfers from SOFAZ constitutes a risk for the public finances. The banking sector seems now to be on the way to stabilisation, although the public banks remain weakly capitalised. The State has increased its share in the International Bank of Azerbaijan (35% of the total assets), of which it now holds 50.2% and has announced its intention to privatise it.
The external accounts are sound. Azerbaijan has a high current account surplus, which will decline in 2013 while remaining comfortable and still very dependent on hydrocarbons (95% of export revenues). The fall in the volume of oil production will be partially offset by the maintenance of high oil prices. Imports of capital goods (construction, transport and communications) will continue to grow, but those of consumer goods will be held back by household demand. Azerbaijan will continue to attract flows of foreign direct investments (in particular from Turkey) limiting recourse to external debt to fund its investment projects.
Greater political and social tensions
The Azerbaijan regime is characterised by a strong concentration of power in the hands of President Ilham Aliyev, in power since 2003. Though the government has until now maintained a certain degree of social and political stability, the widening gaps between the new Baku middle class, stemming from the oil boom, and the rural population have provoked growing discontent among the population that does not benefit from the redistribution of the income. Despite repression, opposition to the regime is becoming more open and was recently expressed on the fringes of the Eurovision Song Contest organised in Baku in May 2012. Although the opposition remains weak, toughening repression in a context of economic slowdown and growing inequalities could accentuate socio-political tensions, especially with the prospect of presidential elections in October 2013. Moreover, the risk of regional political instability remains very high, due particularly to persistent tensions with Armenia. Negotiations concerning the status of Nagorno Karabakh remain at a stalemate and the risk of renewed armed conflict between the two countries remains high. Relations with Turkey, historically close, were strengthened with the agreement concluded in 2012 on the construction of the Trans-Anatolia pipeline (TANAP) for conveying gas to the EU from the second phase of the Shah Deniz project from 2017. The business environment remains very difficult, handicapped by the scale of corruption.
