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General Economic Overview of Azerbaijan Vugar Bayramov (Ph.D.), Chairman of Center for Economic and Social Development (CESD) www.cesd.az Content Positive tendencies of Azerbaijan Economy Macro-Economic Figures Oil Sector Development Negative tendencies of Azerbaijan Economy Agriculture Conclusion Positive tendencies GDP Growth; the world’s highest growth rate for the second year running Increasing in foreign and domestic investments Increasing in State Revenues due to high price of the world oil market Gross Domestic Product GDP Growth, % 40 34,5 30 26,4 25 20 10 10,8 10,2 0 2004 2005 2006 2007 2008 Source; SSC,2009 GDP Per Capita GDP Per Capita , manat 5000 4440 4000 3473 3000 2508 2000 1000 1060 1600 0 2004 2005 2006 2007 2008 Share of oil and gas sector in GDP 60 60 54 54 50 44 40 30 31 30 31 31 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Growth in oil and non-oil sector 2004 GDP Growth 10.2 Growth in non-oil Sector , 14.0 2005 2006 2007 2008 26.4 34.5 25 10.8 8.3 12.0 10 15.7 66.3 63.1 51 70 % Growth in Oil Sector, % 3.0 General Economic Overview The medium-term outlook for the economy of Azerbaijan is positive. GDP growth is expected to continue posting high double-digit growth over the next few years, mainly from increased oil and gas production and exports. Foreign investment is expected to decline over time as the major oil and gas projects move toward less intensive stages. However, the Government of Azerbaijan expects increased domestic public investment to offset some of this decline. Government expenditure rose by over 80% in 2006 and is projected to rise by a further 50% in 2007, which puts considerable pressure on inflation. General Economic Overview In the long term, Azerbaijan’s high dependence on oil exports poses a potential threat to the economy given the potential volatility in the international oil market. The main challenge for Azerbaijan is to develop the non-oil sector to ensure that the economy continues to grow on a sustainable path after the oil boom, meeting both short-term expectations and longerterm demands. A key objective is to develop incomegenerating and new employment opportunities in the non-oil sector, in such priority areas as banking and finance, trade, and small and medium-sized enterprise (SME) development. Financial Sector Despite tremendous economic development, Azerbaijan's banking sector is one of the weakest among the sovereigns rated. The depth of bank intermediation activity is low (system assets were equivalent to only 17% of GDP as of the end of 2006). The provision of financial services to households and the private sector is very limited—only an estimated 10% of the total population has bank accounts, reflecting low confidence in the banking sector. Financial services have mainly been provided to the oil, construction, and trade sectors—leaving the retail and SME sectors notably underserved. OIL SECTOR DEVELOPMENT Contracts 25 oil contracts with 33 foreign companies from 15 countries have been singed by the government in order to produce crude-oil in Azerbaijan. Within these contracts 60 billion USD is predicted to be invested in the oil sector where 4 billion ton conditional fuel are expected to be produced. According to these contracts explore of oil deposits should be finished during 3-5 years, in case of finding deposit which has commercial importance this time can be extended to 25 years. If oil deposits are not discovered then explore costs is not paid back. млн. барrел Oil Production, Forecast 500,0 450,0 400,0 350,0 300,0 250,0 200,0 150,0 100,0 50,0 0,0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Source; SSC,2009 GDP Growth, Government Income and Expenditures, % 200 ÜDM artımı 190 180 170 160 Dövlət gəlirlərinin artımı 150 140 130 Dövlət xərclərinin artımı 120 110 100 2000 2001 2002 2003 2004 2005 2006 2007 (proq.) Source; SSC,2007 STATE BUDGET AND INVESTMENTS State Budget’s Incomes between 20032010 years(mln.manat) 14000 12564,8 13171,5 12000 Neft gəlirləri 10000 8000 7285,6 6314,9 7469,7 6466,5 7165,6 5984,2 7563,1 6193,4 6000 3868,8 4000 4180,1 2447,8 1610,2 2055,2 1489,6 2000 1481,2 1225,5 542,6 364,1 259 1555,7 1588,2 896,3 0 2003 2004 2005 Büdcə gəlirləri 2006 2007 (proq) 2008 (proq) 2009 (proq) 2010 (proq) Dövlətin gəlirləri, cəmi Negative Tendecies High Corruption Level Lack of Transparency High Bureaucracy Level High Rate of Shadow Economy Level of corruption in country According to Index of Perception of Corruption of the organization “Transparency International” for 2007, Azerbaijan is on 124-128 place (together with other four countries: Angola, Georgia, Cameroon, Tajikistan) among 133 countries of the world. The poll of thousand of respondents, carried out recently (May 2004) by national Center of Sociological Researches “Sorgu”, has also confirmed the high level of corruption in the country. According to the results of this sociological poll, more than 86,9% of respondents consider the level of corruption in the country as rather high (52,2%) or very high (34,7%). High level of corruption was, practically unanimous opinion of participants of five focus-groups, carried out in Baku at the end of April – beginning of May of current year, and those who took part in individual interviews of experts. Conclusion Azerbaijan has high GDP Growth State Incomes are rapidly increasing “Dutch Disease” Risk CPI (Inflation) is becoming one of main problems No success on fighting with corruption and enhancing transparency Agriculture sector still is undeveloped. Thank You Center for Economic and Social Development (CESD) Shirin Mirzeyev 76 "a"/ 33, Baku Az1002, Azerbaijan Phone: (99412) 495 4248 Fax (99412) 5970691 Email; [email protected] Web; http://www.cesd.az