|Azerbaijan is a
country in the South Caucasus. Located at the crossroads of Eastern Europe
and Southwest Asia, it is bounded by the Caspian Sea to the east, Russia
to the north, Georgia to the northwest, Armenia to the west, and Iran to
Through the Soviet period, Azerbaijan had always been more developed industrially than Armenia and Georgia, two neighboring Transcaucasia countries--but also less diversified, as a result of slow investment in non-oil sector. With a history of industrial development of more than 100 years, Azerbaijan proved to be a leading nation in Southern Caucasus throughout the turmoil of Soviet Union collapse in early 1990s until nowadays.
Oil remains the most prominent product of Azerbaijan's economy with cotton, natural gas and agriculture products contributing vastly to its unprecedented economic growth perceived over the last five consecutive years. More than $60 billion was invested into Azerbaijan's oil by major international oil companies in AIOC consortium operated by BP. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997 and now is about 500,000 b/d.
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 long-term prospects. Azerbaijan has only recently begun making progress on economic reform, and old economic ties and structures are slowly being replaced. An obstacle to economic progress, including stepped up foreign investment, is the continuing conflict with Armenia over the Nagorno-Karabakh region. Trade with Russia and the other former Soviet republics is declining in importance while trade is building up with Turkey, Iran, UAE, and the nations of Europe. Growth in 2000 should match growth in 1999. Long-term prospects will depend on world oil prices and the location of new pipelines in the region
Azerbaijan is an economy in transition in which the state continues to play a dominant role. It has important oil reserves and a significant agronomic potential based on a wide variety of climatic zones. Since 1995, in cooperation with the IMF, Azerbaijan has pursued a highly successful economic stabilization program, which has brought inflation down from 1,800% in 1994 to 1.8% in 2000. GDP in 2000 grew by more than 11%, and by 19.7% in 2005 - one of the highest rates of GDP growth in the world that year. The national currency, the manat, was stable in 2000, depreciating 3.8% against the dollar. The budget deficit equaled a modest 1.3% of GDP in 2000.
Progress on economic reform has generally lagged behind macroeconomic stabilization. The government has undertaken regulatory reforms in some areas, including substantial opening of trade policy, but inefficient public administration in which commercial and regulatory interests are co-mingled limit the impact of these reforms. The government has largely completed privatization of agricultural lands and small and medium-sized enterprises. In August 2000, the government launched a second-stage privatization program, in which many large state enterprises will be privatized.
This is a chart of trend of gross domestic product of Azerbaijan at market prices estimated by the International Monetary Fund with figures in millions of Manats.
Year Gross Domestic Product US Dollar Exchange
1995 10,669,000 4,414.14 Manats
2000 23,590,500 4,473.82 Manats
2005 59,378,500 4,727.21 Manats
For purchasing power parity comparisons, the US Dollar is exchanged at 1,565.88 Manats only.
For more than a century the backbone of the Azerbaijani economy has been petroleum. Now that Western oil companies are able to tap deepwater oilfields untouched by the Soviets because of poor technology, Azerbaijan is considered one of the most important spots in the world for oil exploration and development. Proven oil reserves in the Caspian Basin, which Azerbaijan shares with Russia, Kazakhstan, and Turkmenistan, are comparable in size to the North Sea, although exploration is still in the early stages.
Azerbaijan has concluded 21 production-sharing agreements with various oil companies. An export pipeline that transports Caspian oil to the Mediterranean from Baky through Tbilisi, Georgia to Ceyhan, Turkey (the Baku-Tbilisi-Ceyhan Pipeline) became operational in 2006. The pipeline is expected to generate as much as $160 billion in revenues for the country over the next 30 years. The recent high price of oil is highly beneficial to the Azerbaijan's economy as the nation is currently in the midst of an oil boom. Eastern Caspian producers in Kazakhstan also have expressed interest in accessing this pipeline to transport a portion of their production. In March 2001, Azerbaijan concluded a gas agreement with Turkey, providing a significant future export market for Azerbaijan.
Azerbaijan faces serious environmental challenges. Soil throughout the region was contaminated by DDT and toxic defoliants used in cotton production during the Soviet era. Caspian petroleum and petrochemicals industries also have contributed to present air and water pollution problems. Several environmental organizations exist in Azerbaijan, yet few funds have been allocated to begin the necessary cleanup and prevention programs. Over-fishing by poachers is threatening the survival of Caspian sturgeon stocks, the source of most of the world's supply of caviar. The Convention on International Trade in Endangered Species (CITES) has listed as threatened all sturgeon species, including all commercial Caspian varieties