Is Azerbaijan a fully developed country

Much untapped potential for economic diversification

Economic key data of Azerbaijan *)

indicator

2019

GDP (nominal, billion US $)

48,0

Gross value added

43,9

GDP per capita (nominal, US $)

4.851,2

Population (annual average, million)

10,0

With ten million inhabitants and an area of ​​86,600 square meters, Azerbaijan is the largest country in the South Caucasus. In the mid-1990s, the republic was the first state bordering Lake Caspian to successfully rely on investments from the west to develop its large oil and gas reserves. The industrial use of the offshore fields in the Caspisee was the most important milestone on the way to the country's solid economic development over many years.

The golden days in which petrodollars were bubbling up from oil exports have been over since 2015. In recent years, the government has launched many projects to expand the oil sector and improve the business climate in the country. The successes in the practical implementation, however, are still well below expectations. The economy remains highly dependent on oil and gas exports.

Importance of economic sectors in Azerbaijan (shares in percent)

Sectors

Share of gross value added in 2019

Share of employees in 2019 *)

Agriculture, forestry, fishing

5,7

36,0

Mining and quarries (including oil and gas production)

35,2

0,8

Manufacturing

5,0

5,3

Energy supply (electricity and heat)

1,0

0,6

Water supply, sewage and waste disposal

0,2

0,6

construction industry

7,3

7,4

Services

45,6

49,3

Sectors: The oil and gas industry shapes economic activity

The hydrocarbon sector represents around two-fifths of the country's gross value added each year and seven-tenths of industrial output in terms of value (2019: production of 37.5 million tons of oil and 35.6 billion cubic meters of natural gas, including production of 24.5 billion cubic meters of marketable gas). It accounts for about 35 to 50 percent of the capital invested in the republic each year.

More than one in three people is employed in agriculture in the country. The agricultural sector only accounts for just under 6 percent of Azerbaijan's annual gross value added. This discrepancy indicates a very low level of efficiency in the industry. But there is hope. The establishment and development of efficient agricultural parks and development programs in such sectors as cotton, citrus fruits, pomegranates, wine, hazelnuts, tea, tobacco, animal production and fish farming should give agriculture a boost.

Manufacturing: Hardly developed yet

The manufacturing industry is poorly developed with a value output of 7 billion US dollars (2019). Of this, the Baku oil refinery alone accounts for $ 1.8 billion. The main sector is the food industry (2.5 billion US dollars; 586 companies). The bulk of the remaining production is building materials ($ 451 million; 254 plants), chemicals ($ 331 million, 99 plants), metallurgical products ($ 303 million; 57 plants), and cotton fibers and textiles / clothing (241 million plants) Million US dollars, 80 operations).

Considerable deposits of polymetallic ores (copper, lead and tin), iron ores, precious metals (gold and silver), alunite, molybdenum, lime, bentonite clay, dolomite, granite, travertine, peat, rock salts, pebbles, mineral water and iodine-bromine waters as well as the A still low degree of processing of agricultural products generally forms a good basis for new projects in the manufacturing sector.

Regional distribution of important economic sectors in Azerbaijan 1)

Branch of industry

Regions / cities

Oil and gas production

Baku city

Construction industry

Baku Metropolitan Area (Baku City and Absheron Economic Region), Nakhchivan Autonomous Republic

Food and beverage industry

Cities of Baku and Sumgait, Nakhchivan Autonomous Republic, Rayons 2) Imishly, Zaqatala, Khachmaz, Kurdamir, Qäbälä and Bilssuvir, cities of Gändschä and Lankaran

Petrochemicals

Baku city

Building materials industry

Baku Metropolitan Area (Baku City and Absheron Economic Region), Nakhchivan Autonomous Republic

Chemical and plastics industry

Cities Sumgait and Baku

Textile and clothing industry

Cities of Baku, Sumgait and Mingechevir, Nakhchivan Autonomous Republic, primary processing of raw cotton primarily in the Barda, Beylagan and Aghjabadi Rayons

Metal production and processing

Cities of Baku, Gändschä and Sumgait

information and communication

Baku Metropolitan Area (Baku City and Absheron Economic Region)

Transport and storage

Baku Metropolitan Area (Baku City and Absheron Economic Region)

Services: Industry dominates growth in the non-oil sector

Services shape the gross value added in the country more and more. Before the corona crisis, they determined economic growth outside the oil and gas industry and are likely to have a significant impact on the growth trend in the country in the future. Their share of value added rose to 49.3 percent in 2019, compared to 45.6 percent in 2017.

In the past ten years, there has been an above-average increase in the services provided to the population for a fee, especially in the education, finance, sport and culture sectors, as well as vehicle repairs. The absolute volume of all services provided to the population is still low at US $ 570 per inhabitant annually.

Market insiders expect that the upward trend in tourism that can be observed until the beginning of 2020 will continue after the end of the corona crisis (share of gross domestic product / GDP 2019: 4.5 percent). The transport and logistics services division still has plenty of room for improvement.

Key data of the most important economic regions in Azerbaijan (2019) 1)

area

Share of total industrial production (in%)

Share in total manufacturing (in%)

Population (in millions)

Greater Baku

89,6

73,3

2,9 2)

Baku city

84,6

56,8

2,3

Absheron

5,0

16,5

0,6

Sumgait city

4,1

13,4

0,3

Aran

4,1

8,0

2,0

City of Mingechevir

0,7

0,2

0,1

Nakhchivan Autonomous Republic

2,2

8,1

0,5

Ganja Gazakh

2,0

4,2

1,3

City of Ganja

0,9

3,5

0,3

Sheki-Zaqatala

0,9

3,1

0,6

Guba-Khachmaz

0,6

1,5

0,6

Regions: Baku metropolitan area represents the lion's share of economic activity

The Baku metropolitan area (capital Baku and the neighboring economic region of Absheron) is the most important and infrastructurally best developed economic area in Azerbaijan. It accounts for around two-fifths of GDP, almost all of the oil and gas production, three-quarters of the manufacturing industry and gross fixed capital formation, three-fifths of the construction work carried out in the country and 98 percent of the country's exports. A large part of the industrial capacities outside the oil and gas industry is concentrated in the second largest city of Azerbaijan Sumgait (industrial area Chemical Park Sumgait).

Among the other economic centers of the country, the economic regions of Ganja-Gazakh with the local metropolis Ganja (Gändschä), Aran, Sheki-Zaqatala and Nakhichwan (autonomous republic) are worth mentioning. The regions are strongly characterized by agriculture. In the industry, the food industry dominates.

In the manufacturing industry of the city of Gändschä there are capacities in metallurgy and vehicle construction. You are underutilized. The construction of a cluster for ore mining and steel industry, which had been planned for a long time at the site of the former iron ore miner Dashkesan Filizsaflashdirma (Ganja-Gazakh), has remained obsolete so far.

The Aran region comprises 25 percent of the country's area and a fifth of the country's population. Their share in the economic output of the republic is only marginal. Many factories only operate seasonally. The revitalization of the former regional industrial center of Mingachevir is not progressing. The restart of companies in the former industrial metropolis of the Sheki-Zaqatala region, the city of Sheki, has also not yet occurred.

Tourism is increasing (locations in Qäbälä, Sheki and Gakh). The trump card of the Lankaran economic region is its subtropical climate (cultivation of fruit and vegetables, melon cultures, tea, wine and legumes).