The World Economic Forum recently published its
Global Risks Report for 2017 (GRR17)
in conjunction with the events of the World Economic Forum that took place in Davos, Switzerland in January.
The report covers economic, societal, geopolitical, climate, as well as technological risks, and their most treacherous interconnections. As a globally integrated economy with growing social inequality, Azerbaijan is not immune to the trends laid out in the report.
Here are the top 5 risks for Azerbaijan in 2017.
1) Continued Economic Decline
Azerbaijan’s Center for Economic and Social Development concluded in their
2017 Macroeconomic Forecast
report that the economic depression seen in 2016 will continue in 2017.
Oil prices are likely to continue falling, growth in the construction sector is diminishing and import inflation is on the rise due to the devaluation of the manat, which saw a total depreciation of 57% from January 2015 to December 2016.
Local and foreign businesses are expected to see a rise in production costs with a decline in the consumption market capacity. Azerbaijan could experience a significant drop in foreign investment due not only to international trends of anti-globalization, but also to the lack of steps taken to establish more independent judicial bodies, which continues to hinder incentive for foreign investment.
This year President Aliyev set forth the “Strategic Road Maps on the National Economy and Main Sectors of the Economy” directive, which claims to mitigate potential risks by decreasing dependence on oil through diversifying Azerbaijan’s economic portfolio. Yet it is unclear whether or not this directive will actively be pursued, and not remain as empty rhetoric as it has in years past. Yet should agriculture and tourism be developed as alternative sources of GDP, it is likely that those sectors will fall victim to state corruption like that of the oil and construction sectors.
2) Growing Wealth Disparity
As a result of this continued economic decline, the already immense gap in wealth distribution between the elites and the rest of the population is expected to grow. As workers in the construction sector migrate back to the regions, capital flow from Baku to the regional populations will decrease. Furthermore, the dwindling expat community that once thrived will have an impact on jobs in Baku’s service industry.
Much of the labor market will be forced into lower income sectors, especially as technological advancements replace jobs once done by manual labor. According to the GRR17, “Technological change is shifting the distribution of income from labor to capital”, and globally “up to 80% of the decline in labor’s share of national income between 1990 and 2007 was the result of the impact of technology”.
Artificial intelligence is also changing physical infrastructure needs and vulnerabilities, which could catch Azerbaijan off guard in the years to come.
3) Social Instability
In the West, sluggish economic growth has contributed to anti-establishment, populist politics and a backlash against globalization – what some see as a threat to global democracy.
The GRR17 notes a trend in states “stepping back from mechanisms set up to underpin international security through mutual accountability and respect for common norms.” Increased preference for charismatic strongmen and unilateral negotiations may turn out to be beneficial for Azerbaijan, decreasing international demands of accountability on human rights issues and other expectations set forth by multilateral economic and security agreements.
However, the internal consequences of this trend could prove more challenging.
The GRR17’s most important risks interconnection is that of unemployment and profound social instability. Although Azerbaijan’s authoritarian rule has kept the social dissidence seen by many Middle Eastern countries and now, the West, at bay for many years, it could see increased retaliation and instability as a result of the above three trends in 2017. Lack of economic stability may lead to declining trust in institutions, and push Azerbaijanis to look for guidance and security in other leaders, like those of the number 4 risk.
4) Increased Islamic Radicalization
As Western democracies see newly increased political polarization that favors nationalist rule due to slow economic recovery, authoritarian countries with an Islamic majority population, who saw political strife in 2011, are continuing to look towards religious leaders for guidance and national rule. Although Azerbaijan has a long history of religious pluralism, a weakening economy with an increase in perceptions of corruption and elite favoritism by the government could forecast an Islamic pivot this year. Growing Islamic jihadi propaganda online and the escalating popularity of lone-wolf terrorist attacks may possibly expedite this trend.
In an effort to counteract such an outcome, President Aliyev has declared 2017 the year of Islamic Solidarity
, and intends to strengthen relations with the Organization of Islamic Cooperation (OIC).
However, according to Eurasian analyst Paul A. Goble,
approximately 1500 Azerbaijanis have gone to Syria to fight for the so-called Islamic State
, many of whom are returning to Azerbaijan. They are mostly of the Sunni minority population, who see Azerbaijan’s Shia majority and Soviet-like secularism as oppressive. The government’s continued denial of, and inability to properly address Islamic extremists in Azerbaijan could prove destabilizing for the country and the region.
According to Goble, the unintended results of the long jail sentences Azerbaijani courts hand down to militants include spreading radical Islamic ideology to those serving shorter sentences.
5) Renewed Active Conflict in Nagorno-Karabakh
The GRR17 observes that “issues of identity and culture were central to the two most dramatic Western political results of 2016…Across the European Union, parties stressing national sovereignty and/or values have prospered”.
Nagorno-Karabakh has been a long-standing issue of national identity and sovereignty for Armenia and Azerbaijan. Yet should the renewed nationalist sentiment that is currently pulsing through the West reach Azerbaijan we could see an intensification of hostilities in Nagorno-Karabakh. Additionally, factors that led to the escalation in fighting in 2016 remain pungent, including status-quo fatigue, and state-produced propaganda that continues to redirect the Azeri population’s attention from economic hardship to the conflict and the enemy.
Globally, the risk of conflict will increase over the next decade to levels not seen since the Cold War
as globalization slows and nationalism becomes more attractive
, a U.S. intelligence report released this month states.
As the war in Syria has shown, an inability to curtail conflict often leads to mass migration. Although the Karabakh Azeris experienced this during the early years of the war, resumed fighting could displace even more people throughout the region. The fifth most important risk interconnection in this year’s GRR is interstate conflict and large-scale involuntary migration.
The report takes the view that, “failures of governance have produced civil conflict, driving migration that transfers economic, social and political pressures into countries already experiencing frustrations with low growth and rising inequality, fuelling radicalization and acts of violence.” For Azerbaijan, escalation of hostilities with Armenia could add to the already large internally displaced population, furthering the economic and social pressures in the country.
should Azerbaijan not be able to address growing disenchantment with the government due to economic downturn exacerbated by increased wealth disparity, the country may see a rise in social instability in the form of Islamic sympathies and/or a nationalist calls to end the frozen conflict over Nagorno-Karabakh by use of force.