Barely Existing Non-Oil Sector

In Azerbaijan 90 percent of budget revenues come from the oil sector, non-oil sector’s income per capita is only 180 manats ($243).

In Azerbaijan 90 percent of budget revenues come from the oil sector, non-oil sector’s income per capita is only 180 manats ($243), and its share fell from 58.7 percent to 6 percent. The export sector has decreased by up to 60% and per capita volume of non-oil exports in 2013 amounted to as little as $184.

“The main source of the state budget of Azerbaijan consists of oil revenues, and the price of this product depends on the world market. The drop in oil production and prices means a reduction in funds of the state budget,” said the chairman of the Public Association for Support for Economic Initiatives, (SEI PA), Azer Mehdiyev, who organized conference on the topic of Post-oil preparatory period and the problems of economic diversification on March 27.

More than half of the funds of the Oil Fund were spent

“As per the resources accumulated in the Oil Fund, 63.2 percent of them were spent by 2013, with overall 67.3 percent of the total spent. Oil revenues were 91 billion manats ($122 billion) as of January 1, 2014. Of this amount 61 billion manats ($82.4 billion) have already been spent. What do these expenditures give us? In recent years, the amount of transfers from the Oil Fund ranges somewhere between 55-60 percent, and this trend remains mainly unchanged. Oil money in the state budget, the fact that the revenues of the state budget consist of transfers from the Oil Fund, payments from the State Oil Company and Azerbaijan International Trade or Transaction Company indicates the dependency of the budget in oil money. In 2013, this dependency was 73 percent,” said Mehdiyev and pointed out that in 2014 the dependency of the State budget in oil funds is expected to decline.

Mehdiyev also mentioned negative tendencies in recent years’ increase of GDP in non-oil sector. He stated that inflation wise consumer price index has risen twice in 2013 as oppose to the 2005 numbers.

Another economist Rovshan Aghayev in his speech on diversification of economy brought examples of countries with both successful and unsuccessful experiences.

Non-oil exports per capita worth only 180 manats ($243)

“Situation in Azerbaijan is incomparable with other countries. In fact, the government should have had a perfectly functioning diversification strategy before the oil money was added to the budget. The government should have disclosed the predicted results for each possible scenario. We do not know when we will see the increase in exports per capita in non-oil sector. When will we see the results for tourism? If Azerbaijan is planning to become a middle-income country by 2020 then the volume of per capita for non-oil exports should reach $10,000. Today this figure is 180 manats,” said Aghayev and mentioned the level or a benchmark for diversification of national economy. Economy’s different areas are involved in formation and export of GDP with an optimal share for each at this level:

The non-oil sector’s share in GDP fell from 58.7 percent to 6 percent

“Neither of the export sectors should accumulate to 90 percent. There should be an optimal share. The government mainly considers agriculture, tobacco-winery, food industry, general industry, including textile and silk production, production of building materials, chemical industry, mechanical engineering, ICT and human capital sectors for diversification. Despite the efforts of the government and the private sector, the share of non-oil sector fell from 58.7 percent to 6 percent. GDP of agricultural products dropped by 4.2 percent from 9.3 percent and reached 5.4 percent. The share of non-oil industry fell from 7.1 percent to 4.1 percent. Construction sector fell by 0.7 percent, from 10 percent to 9.3 percent. The share of the service sector remained around 8.5 percent. The share of transport and communication sector dropped to 5.2 percent from initial 6.7 percent. Agriculture and non-oil sector share in GDP has decreased and non-oil industry has decreased over the years.”

Agayev talked about lack of possibility of achieving economic diversification without increasing the export potential of the country’s economy. According to him, as long as we do not produce products with export standards, economic diversification attempts will fail:

Negative saldo with 133 countries out of 138

“In 2013, trade relations with 138 countries were established. There was a negative saldo with 102 of them. Apart from 31 oil trade countries, we have a negative saldo with 133 out of 138 countries, and only 5 with a positive saldo. Among CIS countries, we have a trading saldo with Tajikistan and Kyrgyzstan.”

Aghayev noted that the export of non-oil sector accounted for a drop from 11.9 percent to 4.7 percent:

It turns out that the GDP generated from non-oil sector brings in $4.7 country’s export ability for every $100 spent at best. Per capita volume of non-oil exports in 2013 amounted to $184.”

Conference participant, MP Ali Masimli said that average GDP has risen 3 percent for the last three years:

Azerbaijan is like a child with rickets

“Population in Azerbaijan has risen by 1.3 percent. There must be a transformation from oil and energy based economy to human capital model. We are technologically disadvantaged. This has to change. Azerbaijan is like a child with rickets, with a big head and tiny body. Everything is established around Baku, the development of the regions is extremely low. GDP per capita in the regions, for instance, in Shaki is under $2000. By analyzing this data, we came to a conclusion that regional development would be possible with implementing true human freedoms. When dividing budget revenues to the number of population in Azerbaijan, we get a figure a little bit exceeding $2000. However, per capita revenue in Shaki is only 216 manats ($291). These are horrifying results. People’s well-being has to be improved.”

The MP proposed substantial improvements to be made in the management system.

Other participants have also expressed their views on the topic. Issues like the impact of oil revenues on the country’s economy, reduction of the economy’s dependency on the oil revenues, the status of the implementation of economic diversification policy, progress and challenges in this area were discussed at the conference.

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