Azerbaijan

Politics:

• Analysis

  Azerbaijan politics: Quick View - Government quashes latest protest

  Event

  Following the deaths of three military conscripts last week, hundreds of people took part in an anti-government protest in the capital, Baku, on March 10th. It was the second demonstration on the issue so far this year.

  Analysis

  The security forces used rubber bullets and water cannon to break up the rally, which had been organised using social media network Facebook. The previous demonstration on this issue, in early January, was prompted by the death of another military conscript, Ceyhun Gubadov. His family dispute the Ministry of Defence's claim that he died of a heart attack and say they have evidence that he was murdered.

  Following the demonstration over Mr Gubadov's death, the president, Ilham Aliyev, announced that military spending would rise to US$3.7bn in 2013, from US$3bn in 2012. The government has continued to increase military spending in recent years to put pressure on neighbouring Armenia to withdraw from the disputed territory of Nagorny Karabakh. In a statement to the press, Mr Aliyev warned Azerbaijani citizens not to criticise the country's armed forces.

  There are signs that the authorities are becoming increasingly concerned at the threat that social unrest poses to the regime. Ahead of the March 10th protest, several student activists were detained on what their families say were false charges, after drugs were reportedly found during raids on their homes. It appears that the security services had hoped that the arrests would deter others from taking part in the demonstration. Another activist, Ilkin Rustamzade, has not been seen since March 9th.

  In recent months, demonstrations have sprung up from disparate sources and for a variety of reasons, including in protest at socioeconomic disparities. As the weaker outlook for the economy will make it harder for the Aliyev regime to maintain order, there is a risk of further protests in the months ahead, particularly in the run-up to the presidential election, which is scheduled for October. In addition, protesters in Azerbaijan may be emboldened by recent examples of large-scale public anti-government rallies elsewhere in eastern Europe-notably in Bulgaria, which led to the resignation of its government in late February.

  March 13, 2013

• Background

  Azerbaijan: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: The president of Azerbaijan, Ilham Aliyev, has been in power since October 2003, when he gained a sweeping majority in a flawed election. Mr Aliyev replaced his father, Heydar Aliyev, who came to power in 1993 and resigned a decade later owing to ill health. In October 2008 Mr Aliyev won a second term in office in a vote that was criticised by international observers for being neither free nor fair. The constitution was amended by referendum in March 2009, removing the ban on presidents serving more than two electoral terms. Mr Aliyev therefore has the opportunity to stay in power after 2013 (the year scheduled for the next presidential election). According to the 1995 constitution, the president is the head of state and commander-in-chief of the armed forces. The constitution proclaims the principle of the separation of powers. In practice, however, all institutions, including the judiciary and parliament, are subordinate to the president. The president appoints the cabinet of ministers, which is answerable to him, although it still presents an annual performance report to parliament. In co-ordination with parliament, the president appoints the prime minister. The president also appoints the heads of administrative districts in Azerbaijan. The political party system is underdeveloped, and even Mr Aliyev's ruling New Azerbaijan Party (NAP) only plays a limited role in decision-making.

  Election to the Milli Meclis, Nov 7th 2010
  (no. of seats)
  New Azerbaijan Party (NAP)	71
  Independents	42
  Civil Solidarity Party	3
  Ana Vatan (Motherland) Party	2
  Umid (Hope) Party	1
  Social Prosperity Party	1
  Azerbaijan Democratic Reforms Party	1
  Whole Azerbaijan Popular Front	1
  Great Creation Party	1
  Civil Unity Party	1
  Adalat (Justice) Party	1
  Total	125
  Note. Official turnout was 50.1%.
  Sources: Organisation for Security and Co-operation in Europe Office for Democratic Institutions and Human Rights; press reports.

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  The next presidential election will be held in 2013; the next legislative election is scheduled for 2015.

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  July 17, 2012

• Structure

  Azerbaijan: Political structure

  Official name

  Republic of Azerbaijan

  Form of state

  Azerbaijan existed as an independent republic between 1918 and 1920, before becoming part of the Soviet Union as the Azerbaijan Soviet Socialist Republic in April 1920. In September 1989 Azerbaijan proclaimed its sovereignty, and on October 18th 1991 it declared full independence. A new constitution was adopted in November 1995

  National legislature

  National Assembly of 125 members elected from single-member constituencies

  National elections

  November 2010 (legislative) and October 2008 (presidential); next elections in November 2015 (legislative) and October 2013 (presidential)

  Head of state

  The president, Ilham Aliyev, was elected for a second five-year term in October 2008

  National government

  The president appoints the cabinet of ministers, and in co-ordination with parliament, the president appoints the prime minister and heads of local government

  Main political parties

  New Azerbaijan Party (NAP), led by Mr Aliyev; Azerbaijan National Independence Party (ANIP); Party of the Popular Front of Azerbaijan (PPFA); Musavat (Equality); Democratic Party of Azerbaijan (DPA); National Unity Party; Azerbaijan Democratic Independence Party (ADIP); Islamic Party of Azerbaijan (IPA); The Party of Hope (Umid)

  Council of Ministers

  Prime minister: Artur Rasizade

  First deputy prime minister: Yagub Eyubov

  Deputy prime ministers: Abid Sharifov

  Elcin Efendiyev

  Ali Hasanov

  Key ministers

  Agriculture: Ismed Abbasov

  Communications & information technology: Ali Abbasov

  Culture & tourism: Abulfaz Garayev

  Defence: Safar Abiyev

  Defence industry: Yaver Jamalov

  Ecology & natural resources: Huseyn Bagirov

  Economic development: Shahin Mustafayev

  Education: Misir Mardanov

  Emergency situations: Kemaleddin Heydarov

  Finance: Samir Sharifov

  Foreign affairs: Elmar Mammadyarov

  Health: Oqtay Shiraliyev

  Industry & energy: Natiq Aliyev

  Interior: Ramil Usubov

  Justice: Fikret Mamedov

  Labour & social protection: Fizuli Alekperov

  National security: Eldar Mahmudov

  Taxes: Fazil Mamedov

  Transport: Ziya Mamedov

  Youth & sport: Azad Rahimov

  Parliamentary speaker

  Ogtay Asadov

  Central bank chairman

  Elman Rustamov

  March 08, 2013

• Outlook

  Azerbaijan: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit expects the president, Ilham Aliyev, to face a testing second term in office as slower economic growth increases the risk of social protests and unrest.
  • Tensions with Armenia will remain high, owing to the long-running dispute over Nagorny Karabakh. Talks aimed at resolving the dispute are ongoing, but progress in normalising ties will continue to be slow.
  • International relations will remain closely linked to energy policy. Relations with Turkey will be strong, owing to cultural and economic ties, particularly as Turkey is an important route for Azerbaijan's energy exports.
  • The economy is forecast to grow at an annual average rate of just 2.4% in 2013-17. Slower expansion in oil production will hold back GDP growth early on, but investment inflows to the energy sector will support growth.
  • Preparations for the coming on stream of Phase 2 of the Shah Deniz gasfield in 2018 will boost real GDP growth in the final years of the forecast period.
  • Annual average inflation slowed to 1.8% in 2012. Inflation will rise more rapidly from 2014, but will remain in single digits, averaging 4.8% in 2013-17. Inflows of oil-related foreign exchange will remain a source of inflation.
  • The manat averaged Manat0.79:US$1 in 2012. In 2013-17 the currency will remain largely stable in nominal terms against the US dollar, supported by export revenue and inflows of foreign capital.
  • The current account will remain in surplus in 2013-17. However, weaker output from the oil sector will weigh on export growth and the trade surplus.

  Review

  • In late February parliament approved an amendment to religious legislation that prohibits the sale of religious material that has not been approved by the authorities.
  • Industrial production grew by 0.1% year on year in January. Output of the mining sector (which is dominated by energy products) contracted by 3.1% and weighed on the headline figure.
  • Azerbaijan recorded a sizeable trade surplus in 2012, of US$14.3bn, although this was down from US$16.8bn in 2011.
  • Exports contracted by 10% in 2012, to stand at US$23.9bn, as output from the energy sector stagnated and demand in core markets, including Europe and the US, slumped.

  March 08, 2013

Economy:

• Background

  Azerbaijan: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	9.2b	Population growth	1.4
  GDP (US$ m; market exchange rate)	67,354	Real GDP growth	5.4
  GDP (US$ m; purchasing power parity)	124,549	Real domestic demand growth	5.1
  GDP per head (US$; market exchange rate)	7,293	Inflation	7.3
  GDP per head (US$; purchasing power parity)	13,486	Current-account balance (% of GDP)	25.3
  Exchange rate (av) Manat:US$	0.786b	FDI inflows (% of GDP)	1.3
  a The Economist Intelligence Unit estimates. b Actual.

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  Background: Azerbaijan gained independence with the collapse of the Soviet Union in 1991. Following two short-lived populist governments, political stability was attained under the presidency of the late Heydar Aliyev, who ruled the country for ten years from 1993. His son, Ilham Aliyev, succeeded him in October 2003, and was re-elected in October 2008. The conflict with Armenia over the disputed territory of Nagorny Karabakh remains unresolved. Peace talks between the two sides are ongoing, although only limited progress was made in 2011. About 14% of Azerbaijan's sovereign territory is occupied by Armenian-backed Karabakh troops, and around 800,000 Azerbaijanis were displaced by the war.

  Political structure: Elections for the 125-seat parliament, the Milli Meclis, are held every five years. However, in practice the legislature plays a minor role in politics, as power is concentrated in the presidency. The president appoints the prime minister, as well as all senior ministerial and judicial positions. The cabinet of ministers formally holds all executive powers and acts as a link between the presidency and parliament. Presidential and municipal elections are held every five years. Constitutional changes approved in a referendum in March 2009 abolished the two-term limit on the presidency. The next legislative election will be held in November 2015, and the next presidential election must be held by October 2013.

  Policy issues: Although prices for dated Brent Blend crude oil will be above US$100/barrel in 2013-17, much slower oil production growth will act as a significant drag on economic growth, owing to the economy's heavy dependence on hydrocarbons. A medium-term challenge will be diversifying the economy to reduce reliance on oil. This will require improvements to the business environment for domestic and foreign investors.

  Taxation: A new tax code, which unified taxation law and introduced modest rate cuts, came into effect in 2001. Amendments were made in 2002, 2004 and 2010. The standard corporate rate of income tax is 20%; the base rate for personal tax is 14%, and the top rate is 25%. Value-added tax (VAT) is set at 18%; employers also pay a 22% social security tax.

  Foreign trade: In 2011 total export revenue (on a balance-of-payments basis) was US$34.5bn, and import expenditure was US$10.2bn. The trade surplus rose to US$24.3bn from US$19.7bn in 2010, owing in large part to higher global oil prices. However, a larger services deficit in 2011, of almost US$3bn, weighed modestly on the current-account surplus. The country's dependence on oil is high: almost 95% of export revenue (on a balance-of-payments basis) came from oil in 2011, compared with around 60% in 1995.

  Major exports 2012	% of total	Major imports 2012	% of total
  Petroleum products	93.1	Machinery & equipment	28.8
  Food products & animals	3.5	Metals	16.1
  Metals	0.9	Food products	15.8
  Chemicals & petrochemicals	0.7	Transport equipment	15.5
  Textiles	0.2	Chemicals	7.3
  Leading markets 2012	% of total	Leading suppliers 2012	% of total
  Italy	23.2	Turkey	16.7
  France	7.4	Russia	15.1
  Israel	7.4	Germany	8.6
  Indonesia	7.0	US	7.9

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  March 08, 2013

• Structure

  Azerbaijan: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 08, 2013

• Outlook

  Azerbaijan: Country outlook

  Azerbaijan: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Power is concentrated in the president, Ilham Aliyev, who has been in office since 2003. Mr Aliyev has control over state structures and is expected to remain in power during the forecast period. However, the fundamental political shift and potentially democratising wave in the Middle East and North Africa (MENA)--which has resulted in the removal of long-standing authoritarian leaders in some countries--raises the question of whether this trend could affect the authoritarian regime in Azerbaijan.

  ELECTION WATCH: The presidential election is scheduled for October 2013. The risks to Mr Aliyev's regime are much greater over the forecast period than they were during the oil boom, but the regime's dominance of the media and access to administrative resources mean that Mr Aliyev is likely to be elected for a further term in office. The next parliamentary election is scheduled for November 2015. At the legislative election in November 2010, Mr Aliyev's New Azerbaijan Party (NAP) won a landslide victory, although international observers raised concerns about the NAP's electoral conduct. The opposition failed to win any seats. The opposition's extra-parliamentary activities will be hampered by a lack of access to the media, restrictions on demonstrations and limited funds.

  INTERNATIONAL RELATIONS: The authorities have pursued energy and security ties with the West, but have also maintained military and economic links with Russia. Over the forecast period the conduct of international relations will be closely linked to energy policy. Relations with Turkey, with which Azerbaijan has long-standing economic and cultural ties, will remain strong. In June 2012 the two agreed to build the US$7bn Trans-Anatolian pipeline (TANAP), which will carry gas from the second phase of the Shah Deniz project (now due to come on stream in early 2018) through Azerbaijan, Georgia and Turkey. Construction of the pipeline will begin towards the end of 2013.

  POLICY TRENDS: Despite a deterioration in the global economic environment and the bleaker economic prospects for Azerbaijan caused by a weaker outlook for oil production since 2010 (a trend that will continue throughout the forecast period), the government's policies will remain unchanged. Oil prices of above US$100/barrel in 2013-17 will help to offset some of the impact of weaker oil production on budget revenue. The government will continue to draw on the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) to help to finance social spending and infrastructure projects.

  ECONOMIC GROWTH: Since 2010 there has been a marked shift in the underlying economic dynamics, as the non-oil sector has replaced the oil sector as the main driver of growth. Real GDP grew by 2.2% in 2012, up from 0.1% in 2011, according to official figures. The full-year growth figure for 2012 looks dubious, however, as it implies a sizeable jump in headline real GDP growth in December, since official data show that real GDP grew by just 1.2% year on year in the first 11 months of the year. It is possible that the authorities have adjusted their data to present a more positive picture, as the economic fundamentals, which were behind the weak performance of the economy during most of 2012, have not changed. In 2012 the main driver of growth was the non-hydrocarbons economy. Full-year data show that industrial output fell by 2.3% in 2012. Output from the extractive industries, which overwhelmingly comprises oil and gas, contracted by 4.2%, whereas manufacturing output rose by 5.4%. The fall in oil production primarily reflects weaker output than planned at the Azeri-Chirag-Guneshli (ACG) oilfield, as output from the field has now reached a plateau. The negative impact of a weak external environment in 2012 was partly mitigated by high global oil prices, which averaged US$112/b. However, a fall in output from the oil sector to 42.9m tonnes, from 45.4m tonnes in 2011, weighed on economic growth.

  INFLATION: Inflationary pressures remained weak in 2012; annual average inflation slowed to 1.8% in 2012, from 8.1% in 2011. A high base period helped to suppress inflationary pressures in 2012. A favourable domestic harvest helped to mitigate the impact of higher global food prices. However, food prices increased modestly in the final months of 2012--a trend that has continued so far in 2013. The Economist Intelligence Unit expects that food prices will continue to rise during the first half of 2013. From 2013, slower growth in domestic demand and the money supply than in the boom years will help to limit inflationary pressures. However, large inflows of oil-related foreign exchange and a loose fiscal policy will continue to exert substantial upward pressure on prices. We forecast annual average inflation of 4.8% in 2013-17. Export revenue will be partly sterilised through the offshore oil fund, although transfers from the fund to the state budget will remain large.

  EXCHANGE RATES: Continuing the trend of 2010-11, the manat remained essentially stable in nominal terms against the US dollar in 2012, at Manat0.79:US$1. The Central Bank of the Azerbaijan Republic's continuing intervention in the foreign-exchange markets during the initial part of the forecast period will prevent rapid fluctuations in the exchange rate. From 2014 onwards, an improvement in global conditions, a pick-up in world trade and higher capital inflows will put the manat on a modest appreciating trend, to Manat0.77:US$1 in 2017.

  EXTERNAL SECTOR: The weaker performance of the oil sector weighed on exports in 2012, negatively affecting current-account dynamics. We estimate that the current-account surplus fell to US$10bn in 2012 (equivalent to 14.8% of GDP), from US$17.1bn in 2011. High global oil prices in 2012 helped to offset the impact of a contraction in domestic oil production. In 2013-17 we forecast that the current-account surplus will average around 5.3% of GDP. This figure masks the boosts to exports that will be provided by the coming on stream of the Chirag oilfield in 2014. In other years, export growth will be considerably weaker, as output from the ACG field has now peaked. In 2013-17 imports for transport, communications and construction will rise, particularly in the later years of the forecast period, as preparations for Shah Deniz Phase 2 pick up. Expenditure on imported consumer goods will weaken, owing to fragile domestic demand. We expect the services deficit to widen in 2013-17, reflecting rising demand for imported services in the hydrocarbons sector. In 2013-17 the high cost of developing oil- and gasfields will keep inflows of foreign direct investment (FDI) comparatively high, albeit much lower than in the peak years of 2003-04.

  March 11, 2013

• Forecast

  Azerbaijan: Country forecast summary

  Country forecast overview: Highlights

  • The president, Ilham Aliyev, appears to have a firm grip on power. However, much weaker economic growth over the forecast period is likely to lead to an increase in popular dissatisfaction with his administration.
  • Tensions with Armenia will remain high, owing to the long-running dispute over Nagorny Karabakh. Talks aimed at resolving the dispute are ongoing, but progress in normalising ties will continue to be slow.
  • Relations with Turkey will strengthen over the forecast period as construction of the Tran-Anatolian gas pipeline (TANAP), which is due to come on stream in 2018, progresses. Ties with Russia are likely to be more difficult following Azerbaijan's decision to supply gas to Europe through this route.
  • The state budget deficit, excluding transfers from the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) will remain large as the authorities try to limit the impact of the economic slowdown on the population.
  • The economy will grow at an annual average of 2.4% in 2013-17, much slower than during the boom period. Real GDP growth will be boosted when the Chirag oilfield comes on stream in 2014. Gross fixed investment will rise over the forecast period as preparations for Shah Deniz Phase 2 gather pace. Nonetheless, the weak expansion of oil production will weigh on growth.
  • The operating environment for non-oil companies will still be difficult, owing to pervasive corruption and the presence of large formal and informal monopolies. Efforts to diversify the economy are unlikely to be successful.
  • The manat will continue to be relatively stable in nominal terms against the US dollar in 2013-17. High oil prices and a rise in foreign capital inflows will provide support to export revenue, and to the manat.
  • Annual average inflation will remain in single digits in 2013-17 as weaker domestic demand limits inflationary pressures. However, high global energy prices and continuing large inflows of oil-related foreign exchange will prevent more rapid disinflation.
  • The current account should stay in surplus through the forecast period. High global oil prices will help to offset the impact of weaker oil production on exports. Payment of profits and dividends, and imports of geological and construction services, will rise in the final years of the forecast period as preparations for Shah Deniz Phase 2 gather pace.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	2.2	1.5	3.5	1.6	2.2	3.4
  Consumer price inflation (av; %)	1.8	2.8	4.8	5.0	5.2	6.3
  General government balance (% of GDP)	-18.3	-22.7	-22.5	-20.8	-18.9	-16.7
  Current-account balance (% of GDP)	14.8	9.9	10.3	3.9	1.3	0.8
  Exchange rate Manat:US$ (av)	0.79	0.78	0.78	0.77	0.77	0.77
  Exchange rate Manat:€ (av)	1.01	1.04	1.02	0.98	0.97	0.97

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  March 08, 2013

View detailed map

Country Briefing

Total area

86,600 sq km

Population

9.1m (January 1st 2011)

Main towns

Population in '000 (January 1st 2011):

 Baku (capital): 2,065

 Ganja: 315

 Sumgait: 312

Climate

Ranging from cold in the Caucasus mountain range in northern Azerbaijan to temperate in the Kura plain (average July temperature of 27°C, January temperature 1°C) and subtropical in the Lenkoran lowlands in the south-east; average temperatures in Baku, on the Caspian Sea, range from 7°C in January to 27°C in August

Language

Azeri (a Turkic language) is the state language; the use of Russian is being phased out, but it is still widely spoken

Weights and measures

Metric system

Currency

Manat, introduced as legal tender in 1993 to replace the rouble; in January 2006 a new manat was introduced, replacing the old manat at a rate of 5,000 old manat = 1 new manat

Time

Four hours ahead of GMT

Fiscal year

Calendar year

Public holidays

Fixed: January 1st-2nd (New Year), March 8th (Women's Day), May 9th (Veterans' Day), May 28th (Republic Day), June 15th (National Salvation Day), June 26th (Armed Forces Day), October 18th (National Independence Day), November 12th (Constitution Independence Day), November 17th (National Revival Day), December 31st (Worldwide Solidarity of Azerbaijanis Day)

Movable: Ramazan Bayram/Id al-Fitr, Novruz (Iranian New Year), Kurban Bayram/Id al-Adha

January 14, 2013