Event
The agreement on Russia's use of the Gabala radar station in northern Azerbaijan has expired, according to an announcement from the Azerbaijani foreign ministry on December 10th. The radar station was the last Russian military base in Azerbaijan.
Analysis
Negotiations between Russia and Azerbaijan over extending the lease had been ongoing since 2011. The main stumbling-block appeared to be Azerbaijan's insistence that Russia should pay higher rent for the radar station. Some press reports have indicated that Azerbaijan had demanded that Russia pay US$300m for the base, up from US$7m. In addition, Azerbaijan had reportedly insisted that Russia increase its use of local goods and services (such as catering) at the station and modernise the base. Around 1,000 Russian and 500 Azerbaijani military personnel are currently stationed there.
It appears that Russia was partly put off renewing the lease on the base-which is capable of tracking missile launches and flight trajectories over Turkey, Iran, India, parts of China and the Middle East-owing to the increase in costs. Another factor is that technological advancements since the base was constructed in 1985 mean that it is not essential to Russia's security interests. In recent years four Voronezh radars have been built across Russia, including in St Petersburg and Kaliningrad, which are an important component of the country's early radar warning system. Russia reportedly intends to build further Voronezh radar stations to enhance its early warning radar system.
The decision to terminate the lease is unlikely to affect relations between Azerbaijan and Russia. Neither side has released an official statement in response to the decision. However, the deputy chair and executive secretary of the ruling NAP said that the decision does not give rise to tensions in the relationship.
December 11, 2012
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
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
December 05, 2012
Outlook for 2013-17
Review
December 05, 2012
Fact sheet
| Annual data | 2011 | Historical averages (%) | 2007-11 |
| Population (m) | 9.1 | Population growth | 1.3 |
| GDP (US$ m; market exchange rate) | 57,773 | Real GDP growth | 9.7 |
| GDP (US$ m; purchasing power parity) | 119,560 | Real domestic demand growth | 6.3 |
| GDP per head (US$; market exchange rate) | 6,341 | Inflation | 10.3 |
| GDP per head (US$; purchasing power parity) | 13,122 | Current-account balance (% of GDP) | 28.5 |
| Exchange rate (av) Manat:US$ | 0.790 | FDI inflows (% of GDP) | -1.9 |
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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 higher in 2013-17 than in 2008-12, averaging US$108/barrel, 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 30%. 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 2011 | % of total | Major imports 2011 | % of total |
| Petroleum products | 94.4 | Machinery & equipment | 32.9 |
| Food products & animals | 2.7 | Transport equipment | 18.3 |
| Metals | 0.9 | Food products | 15.1 |
| Plastics | 0.5 | Metals | 14.5 |
| Textiles | 0.2 | Chemicals | 6.8 |
| Leading markets 2011 | % of total | Leading suppliers 2011 | % of total |
| Italy | 35.2 | Turkey | 17.8 |
| France | 15.2 | Russia | 14.1 |
| US | 6.8 | China | 9.2 |
| Croatia | 4.5 | Germany | 6.8 |
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December 05, 2012
Data and charts: Annual trends charts
December 05, 2012
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 greater over the forecast period than they were during the oil boom period, 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. This will make it impossible for traditional opposition parties to express their opinions in state institutions, increasing the likelihood that the opposition will hold protests to get its voice heard. Nonetheless, the opposition's operations 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 over the forecast period. 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 (due to come on stream in 2017) through Azerbaijan, Georgia and Turkey. Construction of the pipeline will begin in 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. In 2013-17 global oil prices will remain high, providing support to 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. The sharp slowdown in real GDP growth in 2011, to 0.1%, was caused by a contraction in oil production owing to maintenance work on three wells at the Azeri-Chirag-Guneshli (ACG) oilfield. Over the forecast period oil production growth will be much slower than in recent years because no new substantial energy projects are planned to come on stream, which will act as a significant drag on economic activity. Throughout the forecast period growth will mainly be driven by the non-oil sector.
INFLATION: Annual average inflation rose to 8.1% in 2011, owing to higher energy and food prices, along with the continuation of higher government spending, particularly in the first half. Inflationary pressures remained weak through 2012 and The Economist Intelligence Unit estimates annual average inflation of 2% in 2012. From 2013 onwards 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, preventing further disinflation. We forecast annual average inflation of 4.7% in 2013-17. Export revenue will be partly sterilised through the use of 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 is estimated to have remained stable in nominal terms against the US dollar in 2012, at around Manat0.8:US$1. The continuing intervention in the foreign-exchange markets by the Central Bank of the Azerbaijan Republic in 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 has weighed heavily on exports in 2012; this will have significant implications for current-account dynamics. We have revised down our current-account surplus estimate for 2012 to US$7.6bn (from US$11.5bn), equivalent to 12.7% of GDP. High global oil prices in 2012 have helped to offset the contraction in domestic oil production. Over the forecast period, we forecast that the current-account surplus will average around 9.6% of GDP. However, this headline figure masks the boosts to exports that will be provided by the coming on stream of the Chirag oilfield in 2014, and the second phase of the Shah Deniz gasfield project in 2017. In the other years of the forecast period export growth will be considerably weaker, as output from the ACG field has now plateaued, weighing on the trade surplus. In 2013-17 imports for transport, communications and construction will rise, particularly in the later years of the forecast period, as preparations for Shah Deniz Phase 2 pick up. Expenditure on imported consumer goods will, however, be weaker owing to fragile domestic demand. We expect the services deficit to widen in 2013-17, reflecting rising demand for imported services in the hydrocarbons sector. In 2013-17 the high cost of developing oilfields and gasfields will keep inflows of foreign direct investment (FDI) comparatively high, albeit much lower than in the peak years of 2003-04.
December 07, 2012
Country forecast overview: Highlights
Country forecast overview: Key indicators
| Key indicators | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Real GDP growth (%) | 0.8 | 1.1 | 3.5 | 1.5 | 2.1 | 9.0 |
| Consumer price inflation (av; %) | 2.0 | 2.4 | 4.7 | 5.0 | 5.2 | 6.3 |
| General government balance (% of GDP) | -20.9 | -20.6 | -18.2 | -16.0 | -14.0 | -9.3 |
| Current-account balance (% of GDP) | 12.7 | 10.7 | 9.9 | 6.9 | 4.2 | 16.2 |
| Exchange rate Manat:US$ (av) | 0.79 | 0.78 | 0.78 | 0.78 | 0.77 | 0.77 |
| Exchange rate Manat:€ (av) | 1.01 | 0.99 | 0.98 | 0.96 | 0.97 | 0.97 |
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December 05, 2012
Total area
86,600 sq km
Population
8.9m (January 1st 2010)
Main towns
Population in '000 (January 1st 2010)
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
March 16, 2012