Azerbaijan

Politics:

• Analysis

  Azerbaijan politics: Quick View - Contract on last Russian military base ex

  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

• 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.

  Download the numbers in Excel

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

  Download text file (csv format)

  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

  December 05, 2012

• 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.
  • 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 remain 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 of 3.4% 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.
  • The coming on stream of Phase 2 of the Shah Deniz gasfield in 2017 will substantially boost real GDP growth and export revenue in that year.
  • Annual average inflation is estimated at 2% in 2012. Inflation is forecast to rise more steeply from 2014, but remain in single digits, averaging 4.7% in 2013-17. Large inflows of oil-related foreign exchange will prevent faster disinflation.
  • The manat is estimated to have 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, averaging around 9.6% of GDP. Weaker output from the oil sector will weigh on export growth and the trade surplus.

  Review

  • Around 100 anti-government protesters rallied in the capital, Baku, on November 17th. The demonstrators called for Mr Aliyev to resign, and demanded the dissolution of parliament.
  • Industrial production fell by 3.9% year on year in January-October. The headline figure masks contrasting subsectoral trends. Mining output contracted by 6.2%, but manufacturing performed strongly, expanding by 7.6%.
  • Real GDP grew by 1% year on year in January-October. The poor performance of the industrial sector was the main reason behind the slowdown.
  • Exports contracted by 9.9% year on year in January-September, to US$17.8bn. Exports of mineral products (bar natural gas) stood at US$16.7bn. Oil exports have been dampened by a fall in output at the Azeri-Chirag-Guneshli oilfield.

  December 05, 2012

Economy:

• Background

  Azerbaijan: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	9.1b	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$	0.790b	FDI inflows (% of GDP)	-1.9
  a Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  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

  Download the numbers in Excel

  Download text file (csv format)

  December 05, 2012

• Structure

  Azerbaijan: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 05, 2012

• 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 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

• Forecast

  Azerbaijan: Country forecast summary

  Country forecast overview: Highlights

  • The president, Ilham Aliyev, appears to have a firm grip on power, although the sharp slowdown in economic growth could lead to an increase in popular dissatisfaction with the president and 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 remain 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 deficit on the state budget, excluding transfers from the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund), will remain large as the government seeks to cushion the impact of the economic slowdown on the population. The deficit will begin to narrow in the second half of the forecast period as the economic outlook improves moderately.
  • The economy is forecast to grow at an annual average of 3.4% in 2013-17, down from an annual average of 21.2% in the boom period. Slower expansion in oil production in the forecast period will act as a considerable drag on growth.
  • The operating environment for non-oil companies will remain difficult, owing to pervasive corruption and the presence of large formal and informal monopolies. Efforts to diversify the economy are unlikely to be successful, and Azerbaijan will remain dependent on oil and gas.
  • The manat will remain relatively stable in nominal terms against the US dollar in 2013-17. High oil prices will provide support to export revenue. Combined with a rise in foreign capital inflows, this will support the manat.
  • Annual average inflation will remain in single digits in 2013-17 as weaker domestic demand limits inflationary pressures. However, higher energy prices than in 2008-12 and continuing large inflows of oil-related foreign exchange will prevent more rapid disinflation.
  • The current-account will remain in surplus through the forecast period, averaging 9.6% of GDP in 2013-17. 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 oil and gas exploration intensifies.

  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

  Download the numbers in Excel

  Download text file (csv format)

  December 05, 2012

View detailed map

Country Briefing

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