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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 7,124 6,090 5,600 102
GNI per capita
 US $ 810 710 650 146
Ranking is given out of 208 nations - (data from the World Bank)

Books on Azerbaijan


Area (


Principal ethnic
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3


Azeri Manat

Ilham Aliyev

Ilham Aliyev

Update No: 310- (26/10/06)

A regional crisis
About 95% of Azerbaijanis are Muslim with a significant number of orthodox Christians and, in the historic past, the landlocked nation has played host to leaders such as Alexander the Great and Genghis Khan. It shares common borders with Armenia, Georgia, Iran, Russia and Turkey.
The crisis in relations between two of these neighbours, Georgia and Russia, is preoccupying everyone in the Caucasus right now. It is likely to have wide repercussions there. Indeed it is already doing so.
Moscow has cut off trading relations, which could leave the Georgians shivering this winter, if the embargo is not lifted. Georgia is going to be turning to new energy suppliers.

Azerbaijani-Georgian Negotiations on Gas Held in Baku
One implication is that Azerbaijan is becoming an alternative gas supplier for Georgia and the region, as well as its energy hub. Negotiations on these matters between Azerbaijan's Industry and Energy Minister Natig Aliyev and Georgian Energy Minister NIka Gilauri were held in Baku on October 10th. 
During the meeting, both parties exchanged their opinions on future gas operations. According to Mr Aliyev of the ruling dynasty of Aliyevs, up to now Turkey has not informed the Azerbaijani party about its readiness to receive gas from the gas condensate field "Shakhdaniz". Turkey said that it could begin to receive the gas only starting from November 15, 2006. 
According to informed sources, it is not ruled out that the Georgian delegation will also hold such negotiations with Iran. Last year, after the hold-up of the Russian gas supply to Georgia, the Georgians received gas from Iran via the territory of Azerbaijan.
This year, Azerbaijan can supply up to 300 m. cubic meters of gas to Georgia from the field "Shakhdaniz". The gas will be exported via the South Caucasian Gas Pipeline (SCP), constructed on the territories of Azerbaijan and Georgia. For its part, Turkey is constructing a gas pipeline from the Georgian border to Erzurum that will be a gas distribution point. 

Azeri economy enjoying super growth 
Thanks to a boom in oil and gas production and revenue, the Azeri economy is soaring by 35% this year, with industry growing by 40%, world records, if true.
Indeed, if official figures are to be believed, Azerbaijan is rescuing hundreds of thousands of people from poverty at a pace unseen in modern times. Official 2002 data suggested that 49% of the population lived in poverty. This was slashed to 29% within only three years.
Of course this is all from a very low base. Azerbaijan shed the shackles of 71 years of Soviet-style domination to gain independence just 15 years ago. The first few years were a period of virtual economic meltdown, as was the case in Russia, with authorities moving rapidly from a command-control economic structure to a market economy. Up to 80% of producer and consumer prices were decontrolled in January 1992, a year in which industrial output plunged by 26%.
The transition problems were compounded in Azerbaijan's case by the exodus of one and a half million refugees from a losing war with Armenia over Nagorno-Karabakh, that saw 20% of its territory lost to the Armenians. So many more mouths to feed! 
According to the CIA World Fact Book inflation reached 735% in October 1992 and rose to 1,200% in 1993.
Living expenses were said to exceed incomes by about 50%. The inflationary spiral meant that at the end of 1993, the minimum weekly wage of workers was inadequate to purchase a single loaf of bread and hundreds of thousands of people faced starvation. This was the nadir of the modern Azeri nation. 
Communism was not a complete disaster in that it educated people. Exceptionally high literacy levels - 98.8% of people aged over 15 can read and write - and high numeracy levels are indicators of a rich cultural heritage that should underpin economic buoyancy even after the anticipated oil production peak in 2011.
Late in 1994, production-sharing agreements (PSAs) were signed with foreign oil companies - the country's oil history goes back to the 19th century. These companies agreed to spend US$7.5 billion to develop oil reserves in the Caspian Sea and to build two separate oil and gas pipelines to transport the fuel through Turkey. Oil production fell from 1991 to 1997 but the 1994 deals that Azerbaijanis refer to as the "Contract of the Century" have engineered a massive turnaround.
The government-owned Azerbaijan International Operating Company (AIOC) signed its first PSA in November 1997 and similar deals are now in place with oil companies from the United States, England, Saudi Arabia, Norway, Russia, Japan, Turkey and Italy. Together they have committed US$60 billion towards long-term developments.
AIOC, as operator, last year increased its oil production by 73.8% from the Azeri-Chiraq-Guneshi fields, owned by a British Petroleum-led consortium. Oil reserves there total 5.4 billion barrels. The Baku oil pipeline to Ceyhan in Turkey was completed at a cost of US$4 billion and is pumping out one million barrels daily. Total oil production is expected to reach 345 million barrels next year, up 40% in two years.
Wide-ranging reforms supported by quick World Bank disbursements, as well as an International Monetary Fund programme, kicked off the modernisation and good governance process in earnest. In December 1999, a State Oil Fund of Azerbaijan Republic was set up to manage booming oil revenues through financial stabilisation and savings initiatives. Assets reached more than US$3.6 billion by the end of last year.
Azerbaijan seems to be defying gravity in recent times. Asia's 1997 economic meltdown had tempered the wave of Japanese-style near double-digit economic growth rates in Asia, although China remains an exception to this rule.
Azerbaijanis have entered an even more spectacular phase - its 8.4 million-strong population only grows by 1% annually - with economic growth entering overdrive from a low of 9.9% in 2001 and 10.6% in 2002.
President Ilham Aliyev, promised his people in 2004 that things would improve the following year and indeed they did. He was of course lucky in his timing, with soaring global oil prices. By last year, growth hit 26.4%, fuelled by oil and gas exports and foreign direct investment equivalent to 41% of gross domestic product. Early this year, the Asian Development Bank forecast that Azerbaijan would grow in 2006 by 30.5%, but after a half year surge of 36.3%, the ADB recently revised this to an incredible 35%.
Similarly next year's growth has been upped from 27.3% to a 30% estimate.
This means that in a mere three years from 2005-07 average per capita incomes would grow by well over 80% - far faster than Japan, China or any other newly industrialised countries have managed in a similar time frame.
Last year, per capita incomes on a purchasing power parity basis had reached US$4,800 so they should hit around US$8,000 by the end of next year! The raw per capita GDP figure for 2005 is US$1,240.
Azerbaijan has also been a Central Asian leader in terms of farm privatisation and registration of arable land, with sensible policies ensuring that the non-oil sectors have also been growing by a very impressive 15% annual rate since 1999.

Doubts on the horizon
But some economists still worry about the future. As the ADB's "Outlook 2006" report stresses: "The major risk to the bright economic outlook centres on properly managing oil revenue to maintain macroeconomic stability and avoid excessive appreciation of the exchange rate. The latter would damage competitiveness in the non-oil sector and limit its development. A very sharp downturn in oil prices, though unlikely, would put pressure on the budget and the current account, putting constraints on the rapid economic transformation needed to reduce unemployment and poverty."
One can enter a caveat here. If there is a world economic crash, of course, then all bets are off. With the US lynchpin running up colossal deficits this cannot be ruled out, with everyone else likely to be affected (see Russia).

International Expo - BakuBuild 2006 Started in Baku
On October 11th, Azerbaijan's largest International Exhibition - BakuBuild 2006 - started in Baku's Heydar Aliyev Sports and Concert Complex. Suleyman Tatliyev, President of Azerbaijan's Chamber of Commerce and Industry, Edward Stroon, ITE Group General Director for Central Asia and Caucasus, Farman Seyyidov, Economic Development Minister of Nakhchivan Autonomous Republic, and many others took part at the event, Trend reports. It closed on October 15th.
Heydar Aliyev, the former president who died in harness two years ago and the father of the present president, was the founder of the clan, which hails from Nakhichevan, an Azeri enclave between Armenia and Iran. They run Azerbaijan after their own fashion. 
The Head of the Chamber of Commerce noted at the opening ceremony the huge growth in the development in the construction sector of the country that is of a great importance both in the development and expansion of all the sectors of the Azerbaijani economy. 
For his part, Mr. Stroon pointed out that 220 companies from 20 countries participated in the exhibition, 25 per cent more than in last year's one. "This time the exposition area is significantly extended, that is explained with a growing interest in the construction sphere from different companies", he stressed.
About 40 per cent of the company-participants of the exhibition were entering Azerbaijan's market for the first time. Production exhibits from France, Slovenia, and Korea were among the newcomers. 
Such countries as Russia, Ukraine, Byelorussia, and Kazakhstan are showing a great interest in Azerbaijan. Forty Turkish companies presented their production exhibits and services. About 65 per cent of the exhibition's area was occupied by local producers, which significantly extended their exposition areas by 30 percent this year in comparison with last year.
Within four days, construction and burnishing materials, equipment, windows, and doors, ceramics, and sanitation engineering, saunas, and pools, and many other interesting items were presented at the exhibition. Britain's ITE Group and its partner for the Caucasus ITE Group Plc. were the organizers of the exhibition. The official supporters of the exhibition were Azerbaijan's Economic Development Ministry, the Baku City Executive Power Corporation and Azerbaijan's Chamber of Commerce and Industry.
The fourth Azerbaijani exhibition of furniture, interior, and design, as well as the first Azerbaijani exhibition of real estate were held at the same time.

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National Bank of Azerbaijan to boost forex reserves 77% 

The National Bank of Azerbaijan's foreign currency reserves could increase 77 per cent from early this year to 1.7 billion Euro by 2007, first deputy chairman of the National Bank, Alim Guliyev, said, Interfax News Agency reported.
"The Bank's foreign currency reserves will be approximately 1.7 billion Euro at the end of 2006. We expect yield of the National Bank's foreign currency reserves will be approximately four-five percent. In this case, the National Bank will get at least 100 million Euro from managing foreign currency reserves," he said. The National Bank expects yield from other sources this year, Guliyev said.

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Azerbaijan raises oil, gas production in 9 months 

Azerbaijan edged oil production up 0.2 per cent year-on-year in January-September to 6.736 million tonnes, the State Statistics Committee said. OCAR itself produced 5.887 million tonnes of oil, up 0.2 per cent year-on-year, and joint ventures and onshore operating companies produced 848,600 tonnes, up 0.4 per cent, Interfax News Agency reported.
Azerbaijan raised gas production 21.1 per cent year-on-year in the nine months to 4.996 billion cubic metres. SOCAR produced 3.116 billion cubic metres, up 6.2 per cent, Azerbaijan International Operating Company (AIOC) produced 1.579 billion cubic metres, up 58.5 per cent, and joint ventures and onshore operating companies produced 83.51 million cubic metres, down 13.5 per cent.

SOCAR receives syndicated credit to pay for Shah Deniz 

Azeri state oil company, SOCAR, has received a syndicated credit from foreign banks of US$175 million to finance its share in the project to develop the Shah Deniz field, Vagif Aliyev, head of the SOCAR foreign investment department, said on September 20th, New Europe reported. 
"We have received a credit of US$175 million from a syndicate of Western banks. The organisers of the syndicate are Societe Generale and ABN Amro. They are currently putting together other participants in the syndicate. The credit is being provided at the annual rate of LIBOR+0.85 per cent," he said. 
He said these funds would be used to return a credit to the European Bank for Reconstruction and Development of US$170 million, received in December 2004 to pay for SOCAR's share in the implementation of Phase-1 of the Shah Deniz project. "We have returned the EBRD credit. This [new] credit is better for us than the EBRD credit. While on this syndicated credit the rate is LIBOR+0.85 per cent, on the EBRD credit it was LIBOR+4.5 per cent," Aliyev said.
He said that after Societe Generale and ABN-Amro decide on the participants in the syndicate, an agreement would be signed with the banks and all the conditions of the credit would be announced.
SOCAR has already received a credit this year from a syndicate of western banks, amounting to US$750 million at LIBOR+1.75 per cent to finance its share in the Azeri-Chirag-Gunashli project. 
The contract for the development of the Shah Deniz field was signed in Baku on June 4th, 1996. Participants in the project include BP - 25.5 per cent, Statoil - 25.5 per cent, SOCAR - 10 per cent, LUKoil - 10 per cent, NICO - 10 per cent, TotalFinaElf - 10 per cent and TPAO (Turkey) - nine per cent.
The field's reserves are estimated at 625 billion cubic metres of gas and 101 million tonnes of condensate. Stage-1 development includes the production of 178 billion cubic metres of gas and 34 million tonnes of condensate. During peak production under Stage-1 the field will produce 8.4 billion cubic metres of gas and 2 million tonnes of condensate per year. In further stages of development it is planned to produce about 16 billion cubic metres of gas per year.
Gas from the field will be sold to Turkey (6.3 billion cubic metres per year), Azerbaijan (1.5 billion cubic metres) and Georgia (up to 800 million cubic metres). Phase-1 also includes a project to transport gas to Turkey through the South Caucasus Pipeline. Turkey and Greece are interested in buying gas from Phase-2 of the project for re-export to Europe.

SOCAR to start drilling at Babek structure by 2007 

Azeri state oil company, SOCAR, intends to start drilling a first exploratory well at the Babek offshore structure by the end of 2006, SOCAR said, Interfax News Agency reported.
"We're holding talks with Denmark's Maersk on the use of their semi-submersible drilling rig named after Heydar Aliyev. This rig is currently free and it is technically capable of drilling at the Babek structure. If the talks are successful and we can make preparations we can start drilling this year," SOCAR said. SOCAR said it did not intend to sign a production-sharing agreement with a foreign company for the structure. SOCAR has preferred this arrangement, with foreign companies acting as project operators in the past. "Foreign companies could be involved as technical consultants. We already have the funding and we're gaining expertise. It could take five to eight years to put the structure on stream and by that time we'll have every opportunity, including staff and technology to do the work ourselves," SOCAR said. Babek, a deep-water structure, is thought to contain 200 million-300 million tonne.

Azerbaijan to raise oil output 

Azerbaijan's crude oil production will hit 47 million metric tonnes next year as the country is increasing its oil output, New Europe reported. 
SOCAR President, Rovnag Abdullaev, said that the government plans to raise oil output 35 per cent year-on-year to 30 million tonnes this year and likewise it will reach 47 million tonnes in 2007 and 65 million in 2009. He added that this level of increase would continue up till 2010-2011. This kind of increase would be a record production level for the country. According to Azerbaijan's industry and energy ministry last year the crude oil production was 22.21 million tonnes, 42.9 per cent more than the previous year. With the completion of BTC pipeline Azerbaijan's oil output is on a high. 
Rovnag Abdullayev, CEO of the State Oil Company of Azerbaijan (SOCAR), said the Caspian country's oil output is expected to reach 65 million metric tonnes in 2009.
According to Azerbaijan's industry and energy ministry, crude output in Azerbaijan in 2005 was 22.2 million metric tonnes, representing a 43 per cent year-on-year increase.
SOCAR is part of the Azerbaijan International Operating Company, the BP-led consortium that operates the country's Azeri-Chirag-Gunashli (ACG) offshore oilfield, with estimated recoverable reserves of 5.4 billion barrels.

Azerbaijan's SOCAR to tap new Caspian field deposit 

SOCAR said it plans to work on the development of the Karabakh oil deposit in the Caspian Sea via its own means, New Europe reported. 
SOCAR Vice-President, Khoshbakht Yusifzade, said that the company is ready to tap the new oil deposit in the Karabakh field at it own expense. He added that a platform will be installed and the wells drilled on the field. According to him tapping these deposits is very productive considering the current prices of oil. Yusifzade said, "Although foreign companies have great interests in the deposits, SOCAR will work independently on the field." He informed that US$200 million is expected to be invested in the operations which will manage to yield US$ one billion in revenue depending on prices of oil. 
According to Yusifzade, the construction of the platform and digging wells are planned to start in the near future. 

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Vike-Freiberga, Aliyev discuss bilateral, EU, NATO links 

The presidents of Latvia and Azerbaijan, Vaira Vike-Freiberga, and Ilham Aliyev, met in Riga on October 4th to discuss bilateral, European and Euro-Atlantic cooperation. "Latvia's constant support (in the framework of EU relations) has been very significant ... I am confident that Latvia will support Azerbaijan's integration into Euro-Atlantic structures," Azerbaijan's president Aliyev told journalists after the meeting. Azerbaijan has been a participant in NATO's Partnership for Peace programme since 1994. Latvia, which joined the partnership programme in the same year, became a fully-fledged NATO and EU member in 2004 and is due to host a NATO summit in November, New Europe reported.
"Latvia expressed its readiness to share with Azerbaijan the experience gained by its state institutions in the process of its integration into European and Euro-Atlantic structures," a Latvian presidential press release stated. The presidents also discussed energy cooperation, seen as a key strategic need on both sides. Azerbaijan's economy is largely based on oil and gas exports, while Latvia relies on Russian imports - a situation which has led to fear of pressure from Moscow. "Europe needs to diversify its sources of energy ... Any situation in which there is only one supplier creates disequilibrium and can become a tool of political pressure," Vike-Freiberga said. The presidents "stressed the international importance" of opening oil and gas pipelines from Baku, via Tbilisi, to Turkey "to strengthen the ties between the European Union and the Caspian Sea region in terms of energy cooperation," the press release said.
This was the first visit of an Azeri president to Latvia. Last October Vike-Freiberga paid a state visit to Azerbaijan, signing several agreements on economic cooperation. Trade between the countries has doubled in two years, and Latvia's national airline has opened direct flights to Baku, Vike-Freiberga said. The two presidents signed a further six agreements on economic, cultural and scientific cooperation. 
Latvia and Azerbaijan were both part of the Soviet Union until 1991. Since joining the EU and NATO, Latvia has been keen to strengthen the organisations' relationships with other western-leaning former Soviet states, such as Ukraine and Georgia.

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EBRD to loan Azerbaijan 50m Euro for non-banking financing support 

The European Bank for Reconstruction and Development (EBRD) will loan Azerbaijan 50 million Euro for a project aimed at supporting systems of non-banking financing institutes in countries with transitional economies, Interfax News Agency reported. 
The loan will be allocated to five commercial banks and one non-banking credit organisation to finance small-business projects, EBRD Director for Small Business, Chikako Kuno, was cited as saying in Baku on September 26th. "We're prepared to expand cooperation with banks and non-banking credit organisations that work in the area of micro-financing. Non-banking credit organisations should correspond to the following criteria to be chosen: they should provide quality credit services and have the potential for stable development," Kuno said. The EBRD previously opened a one million Euro credit line to CredAgro, an Azerbaijani non-banking credit organisation, as part of the non-banking financing development project. CredAgro was set up in 2000 by the US organisation ACDI/VOCA with the support of the USAID programme. Kuno noted that the EBRD has also allocated loans to three organisations set up by ACDI/VOCA in Kazakstan, Kyrgyzstan and Tajikistan. The goal of providing support to non-banking financing institutes in countries with transitional economies is to develop micro-financing institutes in Azerbaijan, Armenia, Georgia, Kyrgyzstan, Moldova, Mongolia, Tajikistan and Uzbekistan.


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