Why Diversification Into Non-Oil Economy Has Become Need Of The Day For Azerbaijan

Azerbaijan is another oil-based ECO economy that has done well not only to counter hunger within its boundaries both in terms of undernourished proportion of people and hunger in chronic forms in children but has used its oil resources well in many policy realms.

Azerbaijan

Azerbaijan in face of its well-rounded economic reforms that initiated in 1990 and that allowed initiation of liberalized process of foreign trade, improvements in finance and monetary-credit policy and customs and tax policy has now come to a position where it stands at a unique opportunity to enter the ranks of higher middle-income nations. This progress can be evidenced by the decline in the poverty rate from 50% in 2001 to 6% in 2012 and reduction in unemployment rate from 12% to 5%. While some of this improvement has been driven by high growth rates especially till 2009, a strong increase in wages, and the introduction of a well-targeted social benefit system, but when analyzed deeply much of it resulted from a jump in oil and gas revenues over the years especially post initiation of BTC oil pipeline in 2006.

In terms of structure given that Azerbaijan is extremely rich in hydrocarbons resource endowment, hence its economy primarily is based on oil revenues. However as of recent policy agenda non-oil sectors that constituted 69.3% of the total value-added as per 2015 estimates within Azerbaijan are also being promoted especially post end of oil boom of 2011 and the adverse impact on Azerbaijan in face of decline in oil values in 2015.

Oil Field

Significance of development of the non-oil economy within Azerbaijan has become all the more important since not only current account surplus that had persisted between 2005 to 2014 primarily because of oil revenues shortfall. This deficit within Azerbaijan came firstly in face of drastic decrease in energy prices in 2015 and subsequent drop in its oil export earnings and secondly due to how in aftermath of this oil price shock its central bank was forced to devalue the manta with further loss in foreign exchange assets. As a consequence, gross international reserves within Azerbaijan fell by US$ 15.6 billion in 2014 to US$ 7.9 billion in 2015. Hence dependence on oil sector alone in spite of having strong position in terms of foreign reserves reveals prime vulnerability within Azerbaijan that needs corrective measures.

Agriculture Field

As part of diversification policy focus that is being implemented within Azerbaijan over last few years so as to reduce dependence of its economy on oil and assure expansion of economic development to rural areas, many policy steps have been initiated. On such measure that has been successfully implemented within Azerbaijan is agrarian reform since 1995 that has resulted not only in markets to play its effective role in the domestic economy but also proper utilization of land and property and improvement in overall structure of the agrarian sector through ensuring secure property rights on agricultural land, more inclusive distribution of agricultural farms, and adequate provision of technology and tools. In face of such policy shift though agricultural sector has shown improved performance over the years, however key challenges still remain in the areas of productivity improvement, access to latest technology, increasing area under cultivation especially in mountains, and provision of high quality seeds. Proper coordination of policies pertaining to production and processing of crops and public investments in agricultural sector are expected to lift agricultural productivity thereby improving food production. Hence agriculture though small (accounts for 7% of GDP) but has found to play a meaningful component of Azerbaijan’s non-oil economy and has significant potential for boosting export revenues for the country along with becoming active source of rural livelihood and means of securing domestic food supply.