OIL BOOM BOOSTS AZERBAIJAN’S FIRST-HALF GDP.

Thanks to booming oil exports, Azerbaijan reported 8.5 percent GDP growth in the first half of 2000. Surging world oil prices caused total exports to rise to rise nearly three-fold, while growing volumes of domestic and Kazakhstani oil exports boosted the transport sector. But there is little sign that the benefits of this strong growth are spreading broadly throughout Azerbaijan’s economy. And compared to 1999, foreign direct investment is down sharply.

The 8.5 percent first-half GDP growth suggests that Azerbaijan is likely to report its third consecutive year of strong growth: GDP was recorded up 7.4 percent in 1999 and 10 percent in 1998. Exports during the first half of 2000 nearly tripled to US$474 million (over mid-1999), while imports rose 30 percent to US$562 million (Turan, July 28). Freight turnover grew 10 percent thanks to growing shipments of Azerbaijani and especially Kazakhstani oil exports through Azerbaijan. Communications services–many of which are linked to the oil and transport sectors–also boomed in the first half, rising 53 percent. Higher incomes have spurred consumption growth, as retail trade was reported up 10 percent at mid-year.

In many respects, however, Azerbaijan’s economic growth remains unbalanced. The energy boom seems to be due solely to higher oil prices, as the volume of crude oil produced in the first half of the year rose by only 6 percent to 7.4 million metric tons. The fact that industrial production as a whole grew by only 5 percent suggests that the manufacturing sector continues to stagnate, or worse. Virtually no investment growth was reported at mid-year, due to the on-going decline in foreign direct investment. FDI fell 35 percent in 1999 to US$937 million, and thanks in part to delays in energy projects this year the Economy Ministry is forecasting another drop to US$500 million this year (Reuters, July 28). The construction sector, which tends to move with FDI, reported only 1 percent growth in 1999 and was up only 2 percent in the first quarter of 2000. (Russian agencies, July 17; TACIS, January-March 2000). Economic growth in Azerbaijan contrasts unfavorably in this respect with the expansion in Russia, where the economic expansion seems to be both broadly based and to be driven by the manufacturing sector.

Despite these problems, most observers believe that Azerbaijan’s energy bounty still makes for a favorable long-term outlook. Recent progress on the long-awaited second stage of privatization may also improve foreign investment. President Aliev signed a law in August allowing the government to sell large state companies for cash rather than vouchers (Bloomberg, August 11). Azerbaijan’s booming oil exports should lead to a much-reduced current account deficit in 2000, so that lower FDI is unlikely to cause balance-of-payments problems. Moreover, Azerbaijan’s long-term foreign currency debt recently received a B+ investment-grade credit rating from Fitch-IBCA, which should allow Baku to tap the international financial markets (Reuters, July 3). Relations with the IMF and World Bank are also likely to improve thanks to the recent progress on privatization. Still, there is little sign that the recovery is trickling down to the millions of impoverished Azeris–many of whom are refugees from Nagorno-Karabakh–who are not benefiting directly from the country’s oil boom.

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