Strong Growth Masks Deep Concerns Over War


Economic News

22 Jul 2010
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Despite the release of some healthy looking vital statistics, Azerbaijan’s leaders were in sombre mood after US-led forces invaded Iraq last week. Predictions that the war would lead to delays in major energy projects, and even a strategic shift away from the Caspian and Central Asia, received wide airing.

First the statistics. A United Nations Economic Commission for Europe (UNECE) report released March 4th published a global, 2002 GDP growth league table in which Azerbaijan figured among the heaviest of hitters. With 10.6% growth, the country came in 3rd, behind Turkmenistan (21.2%) and Armenia (12.9%).

The figures also seemed consistent with the pattern set out in March 17th Azeri parliamentary report. Quoted by AP, this showed the country’s GDP had increased by 59.5% to 29.6tn manat ($5.9bn) since 1997.

During the same period, the report noted that the country had also more than doubled its foreign reserves. These stood at $1.374bn at the start of 2003, a 2.5-fold increase on the start of 1997.

Not such a bad basis for the government to begin negotiations with the World Bank mid-March on the implementation of its 2003-2005 Country Assistance Strategy (CAS).

Under this, Azerbaijan is to receive between $163m and $225m in loans during the 2003-05 period. In the immediate future, this means $60m for 2003, originating from three credit lines, with a $12m credit targeted at improving Baku’s water supply system already received.

Other slices of credit are also targeted at specific projects or areas for development. The state programme for poverty reduction and economic growth aims for a boost in education funding of 50% during the 2003-5 period, and a 100% boost in health care spending

The bank also aims to help the government implement various planning and administrative projects, such as reforming state enterprises - including the state energy companies SOCAR and Azerenergy.

However, Azeri government officials say that there is some flexibility built into the planned credit arrangements.

Poverty reduction is, however, likely to remain top of the agenda. Despite the healthy looking increases in GDP and GNP, per capita income remains small. On this, Caspian Business News quoted an unnamed Bank official in its March 24th-29th edition as saying: "Although GDP per capita has reached $756 in Azerbaijan, the government says that a significant part of this is made up by offshore oil production."

He then continued, "If you exclude from the statistics the added cost of the Azerbaijan International Operating Company (AIOC), from which Azerbaijan receives only 10% of company revenues, then the real revenues of the population will drastically fall." The AIOC is the main international conglomerate operating Azerbaijan’s Caspian hydrocarbon reserves.

"The World Bank agreed on this issue," the official continued, "as its own statistics show per capita GDP to be under $600."

With the outbreak of war in Iraq, this analysis took on an even more sobering aspect, as analysts lined up to say how the conflict might effect Azerbaijan’s own chances of oil and gas riches.

President Heydar Aliyev has so far given cautious support to the US on the issue, being named as one of President Bush’s coalition members soon after the first bombing raids. Azerbaijan has given the US permission to use its air space in mounting aerial sorties against Iraq.

However, "The aggravation of the [Iraq] crisis and its escalation into armed conflict will undoubtedly affect the political and democratic processes in Azerbaijan," political scientist Adil Racabli told the Baku daily Ekspress on March 21st.

These political and democratic processes are also leading towards elections in October this year, when the 79-year old Aliyev is set to run for a third term. However, the news on March 17th that Aliyev had appointed his son, Ilkham, as his campaign manager gave rise to some speculation that Ilkham was being groomed for a takeover.

Meanwhile, Natiq Aliyev, the head of SOCAR, warned in a statement to Azeri television mid-March that the Iraq war might create delays in the construction of the Baku-Tbilisi-Ceyhan pipeline. He also said that fighting might push back the development timetable for the Shah Deniz gas field, both of which would be major blows to Azerbaijan, given its heavy reliance on hydrocarbons to fuel its double digit GDP growth.

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