Azerbaijan: Important economic events in 2021

I. According to the decision of the Tariff Council dated January 4, 2021, the retail price of AI-92 gasoline has been set at 1 manat per liter, and the retail price of diesel fuel at 80 gapiks per liter. According to the decision of the Tariff Council dated January 31, 2021, the tariff for 1 cubic meter of water supply, including VAT, has been approved at 70 gapiks for the population of Baku, Sumgayit, and Khirdalan cities and Absheron district, at 60 gapiks for other administrative units, and the tariff for wastewater discharge service has been approved at 30 gapiks per cubic meter in the country. According to the decision of the Tariff Council dated June 30, 2021, the price of natural gas consumed by the population has been set at 20 gapiks per cubic meter for 1,200-2,500 m3 (including 2,500 m3), at 25 gapiks per cubic meter for more than 2,500 m3. According to the decision of the Tariff Council dated October 16, 2021, the price of natural gas consumed by the population has been set at 12 gapiks per cubic meter for up to 1,200 m3 (including 1,200 m3), the price of 1 kWh of electricity consumed by the population has been set at 9 gapiks for 200 kWh-300 kWh (including 300 kWh), at 13 gapiks for more than 300 kWh.

II. By the Decree of the President of the Republic of Azerbaijan dated January 19, 2021, the Institute of Special Representation of the President of the Republic of Azerbaijan and the Karabakh Revival Fund were established in the liberated territories.

III. By the Decree of the President of the Republic of Azerbaijan dated January 23, 2021, on Measures to Improve the Management of the State Oil Company of the Republic of Azerbaijan, the Supervisory Board of SOCAR was established to exercise general management and control over the activities of the State Oil Company of the Republic of Azerbaijan. The Supervisory Board consists of 7 members and is headed by the Minister of Economy, Mikayil Jabbarov.

IV. By the Order of the President of the Republic of Azerbaijan No. 2469 dated February 2, 2021, "Azerbaijan 2030: National Priorities for Socio-Economic Development" was approved. The following five areas of socio-economic development of the country for the next decade have been identified as National Priorities:

• steadily growing competitive economy;
• a dynamic, inclusive, and socially just society;
• competitive human capital and space for modern innovations;
• great return to the liberated territories;
• clean environment and "green growth" country.

V. By the Decree of the President of the Republic of Azerbaijan dated February 12, 2021, the Council of Financial Stability of the Republic of Azerbaijan was abolished. The Economic Council of the Republic of Azerbaijan was established and its Regulations were approved.

VI. By the Decree of the President of the Republic of Azerbaijan on New Division of Economic Regions in the Republic of Azerbaijan dated July 7, 2021, the Karabakh economic region was re-formed, and the East Zangazur economic region was established.

VII. The Decree of the President of the Republic of Azerbaijan on the Application of the Law of the Republic of Azerbaijan No. 342-VIQ of June 8, 2021, on the Execution of the State Budget of the Republic of Azerbaijan for 2020 was signed.

VIII. On September 22, 2021, the Decree of the President of the Republic of Azerbaijan on the Transfer of the International Bank of Azerbaijan Open Joint-Stock Company to the Management of the Azerbaijan Investment Holding and the Regulation of a Number of Related Issues was signed. The International Bank of Azerbaijan has been transferred to the management of the Azerbaijan Investment Holding.

IX. On October 4, 2021, the Decree of the President of the Republic of Azerbaijan on the Establishment of the Araz Valley Economic Zone Industrial Park was signed. On December 21, 2021, the Agency for Development of Economic Zones under the Ministry of Economy of the Republic of Azerbaijan was established.

X. On October 16, 2021, the President of the Republic of Azerbaijan signed Order No. 2965 on Additional Measures to Protect the Social Welfare of the Population. The Cabinet of Ministers has been instructed to prepare proposals to increase salaries, benefits, and pensions in the 2022 budget. In connection with the execution of the order, a number of social benefits, pensions will have been increased from January 1, 2022, the minimum wage and the minimum amount of pensions will have been increased by 20 percent. The salaries of teachers undergoing diagnostic assessment, servicemen, special ranks, and civil servants of the Ministry of Defense, State Security Service, Foreign Intelligence Service, Presidential Security Service, Special Communications Service, State Border Service, Ministry of Internal Affairs, Main Department of Internal Troops, State Customs Committee, and State Migration Service will have been increased by 20 percent.

Economic results of 2021: last year passed under inflationary pressures

The most common thing we saw in 2021 was price increases. At the beginning of the year, on January 4, 2021, by the decision[1] of the Tariff Council, the retail price of AI-92 gasoline has been set at 1 manat per liter, and the retail price of diesel fuel has been set at 80 gapiks per liter. Before that, the price of 1 liter of this brand of gasoline was 90 gapiks, and diesel fuel - 60 gapiks. Thus, the retail price of AI-92 gasoline increased by 11 percent and the retail price of diesel fuel by 33.3 percent in one day. Not long after this decision, by the decision[2] of the Tariff Council dated January 31, 2021, the tariff for 1 cubic meter of water supply was doubled. So according to this decision, the price of water supply, including VAT, has been approved at 70 gapiks for the population of Baku, Sumgayit, and Khirdalan cities and Absheron district, at 60 gapiks for other administrative units, and the tariff for wastewater discharge service has been approved at 30 gapiks per cubic meter in the country. However, not content with this, the Tariff Council[3] increased the price of natural gas consumed by the population from July 1, 2021, to 20 gapiks per cubic meter for 1,200-2,500 m3 (including 2,500 m3), to 25 gapiks per cubic meter for more than 2,500 m3. After that, according to the decision[4] of the Tariff Council dated October 16, 2021, the price of natural gas consumed by the population has been set at 12 gapiks per cubic meter for up to 1,200 m3 (including 1,200 m3), the price of 1 kWh of electricity consumed by the population has been set at 9 gapiks for 200 kWh-300 kWh (including 300 kWh), at 13 gapiks for more than 300 kWh.[5]

Thus, last year, by numerous decisions of the Tariff Council, almost all types of utilities (except for the heat) became more expensive. Furthermore, the Tariff Council last year steadily increased the price of medications.[6]

Inflation-boosting factors have been active during the year as a result of market interactions and rising prices for imported goods in the country of origin. For this reason, even according to official data, the consumer price index in January-November 2021 compared to January-November 2020 was 106.2 percent, including 107.4 percent for food, beverages, and tobacco products, 104.8 percent for non-food products, and 105.4 percent for paid services provided to the population. According to the SSC, the consumer price index in November 2021 was 101.5 percent compared to the previous month and 111.1 percent compared to November last year.[7] In fact, 11.2 percent inflation confirms the double-digit inflation rate in the country. Nevertheless, independent experts say that the official figures on unemployment, poverty, and inflation distort the current reality and do not agree with the SSC’s calculations.

In the first eleven months of 2021, the nominal effective exchange rate of the manat rose by 7.3 percent and the real effective exchange rate by 8.8 percent. In November this year, the nominal non-oil effective exchange rate of the manat rose by 29 percent compared to 2016, which further weakened the competitiveness of non-oil products in the world and regional markets. Moreover, the rapid and steady appreciation of the nominal effective exchange rate of the manat has led to higher inflation in Azerbaijan than its main trading partners, which ultimately had a negative impact on economic growth, especially non-oil export policy. So, over the past two years, the inflation rate in Azerbaijan has been higher than the average inflation rate of trading partners.

Last year, the low-income population suffered the most from price increases. So, in January-October 2021, the average monthly nominal wage of salaried employees in the country's economy increased by 2.6 percent compared to the same period last year and amounted to 722.9 manats.[8] In January-November 2021, compared to January-November 2020, the nominal income of the population increased by only 2.5 percent.[9] As can be seen, the growth rate of nominal incomes and average monthly nominal wages in January-November was 2.5 times lower than inflation during that period, which led to, especially, an increase in poverty. However, despite all this, no measures have been taken to increase wages and social benefits during the period, and even the scope of social protection measures has narrowed compared to the previous year. So, while 18.01 percent of the budget funds executed during the period fell to the share of defense and national security measures, 17.55 percent to education and health, 14.89 percent to general public services, and only 13.67 percent were directed to social protection and social security. At the same time, according to official figures, the number of recipients of targeted social assistance (TSA) has decreased significantly over the past year. According to the latest data of the SSC, in the first half of 2020, 351,800 members of 84,600 low-income families in the country received targeted social assistance. As of July 1, 2021, 264,100 members of 62,000 low-income families in the country were able to benefit from this assistance.[10] Thus, in the first half of the year, the number of families receiving targeted social assistance decreased by about 22,000 compared to the previous year.

Last year, along with the decrease in the number of recipients of targeted social assistance, there was a sharp decline in the number of pensioners and the disabled. As of October 1, 2021, 1,205,400 pensioners were registered in Azerbaijan, of which 709,900 were entitled to old-age pensions, 352,900 to disability pensions, and 142,600 to the pensions for the loss of the head of the family. The average amount of all types of pensions was 329 manats.

According to official statistics, 1 million 318.4 thousand pensioners were registered in the country at the beginning of 2018, 1 million 295.5 thousand people at the beginning of 2019, 1 million 270.6 thousand people at the beginning of 2020, and 1 million 228.8 thousand at the beginning of 2021.[11] As can be seen, the number of pensioners has decreased by 89.6 thousand over the past three years, and by 41.8 thousand over the past year.

One of the reasons for the decline in the number of pensions in recent years is the increase in the retirement age. At present, men retire at the age of 65 and women at the age of 62 and a half in Azerbaijan, and by July 1, 2027, the retirement age for women will have risen to 65. This age limit used to be 60 for women and 63 for men.[12]

During the year, the Ministry of Labor and Social Protection of Population struggled with fake disability and pensions, and from 2019 to date, it has abolished the disability of tens of thousands of people and the pensions of hundreds of thousands of people. According to the Minister of Labor and Social Protection of Population, Sahil Babayev, during the discussion of the Draft Law on the State Budget of the Republic of Azerbaijan for 2022, "unfounded and fake pensions were abolished in the amount of 25 million manats in 2018, 133 million manats in 2019, and 346 million manats in 2020." The Minister said that as a result of the abolishment of unfounded and fake pensions for ten months of this year, about 500 million manats were saved.[13]

Taking into account the deterioration of the social situation of the population near the end of the year, the Order of the President of the Republic of Azerbaijan No. 2965 dated October 16, 2021, on Additional Measures to Protect the Social Welfare of the Population came into force.[14] Based on the implementation of this order, from January 1, 2022, the minimum wage[15] and the minimum amount of pensions and the salaries of employees of a number of organizations financed from the state budget[16], including teachers undergoing diagnostic assessment[17], servicemen, special ranks, and civil servants of the Ministry of Defense, State Security Service, Foreign Intelligence Service, Presidential Security Service, Special Communications Service, State Border Service, Ministry of Internal Affairs, Main Department of Internal Troops, State Customs Committee, and State Migration Service have been increased by 20 percent.[18] Furthermore, a number of social benefits and student scholarships[19] have been increased.

According to the SSC, in January-November 2021, the country produced a gross domestic product of 80,688.2 million manats, or 5.3 percent more than the same period last year. Value-added in the oil and gas sector of the economy increased by 2.7 percent, and in the non-oil and gas sector by 6.4 percent.[20] However, in January-November 2021, investments in fixed assets decreased. So, compared to the corresponding period of 2020, 11.2 percent less funds were allocated in this direction.[21] Due to a 4.3 percent decline[22] in nominal GDP over the period compared to the previous year due to a pandemic in the base year (2020) and high inflation this year, the increase in net exports played an important role due to the increase in consumer spending and the sharp rise in world crude oil and gas prices, although in January-November this year, compared to the previous year[23], Azerbaijan imported 7.4 percent more goods ($ 10.4 billion) from abroad.[24] Compared to January-October 2020, foreign trade turnover increased by 34.4 percent in actual prices, by 1.8 percent in real terms, including decrease in imports by 12.3 percent and increase in exports by 6.6 percent.[25] According to the calculations of independent experts[26], due to the rise in prices for imported goods alone, the population spent an additional 3.1 billion manats in the first eleven months of this year, which led to a 3 percent increase in retail trade turnover and a 4.6% increase in paid services provided to the population. As can be seen, the quality of nominal growth in 2021 was low. The 5.3 percent increase in the first eleven months of the year was mainly due to changes in global commodity markets and inflationary pressures.

The year 2021 was marked by a number of steps taken to create, integrate, and improve the management of a number of institutions, including funds, economic zones, industrial parks, industrial districts, and agro-parks. At the beginning of the year, the Council of Financial Stability of the Republic of Azerbaijan was abolished by the Decree of the President of the Republic of Azerbaijan. The Economic Council of the Republic of Azerbaijan was established and its Statute was approved.[27] Furthermore, the Azerbaijan Business Development Fund (a public legal entity) has been established under the Ministry of Economy through reorganization in the form of merging Entrepreneurship Development Fund of the Republic of Azerbaijan public legal entity under Ministry of Economy and Azerbaijan Investment Company Open Joint Stock Company.[28] Moreover, by the presidential decree dated January 19, 2021, the Institute of Special Representation of the President of the Republic of Azerbaijan[29] and the Karabakh Revival Fund[30] were established in the liberated territories.

In 2021, the Decree[31] of the President of the Republic of Azerbaijan on New Division of Economic Regions in the Republic of Azerbaijan; hence, the Karabakh economic region was re-formed, and the East Zangazur economic region was established. At the same time, Decrees of the President of the Republic of Azerbaijan on the Establishment of the Agency for the Development of Economic Zones[32], Aghdam Industrial Park[33], Araz Valley Economic Zone Industrial Park[34] were signed. By the presidential decrees, the Model Regulations on Agro-parks[35] and the Charter of the Agency for the Development of Economic Zones[36] were approved.

Although a number of amendments[37] were made to the Law of the Republic of Azerbaijan on Privatization of State Property in 2021, the year did not turn into a year of great privatization. These amendments covered the distribution of powers provided for in the Law of the Republic of Azerbaijan on Privatization of State Property between the President of the Republic of Azerbaijan, Azerbaijan Investment Holding, and the State Service on Property Issues under the Ministry of Economy of the Republic of Azerbaijan.

In 2021, by the Decree[38] of the President of the Republic of Azerbaijan on Measures to Improve the Management of the State Oil Company of the Republic of Azerbaijan, steps have been taken to improve[39] the management structure of the State Oil Company of Azerbaijan (SOCAR) by establishing[40] a Supervisory Board[41] to exercise overall management and control over its activities. At the same time, the International Bank of Azerbaijan Open Joint-Stock Company has been transferred to the management of the Azerbaijan Investment Holding.[42]

The President signed a Decree[43] dated October 11, 2021, on Improvement of Management in the Field of State Support for Entrepreneurship Development and approved the Rules[44] to Support the Expansion of Sales of Products Produced by Micro and Small Businesses by another decree dated December 1, 2021.

Finally, Presidential Decree No. 2469 of February 2, 2021, approved the "Azerbaijan 2030: National Priorities for Socio-Economic Development".[45] The following five areas of socio-economic development of the country for the next decade have been identified as National Priorities:

• steadily growing competitive economy;
• a dynamic, inclusive, and socially just society;
• competitive human capital and space for modern innovations;
• great return to the liberated territories;
• clean environment and "green growth" country.

However, the required steps have not been taken during the year to implement the measures arising from this order. So, the draft Strategy for Socio-Economic Development in 2021-2025 was not adopted by the end of the year.

As can be seen, 2021 was an economically difficult and complicated year, and although it was rich in numerous presidential decrees, it was not remembered as a year of significant steps in their implementation. At the same time, although corruption and monopolies have been major obstacles to economic development this year, no expected steps have been taken to increase transparency and accountability, to hold open and competitive tenders, especially in the liberated territories, where state orders worth billions of manats have been implemented through closed procurement. One of the main features of the year was the increase in expenditures on food, medications, and utilities, the decline in the purchasing power of the manat, the devaluation of incomes in the face of high inflation, the reduction of pensions, the abolition of disability degrees, and the lack of adequate social protection measures. Although unemployment and poverty have increased during the year, no official figures have been released on the number of officially registered unemployed and the level of poverty in the country.

Although many funds and other institutions were established during the year, and state-owned companies were transferred to the management. They were followed by structural changes, including privatization, which did not result in institutional changes in the economy. Although GDP increased in nominal terms, the quality of growth was low.

Gubad Ibadoghlu, senior policy analyst  of the Economic Research Center

Gubad Ibadoglu

[1] http://www.tariffcouncil.gov.az/?/az/news/view/174/

[2] http://www.tariffcouncil.gov.az/?/az/news/view/177/

[3] http://www.tariffcouncil.gov.az/?/az/news/view/179/

[4] http://www.tariffcouncil.gov.az/?/az/news/view/181/

[5] http://www.tariffcouncil.gov.az/?/az/news/view/181/

[6] http://www.tariffcouncil.gov.az/?/az/news/view/180/

[7] https://www.stat.gov.az/news/source/Press-11_21.pdf

[8] https://stat.gov.az/news/index.php?id=5080

[9] https://www.stat.gov.az/news/macroeconomy.php?page=1

[10] https://www.azadliq.org/a/unvanli-sosial-yardim/31423791.html

[11] https://www.bakupost.az/azerbaycanda-pensiyacilarin-sayi-azalib-statistika

[12] https://d9mc3ts4czbpr.cloudfront.net/az/article/resmi-oten-il-pensiyacilarin-sayi-azalib/

[13] https://apa.az/az/xeber/senaye-ve-energetika/nazir-10-ayda-esassiz-pensiyalarin-legvi-neticesinde-500-milyon-manat-vesaite-qenaet-edilib-670062

[14] https://president.az/articles/53499

[15] https://president.az/articles/54661

[16] https://president.az/articles/54657

[17] https://president.az/articles/54663

[18] https://president.az/articles/54788

[19] https://president.az/articles/54681

[20] https://www.stat.gov.az/news/index.php?id=5081

[21] https://www.stat.gov.az/news/index.php?id=5075

[22] https://www.stat.gov.az/news/index.php?id=4788

[23] https://customs.gov.az/modules/pdf/pdffolder/93/FILE_45C557-47936F-4905F2-F58720-F39E35-6509D8.pdf

[24] https://customs.gov.az/modules/pdf/pdffolder/104/FILE_942B7D-0FC01B-06643C-1DADF4-D77DE0-106B20.pdf

[25] https://www.stat.gov.az/news/index.php?id=5077

[26] https://www.meydan.tv/az/article/iqtisadci-bahalasma-ehalini-elave-31-milyard-manat-xerce-salib/

[27] http://www.e-qanun.az/framework/46868

[28] https://azertag.az/xeber/Azerbaycan_Biznesinin_Inkisafi_Fondu_publik_huquqi_sexs_yaradilib-1898036

[29] https://president.az/articles/50281

[30] https://president.az/articles/50258

[31] https://president.az/articles/52389

[32] https://apa.az/az/sosial_xeberler/Iqtisadi-Zonalarin-Inkisafi-Agentliyi-yaradilib-625703

[33] https://president.az/articles/51773

[34] https://president.az/articles/53319

[35] https://president.az/articles/54716

[36] https://president.az/articles/54717

[37] https://president.az/articles/54604

[38] https://president.az/articles/50344

[39] http://www.e-qanun.az/framework/1899

[40] https://president.az/articles/51420

[41] https://socar.az/socar/az/company/supervisory-board/chairman-of-socar-supervisory-board

[42] http://e-qanun.az/framework/48269

[43] https://president.az/articles/53411

[44] https://azertag.az/xeber/Mikro_ve_kichik_sahibkarliq_subyektlerinin_istehsal_etdikleri_mehsullarin_ticaret_sebekelerinde_satisinin_genislendirilmesine_destek_Qaydasi-1940296

[45] http://e-qanun.az/framework/46813