Azerbaijan Faces Declining Oil Revenues: What should the government do?…

Azerbaijan Faces Declining Oil Revenues: What should the government do?…

Azerbaijan’s once-burgeoning oil revenues are on the decline, posing a significant challenge for the nation’s economy. The State Oil Fund of Azerbaijan (SOFAZ) is projected to receive approximately $5 billion from oil sales this year, a sharp drop from previous years. In 2022, buoyed by high oil prices, revenues surged to about $10 billion. However, last year’s figures dipped to just over $6 billion, and further declines are anticipated due to decreasing production.

The “Azeri,” “Chirag,” and “Gunashli” (ACG) oil fields, which have been central to Azerbaijan’s oil wealth, yielded their lowest profit in 17 years in 2020, at $3.52 billion. As the nation grapples with diminishing returns, Azerbaijani officials have emphasized the need to pivot towards the non-oil sector. Despite this, recent data paints a concerning picture. In the first quarter of 2024, Azerbaijan's total exports amounted to $6 billion, with the non-oil sector contributing only $673.7 million—a decrease from $912.2 million in the same period last year.

Mazahir Efendiyev, a member of the Economic Policy, Industry and Entrepreneurship Committee of the Milli Majlis (Azerbaijan’s National Assembly), highlighted the historical significance of oil revenues in an interview with Turan. “After gaining independence, Azerbaijan took a crucial step by bringing together eight countries and 13 large corporations to sign the ‘Contract of the Century’ in 1994,” Efendiyev said. He underscored that over the past 30 years, oil profits have been instrumental in state-building, ensuring national security, and implementing economic reforms.

However, Efendiyev acknowledged the current economic reality. “It was expected that there would be a decline in oil revenues, and this is observed today. Oil production is declining, and this affects the budget. Last year, when we prepared the state budget, we observed that the revenues from oil to the state budget were falling by about $2 billion.” He added that one of Azerbaijan’s priorities over the past decade has been the development of the non-oil sector, which he claims is showing significant progress.

Economist Natig Jafarli offered a more critical perspective in his comments to Radio Liberty. He noted that the share of the non-oil sector in exports has stagnated around 10 percent over the past 15-20 years. “This shows that there are no high growth rates in the production and export of the non-oil sector in Azerbaijan,” Jafarli said. He pointed out that the government has attempted to inflate non-oil sector statistics by reclassifying exports, such as electricity, which accounted for about $230-240 million last year. A sharp decline in electricity production and exports in the first quarter of this year has already impacted these figures.

Jafarli also highlighted the volatility in the agricultural sector and the dependence on the Russian market, which poses risks due to political tensions. “In order to increase the export potential of the non-oil sector, Azerbaijan must enter other markets. Since there is no other market now, there are no conditions for domestic production,” he stated.

One of the primary obstacles to the development of the non-oil sector, according to Jafarli, is poor management. He criticized the over-reliance on public investment and the lack of private sector involvement. “We have more production at the expense of public investment, we do not see a participant in the private sector. Because the private sector does not feel protected in terms of investments,” he explained.

As Azerbaijan navigates this economic crossroads, the need for a robust and diversified economy becomes ever more urgent. While the legacy of oil has laid a foundation for the nation’s development, sustainable growth will depend on how effectively it can cultivate and expand its non-oil sectors.

Leave a review


Follow us on social networks

News Line