Azerbaijan Grapples with Decline in Non-Oil Exports: Unraveling the Factors Behind the Slump

In a bid to diversify its economic portfolio and reduce reliance on oil and gas revenues, Azerbaijan has long pursued strategies aimed at bolstering the non-oil sector. However, recent statistics paint a concerning picture of a sector in decline, raising questions about the efficacy of these efforts and the underlying factors driving the downturn.

According to data released by the State Statistical Committee, Azerbaijan's non-oil exports plummeted by a staggering 26 percent in the first three months of the current year, dropping from $912 million to $674 million. This significant contraction underscores the persistent challenges facing the country's efforts to wean itself off its dependence on hydrocarbon revenues.

Despite official silence from the Cabinet of Ministers on the matter, Deputy Vugar Bayramov in an interview with Radio Azadlig,  has shed light on the government's commitment to diversifying export structures, emphasizing the importance of boosting the non-oil sector's contribution to key macroeconomic indicators such as GDP, total exports, and budget revenues. While strides have been made in certain areas, such as an uptick in the non-oil sector's share of GDP and budget revenues, the decline in non-oil exports remains a pressing concern.

Bayramov attributes the downturn in non-oil exports to several factors, chief among them being the reduction in exports of electricity and alcoholic/non-alcoholic beverages. Fluctuations in purchasing power and currency exchange rates in key export markets, coupled with a broader regional slowdown in inflationary trends, have further exacerbated the decline.

Moreover, Azerbaijan's heavy reliance on a limited number of export destinations, particularly Russia and Turkey, underscores the urgent need to diversify export markets. Bayramov emphasizes the importance of tapping into new markets, including those in the European Union and the Gulf region, to mitigate the risks associated with overdependence on specific trading partners.

Economist Rashad Hasanov delves deeper into the nuances of the decline, highlighting methodological considerations and sector-specific challenges. Hasanov notes that certain products, such as electricity and polyethylene, which are derived from oil and gas, are included in non-oil export statistics, complicating the assessment of true non-oil export performance.

Furthermore, Hasanov points to a decline in exports from the mining industry, particularly gold, which recorded a decrease of over 55 percent compared to the same period last year. He underscores the importance of attracting foreign investment to non-resource sectors, emphasizing the need for fundamental reforms to foster a more conducive environment for economic diversification and growth.

As Azerbaijan navigates the complexities of economic diversification and strives to reduce its dependence on oil and gas revenues, addressing the underlying structural and institutional challenges facing the non-oil sector remains paramount. Only through concerted efforts to promote transparency, attract foreign investment, and implement meaningful reforms can Azerbaijan chart a course towards a more resilient and diversified economy capable of weathering future challenges.