Azerbaijan: Important economic events of 2022

I.On January 13, the foundation of the 240 MW Khizi-Absheron Wind Power Plant to be built by Saudi Arabia's ACWA Power company was laid.

II. On February 21, the Order of the Cabinet of Ministers on Urgent Measures to Strengthen Anti-Inflation Measures in the Republic of Azerbaijan was signed, and according to the Resolution No. 145 of the Cabinet of Ministers dated April 4, 2022, within the framework of anti-inflation measures, a new support mechanism for entrepreneurship began to be created.

III.  On March 15, an agreement was signed with the United Arab Emirates’s Masdar company on the construction of the 230 MW Garadagh Solar Power Plant in Azerbaijan.

IV.  On April 13, by the Order of the President, Elman Rustamov, the chairman of the Board of the Central Bank of Azerbaijan, was relieved of his duties and Taleh Kazimov was appointed the chairman of the Central Bank of the Republic of Azerbaijan.

V. On July 18, a Memorandum of Understanding on Strategic Partnership in the field of energy was signed between Azerbaijan and the European Union. According to the Memorandum, gas exports to Europe will be doubled by 2027.

VI.On July 22, 2022, the Strategy of Socio-Economic Development of the Republic of Azerbaijan for 2022-2026 was approved.

VII. On August 23, the Google Pay system was launched in Azerbaijan.

VIII. Zangilan International Airport was inaugurated on October 20.

XI. On November 16, the First State Program on the Great Return to the Liberated Territories of the Republic of Azerbaijan was published.

X. The Agreement on Strategic Partnership in the Development and Transmission of Green Energy between the Governments of Azerbaijan, Georgia, Romania, and Hungary was signed in Bucharest on December 17.

Assessment and retrospective analysis of the economic results of 2022

The year 2022 in Azerbaijan, as in the previous year, passed under inflationary pressures and the trend of the impoverishment of the population, although changes in prices in the energy market during the year created favorable conditions for Azerbaijan to increase its resource and transit revenues and the deterioration of Russia's relations with the West created potential opportunities to develop energy cooperation, especially with Europe. In this regard, the steps in the direction of the transition from traditional energy to renewable energy in 2022 and the restoration and reconstruction of the infrastructure of the territories liberated from occupation can also be remembered. So, a number of works have been carried out to evaluate the possible potential for producing electricity from renewable energy sources and to use this potential. On January 13, 2022, the groundbreaking ceremony of the 240 MW Khizi-Absheron Wind Power Plant, and on March 15, 2022, the 230 MW Garadagh Solar Power Plant was held. According to the observed solar radiation in Zangilan, Jabrayil, Gubadli, and Fuzuli, it was considered appropriate to build solar power plants in Jabrayil and Zangilan districts and to build wind power plants in the mountainous parts of Lachin and Kalbajar. Solar energy potential in the liberated territories is estimated at more than 7,200 MW.[1]

Furthermore, in 2022, significant steps were taken to supply Azerbaijan's natural gas and electricity to Europe to reduce Europe's energy dependence on Russia. So, the Memorandum of Understanding on Strategic Partnership[2] in the energy field was signed between the Republic of Azerbaijan and the European Union. The opening ceremony of the Gas Interconnector Greece–Bulgaria (IGB) was held in Sofia, the capital of the Republic of Bulgaria, with the participation of Azerbaijan. Thus, according to the Energy Agreement, Azerbaijan undertook to double gas exports to Europe by 2027. At the end of the year, the Agreement[3] on Strategic Partnership in the Development and Transmission of Green Energy between the Governments of the Republic of Azerbaijan, Georgia, Romania, and Hungary was signed.

Russia's military intervention in Ukraine on February 24, 2022, has significantly affected economic processes and relations in the region, including Azerbaijan, in several directions.

Firstly, as a result of the war, the sharp increase in energy prices on the world market increased the resource income of the countries that export fuel products, including Azerbaijan. So, the price of Brent crude oil reached the highest level for the past seven years in 2022, and the average annual decline was recorded by 34 percent. Besides, a 37 percent increase in the TTF price of natural gas was recorded in the same period. Thus, according to the statements of the State Customs Committee[4], the share of exports of goods included in Azerbaijan's oil and gas sector in the total exports in the first 11 months of this year was 92.6 percent. So, the foreign exchange earnings from the export of products related to the oil and gas sector in the first 11 months of this year increased by 2.2 times compared to the same period last year[5] and amounted to 33.6 billion dollars, which are 17.4 billion dollars more than in the comparable period. The main reason for the increase is the income from gas export. So, in the first 11 months of this year, gas revenues increased by 4.5 times, or 10.4 billion dollars, and reached 14.8 billion dollars compared to the same period last year.

Apparently, Russia's military intervention in Ukraine in 2022 significantly increased Azerbaijan's foreign exchange earnings from oil and gas exports. As a result, Azerbaijan earned an average of 3.05 billion dollars per month and 101.6 million dollars per day only from selling oil and gas in foreign markets in January-October. However, during the first nine months of the year, the State Oil Fund of the Republic of Azerbaijan (SOFAZ), where these revenues are collected, lost 4,521.0 million manats due to short-term price fluctuations in the market value of SOFAZ assets. The losses related to the difference caused by the change in exchange rates amounted to 4,185.2 million manats.[6]

Secondly, due to Russia's military intervention in Ukraine, there was a change in the transport corridor route between Europe-Caucasus-Asia and vice versa. Cargo from Asian countries, especially China, was sent from Russia to Europe via Ukraine, and Belarus changed its route from north to south. As a result, the volume of cargo transported in the Azerbaijan part of the Europe-Caucasus-Asia transport corridor increased sharply. So, according to the information of the State Statistical Committee[7], in January-September 2022, the volume of cargo transported in the Azerbaijan part of the Europe-Caucasus-Asia transport corridor was 37,829.6 thousand tons, and the cargo turnover was 9,435.5 million ton-km, which increased 24.4 percent and 31.5 percent, respectively, compared to the same period last year. At the same time, according to the statement[8] of the director of ADY Container LLC, one of the members of the Trans-Caspian International Transport Consortium, Natig Jafarov, during the first ten months of 2022, cargo transportation with containers on the Trans-Caspian International Transport Route increased by 45 percent compared to the corresponding period of last year.

Thirdly, due to Russia's military intervention in Ukraine, remittances sent from Russia to Azerbaijan have increased sharply. The summary of the Central Bank’s Monetary Policy for January-September 2022 states that, according to the preliminary figures, the remittances entering Azerbaijan during the first nine months of 2022 increased by approximately 3.4 times compared to the corresponding period of 2021 and amounted to 2.6 billion US dollars. However, during the first nine months of 2021 and 2020, 772 million dollars and 682 million remittances entered Azerbaijan.

Although the Order[9] of the Cabinet of Ministers on Urgent Measures to Strengthen Anti-Inflation[10] Measures in the Republic of Azerbaijan was signed at the beginning of the year in accordance with the main task facing the economy, which ended 2021 with double-digit inflation, the government of Azerbaijan did not take serious and practical steps in this direction to prevent inflation during 2022. Thus, in 2022, the rapid increase in prices and the fact that the land borders of Azerbaijan remained closed made the living conditions of the population living in the border regions, especially the low-income population, difficult. So, according to official data, in 2022, Azerbaijan experienced the highest inflation since 2016. According to the information of the State Statistical Committee[11], the consumer price index in January-November 2022 was 113.8 percent compared to January-November 2021, including 119.5 percent for food products, beverages, and tobacco products, 108.3 percent for non-food products, and 110.4 percent for paid services provided to the population.

According to the data of the national statistical services, the Interstate Statistical Committee of the CIS[12] reports that in January-October 2022, the average monthly salary increase of workers in the economy of the CIS countries was 127.9 percent versus 113.7 percent inflation in Kyrgyzstan (difference +14.2 percent), 125.4 percent versus 111.3 percent inflation in Uzbekistan (difference +14.1 percent), 122.8 percent versus 113.9 percent inflation in Kazakhstan (difference +8.9 percent), 118.2 percent versus 107.1 percent inflation in Tajikistan ( difference +11.1 percent), 114.4 percent versus 113.7 percent inflation in Azerbaijan (+0.7 percent), 114.0 percent versus 108.7 percent inflation in Armenia (difference +5.3 percent), 113.2 percent versus 115.7 percent inflation in Belarus (difference -2.4 percent), 112.6 percent versus 114.1 percent inflation in Russia (difference -2.5 percent), 114.6 percent versus 128.3 percent inflation in Moldova (difference -13.7). As can be seen, the average monthly growth rate of the economy in other CIS countries, except for Belarus, Russia, and Moldova, exceeded inflation. Although the difference between these two indicators is positive in Azerbaijan, it is not significant. According to this, as well as the operative data provided by the Ministry of Finance[13], despite the surplus of 3,002.6 million manats or 2.5 percent of the gross domestic product in the execution of the state budget in January-November 2022, at the end of the year, the government of Azerbaijan did not take steps to increase wages and raise other social norms.

However, it was decided to increase the monthly minimum wage (MMW) in neighboring countries from January 1, 2023. So, starting next year, the MMW will be 75,000 drams (325 manats) in Armenia, 554 rubles (375 manats) in Belarus, 16,242 rubles (404 manats) in Russia, 554 rubles (375 manats) in Belarus, and 8,500 liras (775 manats) in Turkey. Despite two days left until the end of the year, the presidential decree on increasing the MMW has yet to be issued in Azerbaijan. Currently, the MMW in Azerbaijan is 300 manats, which is 8.3 percent lower than Armenia, 25 percent lower than Belarus, 34.6 percent lower than Russia, and 2.58 times lower than Turkey.

Regarding the average monthly salary (AMS), as of November 1, 2022, the AMS was $487,059 in Azerbaijan, $596,217 in Georgia, $602,393 in Armenia, and $677,304 in Kazakhstan. Thus, AMS in Azerbaijan is 22.4 percent lower than in Georgia, 23.8 percent lower than in Armenia, and 39 percent lower than Kazakhstan.

As can be seen, Azerbaijan lags behind the neighboring countries presented for comparison, according to the indicators of both the MMW and the AMS. However, at the beginning of 2022, Azerbaijan's MMW and AMS indicators were higher than Armenia's.

In January-November 2022, the country produced 4.8 percent more gross domestic product than last year; however, industrial production decreased by 1.1 percent compared to the corresponding period of 2021. For comparison, let's note that in the first nine months of 2022, compared to the same period last year, economic growth was recorded in Armenia (112.6 percent), Tajikistan (107.8 percent), Kyrgyzstan (107.0 percent), Turkmenistan (106.2 percent), and Uzbekistan (105.8 percent). The economic recession was recorded in Russia (98.3 percent), Belarus (95.3 percent), and Ukraine (62.8 percent).

As can be seen, in 2022, although there was a favorable conjuncture for the development of the economy in Azerbaijan, the rate of economic growth in the country was lower than in most CIS countries. The main reason for this is that the expectations regarding the reforms in Azerbaijan still need to be fulfilled. Although the Socio-Economic Development Strategy[14] of the Republic of Azerbaijan for 2022-2026 was approved on the basis of national priorities for 2030, which presents the socio-economic development model of the country in the next decade, coordinated reform measures were not implemented according to the strategic frameworks defined in the Strategy. Unsystematic steps became a victim of corruption and monopoly. Therefore, we are entering 2023 with a large number of economic problems left over from 2022.

[1] https://minenergy.gov.az/az/alternativ-ve-berpa-olunan-enerji/azerbaycanda-berpa-olunan-enerji-menbelerinden-istifade

[2] https://president.az/az/articles/view/56689

[3] https://president.az/az/articles/view/58222

[4] https://customs.gov.az/uploads/foreign/2022/2022_11.pdf?v=1671177224

[5] https://customs.gov.az/uploads/foreign/2021/2021_11.pdf?v=1640607770

[6] https://oilfund.az/fund/press-room/news-archive/1547

[7] https://stat.gov.az/news/index.php?lang=az&id=5355

[8] https://fed.az/az/neqliyyat/bu-ilin-10-ayi-erzinde-orta-dehlizle-konteynerle-yukdasimalar-45-faiz-artib-146452

[9] https://nk.gov.az/az/document/5943/

[10] http://interfax.az/view/855827/az

[11] https://stat.gov.az/news/source/Press-11_22.pdf

[12] http://www.cisstat.com/index.html

[13] https://stat.gov.az/news/macroeconomy.php?page=1&lang=az

[14] https://static.president.az/upload/Files/2022/07/22/5478ed13955fb35f0715325d7f76a8ea_3699216.pdf