In Qatar: “Children of Oil” and the World’s “Giants of Oil”: What Should the “Smaller Ones” Do?

(Part I)

The paradoxical development trajectory of resource-rich states is described with various epithets. A wide array of terms is used in this context: "resource curse," "devil's excrement," "distorted development," "African fever," "Dutch disease," "paradox of plenty," and so on. Qatar, which leads the world in GDP per capita, also uses another intriguing phrase: “children of oil.”

What does this term entail? In Qatar, if both parents in a family are Qatari nationals, the children born into this family are referred to as "children of oil." From the outset, a bank account with $3,000 is opened in the name of the child, and funds from oil revenues are continually deposited into this account. Depending on fluctuations in global oil prices, these accounts receive consistent deposits from oil earnings over the years. When these children marry, pursue education, or experience unemployment, they are provided with ongoing financial support from the state. By the time a "child of oil" turns 18, their account typically holds $100,000 to $300,000 or more. This model represents a direct distribution of resource revenues among members of society. There are also indirect models—for instance, Azerbaijan follows an indirect model.

In general, oil brings both direct and indirect benefits to countries. However, the resources take their toll as well, often not in small ways. Over time, they encourage governments to become complacent and keep societies in a state of inertia, hindering dynamism. When resource revenues are plentiful, they spend freely, but when those resources dwindle, countries find themselves struggling in an “economic vacuum.”

In Azerbaijan, concerns have grown since entering the post-oil era. The economic burden of the territories liberated from occupation has amplified these challenges fivefold. Last year’s economic indicators underscored many of these worries.

In this article, I will focus solely on the economic indicators characterizing the oil and gas sector to present a clearer picture of our country's actual economic situation.

Finding 1:

GDP Structure: A 5 Billion Manat Decline in the Oil and Gas Sector

According to the State Statistical Committee of the Republic of Azerbaijan [1], enterprises, organizations, and individual entrepreneurs operating in the country produced a total gross domestic product (GDP) of 126.3 billion manat in 2024, an increase of 4.1% compared to 2023. During this period, value-added production in the oil and gas sector grew by 0.3%, while the non-oil and gas sector saw a 6.2% increase. In essence, there was virtually no growth in oil and gas production in 2024.

For comparison, the Central Bank's 2023 report [2] highlighted that real GDP grew by 1.1% during the year, reaching a nominal value of 123 billion manat. The non-oil sector was the main driver of economic growth, accounting for 63% of GDP and achieving a 3.7% increase. In contrast, the oil and gas sector experienced a 1.7% decline in value-added production.

When analyzing GDP by sector, it becomes evident that the non-oil sector remains dominant. In 2024, of the 126.4 billion manat GDP, 40.7 billion manat was contributed by the oil and gas sector, while 85.7 billion manat came from the non-oil and gas sector. By comparison, in 2023, out of 123 billion manat in GDP, 45 billion manat was attributed to the oil and gas sector, and 78 billion manat to the non-oil sector.

The statistical comparison clearly shows that although GDP volume in 2024 increased by 4.1% compared to 2023, the share of the oil and gas sector in GDP (45.3 billion manat in 2023) decreased by approximately 5 billion manat. Based on the report [3], it can be stated that the total production value in the oil product manufacturing sector was 4,741.2 million manat, reflecting an 11.0% decline compared to the previous year. This indicates that the oil and gas sector accounted for approximately 32% of GDP in 2024.

Despite high global oil prices, a decrease in oil production was observed. Once producing nearly 51 million tons of oil annually, Azerbaijan's crude oil and natural gas output (including gas condensate) amounted to 29 million tons last year. Natural gas production reached 50.6 billion cubic meters, of which 38.7 billion cubic meters were marketable gas.

In conclusion, while marketable oil production in the mining sector decreased by 3.6%, marketable gas production increased by 6.2%.

Finding 2:

Volume of Investments in Fixed Capital: The Most Critical Level in the Last 60 Years

Economic theory suggests that the primary driver of economic growth is investments in fixed capital, particularly the increase in foreign direct investment (FDI). According to official statistics [4], in 2024, a total of 21.5 billion manat was invested in the development of the country’s economic and social sectors from all financial sources. This represents a 0.7% decrease compared to 2023. Investments in the oil and gas sector declined by 10.2%, while investments in the non-oil and gas sector increased by 3.3%.

According to the report’s findings [5], 5.7 billion manat was directed toward investments in the oil and gas sector in 2024. Meanwhile, 15.8 billion manat was allocated for the development of the non-oil and gas sector. In total, investments in fixed capital amounted to 21.5 billion manat, which constituted 17% of GDP.

In developed countries, this ratio typically does not fall below 30-40% on average. When comparing this ratio to Azerbaijan's performance over the past decades, it becomes evident that the 2024 figure represents the lowest level in the last 60 years.

(Part II)

Sources:
[1] Report No. 12 on "Socio-Economic Development" by the State Statistical Committee (DSK), dated January 17, 2025.
[2] Central Bank Report
[3] State Statistical Committee Report, December 2024
[4] State Statistical Committee Report, December 2024
[5] State Statistical Committee Report, December 2024