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

(Part II)

Result 3: The "Resource Pull Effect" Occurs

For many years, we have been stating that the average monthly salary in the country does not reflect the real income level of the population. This is because the average monthly salary is inflated due to the high wages in the oil and gas sector and the public sector. For example, in January-November 2024, the average monthly nominal salary of employees in the national economy increased by 8.0% compared to the same period in 2023, reaching 996.8 AZN. Salaries in the oil and gas sector stood at 3,717 AZN, while in the non-oil and gas sector, it was 947 AZN.

As of December 1, 2024, the number of salaried employees was 1,775.3 thousand, including 884.4 thousand in the public sector and 890.9 thousand in the non-public sector. According to the SSC report [5], 31.6 thousand people were employed in the oil and gas sector, while 1,743.7 thousand worked in the non-oil and gas sector. This means that 31% of GDP was created by just 31,000 individuals working in the oil and gas sector. This indicates the presence of the "resource pull effect," which is one of the models of the "Dutch disease" involving three sectors.

The essence of this model is that resources (labor, finance, technology) are drawn like a magnet to a single sector—natural resources—causing productivity in other sectors to decline. The resource sector attracts the productive forces of other non-resource sectors. This is one of the visible aspects of our economy. The average monthly salary of employees in the oil and gas sector is exactly four times higher than that of those working in the non-oil sector.

In such circumstances, it is incorrect to characterize the average monthly salary in the country as an indicator of the population's income level. As in other countries, the median salary should be evaluated as an indicator of social welfare and income levels.

Result 4: Exports of Oil and Oil Products Decreased by 22%

In 2023, Azerbaijan's foreign trade turnover amounted to $51 billion. Of this, $34 billion was accounted for by exports, while $17 billion was imports, resulting in a positive trade balance of $16.6 billion.

According to the report "Customs Statistics of Foreign Trade" by the State Customs Committee of Azerbaijan [6], the country's foreign trade turnover in 2024 amounted to $47.6 billion, of which $26.5 billion was exports and $21.1 billion was imports. The private sector accounted for 52% of exports, while the state sector accounted for 48%. This fact demonstrates that the share of the private sector in exports is not at a desirable level, as is the case with other macroeconomic indicators.

Although 81% of GDP in the country is attributed to the private sector and 19% to the state sector, the private sector can only export one-fourth as much as the state sector.

Another aspect of foreign trade policy concerns the share of oil and oil products in exports. According to the SSC data [7], in 2024, Azerbaijan exported $26.5 billion worth of goods to foreign countries, of which $23.2 billion, or 87.4%, came from the oil and gas sector.

It is evident that compared to 2023, foreign trade turnover in 2024 decreased by $3.4 billion, while exports declined by $7.5 billion. This represents a 22% reduction in exports compared to 2023.

The decline in our export volume is tied to the fact that oil and oil products are the leading sectors and dominate exports. The significant share of this sector in exports, combined with the reduction in production and corresponding exports, has resulted in an overall decline in total exports. If non-oil exports had been developed, they could have compensated for the gap created by the decline in energy exports. Looking at the share of the oil and gas sector in Azerbaijan's total exports over the past 10 years, the situation becomes clear:

My calculations show that over the past 10 years (2015–2024), the average share of oil and oil products in exports has been 89.2%. If $89 out of every $100 in exports comes from oil and oil products, it becomes clear that non-oil exports have changed only symbolically in the last decade.

There has been virtually no significant change in non-oil exports. For example, last year, non-oil exports saw a modest increase of just 0.3%. According to the "Export Review" by the Center for Analysis of Economic Reforms and Communication [8], Azerbaijan’s non-oil and gas exports grew by 0.3% compared to the corresponding period in 2023, reaching $3.4 billion. This indicates that declines in oil exports and stagnation in non-oil exports have not contributed to the expansion of overall exports.

Some time ago, the dominance of resources in the economy was metaphorically described as follows:
"You look at the garden called the economy. You don’t see a single fruit-bearing tree (non-oil products). All you see are drooping willows and towering spruces reaching for the sky. Is this what a garden and a gardener should look like?"

Result 5: We Should Have Prepared for the Post-Oil Era Long Ago

Let’s address the third part of the question posed in the title of this article. In addition to "the children of oil," the "adults of oil" will likely configure things in such a way that, in the end, "the small players" will inevitably lose. This is because a global trend has emerged to consign the era of expensive oil to history. In this "oil game," smaller nations will face the pressing question: "What should we do?"

Thus, the ultimate question arises: what awaits us?

In the near future, especially starting from this summer, the Azerbaijani economy must be prepared for a decline in oil prices. During his second presidential term, Trump openly declared that he would do everything in his power to bring down oil prices. Trump supports the development of the ICT sector and the green economy. In his speeches, he outlined plans for the era of expensive oil to become a thing of the past. Despite the fact that the U.S. is one of the world’s most expensive oil producers (with daily production of 13.4 million barrels, 3.5 million of which are exported), it seeks to take oil as a "shield" out of the hands of resource-dependent countries.

Like all resource-rich countries, Azerbaijan will sooner or later need to adapt to life without relying on natural resources.

In this context, a thought-provoking observation by philosopher Bertrand Russell resonates:
"The whole world is enveloped in the smell of oil. But I say the fear of a future without oil has already put our future in jeopardy. If a society's fear is tied to the smell of oil, that society is doomed."

(Part I)

Sources:
[5] https://stat.gov.az/news/source/doklad_2024-12.pdf?fbclid=IwY2xjawH6AQhleHRuA2FlbQIxMAABHT0x-wFFIuxBID7mTHLg_KEbP6Gy817iaP6K-7mfSxgEnrpbBo71LgRC-Q_aem_0F178MlX_DmbaJcdIpCwlw
[6] https://customs.gov.az/uploads/foreign/2024/2024_12.pdf?v=1737520142
[7] https://stat.gov.az/news/source/doklad_2024-12.pdf?fbclid=IwY2xjawH6AQhleHRuA2FlbQIxMAABHT0x-wFFIuxBID7mTHLg_KEbP6Gy817iaP6K-7mfSxgEnrpbBo71LgRC-Q_aem_0F178MlX_DmbaJcdIpCwlw
[8] https://ereforms.gov.az/az/media/xeberler/ixrac-icmalinin-yanvar-ayi-ucun-ilkin-reqemleri-aciqlanib-1278