Introduction

View of Baku (Photo: Igor Timchenko)

Azerbaijan gained independence from the Soviet Union in 1991, and is ruled by a presidential system. With an estimated population of 9.6 million in 2015, it is divided into 66 regions, 13 urban districts and the Nakhchivan Autonomous Republic. It is rich in natural resources, most notably oil and natural gas.

Located at the crossroads of civilizations, Azerbaijan has always been a significant stop on the highway of international trade and dialogue. These frequent interactions with members of the international community have endowed the nation with a uniquely rich cultural heritage and atmosphere of tolerance. During the periods of conquest and turmoil that have characterized the border between Europe and Asia since antiquity, Azerbaijan became noted for its multiculturalism and preservation of ethnic traditions, a history, which is celebrated to this day.

History

Paradise of fruits (Photo: Hande Apaydin)

On 28 May 1918, the Democratic Republic of Azerbaijan became the first modern, secular Muslim democratic state in the world. In the same year, Azerbaijan became the first Muslim state to accept woman’s suffrage as a right. In a time of global instability, the Democratic Republic of Azerbaijan was a modern, progressive state with vast potential for growth and development. This period of openness and freedom was short-lived, however, as Azerbaijan and its neighbors were quickly incorporated into the Soviet Union.

Azerbaijan's economy underwent a significant transformation during the Soviet period. Policies implement during that period launched high-speed industrialization in the republic. During World War II, Azerbaijan also proved to be crucial to the Soviet war effort. Some estimates put Azerbaijan's wartime oil production at as high as 70 percent of the USSR's total. The wartime economy would define the development of Azerbaijan's economy for the entire post-war period. There was large-scale food and textile industry, as well as metallurgical and petrochemical industry. In the post-war period, agriculture remained in a prominent position in the republic's economy. Nevertheless, throughout the whole Soviet era Azerbaijan lagged behind other republics in investment levels and living standards and remained one of the least urbanized republics of the USSR.

After Azerbaijan gained independence from the Soviet Union in 1991, the country suffered a severe post-independence crisis, exacerbated by the still unresolved Nagorno-Karabakh conflict, which displaced a huge number of people (one-tenth of the country’s population are IDPs or refugees) and left a portion of the territory occupied. A new Constitution was adopted in 1995; free market relations were initiated and advantageous conditions were created to attract foreign capital investment. A broad oil exploitation strategy, including the Contract of the Century (1994), was prepared and implemented. The revenues, which this created, enabled the government to invest in new educational, scientific and cultural projects. In 2006, the country’s GDP increased by a staggering 34.5 percent. This has resulted in a building boom across the country, particularly in Baku, the capital. Thus, the crisis eventually gave way to consistent high growth, largely propelled by the exploitation of the oil and natural gas reserves.

Present-day Azerbaijan is a key country in the East–West energy corridor. The Baku- Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi- Erzurum gas pipeline deliver Azerbaijani hydrocarbon resources to Europe. They connect the rich resources of the Caspian basin with the world energy markets. Azerbaijan is also poised to be a major contributor to the network of pipelines comprising the proposed Southern Corridor, which will ensure secure energy transit from Central Asia to Europe for many decades to come.

Challenges

Oil fields (Photo: David Fielke)

A key challenge in front of Azerbaijan is to become a full-fledged Upper Middle Income (UMI) country, leaving behind its high dependence on hydrocarbon exports and shifting production towards higher value added manufacturing that reflect improved efficiency and skills in the economy. The narrow base for economic growth also means that there has been limited effect so far on improving decent employment. While hydrocarbon exports comprise above 90% of total exports, it engages only 7% of the employed citizens. Hence, creation of productive jobs should be a central dimension of Azerbaijan’s development strategy.  

A fundamental requirement on the path to a more efficient economy is the availability of a highly skilled workforce. While Azerbaijan has a satisfactory primary school completion rate, at the university level it has fallen behind the UMI and OECD averages.  

Another critical challenge Azerbaijan faces is improvement in the health sector, paying particular attention to infant and child mortality, as well as allocation of higher amounts to health from the state budget.

The rapid economic development has left Azerbaijan facing a significant number of environmental challenges, such as severe air pollution due to emissions from industrial plants, the contamination of the Caspian Sea (water pollution), soil degradation (erosion, desertification), improper solid waste management, decline in biological diversity, forest reserves and fauna, especially fish reserves. The implementation of the environmental policy is necessary to protect the natural resources and ensure that economic development accounts for the environmental consequences.  

Last but not least, institutional reforms and capacity development of organizations and individuals should be continued to ensure long term improvements in various aspects of public administration, with an emphasis on quality of service delivery.

Successes

Investing in human capital

In the 20 years of independence Azerbaijan has achieved a great deal. The high levels of economic growth in recent years led to considerable improvements in the many key socio- economic indicators. Per capita income reached $7,600 (2014), thus making Azerbaijan an Upper Middle Income country. On 2014 HDI listing Azerbaijan ranks 78 th (it ranked 101st in 2005), putting the country in “the high human development” category.

The strong economic growth allowed major investments in infrastructure, and a steep decline in poverty rates from 46.7 percent in 2002 to 5 percent in 2014.  

The country has already met many of the MDGs, including halving extreme poverty and hunger (reached in 2008), achieving universal primary education (attained in 2008), eliminating gender disparities in primary and secondary education and reducing the spread of tuberculosis. Some indicators, e.g. maternal health and child nutrition, while improving, still require continued attention as they remain below the average for the upper-middle- income countries.

In January 2012 the country started its stint as a non-permanent member of the UN Security Council, the first among the former Soviet Republics (new members) to achieve this honor.

Azerbaijan has now moved on to a new development framework, the 2030 Agenda for Sustainable Development, to implement the 17 global goals, embracing the three dimensions of sustainability: economic, social and environmental.