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Rubber Duck 24th January 2008 06:01 PM

Azerbaijan Economy: Wealth is being deployed to cut dependence on oil
An old man with a bucket of pomegranates lingers outside one of Baku’s luxury clothing shops attracting no interest. Inside, elegant Azerbaijanis shop for luxurious European attire.

A wave of money is hitting the country, as oil production climbs at Azeri field in the Caspian Sea. Gross domestic product grew 26 per cent last year, the fastest rate in the world. But most of the non-oil economy, neglected since the collapse of the Soviet Union in 1991, is isolated and outmoded.

The challenge, says Shamar Movsumov, the executive director of the State Oil Fund of Azerbaijan (Sofaz), is to spend the oil windfall wisely and restructure the economy to ensure that: “Azerbaijan is better not worse off when the oil boom ends.”

Money will be no object. “We are going to have so much money that, even if we wanted to, we could not spend it. It would not be physically possible,” he says.

Azerbaijan’s foreign exchange reserves have risen fivefold since the BP-operated Azeri oilfield came onstream in 2005 and are expected to reach $6.5bn this year. The foreign debt burden is low at 7.7 per cent of GDP.

Windfall oil profits, stored in Sofaz to guard against inflation, already total $2.5bn and will triple within five years as production climbs at Azeri and the new Shah Deniz oil and condensates development.

Elman Rustamov, the chairman of the central bank, characterises World Bank estimates that $200bn will accumulate in the fund by 2025 as “conservative”.

“We have an historic opportunity”, he says. “My view is that we should develop quickly. We have lost a lot of time”.

Time is not on Azerbaijan’s side. The country was slower than some of its neighbours in starting market reforms. Oil production at Azeri will peak in the next few years and, unless a big field is discovered, oil revenues will fall after 2020.

Sabit Bagirov, president of the Far Centre, an economic think-tank, says: “We are not like Saudi Arabia or Kuwait or Russia. We must use the money to create the foundations of a competitive, non-oil economy and citizens who can compete internationally. Then we will have a good future”.

Non-oil sectors of the economy are expanding by about 9 per cent a year, but the growth, focused in Baku, is mainly in construction and services, sectors fed directly by the oil boom. Banks are growing amid strong demand for consumer loans. But the sector is still small, with total assets of $5.2bn.

Industries that thrived during the Soviet era, such as agriculture and oilfield equipment manufacturing, have contracted since independence.

The government says services, food processing, tourism and IT are targets for diversification. Plans are under way to revive the petrochemicals industry round Sumqayit, the third biggest town....

davnin 24th January 2008 07:31 PM

Re: Azerbaijan Economy: Wealth is being deployed to cut dependence on oil
Go Azerbaiyán, Go!

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