Azeri Economy Suffering Inflation Options

[Hosank]

AZG

BOOM AND GLOOM - AZERBAIJAN'S ECONOMY, DRUNK ON OIL, IS SUFFERING RAPID INFLATION

Azerbaijan is the world’s fastest growing economy, thanks to an oil boom, but it is already running into serious difficulty. A huge expansion in budgetary spending has pushed inflation close to double digits - in month-on-month terms - and there are early but ominous signs that the non-oil economy is losing competitiveness. The economy is already showing signs of Dutch Disease - and the maintenance of artificial monopolies throughout the economy will serve to exacerbate the problem.

Azerbaijan is in the midst of a dizzying period of economic expansion. Real GDP grew by 26.4% in 2005 and 34.5% in 2006, and is forecast to grow by around 21% this year. The main driver of this is the oil sector. The BP-led Azerbaijan International Operating Company (AIOC) has been steadily ramping up production from the Azeri-Chirag-Guneshli offshore complex and has now completed the Baku-Tbilisi-Ceyhan oil pipeline, which lays the foundations for yet higher output. Oil output grew by 41% in 2005 and 45% in 2006, and is set for a similar performance this year.

The oil boom has fuelled other sectors of the economy. The non-oil sector grew by 11% in 2006, propelled mainly by services. Baku, the capital, is in the midst of a construction boom that is impressive even by the standards of the transition region. Yet already distress signals are apparent. In 2006 the government increased budgetary spending by an astonishing 80%; a further 50% increase is anticipated this year. At the start of 2007, the impact of the huge fiscal stimulus began to tell on inflation. In annual average terms, inflation was 8.3% in 2006 and ended the year at 11.4% year on year. Doubt about the official number has spawned a number of alternative indices, some of which suggest the 2006 inflation rate could have been as high as 20% Even on the official measure, inflation is now surging. In January, the rate was 16.8% year on year and 6.4% month on month. Again, some private-sector conomists grumble that the real rate is higher still. According to one

USAID-funded NGO, January inflation was 14.3% month on month, which is more than double the official figure. Given that the government raised a host of regulated prices on January 8th—electricity tariffs trebled, water charges more than doubled, gasoline prices rose 50% and public transport costs increased by 30% - the unofficial estimate seems perhaps more credible than the official one.


Oil’s curse



One of the dangers for Azerbaijan of rampant inflation is that it will put pressure on the real effective exchange rate and thus undermine the competitiveness of the non-oil economy. In any case, the influx of petrodollars has in the past two years forced the strengthening of the manat in nominal terms against the dollar. In 2005 it appreciated by 8% against the dollar, and by a further 5% in 2006. According to the head of the central bank, Elman Rustamov, the 2006 figure would have been significantly higher but for central bank currency interventions to the tune of US$1bn.

Ostensibly, the growth of the non-oil economy in 2006 suggests there is as yet little to worry about with regard to competitiveness. Yet that growth rate is primarily due to the success of non-tradeables such as construction, which are barely affected by exchange rate appreciation. Azerbaijan’s tradeables by contrast, are already showing signs of strain. Agricultural output last year grew by just 1% and output of staples such as cotton, rice and potatoes actually contracted. In Baku’s markets, local fruit is beginning to lose ground to Latin American competition; considering the cost of transport, this is a very worrying development. Agriculture is on some measures the most important part of the non-oil economy, as it is the largest source of non-oil exports. In addition to exchange-rate problems, agriculture is suffering from an outflow of labour, as the construction boom sucks labour from the countryside into Baku and other urban centres

Elsewhere in the economy, there are clear signs of strain. In 2006, for instance, tax receipts from the non-oil sector actually fell in year-on-year terms - this despite a national headline growth rate of over 30%. Agriculture is not the only sector that is losing ground in the home market to importers. Also, now that power prices in Azerbaijan are sharply rising, following Russia’s decision to hike gas prices for its CIS customers, it will be interesting to see how the energy-intensive metals sector, and particularly the country’s aluminium enterprise, performs. Metals are the second largest source of non-oil related exports after agriculture, with 2.3% of total exports.


Wasting away



Although Azerbaijan is at an early stage of its oil boom, the signs of Dutch Disease—in essence, a loss of competitiveness in the non-oil economy prompted by exchange-rate appreciation and other factors—are particularly ominous. At this point, it is possible that Azerbaijan will make the transition from a sizeable agricultural exporter to a major importer in less than the 15 years it took fellow Dutch Disease sufferer Nigeria.

In Azerbaijan’s case, several factors conspire to deepen and accelerate the problems associated with Dutch Disease. First, its oil boom will be relatively short-lived on current forecasts: oil production will begin to decline in 2012. At least while oil receipts are gushing into the state budget, Azerbaijan will be able to throw money at some of the most obvious symptoms, as it is currently by hiking wages and offering to subsidise fuel purchases for farmers.

Second, the country’s physical and financial infrastructure is underdeveloped and/or dilapidated, and this puts the non-oil economy at a huge disadvantage. The banking sector, for instance, scarcely exists beyond the major cities; this makes life harder for the country’s farmers as they seek to modernise and expand. Electricity and water supplies outside the cities are also unreliable, and the road network is underdeveloped and in a very poor state repair. The government’s fiscal boom will alleviate some of these issues, particularly with regard to the physical infrastructure, although this will not improve utilities and the financial sector.

Third, the country’s business environment is hazardous and getting worse and this makes life close to impossible for the private sector. The headline problems include: rampant corruption on the part of state officials, particularly in the tax and customs departments, as evidenced by Azerbaijan’s very poor rating in Transparency International’s Corruption Perceptions Index; a court. system that is open to abuse, delivers verdicts at odds with the country’s legal code and is often ignored by the authorities it relies upon for enforcement; the maintenance of a number of artificial monopolies in the country, including the import of basic commodities such as bananas, run for the benefit of well-connected individuals; and a high level of interference in the economy by government figures.


A self-serving elite



This last problem is probably the most threatening, as in its scale it is excessive even by the standards of countries such as Russia, Ukraine and Kazakhstan, as well as neighbouring Georgia and Armenia. Within the last two years, a number of major enterprises have been subject to Yukos-style assaults by the authorities. Downstream oil company Azpetrol, which was widely considered to be the best-run company in the country, was taken over around the time of the 2005 parliamentary election and its major shareholders were jailed. Barmek, the Turkish-run power company, was forced out soon after. These are merely the highest-profile examples of a declining business environment. Although not reported in the international media, since the second half of 2006 a stream of Azerbaijani entrepreneurs have migrated to Georgia and Kazakhstan, because they find the business climate more attractive.

The phenomenon of well-connected Azerbaijanis muscling in on successful businesses has got noticeably worse since Ilham Aliyev succeeded his father, Heydar, as president in 2003. At the time, Western states hoped that Ilham would prove to be a modernising and liberalising force in the country. Instead,perhaps because he has been unable to fully control some senior members of the government, the country’s political elite has encroached further into the private sector. This magnifies the corrosive effects of Dutch Disease, and at present it is more a matter of hope than expectation that the private sector will be allowed sufficient space to develop. And has taken some sensible preventative steps. A large part of the oil revenues are directed to a stabilisation fund, and institutions are in place to support the development of the non-oil economy. Yet the best chance for Azerbaijan to avoid the worst effects of Dutch Disease rests on Mr Aliyev implementing measures that he is politically unwilling or unable to take—namely to break up the artificial monopolies, rein in budgetary spending, curb the business empire-building of his inner circle, and promote anti-corruption and the rule of law.

[HayArsen]

What is the point of having oil if the people who control are bunch of retards who dont know how to use it

[Hosank]

the point is being azeri...

watch how their only gift..oil..will be their demise..

one thing the article said is that oil exports from azerbaijan will go down by 2012...then their economy will disintegrate

[prot9999]

Hosank, another fake news from you. Are you sure Azerbaijan will be 2012? First Azerbaijan have large oil sources and newx year will be start exporting this oil at Baku - Tifhlis - Ceyhan pipeline. Also Azerbaijan will be sell oil to Europa, Israel with Turkey.

Please look at below trust page (CIA USA) about reals, pink dreams are good for yours but only for yours

https://www.cia.gov/cia/publications/factbook/geos/aj.html

and armenian

https://www.cia.gov/cia/publications/factbook/geos/am.html

What i see armenia has no development, has no natural richs, has not industry! WAW!!! Did you know this? Oh yes yours living in Canada like rich countries, who are armenia...

Regards,

[Hosank]

ladies and gentlemen, that was the word of the day by world renown turkish economist, Prot66666666666666666666666666666666666

newx year will be start exporting this oil at Baku - Tifhlis - Ceyhan pipeline. Also Azerbaijan will be sell oil to Europa, Israel with Turkey.

yes, if you properly read the article, you would notice that i do not debate that, because it is fact. what the article says is that azeri export of oil is cannibalising all other azeri business. and that azeri exports of oil will not last forever THEY WILL BEGIN TO DECLINE in 2012

What i see icon_eek.gif armenia has no development, has no natural richs, has not industry! WAW!!! Did you know this? Oh yes yours living in Canada like rich countries, who are armenia...

armenia has no oil, but they have gold and other resources. infact, A CANADIAN company is extracting it so far.
but that matters not, see, as an economic principle, countries that base their economy of the exploitation of one natural resource are bound to fail eventually.

dubai has no resources, and yet look at it. what armenia has is a skilled workforce 'human resource'
look, prot, when you learn a thing or two about business and economics, come argue with me

[HayArsen]

Armenia has the most important resource of all; intellectual capital. Many companies have started outsourcing jobs to Armenia. And Armenian diaspora always supports and will always suppor Armenians financially and morally. There are many jobs available in Armenia right now; especially in construction, because of the recent tourism boom.

[Hosank]

yes,
infact several french firms, trying to escape french business laws and protectionist policies have moved their headquarters to yerevan

[davit]

Hosank, another fake news from you. Are you sure Azerbaijan will be 2012? First Azerbaijan have large oil sources and newx year will be start exporting this oil at Baku - Tifhlis - Ceyhan pipeline. Also Azerbaijan will be sell oil to Europa, Israel with Turkey.

Please look at below trust page (CIA USA) about reals, pink dreams are good for yours but only for yours

https://www.cia.gov/cia/publications/factbook/geos/aj.html

and armenian

https://www.cia.gov/cia/publications/factbook/geos/am.html

What i see armenia has no development, has no natural richs, has not industry! WAW!!! Did you know this? Oh yes yours living in Canada like rich countries, who are armenia...

Regards,

UM YEA ...UM I DIDNT UNDERSTAND.NOW ILL ASK YOU WHERE IS SOURCE WHERE IS SORCE?? WAW DID YOU KNOW THIS YOURS LEAVING TURKEY BECAUSE KURDI IS KILL AND YOU GIVE PINK LIES ABOUT IS ARMENIA AND HOSANK GIVE ARE IS US REAL FACTS.

TURAN COMING ...

[Mordoth]

Who does not suffer from inflation so ?

[irlandahay]

Who does not suffer from inflation so ?

honest countrys...those whos governments dont poket all the money while the people are starving in the streets.

[veritas]

honest countrys...those whos governments dont poket all the money while the people are starving in the streets.

touche.

[Hosank]

a normal inflation is at great maximum...2%
azeri inflation is going into hyper inflation...

somehow, their neighbours, the armenians, manage to hold theirs in line..and we don't have oil..anyways, i think if you want to have a war with us, you should start now, while you can affort one

[Mordoth]

Inflation is more than 10 % in Turkiye , that is a great problem for the Turkish public , nothing more than an extra-load of Garbages of Politicians .

[irlandahay]

Inflation is more than 10 % in Turkiye , that is a great problem for the Turkish public , nothing more than an extra-load of Garbages of Politicians .

well ya but, there is no honest politician...

its the peoples job to make sure that they dont get anymore corrupt tho

[Hosank]

so ya, obviously azeri inflation seems normal to you since you have a 10% inflation yourselves...

but it is not normal

[Mordoth]

Turkish inflation is so-called 10 % .
In my opinion , it is nothing more than a JDP trick .

For example ; Price of Nutrients increased by 40 % from 2002 to 2007
But price of the rest ( redundants - balsams ...etc ) decreased by 50 % . That 's why inflation seems to be decreased . ( Nothing more than balancing the tires )

It should be more than 20 % .

A person could have one unique property of his/her own among three of them ;
- Honest
- Couregous
- Politician

[Hosank]

mordoth..

no offence to you, but i think you know very little about economics am i right?

[davit]

Inflation is more than 10 % in Turkiye , that is a great problem for the Turkish public , nothing more than an extra-load of Garbages of Politicians .

90% -garbage

10% -normal intelegent people.




turan coming.....

[Hosank]

realistically, you are right davit

[HayArsen]

Lol each time some turkic nation buys a pack of gum from the turks, this idiots think its turan

[davit]

Lol each time some turkic nation buys a pack of gum from the turks, this idiots think its turan

what the hell is turan anyways?

[Hosank]

the turkish racist dream that all people with turkish blood will unite into one great superpower of turkestan

[HayArsen]

what the hell is turan anyways?

Գոմիկների հավաքածու է

lol

[Hosank]

Գոմիկների հավաքածու է

lol

loool

[Glock21]

Unreal.
The amount of bull$hit in these threads is epic.

You should, on both sides, realize the degree to which this mindless banter makes you look like childish morons.

[Hosank]

Unreal.
The amount of bull$hit in these threads is epic.

You should, on both sides, realize the degree to which this mindless banter makes you look like childish morons.

i think that instead of imposing your cosmopolitan values on us, you should read, and see that there is only bullshit on one side. this is not a struggle 'with shades of gray' but simply one of black and white. we armenians have lived in our lands...for ever, and we will do anything to keep it that way, no matter what part of uzbekistan the invader is from. go and read all the comments, or if you are here just to tell us that we are racists and bullsh'iters, we do not need that, and you have no business here. if you want to discuss properly, then be my guest.

[Glock21]

i think that instead of imposing your cosmopolitan values on us, you should read, and see that there is only bullshit on one side. this is not a struggle 'with shades of gray' but simply one of black and white. we armenians have lived in our lands...for ever, and we will do anything to keep it that way, no matter what part of uzbekistan the invader is from. go and read all the comments, or if you are here just to tell us that we are racists and bullsh'iters, we do not need that, and you have no business here. if you want to discuss properly, then be my guest.

First of all, my being here or not is of no concern of yours, and certainly not dependent on anything you might say.

You are joking if you think any issue of world political contention is black and white, particulary on lying smack dab in the middle of the tumultuous Caucuases. You make yourself look doubly unreasonable by claiming prejudice exists only on the other guys side. Armenians and Azeris, mostly those in the diaspora, are by and large knuckleheadedly overnationalistic.

[Hosank]

First of all, my being here or not is of no concern of yours, and certainly not dependent on anything you might say.

im sure it is no secret that i have no power to kick you off, and that would not be my intention if i did. i am simply intrigued at why you bother to post blunt accusations of racism and bullsh't and so on, in a conflict that 1) does not concern you, 2) you clearly do not understand and lastly that you do not share with us any form of knowledge, other then your ability to write 2 word quotes.

particulary on lying smack dab in the middle of the tumultuous Caucuases

so the geographical location of my homeland justifices incessant invation? occupation? genocide? but it does not justify our claim on our ancestral land?

Armenians and Azeris, mostly those in the diaspora, are by and large knuckleheadedly overnationalistic.

do you know what nationalism is?
do you really see a problem in wanting to see your country, which as quite clearly earned it's place in the world, thrive? or to protect it from foe??

[Glock21]

The amount of ignorance you display with every keystroke is remarkable. Bravo, champ.

You have no idea about whether or not I am uniquely qualified to speak at length or brevity of such matters, and your sweeping generalizations, amounting to nonsense, I might add, do not in the least help your case of positioning yourself as someone who does have something to say.

So, in short, you fail to both impress and persuade.

[Hosank]

The amount of ignorance you display with every keystroke is remarkable. Bravo, champ

obviously i am ignorant, but instead of grotesquely attacking my ignorance, why don't you prove me wrong? why don't you explain to me that your view is right? why don't you teach me about my people...

I am uniquely qualified to speak at length or brevity of such matters

then please show me that you are capable, instead of extending the doubt over the matter.

your sweeping generalizations,

i cannot help but laugh at this accusation, for it seems to me, that this is exactly what you have been doing for the past couple posts.

I might add, do not in the least help your case of positioning yourself as someone who does have something to say.

i do not need to pointlessly argue with you to do so, all you have to do is look back at my last 800 posts, and maybe you would deduct that i do have something to say on the matter.

you keep trying to counter my sayings that you don't contribute, yet surprisingly, till now, you have STILL not contributed to the topic at hand "azeri economy suffering Inflation" if you are in a postiion to argue at length on the topic as you claim, then please sir, i do hope you do, so then we can argue on something useful.

[Glock21]

You are right, I haven't posted specific to the topic. I entered in to firstly counter the rampant racism and nationalism existing in this subforum.

And yes, the economy is suffering near hyperinflation largely due to market conditions of the going price for oil nowadays.

The National Bank of Azerbaijan recently raised its bank rate to combat this - the jury is still out as to its effectiveness. But trying to overinflate this into "the sky is falling" crash of the Azeri economy - I don't think so, nor does any economist worth his weight.

[Hosank]

You are right

you are the better man.

I entered in to firstly counter the rampant racism and nationalism existing in this subforum.

how has that been working for you?

But trying to overinflate this into "the sky is falling" crash of the Azeri economy

yes, that is true, but accumulated to a large nomber of other economic and political problems in azerbaijan...
especially since it has been found that there was less oil in the capsian sea then expected...seeing as the entire economy of azerbaijan is based on oil, and agriculture. what would happen when the oil runs out? major depression.

[Glock21]

Azerbaijan has enough economic and political issues and downright crisis-level problems that one wonders how it stays afloat at all. I can list first-hand experiences of the depth and breadth of corruption that will prevent Azerbaijan from ever taking advantage of its wealth.

Estimates of crude volume in the Caspian have fallen over the past few years, but even so, projected volumes as the now stand are far more than enough to vastly enrich Azerbaijan. It lies with the development of the political environment and economic diversification as to whether this enrichment will translate into something more than funding the oligarchs and Nakhchivanian political hacks.

[Hosank]

well. oil can't buy happiness, but it can buy aliev.

the reality is that azerbaijan has failed to modernise any other sector of it's economy besides the ones related to the export of oil. you must understand that in world business, speculation is crucial to economic development. just the fact that it has been announced that there is much less oil in azerbaijan then predicted produces a huge economic backlash, as businesses refuse to invest in azerbaijan. azerbaijan being a country at war makes it even worse.

anyways, it's hard for any country to develop when a large sum of the produce, from a nation's only export market, and viable production goes into it's leader's pocket.

not saying that armenia is not corrupt either, but not to that level, and we don't have oil.

are you azeri?

[Glock21]

Corruption is extremely pervasive in Azerbaijan, affecting nearly every sector of society that I can think of. It is the main road block to prosperity. Trickle down is not occuring - everybody knows this, and people are quite bitter about it. Aliyev's pockets keep getting fatter, while the average family has to worry about basic needs.

And no, I am not Azeri.

[Hosank]

then what are you?, if i may ask..

[Glock21]

then what are you?, if i may ask..

you may,

I am American.

[Hosank]

yes well, i am canadian..by cizienship, and birth, and so on, but the multicultural communist propaganda they teach us in school forces us to have an ulterior identity, so with that in mind, let me ask of what origin you are?

[Glock21]

yes well, i am canadian..by cizienship, and birth, and so on, but the multicultural communist propaganda they teach us in school forces us to have an ulterior identity, so with that in mind, let me ask of what origin you are?

American by nationality, Irish by ethnicity.

[Hosank]

eh me too...well appart from armenian..