According to the State Statistics Committee, in the first quarter of this year the country produced GDP worth around AZN 30.311 billion manats, which is only 0.4 percent more than last year. This index decreased by 3.9 percent in the oil and gas sector and increased by 4.9 percent in the non-oil and gas sector. As for GDP per capita in the country, it remains unchanged at 2,991 AZN. Industry accounts for less than 47.5 percent of GDP production.
This is the fact on which we would like to focus the readers’ attention. The nominal industrial production in Azerbaijan for the first quarter was AZN 18.6 billion, and real decline of industrial production in comparison with January-March 2022 was 3.2 percent. Meanwhile, a year ago the nominal industrial production amounted to AZN 42.164 billion with a real annual growth of 2.1 percent.
Thus, a quite noticeable decline is being observed in the main area of the national economy: industrial production. The emerging trend does not bode well for Azerbaijan, with its underdeveloped science, innovation, technology and other domains. All the more so since 72 percent of the output in our country comes from the extractive industry and only 22.6 percent from the processing industry. The main decline happened in the chemical production (-11.2 percent), metallurgical production (-44.2 percent), as well as in the installation and repair of machinery and equipment (-46.1 percent).
But this is only one of the factors of the current negative trend in Azerbaijan’s economy: there is also the foreign trade turnover, where we have causes for serious concern as well.
At first glance, everything seems to be fine here. For example, in the first quarter, the country’s foreign trade turnover grew by 7.91 percent to $11.771 billion, compared to $10.908 billion a year ago.
However, the structure of foreign trade turnover is out of its usual balance, when exports significantly exceed imports. The share of Azerbaijan’s exports in the first quarter of this year amounted to $7.741 billion, which is 3 percent (that is, $239.598 million) less than in the same period last year. As for the share of exports in the country’s overall foreign trade turnover, it now stands at 65.77 percent against 73.17 percent in the previous year. And while the share of the oil and gas sector in exports, amounting to 88.22 percent, is not surprising, the decrease of the positive balance in foreign trade ties cannot but cause concern.
Imports during the same period rose by 37.67 percent (+$1,102) year on year, from $2.927 billion to about $4.029 billion. The share of imports in foreign trade turnover was 34.23 percent compared to 26.83 percent in the previous year. As a result, the foreign trade balance remains positive, but it decreased by 26.56 percent, from $5.053 to $3.711 billion. That is, on a year on year basis, Azerbaijan lost $1.342 billion in foreign trade in the first quarter. If this negative trend continues, the figures may increase by the end of the year. At the same time, the volume and value of Azerbaijan’s main export products increased significantly over the past quarter.
It is important to clarify here that from January to March 2023, 6.809 million tons of oil was exported, an increase of 15.7 percent over compared with the same period last year. In monetary terms, the value of exported oil increased even more, by 16.1 percent, exceeding $4.272 billion. During the same period, according to Minister of Energy Parviz Shahbazov, exports of another commodity gaining export importance—natural gas—also increased by 11.2 percent.
All this begs the following conclusion. If the decline in the country’s industry can be explained by a number of factors, including the consistently high costs of raw materials, services and logistics, the decline in the foreign trade balance has only one explanation: the growing government spending.
The deteriorating geopolitical and regional situation understandably requires significantly more defense spending, with billions of dollars poured into the rehabilitation of the territories liberated from occupation and the relocation of former inhabitants to these areas.
Nevertheless, spending must be commensurate with revenues. It is already obvious that by the results of the first quarter, the country’s balance of payments will be close to zero, if not negative. And this situation is a very rare phenomenon for Azerbaijan, observed only in exceptional cases.
And what if oil prices drop, a situation that cannot be ruled out? What would happen to the country’s economy then?
Translated from Haqqin.az