GOOD TIMES AHEAD

Azerbaijan 2016 | DIPLOMACY | YEAR IN REVIEW

In a year dominated by the overarching theme of low hydrocarbons prices, Azerbaijan showed resilience and verve in putting in place bold measures both to counter the slump in energy prices and put its economy on a surer footing.

Despite some glum headlines, 2015 saw the country build a strong foundation across multiple sectors, with ICT taking a firm second place to oil and gas, which was the second-largest recipient of FDI, and contributing 6% to the country's GDP. In an era of uncertainty, all eyes were on the economy and the decisions of the Central Bank, which raised interest rates for the first time in five years. The move, which raised the base rate to 5%, helped stimulate domestic investment and shore up the manat in the wake of successive devaluations. The Bank also put in place some capital controls, which included a 20% levy on transfers abroad. The policy appears to be bearing fruit, with investment in the Baku Stock Exchange (BSE) recovering once more, up in February by 8.3% MoM. And Moody's and Fitch both retained their BBB “stable” rating for the country's banking sector.

As ever, though, the main headlines are with the energy sector and its core hydrocarbons industries, where oil production is set to remain steady across 2015-16 at 0.87 million bpd. In September 2015, the State Oil Company of Azerbaijan (SOCAR) announced a major upgrade of its Heydar Aliyev refinery ahead of the much-anticipated Southern Corridor 2020, a year which also marks the culmination of the all-encompassing Azerbaijan 2020 development strategy.

Agriculture, which enjoyed a year in the limelight in 2015 as the official sector for promotion, is undergoing a quiet revolution. A big push to develop market gardening (or glasshouse production) is seeing fruit and vegetables grown year-round—a lucrative export-builder and an effective solution to the stubborn problem of soaring market prices of fresh produce in years past. In 2015, glasshouses with a production capacity for 2,300 tons of fruit and vegetables were built in Baku alone.

In the wider industrial sector, an innovative movement is underway that utilizes the country's expertise in hydrocarbons to develop in other fields, including those of high technology and research, with SMEs playing a particularly important role in both areas. Nonetheless, the processes surrounding oil extraction and production still accounted for 75% of industrial output in 2015 and oil machinery and equipment 25% of all manufacturing.

The government's National Strategy for Information Society Development (NSISD) runs from 2014 to 2020 and puts ICT and the development of a knowledge-based information society, with ready access to high-speed internet and e-services, at the heart of Azerbaijan's vision for 2020. Better access for rural areas has been a central plank of 2015's activity in the field. All schools and educational establishments across the country will be given full, high-speed access to the internet, it was announced. There will be 1,000 “electronic schools” to allow remote access to education and e-learning.

The finishing line came into sight for the Baku-Tblisi-Kars (BTK) railway, seen as a vital transportation link for the country, which is now due for completion in 2017. The BTK link is the final piece in a vast trans-continent rail network jigsaw that will see train freight times reduced to just 15 days on a journey stretching from Seoul to Istanbul, via Baku. The BTK has an ultimate target to transport over 17 million tons of international freight per year and is forecast to carry an initial 6.5 million tons per annum initially. A huge road-building and repair program, with a particular emphasis on highway links to neighboring countries, reinforced the country's commitment to international trade, as does an aggressive program to develop Azerbaijan Airline's (AZAL) fleet of long-haul carriers. New daily Boeing-747 services to New York, London, and Beijing gave the country additional exposure in 2015 and are building on the success of recent international events such as Baku 2015, as well as 2016's hosting of the country's first ever Formula One race.

In other areas, 2015 saw a quadrupling of government health expenditure per capita since 2005, with funding having increased from $121 in 2005 to $462 in 2015. The total healthcare budget for 2015 was AZN1.71 billion. In tourism, with visitors numbers up YoY to 2.1 million in 2015, it was announced that Azerbaijan ranks 16th in the world for the growth potential of its travel and tourism industry—a strong indication, if ever one were needed, of the country's bright prospects.