However, the last two decades, from 2003 to 2024, have truly been an era of national rise, during which the country achieved significant success, particularly in the economic sphere. This period can safely be called a time of prosperity when Azerbaijan managed to strengthen its position on the world stage.
After gaining state independence in 1991, Azerbaijan faced the necessity of building its economy and determining the course of independent foreign and domestic policies. The first years of independence were marred by political chaos and economic instability, complicating the already difficult situation of the country. However, the fateful return of Heydar Aliyev to power in 1993 became a turning point, laying a solid foundation for future economic growth and development. Under his leadership, a new oil strategy was developed, opening new prospects for the country.
One of the key events of that period was the signing of the “Contract of the Century” with world oil companies in 1994. This strategic step allowed Azerbaijan not only to stabilize its economy but also to bring the country to a qualitatively new level of development.
The Beginning of Economic Transformation
The successful oil strategy became a powerful catalyst for the transformation of Azerbaijan’s economy, contributing to the rapid development of the country on the international stage. Significant steps were taken to ensure the export of Azerbaijani oil to world markets. In 1996, the Baku-Novorossiysk oil pipeline was commissioned, and by 1999, the Baku-Supsa pipeline was operational, opening new opportunities for the export of energy resources. The signing of an agreement on the construction of the main export oil pipeline Baku-Tbilisi-Ceyhan was an important event, allowing the diversification of export routes and strengthening the country’s position in the global oil market.
Another strategic step in the development of the oil industry was the creation of the State Oil Fund of Azerbaijan (SOFAZ) in 1999 by decree of the national leader Heydar Aliyev. This fund became an instrument for the effective management of revenues from oil sales, produced in cooperation with foreign companies, and their rational distribution. SOFAZ’s funds were directed toward the development of priority sectors of the economy and the implementation of socially significant projects, ensuring the country’s stability and long-term well-being.
Azerbaijan’s oil and gas sector, acting as a locomotive, pulled other sectors of the economy along, contributing to the comprehensive development of the country. This led to a period of macroeconomic stability and sustainable economic growth, which began in 2003, opening a new chapter in the history of Azerbaijan’s economic rise.
Economic Diversification Strategy
The main strategic approach to using oil and gas revenues was to maintain macroeconomic stability, diversify the economy, and develop the non-oil sector, as well as invest in “human capital” and reduce poverty levels. An important direction was the implementation of large-scale infrastructure projects, which contributed to the modernization of the country and the creation of favorable conditions for long-term sustainable development.
In 2003, the assets of the State Oil Fund of Azerbaijan (SOFAZ) amounted to 815.6 million US dollars, marking the beginning of financial reserve accumulation. However, over the last 21 years, this figure has increased 71 times, reaching an impressive amount of 58 billion dollars. The fund’s revenues at the end of 2023 amounted to 196.7 billion dollars, confirming successful management and effective use of resources.
SOFAZ became a key source of financing for state expenditures in the long term, ensuring budget stability and supporting important economic initiatives. Over the years, 149.5 billion manats have been transferred from the fund to the state budget, allowing the implementation of numerous socio-economic programs and projects aimed at improving the quality of life of the population and strengthening the country’s economy.
Influx of Foreign Investments
The “oil boom” in Azerbaijan became a powerful magnet for foreign investors, attracting billions of dollars into the country’s economy. The scale of these investments is clearly illustrated by impressive figures. From 2003 to 2022, the total investment in Azerbaijan’s economy reached 310.4 billion US dollars. Of this amount, more than 100.7 billion dollars were foreign direct investments (FDI), reflecting a high level of trust from international companies and investors in the country’s economic prospects.
The economic development of Azerbaijan during this period is also impressive. The country’s Gross Domestic Product (GDP) grew from 7.3 billion US dollars to 78.7 billion US dollars, representing a real growth of 3.6 times. This rapid GDP growth was also reflected in the standard of living: GDP per capita increased from 888.5 US dollars to 7,798 US dollars, demonstrating a significant improvement in the quality of life and economic well-being of citizens.
Development of the Non-Oil and Gas Sector
By attracting oil revenues, Azerbaijan focused its main attention on the formation and development of the non-oil sector, striving to minimize the economy’s dependence on the oil and gas sector in the future. Within this strategy, significant efforts were made to diversify the economy and expand opportunities in various industries. Large-scale infrastructure and energy projects were initiated, new transport corridors were launched, and key areas such as agriculture, industrial production, tourism, public catering, construction, information and communication technologies were actively developed.
These measures yielded tangible results. Between 2003 and 2024, Azerbaijan’s non-oil and gas sector grew from 5.0 billion US dollars to 41.1 billion US dollars, a significant indicator of progress. The agricultural sector demonstrated growth of 2.1 times, the transport sector increased 4.9 times, and the tourism and catering sectors grew by an impressive 18.9 times. The information and communication sphere showed phenomenal growth of 23 times, highlighting the rapid development of technologies and innovations in the country.
Azerbaijan’s foreign exchange reserves also significantly strengthened: from 1.6 billion US dollars in 2003, they grew 43 times, reaching 69 billion US dollars. These accumulations testify to the stability and confidence of the country in its economic future. State budget revenues also increased from 0.9 billion manats to 30.7 billion manats, allowing the country to implement numerous socio-economic projects and maintain a high level of population welfare.
Expansion of Trade Relations
Azerbaijan’s trade relations have significantly expanded and strengthened over the past decades, becoming an important factor in the country’s economic growth. The number of Azerbaijan’s partner countries increased from 55 to 185 by 2022, indicating the growing interest of the international community in cooperating with Azerbaijan. This growth in partnerships directly impacted the volume of foreign trade, which increased from 3.8 billion US dollars to 52.7 billion US dollars. Particularly impressive is the growth in exports, which rose from 2.2 billion US dollars to 38.1 billion US dollars. Thus, in 2022, the volume of Azerbaijan’s foreign trade compared to 2002 increased 13.7 times, including import growth of 8.7 times and export growth of 17.6 times.
This significant growth in foreign trade contributed to an increase in the surplus, which grew from 0.5 billion US dollars to 23.6 billion US dollars. This not only ensures a significant inflow of currency into the country but also strengthens financial stability and economic resilience.
In parallel, the active development of the non-oil and gas industry also positively impacted the country’s export indicators. Over the past 21 years, the volume of production in the non-oil and gas industry increased from 1.6 billion manats to 17.7 billion manats, underscoring the success of economic diversification. As a result, non-oil exports increased 11.8 times, from 0.3 billion US dollars to 3.1 billion US dollars, indicating the growing competitiveness of Azerbaijani products in world markets.
All these achievements contributed to the formation of a strong economy, thanks to which Azerbaijan occupied a leading position, accounting for 64% of the economy of the South Caucasus.
Azerbaijan’s Role as a Transport Hub
Geopolitical processes in the world, including the war between Russia and Ukraine, as well as the liberation of Azerbaijani lands as a result of the Second Karabakh War, opened up new prospects for Azerbaijan to transform into the region’s most important transport hub. Amid current global challenges and changes, the Middle Corridor, passing through Azerbaijan, has become an ideal alternative route for the delivery of goods from China to Europe. This route significantly reduces transportation time, which is especially relevant in the context of an unstable geopolitical situation.
One of the key infrastructure elements supporting the Middle Corridor was the Baku-Tbilisi-Kars (BTK) railway line, constructed with the active participation of Azerbaijan. This railway, commissioned in 2017, plays an important role in increasing the throughput and functionality of the Middle Corridor. Currently, about 6-8 million tons of cargo are transported annually via the BTK railway line. In the future, according to the project, it is planned to increase this volume to 17 million tons or more, which will require further expansion of the railway’s capacity, initiated by Azerbaijan.
The Baku International Sea Trade Port, located in Alat, is also a key element of the Middle Corridor. This port serves as an important link for East-West and North-South routes, ensuring the transportation of goods in various directions. Azerbaijan also has the largest civilian air and sea cargo fleets in the region, significantly strengthening its position as a transport hub on the Caspian Sea.
The volume of transit cargo through Azerbaijan’s territory continues to grow rapidly. In just the first half of this year, 16.4 million tons of cargo were transported through the transport corridors passing through the country. Of this, 7.5 million tons (45.8%) were delivered by rail, 5 million tons (30.5%) by road, and 3.9 million tons (23.7%) by sea. These figures confirm the growing importance of Azerbaijan as a key transport hub in the region, capable of handling increasing volumes of cargo transportation.
Social Development and Poverty Reduction
As a result of consistent social policies implemented in Azerbaijan, the population’s welfare has significantly improved, poverty levels have substantially decreased, and job creation has become an important factor for the country’s sustainable development. Thanks to the successful implementation of a strategic development course, from 2002 to 2022, Azerbaijan joined the group of countries with above-average income levels, indicating significant economic progress.
The annual formation of the state budget was accompanied by particular attention to its socially-oriented character. As a result, from 2003 to 2023, budget expenditures on social needs increased more than 20 times. In 2003, 678.2 million manats were allocated for social expenditures from the state budget, and by 2022, this amount had grown to 11.6 billion manats, reflecting the state’s priorities in ensuring social protection and improving the quality of life for citizens.
During the presidency, there was a significant increase in wages and pensions, contributing to an improvement in the population’s living standards. The average monthly nominal wage increased 13.3 times, from 63.1 manats to 840 manats, while the average monthly nominal pension increased 18 times, from 23.8 manats to 435 manats. The poverty level decreased from 46.7% to 5.5%, one of the key indicators of successful social policy.
Projections by the international credit rating agency “S&P Global Ratings” also confirm positive trends: the unemployment rate in Azerbaijan is expected to decrease to 4.5%, indicating labor market stability and further economic growth prospects.
Regional Development
In 2004, Azerbaijan adopted the State Program for the socio-economic development of regions, which became the starting point for large-scale development of all corners of the country. In the following years, numerous programs and projects were implemented aimed at the development of regions, settlements, and villages around Baku, as well as at improving economic, social, and cultural conditions. Particular attention was paid to ensuring the balanced development of all areas, contributing to improving the population’s quality of life and strengthening the national economy.
The President of Azerbaijan, showing special concern for the restoration and integration of the liberated territories, announced the experiment of introducing a new management model in the form of the institution of special representatives. This step was aimed at improving governance in the areas liberated from occupation, and if successful, this model will be applied in other regions of the country.
To further improve regional governance, on July 7, 2021, the president signed a decree increasing the number of economic districts in the country from 10 to 14. It is important to note that two of the new economic districts were created precisely in the liberated territories, which was an important step in the restoration and development of these regions.
President Ilham Aliyev’s attention to the socio-economic development of the regions is clearly illustrated by his active engagement in this area. From 2003 to 2023, the president made 572 visits to various regions of the country. Of these, 96 visits were to the liberated districts and cities, and 476 to other cities and districts. During these trips, 2,515 events were held, including opening ceremonies, inspection visits, foundation laying, and other important activities. This fact vividly demonstrates the president’s care and attention to the development of regions and ensuring their prosperity.
Successful socio-economic policies and consistent implementation of state programs have led to a significant reduction in poverty levels and ensured Azerbaijan’s place among the countries selected for national consultations on the UN Sustainable Development Goals. This achievement is a recognition of the country’s efforts in implementing the principles of sustainable development and improving the well-being of its citizens.
International Recognition and Ratings
Azerbaijan’s positive image has been reflected in numerous international indices and reports, indicating recognition of the country’s efforts on the world stage. In the “Doing Business-2009” report, Azerbaijan was recognized as the most reformist country in the world, making a significant leap in the ranking by 64 positions and rising from 97th to 33rd place. This achievement was symbolic for the country and demonstrated its readiness to carry out large-scale reforms.
Continuing to build on its successes, in the “Doing Business 2019” report, Azerbaijan ranked 25th, entering the top ten most reformist countries in the world. This result confirmed the sustainability of reforms and significant progress in creating a favorable business climate. In the latest edition of this report, “Doing Business 2020,” Azerbaijan once again was among the ten most reformist countries, emphasizing the consistency and success of the measures taken to improve the business environment.
In addition, in the “Global Opportunity Index 2023” report, Azerbaijan ranked 49th among 124 countries, indicating the country’s attractiveness to international investors and its high development potential. In the World Economic Forum’s Inclusive Development Index, Azerbaijan ranked an honorable 3rd place among 74 developing countries, reflecting its efforts to ensure sustainable and inclusive growth.
No less important achievement was Azerbaijan’s 58th place in the “Global Competitiveness Index” among 141 countries. This result highlights Azerbaijan’s ability to compete in the global market and indicates significant progress in improving various aspects of the country’s economic and social life.
Financial Stability and Reduction of External Debt
As Azerbaijan’s financial capabilities strengthened, the country’s dependence on external borrowing significantly decreased. This was reflected in the reduction of the share of external public debt relative to GDP from 20.3% to 10.0%, as well as in the decrease in the share of external debt in the overall public debt portfolio from 94.9% to 69.2% as of July 1, 2023. The emphasis on domestic borrowing to finance the state budget deficit contributed to the development of the securities market within the country.
Within the framework of implementing the “Strategy for managing public debt in the Republic of Azerbaijan for the medium and long-term period,” the volume of outstanding government bonds was consistently increased from 812.2 million manats to approximately 6 billion manats currently. This step reflects significant progress in supporting and developing the securities market in the country, contributing to the improvement of financial infrastructure and economic resilience.
One of the key achievements in managing the state budget was a more than 20.5-fold increase in non-oil revenues, the share of which in total budget revenues reached 50%. This indicates the diversification of revenue sources and the reduction of dependence on the oil and gas sector, which is an important step towards sustainable economic development.
From 2003 to 2023, Azerbaijan’s budget expenditures increased on average by 21.2% per year, with the state budget directed towards both social and investment purposes. Significant attention was paid to strengthening national security, education, healthcare, and social protection. Thus, expenditures on defense and national security increased 44.5 times, reaching 6,054.8 million manats. Expenditures on education increased 18.8 times to 4,407.2 million manats, on healthcare by 32.6 times to 1,805.0 million manats, and on social protection and social security by 20.2 times to 4,315.9 million manats.
Currently, about a third of all budget expenditures are directed towards financing investments, emphasizing the importance of long-term development and modernization of the country’s infrastructure.
International Recognition of Azerbaijan
Overall, the results of the work carried out from 2003 to 2024, aimed at economic development and ensuring macroeconomic stability, have been recognized in the ratings and forecasts of international financial organizations and credit rating agencies. One of the key achievements was the decision of the international credit rating agency “Fitch Ratings,” adopted on July 26 this year, to upgrade Azerbaijan’s long-term rating in foreign currency by one notch to BBB-. This rating corresponds to the investment level and is an important indicator of international investor confidence in the country’s economy.
The return of Azerbaijan’s sovereign rating to the investment level after eight years, as well as the establishment of a “Stable” outlook on the rating, indicates the high results achieved thanks to the macroeconomic and monetary policy pursued in the country. This success was made possible by institutional reforms, the improvement of the investment climate, the reduction of public debt, particularly external debt, and other consistent and multifaceted reforms carried out by the government of Azerbaijan under the leadership of President Ilham Aliyev.
