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Ronald Reagan House: Azerbaijan to Become Non-oil Dependent Modern Economy by End of This Decade

The impact of the global financial crisis on Azerbaijan, unlike on its neighbours or on Central and Eastern European countries, was rather limited, South Caucasus 2008-2013 analytical report of the Ronald Reagan House said.

According to the report, Azerbaijan has not experienced a sharp drop in GDP and the living standards of the local population continued to improve significantly and the economy continued to develop.

"The main reasons behind the economic growth in the time of global decline are Azerbaijan's vast hydrocarbon reserves and the state's prudent strategy of managing the petrodollar flows into the country," the report said.

During the last decade Azerbaijan maintained an impressive economic growth that averaged almost 14 percent annually. This is direct effect of what is known in Azerbaijan as the "Contract of the Century" - an agreement signed in 1994 between the state of Azerbaijan and the Western Oil Consortium of 13 oil companies.

"The Production Sharing Agreement that effectively opened Azerbaijan's oil reserves to the world transformed the country's economy beyond recognition. Thus GDP nearly tripled from 1994 to 2000," the report read.

Revenues from the sale of hydrocarbon resources, accumulated into the State Oil Fund of Azerbaijan (SOFAZ) are directed toward oil extraction infrastructure. A part of the SOFAZ funds is also used to improve the living standards of internally displaced persons - a problem which persists because of the prolonged Armenian occupation of Azerbaijan's Nagorno-Karabakh region.

"The rapid growth of the Azerbaijan's economy was successfully used by the government substantially to reduce the levels of poverty. Poverty in Azerbaijan dropped from 49 percent in 2001 to 6 percent in 2012," the report said.

The other notable drop was observed in the level of income inequality. In 2010 income difference in cities and rural areas was becoming comparatively small.

Created using the best examples of state energy funds of Norway and the U.S., SOFAZ has become an active investor in foreign assets. As of 2012 the total value of the State Oil Fund investment portfolio reached 34 billion USD.

Along with the State Oil Company of Azerbaijan Republic (SOCAR), an Azerbaijani state oil company, SOFAZ became a provider of foreign direct investments in the neighboring countries.

"Since one of the main objectives of SOFAZ is to provide a lasting macroeconomic stability, the fund is not allowed to invest in Azerbaijani assets," the report said.

Albeit crude oil and natural gas make up to 90 percent of Azerbaijan's exports, sectors unrelated to energy resource exports already generate 52.7 percent of the country's GDP.

Over the last years Azerbaijan was rapidly improving in terms of competitiveness. In the latest Global Competitiveness Report 2013-2014, published by the World Economic Forum (WEF), competitiveness of the country's economy is ranked 39th out of 144 states. According to the WEF, in terms of competitiveness Azerbaijan is the leading regional and CIS economy.

According to the report this is corroborated by the IMF.

"To sum up, Azerbaijan is proceeding with cautious strategy to use oil revenue in boosting the non-oil economic activities. The share of GDP generated through other than energy resources grew gradually even during the global financial crisis. If this trend persists, it is more than plausible that - all thanks to the careful management of oil revenue - Azerbaijan will largely become a non-oil dependent modern economy by the end of this decade," the report said.

Source: Trend

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