LIST OF ABBREVIATIONS
5 COOPERATION WITH THE EU
5.4 EDUCATION: ROOM FOR FURTHER DEVELOPMENT 73
5.5 SECURITY AND GEOPOLITICS 73
6 CONCLUSIONS 74
6.1 FOCAL POINTS FOR FOREIGN POLICY 75
REFERENCES 75
NIGERIAAZERBAIJANCOLOMBIAINDONESIAQATARCANADA
LIST OF ABBREVIATIONS
EIB European Investment Bank
ENI European Neighbourhood Instrument FDI Foreign Direct Investment
GDP Gross Domestic Product
GHG Greenhouse Gas
IMF International Monetary Fund NDC Nationally Determined Contribution LULUCF Land Use, Land Use Change and Forestry MRV Monitoring, Reporting and Verification ND-Gain Notre Dame Global Adaptation Initiative
OECD Organisation for Economic Cooperation and Development PISA Programme for International Student Assessment SOCAR State Oil Company of Azerbaijan
SOFAZ State Oil Fund of the Republic of Azerbaijan SGC Southern Gas Corridor
UNFCCC United Nations Framework Convention on Climate Change WTO World Trade Organization
POPULATION
(2019; growth rate y-o-y)
GDP PER CAPITA
(2018)
10.04 m (1.05 %) US$ 4,721 510 m (0.12 %) US$ 33,715 CO2 EMISSIONS PER CAPITA (2014)
EXCL. LULUCF INCL. LULUCF
7.61 t 6.73 t
8.04 t 7.19 t
Fossil fuel rents
as % GDP (2017) 20.9 %
Fossil fuel
as % exports (2018) 94 %
Fragility (2019) Sustainable Stable Warning Alert
Human development (2018) Very high High Medium Low
Strength of governance (2017) Very high High Medium Low
Climate change vulnerability (2017) Low Medium High Very high
Sustainable energy development (2017) Very high High Medium Low
AZERBAIJAN
Fossil fuel exports Other exports
Sources for dashboard statistics: Population (UN DESA 2018); GDP per capita (current US$, World Bank 2018a);
CO2 emissions per capita (WRI 2018); CO2 emissions per capita (WRI 2018); fossil fuels rents as % GDP (own calculation using World Bank data 2017a) ); fossil fuels as % commodities exports, fossil fuel exports to the EU as % total fossil fuel exports, fossil fuel exports to the EU as % total exports to the EU, fossil fuel imports from the EU as % total imports from the EU(Chatham House 2019); Fragility (Fund for Peace 2019, 73.2/120); Human development (UNDP 2018, 0.757/1);
Governance (World Bank 2017b, 166/600); Climate change vulnerability (ND-GAIN 2017, score 51/100); Sustainable energy development (52/100, World Bank 2017d).
Fossil fuel exports to the EU
as % total fossil fuel exports
Fossil fuel exports to the EU as % total exports
to the EU
Fossil fuel im ports from the EU as % total imports
from the EU
© adelphi
NIGERIAAZERBAIJANCOLOMBIAINDONESIAQATARCANADA
The Republic of Azerbaijan (henceforth Azerbaijan) is a country of around 10 million inhabitants located in the South Caucasus region between Eastern Europe and Western Asia. Azerbaijan shares borders with Iran, Armenia, Georgia and Russia, and it is a coastal state to the west of the Caspian Sea. A quarter of the size of Germany, Azerbaijan is composed of 66 administrative divisions with Baku its biggest city and capital. The country is semi-urbanised with 55.2 percent of the population lving in towns and cities (CIA 2018). Azerbaijan is a presidential republic headed since 2003 by Ilham Aliyev, in his fourth term, having succeeded his father Haider Aliyev. The country gained independence from the Soviet Union on 30 August 1991 and became part of the Commonwealth of Independent States (CIS) (CIA 2018). Azerbaijan-Russia ties remain close and friendly.
Azerbaijan’s economy has seen dynamic development since the mid-1990s and in particular after 2004, driven by the development of its oil and gas industry. From 1995 to 2016, Azerbaijan’s Gross Domestic Product (GDP) increased more than tenfold to about US$ 40.750 billion (in current US$) (World Bank 2017c). GDP per capita similarly grew tenfold to more than US$ 4,100 in 2017 (World Bank 2017a). As a result, the percentage of people living under the poverty line decreased from 24 percent in 2005 to around 6 percent in 2016 (Indexmundi 2015; CIA 2018). Unemployment is relatively low at around 5 percent (2016) (Trading Economics 2018a). In 2016, Azerbaijan’s Gross Domestic Product (GDP) was the 88th largest in the world.
Accordingly, Azerbaijan has become an upper-middle income country and available indices indicate a medium-ranking of Azerbaijan regarding economic welfare and human development. Hence, on the Human Development Index of 2017 Azerbaijan ranks 80th out of 188 countries (UNDP 2018). On the World Economic Forum’s Inclusive Development Index of 2018 Azerbaijan ranks third among the emerging and developing economies (World Economic Forum 2018a). On the Sustainable Development Goals Index Azerbaijan is ranked 48th of 157 countries, progressing at an average pace for its region (Bertelsmann Stiftung 2017). Also, Azerbaijan ranks 76th out of 178 countries on the Fragile States Index in 2019 (Fund for Peace 2019), with a significant improvement especially in the economic dimension since 2009.
Similarly, Azerbaijan overall ranked 100th out of 129 countries on the Bertelsmann Stiftung’s Transformation Index, taking place 85 on economic transformation (Bertelsmann Stiftung 2018).
Azerbaijan is highly dependent on the production and export of oil and gas. Accordingly, while the development of its oil and gas resources have in general helped to advance welfare and provide for political stability in the 21st century, its economic development has fluctuated with the world market price of oil and gas. Efforts to diversify the economy have had limited effect so far, but provide an important entry point for developing EU-Azerbaijan relations beyond fossil fuels.
1 INTRODUCTION
Significant oil and gas production, reserves, and consumption
Azerbaijan is a significant producer of oil and gas. In 2017, Azerbaijan produced 795 thousand barrels of oil per day, equivalent to somewhat less than 1 percent of the world total. Oil production has decreased by more than 20 percent since the beginning of the 2010s. Azerbaijan’s gas production reached 17.7 billion cubic metres in 2016 (an increase of about 10 percent over the course of the decade) which put Azerbaijan among the top 30 gas producing countries (BP 2019; SOCAR 2018a; CIA 2018).
Azeri gas reserves are more significant than its oil reserves. Azerbaijan’s proven oil reserves are estimated to amount to about 7 billion barrels, which might – given current production levels – be exhausted within the next two to three decades (BP 2019; see also Shepard 2016). Accordingly, Azeri oil production is expected to decline further in the medium term (Gurbanov et al. 2017). In contrast, estimated gas reserves of up to 2.1 trillion cubic metres (BP 2019; see for other conservative estimates: SOCAR 2018b; CIA 2018;
EIA 2018) could support current production levels for about 75 years.
In accordance with its resource base, Azerbaijan mainly uses gas and oil as a source of energy supply.
Overall, domestic oil consumption has been increasing slightly in the 2010s to around 90-100 thousand barrels per day (around 12 percent of production) (BP 2019). Similarly, gas consumption has been increasing over the past decade, accounting for nearly two-thirds of overall production (10.3 billion cubic metres in 2018: BP 2019), which has also been increasing (see above). Gas (13 power stations) generally provides for more than 90 percent of power production (with some fluctuation depending on the availability of hydropower depending on rainfall). Overall, about two-thirds of overall energy consumption is accounted for by gas, about 30 percent by oil, with the remaining 2-3 percent made up of renewable energy, primarily hydropower (BP 2019; World Bank 2018b).
Oil and gas account for 90 percent of exports
Oil and gas exports are of crucial importance for Azerbaijan’s economy. In the 2010s, the country exported about 85 percent of its oil production (IEA 2015a) and about 40 percent of its gas production (BP 2019; IEA 2015a and b; CIA 2018). Oil and gas account for over 90 percent of Azeri exports (Chatham House 2019), which makes the country ‘vulnerable to external shocks’ (European Parliament 2017, p. 22).1
Government budget and the overall economy are heavily dependent on oil and gas
Oil and gas continue to play a dominant role in the Azeri economy and for the government budget. As the engine of the economy, the sector accounts for about half of GDP (fluctuating somewhat with the oil price) and the state budget. Both shares have tended to decline in the 2010s because of the declining oil production and oil price (see below) and the Azeri government’s efforts to diversify the economy, including through the State Oil Fund of the Republic of Azerbaijan (SOFAZ), as well as its attempts to broaden the budget income base. The SOFAR was created in 1999 to accumulate oil revenues for the benefit of current
1 Production, consumption and export data vary between different sources (including IEA, CIA, BP Statistical Review), but all give roughly the same overall picture.
Azerbaijan’s economy is highly dependent on the production and export of oil and gas. The country depends on oil and gas for at least half of its economy and government revenue. It consequently also remains exposed to oil price fluctuations and investments in oil and gas may become “stranded”.