Economic history of Azerbaijan

Azerbaijan's economy experienced a substantial decline with the collapse of the Soviet Union, losing over 60% of its GDP in its first year of independence.

[1] The government of the Democratic Republic of Azerbaijan did a lot of work from 1918 to 1920 to restore the Azerbaijani economy, which faced a decline following the overthrow of tsarism.

Bartering was common in trade and economic relations of the Republic: oil was given in exchange for imported goods.

Azerbaijan was paying for military goods, telephone sets, cars, 100 locomotives, 2 thousand tanks, 5 thousand closed wagons, food products of America, France, Italy and other countries mainly with oil, cotton, wool, silk and leather.

The primary economic sectors were oil, gas, chemical, light industries, food processing, machine building and metalworking.

Major factories such as the plant for the production of pipes, aluminum and rubber synthesis in Sumqayit, the Ganja aluminum smelter, the Dashkesen ore purification plant, the Mingechaur hydroelectric power station, etc., were built and put into production for the Azerbaijani industry.

During these years, a lot of work was done in the direction of profitable placement of industrial sectors and facilities in the country, developing of the regions with a low standard of living, increasing the level of use of labor resources in small and medium-sized cities.

For a newly independent country with the economy mainly based on oil and gas industry, it was quite demanding to keep its say in the world of economic giants.

The key objectives of the new and independent economic policy were establishment of the economic system built on the principles of several types of property, including private property, unlike the Soviet times, integration into the global economy and transition to market economy.

Transition to market economy by adopting relevant reforms had also been one of the main objectives of the economic policy.

In the same year, the Presidents of the United States, Turkey, Azerbaijan, Georgia, Kazakhstan and Turkmenistan signed inter-State agreement on the construction of oil export pipeline Baku-Tbilisi-Ceyhan.

A contract was signed in Baku between BP, Statoil, LUKAgip, Elf Aquitaine (France) (now TOTAL), OIEC (Iran) (now NICO), TPAO and SOCAR on the promising structure of Shah Deniz gas condensate field in 1996.

The pipeline was built as part of the contract for the development of the Azeri-Chirag-Gunashli fields.Oil-gas sector contributed to the flourishing of other fields of economy.

Oil tankers were filled and transported to their destinations through the Caspian Sea, which no doubt, had a vital role in WWII.

Following the collapse of the Soviet Union, the oil production dropped dramatically mainly because of the conflict over Nagorno Karabakh with Armenia, out-of-date equipment and machinery.

With the "Contract of the Century” signed in 1994, and the deal on Shah Deniz gas field in 1996 initiated an exceptional amount of international investment flowing into the oil-gas sector.

[2][11] As mentioned above, during the first years of independence when the new oil reservoirs were uncovered, foreign companies were interested in signing contracts to their benefit.

[15] The price liberalization resulted in sudden inflation in living expenses, important consumer goods and commodities.

The policy was designed to encourage privatization of small bulk-sale business establishments, as well as large-scale and medium companies by auctions and joint stock procedures.

[3][15][16][17] After the collapse of the Soviet Union, Azerbaijan, as all the other post-Soviet countries, started to experience the burden of losing government subsidies.