Factors to increase Azerbaijan's non-oil export Caliber.Az Scene-setter

The favorable environment in the world energy market has been promoting the growth of Azerbaijan's export revenues for two years in a row. However, more importantly, the high rates of development of the country's non-oil economy, supported by increased global demand, ensured an unprecedented increase in the supply of non-primary goods to foreign markets. This trend was recorded last year, and it was possible to maintain the momentum in the current year as well. Thus, according to the recently published data of the Center for Analysis of Economic Reforms and Communications (CAERC), in January-April 2022 the domestic non-oil exports increased by 38.5%.

In spite of the negative global factors - pandemic, hyperinflation, and unbalanced supply chains - for Azerbaijan, the past year has definitely passed under the sign of the revival of the non-oil economy and the rise of business activity. Amid the global geopolitical instability, there was a high demand for energy and other raw materials: expensive oil and gas and related factors played an important role in improving the foreign trade dynamics of our country. Thus, Azerbaijan's foreign trade turnover increased by more than 60% and exports almost doubled.

Moreover, the record growth of foreign shipments of industrial products was a landmark moment here. In general, the unprecedented growth of non-oil exports was recorded last year, the total amount of which reached $2.7 billion, having increased by 47.2 percent. Certainly, the republic would not have been able to achieve all this in such a short time if the programs of new industrialization and diversification of the non-oil economy had not been implemented in the previous period, and manufacturing of products competitive in foreign markets had been increased. 

The results of the first quarter indicate the effectiveness of the long-term state policy of development and support for the non-oil sector and the steady growth of the country's economic indicators: Azerbaijan's GDP increased by 6.8%, the non-oil economy has achieved a 10% recovery, while the growth rate in the non-oil industry has exceeded 18%.

What do these figures indicate and what factors have led to the rapid development of the non-oil sector of the economy, which ensures the sustainability of the export strategy this year as well?

Here it is necessary to mention the special role of the large-scale program of the revival of the liberated territories implemented since last year, where the construction and infrastructure projects are realized. Significant steps have also been taken in the country on strengthening food security and the formation of reserve structures. The large-scale construction scope of works in the Karabakh region has played the role of the driver providing which provided orders for enterprises producing construction materials, metal structures, energy equipment, cables, pipes; the demand for the trucks and other types of equipment assembled in the country has also increased.

According to the basic laws of economics, the scaling of production volumes helps to reduce costs and increase profitability, and as a consequence, it has an impact on the reduction of the cost of the final product. With regard to Azerbaijan, the workload of the non-oil industry has had a very favorable effect on the competitiveness of Azerbaijani products in foreign markets. Finally, the global processes observed since the beginning of this year - the oil and gas and food crisis, as well as the consequences of the conflict in Ukraine and the sanctions pressure on Russia - played a certain role in the expansion of non-oil exports. In particular, the rise in energy prices has maximized the global demand for petroleum products and cement, and amid this, Azerbaijan has achieved an unprecedented increase in supplies of urea fertilizers, significantly increased the export of polymer and other products of domestic petrochemical plants and since April resumed the supply of methanol.

In turn, for the second year, Azerbaijani cement has been exported in large quantities to Georgia and some other neighboring countries. The result of the anti-Russian sanctions was a rupture of trade and transport exchange with Europe that had been established for decades. This together with restrictions on the supply of consumer goods to Russia significantly improved the position of Azerbaijani suppliers-exporters, and in the near future, these factors will also stimulate the growth of exports of Azerbaijani products to the markets of Central Asia and other neighboring countries.

In fact, the above-mentioned factors already contribute to maintaining the high dynamics of the export activity of Azerbaijani enterprises. Thus, according to a recent report of CAERC, in January-April 2022, Azerbaijan's non-oil exports totaled $965.5 million, an increase of 38.5% over the same period last year. In particular, within four months the export of fruits and vegetables increased by 23.6%, chemical products - by 9.9 times, aluminum and rolled steel - by 90.6%, ferrous metals and their products - by 53.3%, cotton fiber - by 19.8%. Quarterly data on a number of export items are now available, but they are more than positive: export of carbamide increased by 31.3 times, hazelnut - by 38.6%, tomatoes - by 82.2%, electricity - by 2 times, polypropylene primary form - 16%.

Among the leaders of exports are leading state companies, which accounted for over a third (about $339 million) of all products shipped to foreign markets: the first place is taken by such structures as SOCAR Polymer, Azeraluminum, Azerenerji, APK Azerpambiq, AzerGold, and Azeripek.

Assessing the export geography of our country, it should be noted that today Turkey and Russia dominate here. According to results of the first quarter, Azerbaijani enterprises supplied $255.2 million worth of non-oil products to the Turkish market with an increase of 56.5% and exported $149.4 million worth of goods to Russia (an increase of 15.1%). Thus, Turkey accounted for 35% of the total exports of non-oil products, and Russia - for 20.5%. Georgia, Switzerland and the United States followed in the list of buyers of domestic non-oil products.

In the light of the positive changes observed for more than a year, the question arises whether our non-oil sector will be able to ensure the high rates taken by the end of the year, whether there are internal opportunities and external prerequisites for this, and to what extent this trend will remain stable in the foreseeable future?

"The value of Azerbaijan's non-oil exports grew by more than 40% for the second year in a row. These rates are far from easy. Behind them are newly created enterprises, access to energy, access to new markets, solution of structural problems in the country's economy, improvement of tax and customs administration," Economy Minister Mikail Jabbarov said not long ago. According to the Minister, today new approaches in the financial system are being developed, there are plans to expand enterprises' access to domestic financial resources, and difficult negotiations are held with the relevant departments in the judicial and legal system.

Nevertheless, the Ministry of Economy faces the task of ensuring almost double the growth of non-oil exports by 2026, the volume of which is forecasted at $5 bln. Here it should be noted that in perspective Azerbaijan is accompanied by some objective factors contributing to the development of non-oil exports. The imbalance in global trade and the rise in prices for industrial products has increased the demand for supplies from developing countries, where domestic production has kept comparatively more reasonable prices.

Thus, the observed changes in the global conjuncture play the role of a driving force to promote comparatively cheaper goods and semi-finished products from the world periphery to more capacious and solvent markets of developed countries. Accordingly, this helps Azerbaijan to export cheaper industrial and agricultural products, despite the flaws in the parameters and characteristics of products, the presence of certification and other non-tariff barriers. Second, in the coming years, the factor of non-oil exports will become even more active industrial zones, to which the Azerbaijani government attaches special importance, and which will become the basis and the driving force for the development of the non-oil industry. Thirdly, already today the capacious global demand and prices for agricultural products make the development of Azerbaijani agricultural enterprises, primarily in agro-parks (including high-tech "green" agro-parks in the Karabakh region), the most important factor in the growth of the non-oil sector.

Finally, the preferential trade agreements with Turkey (in effect since last March) and expected similar agreements with Iran will play a crucial role in boosting non-oil exports in the future.

Today, the basic factors that ensured high raw materials conjuncture and demand for industrial and agricultural products remain in the world today, and respectively, Azerbaijani suppliers of non-oil products, including industrial products, can count on stable sales in global markets in 2022-2026.