Foreign trade balance is positive: Why does Azerbaijan benefit from globalisation? Analysis by Khazar Akhundov

Taking into account the noticeable growth of profits from oil and gas exports and the high level of non-oil exports observed for the second year, Azerbaijan confidently maintains positive dynamics in foreign trade. Thus, in January-April of this year, the country's trade turnover increased 2.7 times compared to the indicators of the corresponding period last year. At the same time, as exports grow, the trade surplus strengthens. In general, the favourable foreign trade situation contributes to the growth of customs duty receipts to the state budget: in five months of this year, receipts from the State Customs Committee (SCC) of Azerbaijan increased by 20 per cent.

According to research by experts of the international news agency Bloomberg, the Russian-Ukrainian war has become a significant moment, ending the 30-year period of globalisation of world production and trade. Since the middle of the last century, the developed countries of the world have gradually formed the conditions for creating an open system of the international division of labour and free trade: since 1947, these processes have been coordinated by the General Agreement on Tariffs and Trade (GATT), and since 1995 by the World Trade Organisation (WTO). Common markets were formed in Western Europe, North and South America, in the countries of Southeast Asia, and in the 90s China and post-Soviet countries joined these processes. The main advantage of globalisation was free trade and, as a result, high competitive pressure, which constantly reduced prices for industrial and agricultural goods, as well as a fairly low level of volatility in commodity markets.

However, further attempts to liberalise trade and form an absolutely supranational global economy ran into irrational fears of losing subjectivity and the unwillingness of a number of states to mitigate cross-border barriers. Already after the energy crisis of 2014-2017, the process of globalisation began to stall against the background of a fierce trade war between the US, the EU and China. The coronavirus pandemic, with its long lockdowns and quarantine restrictions, brought down industrial cooperation created for decades, and logistics of supplies of raw materials and components, dealt a colossal blow to integration processes. The legacy of the pandemic has become a multiple of increased transport costs, in addition, China's current policy of "zero infection" still turns into strict cross-border procedures that restrict business contacts and the free movement of labour resources. Finally, the idea of an open global market was discredited at the beginning of 2022: the role of the trigger here was played by Russia's invasion of Ukraine and the subsequent sanctions confrontation with the collective West. All this eventually turned into the collapse of the former trade, economic and transport ties in the vast Eurasian space.

In this regard, Bloomberg Economics believes that all of these factors break supply chains, damage global GDP growth rates and push inflationary processes to a historic 40-year high. According to experts, humanity is confidently moving toward a new geopolitical rift, towards the reversal of globalisation, and most likely in the long term, the world economy and trade will have much less productive opportunities. It is appropriate to recall here that over the past three decades, a characteristic feature of the global economy has been the production of a large volume of goods with low cost and their sale with a relatively small trade margin. Alas, this trend remains in the past. Thus, the chief economist of the WTO Robert Kaufman believes that the rejection of globalisation will have to pay the appropriate price: "From now on we will not be able to use cheap products on such a scale as it was until recently."

At the same time, the closure of markets and the concentration of production within the framework of disparate civilisational clusters will also strengthen the seemingly long-forgotten problem of the shortage of agricultural, mineral and energy raw materials, and therefore - along with it, a long period of volatility in commodity prices is inevitable.

Actually, we have been observing similar trends since the spring of last year, when the gaps left by the pandemic in the global mechanism of production, provision of components and raw materials, as well as the rupture of trade and transport links turned into a sharp increase in global demand for raw materials, primarily energy, petrochemicals, non-ferrous and ferrous metallurgy, food, as well as building materials, microchips, cars, equipment, etc.

The imbalance of world trade and logistics, and the growth of industrial production costs increased world prices for raw materials and semi-finished products by an order of magnitude, and developing countries, where domestic production maintained relatively more reasonable prices, began to meet this demand to an increasing extent. Thus, the processes observed since last year and intensified in 2022 have qualitatively changed the global situation: relatively cheaper goods and semi-finished products from the world periphery have become in demand in the more capacious and solvent markets of developed countries. But relatively recently, developing countries could not break into the markets of developed countries or trade at a huge discount for themselves.

Azerbaijan did not fail to take advantage of this global trend, the leading branches of the domestic non-oil sector were able not only to get out of the pandemic crisis but also to multiply the volume of exports to foreign markets. Here, first of all, it should be noted the increase in oil and gas prices and related factors that have played an important role in improving the foreign trade dynamics of our country. Thus, Azerbaijan's foreign trade turnover has grown by more than 60 per cent, and exports have almost doubled. An equally important point is connected with the record growth of external supplies of industrial products. In general, an unprecedented increase in non-oil exports was recorded last year, the total volume of which reached $2.7 billion, an increase of 47.2 per cent.

Thanks to the dynamic growth of trade turnover, it was possible to overcome the decline in foreign trade observed in 2020, by the end of 2021, the State Customs Committee [SCC] was able to increase fees by 10.3 per cent, ensuring the receipt of almost 4.343 billion manats to the state budget. Moreover, the SCC managed to significantly exceed the forecast task for last year – defined within the framework of the budget law at a loss of 3.9 billion manats. These positive trends have persisted this year: according to the data published the day before, in January-May 2022, the State Customs Committee transferred over 2.063 billion manats to the state treasury with an increase of 20 per cent. Moreover, five months ahead of schedule, the agency completed almost half of the forecast task, amounting to 4.26 billion manats in 2022.

Further dynamic growth of revenue from customs authorities is quite predictable, given the high dynamics of the country's trade turnover. According to the data for January-April 2022, Azerbaijan's foreign trade turnover amounted to almost $15.864 billion with an increase of 60.4 per cent compared to the corresponding period last year. At the same time, the greatest dynamics were provided by exports – they accounted for almost 70 per cent of the total trade of the republic (over $ 11.823 billion), and growth was provided by 1.9 times, imports accounted for a little more than $4 billion with an increase of 14.5 per cent. Such a ratio of exports to imports is a very positive factor: Azerbaijan's positive balance in foreign trade for four months amounted to $7.782 billion, which is, 2.7 times higher than last year's figures. This factor will play a key role in strengthening the country's balance of payments and monetary security by increasing its gold and foreign exchange reserves.

Such record export figures have not been observed in Azerbaijan for many years, and apparently, the favourable external environment will continue for a long time, given the ongoing conflict in Ukraine and the willingness of the EU and the United States to consistently increase sanctions pressure on the Russian economy. Against this background, trade relations between the European Union and Azerbaijan have returned to the level that preceded the coronavirus pandemic: last year, mutual trade turnover exceeded $15.4 billion, and today about 45 per cent of Azerbaijan's total external turnover accounts for EU countries. "Azerbaijan continues to continuously supply energy resources to the European market, and we expect that the volumes will only grow," Azerbaijani Economy Minister Mikail Jabbarov said recently. At the same time, trade turnover with TTürkiye is growing very rapidly, with which a preferential trade agreement has been in force since March last year: according to the results of the first quarter, Azerbaijani exports to the fraternal country increased by 56.5 per cent.

And sanctions restrictions on the supply of Western consumer goods to the Russian Federation significantly improved the positions of Azerbaijani exporting suppliers in the Russian market, and in January-April of this year, the trade turnover between the countries exceeded $893.4 million with an increase of 6.4 per cent. It is possible that in the near future, the change in trade and transport relations between the EU and the member states of the Eurasian Economic Union (EAEU) will stimulate the growth of exports of Azerbaijani products to the markets of Belarus, Kazakhstan, Kyrgyzstan, etc.