Allianz 

Trade
Contact us
Search

Azerbaijan

Untapped potential

C2

SENSITIVE RISK FOR ENTERPRISE

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

Updated in December 2024.

Swipe to view more

Form of state Presidential republic
Head of state Ilham Aliyev (President)
Next elections 2028, Parliamentary

Strengths & Weaknesses

Strengths
  • Non-hydrocarbon sector growth reached +8% in 2024, driven by strong performance in construction, transport and hospitality
  • Inflation stabilized at 3.5% in 2024, while a fiscal surplus of +2.5% of GDP was supported by rising revenues and efficient spending
  • The manat remained stable, backed by substantial SOFAZ reserves, which increased to USD62bn
Weaknesses
  • Azerbaijan remains vulnerable to fluctuations in oil and gas prices, with hydrocarbon exports declining -29% in value in 2024
  • Total investments fell -3% in 2024, with sharp contractions due to reduced public spending and project completions
  • Regulatory quality, rule of law and corruption control remain problematic, compounded by low scores in renewable energy and water resource management

Economic Overview

useful description of image if informative and not decoration only.

Rebounding growth with structural weaknesses in investments and trade

Azerbaijan’s high dependence on the hydrocarbon sector and global oil and gas prices has resulted in low and volatile GDP growth since 2011, with an annual average of less than +2% since 2010. Looking ahead, GDP growth is expected to average around +3% in 2024-2025, driven by strong performance in the non-hydrocarbon sector, while inflation is forecasted to stabilize at 3.5%. Persistent risks include a potential correction in the manat's overvaluation and volatility in hydrocarbon markets.

The economy rebounded strongly in 2024, with real GDP growth estimated at +4.5% thanks to robust activity in the non-hydrocarbon sector and a recovery in hydrocarbons. The non-hydrocarbon sector expanded by +8% in 2024. Key growth drivers included construction (+19%), transport (+17%) and hospitality (+15%), while agriculture grew by just +0.7% due to unfavorable weather conditions. The hydrocarbon sector’s value-added rose +7% in September, supported by a +5% increase in natural gas production. Crude oil output saw mixed performance, with production levels rising slightly from mid-year but remaining 4% below 2023 levels. Our current oil price forecast for 2025 remains slightly superior to the fiscal breakeven, which the IMF puts at USD73 per barrel, up from USD55 in 2023.

On the demand side, investments declined by -3%, reflecting weaker public and private sector spending. Non-hydrocarbon investments contracted sharply by -33%, attributed to reduced public sector allocations, while hydrocarbon investments dropped -40%, following the completion of major projects in 2023. Exports fell -24%, primarily due to a -29% decline in the value of hydrocarbon exports, driven by lower crude oil volumes and a significant drop in natural gas prices. In contrast, non-hydrocarbon exports grew by +27%, supported by increased shipments of polymers and cotton. Imports surged +24%, largely due to public sector activity, including reconstruction efforts and preparations for the United Nations Climate Change Conference (COP29) of November 2024. The manat (AZN) exchange rate remained stable at AZN1.7 per USD1, backed by interventions from the Central Bank of Azerbaijan and the State Oil Fund (SOFAZ), whose assets rose +10% to USD61.6bn by October.

useful description of image if informative and not decoration only.

Comfortable public and external finances

Inflation stabilized at 3.5% in the second half of 2024, significantly lower than the double-digit rates observed in 2022. Food prices continued to increase moderately, while inflation in non-food goods and services remained subdued in the second half of 2024. Housing prices maintained their upward trajectory, with the annual increase in the housing price index reaching +9.2% in the third quarter. Credit growth in the banking sector gained momentum, with business and consumer lending expanding, while deposit growth was supported by rising local currency savings. However, bank profits slightly declined due to higher interest costs.

The fiscal position remained stable, with revenues rising +52.7% y/y in September, primarily due to a 3.8-fold increase in SOFAZ transfers. Non-hydrocarbon revenues grew by +10%, supported by higher tax receipts, including VAT and excise taxes. Expenditures increased +9.6%, driven by current expenditures, while capital expenditures fell slightly. The budget posted small deficits in the last months of the year, with an overall surplus estimated at around +2.5% of GDP by year-end.

useful description of image if informative and not decoration only.

Governance, corridor politics and environmental challenges

Political risks in the Caucasus region remain high. President Ilham Aliyev secured a fifth term in a February 2024 snap election, which, along with a parliamentary election brought forward to September, had limited opposition participation. His New Azerbaijan Party retained its parliamentary majority. Azerbaijan's territorial ambitions, including plans for the Zangezur corridor linking its mainland to the Nakhichevan exclave, remain a flashpoint in its relations with Armenia. While a peace agreement is a stated priority, lasting resolution is unlikely in the near term. Meanwhile, Azerbaijan is expanding its alliances, including renewing ties with Russia, advancing oil agreements with the EU, collaborating with Türkiye on regional connectivity and normalizing relations with the Taliban to unlock new markets in South-East Asia.

The structural business environment in Azerbaijan remains weak, with persistent issues in regulatory quality, the rule of law and control of corruption. Governance challenges are underscored by Azerbaijan's decline in the Heritage Foundation’s Index of Economic Freedom and its poor performance in our proprietary Environmental Sustainability Index due to shortcomings in renewable energy, water management and recycling.

Trade Structure by destination/origin 

(% of total, 2023)

Trade Structure by product  

(% of total, annual 2023)

Collection Complexity

The Allianz Trade Collection Complexity Score provides a simple assessment of how easy it is to collect debt around the world. The 2022 edition covers 49 countries that represent nearly 90% of global GDP and 85% of global trade.
Discover all our Collection Complexity reports

Contacts

Luca Moneta
Senior Economist for Emerging Markets
luca.moneta@allianz-trade.com

Read our latest reports 

Popular Risk Reports: Americas

Popular Risk Reports: Europe

Popular Risk Reports: Asia Pacific

Popular Risk Reports: Middle East

Popular Risk Reports: Africa

Want to discover more?