BizCLIR

Oil and oil products dominate Azerbaijan’s trade portfolio.  According to Azerbaijan Economic Trends (January- march 2001), oil and oil products accounted for 64.8 of total export in 1998, 75.9% in 1999, 84% in 2000, and 90.5% in the first quarter of 2001.  In addition to oil, Azerbaijan is an exporter and an importer of food products, machinery, textile, and chemicals.  The major export partners of Azerbaijan continue to be to the neighboring countries of Russia, Georgia, Turkey and Iran.   Its major import markets are Russia, Turkey, the United States, Ukraine, United Arab Emirates, and Germany. The U.S. became the third largest exporter to Azerbaijan in recent years after Russia and Turkey, accounting for about 8.9% of total exports to Azerbaijan. 

Since 1995, the government of Azerbaijan has embarked on a series of political, legal and economic reforms with the aim of establishing a market-based economy and an increasing integration into the international trading system.  These efforts included major trade liberalization initiatives.  Yet, for numerous reasons, these efforts have not significantly increased Azerbaijan’s trade outside the oil sector.  Moreover, recent policy changes appear to threaten some of these reforms. (See the discussion below on the recently created Tariffs Council on Prices.)   One major obstacle in the development of Azeri trade is domestic (behind-the-border) regulations.  Compared with other developing countries, Azerbaijan’s tariffs are rather low.  It is the non-tariff barriers and the excessive domestic licensing regime, however, that is hampering and frustrating domestic and international traders doing business with Azerbaijan.

Given Azerbaijan’s natural resources (both mineral and agricultural), and its strategic geographic location between the European Union and the other Central Asian Republics, it is natural for the government of Azerbaijan to focus on an export-oriented strategy.  However, if such strategy is to focus more than on the volatile oil sector, the Azeri government must do more to create the commercial and legal environment that further liberalizes its trading regime and accelerate its integration into the global economy.  Entering into bilateral and multilateral international trade agreements is a step in the right direction.  But these agreements must be implemented and enforced within a properly functioning market based institutions that are based on the rule of law and competition.