B. Real Economy. Development in economic and social life of the country observed during last years had been continued also in 2006. This development was also important by new achievements gained in both economic and social areas, and macroeconomic indicators verbally presenting these processes were significantly improved in comparison with previous year.
GDP. Volume of GDP in 2006 compared to previous year made 4.6 milliard dollar by comparable prices or being increased for 34.5 per cent made 20.2 milliard US$.
Volume of GDP per capita had reached to 2413.7 US$ and exceeded volume of last year for 33.0 per cent.
During current year 72.6 per cent of GDP was produced in production areas of the economy (industry, agriculture and construction), and 21.0 per cent in service areas.
Most part (80.2 per cent) of value added created in production areas was produced in industry and that in its term makes 58.2 per cent of GDP. 93.4% of value-added that was produced in industry fell to oil-gas industry and processing enterprises share.
7.0 per cent of GDP was produced in agriculture, 7.4 per cent – construction, 5.5 per cent – transport, 1.8 per cent – communication, 5.8 per cent – trade and service areas, and 7.9 per cent – social and other services areas, and the share of production and import net taxes in GDP made 6.4 per cent.
Development of oil and gas that take an important place in Azerbaijan economy and direction of foreign investments of large volume during ten years had also positively impacted on other fields of economy. So, in 2006 value added created in industry compared to the same period of last year was increased for 56.7 per cent, in transport – 49.0 per cent and in post and communication services – 24.0 per cent.
Increasing of value added relatively to the compared period was also observed in other fields of economy. Value added created from agricultural product output compared to 2005 was increased for 0.9 per cent, in construction-8.5 per cent, trade and service areas – 13.5 per cent.
Annual increasing of production in all fields of the country economy positively impacts on change of social-economic situation of population. So, in 2006 individual consumer expenditures of households being increased 14.9 per cent had reached to 7.0 milliard dollar, and actual last consumer expenditures being increased for 12.5 per cent made 8.7 milliard dollars. During this period consumer expenditure of the state administrative authorities being increased for 4.7 per cent made 1.6 milliard dollars, and consumer expenditures of non-commercial organizations providing services for households was increased for 0.1 per cent and made 79.4 million dollar.
During the considered period gross accumulation of fixed capital being increased for 14.8 per cent had reached to 6.2 milliard dollar, of which 54.2 per cent was obtained due to foreign investments.
Industry. As previous years, last 2006 were also very successful for Azerbaijan industry and mentioned some important events. Putting into exploitation of Baku-Tbilisi –Jeyhan oil export pipeline named by Heydar Aliyev by transportation of Azerbaijan oil to Jeyhan terminal and first gas output from “Shahdeniz ” deposit, as well as putting into use of new module types of electric station which each of them have 87 MVt annual power in Naxchivan, Astara, Xachmaz and Shaki, putting into use of building some processing enterprises have stimulated rapidly developing of industry section, opening thousand new work places, producing of the new products which weren’t produced before and enriching of products range. Enterprise having opportunity to process 6 thousand ton sugar beet in term in Imishli region, fruit juice production plant having 1.7 million conditional jar in a year, dried fruit processing workshop which having power to process 5 ton fruit in a day in Naxchivan, halva production shop that having 3 ton day power, processing and packaging shop of tea which could realize packaging and processing of tea by 100 ton in a month, furniture shop, Vayxir Water Electric station having 4.5 mvt annual power, textile industry in Lenkaran and other industry enterprises and objects were put in use. Dried fruit, micro motors, electro signalization facilities for railway transport and production of other new product types were appropriated, and production of several textiles, chemicals and machinery constructional industry’s product which wasn’t used in a country for a long time was restored in 2006.
These and other factors have conditioned the development of industry highly and taking into account the successful activity of industrial enterprises, as well as of private owners engaged in the industry and the production of industrial products by households, the total industrial production in 2005 increased by 14.5 billion manat or more for 36.6 % compared to the previous year (the highest indicator in the history of industrial development). So, during last four years real growth of industry being more than two times were in the level of highest indicators of world experience.
By branches of industry, the production increase was notable in e.g. production of machines and equipments (a 56.4% increase compared to previous year), mining( relatively 44.7 % ), furniture industry (20.9%), electron and electronic equipments (23.7%), chemical industry (14.3%), metallurgy and finished metal product (11.2%), food product (3.7%), cellulose paper and publishing work (9.7%),production of oil products (2.5).
Product output and providing of services in mining sector having 70.1 per cent of share, manufacture sector having 25.8 per cent of share and distribution of electricity, gas, and water supply was increased respectively for 44.7 per cent, 6.9 per cent and 8.8 per cent.
Privatization process as structural part of economic reforms conducted in the country together with creation of new enterprises play an important role in increasing of significance of non-state sector. Privatization process of the state enterprises in industry had started in 1996 by small privatization and in spite of that in the same year only 18 enterprises were sold, during the next years the privatization was strengthened and since the beginning of this process till 1 January 2007 there were privatized 890 industrial enterprises with primary value of 15.7 million manat. During this period proceeds of 10.1 million manat from industrial enterprises privatization went to the state budget. Moreover, in the result of reformation of large and small industrial enterprises into joint-stock companies, there were established 371 joint-stock companies with statutory fund of 407.5 milliard manat.
One of the newly formed economics is private entrepreneurship created during last years. Those are citizens engaged with entrepreneurship activity without formation of legal entity. For the state of 1 January 2007, number of entrepreneur engaged with industrial activity made 8222 person and was increased for 813 person during a year. Occupation of natural persons with entrepreneurship is observed by continuous increasing of non-state sector role. So, share of non-state sector in gross industrial production was increased to 76.7 per cent in 2006.
Agriculture. Successful realization of agrarian reforms in the country had created advantageous possibilities for dynamically development of agriculture, as a result there were gained significant achievements in agricultural production every year. In 2006 compared with 2005 plant-growing and livestock products increased.
In spite of decreasing of value of gross agricultural products in constant prices by plant-growing for 0.8 per cent due to unfavorable weather condition, livestock products in 2006 increased for 2.9 per cent and gross agricultural products increased for 0.9 per cent.
In 2006 there were produced 167.2 thousand ton of sugar beet, 1186.4 thousand ton of vegetable, 662.4 thousand ton of fruit and berry, 94.1 thousand ton of grape in the country and that compared to 2005 was increased correspondingly for 4.6 times; 5.2; 5.9 and 18.1 per cent. Productivity of sugar beet (for industry processing) was increased 63.1%, vegetable-2.9%, fruit and berry-5.3%, grape-51.6% according to comparing years. In the country grain production was 2078.9 thousand ton, potato- 999.3 thousand ton and green tea leaves -655 ton.
During last years interest in cotton-growing and tobacco was significantly raised. Moreover, in comparison with 2005 it was impossible to increase the production of these products related to unfavorable weather conditions. 130.1 thousand ton cotton and 4.8 thousand ton tobacco leaves (according to dry weight) were collected from all fields on whole country by enterprises.
In agriculture animal breeding relatively to plant growing is characterized by its stability. During last years this area is more dynamically increased. For the end of 2006, there were 2447.2 thousand head of cattle, including 1184.3.0 thousand head of cow and buffaloes, 7.9 million head of sheep and goats in the country and number of them was increased for relatively 2.8, 2.9, and 2.4 per cent in comparison with 2005. And in the same time in 2006 there were 21.3 thousand head of pig, 18.8 million -poultry and in comparison with 2005 their number correspondingly was decreased for 7 and 1.4 per cent.
Dynamically increasing of head number of cattle had created possibilities to develop animal breeding. As a result of abovementioned in 2006, meat production in carcass weight made 155.8 thousand ton, milk production – 1299.5 thousand ton, egg production – 760.9 million units and wool production – 13.6 thousand ton, and that compared to 2005 was increased correspondingly for 4.4; 3.8; 3.8, but egg production was decreased for 13 per cent.
Protection of environment. The problems of ecology, protection and rational use of natural resources of the country is a field of interest and activity of the state bodies and public organizations.
42.6 million manat (47.7 million US$) was spent for protection and rational use of natural resources in 2006. Share of all environmental expenditures in GDP made 0.2 per cent, and on-budget expenditures – 1.1 per cent.
8.9 million manat (9.9 million US$) was invested for environmental activities in 2006 that made 0.1 per cent in total volume of investments to fixed assets.
12.4 billion cubic metre of fresh water were taken from water reservoirs of the country in 2006. Actually, its consumption made 8.9 billion cubic metre of which 66 per cent were used for irrigation and agricultural water supply, 28 per cent –industry, 6% - drinking.
The volume of recycling water supply in total number of water consumption for production needs made 47 per cent in 2006. Discharge of polluted waste water without purification in water objects made 160 million cubic metre, 92 per cent of which discharged by enterprises of communal services.
In 2006 share of emissions of pollutants in mining industrymade 66 per cent from emissions of stationary sources, manufacture -16 per cent, electricity, water and gas supply -10%. Emission of hazardous substances in air from stationary sources in 2006 made 344.2 thousand ton that is lower for 38 per cent than in 2005. Share of unit load of hazardous emissions per squire metre area of the country made 4 ton, per resident - 41 kilogramme.
Growth of mobile structure, particularly car park negatively influenced in total state of air. Emissions from motor car in 2006 1.5 times exceed volume of emissions from stationary sources.
With the purpose of protection and reproduction of the flora and fauna, 11 state wildlife preservations with total area of 179.9 thousand ha and 8 national parks with total area of 233.7 thousand ha are functioned in the country.
Transport. During last years several international important transnational projects have been realized in transport sector which is the one of main economic infrastructure fields of country and there was substantial ground for development of transport complex. In 2006, which is considered the successful year for the country economy, realizing of important measures were gone on, including oil export pipeline of Baku-Tbilisi Jeyhan named by Heydar Aliyev was put into exploitation and internationally project like Baku-Tbilisi-Arzurum gas pipeline was realized. So, the strategic role of Azerbaijan has increased in the region and Eurasia and there was substation ground for continuous development of transport. In the result of it, the volume of cargo transportation and cargo turnover had reached to record limit during last period, starting the period when the country got independence.
In 2006 145.6 million ton or compared to previous year more for 13.5 per cent of cargo was transported by legal and natural persons acted in this field.51.1 percent of transported cargos was realized by motor vehicle, 18.8 per cent – pipelines, 20.7 per cent – railways, 9.3 per cent – sea transport.
Number of passengers transported in 2006 compared to previous year was increased for 6.3 per cent, in comparison with 1996- for 47.4 per cent. As a result of privatization of motor transport enterprises in the state property, increasing of number of private cars in the property of private enterprises and citizens, and naturally, creation of advantageous conditions for their normal activity, at present 55.2 percent of passenger transportation, two third parts in motor vehicle are directly realized by natural persons. Europe-Caucasus-Asia transport corridor that is one of most important economic projects realized on XX century in the framework of TRASEKA –program has a great importance in development of the country economy, including transport sector. In 2006, 48.8 million of cargo transportation was transported and was increased 4.4 per cent compare with previous year on Azerbaijan part of Europe-Caucasus-Asia transport corridor.
Freight transportation by motor transport having the highest share in freight and passenger transportation by the country made 51.1 per cent of freight transportation by all transport means and in comparison with previous year was increased for 7.0 per cent. In 2006 number of motor transport means was increased more than during previous years and made 690 thousand units and in comparison with 2005 was increased for 12.7 per cent and 77.9 thousand units.79.6 per cent or 549.0 thousand of all motor vehicles are in the property of citizens, of which 525.3 thousand are private motor cars. On the average by the country 62 of each 1000 population or 29 of each 100 families have private motor cars. For the state of 01.01.2007 length made 18.8 thousand km. 99.0 percent of motor roads make roads with hard pavement, 1.0 per cent –sand pavement.
Railway transport is one of the main transport means. In 2006, 20.7 per cent of all transported freight in the country, one fourth part of cargo turnover is realized by railway. Cargo transportation by railways compared to 2005 was increased for 13.5 per cent and made 30.2 million ton. Sea transport had realized 9.3 per cent of freight transportation by all transport means, and 18.6 per cent of freight turnover. In comparison with previous year volume of freight transportation by sea transport being decreased 1.3 percent and made 13.5 million ton. 99.8 percent of transported freight was realized by foreign relations and 69.5 per cent of freight made oil cargos, 30.5 per cent-dry cargo. In 2006 there were purchased two new liquid cargo vessels and therewith total boat load of marine had reached to 396.6 thousand ton. For the state of 01.01.2007 there were 72 units, including 28 units of dry cargo carriers, 40 units of liquid cargo carriers and 7 units of passenger ferry.
In 2006 compared to previous year passenger transportation by air transport enterprises was increased for 10.0 per cent and made 1.3 million person, of which 5.7 percent of transportation was realized. During the year 74.5 thousand ton or compared to previous year more for 0.1 per cent flight were transported, 232.0 ton or compared to previous year more for 26.1 per cent mail.
In 2006 transportation of oil and oil products by main oil pipeline enterprises (excluding oil pipeline Baku-Supsa exploited by AIOC) in comparison with previous year was increased for 70.6 per cent and made 19.9 million ton. Main cause of growth which observed in oil pipeline is related to conveying of 8.0 million ton oil to Jeyhan port of Turkey by BTJ oil pipeline with 1760 km length in the second part of 2006. As a result cargo turnover realized by main oil pipelines was increased for 23.5 times. Gas transportation by main gas pipelines in comparison with previous year being increased for 9.3 per cent made 10.4 milliard cubic meters. Number of passengers transported by the underground being as a structural part of urban electric transport in comparison with previous year being increased for 9.6 per cent made 161.1 million passengers.
Communication. Communication section of the country is striking more distinctly in comparison with other fields of economy during last years by development level according to modern demands. This development is characterized both operation of available communication fields intensively in higher level, as well as creation of new types of services. In other fields of economy and communication development of private sector, the creation of favorable conditions for enterprise’s activity, increasing of population demand to this field has been stimulated promotion of this field and promotion of socio-economic development due to modernization of communication structure was turned to one of the priority work.
In 2006 investing 211.9 million manat investments to development of communication field made 7.5 per cent of directed investments to non-oil section of economy. 80.0 per cent of investments were directed to non-state section.
In 2006 communication enterprises raised revenues of 567 million manat (in actual prices) an increase of more than 23.0 per cent compared to previous year. 71.4 per cent of communication services were served to population and the volume of theses services is increased for 21.2 per cent.
73.8 per cent of income gotten by communication enterprises was created in the result of enterprises activity which is acting non-state section.
One of the rapidly developing areas among communication services is wireless telecommunication.
In this area the creation of automatic telephone stations corresponding to international standards and high technological indicators, the development of wireless telecommunication compared to previous years are more evident. There were 1241 automatic telephone stations in 2006 and their number was increased for 51 units in comparison with previous year. 55.6 per cent of telephone stations are electronic. Electronic telephone stations prevailed telephone station in old system to serve more highly. In 2006 the total volume of automatic telephone stations in Azerbaijan was 1384.3 thousand numbers, of which 86.0% are currently used. In comparison with previous year the total capacity of telephone stations increased by 125.4 thousand numbers.
At the beginning of 2007 there were 1188.7 thousand main telephone sets in the country, of which 1085.2 thousand telephones in dwellings. 60 of every 100 families had access to their own telephone.
Volume of internet services that is one of the main areas of information technologies made 12.5 million manat and compared to 2005 was increased for 44.4 per cent. Number of internet connections was increased for 32.1 times and made 101.1 thousand connections.
Labor market and Employment. On estimation of the situation in labor market of the country it is necessary to note that activity ratio serves as typical indicator on involving labor resources in labor process. At the end of 2006 economic activity level in the country made 62.5 per cent, i.e. employed persons made 4026.9 thousand person or 62.5 per cent from total number of population at age of 15 years old and over. 98.7 per cent of them are engaged with all types of economic activity and 1.3 per cent had not occupation, but sought job actively and classified as unemployed.
Ratio of the labor force activity is not enough for estimation of the real participation of the population in labor activity. The indicator characterizing share of the employed persons in total number of population at age of 15 years old and over and making 61.7 per cent during under review period shows resources of unused labor force. Share of persons having unemployment status among economically active population decreased from 1.7 per cent in 2005 to 1.5 per cent 2006.
In 2006 size of employed in economy increased for 7.2 per cent compared with 2000. Growth of employed number in economy is due to growth of employed in mining, manufacturing, construction, agriculture, and transport. 1334.0 thousand employees were engaged in enterprises and organizations of the country at the end of 2006, of which 20.6 per cent were engaged in production, 79.4 per cent - in service. Majority of employed were focused in large and medium enterprises.
There was observed growth of wage that during 12 month of 2006 reached to 141.3 manat (158.2 US$) and increased for 14.3 per cent compared with 2005.
High wage rate was in mining industry, financial intermediation, construction, operations with real estate, rent and commercial activity.
Price developments and Inflation. In 2006 consumer prices and service tariffs compared to 2005 had risen for 8.3 per cent, including prices of food and tobacco non-food products, tariff and services correspondingly for 11.9 per cent, 5.3 per cent and 2.6 per cent.
Last year prices of food products, such as fruits were raised for 11.3 per cent, vegetables - 22.6 per cent, fishery products – 18.7 per cent, diary products, cheese and eggs - 18.9 per cent, sugar, jam, honey, chocolate and sweets - 17.9 per cent, meat products - 15.8 per cent, fat and oils – 0.9 per cent, alcoholic drinks – 1.2 per cent, beer- 1.8 per cent, tobacco goods - 2.2 per cent, coffee, tea, and cocoa - 3.1 per cent, prices of non food products, such as fabric - 1.6 per cent, clothes - 5.0 per cent, shoes - 3.2 per cent, construction materials - 5.4 per cent, liquid fuel - 58.7 per cent, furniture and household goods - 4.0 per cent, domestic goods - 1.4 per cent, dishes and glassware - 5.0 per cent, medicines - 6.0 per cent, motor cars -4.6 per cent, spares for motor cars - 3.4 per cent, toys - 5.3 per cent, fuels and lubricants - 29.4 per cent, jewelry - 10.8 per cent, but prices of bread and cereals were decreased for 0.6 per cent, books - 0.9 per cent.
In 2006 tariffs for the services, such as cleaning, repair, and rent of clothes were increased for 1.3 per cent, shoes repair - 1.1 per cent, natural gas - 5.2 per cent, passenger traffic - 12.4 per cent, repair of cars – 3.5 per cent, hospital services – 1.2 per cent, medical services – 1.8 per cent.
C.External Balance.
Trade balance. Significant place in foreign economic relations of Azerbaijan take relations with countries-members ECO and these relations are developed each year. In 2006 turnover of Azerbaijan with coiuntries-members ECO made 1974.1 billion dollar (17.0 per cent from total turnover), including export 977.2 (15.3 per cent from total export), import 996.9 million dollar (18.9 per cent from total import). Volume of turnover increased for 18.9 per cent compared with 2005 and 4.8 times compared with 2000.
Dominated place in foreign economic relations of Azerbaijan with countries-members ECO takes place Turkey, Iran, Turkmenistan, Kazakstan, Tadjikistan, turnover of which makes more than 95 per cent.
Export of goods of these countries increased with high pace. Volume of exported goods increased for 17.8 per cent compared with 2005 and 6.5 times compared with 2000. Generally, oil and oil products are exportred to the countries-members ECO. Import of goods from the countries-members ECO increased for 19.9 per cent compared with 2005 and 3.9 times compared with 2000. Among goods that are exported from countries-members ECO, main place takes food products, construction materials, natural gas, electrik power, machinery and equipment and electrical devices.
Foreign investment. During 2006 volume of directed foreign investments to country economy compared to the same period of previous year being increased 3.3 per cent made 5.1 mlrd US$. 75.0 per cent of investments entered economy as direct investments, 19.5 per cent - financial credits. Volume of direct investment in compared with 2005 decreased 5.9 per cent and volume of used foreign credits increased 40.8 per cent.
90.3 per cent of direct investments were made to development of oil sector.
60.1 per cent of foreign investment that used in non-oil section fell to industry share, 8.7 per cent –trade and service, 13.5 percent-construction, 5.2 per cent –communication and construction.
Exchange rate Development. In the condition of exceeding of a barrel of oil the world price (50 US$), rapidly increasing of foreign investments and wide use of oil profits an official exchange rate of manat to US$ was strengthened for 5.1 percent due to significant exceeding of the supply of foreign currency the supply of manat.
In 2006 nominal effective currency of manat relatively to currencies of main trade partner-countries was declined by 2.1 percent by total trade, 0.6 percent by import, 3.3 percent by export.
Available dynamics of manat nominal exchange rate had provided the changing of real effective currency indices in the direction of approximation to the level required for external and internal parity. In 2006 real effective currency of manat by total trade turnover was increased for 4 percent, 4.3 percent by import, and 3.8 percent by export. The real effective currency on non-oil sector by total trade turnover was increased for 5.9 percent, 6.1 percent by import, and 2.7 percent by export.
However, during a long time international competitiveness of the country has been stayed advantageous. So, on December 2006 compared to December 2000 the real effective currency of manat by non-oil sector was tumbled for 5.1 percent and therefore the strengthening during the current year would have insignificant influence on international competitiveness of non-oil exportation.
D.Fiscal policy
Public Sector Revenues. In 2006 incomes of state budget compared to the same period of previous year being increased 88.8 percent or 2.2 milliard US $ and had reached to 4.3 milliard US $. In this period 4.2 milliard US $ means was spent and this is more than 77.0 per cent in compared with 2005. 102.4 million US $ surplus formed in the result of budget execute made 0.5% of GDP.
825.8 million dollar or 19.0 per cent of the incomes were entered from value added tax, 1113.2 million dollar (25.6 per cent) – profit tax, 423.7 million dollar (9.8 per cent) – income tax from population, 209.8 million dollar (4.8 per cent) – excise tax, 270.0 million dollar (6.2 per cent) – taxes related with foreign economic activity.
Public Sector Expenditures. 382.2 million dollar or 9.0 per cent of budget expenditures were spent for population social defense and social security, 536.2 million dollar (12.6 per cent) – education, 1395.7 million manat (32.9 per cent) – investment to economy.
E. Financial Policy
Money Supply. In 2006 in the condition of more acceleration of economic growth money supply increasing has been continued according to money demand. Typical characteristics of that period were that broad money supply at manat was mostly increased at the expense of strengthening of money multiplication process than due to increasing of money base by National Bank. In 2006 money base at manat was increased for 132.5 percent and made 1599.5 million manat. Money supply at manat (M2) was increased for 168.3 percent and made 2137.7 million manat. Money multiplier (relativity of wide money supply at manat to money base at manat) characterizing money formation ability of banking system was increased in 2006 for 15.5 percent. Rapid development of bank infrastructure in the country, especially applying of progressive payment systems, creation of interbank electronic accountings by large and small payments, widening of plastic cards turnover have continued to give extra stimulus for increasing of money formation ability of banking system.
Public and Private Credit Claims. İn 2006 volume of credit contributions being increased by 64 percent made 2362.7 million manat.
Volume of credit contributions in non-oil sector`s GDP had been significantly increased in 2006. Volume of newly given credits in 2006 had been increased for 49.7 percent and made 3354.3 million manat. Credit contributions to industry were increased by 2.3 times, construction and property – 85.2 percent, agriculture – 39.9 percent and natural persons – 94.8 percent. As compare with 2005 short-term credit contributions were increased by 25 percent, long-term credit contributions – 2.3 times in 2006. Share of long-term credits in the structure of credit contributions was raised from 36.6 percent of previous year to 51.7 percent by the resulting of reporting year.
97.3 percent of credit contributions are per the share of banks and 2.7 percent non-bank credit organizations. Share of private banks in the structure of credits given by banks was approximately 52 percent.
Whereas credits given to state sector were decreased by 25.8 percent as compare with 2005, credits given to private sector were increased by 85.8 percent and the share of private sector in the structure of credit contributions was raised to 90.8 percent.
Strengthening of manat currency compared to freely turning over currencies had also impacted on currency structure of credit contributions. In 2006 credit contributions by manat were increased by 2.2 times and credit contributions by foreign currency – 32.8 percent.
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