Fostering non-oil exports: Navigating towards green and diversified economy

Azerbaijan has been intensively implementing large-scale reforms aimed at transforming its economic prospects. The country is actively reducing its dependency on the oil sector and focusing on fostering a more "green" and diversified economy, a shift that has gained even more prominence as Azerbaijan prepares to host COP29. To achieve these objectives, Azerbaijan has made significant strides in various sectors of the economy. Notably, administrative processes in the customs sphere have been digitalized, investment promotion certificates have been introduced, and a mechanism for subsidizing non-oil exporters has been established.

One key aspect of Azerbaijan’s reforms is prioritizing incentives for non-oil exporters to boost trade activity. The results are already visible: Azerbaijan's non-oil and gas sector has achieved impressive growth, with a 7% increase recorded in the first eight months of 2024, as announced by Economy Minister Mikayil Jabbarov during Baku Climate Action Week. From 2011 to 2023, the average annual growth rate for the country's non-oil and gas sector reached 4.4%, surpassing the overall economic growth rate of 1.5% during the same period.

Azerbaijan’s growing economic resilience

A growth rate of 4.4 percent indicates effective management of resources and diversification efforts, even when external conditions may be challenging. If this growth is happening alongside efforts to diversify the economy beyond oil and gas, it suggests that Azerbaijan is making strides in building a more resilient economy that can weather external shocks. A growth rate of 4.4 percent is particularly impressive when considering the geopolitical challenges Azerbaijan faces, indicating both economic resilience and potential for future stability and development. It should be noted that although the country primarily engages in traditional energy trade, economic diversification is being successfully implemented thanks to large-scale projects undertaken in recent years.

Notably, these issues were discussed at the Azerbaijan Trade Forum “Opportunities, Current Situation and Challenges for SMEs” held in Baku the previous day.

At the Azerbaijan Trade Forum, it was decided to reintroduce export subsidies for non-oil sector businesses and provide subsidies for logistics. AZPROMO is actively developing a mechanism to offer logistics subsidies to non-oil product exporters, covering approximately 50–60% of the logistics costs for a period of five years. In the Karabakh region, these subsidies could cover up to 100% of business expenses, with the duration for disbursing funds extended to 10 years. Furthermore, an essential initiative to support local producers, exporters, and entrepreneurs involved in international trade is the enhancement of digitalization in transit and logistics procedures. This determined effort aims to solidify Azerbaijan's position as a key trade and transport hub in the region.

In line with these reform efforts, Azerbaijan's non-oil exports have seen significant growth. According to the Export and Investment Promotion Agency (AZPROMO), the country's top five non-oil export markets for the January-August 2024 period were Russia, Türkiye, Georgia, the USA, and Switzerland.

During this period, Azerbaijan's non-oil exports amounted to $1.514 billion, with notable increases in several key product categories:

• Tomatoes: $139.5 million (+12.3%)
• Cotton fiber: $138.5 million (+66.1%)
• Gold: $96.1 million (+26.3%)
• Nitrogen fertilizer: $78.7 million (+88%)
• Aluminum alloy batteries: $72.4 million (+2.6x)

Russia and Türkiye remain Azerbaijan’s leading non-oil export markets, with exports to Russia totaling $752 million and Türkiye receiving $395 million worth of goods. Georgia, the USA, and Switzerland also played important roles in absorbing Azerbaijan's growing non-oil exports. This diversification is driven by strategic government initiatives and the country’s natural resource wealth, positioning Azerbaijan as a regional leader in non-oil exports and sustainable energy development.

Overall, Azerbaijan's pivot towards a more diversified and green economy unequivocally demonstrates its long-term vision. As the country continues to diminish its dependency on oil, it is poised to achieve economic sustainability through the expansion of the non-oil sector and the promotion of renewable energy. As COP29 approaches, Azerbaijan's leading role in setting the global climate agenda and its relentless efforts to diversify its economy will be vigilantly observed by both domestic and international stakeholders.