“Dutch disease,” the syndrome by which natural-resource intense nations become addicted to exporting mineral wealth to the point at which their economies stagnate and never quite recover, has been a bane to petrochemical-wealthy nations for decades. Venezuela went from one of the most productive nations in Latin America to an economic basket-case. Outside of the United Arab Emirates, most of the Gulf States are trapped in this cycle and have no real way out (not that they seem intent on trying). The Southeast Asian nations are making valiant bids to decouple their economies from their oil and natural gas wealth, and have shown highly positive signs to date.
Azerbaijan may have cracked the code. According to a recent report by Ronald Reagan House, Azerbaijan is on-track to have a fully diversified economy by 2020.
“The main reasons behind the economic growth in the time of global decline are Azerbaijan’s vast hydrocarbon reserves and the state’s prudent strategy of managing the petrodollar flows into the country,” the report said.
During the last decade Azerbaijan maintained an impressive economic growth that averaged almost 14 percent annually. This is direct effect of what is known in Azerbaijan as the “Contract of the Century” – an agreement signed in 1994 between the state of Azerbaijan and the Western Oil Consortium of 13 oil companies.
“The Production Sharing Agreement that effectively opened Azerbaijan’s oil reserves to the world transformed the country’s economy beyond recognition. Thus GDP nearly tripled from 1994 to 2000,” the report read.
The report said that, revenues from the sale of hydrocarbon resources, accumulated into the State Oil Fund of Azerbaijan (SOFAZ) are directed toward oil extraction infrastructure. A part of the SOFAZ funds is also used to improve the living standards of internally displaced persons – a problem which persists because of the prolonged Armenian occupation of Azerbaijan’s Nagorno-Karabakh region.
“The rapid growth of the Azerbaijan’s economy was successfully used by the government substantially to reduce the levels of poverty. Poverty in Azerbaijan dropped from 49 percent in 2001 to 6 percent in 2012,” the report said.
This is no small achievement, and as the report notes, income inequality has fallen even more dramatically over the same time period. Baku has put a great deal of effort into transforming oil wealth not into a panacea with which to buy off a potentially restive population, but rather as a source of venture capital for other industries and to help the enormous number of refugees of Armenia’s illegal occupation of the Nagorno-Karabakh and upward of 20 percent of Azerbaijan’s territory.
The result has been to transform the country from a typical, middling Soviet state into a country whose per-capita GDP qualifies it for fully-developed status, ready to leap ahead as more and more capable export and domestic-market industries take off.
This sort of achievement is easily overlooked, so far from so many sources of the West’s economic strengths and glooms. But the nation that once inaugurated the worldwide oil boom now looks poised to grow past oil, an achievement that speaks to careful economic management and an industrious people determined to put the dark days of Soviet dominion behind them.
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