In the last few months, Azerbaijan has seen several moves in its governmental structure, as well as the implementation of reforms targeting a sustainable development for the country. While the situation had been stagnating since Ilham Aliyev’s accession to power in 2003, it seems that the challenges brought by the increased volatility of oil prices have finally been prioritized. Indeed, the oil price boom of 2011-2014, supported by the newly launched Baku-Tbilisi-Ceyhan pipeline did not last long. The sudden decrease in oil prices in 2014 led to fiscal budget deficits and overall economic instability, that in its turn poorly affected foreign direct investment. This is largely due to the poor implementation of reforms targeting a problem that has been looming over the Azerbaijani economy since 1991: oil resource dependence.
Despite being criticized for its inability to properly address these issues, the Azerbaijani government started making some changes for the country’s future and set new goals for more sustainable development with its Strategic Roadmaps plan proposed for the period 2016-2020. This consisted of several objectives linked to the national economy, financial services, small and medium-sized entrepreneurship, agriculture, extractive industries, tourism and vocational education and training (vet). The main objectives set by this plan were to boost growth of the non-tradable sector (non-oil and gas), decrease the share of the public sector in the GDP, support Small-and-Medium-sized-Enterprises (SMEs), boost the tourism industry, improve the financial and monetary systems, as well as ensure transparency and accountability in the tradable sector (oil and gas).
Considering the increase in ranking of Azerbaijan in the Economic Freedom, Doing Business, and Tourism and Travel Competitiveness reports, some of these objectives have definitely been met (Museyibov, 2019. Adigozalov, 2019). However, the oil sector still represents a very large percentage of total exports of the country. Since 2016, the share of oil has increased, reaching 92% of all exports (Comtrade data, 2019). Moreover, even though it is expected that the non-oil sector will represent 65% of the budget in 2020, transfers from SOFAZ to the national budget have continued increasing despite the oil price shock of 2014 (CESD, 2019). The 2020 budget proposal states that SOFAZ shall pay 11 billion 363 million AZN to the State Budget.
SOFAZ itself has not met the expected transparency objectives set by the Strategic Roadmaps. The organization was created in the same way as many other stabilization funds, with the goal of using the country’s natural wealth to its full potential by allocating its revenues to non-oil growth-promoting activities (oilfund.az, 2019). However, it has been criticized for the inefficient use of resource income due to the increasing non-transparent transfers to state budget (Crude Accountability, 2019; Luong, Weinthal, 2010).
It has to also be stated that while the government budget suffers deficit, the Aliyev regime has been involved in several scandals related to money-laundering in the last 5 years. To name some: The Azerbaijani Laundromat (2017) and the Panama Papers (2016). In particular, the trail of hundreds of transactionscollected in the Laundromat investigation amounted to over 3 billion USD funnelled out between 2012 and 2014. Half of this amount was due to transfers from an IBA (International Bank of Azerbaijan) account held by one of the Aliyev family’s shell companies (OCCRP, 2017). Money that was then spent either for personal benefit by the people involved in such scandals, or spent to buy off the silence and/or sympathy of European lawmakers and politicians. One example of this being Azerbaijan’s accession to the chairmanship position at the Council of Europe, the European human rights organization, in 2014. During 2017, the government had also been mixed up in the Trump Tower money-laundering scheme via Ziya Mammadov, ex-Minister of Transports (2017), as well as in another Maltese money-laundering scheme reported by Mehman Huseynov. In more recent cases, Leyla and Arzu Aliyeva were caught in an attempt to buy two London houses worth 60 million GBP each using the family’s offshore accounts. It is also worth to note Mir Jamal Pashayev’s (Mehriban’s uncle and head of Pasha Holding) implication in the Portugueuse “golden visa” scheme in 2018.
This type of behaviour, of course, is not unique to the top layers of the Azerbaijani governing elite. Indeed, the Azerbaijani state bureaucracy, as well as other private businesses, have been called out for corruptive and rent-seeking behaviours for many years. This “kleptocratic network”, as coined by researcher Sarah Chayes (2016), has mixed both government and private interests in a network of corruption that extends over different levels of power, and it might be the main obstacle that Azerbaijan has to surpass. It is thus no wonder that Azerbaijan’s Corruption Perception index is so low, ranking in the bottom 20 out of 180 countries in 2018.
In the last 3 years, and more particularly the last few months, Aliyev has decided to make a move and replace the older members of the government who had been serving his father since the 1990s with new technocrats (De Waal, 2019). At the same time, new reforms have been discussed and proposed to improve the political and economic structure of the country. Some say this is simply authoritarian modernization (De Waal, 2019) that is a mere tool in transferring power from the old Nakhichevan elite to the Pashayevs’, taking power away from the old oligarchs of the country (Cornell, 2019). This particular way of thinking is what Pareto (1896) described as the circularity of elites, the theory stating that any changes in the regime of a country are simply due to the replacement of one type of elite by another.
What is happening right now in Azerbaijan is similar to the governmental changes in another post-Soviet country, Kazakhstan. At the beginning of year 2019, Nazabayev had fired several members of the government, then appointing Askar Mamin, an ex-mayor of Astana and the head of the national railway company Temir Zholya, as temporary prime-minister. Changes did not only take place in ministerial cabinets: the head of the Central Bank of Kazakhstan, Daniyar Akishev was replaced by Yerbolat Dossayev, a former businessman. Elected president in April 2019 after the resignation of Nazarbayev, Tokayev has since then enacted more political reshuffles that have left the population confused as to the reasoning behind them. In particular, the appointment of Kusherbayev, a controversial political figure linked to Nazarbayev, as presidential advisor seems to support our previous theory. Following Pareto, both in Kazakhstan and Azerbaijan, the political changes are only a sign of minimal elite power changes at most, instead of a true political renewal. The changes and reforms that come out of it would thus only be words, not actions.
A more optimistic way of analysing the current situation would be to see this through Rothstein’s Quality of Government theory (2011). A corruptive network cannot survive if it does not meet its minimum requirements on the implementation side of public policy. It is true that without efforts made to politically liberalize the country, the reforms proposed by Aliyev might never have the intended effect. However, there is still hope that, if properly and impartially implemented, these reforms might be to the benefit the Azerbaijani population (Cornell, 2019). Indeed, an impartial input side of power (free elections) might not be a priority for countries such as Azerbaijan, while output side impartiality (implementation of laws, reforms) should be prioritized by the current governing elite. In other words, if the promised reforms are implemented in a fair and objective way, without giving in to preferential treatments, the objectives might be fully reached.
In the end, nothing is set in stone and here at Kertenkele, we hope to see real positive effects of these reforms in the next few months, maybe even paving the way for political liberalization in a few years.
Adigozalov, S. (2019). Azerbaijan boosts growth with structural-institutional reforms. Emerging-Europe. (online). Available at: https://emerging-europe.com/voices/azerbaijan-boosts-growth-with-structural-institutional-reforms/Accessed 21/11/2019
CESD (2019). 2020 State Budget of Azerbaijan: Brief Independent Review. (online). Available at: http://cesd.az/new/wp-content/uploads/2019/09/CESD_Research_2020_State_Budget_Azerbaijan.pdf Accessed 21/11/2019
Chayes, S. (2016). The Structure of Corruption: A Systemic Analysis Using Eurasian Cases. Carnegie Endowment for International Peace. (online) Available at: https://carnegieendowment.org/2016/06/30/structure-of-corruption-systemic-analysis-using-eurasian-cases-pub-63991Accessed 21/11/2019
Crude Accountability. (2019). State Oil Fund of Azerbaijan: huge spending and overwhelming poverty. (online). Available at: https://crudeaccountability.org/state-oil-fund-of-azerbaijan-huge-spending-and-overwhelming-poverty/Accessed 21/11/2019
Cornell, S. E. (2019). Azerbaijan: Reform Behind a Static Façade. Central Asian Futures. The American Interest. (online). Available at: https://www.the-american-interest.com/2019/10/17/azerbaijan-reform-behind-a-static-facade/Accessed 21/11/2019
De Waal, T. (2019). Is Change Afoot in Azerbaijan? Carnegie Endowment. (online). Available at: https://carnegieeurope.eu/strategiceurope/80271Accessed 21/11/2019
Luong, P. J., Weinthal, E. (2010). Oil Is Not a Curse, Ownership Structure and Institutions in Soviet Successor State. New York: Cambridge University Press.
Museyibov, A. (2019). Carrying out successful reforms: The Azerbaijan model. Emerging-Europe. (online). Available at: https://emerging-europe.com/voices/carrying-out-successful-reforms-the-azerbaijan-model/Accessed 21/11/2019
OCCRP. (2017). The Azerbaijani Laundromat. (online). Available at: https://www.occrp.org/en/azerbaijanilaundromat/Accessed 22/11/2019
Pareto, V. (1896-1897). Ed. 1964. New ed. Oeuvres completes, Vol. 1. Geneva.
State Oil Fund of Azerbaijan (SOFAZ). (2019). History. (online) Available at: https://www.oilfund.az/en/fund/about/history Accessed 21/11/2019