The paradoxical development trajectory of resource-rich states is described with various epithets. A wide array of terms is used in this context: “resource curse,” “devil’s excrement,” “distorted development,” “African fever,” “Dutch disease,” “paradox of plenty,” and so on. Qatar, which leads the world in GDP per capita, also uses another intriguing phrase: “children of oil.”
What does this term entail? In Qatar, if both parents in a family are Qatari nationals, the children born into this family are referred to as “children of oil.” From the outset, a bank account with $3,000 is opened in the name of the child, and funds from oil revenues are continually deposited into this account. Depending on fluctuations in global oil prices, these accounts receive consistent deposits from oil earnings over the years. When these children marry, pursue education, or experience unemployment, they are provided with ongoing financial support from the state. By the time a “child of oil” turns 18, their account typically holds $100,000 to $300,000 or more. This model represents a direct distribution of resource revenues among members of society. There are also indirect models—for instance, Azerbaijan follows an indirect model.
In general, oil brings both direct and indirect benefits to countries. However, the resources take their toll as well, often not in small ways. Over time, they encourage governments to become complacent and keep societies in a state of inertia, hindering dynamism. When resource revenues are plentiful, they spend freely, but when those resources dwindle, countries find themselves struggling in an “economic vacuum.”
In Azerbaijan, concerns have grown since entering the post-oil era. The economic burden of the territories liberated from occupation has amplified these challenges fivefold. Last year’s economic indicators underscored many of these worries.
In this article, I will focus solely on the economic indicators characterizing the oil and gas sector to present a clearer picture of our country’s actual economic situation.Finding 1: GDP Structure: A 5 Billion Manat Decline in the Oil and Gas SectorAccording to the State Statistical Committee of the Republic of Azerbaijan [1], enterprises, organizations, and individual entrepreneurs operating in the country produced a total gross domestic product (GDP) of 126.3 billion manat in 2024, an increase of 4.1% compared to 2023. During this period, value-added production in the oil and gas sector grew by 0.3%, while the non-oil and gas sector saw a 6.2% increase. In essence, there was virtually no growth in oil and gas production in 2024.For comparison, the Central Bank’s 2023 report [2] highlighted that real GDP grew by 1.1% during the year, reaching a nominal value of 123 billion manat. The non-oil sector was the main driver of economic growth, accounting for 63% of GDP and achieving a 3.7% increase. In contrast, the oil and gas sector experienced a 1.7% decline in value-added production.
When analyzing GDP by sector, it becomes evident that the non-oil sector remains dominant. In 2024, of the 126.4 billion manat GDP, 40.7 billion manat was contributed by the oil and gas sector, while 85.7 billion manat came from the non-oil and gas sector. By comparison, in 2023, out of 123 billion manat in GDP, 45 billion manat was attributed to the oil and gas sector, and 78 billion manat to the non-oil sector.
The statistical comparison clearly shows that although GDP volume in 2024 increased by 4.1% compared to 2023, the share of the oil and gas sector in GDP (45.3 billion manat in 2023) decreased by approximately 5 billion manat. Based on the report [3], it can be stated that the total production value in the oil product manufacturing sector was 4,741.2 million manat, reflecting an 11.0% decline compared to the previous year. This indicates that the oil and gas sector accounted for approximately 32% of GDP in 2024.Despite high global oil prices, a decrease in oil production was observed. Once producing nearly 51 million tons of oil annually, Azerbaijan’s crude oil and natural gas output (including gas condensate) amounted to 29 million tons last year. Natural gas production reached 50.6 billion cubic meters, of which 38.7 billion cubic meters were marketable gas.
Finding 2: Volume of Investments in Fixed Capital: The Most Critical Level in the Last 60 YearsEconomic theory suggests that the primary driver of economic growth is investments in fixed capital, particularly the increase in foreign direct investment (FDI). According to official statistics [4], in 2024, a total of 21.5 billion manat was invested in the development of the country’s economic and social sectors from all financial sources. This represents a 0.7% decrease compared to 2023. Investments in the oil and gas sector declined by 10.2%, while investments in the non-oil and gas sector increased by 3.3%.
According to the report’s findings [5], 5.7 billion manat was directed toward investments in the oil and gas sector in 2024. Meanwhile, 15.8 billion manat was allocated for the development of the non-oil and gas sector. In total, investments in fixed capital amounted to 21.5 billion manat, which constituted 17% of GDP.In developed countries, this ratio typically does not fall below 30-40% on average. When comparing this ratio to Azerbaijan’s performance over the past decades, it becomes evident that the 2024 figure represents the lowest level in the last 60 years.
Result 3: The “Resource Pull Effect” OccursFor many years, we have been stating that the average monthly salary in the country does not reflect the real income level of the population. This is because the average monthly salary is inflated due to the high wages in the oil and gas sector and the public sector. For example, in January-November 2024, the average monthly nominal salary of employees in the national economy increased by 8.0% compared to the same period in 2023, reaching 996.8 AZN. Salaries in the oil and gas sector stood at 3,717 AZN, while in the non-oil and gas sector, it was 947 AZN.
As of December 1, 2024, the number of salaried employees was 1,775.3 thousand, including 884.4 thousand in the public sector and 890.9 thousand in the non-public sector. According to the SSC report [5], 31.6 thousand people were employed in the oil and gas sector, while 1,743.7 thousand worked in the non-oil and gas sector. This means that 31% of GDP was created by just 31,000 individuals working in the oil and gas sector. This indicates the presence of the “resource pull effect,” which is one of the models of the “Dutch disease” involving three sectors.
The essence of this model is that resources (labor, finance, technology) are drawn like a magnet to a single sector—natural resources—causing productivity in other sectors to decline. The resource sector attracts the productive forces of other non-resource sectors. This is one of the visible aspects of our economy. The average monthly salary of employees in the oil and gas sector is exactly four times higher than that of those working in the non-oil sector.
In such circumstances, it is incorrect to characterize the average monthly salary in the country as an indicator of the population’s income level. As in other countries, the median salary should be evaluated as an indicator of social welfare and income levels.Result 4: Exports of Oil and Oil Products Decreased by 22%In 2023, Azerbaijan’s foreign trade turnover amounted to $51 billion. Of this, $34 billion was accounted for by exports, while $17 billion was imports, resulting in a positive trade balance of $16.6 billion.
According to the report “Customs Statistics of Foreign Trade” by the State Customs Committee of Azerbaijan [6], the country’s foreign trade turnover in 2024 amounted to $47.6 billion, of which $26.5 billion was exports and $21.1 billion was imports. The private sector accounted for 52% of exports, while the state sector accounted for 48%. This fact demonstrates that the share of the private sector in exports is not at a desirable level, as is the case with other macroeconomic indicators.Although 81% of GDP in the country is attributed to the private sector and 19% to the state sector, the private sector can only export one-fourth as much as the state sector.
Another aspect of foreign trade policy concerns the share of oil and oil products in exports. According to the SSC data [7], in 2024, Azerbaijan exported $26.5 billion worth of goods to foreign countries, of which $23.2 billion, or 87.4%, came from the oil and gas sector.It is evident that compared to 2023, foreign trade turnover in 2024 decreased by $3.4 billion, while exports declined by $7.5 billion. This represents a 22% reduction in exports compared to 2023.
The decline in our export volume is tied to the fact that oil and oil products are the leading sectors and dominate exports. The significant share of this sector in exports, combined with the reduction in production and corresponding exports, has resulted in an overall decline in total exports. If non-oil exports had been developed, they could have compensated for the gap created by the decline in energy exports. Looking at the share of the oil and gas sector in Azerbaijan’s total exports over the past 10 years, the situation becomes clear:
| Year | Share of Oil and Gas Sector in Total Exports (%) |
| 2015 | 86% |
| 2016 | 92,2% |
| 2017 | 88,6% |
| 2018 | 91,2% |
| 2019 | 89,86% |
| 2020 | 86,5% |
| 2021 | 87,8% |
| 2022 | 92% |
| 2023 | 90,1% |
| 2024 | 87,4% |
There has been virtually no significant change in non-oil exports. For example, last year, non-oil exports saw a modest increase of just 0.3%. According to the “Export Review” by the Center for Analysis of Economic Reforms and Communication [8], Azerbaijan’s non-oil and gas exports grew by 0.3% compared to the corresponding period in 2023, reaching $3.4 billion. This indicates that declines in oil exports and stagnation in non-oil exports have not contributed to the expansion of overall exports.
Some time ago, the dominance of resources in the economy was metaphorically described as follows: “You look at the garden called the economy. You don’t see a single fruit-bearing tree (non-oil products). All you see are drooping willows and towering spruces reaching for the sky. Is this what a garden and a gardener should look like?”
Result 5: We Should Have Prepared for the Post-Oil Era Long AgoLet’s address the third part of the question posed in the title of this article. In addition to “the children of oil,” the “adults of oil” will likely configure things in such a way that, in the end, “the small players” will inevitably lose. This is because a global trend has emerged to consign the era of expensive oil to history. In this “oil game,” smaller nations will face the pressing question: “What should we do?”
Thus, the ultimate question arises:
what awaits us? In the near future, especially starting from this summer, the Azerbaijani economy must be prepared for a decline in oil prices. During his second presidential term, Trump openly declared that he would do everything in his power to bring down oil prices. Trump supports the development of the ICT sector and the green economy. In his speeches, he outlined plans for the era of expensive oil to become a thing of the past. Despite the fact that the U.S. is one of the world’s most expensive oil producers (with daily production of 13.4 million barrels, 3.5 million of which are exported), it seeks to take oil as a “shield” out of the hands of resource-dependent countries.Like all resource-rich countries, Azerbaijan will sooner or later need to adapt to life without relying on natural resources.
In this context, a thought-provoking observation by philosopher Bertrand Russell resonates:”The whole world is enveloped in the smell of oil. But I say the fear of a future without oil has already put our future in jeopardy. If a society’s fear is tied to the smell of oil, that society is doomed.”
Sources:
[1] Report No. 12 on “Socio-Economic Development” by the State Statistical Committee (DSK), dated January 17, 2025.
[2] Central Bank Report
[3] State Statistical Committee Report, December 2024
[4] State Statistical Committee Report, December 2024
[5] State Statistical Committee Report, December 2024
[6]https://stat.gov.az/news/source/doklad_2024-12.pdf?fbclid=IwY2xjawH6AQhleHRuA2FlbQIxMAABHT0x-wFFIuxBID7mTHLg_KEbP6Gy817iaP6K-7mfSxgEnrpbBo71LgRC-Q_aem_0F178MlX_DmbaJcdIpCwlw
[7]https://customs.gov.az/uploads/foreign/2024/2024_12.pdf?v=1737520142
[8]https://stat.gov.az/news/source/doklad_2024-12.pdf.fbclid=IwY2xjawH6AQhleHRuA2FlbQIxMAABHT0x-wFFIuxBID7mTHLg_KEbP6Gy817iaP6K-7mfSxgEnrpbBo71LgRC-Q_aem_0F178MlX_DmbaJcdIpCwlw[9]https://ereforms.gov.az/az/media/xeberler/ixrac-icmalinin-yanvar-ayi-ucun-ilkin-reqemleri-aciqlanib-127828
January 2025
