Ilham Aliyev won a third term as president in October 2013 and is likely to remain in power throughout the forecast period. The potential for systemic political change is low, as the coercive capacity of the government is high, and the opposition has been marginalised by the authorities. There has been little evidence to date that competition between rival elite networks has the potential to acquire a more public or formalised character. However, social unrest may grow over the forecast period owing to slower economic growth and rising public anger at corruption, inequality and the lack of rule of law. Although Azerbaijan is an overwhelmingly secular society, the growing strength of radical Islam is a cause for concern for the authorities.
Real GDP is forecast to expand at an annual average rate of 3.4% in 2014-18, far lower than in the boom period of 2000-08. Declining output from the oil sector in the coming years will act as a considerable drag on headline growth. Investment inflows will mainly be directed to the oil and gas sector; these will pick up in the later years of the forecast period, as preparations for the second phase of the Shah Deniz gas field (which is due to come on stream in 2018) are undertaken. Inflation will be low in 2014-15 owing to the strong manat an falling food prices. The current-account surplus will decline over the forecas period owing to weaker export growth now that oil production has peaked.
Based on our current forecast for oil output and prices, we forecast average annual real GDP growth of 2.3% in 2013-30. Azerbaijan's long-term growth prospects are not especially favourable, owing to its narrow economic base and its dependence on goods of low value added. Any reforms will be piecemeal and will not fully address structural imbalances, which will limit growth in labour productivity. The experience of other oil-producing countries has shown that large oil receipts tend to boost corruption and act as a disincentive to reform.

Azerbaijan-highlights 7

Demographic outlook 7

Political outlook 7

Business environment outlook 7

Economic outlook 8

Market opportunities 8

Long-term outlook 8

Fact sheet 9

Political outlook 10

Political forces at a glance 10

Political stability 10

Political and institutional effectiveness 11

Election watch 12

Key players to watch 12

International relations 13

Demographic assumptions 14

Business environment outlook 16

Azerbaijan's business environment at a glance 17

Macroeconomic environment 17

Policy towards private enterprise and competition 18

Policy towards foreign investment 19

Foreign trade and exchange controls 20

Taxes 21

Financing 22

The labour market 23

Infrastructure 24

Economic forecast 26

Policy trends 26

Fiscal policy 26

Monetary policy 27

International assumptions 27

Economic growth 28

Sectoral trends 29

Inflation 30

Exchange rates 30

External sector 31

Foreign direct investment in Azerbaijan 31

Market opportunities 33

Market outlook 33

Long-term outlook 36

The long-term outlook 36

Methodology for long-term forecasts 38

Data summary 40

Data sources and definitions 45

Guide to the business rankings model 46

Indicator scores in the business rankings model 47

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