Historically one of the oldest oil producing countries in the world, Azerbaijan supplied the Former Soviet Union with 75 percent of its oil before World War II. Since then, its status as a major oil provider has steadily decreased, experiencing an economic crisis after independence in 1991 in which its GDP shrank by 60 percent. The result was a devastating poverty rate of 46.7 percent (2003), which spurred the country to turn to the international financial institutions (IFIs) for help in the early 1990s.
In 1994, the European Bank for Reconstruction and Development (EBRD) began lending to Azerbaijan, followed by the World Bank and International Finance Corporation (IFC) in 1995. Together with the Asian Development Bank (ADB), these IFIs have invested over 3.4 billion USD in the country. Much of this funding, however, is for extractive industry projects.
Half of the EBRD’s total direct investment has been for oil projects. While the World Bank’s investment is more diversified, with only 11 percent going to the oil sector, more than 75 percent of the IFC investment has been in oil with two additional oil projects in the pipeline. As a result of this dependence on oil, there has been increased attention to the flow of oil revenues and the operation of the Azerbaijan State Oil Fund.
Notably, Azerbaijan piloted the Extractive Industries Transparency Initiative (EITI) in 2003, the first country to produce an audited report that met all EITI criteria. In January 2006, the first report including all oil companies in Azerbaijan was released.
The new discussion paper “Azerbaijan’s Continued Struggle with Poverty and Oil Dependence: Concerns surrounding a Decade of IFI Lending” explores the results of a decade of IFI lending to Azerbaijan. In particular, it questions whether the necessary conditions were put in place to foster economic diversification, a specific goal of Azerbaijan’s Poverty Reduction Strategy, and also asks what role the IFIs played in the country’s dependency on oil.
Azerbaijan Poverty Oil Dependence Discussion Paper (Acrobat pdf, 154 KB)
Azerbaijan Poverty Oil Dependence Discussion Paper, Russian (Русский) (Acrobat pdf, 511 KB)