Aaron in Azerbaijan

Just another blog about Azerbaijan.

How Does a Worldwide Economic Crisis Affect Azerbaijan?

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For the time that I’ve been here, it’s mostly been accepted that while many people will claim that the worldwide economic crisis is having serious effects on their financial standing, Azerbaijan stayed relatively insulated from major crisis points.  Azerbaijan is a mostly cash economy, they have resources that are always in demand (oil, gas), financial sector is hardly developed at all (barely a whisper of a stock exchange).  So with those major features in play, on the surface, the economic numbers look pretty good over the last few years.  Even in 2008, they maintained a GDP growth of more than 10% and more than 9% in 2009.  And as far as you can tell by looking around, there are improvements going on here in terms of basic infrastructure (my own experiences aside), such as the fairly good highways spidering out to the regions from Baku and the availability of high-speed internet even in regions like Lənkəran.

Yet, from talking with loan officers at the bank, and the way the crisis continues to simmer in places like the US and Russia, the effects of a worldwide crisis are still slowly creeping in on Azerbaijan.  Yesterday discussing with a loan officer friend, Fərahim, the reality for him is that it’s becoming harder and harder to find medium-sized business for lending.  Businesses are finding themselves in situations where taking a loan doesn’t make sense because cash flow is too low.  Last month, our branch was barely able to loan out 10,000 AZN for small- and medium-sized businesses.  This month is proving to be similar.  And it doesn’t help that winter is settling in, when nearly everything shuts down in Azerbaijan.

So how does Azerbaijan get hit by the crisis?  The most obvious factor I can see is the fact of falling remittances.  It’s a rather incredible reality that there are villages here who send more than half of their men to Russia or other countries to find work and send money back because there are very few jobs in the country.  Fərahim mentioned that it could be as high as 70% of the men in his village have left the country to find work.  It’s one thing if there is work to be found elsewhere, but during a worldwide crisis, that’s not necessarily the case.  The husbands and older sons in Russia aren’t sending back that extra 50 or 100 AZN per month (average in Azerbaijan in 2006 was six remittance payments a year, about $160 each), so fewer, cheaper goods are purchased at the bazaar.  While Baku might not suffer as extreme effects since it has it’s own job market and benefits more from improved infrastructure and oil money, the regions that are losing their manpower and don’t see much benefit from the oil and gas booms.

In Lənkəran specifically, this a particularly acute problem.  The European Bank for Reconstruction and Development did a study for the year 2006.  Findings suggested that a full 25% of the recipients of remittances from abroad are Lənkəran residents.  That’s more than double any other region.  Also in 2006, the EBRD reported that nearly $530 million came into the country as remittances, followed by a jump to $1.2 billion in 2007; a huge chunk, pushing near to 3% of GDP for 2006, and nearly 5% of GDP in 2007.  Since then, however, a worldwide crisis has pushed through other countries.  And while Azerbaijan staved off the worst of it by having a rather undeveloped financial sector and somewhat conservative financial practices, the tide is coming in by depriving families of that extra boost in income.  Recent reports show that remittances in 2009 fell 20%.  And I can only imagine that they fell further in 2010, with a probable pickup next year.

So when people say the crisis stayed away from Azerbaijan, they are right, to a point.  The crisis was not immediately felt here, nor does it directly hit Azerbaijani citizens.  But it does push in through the waves of the global economy.


Written by Aaron

November 4, 2010 at 7:51 pm

Posted in Uncategorized

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