Analysis and regulation of the structure of foreign trade in Azerbaijan

Asif Mirlazim Mustafayev  Tariel Gurbanov  Ilkin Ramiz Bayramov

Journal number 1 ∘ Asif Mirlazim Mustafayev ∘ Tariel Gurbanov ∘ Ilkin Ramiz Bayramov ∘
Analysis and regulation of the structure of foreign trade in Azerbaijan

DOI: 10.52340/ekonomisti.2025.01.02

Summary

The presented article analyzes the foreign trade turnover in Azerbaijan over the past 5 years. Basically, the period after the COVID-19 pandemic was analyzed. The main goal here was to assess the regulatory role of the state. Thus, separate statistical figures of both exports and imports were taken and analyzed in the article. Then, in accordance with the analysis, forecasts were made for the next 5 years. The regulatory directions of the state for the realization of forecasts are also mentioned in the article. It is concluded that the regulation of foreign economic activity carried out in Azerbaijan in general has been stable. The main goal was to reduce dependence on imports. Undoubtedly, in this sense, the development of the non-oil sector will remain one of the main goals of the Azerbaijani state in the future.

Key words: Azerbaijan, foreign trade, turnover, import, export, non-oil sector, COVID-19, forecast, CIS, regulation, finance, etc.

İntroduction

Undoubtedly, Azerbaijan's foreign trade policy plays an important role in the economic development of the country. In the period leading up to the COVID-19 pandemic, Azerbaijan expanded its foreign trade relations and maintained its economic model based mainly on oil and gas exports. The country's foreign trade balance was positive for many years, which was mainly ensured by revenues from the export of energy resources. In particular, strategic projects such as the Baku-Tbilisi-Ceyhan oil pipeline and the Southern Gas Corridor have made Azerbaijan one of the important players in the International Energy Market.

At the same time, the non-oil sector was gradually developing. Exports of agricultural products, including cotton, hazelnuts, pomegranates and wine, increased. The state provided various subsidies and soft loans to promote the development of the non-oil sector. In particular, the export markets of agricultural and light industry products were diversified, and the shipment of products to Russia, European countries and the Middle East was increased.

When the pandemic began, global trade relations faced serious tests. At the beginning of 2020, the world economy fell into a recession, which also negatively affected Azerbaijan's foreign trade. The price of crude oil fell sharply, and the country's export revenues fell. In addition, quarantine measures and restrictions on logistics led to a decrease in trade turnover. Azerbaijan, like other countries, has taken a number of measures to minimize the negative economic effects of the pandemic.

After the pandemic, Azerbaijan's foreign trade policy had to adapt to new conditions. Although oil prices have recovered, more attention has been paid to the non-oil sector for the sustainable development of the Azerbaijani economy. During the Post-pandemic period, the state carried out a number of economic reforms to increase the export of non-oil products. In the agricultural and industrial sector, production was strengthened, logistics and trade relations were expanded. In particular, the creation of free trade zones and the development of transport corridors expanded the country's foreign trade opportunities.

Main part

Azerbaijan's transit potential has also gained even more importance in the post-pandemic period. The volume of trade flows through the Baku International Sea Trade Port and the East-West, North-South transport corridors has been increased. Trade relations with China, Central Asia and European countries were expanded. In this context, Azerbaijan's efforts to increase non-oil exports began to yield results.

As a result, before the COVID-19 pandemic, Azerbaijan's foreign trade was mainly based on the export of energy resources. Although the global economic crisis during the pandemic had a negative impact on the country's trade balance, in the post-pandemic period, important steps were taken towards economic diversification and the establishment of new trade relations. The Azerbaijani government has improved its trade policy to develop the non-oil sector and implemented various economic reforms to strengthen the country's position in international markets.

During the COVID-19 pandemic and beyond, the Azerbaijani state has taken a number of important steps to regulate foreign trade. In the early periods of the pandemic, the disruption of global trade relations, restrictions on transport and logistics negatively affected the country's foreign trade turnover. For this reason, the government of Azerbaijan implemented flexible and targeted measures to maintain economic stability and regulate trade flows [5].

First of all, the government optimized the customs system to ensure continuity in import and export operations. The” green corridor " launch system was expanded, which accelerated the import of basic food and medical supplies. At the same time, temporary restrictions were introduced on the export of certain strategic products, which helped to maintain price stability in the domestic market.

During the pandemic, steps were taken to increase domestic production and reduce dependence on imports. Preferential loans and subsidies were allocated by the state to agricultural and industrial enterprises. These measures were aimed at increasing the export potential of the non-oil sector. In particular, special attention was paid to the production of agricultural products in order to ensure food security.

In the Post-pandemic period, the Azerbaijani government has developed new economic strategies to restore and expand foreign trade relations. The promotion of the” Made in Azerbaijan " brand was strengthened and state support for the access of local products to international markets was increased. At the same time, work was accelerated to create free trade zones and increase transit potential.

Diplomatic and economic cooperation was expanded to restore foreign trade relations. In particular, the focus was on strengthening trade relations with neighboring countries, searching for new export markets and expanding trade relations with the countries of Europe, Asia and the Middle East. Azerbaijan also strengthened cooperation with international trade organizations and took steps towards digitalization of trade processes and facilitation of customs procedures.

As a result of all these measures, Azerbaijan was able to adapt to new conditions in the field of foreign trade. Thanks to the flexible regulatory policy of the state, trade turnover was restored, the non-oil sector was developed, and the country's position in international markets was strengthened.

The steps taken by the Azerbaijani government to regulate foreign trade during and after the pandemic have had noticeable effects in various fields [5]. First of all, the simplification of customs procedures and the expansion of the “green corridor” release system accelerated import processes. This prevented delays in the delivery of food, medical equipment and other strategic products during the pandemic and helped meet demand in the domestic market.

As a result of diversification of exports and support of the non-oil sector, development was observed in agriculture and light industry. Subsidies allocated by the state to farmers and industrial enterprises increased the production of agricultural products and expanded access to new markets. In particular, exports of non-oil products to Russia, Europe and the Middle East increased, which strengthened the country's economic stability.

At the same time, the creation of free trade zones and the expansion of transport and logistics opportunities increased the transit potential of Azerbaijan. As a result of the expansion of the capacity of the Baku International Sea Trade Port and the development of the East-West and North-South transport corridors, Azerbaijan has become one of the important transit countries in international trade. This increased the flow of foreign currency into the country and strengthened Azerbaijan's position in the field of international cargo transportation.

In addition, the promotion of the brand “Made in Azerbaijan” had a positive impact on the country's export policy. Thanks to state support, the recognition of domestic products in international markets increased, and the demand for Azerbaijani products in foreign markets increased. At the same time, the restoration of trade relations and the finding of new export markets led to the fact that the country's foreign trade turnover approached the pre-pandemic level.

As a result of all these steps, Azerbaijan not only restored its foreign trade relations after the pandemic, but also made significant progress in diversifying the economy. Thanks to the flexible trade policy of the state and strategic regulatory measures, the country's economy has become more stable and competitive, adapting to new challenges [5].

Table 1

Analysis and evaluation

The structure of exports in foreign trade in the Republic of Azerbaijan, in thousand USD

	Total	On a relevant period of previous year, %	of which
			To non-CIS countries	On a relevant period of previous year, %	To CIS countries	On a relevant period of previous year, %


2020	12 588 158	63,4	11 361 019	60,9	1 227 139	99,9
2021	21 692 281	172,3	19 889 469	175,1	1 802 812	146,9
2022	42 206 696	194,6	40 706 447	204,7	1 500 249	83,2
2023	29 202 114	69,2	27 586 297	67,8	1 615 817	107,7
2024	19 265 063	88,3	18 005 602	87,1	1 259 461	110,1
I quarter	6 184 494	72,9	5 853 641	71,7	330 853	102,7
II quarter	6 168 009	92,4	5 698 015	91,8	469 994	101,3
III quarter	6 912 560	103,7	6 453 947	102,3	458 613	128,3

Source: [2]

The table data shows that the total export volume of Azerbaijan has shown significant fluctuations over the years. In 2020, the volume of exports amounted to $ 12.6 billion, which is a low indicator compared to previous years. This is mainly due to global trade restrictions during the pandemic, falling oil prices and declining demand in international markets. In 2021, there was a significant increase in exports – $ 21.7 billion (an increase of 172.3%). The opening of economies and the recovery of oil and gas prices after the pandemic have been the main reasons for this rise. In 2022, export volumes rose to $ 42.2 billion, an increase of 194.6% compared to the previous year. 2022 was the most successful year for Azerbaijan in terms of exports, and the main reason is the rise in prices for energy resources on the world market. In 2023, exports fell sharply and amounted to $ 29.2 billion (69.2%). The main reasons for this include a drop in energy prices and a global economic downturn. In the first three quarters of 2024, exports were $ 19.3 billion, which represents a decline of 2023% compared to 88.3 [2, 4].

Thus, in 2021-2022, a large increase in exports was recorded after the pandemic, but from 2023 there is a decrease.

The main partners in Azerbaijan's exports are non-CIS countries, and the change in exports in this direction has a significant impact on the country's overall trade balance. In 2020, exports to non-CIS countries amounted to $ 11.4 billion. In 2021, this figure increased to $ 19.9 billion and recorded an increase of 175.1%. In 2022, exports to non-CIS countries reached a historical maximum of $ 40.7 billion. The growth was 204.7%, which is mainly due to the sharp increase in the export of energy products to Europe. In 2023, exports to non-CIS countries fell to $ 27.6 billion and amounted to 67.8%. In the first three quarters of 2024, exports to non-CIS countries amounted to $ 18 billion, which indicates a decrease of 87.1% [2, 4].

The main reasons for this decline are instability in energy markets, declining energy demand in Europe and the transition to alternative energy sources. Exports with CIS countries are more stable than with non-CIS countries and have shown growth in certain periods. Exports to the CIS countries in 2020 amounted to $ 1.2 billion. In 2021, this figure increased to $ 1.8 billion, registering an increase of 146.9%. In 2022, exports to the CIS countries fell to $ 1.5 billion and amounted to 83.2%. In 2023, exports to the CIS countries amounted to $ 1.6 billion and recorded an increase of 107.7%. In the first three quarters of 2024, exports to the CIS countries amounted to $ 1.3 billion, which indicates an increase of 110.1% [3]. These indicators show that exports with CIS countries are more stable than with non-CIS countries and show more growth than decline.

The main trends in the export structure of Azerbaijan are:

Sharp post-pandemic export growth in 2021-2022
Decline in exports starting in 2023
Large fluctuations in trade with non-CIS countries
More stable exports with CIS countries
Certain growth trends in the III quarter of 2024

In the future, Azerbaijan's export strategy should focus on the development of the non-oil sector. Dependence on oil and gas exports should be reduced, agriculture, non-oil industry and exports of high-tech products should be expanded. In the event of continued instability in the energy markets, Azerbaijan's export revenues may again be at risk of declining. Therefore, the country should diversify its export markets and expand cooperation with new trading partners.

The dominant role of oil and gas remains in Azerbaijan's export structure, but the non-oil sector needs to be developed. Exports with the CIS countries are relatively stable, but significant changes are observed in non-CIS markets. The country's trade policy should be aimed at diversifying exports and exploring new markets. In the graph presented below is the forecast of exports for the next 5 years (see graph 1)

Graph 1

Source: Compiled by the Author according to Table 1.

The main reasons for the positive forecast on the chart:

1. Development of non-oil sector. The government of Azerbaijan is investing heavily in the development of agriculture, industry and service sectors. The creation of Free Economic Zones (for example, the ALAT Free Economic Zone) can expand export opportunities. The increase in domestic production will create new types of products for export.

2. Acquisition of new trading partners. Azerbaijan is expanding trade relations with Central Asia, Turkey and the European Union. The Middle Corridor Project (a trade route from China to Europe) could boost exports by increasing Azerbaijan's transit role. Strengthening economic cooperation within the Organization of Turkic states.

3. Innovation and new markets in the oil and gas sector. Azerbaijan's gas exports may be more important against the background of the "green energy transition". Expansion of hydrocarbon projects (Shah Deniz, Absheron, etc.) will increase export revenues. Hydrogen energy and renewable energy projects will enable the export of new energy products to Europe.

4. Digital economy and technological modernization. It is expected to develop the ICT sector and expand the export opportunities of startups. Platforms such as Azexport and Digital Trade Hub facilitate export processes. Artificial intelligence and automation will improve the quality of exported products and services.

Looking at the structure of imports, we can identify a number of serious economic changes (see table 2).

Table 2

The structure of imports in foreign trade in the Republic of Azerbaijan, thousand USD

	Imports (FOB)
	Total	On a relevant period of previous year, %	of which
	Total	On a relevant period of previous year, %	From non-CIS countries	On a relevant period of previous year, %	From CIS countries	On a relevant period of previous year, %
2020	10 076 564	88,9	7 503 564	92,7	2 573 000	79,4
2021	10 418 668	103,4	7 818 125	104,2	2 600 543	101,1
2022	13 509 216	129,7	9 394 522	120,2	4 114 694	158,2
2023	16 396 551	121,4	11 911 319	126,8	4 485 232	109,0
2024	12 261 104	103,5	9 076 841	106,5	3 184 263	95,8
I quarter	3 515 055	93,4	2 613 676	100,3	901 379	78,0
II quarter	4 214 096	107,9	3 021 219	109,1	1 192 877	105,0
III quarter	4 531 953	108,4	3 441 946	109,3	1 090 007	105,6

Source: [2]

Looking at the presented table data, the following conclusions can be drawn:

1. Overall Import Dynamics. From 2020 to 2024, the following main trends in imports are observed: In 2020, imports amounted to $ 10.08 billion and decreased by 11.1% compared to the previous year. This decline was mainly due to global trade restrictions and weakening of domestic economic activity during the pandemic. In 2021, imports increased by 3.4% to $ 10.42 billion. The recovery of the global economy has increased import demand. In 2022, imports increased by 129.7% to $ 13.51 billion. This is mainly explained by the increase in imports of equipment and technologies related to projects in the energy sector and infrastructure development. In 2023, imports reached $ 16.4 billion. The growth was 21.4 per cent, and there is an impact of development in the non-oil sector. And in 2024, imports fell to $ 12.26 billion. This is mainly due to the fact that the national currency remains stable and some of the imports are replaced by local production.

2. Distribution Of Imports By Region. Imports are mainly divided into two categories:

a) import from CIS countries In 2020, it was $ 2.57 billion and accounted for 25.5% of total imports. In 2022, it showed an increase of 4.11%, reaching $ 158.2 billion. This is mainly due to the import of agricultural products and industrial equipment from Russia. And in 2024, imports from the CIS countries fell to $ 3.18 billion. This may be due to the development of local alternatives on the Azerbaijani market and the indirect influence of international sanctions against Russia [3].

b) import from non-CIS countries. In 2020, it was $ 7.50 billion and accounted for 74.5% of total imports. In 2022, it showed an increase of 9.39%, reaching $ 120.2 billion. And in 2023, it increased to $ 11.91 billion, indicating that Azerbaijan imports more technology and industrial products, mainly from the markets of Europe, China and Turkey [4]. In 2024, imports from non-CIS countries fell to $ 9.07 billion. This indicates that Azerbaijan is diversifying imports and reducing dependence on imports in certain areas.

3. Causes and effects of imports. The main factors affecting the change in imports:

a) domestic demand and economic development. As the economic recovery took place in 2022-2023, imports also increased. In 2024, a certain lag is observed, which may be the result of a policy of strengthening domestic production and import substitution.

b) Energy and infrastructure projects. Modernization in the oil and gas sector and the development of transport infrastructure have increased imports. Imports of machinery and equipment for Transport and logistics projects in Azerbaijan have increased.

c) global economic trends and exchange rates. Price changes and inflation in world markets have affected Azerbaijan's import costs. The stability of the Azerbaijani manat has relatively stabilized import processes.

During 2020-2023, there is a general increase in imports, which is due to economic development and increased demand for foreign markets.

In 2024, imports decreased, which is due to the fact that domestic production to some extent replaces imports and balances the balance of foreign trade.

Azerbaijan has reduced imports from CIS countries and increased trade with non-CIS countries, which is an indicator of its diversification strategy. In the future, the main directions of imports will be industrial equipment, technology and agricultural products. These trends show that Azerbaijan's foreign trade policy is aimed at reducing dependence on imports and developing the non-oil sector.

In accordance with the presented import indicators, we believe that dependence on imports may decrease for the next 5 years. for this, certain steps must be taken (see graph 2)

Graph 2

Source: Compiled by the Author according to Table 2.

In order for the import forecast for the next 5 years to be in a positive trend, a number of steps should be taken to regulate foreign trade activities in Azerbaijan:

1. Development of domestic production

✅ Industrial parks and production facilities should be increased – especially in the non-oil sector, production should be expanded.

✅ Technology and innovation must be supported – domestic manufacturers must gain access to modern technologies and increase competitiveness [6].

✅ Agricultural production should be strengthened-in the agricultural sector, subsidies and technical support should be increased to replace imported products with domestic ones.

2. Application of import substitution policies

✅ Import duties may be increased for certain strategic products, which will help protect domestic producers.

✅ Support for export-oriented companies should be increased, thus the country will both reduce dependence on imports and increase sales abroad.

✅ Local brands should be developed and promoted, consumers should be encouraged to give preference to local products.

3. Development of alternative sources of energy and raw materials

✅ Investment in alternative energy sources should take place-the transition to domestic production of imported energy equipment should take place.

✅ The production of raw materials should be increased – in order to reduce the dependence of the industrial sector on imports, the production of raw materials in the country should be expanded.

4. Strengthening logistics and infrastructure

✅ Internal transport systems should be strengthened – roads, railways and logistics centers should be developed to facilitate the delivery of products from production to the consumer.

✅ Customs and trade procedures should be optimized – effective trade rules should be applied to prevent imports.

5. Financial and credit support

✅ Local companies should be provided with soft loans and investment support so that they can produce alternative products to imported goods.

✅ Tax benefits should be applied to enterprises producing innovative and high-tech products.

The result

Azerbaijan's foreign trade has developed dynamically in recent years and has gone through various stages. In 2020, due to the impact of the pandemic, the volume of foreign trade decreased, but in subsequent years there was a revival. With the increase in oil and gas exports in 2021 and 2022, the country's trade turnover grew rapidly. In 2022, export indicators reached record highs, which became possible mainly due to the high income of the oil and gas sector. And in 2023, exports declined as a result of global economic changes, fluctuations in the energy market and a decrease in the pace of development of the non-oil sector. Although a stable situation was maintained in the foreign trade balance in 2024, certain declines were recorded in the total trade turnover.

The main share of Azerbaijan's exports belongs to the energy sector. The main trading partners of the country are the countries of the European Union, Turkey, Russia and China. Although the non-oil sector is developing, it still does not dominate the country's exports. The growth of non-oil exports requires increasing production capacity and expanding access to new markets. Imports are mainly dominated by industrial equipment, food products and consumer goods. Although import volumes increased slightly in 2023, 2024 saw a certain degree of decline as a result of the development of domestic production and changes in demand.

The Azerbaijani government is implementing a strategy to develop local production in order to reduce dependence on imports. The establishment of industrial parks, the development of Agriculture and the promotion of local brands serve this purpose. In particular, the steps taken in the fields of Agriculture and processing industry are aimed at increasing the export potential of the non-oil sector. As a result of import substitution policies, the amount of some products imported into the country has begun to decline.

Azerbaijan's foreign trade strategy is based more on the principles of sustainable development and diversification. The country seeks to increase the share of the non-oil sector in trade turnover and increase its competitiveness in foreign markets. For this, measures are being taken such as strengthening the logistics infrastructure, opening new transport routes and facilitating export processes. The expansion of Azerbaijan's transit opportunities and its participation in the "Middle Corridor" project may have a positive impact on the development of foreign trade in the future.

The further development of Azerbaijan's foreign trade depends on strengthening the non-oil sector and increasing access to new markets. Attracting foreign investment and stimulating local production will ensure the sustainability of the economy. If the country can successfully implement this strategy, it can strengthen the balance of foreign trade in the long term.

Literature