Our Analytics 22 july — 16:32

Waiting for 'economic recovery of Azerbaijan' (Our analysis)

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BY ALEXANDER KARAVAYEV, AZERI DAILY AUTHOR

The State Statistics Committee of Azerbaijan has published the results of economic development in the first half of 2021 - the overall growth of the country's GDP amounted to 2.1%, which is already relatively good. And although the slowdown caused by the pandemic and the fall in oil prices has not been overcome both in the hydrocarbon sector itself (a decline of 4.7% over the reporting period) and in the industrial production of goods, including agriculture, nevertheless, due to the intensification of construction and in the production of building materials, the overall growth in the non-oil segment amounted to 5.1%.

This is, perhaps, the most important of the statistics news, allowing to speak with cautious optimism about systemic changes in a separate segment of the Azerbaijani economy and the beginning of the 'recovery effect' - an increase in the share of construction in the country's GDP.

Systemic changes can be spoken of with cautious optimism

Let's compare the indicators of the current year and 2018. In general, if in 2018 in the structure of Azerbaijan's GDP the share of industry accounted for almost 40%, then in 2021 it grew to 44%. However, this is more likely a consequence of the decline in the share of the oil industry and the filling of the resulting vacuum with projects from a number of industries of the new industrialisation, including agricultural exports from new agricultural parks.

Construction is somewhat more complicated and promising. If in 2018 this sector accounted for 5.1% of the country's economy, then in 2021 it reached 7.96%. And this despite the fact that a long period of decline in the industry, stretched over several years, caused by the currency crisis and the reduction of development projects in the real estate market in Baku by 2018, was estimated at about minus 9%.

Consider the detailing of the increase in the production of building materials in more detail:

- The volume of cement production in the reporting period amounted to 1 million 702 thousand tonnes, 8.4% more than in the same period last year. By the way, this made it possible to contract the export of cement to Georgia. ADY Express plans to transport 15 thousand tonnes of cement produced by Holcim Azerbaijan monthly;

- plaster of paris - 12.3 thousand tonnes (an increase of 33.7%);

- building blocks and bricks made of cement - 37 thousand tonnes (an increase of 76.2%);

- ready-mixed concrete - 1 million 230.1 thousand tonnes (an increase of 41.6%);

- construction lime - 17.5 thousand tonnes (an increase of 29.6%),

- brick production - 276.1 thousand cubic metres (an increase of 16.8%);

- processed marble, travertine, alabaster and products from them - 18.601 thousand tonnes (an increase of 83.1%);

- prefabricated concrete structures - 36.7 thousand cubic metres (an increase of 2.1 times).

Such an impulse in the production of building materials has not been observed for many years.

There is an impulse in the production of building materials

Now let's talk about what causes anxiety

First, it is the continuing decline in capital investment in fixed assets - in the first half of the year it was estimated at 7.6%. This is an alarming signal, given that in 2020 the decline in capital investments in Azerbaijan amounted to 8.3%, and the trend itself was noted in previous years. Investments in Azerbaijan, of course, are coming, but less than in the fat oil years, and this is an objective trend. Although national investors are increasingly strengthening their positions, there is a return to Azerbaijan of previously withdrawn capitals, but they cannot yet become a full-fledged locomotive of economic growth. It takes years of painstaking work on specific projects, including medium and small business segments.

The second thing that catches the eye when analysing statistics is the reduction in the share of GDP in the spheres of transport, agricultural production, and trade: in comparison with 2018, in the range from 0.4% to more than 1% (agriculture and forestry, fish farming). Of course, the impact of the pandemic can be compared to a war. That, in fact, is considered by many economists. But it is obvious that non-standard solutions are required to correct the situation and bring these sectors onto the routes of confident development. Especially now, there is a danger that the rising oil prices may again divert attention away from the non-oil economy. However, there is less and less time left - no more than 10-15 years for jumping into the last car of the decarbonised, green economy. It is necessary to have time to fix and promote high-quality brands abroad of Azerbaijan, for example, in the production of agricultural eco-products, as well as in green petrochemistry, based on renewable energy - in the production of zero-emission polymers, construction textiles, and other interesting projects. And also to carry out the most complete import substitution cycles. In this case, the construction sector is the most suitable foothold.

Less and less time: 10-15 years are left to jump on the last car of the outgoing green energy train

The idea to form the Azerbaijan Construction Corporation just found such a scenario. Consider one of the examples of adjacent chains of industrial lines: expanding the range of production of building materials (including ready-made building blocks for standard building modules), then - building textiles and asphalt concrete pavements for the construction of highways; creation of a production line for utility pipelines and valves for the renovation of the housing and communal services sector and new construction in the liberated territories; creation of a production of a wide range of LED panels for urban and private lighting (a similar project was discussed by Ilham Aliyev with the head of Signify, formerly known as Phillips Lighting, in February 2021); the maximum possible localisation of the assembly of communal and partly construction equipment, here is the transition to the auto industry. In short, this or a similar integrated approach could be a national priority.

Actually, there is every reason for this. For example, against the background of a fall in car assembly volumes in 2020-2021, the production of tractors of various types has sharply increased in Azerbaijan - 2.8 times more than in the first half of 2020.

Thus, the recovery effect will obviously become a generator of growth not only in the construction industry, but also in the entire volume of the non-hydrocarbon part of the Azerbaijani economy.

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