Outlook for 2011-15

• The Economist Intelligence Unit expects the incumbent president, Ilham Aliyev, to face a more testing second term in office, as slower economic growth will raise the risk of social protests.
• Competition will intensify between the EU and Russia for Azerbaijani energy resources during the forecast period. Azerbaijan will focus on playing off these competing interests against each other to secure political advantage.
• The economy will grow at an annual average of 4.3% in 2011-15, down from an average of 16.4% in 2006-10. Slower expansion in oil production in the coming years will act as a considerable drag on growth.
• Annual average inflation rose to 5.7% in 2010, from 1.5% in 2009. Annual average inflation will stay in single digits in 2011-15, but consumer demand growth will exert inflationary pressures in the later part of the forecast period.
• The manat will remain largely stable in nominal terms against the US dollar in 2011. The manat will assume an appreciating trend against the US dollar from 2012 onwards as investor risk appetite resumes and capital inflows rise.
• The current account will remain firmly in surplus in 2011-15, averaging 19.4% of GDP. High oil exports will continue to be the main driver of the substantial trade surplus.

Monthly review

• The Public Chamber umbrella opposition group held protests against the government in the capital, Baku, on April 2nd and April 17th. The protests were swiftly put down by the authorities.
• The plan of the de facto government in Nagorny Karabakh to open an airport near the region's capital, Stepankert (Khankendi), has led to an increase in tensions between Azerbaijan and Armenia.
• The state-owned energy company, Azerenergy, plans to construct ten new hydro plants in Azerbaijan by the end of 2011. Improvements to the country's infrastructure are necessary after years of underinvestment.
• The state budget recorded a surplus of Manat681m (US$850m) in the first quarter of 2011. The government may revise its state budget forecast in May, owing to higher than expected oil prices in the first quarter.
• Real GDP expanded by 1.6% year on year in the first quarter of 2011. The non-oil sector was the main driver of growth.
• The current-account surplus rose to just over US$15bn in 2010, from US$10.2bn in 2009. A sharp rise in export revenue, to US$26.5bn-owing to higher global commodity prices-was the main factor driving the increase.

The president, Ilham Aliyev, has been in power since 2003, following the death of his father, Heydar Aliyev. Power is concentrated in the president, and Mr Aliyev currently appears to have control over the country's political structures. However, the fundamental shift and potential democratising wave that could be under way in the Middle East and North Africa (MENA)-which has resulted in protests against, and the removal of, long-standing authoritarian leaders-raises the question of whether authoritarian countries in the Commonwealth of Independent States (CIS) such as Azerbaijan could be affected by similar trends.

The wave of protests in MENA has inspired opposition groups in Azerbaijan to hold similar protests. Since March 2011 several opposition parties and movements have staged anti-government protests in the capital, Baku. So far the number of protesters participating in the demonstrations has been small. Further protests are likely to be held in the near term. The small number of people participating in the demonstrations indicates that the opposition's ability to pose a threat to the status quo is limited. However, the same applied in Tunisia and Egypt, only to change rapidly. Should the opposition hold protests on a more frequent basis, and the number of people participating in the demonstrations increase, the risk to the Aliyev regime would be elevated.

Mr Aliyev will face a more testing second term in office. The development of the energy sector led to rapid economic growth in the past decade. As oil production will be much slower over the forecast period, this will weigh on economic growth prospects, increasing the potential for further unrest as real wage growth slows and income inequality is potentially exacerbated. Aside from the experience of the corrosive effect of energy-based development, the Aliyev regime and those in MENA also share the similarity of entrenched corruption. (Signalling their concern over how they are perceived by the public, the authorities began implementing an anti-corruption campaign in February 2011.)

Unlike the MENA states, Azerbaijan remains an overwhelmingly secular society. However, the strength of the Islamic community, which is drawing inspiration from Turkish and Iranian religious groups, has grown in recent years, and is a cause for concern for the authorities. In late December 2010 and January 2011 there were protests, albeit significantly smaller than in MENA, against the administration's earlier decision to ban the wearing of the hijab in schools. There is a risk that the government's mishandling of issues deemed sensitive by the growing community of practising Muslims, such as encroaching on religious liberties, could become a source of social unrest. The risks to the Aliyev regime would also increase if the economic slowdown were to be more severe than the Economist Intelligence Unit currently forecasts.

The next presidential poll is scheduled to be held in October 2013. Although the risks to Mr Aliyev's position will be elevated over the forecast period, it is likely, given the regime's dominance over the media and ability to use administrative resources, that if Mr Aliyev decides to stand, he will win. The next parliamentary election is scheduled for November 2015. At the legislative election in November 2010 Mr Aliyev's New Azerbaijan Party (NAP) won a landslide victory, although international observers raised concerns over the NAP's use of administrative resources and the bias in media coverage. The opposition failed to win a single seat. This will make it impossible for traditional opposition parties to express their points of view in state institutions, and will increase the potential of the opposition holding protests and demonstrations in order to get its voice heard. Over the forecast period the opposition's operations will nonetheless be hampered by a lack of access to the media, restrictions on demonstrations, and limited financial resources.

Azerbaijan will find it more difficult to balance its foreign policy orientation in the coming years in the wake of attempts by Turkey and Armenia to improve relations, and increased interest from the West and from Russia in Azerbaijani energy resources. The authorities have so far taken a careful approach, seeking stronger energy and security ties with the West, but at the same time maintaining military and economic links with Russia. However, Azerbaijan is now coming under greater pressure from the West to sign up to new energy projects, and from Russia to reject such initiatives in favour of closer energy ties between Azerbaijan and Russia. Although Azerbaijan will continue to pursue a cautious, balanced approach towards Russia and the West throughout the forecast period, its foreign policy decisions will be heavily influenced by its desire to secure a reliable transit route for the gas from the second phase of the Shah Deniz project, which is expected to come on stream in 2016-17.

The decision by Azerbaijan's long-standing ally, Turkey, to pursue better relations with Armenia-which culminated in the signing of two protocols in October 2009, aimed at establishing diplomatic relations and developing bilateral ties-increased tensions between Azerbaijan and Turkey. However, relations between Armenia and Turkey have since soured, with the Armenian president, Serzh Sargsyan, suspending ratification of the protocols in April 2010 claiming that the Turkish administration had dragged out the ratification process beyond a reasonable timeframe. Mr Sargsyan also raised concerns over the Turkish administration's decision to attach preconditions, probably referring to the Turkish authorities' assertions that a settlement of the Nagorny Karabakh dispute between Azerbaijan and Armenia was crucial to an improvement in Turkish-Armenian relations.

Following the setback in attempts to improve ties between Turkey and Armenia, relations between Turkey and Azerbaijan have improved. The two countries signed a gas deal in June 2010, ending a long-running gas dispute. In August Azerbaijan and Turkey signed a "Strategic Partnership and Mutual Co-operation" treaty, which reconfirmed the friendly links between them. However, if Turkey were to seek to improve ties with Armenia without a breakthrough in the Nagorny Karabakh talks, this would have a negative impact on Azerbaijani-Turkish relations. Talks between Azerbaijan and Armenia aimed at resolving the Nagorny Karabakh conflict are ongoing, but progress has been limited in recent months. In January 2010 Mr Aliyev and Mr Sargsyan reached an agreement on a preamble to the Madrid Principles, which outline a step-by-step approach to resolving the conflict. Further progress in restoring ties will remain slow over the forecast period.

Azerbaijan has been more open towards Russia's offer to buy all of its gas, as a result of the attempts to improve Turkish-Armenian relations. The decision has the potential to render commercially unviable the EU-backed Nabucco pipeline, which would take Caspian gas to Europe, bypassing Russia. Azerbaijan will continue to hold out the promise of closer energy co-operation with Russia in exchange for greater Russian support for its position in the conflict with Armenia. Azerbaijan raised its exports to Russia to 2bn cu metres of gas per year in 2011 (from 1bn cu metres). This will increase pressure on Turkey, which hopes to become a main transit country for the transport of Caspian gas to Europe. In this respect, Azerbaijan will hope that Turkey does not move too far away from supporting its position over Nagorny Karabakh.

Azerbaijan experienced the repercussions of the global downturn through weaker oil prices and heightened risk aversion towards emerging markets. Although global oil prices will be higher in 2011-15 than in 2009, slower real GDP growth in Azerbaijan owing to lower oil production growth will weigh on budget revenue, particularly in the initial years of the forecast period. In 2011-15 the government will continue to draw on the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) to help to finance social spending and infrastructure projects. A lack of effective instruments will constrain the conduct of monetary policy. The business environment will remain difficult, owing to entrenched corruption, as well as the presence of formal and informal monopolies in many sectors. In conjunction with a less favourable global environment than before the global crisis, this will hamper the authorities' goal of increasing investment in non-oil sectors such as agriculture and manufacturing.

State budget revenue rose to Manat11.4bn (US$14.3bn) in 2010 (including transfers from SOFAZ) and expenditure increased to almost Manat11.8bn, resulting in a deficit of Manat363.5m (US$454m), equivalent to 0.9% of GDP. The data in our annual tables refer to the state budget excluding transfers from SOFAZ. On this basis, the 2010 deficit widened to 15.1% of GDP, from 14.9% of GDP in 2009.

The government's state budget for 2011 targets revenue of Manat12.06bn and expenditure of Manat12.75bn, resulting in a deficit of Manat687m, equivalent to 1.7% of the government's GDP forecast. According to the government's forecast, the rise in revenue is explained by a planned increase in transfers from SOFAZ. Over one-half of state budget revenue will come from SOFAZ in 2011, indicating the government's reliance on the fund for its expenditure plans. In April the government indicated that it may revise its state budget target in May owing to higher oil prices in the first quarter of 2011. The government may be tempted to increase social spending in a bid to reduce the risk posed by recent anti-government protests.

As the outlook for the economy begins to improve from 2012 onwards, we expect that the government's reliance on the fund as a source of revenue will begin to wane. We forecast that the budget deficit (excluding transfers from SOFAZ) will begin to narrow from 2011, contracting to 8.2% of GDP in 2015.

The conduct of monetary policy will remain difficult, given the limited tools available to the Central Bank of the Azerbaijan Republic, and the lack of co-ordination between fiscal and monetary policy. The Central Bank's monetary policy committee raised the refinancing rate by 2 percentage points, to 5%, effective from March 1st 2011. The increase is only the second time that the Central Bank has raised the rate since May 2009. The Central Bank cited concerns over the resurgence of inflationary pressures as the main factor behind its decision. If current conditions continue, further increases in the refinancing rate cannot be excluded. Nonetheless, the increase in the refinancing rate will have only a limited impact, as the domestic debt market is underdeveloped. At the monetary policy meeting in March, the Central Bank also increased the reserve requirements on banks' external and domestic liabilities from 0.5% to 2%. The Central Bank has reiterated its commitment to maintaining the stability of the banking system and to ensuring sufficient liquidity in the financial system, which will provide some support to economic growth over the medium term.

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The impact of the global economic downturn was much less severe on Azerbaijan than on other countries in the region. Real GDP expanded by 9.3% in 2009, the fastest rate in eastern Europe. However, growth slowed sharply in 2010, to 5%, as output growth from oil production slowed significantly, to 0.9%, from an 13.5% expansion in 2009. The slowdown in real GDP growth in 2010 marked a shift in the underlying economic dynamics. In recent years, the oil sector had been the main driver of the economy; however, in 2010 the oil sector expanded by 1.8%, whereas the non-oil sector grew by 7.9%. Oil production will continue to expand much more slowly over the forecast period than in recent years, which will act as a significant drag on economic activity. We forecast that GDP growth will decelerate further in 2011, to 3.5%.

Growth will begin to pick up in 2012, and will average 4.5% in 2012-15. Prices for dated Brent Blend crude oil will fall to average US$78.7/barrel in 2012-15, compared with US$90.3/b in 2010-11, but we believe that this will not pose a risk to export and budget revenue, which are heavily reliant on profit from the oil sector. Although the expansion of hydrocarbons output will be much slower than in 2005-09, it will increase steadily, providing some support to economic activity. The Chirag oilfield is scheduled to come on stream in late 2013, which will provide a boost to oil production from 2014. Growth will also be supported by increasing investment in the hydrocarbons sector as preparations for the second phase of the Shah Deniz project, which should come on stream in 2016-17, are undertaken. The continuing development of the hydrocarbons sector will have spillover effects in services sectors such as transport, communications, and wholesale and retail trade.

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Higher energy and food prices, combined with the continuation of higher government spending, contributed to a pick-up in the pace of price rises in 2010. Recent data have revealed that food prices have spiked, probably because of the negative impact of the regional drought, as well as flooding earlier in 2010, which damaged crops. The resurgence of inflationary pressures in the final months of 2010 helped to push annual average inflation up to 5.7%. We expect food prices to remain elevated in the initial months of 2011; combined with higher global prices for oil, this will result in annual average inflation of 9.2% in 2011. Slower economic growth, and weaker domestic demand and money supply growth than in the boom years, will limit inflationary pressures. However, large inflows of oil-related foreign exchange and a loose fiscal policy will continue to exert substantial upward pressure on prices throughout the forecast period, preventing more rapid disinflation in 2011-15. Export revenue will be partly sterilised through the use of the offshore oil fund, although transfers from the fund to the state budget will remain high.

The authorities appear to have supported the currency in 2009, as the manat remained stable against the US dollar at around Manat0.8:US$1, even though oil prices were lower than in 2008. As a result, foreign reserves fell to a 14-month low of US$4.9bn in July 2009. However, foreign reserves have since recovered to total US$6.8bn in February 2011, above the peak recorded in December 2008, before the impact of the global economic crisis was felt. We expect the currency to remain stable in 2011, at around Manat0.8:US$1. The Central Bank's continuing intervention in the foreign-exchange markets in the initial part of the forecast period will prevent rapid fluctuations in the exchange rate. From 2012 onwards a return of investor risk appetite and higher capital inflows will put the manat on a modest appreciating trend, to Manat0.74:US$1 in 2015.

The current account will stay firmly in surplus throughout the forecast period. We forecast the current-account surplus to average 19.4% of GDP in 2011-15, driven by a substantial trade surplus, as export revenue, which is overwhelmingly derived from the oil sector, will continue to dwarf import spending. Imports for transport, communications and construction will rise, although expenditure on imported consumer goods will be lower than before the crisis. Growth in services imports related to the oil sector will rise in the later years of the forecast period as the second phase of the Shah Deniz project intensifies. After narrowing sharply in 2009 as the contraction in the global economy led to a fall in imported services in the hydrocarbons sector, the services deficit will widen more markedly from 2012 onwards. Nonetheless, the services deficit will be at broadly the same levels as in 2005-08 as foreign investors seek to reduce costs in response to the impact on firms' revenue of the global economic recession in 2009. This will lead to slower growth in the deficits on the services account than at the peak before 2008. Over the forecast period the high cost of developing oilfields and gasfields will keep gross inflows of foreign direct investment (FDI) comparatively high, albeit much lower than in the peak years of 2003-04.

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The Public Chamber umbrella opposition group held a rally in the capital, Baku, on April 17th. The demonstration was the latest in a series of anti-government protests organised by various opposition groups since the start of 2011 (February and April 2011, The political scene). As in previous protests, the demonstrators called for the resignation of the president, Ilham Aliyev, who has led the country since 2003, following the death of his father, Heydar Aliyev. Demonstrators also chanted "freedom". The Public Chamber had asked the authorities for permission to hold the rally in a central location in Baku. Permission was refused and a location outside of the centre of the capital was proposed as an alternative; the protesters decided to hold the demonstration in line with their original plans. Ahead of the protest the authorities sought to restrict the movements of some of the opposition leaders. In the aftermath of the rally around 65 people were detained, 25 of whom were later released. The protest was the second demonstration organised by the Public Chamber in April. The group had staged an earlier protest in Baku on April 2nd. According to the opposition, around 1,000 people participated in the earlier protest, although officials from the Ministry of Internal Affairs put the number at around 300. At the time of writing, ten members of the Public Chamber rally remain in detention following the earlier rally.

The leader of Musavat (Equality; one of the main opposition parties), Isa Gambar, said that the recent wave of protests have been inspired by the demonstrations in the Middle East and North Africa (MENA) that led to the overthrow of the authoritarian regimes in Tunisia and Egypt. The opposition plans to hold further protests in the coming weeks. Unsurprisingly, the authorities have been quick to dismiss the impact of the protests on the political sphere. In a statement to the press on April 17th, Siyavush Novruzov-the deputy secretary of the ruling New Azerbaijan Party (NAP), led by Mr Aliyev-stated that the number of people participating in the protests had been significantly exaggerated, and claimed that the organisers of the demonstration had given some people money to encourage them to participate.

International organisations have condemned the authorities' reactions to the protests. Amnesty International released a press statement on April 7th calling for the authorities to halt their campaign of "intimidation against opposition leaders that has seen activists detained and allegedly beaten by police". The Economist Intelligence Unit expects tensions between the authorities and opposition groups to remain elevated in the coming months. Currently, the number of demonstrators is small compared with the relative numbers who participated in the protests in the MENA states. In addition, the demonstrations have been concentrated in Baku, limiting the potential for them to pose a wider risk. As such, it seems likely that the protests will not pose a significant threat to regime stability. However, if the government continues to crack down on the protesters, there is a risk that this could backfire and encourage further people to join in the demonstrations, potentially leading to disruptions to the political status quo.

The plans of the de facto government in Nagorny Karabakh to open an airport near the region's capital, Stepanakert (called Khankendi by Azerbaijan), provoked considerable anger from the Azerbaijani authorities. Azerbaijan claims that the opening of the airport would be in violation of international legislation, as Nagorny Karabakh is not recognised by international law, and Azerbaijan has not authorised the flights to take place. At the height of tensions over the planned opening of the airport, the director of the Azerbaijani Civil Aviation Administration, Arif Mammadov, stated that Azerbaijan has the right to shoot down planes landing at the airport, which is on occupied territory. The Armenian authorities dismissed the comments. The Armenian president, Serzh Sargsyan, subsequently announced that he would be on the first passenger flight from Armenia to Nagorny Karabakh. Azerbaijan has now toned down its rhetoric and the authorities claim that they will use diplomatic means to prevent the opening of the airport. Mr Mammadov has since announced that the Azerbaijani government has reaffirmed with the International Civil Aviation Organisation (ICAO) that no flights to Nagorny Karabakh have been authorised by officials in Azerbaijan. At the time of writing, the ICAO is looking into the matter.

The airport has been closed since the conflict between Azerbaijan and Armenia in the early 1990s. The de facto government in Nagorny Karabakh first announced that it was planning to open the airport in 2009. Construction work has been under way since then, including repairs to the runway and the construction of a new passenger terminal. The refurbishment of the airport is estimated to have cost around US$2.8m. There have been several delays in the opening of the airport: it was first expected to open in November 2010, then the opening date was pushed back to May 2011 and has since been pushed back further, and a date for the opening has not been specified. The de facto administration in Nagorny Karabakh insists that the latest delays are because of technical matters and are not because of Azerbaijan's strong statements against the opening of the airport. According to officials, the airport would only operate flights between Nagorny Karabakh and Armenia. The Nagorny Karabakh authorities set up a state-owned airline, Artsakh Air, in January 2011, which will be the sole operator at the airport.

Tensions between Azerbaijan and Armenia have been elevated in recent months, and border skirmishes have increased. In March a nine-year-old Azerbaijani boy was killed, allegedly by sniper shots from an Armenian house, sparking a flare-up in tensions (April 2011, The political scene). Although the international community, particularly Russia, has continued to push for a breakthrough in the conflict, only limited progress has occurred in recent months. The unresolved issue of the airport in Nagorny Karabakh is another factor that will make it more difficult for a settlement to be reached. Nonetheless, although the airport issue has led to heightened tensions between the two countries, we believe that this is highly unlikely to lead to the renewal of fighting between the two sides, although the possibility of a further increase in skirmishes on the border cannot be ruled out.

The state budget recorded a surplus of Manat681m (US$850m) in the first quarter of 2011, a modest increase on the Manat467m surplus recorded in the year-earlier period. State revenue rose to around Manat2.8bn (US$3.5bn) in the first three months, an increase of about 13.2% year on year. As in previous quarters, transfers from the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) were the largest source of revenue in the first quarter, totalling Manat1.3bn. Tax revenue was the second-largest source of government income in January-March, totalling almost Manat1.2bn, a year-on-year increase of 15%. Expenditure rose to almost Manat2.1bn in the first quarter, a year-on-year increase of around 5.5%. At almost Manat1bn, social spending was the government's largest expenditure in the first quarter, up by around 15% year on year.

On April 12th government officials indicated that their state budget forecast for 2011 could be adjusted in May owing to higher than expected global oil prices in the first quarter of 2011. The authorities currently target budget revenue of Manat12.06bn, with over one-half of total to be transferred from SOFAZ. The government currently forecasts expenditure of Manat12.75bn, resulting in a deficit of Manat687m. These targets are based on an official conservative oil price forecast of US$60/barrel, but the government has indicated that it may increase its oil price forecast to US$80/b.

In February 2011 the IMF urged the government to show restraint in fiscal spending to prevent the emergence of stronger inflationary pressures. However, there is a possibility that the government will be tempted to increase spending on social payments and public-sector wages in the revised budget. The authorities may believe that if they increase expenditure in these areas, this will prevent larger protests against the government (see The political scene).

In March the state-owned electricity monopoly, Azerenergy, announced that it plans to construct ten new hydro plants in Azerbaijan in 2011. The size of the planned generating capacity of the plants is small, with each expected to have a generating capacity of 1.5-20 mwt. Azerbaijan has increased its investment in electricity-generating infrastructure in recent years. Separately, the head of Azerenergy, Etibar Pirverdiyev, confirmed that construction of the Canub power plant, which will replace existing and obsolete infrastructure at Shirvan, is proceeding well. The Canub plant will have a capacity of 780 mw once completed. The plant, which is being constructed by Azerenergy, will operate with black oil and gas, and is expected to be completed in late 2011. Investment in the country's power infrastructure is necessary after years of underinvestment and neglect. Improvements to the power network will play a supporting role in encouraging economic diversification in Azerbaijan.

Real GDP expanded by 1.6% year on year in the first quarter of 2011, according to data from the State Statistics Committee (SSC), much slower than the 5.4% growth in the year-earlier period. Continuing the recent trend, the non-oil sector remained the main driver of growth, expanding by 5.6% year on year in January-March. The oil sector recorded a year-on-year contraction of 1.9%.

The SSC reported that Azerbaijan produced 12m tonnes of crude oil in the first quarter, marking a 2.5% year-on-year contraction. Gas production reached 6.3bn cu metres in the first quarter, a fall of 3.2% year on year. The government forecasts that total oil production will rise modestly, to 51.5m tonnes in 2011, compared with 50.8m tonnes in 2010. Global oil prices will be higher in 2011 than in 2010; we forecast an oil price of US$101/b in 2011, up from US$79.6/b in 2010. Nonetheless, higher oil prices will not be sufficient to offset the impact of the slowdown in oil production growth in 2011. In its latest World Economic Outlook, released in April, the IMF revised its real GDP forecast to 2.8%, from 1.8%. The government expects real GDP to expand by 3.8% in 2011.

The current-account surplus rose significantly in 2010, to just over US$15bn, according to data from the Central Bank of the Azerbaijan Republic. The current-account surplus fell to US$10.2bn in 2009 (from US$16.5bn in 2008) owing to the negative impact of lower oil prices and tight global financial conditions. The sharp increase in the current-account surplus was primarily driven by an increase in the trade surplus. Goods imports increased modestly, to US$6.7bn from US$6.5bn in 2009, but goods exports rose much more rapidly, to almost US$26.5bn-an increase of 25.5%-according to Central Bank data. Imports of consumer goods and imports for the energy sector increased. However, goods imports remained below the US$7.6bn level in 2008, indicating that consumer demand remains weak. As in previous years, the vast majority of export revenue was derived from the oil and gas sectors; in 2010 these sectors accounted for almost 95% of total export revenue. The drivers behind the increase in export revenue in 2010 were higher oil prices and an increase in external demand. Unlike in 2009, when a 13.5% increase in oil production mitigated the impact of lower global oil prices on the balance-of-payments dynamics, oil production expanded by only a marginal 0.9% in 2010.

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The services deficit expanded to US$1.7bn in 2010 from US$1.6bn in 2009, in part reflecting the increase in construction expenditure as the pace of investment increased. The income deficit was essentially unchanged from 2009; profit repatriation by foreign investors (mostly in the hydrocarbons sector) increased, but this was essentially offset by a rise in income credit. Inward foreign direct investment (FDI) rose to US$3.3bn in 2010 from US$2.9bn in 2009, although this figure remains below the levels seen in the pre-crisis period. Outward FDI fell to US$232m in 2010 from US$326m in 2009, but the net FDI outturn was weighed down by an increase in repatriation of capital by foreign investors, which was just under US$2.8bn in 2010. Nonetheless, the increase in inward FDI was more than sufficient to offset the increase in repatriation of capital and Azerbaijan recorded net FDI of US$329m in 2010, up from US$147m in 2009. FDI, particularly in the run-up to the coming on stream of the second phase of the Shah Deniz project (expected in 2016-17), is expected to rise in the coming years.

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Please see graphic below

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Total area

86,600 sq km

Population

8.9m (January 1st 2010)

Main towns

Population in '000 (January 1st 2008)

Baku (capital): 1,917

Ganja: 310

Sumgait: 300

Climate

Ranging from cold in the Caucasus mountain range in northern Azerbaijan to temperate in the Kura plain (average July temperature of 27°C, January temperature 1°C) and subtropical in the Lenkoran lowlands in the south-east; average temperatures in Baku, on the Caspian Sea, range from 7°C in January to 27°C in August

Language

Azeri (a Turkic language) is the state language; the use of Russian is being phased out, but it is still widely spoken

Weights and measures

Metric system

Currency

Manat, introduced as legal tender in 1993 to replace the rouble; in January 2006 a new manat was introduced, replacing the old manat at a rate of 5,000 old manat = 1 new manat

Time

Four hours ahead of GMT

Fiscal year

Calendar year

Public holidays

Fixed: January 1st-2nd (New Year), March 8th (Women's Day), May 9th (Veterans' Day), May 28th (Republic Day), June 15th (National Salvation Day), June 26th (Armed Forces Day), October 18th (National Independence Day), November 12th (Constitution Independence Day), November 17th (National Revival Day), December 31st (Worldwide Solidarity of Azerbaijanis Day)

Movable: Ramazan Bayram/Id al-Fitr, Novruz (Iranian New Year), Kurban Bayram/Id al-Adha

Official name

Republic of Azerbaijan

Form of state

Azerbaijan existed as an independent republic between 1918 and 1920, before becoming part of the Soviet Union as the Azerbaijan Soviet Socialist Republic in April 1920. In September 1989 Azerbaijan proclaimed its sovereignty, and on October 18th 1991 it declared full independence. A new constitution was adopted in November 1995

National legislature

National Assembly of 125 members elected from single-member constituencies

National elections

November 2010 (legislative) and October 2008 (presidential); next elections in November 2015 (legislative) and October 2013 (presidential)

Head of state

The president, Ilham Aliyev, was elected for a second five-year term in October 2008

National government

The president appoints the cabinet of ministers, and in co-ordination with parliament, the president appoints the prime minister and heads of local government

Main political parties

New Azerbaijan Party (NAP), led by Mr Aliyev; Azerbaijan National Independence Party (ANIP); Party of the Popular Front of Azerbaijan (PPFA); Musavat (Equality); Democratic Party of Azerbaijan (DPA); National Unity Party; Azerbaijan Democratic Independence Party (ADIP); Islamic Party of Azerbaijan (IPA); The Party of Hope (Umid)

Council of Ministers

Prime minister: Artur Rasizade

First deputy prime minister: Yagub Eyubov

Deputy prime ministers:

;Abid Sharifov

;Elcin Efendiyev

;Ali Hasanov

Key ministers

Agriculture: Ismed Abbasov

Communications & information technology: Ali Abbasov

Culture & tourism: Abulfaz Garayev

Defence: Safar Abiyev

Defence industry: Yaver Jamalov

Ecology & natural resources: Huseyn Bagirov

Economic development: Shahin Mustafayev

Education: Misir Mardanov

Emergency planning: Kemaleddin Heydarov

Finance: Samir Sharifov

Foreign affairs: Elmar Mammadyarov

Health: Oqtay Shiraliyev

Industry & energy: Natiq Aliyev

Interior: Ramil Usubov

Justice: Fikret Mamedov

Labour & social protection: Fizuli Alekperov

National security: Eldar Mahmudov

Taxes: Fazil Mamedov

Transport: Ziya Mamedov

Youth & sport: Azad Rahimov

Parliamentary speaker

Ogtay Asadov

Central bank chairman

Elman Rustamov