Azerbaijan’s appetite for change remains low despite struggling economy and protests

Azerbaijan’s appetite for change remains low despite struggling economy and protests
By bne IntelliNews January 15, 2016

Azerbaijan is facing a perfect storm of a falling oil price, plunging currency, spiking food prices, rising social unrest and political infighting: what, if anything, will the government do to steady the ship?

In the days of the oil and gas bonanza, the administration of President Ilham Aliyev was able to maintain a tight grip on power – and society – by investing hefty energy revenues in infrastructure, industrial, telecommunications and beautification projects to keep his people content and off the streets. But the administration has failed to deliver on long-standing promises of economic diversification and regional development; Azerbaijan’s provinces remain badly underdeveloped, and oil and gas continues to account for 70% of budget revenues, 90% of exports and a third of GDP.

The lack of serious reforms in the last decade is starting to backfire. Protests over price rises and unemployment that began on January 12 in different provinces in Azerbaijan continued on January 13, with rallies staged in the northeastern region of Siyazan; Fizuli region in the south; Aghjabadi and Agsu regions in central Azerbaijan; and Lankaran in the south-east. In Siyazan, security forces used tear gas and rubber bullets to disperse demonstrators. Some 55 were detained, and five policemen and three protesters were reportedly injured.

Unregistered protests are illegal in Azerbaijan, carrying prison sentences as high as three years. However, the economic situation in Azerbaijan appears to be deteriorating enough to embolden people to take to the streets. Since the central bank floated the national currency, the manat, on December 21, the currency has devalued by almost 50%, leading to skyrocketing inflation in the price of most food staples.

The authorities’ response to the protests? Label demonstrators as agitators and extremists, while exempting flour and bread from VAT and capping their sale price. “The regions are worse off than Baku, because at least half the people there have lost their jobs. So it was to be expected that protests would break out there first,” Arastun Orujlu, director at the Baku-based think-tank East West Research Centre, tells bne Intellinews.  “I expect demonstrations to continue at least until March, because everything is more expensive during the winter months – food, utilities – and people have a hard time making ends meet. Besides, in March Azerbaijanis celebrate the [Zoroastrian] New Year Novruz, which requires money for preparations.”

Exchanges expunged

Many people feel betrayed by the authorities. In early January, Azerbaijanis had turned to exchange offices to safeguard their savings against a rumoured further devaluation of the manat, but the central bank moved to stop the frenzied currency exchange by instituting limits on the amount that could changed, closing down independent exchange offices on January 9 and asking commercial banks to close their exchange offices on January 13. The move pushed the price of the dollar on the black market to AZN1.8-2.5, compared with AZN1.57 at the official exchange rate.

There are also longstanding structural problems in the economy, which is making the problems worse. Unemployment in the oil-rich country of 9.5mn was always high, with only 1.5mn officially employed at end-2015. The level of unemployment in the provinces is much higher than in the capital of Baku, the former relying on agriculture and remittances from relatives working in Russia.

The moves to protect the currency’s value have also made unemployment worse. “Closing [currency] exchange offices will cut another 6,000 jobs, and of course there is no plan for these newly unemployed,” Orujlu says.

Natiq Jafarli, an economist and member of the opposition group the Republican Alternative, accuses the government of lacking any programme to tackle the crisis. “The cuts in expenditure in most areas are resulting in tens of thousands of lost jobs. Is the government thinking about the fate of the unemployed?” he asks.

Jafarli is not entirely correct, for the government is working on an austerity programme, which is expected to cost as much as $5bn, that will include tax rises and cuts in government jobs. But it might be too little, too late to significantly reform the economy now, when time and money are fast running out.

Jafarli is right in that the steep drop in oil prices in the last 18 months took Baku by surprise, yet it shouldn’t have. While the Azerbaijani government had cut budget expenditure for 2016 and set a baseline oil price of $50 a barrel, much lower than the $90 a barrel in 2015, the increasingly real prospect that oil prices could fall as low as $20 a barrel threatens to send the economy careering out of control. And there appears no ‘Plan B’ in Baku. “The decline in oil prices is not new, the government had one and a half years [since the decline began] to do something. They however did not do anything, hoping that prices would bounce back. That didn’t happen,” Orujlu says.

Instead, Baku is once again resorting to rhetoric to vilify critics. State-owned media and institutions like the Interior Ministry and the Office of the Prosecutor General are blaming the protests on agitators, the opposition and religious extremists. Furthermore, “in his New Year speech, [President Aliyev] blamed the drop in oil prices on a US-led conspiracy to take Russia down, and said Azerbaijan is just a victim of this global conspiracy,” Orujlu said.

It might still be early days, but Baku’s reaction to the recent wave of social unrest appears to indicate a lack of political appetite for real change. Instead, the administration seems likely to continue with the blame game, cracking down on dissent and criticism, and will look to wait it out until global conditions improve and the tables turn for its economy.