On 14 June 2023 the second SDG Dialogue “Towards 2030: Social and economic inclusiveness in Azerbaijan” was held bringing together over 100 representatives from government agencies, the United Nations (UN), international financial institutions (IFIs), the diplomatic community, the private sector, civil society and academia. The event was organised by the National Coordination Council on Sustainable Development of Azerbaijan, the Ministry of Economy, and the UN. Participants reviewed Azerbaijan’s progress towards inclusive growth and reflected on additional policy measures to enhance social and economic inclusiveness in the country in line with the central principle of SDGs of leaving no one behind.
The analysis of Azerbaijan’s progress on inclusive growth and social inclusion was conducted in line with the Inclusive Growth Index (IGI) of the United Nations Conference for Trade and Development (UNCTAD), which is comprised of four pillars: (i) Economy; (ii) Living conditions; (iii) Equality; and (iv) Environment; and 27 indicators across these four pillars. For the purposes of this analysis, additional indicators on expenditures on health, education and social protection have been added under the third pillar to capture the financing aspects of these social sectors.
The analysis showed that the Government of Azerbaijan has consistently implemented a number of large-scale state programmes aimed at enhancing the well-being of the population and their social and economic inclusion, with significant results achieved. Azerbaijan’s economy has seen a notable transformation in the three decades since independence in 1991. The gross domestic product (GDP) per capita has grown around three times between 2005 and 2021. This has resulted in the country’s progress to an upper middle-income level. The most significant outcome of the efforts has been the reduction of poverty. The proportion of population living below the national poverty line decreased from nearly 30 per cent in 2005 to 4.9 per cent in 2015. After rising to 6.2 per cent in 2020 due to the Covid-19 pandemic, by 2022 the poverty level fell to 5.7 per cent (Figure 1).
The unemployment rate was under 5 per cent since 2010, surged to 7.2 per cent in 2020 due to the pandemic and stabilized at 5.6 per cent in 2022. However, around 36 per cent of the employed work in agriculture which produces 6–7 per cent of GDP. Unleashing the productivity growth in agriculture and expansion of high-skill employment will be important in going forward. Labour productivity in Azerbaijan, measured as GDP per person employed, dropped due to the Covid-19 pandemic in 2020; however, a gradual increase is observed starting 2021. While output per worker remains lower than in other upper-middle income countries in Europe and Central Asia, its growth rate in recent years has been one of the highest among them.
Breakdown of household income by quintiles shows that the main source of income for households in the lowest income quintile is self-employment, followed by employment and social transfers, while the main source in the highest income quintile is employment, suggesting that formal employment is instrumental for higher household incomes in Azerbaijan (Figure 2).
In 2021 the wages of women were on average 64.8 per cent of that of men. The gender wage gap was more significant in science and technology, financial services, transportation, manufacturing and mining. Coverage of the unemployment benefit increased from 1.6 per cent in 2016 to 19.1 per cent in 2020, which is critical to sustain the livelihoods as well as to support upskilling and re-skilling of unemployed persons.
Recently released data by the World Bank’s financial inclusion index (Findex) indicates that in 2022 bank account ownership in Azerbaijan reached to 46 per cent of the population aged 15 years and older (Figure 3). This is an important progress for expanding financial inclusion of the population. Nonetheless, Azerbaijan’s performance on this indicator remains below regional average.
According to the inclusive growth concept, economic growth and socially inclusive co-production associated with greater economic opportunity will be unsustainable without efficient and sustainable use of natural resources. The key is to create more economic value with fewer resources in order not to compromise people's future well-being.
Among natural assets, water resources play a critical role for the sustainable development of Azerbaijan where more than 70 per cent of water resources are generated outside the country. Given the continuing expansion of the economy, water stress, measured in terms of freshwater withdrawal as a proportion of available water resources, has been steadily increasing in the past decade, reaching 57.5 per cent in 2022 (Figure 4). Water stress level is considered high when this measure is in the range from 40 to 80 per cent. The volume of water consumption has also been increasing since 2014, mainly driven by increase in irrigation and agriculture. Concerning water use efficiency, water productivity fluctuated in the past decade until falling to 3.70 United States dollars of GDP per cubic metre in 2020. However, significant improvement in water productivity has been observed in 2021 and 2022 (Figure 5), which, if continued, could be a game changer in mitigating the increasing water stress in the country.
A new productivity push is needed in the economy that would ensure sustained growth and expansion. Efforts aimed at productivity enhancement should consider technological improvement and innovations in all spheres of the economy, better trade integration and diversification of exports, as well as expanded investments in skills, research and development and technology transfer. Policies that target more balanced rural-urban development would be needed to boost the productive capacities and employment opportunities in all parts of the country. It will be important to continue policies on reducing the gender wage gap with the view to increase the ratio of women’s monthly average wages to men’s monthly average wages to 80 per cent by 2026, in line with the Strategy of Socio-Economic Development in 2022-2026.
Effectively targeted social protection schemes need to be continued to protect the households in low-income groups from high food inflation, especially in the periods when relatively high food inflation is observed, among others due to global developments. Accordingly, shock-responsive social protection mechanisms could be introduced, that is, mechanisms for better social protection for low-income and vulnerable groups during possible emergencies such as an economic recession or a pandemic.
Considering the increasing water stress in the economy, improving water use efficiency and water productivity of GDP should be prioritized going forward. This would require boosting investments in agriculture, water supply and waste treatment to enhance the sustainable use of land and water resources and ensure sustainable waste management.
United Nations Economic Commission for Europe
Palais des Nations, Geneva
