Having regained its independence, Azerbaijan has made great strides by going through a difficult and glorious path from a chaotic socio-economic and political situation to a stage of dynamic socio-economic development. During this period, a completely new political and economic system was established and rapid development was facilitated. In the first years of independence, the deep crisis caused by objective and subjective reasons, especially the occupation of 20 percent of the country's territory by Armenia, the expulsion of more than one million of our compatriots from their homelands, deepened the socio-economic crisis and made the country's economy unmanageable. Industrial production began to decline rapidly in the first years of this period. The decline in industry was due to the difficulties associated with transition from the planned Soviet economic system to the new system of market relations. The breakdown of production and economic relations between enterprises, the loss of key sales markets, the abandonment of the mechanism of centralized formation and distribution of production funds and financial resources, the liberalization of prices, in short, the need to build and manage production in industrial enterprises on the basis of market relations led to severe industrial decline.
The radical reforms carried out under the direct leadership of national leader Heydar Aliyev have yielded positive results in a short time. Reforms in new legislation, budget, taxation, banking and financial system, agrarian reforms, privatization of state property, creation of a favorable business environment, oil strategy, diversification of export routes, efficient use of oil revenues, integration into the world economy and other areas were carried out during this period.
Measures have been taken to slow down and gradually reverse the decline in industrial production, which could affect the macroeconomic processes. The main focus was on the establishment of a market-based economic system, the privatization of industrial enterprises, and as a result, progress was made in many areas of industry.
The process of privatization of state-owned enterprises in industry began in 1996 with a small privatization. In the following years, privatization accelerated, and by January 1, 2006, 842 small industrial enterprises had been sold for 9 million manat. At the same time, 359 medium and large industrial enterprises with the total authorized capital amounted to 405.4 million manat were transformed into joint stock companies.
However, many organizational and economic problems arose in the process of restoring and reviving the activities of privatized state-owned enterprises. The most important of those was the lack of financial resources needed to restructure and modernize the production base of industrial enterprises in accordance with market conditions. Therefore, measures have been taken to create an appropriate investment climate in the country to meet the needs of industrial enterprises for investment resources.
From 1990 to 1996, the level of industrial production decreased by 3.8 times, the output of important products decreased sharply (oil 30.8%, gas 43.3%, iron ore 178 times, aluminum oxide 380 times, diesel fuel 50.2%, gasoline 52.7%, lubricants 86.3%, fuel oil 47.6%, electricity 26.7%, cement 78.9%, cotton wool 64.4% and so on. ), the work of a number of enterprises was stopped, and the number of employees in industrial enterprises decreased from 426.8 thousand to 289.4 thousand due to the dismissal of one in three workers and specialists.
The Government of the Republic of Azerbaijan has set as a strategic goal to overcome the economic crisis, deepen the market relations on the basis of new economic mechanisms, and accelerate the development of market infrastructure. However, the revival of the industry was not possible without the implementation of large-scale projects based on world technologies in the oil industry, which was its basis. The Contract of the Century was signed (1994) for the development of the Azeri, Chirag, and Gunashli fields located in the Azerbaijani sector of the Caspian Sea, and the State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established (1999).
The government began to pursue a tight monetary and fiscal policy, liberalized prices and foreign trade, made serious preparations to start mass privatization, passed a law on state support for small business, simplified the tax system for small businesses, and removed a number of restrictions on private sector development, best part of the licensed activities has been abridged.
The measures taken resulted in progress in the development of industry, the most necessary foundations of a market economy were formed, the formation of market institutions was accelerated, and the main market mechanisms began to work. The annual decline in industrial production was halted in 1997, and in subsequent years the industry developed on an upward trajectory. Compared to 1995, the industrial production in 2005 significantly increased 72.6%, including 2.3 times in the mining industry, 26.9% in the production of leather, leather goods and footwear, 2.3 times in the chemical industry, 10 times in the production of other non-metallic mineral substances, 5.5 times in the metallurgical industry and finished metal products, 9.4 times in the production of transport equipment, 2.4 times in the production of furniture, oil production increased 2.4 times, iron ore production 4.9 times, aluminum oxide 12.1 times, kerosene 25.7%, gasoline 14.5%, electricity 34.7%, cement 7.8 times, fixed industrial assets increased 3.3 times, the average monthly salary increased 10.7 times and reached 213.2 manat. After the first oil was extracted from the central Azeri field in February 2005, the importance of the industry for the country's economy increased. Industry accounted for 47.5% of GDP, 50.8% of fixed assets, and 72.3% of investments in fixed assets (2005).
Restoration of stability, consistent economic reforms, the country's rich hydrocarbon resources, the establishment of the necessary regulatory framework have led to the inflow of foreign capital to Azerbaijan. In the first years of independence, instability in Azerbaijan discouraged foreign businessmen from investing in the country's economy, but in the following years the number of entrepreneurs investing in various sectors of the economy increased rapidly as a result of the necessary measures to create a favorable environment for dynamic entrepreneurship.
In 2005, 91.4% or 3.3 billion manat of foreign investments in the country's economy was directed to the development of production potential of the industry. The share of the oil and gas industry in the total volume of investments in fixed assets in industry was 95.8% (2005). 649 new jobs were created in the mining industry, 8585 in the processing industry, and 731 in the production and distribution of electricity, gas and water.
As of January 1, 2006, there were 796 enterprises in the country, including 208 foreign and joint ventures in the industrial sector, employing 58,000 people, including 23.6 thousand people in industrial enterprises. Most of the new foreign and joint industrial enterprises launched in 2000-2005 were established by the companies of Turkey, Iran, Russia, England, the United States, Germany, France, Switzerland, China, the United Arab Emirates and others countries.
Taking advantage of the economic stability and favorable economic conditions created in Azerbaijan, local and foreign investors invested in the industrial sector 16.8 billion manat (USD 18 billion) or 74.6% of investments in all sectors of the economy. Investments were made to keep existing facilities operational, purchase new technologies, machinery and equipment, also on the construction and expansion of facilities. As a result, the value of fixed assets in the industry amounted to 19.4 billion manat and production capacity increased 3 times. In 2004, “Qafqaz” cannery with the annual capacity of 50 million standard jars, a brick factory with a production capacity of 15,000 standard bricks per day in Siyazan, “Azbentonit” plant with a production capacity of 60 tons of bentonite per day in Absheron, a “Star Ltd” plant producing electrical appliances in Shamakhi, "Vita" LLC with a production capacity of 1.2 thousand tons of tomatoes and "S.MARI" LLC with an annual capacity of 12.5 thousand dkl of beer in Lankaran, "Sugar-confectionery" enterprise producing 7 tons of sugar per shift in Masalli, transformer substations in Sadarak, Sharur and Tartar, fruit juice plant with the annual capacity of 7.3 million standard jars a year in Sheki and other industrial facilities started to operate.
In recent years, research and development of new products and services, as well as their production methods (31% of innovative industrial enterprises were engaged in this), the acquisition of new technologies (29% respectively) have been the priority areas of innovation management. Since 2004, there have been changes in the structure of financial sources of innovation costs. Thus, in 2002, 76.5% of all innovation expenditures were foreign investments and only 23.5% were the own funds of local enterprises. In 2005, foreign investments were not used for these purposes at all, most of the investments (80.8%) were allocated from the state budget. The level of use of advanced production technologies has also increased, from 111 in 2001 to 131 in 2005.
Economic reforms and privatization have given enterprises some freedom, creating favorable conditions for the renewal of fixed assets and improving their use. This process is observed in increasing the rate of renewal of fixed assets. The replacement rate of fixed assets was 1,061 in 1995, 1,048 in 2000, and 1,207 in 2005.
However, the replacement of fixed assets in a number of enterprises producing food and beverages, textiles, machinery and equipment, etc. was below the national average. Replacement of fixed assets indicated high rates in production of crude oil and natural gas (27.2%), oil products (7.8%), tobacco products (13.8%), pulp and paper, cardboard and products made from them (14.8%), publishing and printing activities (8.9%).
Along with traditional products, the manufacture of new products was also being mastered. In 2004-2005, color TVs, cars, machines for preparing animal feed, stainless steel ingots, fire extinguishers, electric wires, refractory ceramics, etc. were produced. The country began to produce most of the goods imported from abroad earlier. Baku Oil and Food Industry joint-stock company (vegetable oils), Coca-Cola Bottlers Ltd (soft drinks), SUN-Tea Azerbaijan (packaged tea), Baku-Castel LLC (beer), European Tobacco Baku "(cigarettes)," DAD "," Barakat "(dairy products)," Azer-Pen BM","Turk-Baycan" (plastic doors and windows)," EUPEC Pire Coatings Azerbaijan "(special pipes for oil transportation) and other enterprises' products that meet world standards have enriched the domestic market, significantly reducing dependence on imports for these products.
There have been fundamental changes in the structure of industrial ownership. As a result of the gradually expanding activities of privatized state-owned enterprises, as well as newly established non-state enterprises and consortia, the share of state-owned industrial enterprises has been declining.
Bringing entrepreneurship to a qualitatively new level has become one of the strongest tools for developing the non-oil sector. In order to strengthen entrepreneurship in the country, the "National Fund for Entrepreneurship Support" was established and the government began to provide soft loans. The formation of a free enterprise environment in the country has given impetus to the emergence of new forms of economy. One of them, the number of employees in private entrepreneurship in 2005 was more than 7,000. 51% of the sugar produced in the country, 94% of men's suits, 63% of wooden windows, and almost all wooden goods were produced by individuals. The number of individual entrepreneurs, as well as other economic indicators of the country's industry are given in Table 7.
Reforms and construction works are being successfully continued in the energy system. As a result of the successful implementation of the priority tasks set to provide consumers with better quality and sustainable electricity, more than 2,000 MW of new power generators has been put into operation since 2003.
The commissioning of 105 MW Shahdag and 525 MW Sumgayit power plants in 2008, as well as the reconstruction of the third and fourth units of the Azerbaijan Thermal Power Plant to obtain more than 200 megawatts of additional capacity are among the most important events in the country's economic life. At present, the country's electricity supply system includes 13 thermal power plants and 6 hydropower plants. Their total installed capacity is about 6,400 megawatts.
More than 90 percent of the country's electricity is generated by thermal power plants and the rest by hydropower plants. The existing production not only fully meets the needs of our country, but also allows to export electricity to neighboring countries.
The 780 MW South Power Plant, built in Shirvan city, will save an average of 1 million tons of fuel per year. The plant, which is scheduled to be commissioned in 2011, will play a major role in further strengthening the energy security of the southern region of the country.
The construction of the 25 MW Fizuli Hydroelectric Power Station will not only strengthen the energy security of the Aran region, but also increase peak capacity.
Work on the reconstruction of Mingachevir and Varvara hydropower plants, which have been in operation for many years, is continuing according to schedule. As a result of the reconstruction, 90 MW of additional generation capacity will be obtained at these stations.
In accordance with the relevant state program, it is planned to build Tovuz, Shikhli and Poylu hydropower plants with a total capacity of about 550 MW on the Kur River. At the same time, work has begun on the construction of wind farms and small hydropower plants on mountain rivers in different regions of the country.
It is planned to build a 10-megawatt wind power plant in Gobustan and small hydropower plants in Ismayilli, Goychay, Balakan and Gusar regions.
One of the factors characterizing the stability and safety of the power system is to ensure the efficiency of the power transmission system. The work on the development of this system was continued in 2009 as well.
Testing and adjustment works are being carried out at 220 kilovolt Salyan substation, which will serve to increase the volume of energy exchange with the Iranian state from 200 megawatts to 700 megawatts. Work is underway to build the relevant high-voltage lines that are part of the project. The facility is planned to be commissioned this year.
Construction of the 220 kV Aghdash substation, which will be of great importance in meeting the growing demand for electricity in the lowland and north-western regions of the country, as well as in increasing the sustainability of the power system, is planned to begin in the near future.
At the same time, the construction of 500 kV "Samukh", 220 kV "Zabrat", 110 kV "Laza" and other substations, in parallel with these projects, reconstruction of 70 km of 500 kV "Mukhranis-Veli" overhead line, 220 kV two-circuit 1st and 2nd Mingachevir and other overhead lines is also planned.
In general, as a result of the implementation of projects in 2010-2015, about 3,000 megawatts of additional power was obtained in the electricity supply system. Also, the implementation of projects for the construction of large and small hydropower plants in the country has allowed to save more than 2 million tons of conventional fuel, at the same time it has reduced the amount of carbon dioxide emitted into the atmosphere by about 10 million tons.
In general, the total electricity generating capacity of the country's electrical power system has exceeded 6,000 megawatts, the country's demand for electricity has been fully met, and Azerbaijan has transformed from an energy importer to an exporter. Today, our country is an active participant in Europe's energy security.
The contribution of the defense industry to the country's security is growing.
The enterprises operating for the Military-Industrial Complex of the former USSR (now subordinated to the Ministry of Defense Industry of the Republic of Azerbaijan) faced a number of serious problems after the collapse of the Union. Thus, the loss of the existing raw materials and sales market, the severance of mutual relations, instability in the region and other problems led to the collapse of enterprises. The State Special Committee for Mechanical Engineering and Conversion was established in 1993 to restore the activities of these enterprises, which specialize mainly in the production of defense products, and to achieve the development of the defense industry complex in the country.
In 2003, a new stage in the development of the defense industry of the republic was entered with the approval of the "State Program for the Development of Defense Industry Enterprises of the Republic of Azerbaijan in 2003-2005" by the national leader in order to strengthen the military-technical base of our army and reduce its dependence on foreign goods.
The Ministry of Defense Industry was established on the basis of the State Special Committee for Mechanical Engineering and Conversion by the Decree of the President of the Republic of Azerbaijan No. 1181 dated December 16, 2005. A large number of production facilities have been set up at the ministry's enterprises to provide the Armed Forces with modern defense products and equipment and spare parts used in the fields of mechanical engineering, instrument-making, electrical engineering and communications. During the past period, several enterprises of the ministry were put into operation after major construction and reconstruction: "Iglim" (Climate), "Dalgha" (Wave) scientific production associations, "Telemexanika" (Telemechanics), "Peyk" (Satellite), "Alov" (Flame), Electronic Computers and Radiocommunication, Shirvan "Araz" plants, Scientific Research Institute, as well as new production workshops were opened at the Iglim Scientific Production Association and the Telemechanics Plant. This year alone, AZAD Systems Co. enterprise of “Sharq” Production Association of the Ministry, “Sanayejihaz” Scientific Production Enterprise of “Cihaz” Production Union, Baku “Cihazqayirma” plant, Khachmaz “Kondensator” plant of Optical-Mechanical Production Union were opened after capital construction and reconstruction. Dozens of new production facilities have been established at the enterprises to provide the Armed Forces with modern defense products and equipment and spare parts used in mechanical engineering, instrument making, electrical engineering, communications, and these areas have been provided with equipment and technologies meeting international standards.
Thus, unlike many foreign countries, Azerbaijan is already paying for a significant part of the material logistics of the Armed Forces at its own expense. In the near future, the range of products released by the defense industry is expected to increase. This means that the technical needs of the armed forces will be met mainly by local production. Currently, one of the main concerns of the Armenian side is that Azerbaijan meets the technical needs of the army through local production. Because, unlike Azerbaijan, the Armenian army depends on foreign countries in terms of meeting technical needs. It seems that the continuation of Azerbaijan's purposeful policy to further strengthen its military-industrial potential will further increase the concerns of Armenians in this area. The country's military-industrial complex already produces hundreds of military goods and plans to expand their range.
In order to ensure the production of military goods in the country, Azerbaijan closely cooperates with well-known companies in this field, as well as with countries recognized as the best manufacturers of defense technology in the world. For example, agreements have been reached with the South African company Paramount Group to organize the production of armored vehicles in our country, and the production of such vehicles is already underway. This armored vehicle called the Matador, has a very high performance. Thus, these machines meet world standards in terms of production and technical performance, and Azerbaijan is the only country in the CIS that produces these armored vehicles. The 14-seater Matador has a carrying capacity of 4,500 kilograms.
In addition, modernization of IFVs (infantry fighting vehicles) and APCs (armored personnel carriers) is being carried out in our country. Important steps are also being taken in modernization of expired military vehicles in different types of troops and bringing them up to modern standards. This means to save a lot of money. In the future, it is planned to launch Azerbaijani-made military helicopters. And this means a further increase in the material and technical capabilities of the armed forces.
The expansion of Azerbaijan's financial resources has created new opportunities for achieving the goals set out in the development strategy, including the establishment of a competitive economy. After the restoration of independence, the funds directed to fixed capital for the modernization of the economy increased by 23.3 times. During this period, the volume of domestic investment increased by 28.9 times. At the same time, the measures envisaged the diversification of economy have been implemented systematically and consistently.
Within the framework of transnational transport programs and projects, including the construction and reconstruction of highways in the Azerbaijani segment of the TRACECA and North-South international corridors, the restoration and improvement of the road network has been carried out in all regions of the country.
Such development of industry not only played an important role in the growth of GDP in Azerbaijan, but also contributed to the elimination of the problem of unemployment and increasing employment. It is important to note an important statistic here that more than 3,000 new industrial enterprises were opened between 1993 and 2003, and as of January 1, 2004, their number had reached 5,536. As a result of the "open door" policy founded by the national leader and still being successfully implemented, the number of foreign and joint ventures in Azerbaijan has been increasing since 1993.
In 2015, the volume of industrial goods and services (total output) amounted to 26.2 billion manat, which is an increase of 2.4% compared to 2014. The non-oil industry amounted to 7.7 billion manat and increased by 8.4% compared to 2014.
The oil industry amounted to 18.5 billion manat, production remained at the same level as in 2014.
The non-oil refining industry increased by 15.6% compared to 2014.
In 2015, 16.0 billion manat was directed to fixed assets from all financial sources for the development of economic and social spheres of the republic.
The volume of fixed capital directed to the oil sector in industry amounted to 7.2 billion manat, and the volume of fixed capital directed to the non-oil sector amounted to 1.2 billion manat.
52.6% of the total funds were directed to the development of industries, which amounted to 8.4 billion manat.
In order to modernize and improve the structure of industry, increase the export potential of the non-oil industry, expand energy-efficient, high value-added competitive industrial production, expand scientific and innovative production and train qualified personnel for new industries, the “State Program on Industrial Development in the Republic of Azerbaijan for 2015-2020” and the relevant Action Plan for the implementation of this program were approved by the Order of the President of the Republic of Azerbaijan dated December 26, 2014. The Action Plan covers 61 measures in 5 areas, such as increasing the competitiveness and capacity of industry, supporting the activities of industrial enterprises, establishing industrial zones and clusters, strengthening the human resources and scientific support of industry and improving industry legislation. One of the main directions of the State Program is the establishment of industrial and technology parks, as well as industrial districts. Sumgayit Chemical Industrial Park and Balakhani Industrial Park were established in 2011 and the High Technology Park in 2012 by the relevant decrees and orders of the President of the Republic of Azerbaijan. As a continuation of the work done, measures were taken to establish new industrial zones in the country in 2015 as well. According to the relevant Decrees and Orders of the President of the Republic of Azerbaijan, Mingachevir Industrial Park, Mingachevir High Technology Park, Garadagh Industrial Park and Neftchala Industrial District are being established. The "State Program for the Development of Industry in the Republic of Azerbaijan for 2015-2020" envisages measures to establish an industrial park in Ganja, the formation of infrastructure and the organization of its activities.
In 2015, more than 250 industrial enterprises were launched, including construction materials, electrical equipment, PVC semi-finished products, metal constructions and clothing companies, and power substations in Baku and Absheron regions. Enterprises producing concrete products, textiles, plastic containers, cardboard and technical equipment have been put into operation in Sumgayit.
The gross domestic product amounted to 54,433.1 million manat in January-October 2016.
In 2017, the country's gross domestic product amounted to 70,135.1 million manat. 69.9% of industrial output was produced in mining industry, 24.7% in processing industry, 4.6% in production, distribution and supply of electricity, gas and steam, and 0.8% in water supply, waste treatment and processing industry. 63.9% of the total funds were allocated to the development of industries, which amounted to 9,942.2 million manat.
In 2018, the gross domestic product increased by 1.4% compared to 2017 and amounted to 79,797.3 million manat. 73.0% of industrial output was produced in mining, 22.2% in processing, 4.1% in production, distribution and supply of electricity, gas and steam, and 0.7% in water supply, waste treatment and processing industry.
In 2019, the Gross Domestic Product increased by 2.2% compared to 2018 and amounted to 81,681.0 million manat. The volume of production in the mining sector increased by 0.4% compared to the previous year and amounted to 32.7 billion manat. The volume of production by enterprises and individual entrepreneurs of the processing sector increased by 11.5% compared to the previous year and amounted to 11.8 billion manat. Production by the enterprises of electricity, gas and steam production, distribution and supply increased by 3.5% compared to the previous year and amounted to 2.0 billion manat. In the water supply, waste treatment and processing sector, it increased by 6.0% compared to last year and amounted to 0.3 billion manat.
In 2020, the value added in industry amounted to 24,400.5 million manat, which accounted for 33.7% of GDP. The funds directed to fixed capital in industry was allocated as follows: 62.4% - mining industry, 28.8% - processing industry, 4.8% - production, distribution and supply of electricity, gas and steam, 3.9% - water supply, waste treatment and processing industry.
In January-June 2021, the value added in industry amounted to 15,931.0 million manat, which was 39.9% of GDP. 73.3% of the funds directed to fixed capital in industry was allocated to the mining industry, 23.2% to the processing industry, 3.0% to the production, distribution and supply of electricity, gas and steam, 0.5% to water supply, waste treatment and processing industry.
The above-mentioned facts show that at present there are production enterprises and industrial facilities with great potential in our country. Making efficient use of the production potential of these facilities, competitive products in both domestic and foreign markets are made in accordance with international standards. Sustained economic reforms and other arrangements are having a positive effect on industrial development. For this reason, Azerbaijan is also recognized as one of the distinguished countries in the world in terms of the pace of industrial growth.