The everyday face of Azerbaijan’s “rentier state”

There is endless theorising around the ‘resource curse’ from a birds-eye perspective, from creeping inflation rates to weak institutions and grand corruption. But on the ground in an oil-dominated society like Azerbaijan the phenomenon of ‘rent-seeking’ can lead also to a deeply embedded rentier culture visible on the level of everyday interactions.

The emergence of competitive rent-seeking, a symptom of oil booms whereby different groups snatch at the excess petro-dollars washing around with little thought to broader benefits for society, happens not only at the level of the political elite but also has a more everyday face. Not only can high politics become riddled with rent-seekers, but taxi drivers, waiters and traffic wardens also watch and learn from their rulers and oilmen. “Rentier” wealth is based not on real economic activity, added value or trade, as in the days of Baku as a key East-West trading post, but on adding arbitrary margins added where the opportunity arises. Over several visits to Azerbaijan I have seen such opportunities seized upon on a regular basis – be it a ludicrous price hike for a minor detours on taxi rides, sneaky extras on restaurant bills or distinctly un-Caucasian fines for crossing the road outside of officially designated crossing points. Another notable occurrence was being passed from ministry to ministry in search of a visa extension before having my ID photo rejected for not being set against the obligatory red background – handily enough an acquaintance of this particular petty bureaucrat ran a photo booth round the corner.

The boom period witnessed today in Azerbaijan is of course not Baku’s first – much of the city is built upon the late 19th century boom period kicked off by the Nobel brothers. So the myth of “boundless wealth” which comes with prospecting for oil is not a completely new phenomenon, as it might be in emerging (rather than re-emerging) producers such as Ghana or Kenya. But as Daniel Yergin reminds us in The Prize,  it was only in the 20th century that society was totally transformed by black gold, after which oil was no longer a convenient tool to keep the lights on and we all anthropologically became “Hydrocarbon man”.

Having been swept up in SOCAR’s glitzy PR machine on a recent trip to Baku, as the government sought to patch over holes in their media freedom record with lavish dinners and performances by rhythmic gymnasts, the seductive power of oil was clear to see. Baku in 2012 approximates more and more to Arab petro-states as you stroll past the beaming pictures of former leader Heydar Aliyev along the corniche, the ever-taller skyscrapers, and Azerbaijan’s own version of Dubai’s “palm island” on the outskirts of the city (research on the correlation between building soaring skyscrapers and impending financial collapse suggest Mr Aliyev should tread carefully).

Baku certainly has another uglier face, just a few metro stops away and hidden from view by vast sandstone walls along the “belt of happiness” leading from the airport to the gaudy city centre. But the reality is that when you look at data, the resulting picture of Azerbaijan is a far cry from an oil state like Nigeria, with its stubbornly rising poverty rates and vast gaps in wealth between the haves and the have-nots (in global inequality rankings, Azerbaijan ranks 41st compared to Nigeria’s 127th). Officials in Baku are keen to trumpet the falling poverty rates since 2000. Indeed looking at the underlying economic indicators we find that Azerbaijan’s poverty headcount ratio at $2 a day falling dramatically from 27.11% to 2.81% in Azerbaijan. Unemployment, the factor that played such a key role in the build-up to the Arab Spring, has also seen a dramatic fall from 16.3% in 1999 to only 6% in 2009. Rocketing oil prices are of course behind this, but what the average citizen sees is an overall picture of steadily rising income levels and plentiful oil money on the back of annual growth rates averaging 14.9% since 2000, despite economists’  warnings about sluggish development of the non-oil sector.

So what does all this mean? Rents not only determine the characteristics of the national economy but also the government’s attitude towards society and society’s interaction with itself. Does this mean that any political reforms are doomed to fail? And, combined with persecution of political opponents, could it be an overlooked  factor in the weakness of the opposition since Ilham Aliyev has been in power? Azerbaijan is far from democratic but is a well-managed autocracy, and in a rent-based society there is enough money washing around to keep people happy, a riddle likely to trouble campaigners for meaningful democracy for some time.

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