HISTORIC ECONOMY
From the structure of the ancient and medieval economy to the changes around independence. Read below to find out more about the key historical events that have shaped the Azerbaijan economy.
Ancient Economies & Currency
The history of Azerbaijan’s trade and currency begins in ancient times. One of the earliest evidences demonstrating ancient Azerbaijani statehood are local coins. These were minted in Albania (Caucasus Albania) and Atropatena States that existed within its territory.
Early Coinage
The first coins found in the territory of Azerbaijan belonged to a period of Alexander of Macedonia. In the second half of the III century, the major territory of Azerbaijan was occupied by the Sasanian Empire.
However, in the VI-VII centuries Sasanian kings minted their own silver dirhams in Nakhichevan.
At the same time, the Caliphate, which defeated the Sasanians, subjugated Azerbaijan and minted their own coins. In the early years of the history of the Caliphate (VII-IX centuries) money circulation, gold and copper coins minting was centralised. Silver dirhams of the Caliphate were also minted in Azerbaijan.
City-State Coinage
Weakening of the Caliphate preceded the feudal division which began at result of the Seljuk Marches. This led to the creation of a number of independent small states at the beginning of the X century. Consequently, on coins (usually in silver dirhams) of these new states – still dependent of other countries’ rulers as vassal – the name of the various suzerain were added to their coinage.
Thus, for example, since XI century on one side of coins minted by Shirvanshah in Shamakhy was the name of the religious leader of Abbasi caliphate, Seljuk sultan and on other side name of Shirvanshah were written. As such, the accompaniment of Shirvanshah’s names on coins, alongside their luxury nicknames, show the independence of the feudal state under the rule of famous leaders.
Mongolian Incursion
As result of the Mongol incursion in the XII century, Azerbaijan briefly became a centre of the fifth method of Mongols Hulakids (Elkhanies) state. Silver dirhams of Hulakids were minted mainly in Nakhichevan and Barda.
Changing Coinage in the Medieval and Safavid Eras
14th and 15th Centuries
In the fourteenth century, Azerbaijan became the centre of Jalairis who defeated the Hulakids. Jalairis mainly minted its silver dirhams in Baku, Shabran, Qarqar and Qaraagajy.
At the end of the fourteenth century, the territory of Azerbaijan was attacked and conquered by first the Golden Horde and then Teymurids. Notably, the new occupants paid special attention to coin minting. Consequently, for example, in 1356 the Golden Horde, Khan Janibey, who occupied Tabriz, began to mint his own coins identifying Tabriz as his own territory, together date of minting. However, by the end of the early of XV century, Teymurids and his vassals, Garaqoyunlus, won this war and occupied Azerbaijan. Thus, for the first time Garagoyunlus minted silver ‘tangas’ in Astara on behalf of Teymurid rulers.
But soon in the second half of the XV century as a result of the collapse of the state of Garagoyunlus, the Aggoyunlu’s State was formed. Aghgoyunlu Sultans also minted their silver tangas (for example, in Erzincan). It should also be noted that Shirvansahs that lived the last period of its independence at this time, also minted their own silver tangas, from Shamakhy.
Safavid State Coins
At the beginning of the XV century Azerbaijan became the center of the newly established Safavid state. Coins minted by Safavi rulers at different times and places (Tabriz, Ganja, Shamakhy, Ordubad, and Nakhchivan) were different: the gold ashrafi, two shahy silver money, silver mohammadi, silver abbasi, silver panjshahı etc.
The Safavid State had very close trade links with Northern and Central European countries. This is confirmed by the special numismatic materials. For example, the treasure of Mirik money revealed in Azerbaijan, was minted in 1541-1572 and consists of Western European talers.
According to the composition, the coins in treasure were very different: there were coins minted in Germany (Schwebia, Bohemia, Bavaria, Frizia, Saxony, Cologne, Dresden, Nuremberg, Hamburg, etc.), Austria, Switzerland (Zurich), Belgium (Liege) and other countries’ dukedoms.
The 18th Century
As a result of weakening of the Safavid state in the beginning of the XVIII century, Azerbaijan was mainly divided in the number of closed life-lasting Khanates. At this time there was no single monetary system, almost in all the big cities, special copper and silver coins of Khans were minted.
This money had no a fixed price, and money of each Khanate was used in own territory as main currency and in other territories it lost value significantly.
In 1828, as a result of the Khanates disorder and in accordance with the Turkmenchay Treaty signed between Russia and Iran, Azerbaijan was divided into two parts: the North Azerbaijan united to Russia and South Azerbaijan to Iran.
The Development of the Banking System
The State Bank of the Russian Empire
The joining of Azerbaijan to the Russian Empire coincided with the rise of capitalism. Thus, the State Bank of the Russian Empire was established in 1860 and a year later its Baku branch was opened.
The main purpose of the branch was to accelerate the development of the credit system and the expansion of trade turnover. The Baku Branch of the State Bank carried out transactions like accounting and accounting bills, loans and granting of credit against pledging of goods etc.
At the same time in all parts of the Empire, as a means of payment along with coins so called “rubles”, state tickets were used too.
At the end of the nineteenth century in comparison with other regions of the Caucasus, Azerbaijan had the most developed credit-bank system which was inherent to a structured capital.
Early 20th Century Banking
At the beginning of the twentieth century, the credit system united over 200 credit departments. Among them were 28 branches of commercial credit banks, 7 mortgage banks, 8 mutual credit societies, 5 bank departments, 135 small credit entities and a number of savings banks.
During this period, unification of the bank and industrial (oil industry) capital was observed. For example, 15 Russian and foreign banks participated in 1917 in oil projects implemented by the Nobel brothers.
Silk Trade Route
The Silk Road was a network of trade routes, formally established during the Han Dynasty of China, which linked the regions of the ancient world in commerce. As the Silk Road was not a single thoroughfare from east to west, the term ‘Silk Routes’ has become increasingly favoured by historians as a more accurate term, though ‘Silk Road’ is still the more common name.
Etymology
Both terms for this network of roads were coined by the German geographer and traveler, Ferdinand von Richthofen, in 1877 CE, who designated them ‘Seidenstrasse’ (silk road) or ‘Seidenstrassen’ (silk routes). The network was used regularly from 130 BCE, when the Han officially opened trade with the west, to 1453 CE, when the Ottoman Empire boycotted trade with the west and closed the routes.
Significance
In the early medieval period and later, the Great Silk Road was a key economic factor connecting the empires of China, Byzantium and the Arab Caliphate, and dozens of countries that fell within the spheres of influence of these empires. This great network of cooperation covered southern and even northern parts of Europe too.
Within these immense boundaries, the Great Silk Road helped to develop towns, agriculture, private farming and silk production, and established land and sea transport routes. This was a unique economic process in the history of Eurasian civilisation.
Azerbaijan and the Silk Route
Azerbaijan served as a bridge in the Caspian region, connecting the Caucasus, Middle East and north-eastern Europe. Before the Mongolian wars, Azerbaijan was one of the richest states in the Middle East.
Medieval historian Hamdullah Qazvini (1280-1349) wrote that during the ´rule of the Seljuks and Atabays´ and also under the ´Shirvanshahs´, Azerbaijan´s annual state income stood at 25 million dinars. The state budgets of five neighbouring countries were: Arabian Iraq – 30 million dinars; Iraqi Ajam – 25 million dinars; Rum (Byzantium) – 15 million dinars; Georgia and Abkhazia – 5 million dinars.
Another medieval scholar, Yaqut al-Hamavi (1179-1229), had earlier described the historical reality reflected in these figures as follows: ´Azerbaijan is a vast country and a great state´ (in Arabic: ´Azarbayjan balad kabir wa daula azim´.
Such a strong economy had to be well founded. The Great Silk Road and Azerbaijan´s own silk industry had played a great part.
Marco Polo, who journeyed to the East in 1271-1291, wrote about Azerbaijan´s capital, Tabriz: ´Tauris [Tabriz] is a huge city… Its residents are engaged in trade and craftsmanship. They produce fine silk clothes, which are very expensive. Goods are brought in from India, Bodak (Baghdad), Mosul, Kremozor (the Bay of Hormuz), and other places. Latin merchants, especially those from Genoa, flood the city with their goods.´
The rise and fall of Silk
In the 14th & 15th Centuries Europeans started to make more trips to northern Azerbaijan for silk.
Rui Gonzalez, while on his way home from Amir Timur´s (Tamerlane´s) capital Samarkand in the early 15th century, wrote: ´In Shamakhi, silk is produced in very large quantities. Even merchants from Genoa and Venice come here to buy silk.´
Ambrogio Contarini, a plenipotentiary envoy who was sent by the Republic of Venice to Agqoyunlu Sultan Uzun Hasan´s palace in Tabriz, said that in his country the Shamakhi (Shirvan)-made silk was known as ´Talaman silk´.
As a Caspian state, Azerbaijan traded silk with Russia as well.
With the emergence of capitalist manufacturing in Europe in the 16th and 17th centuries, the demand for Eastern raw materials and markets grew sharply. Ultimately, the route to the Indian Ocean via the Atlantic Ocean was controlled by the Portuguese, and the Ottoman Empire was in control of the route running through the Mediterranean and Black seas. At this time, the English made a surprise advance in their attempts to gain access to India via the Caspian Sea.
UK Silk Trade Relations With Azerbaijan
In 1561-63, Anthony Jenkinson visited Azerbaijan on behalf of the Muscovy Company and the British Crown. He had been charged by Queen Elizabeth with securing a trade deal with Shah Tahmasib I. However, he could not achieve this important objective.
The Shah refused to sign the agreement, as it could have damaged a peace agreement that had already been reached with Sultan Suleyman Kanuni following years of war. In other words, the trade deal with the English could have undermined Safavid-Ottoman relations.
Despite his failure to sign a deal with Shah Tahmasib I, Jenkinson did secure a ´decree on privileges´ from the shah´s baylarbayi, or representative, in Shirvan, Abdulla Khan Ustajli.
The decree said:
´Considering the persistent requests by the gentle and dear envoy Antony Jenkinson, we, Abdulla Khan, who rule Shirvan and Hirkan, with the blessing of Allah, creator of the Earth and Heavens, have shown goodwill and kindness to bestow the following residents of the English City of London – Sir William Herr, Sir William Chester, Sir Thomas Loge, Mr Richard Mallory and Richard Chamberlain – and their trade company with full freedom, the right to cross freely [customs offices] and visit our country… to trade with cash or to barter goods, to stay in our country as long as they wish, and to leave the country freely whenever they wish.´
British Delegates to Azerbaijan
Benefiting from these favourable conditions, Jenkinson purchased bolts of silk and other goods and returned home. He was followed by another English company led by Thomas Alcock. Alcock visited Azerbaijan for silk in 1563-67.
A third English trade delegation was led by Arthur Edwards (1565-67). After successful meetings with Shah Tahmasib I, he secured a decree from the Shah on immunity for English merchants. In a letter sent to London from Shirvan, Arthur Edwards wrote:
´We have bought 11 bolts of raw silk, which we will send to England. The silk here is fine and of high quality.´
In 1568-69 Edwards, along with three other businessmen, visited Azerbaijan to buy silk. A fifth trade delegation led by Thomas Bannister and Jeffrey Decket visited Azerbaijan in 1569-74. A sixth delegation, led by Christopher Barrow, came in 1580. All of them came to Azerbaijan mostly for silk, and they all used the Volga-Caspian route.
Caravanserai
The main transport taken on the silk trade road was by caravan. In Azerbaijan, as well as purchasing goods, visitors could stop at a Caravanserai to eat, be entertained, rest and sleep.
Created for large groups of tradesmen as well as servants, live-stock and animals, Caravanserai’s were very popular. They consisted of an upper floor of separate rooms for dwelling and feasting with an underground hall to keep the stock and animals.
Caravanserai’s would often be built for the purpose of different cultures. They offered a separate place to stay for traders from Pakistani’s to Uzbekistani’s. There are still Caravanserai’s in operation in modern day Baku. They are now used as restaurants and room hire. One of the most famous in Baku, built for Uzbekistanis in 15th century is called Bukhara.
An Independant Economy – ADR
During independence from Russia (1918-1920) the oil industry had a leading role in Azerbaijan’s economic dealings.
During that period the department of economy in the ADR was led by Ministers of Economy: Nasib bekh Yusifbekhli, R.Kaplanov, Abduleli bekh Amirjanov and I.Protasov.
As the Russian Federation fell, Azerbaijan was able to withstand economic disaster as money was ploughed into the re-development of the country; especially Baku. The economic activities of the ADR were very important in 1919. In this period the country went into the Republican Period and governmental structures were formed.
In 1919, the budget of Azerbaijan’s Democratic Republic was equal to 665 million AZN. The profits gained from oil sales and income tax comprised the majority of this amount. In the same year income tax was equal to 30%. The second main source of governmental budget contributions was the excise tax imposed on wine, tobacco, and oil products. 100 million AZN of the budget came from the duty collected in customs, 15 million AZN from the duty received from free trade, cargo and passenger transportations. The majority of the limited budget was allocated for wages.
Though small, the Government managed to allocate 30 million AZN for education and 80 million AZN for military expenditures. Furthermore, as many settlements had been destroyed in the conflicts previous to the establishment of the ADR c. 130 million AZN were used to rebuild.
To give an idea of how much money this was in the early 1900’s, the exchange rate from the British Pound to the Azerbaijani Manat was as follows:
1 British pound = 315 Manat
The Azerbaijan State Bank
On September 10, 1919, Azerbaijan State Bank was established in Baku to strengthen financial-monetary policy. On October 25, 1919 several credit banks and savings banks began operating in the cities.
In its global economic and trade relations, Azerbaijan used barter to trade. Petroleum was exchanged for goods and natural resources imported from abroad. In the same year, a customs service was founded to strengthen economic relations.
Republican Era Development and the Oil Industry
The previously dilapidated Baku-Batumi oil pipeline was restored, making it possible to export oil to Europe. A bridge was built on the River Kura, the Baku-Ceyhan railway was constructed, and Caspian Shipping was reconstructed.
However, in 1919, despite reforms in the independent government, oil exportation in Azerbaijan seriously decreased. This was a result of the revolution within Russia at the time. This factor caused a serious recession in Azerbaijan’s economy. As the Northern market was closed, only 600,000 tons of oil out of 3.6 million was exported by the end of 1919.
Economy during USSR control
From 1920, the ADR collapsed as Azerbaijan once again fell under Russian rule. This time as part of the newly formed USSR. The economy of Azerbaijan once again became partly dependent on Russian enterprise.
In 1920-1939, the formation process of Azerbaijan economic network continued, though slowly. The greatest campaign that characterises the first 20 years of the Republic of Azerbaijan was agricultural collectivisation.
Post World War II
Soon after World War II, like other economic sectors, industry adapted to peaceful life and gradually developed. In 1948, the Republic’s economy finally achieved production levels that exceeded those before the war. Within 5 years and 7 months the economy was seemingly completely adapted. By 1950, industrial production had increased by 39% in comparison with 1940.
In 1950 – 1970, product manufacturing in the Republic’s industry increased 5.5 times in comparison with 1940. During this time, 146 large industrial projects were built and put into operation.
They included Sumgait pipe laying, aluminium, and synthetic rubber plants, the Gandja Aluminium plant, Dashkesen Ore Refinery and the Mingechevir Hydroelectric Station. These measures laid the foundation of the rapid development of various industries, including: power engineering, chemistry and petro-chemistry, oil production, black and non-ferrous metallurgy, instrument-making, electro technology, and other fields of heavy industry.
In this time period much progress was made industrialising less-developed regions. This increased the labour workforce’s resources of small and medium-sized cities dramatically.
New industrial cities were built; including Sumgait, Mingechevir, Ali-Bayramli (now Shirvan), Dashkesen. Favourable conditions further led to the rapid development of cities, such as Nakhchivan, Khankendi, Quba, Qazakh, Neftchala, etc. During this time, the importance of production within Baku city was lessened, as percentage of production reduced from 91.4% to 72.8%.
Oil and Gas
The oil-gas industry -the leading sector in the economy for a long time- affected the development of the economy differently. Due to the discovery and development of oil deposits in other regions of the Soviet Republic, interest to Azerbaijan petroleum decreased considerably in the 50-60s. The efforts for the development of oil industry and the related fields slowed down. The decrease in the development of those fields affected negatively the growth rate of the regional economies. Though new oil fields in the Kura-Aras lowlands began operations, increasing production, production could not match pre-war levels.
As a result of industrialisation, by 1970, 63% of the urban population lived in four cities (Baku, Sumgait, Gandja, and Mingechevir). This was out of 70 cities.
This led to difficulties in housing and social conditions in the main industrial cities, including Baku. However, despite overcrowding, the construction of new industrial enterprises and the investment in new factories and equipment meant Azerbaijan’s economy grew faster than any other region in the whole Union in the 1970s and the first half of the 80s. This led to well received rise in wages.
The value of main funds per employee was 13.300 rubles in the USSR in 1980 whereas in Azerbaijan the funds equated to 19.500 rubles.
Early Independence & Building Post USSR Economy
After gaining independence on October 18, 1991, one of the main tasks of Azerbaijan Republic was to establish a national economy on the market principles, which met the demands of the independent country and effectively integrating to the modern world’s economy.
In Azerbaijan, rich hydrocarbon resources and long-term practice on their extraction and development served as the foundation for the development of oil production, oil refinery, and petro-chemical industry.
The favourable natural climate and soil resources allowed for the development of agriculture and tourism. Whilst, the excellent geographic position was beneficial in the making connections to the international transit and transport system. The economy of independent Azerbaijan Republic changed and was reformed on this basis.
Policy and Legal Reforms
In 1990, in order to form legal standing for the economic reforms, urgent normative and legislative acts were adopted. State orders, quoting licensing were abolished. Foreign trade and process were completely liberalised. The demand of obligatory sale of the capitals gained by the enterprises was cancelled. Currency budget was abolished. Limitations on the wages were eliminated. Serious finance and monetary-credit policy was introduced. Customs and tax policy were improved and appropriate legal conditions for the foreign and special investments were established.
International Links
As part of Azerbaijan’s economic independence, the country joined a number of International economic organisations:
- Organisation of Islamic Conference (OIC)- 8 December 1991;
- Organisation of Economic Cooperation (OEC)- February 1992;
- International Monetary Fund and International Bank for Reconstruction and Development- 1992;
- Organisation of the Black Sea Economic Cooperation (OBSEC)- 1993;
- World Trade Organisation in the observer status- 1993;
- Commonwealth of Independent States (CIS)- 1993;
- European Council- 25 January 2001.
Joining these organisations led to stronger communications with the global economic market and widened trade links with the western community.
In September 1994, the production share agreement; the “Contract of the Century” was signed on the exploration and development of “Azeri-Chirag-Guneshli” fields. Within 6 years, 29 large energy companies from 12 countries were exploring and developing Azerbaijan oil and gas deposits. More than 30 production sharing agreements were signed alongside this activity. Exploration and drilling operation on the important part of these agreements continue to this day. Several international agreements also oversee oil and gas production and exportation.
