Corruption and Progress in Azerbaijan's Oil and Gas Sector

The remarkable growth in Azerbaijan's market economy can be explained by the rapidly increasing production and export of oil and gas. The oil and gas sector accounts for more than 70% of Azerbaijan's exports and for 60% of its GDP. The state holds huge interests in the sector, and there are close links between the oil and gas industry and governmental institutions. Despite measures taken by the government to address issues of corruption and transparency, accusations of corruption and irregular practices in the oil sector continue. For instance, according to the US Department of State 2011, the oil and gas sector is considered by many to be one of the greatest sources of corruption within the country, despite the fact that Azerbaijan was named the first participating country to be fully compliant with the Extractive Industries Transparency Initiative (EITI) principles and criteria in 2009.

Azerbaijan created the State Oil Fund (SOFAZ) in 1999 to collect and manage oil revenues. SOFAZ contributes to the state budget to support investments in infrastructure, education, poverty reduction and other social projects. International and local NGOs claim that SOFAZ is under the control of the Presidential Bureau and that massive fraud and misappropriation of the fund's money by top politicians and officials has taken place. For example, the government spent a large sum of money from SOFAZ to pay pensions and raise civil service salaries in a presidential election year. Furthermore, local NGOs have accused SOFAZ of funding development in the oil sector instead of strengthening other sectors in the country.