Collapse in Azerbaijan

Many countries had encountered horrifying issues which are difficult to deal with,

unfortunately some are collapsed since they could not deal with their problems efficiently. There

are thousands of reasons of collapse, however, according to Jared Diamond (2005), there are five

essential reasons that could lead countries to collapse. These reasons are human impacts on the

environment, climate change, relations with friendly neighbours, relations with hostile

neighbours, and the society’s reactions to issues. Azerbaijan, one of the most rapidly developing

nations in the world, is facing issues related to these five-point framework. Although Azerbaijan

is far ahead in terms of economic system and oil exportation, there are some problems which

should be addressed. The major concerned issues of Azerbaijan are the issues of financial

instability due to devaluation of currency and pollution from oil refineries. However, there are

some potential solutions to address these issue. Azerbaijan is

Azerbaijan is a landlocked country which is located in Southwestern Asia, bordering the

Caspian Sea, between Iran and Russia, with a small European portion north of the Caucasus

range (Central Intelligence Agency, n.d.). Azerbaijan and Russia have a strong connection with

each other for over two centuries, during the period of time when Russia was still an empire.

Their relationship continued until the separation of the Soviet Union in 1991, which was the time

when both Azerbaijan and Russia have became independent states (Ibrahimov, 2014). The

relationship of them then reformed once again in April 1992 as they decided to form a diplomatic

relations between two countries, followed by the free trade agreement which was signed in

September that year (Ibrahimov, 2014). Azerbaijan is one of the oldest oil producing in the

world. The income of the country mainly comes from oil and natural gas which is accounted for
95 percent of its exports and 75 percent of government revenues (Hardy, 2015). The impacts of

oil and natural gas productions are the principal causes of air pollution which is one of the most

threatening issues that Azerbaijan is facing right now. The concentrations of air pollution in the

capital city of Azerbaijan, in Baku, ranked 29th world’s most polluted city.

To begin, Azerbaijan is facing money instability due to devaluation of currency. This

issue is categorized in Jared Diamond’s five-point framework as how societies respond to

problems. Azerbaijan has been devalued its currency by 33.5 percent against US dollar, and 30

percent against the euro. The plan to devalue the currency was implemented by the Central Bank

of Azerbaijan (CBA) with the intention of enhancing exports and international

compatibility(Aliyev, 2015). Although this solution can actually be used for strengthening

Azerbaijan’s economy, it is not the appropriate means to use as it creates potential problems

which will affect the citizens, the country and neighboring countries. It can clearly be seen that

rise in inflation is unavoidable as the businesses are speculating price to be higher, and goods and

services in the country become more expensive. United Kingdom is an excellent illustration of

rising in price due to inflation, According to Comley (2013), “Because of inflation, the average

household had to spend an extra £200 plus a year on cars, fuels, food, and utilities.” It illustrates

that inflation in UK is pushing price to be higher on everything. This leads to an unemployment

in the country because many businesses want to stop hiring workers in order to reduce

expenditures as much as possible. In addition, people who borrow money in dollars or euros will

face the difficulties to pay off their debts. Consequently, the economic growth of the country and

Gross Domestic Product (GDP) slightly decline. As the economy in the country is slowing down,

the top import neighbouring countries of Azerbaijan such as Russia, Germany, Turkey, China and
Italy will receive negative effects as the people in Azerbaijan import less (Economywatch, 2010).

What is more, the government is encountering a difficult dilemma as the budget will decrease

significantly as they mainly export oil products, and therefore the financial support from the

government to the citizens will be less as well.

Despite the fact that the country and citizens are affected by the inappropriate method of

devaluating currency, there are several ways to solve this problem. Firstly, the expansion of

inflation can be prevented by limiting the power of monopolies. Country’s reindustrialization

should grow quickly if the government focuses on raising the export potential of other

economical factors that are not oil. (contact.az,2015). However, this solution may not be an

effective way to do. Research by Freedom house organization (2014) showed that, in 2014, the

score of national democratic governance in Azerbaijan is accounted for 6.75 which 1 is the best

and 7 is the worst. To be more precise, the score shows that the government still remains on top

of authority over their citizens, so it is extremely possible that the government does not want to

restrict the power of monopolies as both of them are getting benefits from corruption. Yet, there

is an effective solution like contractionary policy, which was applied to other countries, such as

Germany and Switzerland, and successful (NBER,2015). By using contractionary monetary

policy, the government will boost interest rates through the Federal Reserve as banks borrow

money from the government. To be more precise, if the Federal Reserve increases interest rates,

the banks must lend money to the citizens at a higher rate, in order to make profits. As a result,

banks have no option but increase interest rates, so people can spend less and save more money.

Therefore, inflation will slow down as prices and spending decline. (Investopedia, n.d.)
 Excessive air pollution, the major issue Azerbaijan faces, is a serious issue which

contributes to many negative impacts to society. This issue is classified into Diamond’s

five-point framework as human impacts on the environment, climate change, and the ways

society respond to problems. Research by Azerbaijan International (1994) showed that “[Air

pollution in Azerbaijan is mainly came from] Petrochemical plants, oil refineries and factories

especially in Sumgayit and Baku; oil refineries, venting of natural gas from oil wells; burning of

untreated garbage; and exhausts from engines”. The country is ranked in 25th of the world’s

highest air pollution. The overall pollution index in Azerbaijan is on the red line warning which

is accounted for 83.73 percent out of 100 percent. Air pollution can cause numerous health

problems in short and long period. In short-term, it impacts nose, throat and eyes, and causes

allergies, headaches and nausea. For long-term, it consists chronic respiratory disease, lung

cancer, heart disease, and even damage to the brain, nerves, liver or kidneys (Rautkari, n.d.). In

the worst case, the citizens can die, consequently, people in the country have less life expectancy

than they used to be. Furthermore, Azerbaijan may lose some income from tourism sector as the

country has high rate of pollution. Frano Ilic of travel agency Studiosus in Munich, Germany

stated that “the number of people booking trips to China through his company has fallen by 16

per cent this year”(Telegraph, 2013). This evidence shows that many tourists care about the

pollution which can affect health issues. Finally, as oil refineries also release Sulfur Dioxide

which can cause global warming and acid rain, both of them can kill trees and harm animals,

fish, and other wildlife (eSchoolToday, n.d.). Fishermen, for example, are facing the difficulties

of catching fish as many fishes may die because of acid rain that falls down into seas. However,

Azerbaijan people still do not take care of these issues seriously.

 The government of Azerbaijan have already implemented various effective solutions to

this issue. Even though the government cannot directly solve the air pollution which comes from

oil refineries, they have tried to slow down air pollution which comes from other sectors. Firstly,

The [Azerbaijan State Oil Company] had realized some projects for cleaning of oil polluted soils

in Apsheron peninsula during last few years”(Azerbaijan, n.d.). The company has already

cleaned mountains of oil slams of oil refineries from Bibi Heybat, as a consequence, it led to a

dramatic reduction of detrimental contaminants which affected environment. Secondly, the

government built the most significant ecological project which eliminates the air pollution that

comes from burning households garbage, based on newest technologies. Basically, they made an

enormous building, which keeps and burns garbages, through the process of special filters. As a

result, the massive of smoke ash will not harm the environment (Azerbaijan, n.d.). Last but not

least, use of alternative and renewable energy sources are excellent solution of global warming.

The government can invest in wind energy, solar energy ,and renewable energy to reduce burning

of of fossil fuels which cause air pollution.(Air pollution prevention, n.d.). This solution is

extremely effective because the government has no problems with the finance in regards to rich

oil and gas resources.

Although Azerbaijan has two massive issues which are financial instability and

horrendous air pollution, it experiences a very low chance of collapse. According to Global

finance (2015) Azerbaijan ranked at 64th from richest to poorest countries, based on GDP(PPP),

cost of living and standard of living. As aforementioned, the country can definitely deal with the

problem of inflation due to devaluation of its currency by using contractionary monetary policy.
Moreover, the government has already proposed the solutions to air pollution which are effective

enough to decrease the level of air pollution.

 References

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Azerbaijan Export and Import. (2010, June 29). ECONOMYWATCH. Retrieved from

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