2.2 Supply Questionbank

CASE STUDY: Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons-mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan's total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country's capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan's real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract in manufacturing and services. Improvements in transport connectivity-facilitated by ongoing infrastructure projects-have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019-2022)

Table 2: Trade and Social Indicators

QUESTIONS

CASE STUDY: Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons-mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan's total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country's capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan's real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract in manufacturing and services. Improvements in transport connectivity-facilitated by ongoing infrastructure projects-have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019-2022)

Table 2: Trade and Social Indicators

QUESTIONS

ECONOMIC DEVELOPMENTS AND CHALLENGES IN VANUATU

(1) Vanuatu is a small archipelago nation in the South Pacific, consisting of over 80 islands. Despite its relatively small population of approximately 320,000 people, the country has shown steady economic growth in recent years. In 2019, Vanuatu’s nominal GDP reached US$950 million, but tourism-related disruptions caused by global events in 2020 and 2021 have posed significant economic setbacks. Additionally, rural communities remain reliant on subsistence agriculture, and the government is focused on introducing policies to foster both macroeconomic stability and inclusive growth.

(2) Tourism is the backbone of Vanuatu’s economy, accounting for more than 40% of GDP in 2019. However, the tourism industry was severely impacted by travel restrictions in 2020, leading to an estimated contraction in real GDP of 7%. Inflation remained moderate at around 3% in 2021, due in part to subdued demand and government measures to stabilize food prices. The authorities are closely monitoring the exchange rate of the vatu against major currencies to support export competitiveness and manage imported inflation.

(3) On the microeconomic front, small-scale farming and fishing dominate local livelihoods. Many households engage in subsistence agriculture, producing staple crops like taro and cassava. Recent government programs offer microcredit to smallholder farmers, aiming to increase efficiency and diversify agricultural output. In 2021, about 2,500 farmers benefited from these loans, collectively raising production of cocoa beans and kava, two key export products. Nonetheless, the challenge of inadequate transport infrastructure persists, limiting market access and driving up costs.

(4) Internationally, Vanuatu has aimed to reduce trade barriers. The country became a World Trade Organization (WTO) member in 2012, contributing to lower tariff rates, currently averaging 9% across key imports. In 2021, Vanuatu’s merchandise trade balance was slightly negative, primarily due to higher imports of machinery and intermediate goods required for infrastructure projects. The government hopes the easing of administrative barriers will inspire greater foreign direct investment (FDI), especially in tourism and fisheries. According to official estimates, FDI inflows rose to US$55 million in 2021, although most of these investments concentrated on hospitality projects near Port Vila.

(5) Over the past few years, Vanuatu’s Ministry of Agriculture has championed climate-resilient farming methods. In 2020, an estimated 18% of rural households adopted drought-tolerant seeds and new irrigation systems to mitigate climate risks, supported by international donors. While these initiatives have marginally increased production costs, they also have the potential to enhance productivity and reduce vulnerability to cyclones and droughts.

(6) Concerns over income inequality have drawn attention to inefficiencies in the delivery of social services. Although the official Gini coefficient is not publicly reported annually, the government acknowledges uneven distribution of income, with urban centers such as Port Vila attracting higher wages and better services. Rural electrification programs and community-based healthcare projects have been proposed to reduce disparities, though progress is gradual given fiscal limitations.

(7) In line with ongoing development plans, the government has embarked on a new “Tourism Transformation Strategy,” introduced in late 2021, aimed at diversifying tourist offerings beyond coastal resorts. Officials foresee growth in eco-tourism activities such as trekking and cultural tours, tapping into the rising global demand for sustainable travel. Additionally, the forecasted resumption of regular cruise ship visits in 2022 is expected to bolster small businesses that cater to incoming tourists. The Ministry of Finance anticipates that these policies could lead to an annual real GDP growth rate of approximately 5% by 2023, provided external conditions remain stable.

(8) While the medium-term outlook is optimistic, Vanuatu faces the long-term challenge of balancing environmental sustainability with ambitions for continued growth. Policy efforts target infrastructure development—particularly in transport and digital connectivity—to integrate rural producers into broader markets and lessen reliance on a limited range of commodities. With strategic planning and wider partnerships, officials hope Vanuatu can enhance economic resilience, accommodate a rising population, and reduce poverty more effectively.

Table 1: Selected Macroeconomic Indicators for Vanuatu (2018–2021)

Table 2: Sectoral Contribution to GDP in 2021

Indonesia’s Path to Economic Reform

Indonesia is undergoing a period of economic transformation, with ambitious reforms aimed at fostering long-term growth. The government has prioritized infrastructure expansion, streamlining regulations, and reducing corruption to attract investment. Additionally, tax incentives are being introduced to boost emerging industries such as transportation, telecommunications, metal production, and agricultural processing.

To fund infrastructure projects, which are projected to cost USD 22 billion, the government has reduced fuel subsidies, despite their role in making energy affordable for low-income households. While this move is expected to free up government funds, it has contributed to inflation, which has surged to 7.26%, exceeding the central bank’s target of 3–5%.

Indonesia’s economy also faces external challenges. Falling global prices of coal, gold, and palm oil, its major exports, have put downward pressure on export revenue. Meanwhile, economic growth has slowed, leading to declining consumer confidence. The Gini coefficient, which measures income inequality, has risen in recent years, reflecting concerns about income distribution.

To strengthen its economic foundation, the government is focusing on education and vocational training, aiming to reduce unemployment by upskilling its youthful workforce. Moreover, efforts to support small businesses include expanding access to micro-credit and making loans more accessible to entrepreneurs.

In response to economic pressures, Indonesia has also introduced trade protection measures, including tariffs and import restrictions, to shield domestic industries and encourage local production. However, critics argue that such policies may reduce efficiency and competitiveness in the long run.

Figure 1: Indonesian Development Statistics

Figure 2: Indonesia’s Economic Growth and Trade Statistics