Industrial economy and organization of innovative activity

Abstract

The transformation of industrial structures in resource-rich developing economies presents crucial challenges for achieving sustainable growth and avoiding dependence on these resources. Azerbaijan's mining sector, and particularly its oil and gas industry, is a prime example of both the potential opportunities and the inherent complexities of resource-based industrialization. Despite the sector's strategic importance, contributing approximately 67% of the country's industrial output, significant gaps remain in the regional implementation of innovative technologies and in how systematic approaches could optimize production efficiency while minimizing environmental impact and resource depletion. Against this backdrop, this research examines Azerbaijan's oil and gas sector through a quantitative analysis of official statistics (2019–2023), focusing primarily on production dynamics, structural transformation, and the potential role of digitalization and artificial intelligence in addressing operational inefficiencies. Comparative analysis, evaluation of ownership structures to identify patterns in production volumes, and documentary analysis were used for this purpose. Substantial volatility was found in the sector due to various factors, as crude oil production decreased by 19.6% (7,353,800 tons) between 2019 and 2023. Critical inefficiencies include natural losses of between 0.1% and 0.3% in oil production and between 24.9% and 31.2% of gas destined for non-commercial uses. It was also identified that factors such as technological obsolescence, measurement inaccuracies, and inadequate loss control mechanisms are among the major contributors to these inefficiencies. Therefore, although companies in the non-state sector increased by 23.5%, their contributions to added value are not as significant due to the aforementioned volatility.