The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is a sovereign wealth fund established in 1999 by the government of Azerbaijan. The primary objective of SOFAZ is to manage the country's surplus oil and gas revenues, which are generated from the extraction and sale of the nation's hydrocarbon resources. The fund seeks to ensure macroeconomic stability, preserve wealth for future generations, and support socio-economic development in Azerbaijan.
SOFAZ derives its income primarily from oil and gas-related activities, such as the sale of Azerbaijan's share of hydrocarbon resources, acreage fees paid by companies operating in the country's oil and gas fields, and the transit fees for transportation of oil and gas through Azerbaijani territory. Additionally, the fund generates income through the returns on its investments.
The assets of SOFAZ are managed by its executive board, which is responsible for implementing investment strategy and ensuring prudent management of the fund. The investment portfolio of SOFAZ comprises a diverse range of assets, including fixed-income securities, equities, real estate, and gold. The fund seeks to maintain a balance between risk and return by diversifying its investments across various asset classes and geographic regions.
Over the years, SOFAZ has grown significantly, with assets estimated to be around $43 billion as of 2021. This growth is primarily attributable to the increased production and export of oil and gas, as well as the rise in global energy prices during the commodities boom of the 2000s.
The government of Azerbaijan has utilized the fund's resources to finance various initiatives and projects, including infrastructure development, social welfare programs, and support for the national budget. However, it is important for the government to manage its withdrawals prudently to ensure the long-term sustainability of the fund and to continue diversifying the country's economy to reduce dependence on hydrocarbon revenues.