Azerbaijan flag Azerbaijan: Investing in Azerbaijan

Foreign direct investment (FDI) in Azerbaijan

FDI in Figures

According to UNCTAD's 2021 World Investment Report, FDI inflows fell by 66% to USD 507 million in 2020, as a result of the global economic crisis triggered by the Covid-19 pandemic. Lockdown measures to contain the impact of the pandemic have weighed on economic activity. In addition, the negative effects of low oil prices - which account for almost nine-tenths of exports - have hit the pipeline of new greenfield projects in the sector. A number of foreign investors have embarked on renewable energy projects. Among others, ACWA Power (Saudi Arabia) has signed an agreement with the government of Azerbaijan to build, own and operate a 240 MW wind farm for USD 216 million, in order to diversify the country's energy mix. FDI inward stocks in Azerbaijan were estimated at USD 32.8 billion in 2020. Azerbaijan inflows focus on the oil and gas sector, although one of the top priorities of the Azerbaijani Government is to diversify the country’s economy and attract FDI to agriculture, transportation, tourism and information/communication technology. Russia is the main source of FDI, but beyond that Azerbaijan is part of the customs union between Russia, Kazakhstan, Armenia and Belarus that, in terms of volume, is the most important in the region and is almost exclusively involved in major projects for oil/gas pipelines and related services.

The Azerbaijani Government has stressed the importance of improving the business climate. The country ranks 34th out of 190 countries in World Bank's latest Doing Business rankings, falling by nine spots from the previous edition. To promote investments, Azerbaijan established a single online portal to issue business licenses and permits. This was against a backdrop of slow structural and anti-corruption reforms. Nonetheless, the country was also designated as one of the top 20 reformer countries by the UNCTAD for its efforts on registering property, obtaining credit, protecting minority investors, and enforcing contracts. Russian invests heavily in Azerbaijan's construction, trade, services, banking, insurance, information technologies, transportation and agriculture sectors. The EU has prioritized the construction of the Southern Gas Corridor, which would transport Azerbaijani gas through Georgia, Turkey, and Europe. Under the recently amended Customs Tariff law, entrepreneurs importing capital equipment for priority sectors will be exempted from taxes for up to seven years. Following the release in 2021 of a tripartite ceasefire declaration by Armenia, Azerbaijan, and Russia over the conflict in the Nagorno-Karabakh region, the Azerbaijani government is seeking new investments in the nearby territories that were previously under the control of Armenian-backed separatists. The problem of corruption remains unresolved and may act as an impediment to the country's development. Azerbaijan ranked 128th out of 180 countries on Transparency International's Corruption Perceptions Index 2021.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 1,504507-1,708
FDI Stock (million USD) 32,28533,18631,607
Number of Greenfield Investments* 2063
Value of Greenfield Investments (million USD) 74132543

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Azerbaijan Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 10.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 7.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 8.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Azerbaijan

Strong Points
The country's key strong points include:
- Competitive production costs;
- Low-cost and qualified labour;
- Significant gas potential in the Caspian Sea;
- Perspective of gas exports to Turkey and Europe;
- Connecting link between China and Europe through development of rail corridors with Iran, Turkey and Georgia;
- Substantial foreign currency assets in the State Oil Fund of Azerbaijan (SOFAZ);
- Favourable general business climate (25th position in the World Bank's Doing Business ranking 2019).
Weak Points
The country's main weak points include:
- High regional political instability;
- Relatively poor regional relations, in particular the armed conflict with Armenia over the Nagorno Karabakh enclave;
- Authoritarian political regime;
- Weak government effectiveness and slow progress of structural reforms;
- Significant corruption and weak protection of property rights;
- Heavy dependence on oil and gas sector, creating substantial external vulnerability; limited non-oil sector;
- Decline in oil production (25% reduction over the last 6 years);
- Continued exchange rate risk;
- Weak banking system; largest bank (IBA; 40% of assets) in need of FX debt restructuring.
Government Measures to Motivate or Restrict FDI
The country has signed numerous treaties to encourage FDI. It has also put in place legislation facilitating the creation of companies, limiting corporate taxes and laws to protect FDI.

The biggest share of the foreign investment is directed to the oil and gas sector; nevertheless, one of the top priorities of the Azerbaijani Government is to diversify the country’s economy and to attract foreign investors, in particular in the following sectors: agriculture, transportation, tourism and information/communication technology.

In 2016, President Aliyev signed a decree establishing a free trade zone area next to the Alyat seaport, located 65 km south of Baku. Under the recently amended Customs Tariff law, entrepreneurs importing capital equipment for priority sectors will be exempted of taxes up to seven years.

For more information and to consult the law texts, visit the website of Azerbaijan Export and Investment Promotion Foundation (AZPROMO).
Bilateral investment conventions signed by Azerbaijan
The country has signed conventions with many countries: China, Egypt, Finland, Georgia, France, Germany, United States, Iran, etc. For more information, please visit the investement policy hub website of the UNCTAD.

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Latest Update: July 2022

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