What makes Azerbaijan so attractive to investors?
By Sabina Alizade
In its latest report, fDi Intelligence, a publication of The Financial Times , recognizes Baku, the capital of Azerbaijan, as the third most popular investment destination in the world. This status shows that Baku is not only a key player in the regional economy, but has also turned into a global business and investment hub.
Direct foreign investment agreements secured in Azerbaijan last year have become significant projects since 2017. In 2023, Azerbaijan attracted a substantial inflow of foreign direct investment totalling $6.7 billion. The leading investors in the Azerbaijani economy were the United Kingdom ($1.9 billion), Turkey ($1.3 billion), Cyprus ($792 million), Russia ($617 million), and Iran ($396 million).
Last year, the Azerbaijan Investment Company (AIC) signed a contract with Hungary's Hell Group. According to the agreement, a new plant with an annual production capacity of 700 million aluminium beverage cans will be built in the Alat Free Economic Zone. The manufactured products will not only meet domestic demand but also be exported to Central Asian countries. The primary investment of $211 million aims to create more than 300 jobs.
Another major institution set to invest significantly in Azerbaijan is China's BYD Company Limited, partnering with the Sumgayit Chemical Industrial Park to manufacture electric buses. BYD initially allocated $34 million for the project, with plans to invest an additional $60 million in value-added projects. The project aims to create 800 new jobs. It is planned to locally produce spare parts for electric buses from the third year of production.
In 2019, Saudi Arabia's ACWA Power made a debut in Azerbaijan with a total capital of $286 million, developing a 240 MW wind power station in the country.
On 26 October 2023, the Asian Infrastructure Investment Bank (AIIB) provided a syndicated loan of $197.1 million (EUR 186.9 million) to ACWA Power Azerbaijan Renewable Energy. Additionally, on 15 December of this year, the OPEC Fund approved a loan of $50 million to ACWA Power Wind Azerbaijan Renewable Energy for the construction of the Khizi-Absheron wind power station.
This year, ACWA Power partnered with the Ministry of Energy to sign four major contracts, including on the construction of a 1 GW onshore wind farm, a 1.5 GW offshore wind farm, and a battery energy storage project.
So, what makes Baku so appealing to investors, and what else does this rapidly developing city have to offer?
Situated at the crossroads of Europe and Asia, Azerbaijan plays a bridging role between various markets. This provides investors with access to a large consumer market and an opportunity to penetrate neighbouring regions. The port of Baku is one of the largest maritime ports in the Caspian Sea and facilitates the transportation of goods from Central Asia, the Caucasus, and other regions. Baku is also a major transit hub for oil and gas, offering extensive opportunities for investors in the energy sector.
Recent infrastructure projects such as the modernization of Baku International Airport and roads demonstrate Azerbaijan's commitment to developing its own infrastructure, making it even more attractive to investors.
Azerbaijan is renowned for its rich oil and gas reserves, which makes it a key player in the global energy market. The country successfully implements oil and gas production and transportation projects, including the Baku-Tbilisi-Ceyhan oil pipeline (BTC) and the South Gas Corridor's Trans-Anatolian Natural Gas Pipeline (TANAP). Investors in the energy sector have the opportunity to participate in projects such as the development of new fields, modernization of existing infrastructure, and diversification of the country's energy portfolio.
Leveraging its abundant oil reserves, Azerbaijan is actively developing its oil refining and chemical industry. Major projects such as the construction of a SOCAR oil refinery in Sumgayit create new opportunities for investors in oil refining, petrochemical production, and the export of high-quality petroleum products to global markets.
With its rich cultural heritage and modern entertainment attractions, Baku attracts tourists from all over the world. Investors in the tourism sector can benefit from various opportunities, including the construction of hotels, restaurants, shopping centres, and other infrastructure to ensure the comfort of tourists.
Azerbaijan continues to actively improve its business environment, simplifying registration and business procedures. This includes streamlined licensing processes, investment protection, and reduced bureaucratic barriers. In recent years, Azerbaijan has been actively diversifying its economy, strengthening not only the energy sector but also tourism, agriculture, manufacturing, and other areas. This creates new opportunities for investors across various sectors.
Azerbaijan offers various tax incentives and benefits to investors, making it even more attractive for investment. According to Vugar Bayramli, a member of parliament and economist , improvements in the investment environment and reforms implemented over the past five years have significantly enhanced the investment climate in Azerbaijan. He emphasized that this improvement is reflected in international reports.
Azerbaijan is recognized as one of the countries with the most reforms globally, according to Bayramli. He noted that these reforms are a major factor in attracting investors. Key aspects include improving the investment environment and developing infrastructure. Today, Azerbaijan has sufficient infrastructure to attract investments, and the increased utilization of electronic services enhances transparency, streamlines procedures, and aligns with principles of open government, all contributing to attracting investments.
Kerim Has, an expert on Eurasian politics at the International Strategic Research Organization (USAK) , stated that Azerbaijan's economic conditions and investment opportunities are closely related to both domestic and external political environments. The selection of Baku, Azerbaijan's capital, as the third most popular investment destination globally is influenced by these factors.
Has emphasized that resolving the Karabakh conflict not only secured Azerbaijan's territorial integrity but also eliminated significant conflict dynamics in the region. The previously occupied territories of Azerbaijan remained underutilized for decades, but now, resolving regional conflicts creates new economic opportunities for both Baku and the South Caucasus region.
Furthermore, peace in the South Caucasus facilitates the opening of trade and transportation routes in both East-West and North-South directions, creating opportunities for new routes in the region. Azerbaijan, strategically located at the intersection of these routes, becomes even more attractive for economic, commercial, and financial investments.
Has highlighted Azerbaijan's balanced and successful foreign policy among Western, Russian, and Chinese actors, positively impacting the country's economic development. Although Azerbaijan's strong relations with capitals like London, Berlin, Tel Aviv, and Ankara positively influence South Caucasus policies in Washington and Brussels, dialogue with Moscow also influences Russia's attitude towards Baku, particularly economically.
He noted that considering the crisis in Russia-West relations, Azerbaijan has not boosted Moscow's importance regarding the North-South axis merely in terms of parallel imports and new trade routes. Similarly, the strategic value of Baku, situated along the Caspian coast and the Central Corridor , has significantly increased compared to Russia, which is increasingly sidelined in trade between Europe and China.
Additionally, Azerbaijan ranks among the top seven most favourable countries for investment, according to the International Monetary Fund's 2024 report, indicating its ongoing efforts to enhance investment attractiveness and expand opportunities for future investment.
In conclusion, Azerbaijan provides a promising market for investors with high potential for growth and development. Supported by its strategic location, developed infrastructure, and business environment reforms, the country offers extensive opportunities in various economic sectors. Baku serves as the central hub for this dynamic process, attracting attention from the global business community.
In its latest report, fDi Intelligence, a publication of The Financial Times , recognizes Baku, the capital of Azerbaijan, as the third most popular investment destination in the world. This status shows that Baku is not only a key player in the regional economy, but has also turned into a global business and investment hub.
Direct foreign investment agreements secured in Azerbaijan last year have become significant projects since 2017. In 2023, Azerbaijan attracted a substantial inflow of foreign direct investment totalling $6.7 billion. The leading investors in the Azerbaijani economy were the United Kingdom ($1.9 billion), Turkey ($1.3 billion), Cyprus ($792 million), Russia ($617 million), and Iran ($396 million).
Last year, the Azerbaijan Investment Company (AIC) signed a contract with Hungary's Hell Group. According to the agreement, a new plant with an annual production capacity of 700 million aluminium beverage cans will be built in the Alat Free Economic Zone. The manufactured products will not only meet domestic demand but also be exported to Central Asian countries. The primary investment of $211 million aims to create more than 300 jobs.
Another major institution set to invest significantly in Azerbaijan is China's BYD Company Limited, partnering with the Sumgayit Chemical Industrial Park to manufacture electric buses. BYD initially allocated $34 million for the project, with plans to invest an additional $60 million in value-added projects. The project aims to create 800 new jobs. It is planned to locally produce spare parts for electric buses from the third year of production.
In 2019, Saudi Arabia's ACWA Power made a debut in Azerbaijan with a total capital of $286 million, developing a 240 MW wind power station in the country.
On 26 October 2023, the Asian Infrastructure Investment Bank (AIIB) provided a syndicated loan of $197.1 million (EUR 186.9 million) to ACWA Power Azerbaijan Renewable Energy. Additionally, on 15 December of this year, the OPEC Fund approved a loan of $50 million to ACWA Power Wind Azerbaijan Renewable Energy for the construction of the Khizi-Absheron wind power station.
This year, ACWA Power partnered with the Ministry of Energy to sign four major contracts, including on the construction of a 1 GW onshore wind farm, a 1.5 GW offshore wind farm, and a battery energy storage project.
So, what makes Baku so appealing to investors, and what else does this rapidly developing city have to offer?
Situated at the crossroads of Europe and Asia, Azerbaijan plays a bridging role between various markets. This provides investors with access to a large consumer market and an opportunity to penetrate neighbouring regions. The port of Baku is one of the largest maritime ports in the Caspian Sea and facilitates the transportation of goods from Central Asia, the Caucasus, and other regions. Baku is also a major transit hub for oil and gas, offering extensive opportunities for investors in the energy sector.
Recent infrastructure projects such as the modernization of Baku International Airport and roads demonstrate Azerbaijan's commitment to developing its own infrastructure, making it even more attractive to investors.
Azerbaijan is renowned for its rich oil and gas reserves, which makes it a key player in the global energy market. The country successfully implements oil and gas production and transportation projects, including the Baku-Tbilisi-Ceyhan oil pipeline (BTC) and the South Gas Corridor's Trans-Anatolian Natural Gas Pipeline (TANAP). Investors in the energy sector have the opportunity to participate in projects such as the development of new fields, modernization of existing infrastructure, and diversification of the country's energy portfolio.
Leveraging its abundant oil reserves, Azerbaijan is actively developing its oil refining and chemical industry. Major projects such as the construction of a SOCAR oil refinery in Sumgayit create new opportunities for investors in oil refining, petrochemical production, and the export of high-quality petroleum products to global markets.
With its rich cultural heritage and modern entertainment attractions, Baku attracts tourists from all over the world. Investors in the tourism sector can benefit from various opportunities, including the construction of hotels, restaurants, shopping centres, and other infrastructure to ensure the comfort of tourists.
Azerbaijan continues to actively improve its business environment, simplifying registration and business procedures. This includes streamlined licensing processes, investment protection, and reduced bureaucratic barriers. In recent years, Azerbaijan has been actively diversifying its economy, strengthening not only the energy sector but also tourism, agriculture, manufacturing, and other areas. This creates new opportunities for investors across various sectors.
Azerbaijan offers various tax incentives and benefits to investors, making it even more attractive for investment. According to Vugar Bayramli, a member of parliament and economist , improvements in the investment environment and reforms implemented over the past five years have significantly enhanced the investment climate in Azerbaijan. He emphasized that this improvement is reflected in international reports.
Azerbaijan is recognized as one of the countries with the most reforms globally, according to Bayramli. He noted that these reforms are a major factor in attracting investors. Key aspects include improving the investment environment and developing infrastructure. Today, Azerbaijan has sufficient infrastructure to attract investments, and the increased utilization of electronic services enhances transparency, streamlines procedures, and aligns with principles of open government, all contributing to attracting investments.
Kerim Has, an expert on Eurasian politics at the International Strategic Research Organization (USAK) , stated that Azerbaijan's economic conditions and investment opportunities are closely related to both domestic and external political environments. The selection of Baku, Azerbaijan's capital, as the third most popular investment destination globally is influenced by these factors.
Has emphasized that resolving the Karabakh conflict not only secured Azerbaijan's territorial integrity but also eliminated significant conflict dynamics in the region. The previously occupied territories of Azerbaijan remained underutilized for decades, but now, resolving regional conflicts creates new economic opportunities for both Baku and the South Caucasus region.
Furthermore, peace in the South Caucasus facilitates the opening of trade and transportation routes in both East-West and North-South directions, creating opportunities for new routes in the region. Azerbaijan, strategically located at the intersection of these routes, becomes even more attractive for economic, commercial, and financial investments.
Has highlighted Azerbaijan's balanced and successful foreign policy among Western, Russian, and Chinese actors, positively impacting the country's economic development. Although Azerbaijan's strong relations with capitals like London, Berlin, Tel Aviv, and Ankara positively influence South Caucasus policies in Washington and Brussels, dialogue with Moscow also influences Russia's attitude towards Baku, particularly economically.
He noted that considering the crisis in Russia-West relations, Azerbaijan has not boosted Moscow's importance regarding the North-South axis merely in terms of parallel imports and new trade routes. Similarly, the strategic value of Baku, situated along the Caspian coast and the Central Corridor , has significantly increased compared to Russia, which is increasingly sidelined in trade between Europe and China.
Additionally, Azerbaijan ranks among the top seven most favourable countries for investment, according to the International Monetary Fund's 2024 report, indicating its ongoing efforts to enhance investment attractiveness and expand opportunities for future investment.
In conclusion, Azerbaijan provides a promising market for investors with high potential for growth and development. Supported by its strategic location, developed infrastructure, and business environment reforms, the country offers extensive opportunities in various economic sectors. Baku serves as the central hub for this dynamic process, attracting attention from the global business community.
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