Azerbaijan among top 3 Eurasian countries for foreign investment The art of investment attraction

With its substantial energy resources and strategic location at the crossroads of Europe and Asia, Azerbaijan has been a regional leader in attracting foreign direct investment (FDI) for nearly three decades. To sustain its investment appeal in the 21st century, the country is implementing industrialization initiatives, focusing on industrial clusters and special economic zones (SEZs). 

Additionally, green energy projects are expanding, and components of the digital economy are being developed. These efforts are essential for maintaining Azerbaijan’s attractiveness to investors. According to recent data from the Eurasian Development Bank (EDB), Azerbaijan ranks among the top in Eurasia for the ratio of exported mutual investments to GDP.

For many years, the key factors driving Azerbaijan's investment attractiveness have been its significant energy and logistics potential, combined with macroeconomic stability, a surplus in the current and trade balances, resilience in monetary and credit parameters, and high foreign exchange reserves. These achievements have been consistently confirmed in reports by international rating and donor organizations. 

Despite global crises and downturns affecting our country, this remarkable stability has, on the whole, been maintained over an extended period. Over the past 15 years, Azerbaijan has twice been ranked at the forefront of improving the business environment and stimulating investment opportunities in the Doing Business reports of 2009 and 2019. Additionally, in the Doing Business 2020 report, Azerbaijan was named one of the 20 most reform-oriented countries. In the FDI Standouts Watchlist, based on data from the International Monetary Fund and fDi Markets monitoring, Azerbaijan ranked seventh in the world’s Top 10 countries for FDI potential in 2023-2024. 

Despite the crises of recent years—high inflation, recession, and significant volatility in commodity prices—Azerbaijan has generally managed to maintain positive trends in investment. In particular, during a recent media briefing, Samir Nasirov, the Director of the Statistics Department at the Central Bank of Azerbaijan (CBA), highlighted that from January to September 2024, FDI in Azerbaijan’s economy reached $4.522 billion, showing a 3.44% year-on-year growth.

The attractiveness of Azerbaijan for investors has been confirmed by research from experts at the Eurasian Development Bank (EDB). According to the EDB's 2022 report, Azerbaijan ranked fourth among CIS countries in attracting foreign direct investment (FDI), and this position has improved in the subsequent period. Moreover, according to the EDB, Russia remains the largest cross-border investor among post-Soviet countries. As of mid-2022, Russian FDI accounted for 79.2% of all mutual investments within the CIS. Kazakhstan and Azerbaijan held the second and third positions, with shares of 9.5% and 8.4%, respectively.

According to the recently published report by the Eurasian Development Bank (EDB), which monitors foreign direct investment (FDI) flows within the Eurasian region, Azerbaijan leads in terms of the ratio of exported mutual investments to GDP. This indicator reached 6.6% of GDP in the first half of 2024, marking a significant increase compared to 2022, when it was 4% of GDP. Azerbaijan surpasses Russia, which stands at 4.15% of GDP. Furthermore, the report highlights that Azerbaijan is one of the top three recipients of investments in the Eurasian region. Kazakhstan ranks first with $10.4 billion (22.6%), Uzbekistan is second with $10.2 billion (22.1%), and Azerbaijan holds third place with $5.8 billion (12.6%). Together, these three countries account for nearly 60% of the total mutual FDI in the Eurasian region for the first half of the current year.

Overall, EDB statistics show that since 2016, Azerbaijan has experienced the highest growth rates in the region, increasing mutual FDI by 2.5 times—from $2.3 billion in 2016 to $5.8 billion in 2024. Currently, 20 major investment projects are underway in the country. However, the growth of mutual FDI in Azerbaijan is primarily driven by large investments in the raw materials and energy sectors, including the Shah Deniz project, which attracted approximately $25 billion in investments between 2012 and 2023.

In recent years, the priorities of the post-industrial era have dominated the global landscape, and in this paradigm, the sustainability of economic growth is largely determined by the ability of developing countries to attract foreign capital and "know-how" in advanced digital and green technologies. Equally important is the adoption of international corporate governance practices, the establishment of robust public-private partnership mechanisms, and the use of incentives and preferences within industrial clusters to optimize the process of attracting foreign direct investment (FDI). Today, the Azerbaijani government’s efforts are focused precisely in this direction.

One example of this is the renewable energy projects being implemented in Azerbaijan in recent years. The majority of these projects are financed through foreign investments totalling $2.8 billion, which will enable the country to add over 2 GW of renewable energy capacity by 2027. As a result, the share of renewable energy in total electricity generation will reach 33%.

"We are confident that we will see tangible results in attracting foreign direct investment to Azerbaijan: one of the main pillars of our investment strategy is the country's transition to green technologies and renewable energy, and attracting an increasing amount of FDI in this sector," said Yusif Abdullayev, Executive Director of the Azerbaijan Export and Investment Promotion Agency (AZPROMO), during a panel discussion at the recently held UN Climate Conference COP29 in Baku. "In recent years, there has been fierce competition among investment promotion agencies worldwide for 'green' FDI, but despite this, AZPROMO continues to work on creating optimal conditions in our country for foreign companies."

Comparable efforts are also being made to attract foreign investors to industrial zones, industrial parks, special economic zones (SEZs), and to open the domestic market to global vendors and participants from foreign payment systems within Azerbaijan's IT sector and financial system. Notably, under the initiative of the Central Bank of Azerbaijan, a comprehensive project is being implemented to introduce an Open Banking platform in the country, aiming to facilitate the widespread adoption of fintech solutions.

A key step in enhancing the investment climate in the country will be the imminent adoption of a Strategy for Promoting Foreign Direct Investment. The document, being developed by specialists from the Ministry of Economy and the Azerbaijan Export and Investment Promotion Agency (AZPROMO), aims to implement advanced international practices in this field. The long-term goals of the strategy include improving the investment climate and increasing the effectiveness and return on investments through the modernization of investment mechanisms and tools. The strategy also focuses on increasing the share of portfolio investors (including transnational corporations) to attract FDI primarily into the real sector of the economy, with an emphasis on implementing efficient, high-tech, export-oriented projects with a high level of added value.