Exports, investment, and SMEs: three pillars of Azerbaijan’s economic strategy Analysis by Khazar Akhundov

A key focus of Azerbaijan’s economic development in recent years has been the growth of the non-oil industry and the expansion of exports of non-commodity products. This strategy relies on the development of various types of industrial clusters and the support of small and medium-sized enterprises (SMEs). Both areas are seen as fundamental drivers for attracting investment and increasing exports. 

For many years, this work has been systematically overseen by the Ministry of Economy, which has supported businesses through its subordinate public legal entities—the Small and Medium Business Development Agency (KOBIA) and the Azerbaijan Export and Investment Promotion Agency (AZPROMO). By presidential decree, these two agencies are now being merged into a single structure.

In order to minimise external risks and reduce Azerbaijan’s dependence on commodity prices, the recent reforms have focused primarily on addressing imbalances in the domestic economy by promoting the development of non-commodity manufacturing sectors. The transition from an energy-export-driven model to a more diversified non-oil economy has been underway for eight years, supported by tax reforms, liberalisation of the business climate, and the introduction of financial and export incentives for SMEs.

In particular, one of the key objectives of the “Azerbaijan Socio-Economic Development Strategy” is to increase the share of small and medium-sized enterprises (SMEs) in national GDP to 35%, while employment in the non-oil SME sector is planned to reach 60%. The government has also set a priority goal of raising the total volume of non-oil exports to $5.3 billion by early 2027. 

Achieving this strategic target will require, over the next few years, increasing non-oil exports by 1.8 times, non-oil GDP by 1.3 times, and raising the private sector’s share of GDP to 88%. To reach these goals, emphasis has been placed on the development of industrial parks of various profiles, industrial districts, and agro-parks. Additionally, the Alat Special Economic Zone (SEZ) has been established, offering fiscal and other incentives designed to attract both domestic and foreign investors.

The country has achieved notable success within these reforms: support for SMEs and the new industrialisation have positioned Azerbaijan’s non-oil sector as a driver of economic growth, with the growth rates of non-commodity industries now significantly outpacing overall GDP growth. An ecosystem has been established featuring effective fiscal regulation and preferential lending, alongside mechanisms for loan guarantees, interest rate subsidies, export incentives, and other measures to stimulate the private sector.

For many years, sectoral agencies—AZPROMO and KOBIA—have played a significant role in providing institutional support to businesses and developing public-private partnership mechanisms. From now on, to optimise this work, these agencies will be merged into a single structure—the Agency for the Development of Small and Medium Business, Investment and Export Promotion—under the Ministry of Economy. The corresponding decree was signed on Tuesday by the President of Azerbaijan, Ilham Aliyev.

The decree notes that this step has been taken to ensure more effective and coordinated implementation of measures aimed at developing the micro, small, and medium business sector in the non-oil economy, as well as promoting investment and exports. The new Agency will serve as the central link in executing state policy to support the non-oil sector. One of its key tasks will be not only to stimulate the country’s export potential and attract investment, but also to actively protect the interests of entrepreneurs.

During the establishment of the new Agency, overlapping functions will be eliminated, interactions with SMEs will be streamlined, and coordination of services provided by other government bodies in this area will be ensured. The decree also specifies that the new Agency will have a total of 370 staff positions, including 291 in the central office and 79 in regional units.

The Cabinet of Ministers has been tasked with promptly resolving all organisational and financial matters, including approving the Agency’s regulations, updating relevant legal acts, and managing issues related to its assets. Until the legal merger of KOBIA and AZPROMO is completed, both agencies will continue to operate normally, ensuring uninterrupted support for businesses throughout the transition.

There is little doubt about the effectiveness of the new Agency, given the extensive experience that its predecessor structures have accumulated in working with domestic businesses and international partners. AZPROMO, in particular, has organised presentations and seminars, facilitated the participation of Azerbaijani agricultural companies and SMEs in international exhibitions and forums, and provided consulting services on market research and international certification procedures. These efforts have actively promoted the national brand Made in Azerbaijan.

In recent years, AZPROMO specialists have significantly expanded the export of Azerbaijani agri-industrial products to new markets, including Eastern Europe, the Middle East, North Africa, China, and beyond. In 2025 alone, AZPROMO supported 34 Azerbaijani exporters with a total of 405,000 manats (approximately $238,000) to participate in 62 international exhibitions across 24 countries. Overall, last year, the Agency provided support 134 times to 65 Azerbaijani entrepreneurs participating in international exhibitions through individual participation mechanisms.

KOBIA has been equally effective, providing legal protection for businesses, offering consulting services and assistance with business plans, international training, market access, and financing, as well as issuing startup certificates that grant businesses a three-year tax exemption. KOBIA actively supports SMEs in developing the “green” economy and public-private partnerships (G2B). Under its auspices, SME Houses (KOB Evləri) and development centres have been established, grants are provided for projects and exhibition participation, and small producers are given access to retail networks. It is therefore unsurprising that, at the end of last year, KOBIA’s activities were recognised as among the most effective of all government agencies in the EU’s annual report on the business environment in Azerbaijan.

This accumulated experience and the available toolkit will be actively applied in the work of the newly established Agency for the Development of Small and Medium Business, Investment and Export Promotion. At the same time, the Agency will face new challenges, including encouraging domestic SMEs to undertake projects in renewable energy, startups and incubation programmes, e-commerce, digitalisation, zero-waste production, the deployment of Internet of Things (IoT) services, and other emerging areas—sectors that remain underdeveloped among local entrepreneurs.

Overall, assessments by the Azerbaijan office of the European Bank for Reconstruction and Development (EBRD) indicate that Azerbaijani SMEs have significant untapped potential. The SME sector currently contributes around 15% of value added to GDP and generates roughly 50% of employment. However, many SMEs operate in sectors with relatively low added value, such as trade, services, transport, hospitality, and catering, rather than in manufacturing. Overcoming this inertia will require expanding SME participation in industrialisation projects and simplifying access to preferential financing. The new Agency will also need to step up efforts to attract foreign investment into domestic high-tech manufacturing and the IT sector.