Industrial-zone bet: Azerbaijan recalibrates its investment model KHAZAR AKHUNDOV’S REVIEW

For three decades, Azerbaijan’s economic and investment policy has been built largely around the country’s substantial oil and gas resources. The challenge now is more complex: attracting both domestic capital and foreign direct investment into the most promising segments of the non-oil economy. Industrial parks and industrial districts established across the country in recent years have emerged as a key vehicle for that effort. They are increasingly serving as production and export hubs for Azerbaijani goods with higher added value, providing the infrastructure and incentives needed to channel investment beyond the traditional energy sector. According to recently released figures from the Economic Zones Development Agency (IZIA), more than 7.2 billion manats, equivalent to about $4.24 billion, has so far been invested in these industrial clusters.

Azerbaijan’s new Socio-Economic Development Strategy for 2027-2030 places accelerated industrialisation and the transformation of the non-oil sector into the country’s primary engine of economic growth at the centre of its development agenda.

Under the strategy, Azerbaijan aims over the coming years to increase non-oil exports by 1.8 times, expand non-oil GDP by 1.3 times and raise the private sector’s share of GDP to 88%. Agro-processing and non-oil manufacturing, transport and information technology, as well as green energy and energy efficiency, have been identified as priority drivers of sustainable economic growth. The strategy will also be implemented across Azerbaijan’s territories that have been restored to Azerbaijani control.

The agenda represents a new stage in the diversification of the national economy. Alongside developing export-oriented non-resource industries, the government intends to place greater emphasis on economic digitalisation and the adoption of Industry 4.0 technologies.

Industrial clusters have already been playing the role of a backbone for Azerbaijan’s non-oil manufacturing sector for more than 15 years. The country currently has nine industrial parks and five industrial districts, two of which were established with private capital.

These zones are designed to provide investors with a favorable business environment and a broad package of tax, customs and utility incentives. Residents can access preferential financing through the Entrepreneurship Development Fund (SIF), while state investment has provided the necessary energy and utility infrastructure, production and office facilities, as well as connections to transport networks.

According to statistics released a day earlier by the Economic Zones Development Agency (IZIA), which operates under Azerbaijan’s Ministry of Economy, industrial zones administered by the agency are home to 148 residents and 10 non-residents. More than 11,200 permanent jobs have been created, while hundreds of projects have been supported.

The industrial network is also continuing to expand. Work has begun on establishing the Nakhchivan Industrial Park and the Western Industrial Park in the city of Ganja and Azerbaijan’s Shamkir district, respectively.

More than 7.2 billion manats ($4.24 billion) has now been invested in Azerbaijan’s industrial zones. Including projects that are still under construction or otherwise ongoing, the total investment portfolio exceeds 8.7 billion manats ($5.12 billion).

The expansion is set to continue. Azerbaijan plans to launch 16 new enterprises in industrial zones in 2026 and lay the foundations for two additional facilities.

The investment is already translating into significant industrial output. Companies operating in the zones have produced and sold goods worth a combined 20.9 billion manats ($12.29 billion). That means roughly three manats of output have been generated for every manat invested so far.

The trend is gaining pace. Total production in Azerbaijan’s industrial zones increased by 21.1% last year from the previous year, highlighting the growing contribution of the clusters to the country’s manufacturing sector.

Exports are an equally important part of the model. More than 6.7 billion manats ($3.94 billion) worth of goods produced in the industrial zones has been exported to around 70 countries, spanning Eastern and Western Europe, North and South America, Asia and the Commonwealth of Independent States, as well as Türkiye.

The export basket is increasingly diverse. Major products include polymers, urea, lubricants, construction glass, steel pipes, power and firefighting equipment, cables and copper cathodes, plastic pipes and fittings, sulfuric acid, tobacco products, ceramic tiles, yarn and textiles, wallpaper and various types of footwear.

Seymur Adigozalov, chairman of the board of the Economic Zones Development Agency (IZIA), highlighted the growing importance of the industrial zones at a forum in February devoted to the agency’s performance in the previous year.

“All this demonstrates that industrial zones have already evolved into a sustainable manufacturing and export-oriented industrial ecosystem,” Adigozalov said, adding that the zones are becoming increasingly attractive to foreign investors.

The increase in foreign investment is particularly notable. According to Adigozalov, foreign investment attracted to Azerbaijan’s industrial zones amounted to just 10.4 million manats ($6.12 million) in 2016. By 2025, the figure had risen several-fold to 87.9 million manats ($51.71 million).

That ability to draw foreign capital is becoming increasingly important as Azerbaijan shifts the focus of its investment policy toward attracting foreign direct investment into the non-oil economy, particularly non-oil manufacturing.

Yet the broader picture for foreign direct investment in Azerbaijan’s non-resource sectors remains below the country’s potential.

Total FDI into the Azerbaijani economy exceeded $6.595 billion in 2025, down 6.4% from roughly $7.3 billion in 2024, including the repatriation of investments. The decline was largely driven by an unfavourable external environment. The global economy, under pressure from trade and tariff disputes, has been moving toward greater regional and economic clustering, disrupting established production chains. These shifts have affected economies worldwide and constrained Azerbaijan’s ability to attract and expand foreign capital.

More concerning is the continued dominance of the oil sector in Azerbaijan’s FDI structure. Oil accounted for 78.1% of total foreign investment in 2025. While that represented a modest improvement from 2024, non-oil sectors attracted only about $1.445 billion in foreign capital last year — less than a quarter of total FDI.

A similar pattern emerged in data released recently by the Central Bank of Azerbaijan. The bank said total investment from all sources into the country’s fixed capital reached 9.3 billion manats ($5.47 billion) in the first half of 2026, an increase of 13.8% year on year.

But the headline growth figure masks a sharp divergence between the oil and non-oil economies. Investment in the oil sector rose by 34.3% from the same period a year earlier, while investment in the non-oil sector increased by only 5.5%.

Even within the non-oil economy, manufacturing remains a relatively small recipient of capital. Of the 2.5 billion manats ($1.47 billion) invested in the non-oil sector during the first half of 2026, only 300 million manats ($176.5 million) went to non-oil manufacturing.

The figures point to a persistent weakness in Azerbaijan’s diversification drive: while industrial zones are generating investment, production and exports, the broader flow of capital into non-resource manufacturing remains relatively limited.

To address the imbalance, Azerbaijan has since last year stepped up a strategy aimed at attracting foreign direct investment into the non-oil sectors with the strongest potential for technology-intensive growth and export expansion.

One pillar of that strategy is the Charter on Strategic Partnership between Azerbaijan and the United States, which includes cooperation in advanced areas associated with Industry 4.0.

The two countries are expected to jointly develop regional projects in transport and transit as well as renewable energy. US capital is also expected to participate in Azerbaijani projects involving digital transformation and artificial intelligence, telecommunications and the development of data centres.

Similar arrangements covering industrial projects, green energy and the IT sector have also been reached with China, Türkiye and a number of European Union countries, with cooperation already moving into the implementation stage.