Karabakh is being rebuilt — construction industry on the rise Analysis by Khazar Akhundov

The production of construction materials has traditionally been one of the leading sectors in Azerbaijan’s non-oil economy and has shown strong growth for several consecutive years. The main driver is demand generated by the large-scale construction underway in Karabakh, now entering its sixth year. At the same time, rising prices for imported products are encouraging investment in import substitution, and in recent years, domestic companies have been steadily expanding exports of locally produced construction materials. Since 2024, efforts to develop non-metallic mineral deposits in territories liberated from occupation have accelerated, forming a new construction materials cluster. Against this positive backdrop, the State Statistical Committee reports a 39.3% increase in sectoral production in January 2026.

More than five years have passed since the victory in the Patriotic War, and during this relatively short period, thousands of kilometres of roads have been laid in Karabakh and Eastern Zangazur, three airports have been built, energy and public utilities are being restored, and housing, social, and industrial facilities are being constructed. This “large-scale construction” has supported not only local builders and contractors but has also played a key role in boosting the production of construction materials, becoming the main driver of the entire sector’s development. This is hardly surprising, given the unprecedented scale of funding for work in the liberated territories in the Caspian region: between 2021 and 2025, approximately 21.9 billion manats (about $12.9 billion) were allocated from the state budget for these projects.

According to the State Statistical Committee, production of basic construction materials by domestic enterprises, supported by increased government orders, grew by 12.6% in 2022. In 2023, this figure rose to 31.8%, and in 2024 the sector maintained a growth rate of 16.9%. Results for 2025 were somewhat lower: overall production of construction materials declined by 4.3%. However, some segments continued to show positive dynamics — for example, wood processing and the production of wood products grew by 5.7%.

In the new year, local producers have aimed to make up for lost time, and already in January 2026, the total value of construction materials produced in the country exceeded 117.8 million manats (≈$69.3 million), marking a 39.3% increase compared to the same month last year. According to the State Statistical Committee, January saw a 28.9% increase in the production of concrete building structures (4,900 cubic metres), 5,200 tonnes of asphalt were produced — more than double the previous year, production of construction glass rose 8.3% to 843,600 square metres, and lime output increased 40% to 2,800 tonnes. Positive growth was also recorded in basic construction materials: cement clinker production increased by 13.7%, and steel reinforcement output rose by 14.9%.

Expenditures for the reconstruction and restoration of territories liberated from occupation in 2026–2029 are projected at 13.5 billion manats (≈$7.94 billion). A significant portion of these funds will be directed toward building housing, social, administrative, and public utility facilities, ensuring that domestic construction industry orders will remain strong for several years to come.

At the same time, demand for locally produced construction materials is also driven by the significant price increases of imported alternatives: geopolitical conflicts, sanctions, the energy crisis, and imported inflation have all sharply raised the retail prices of products from Europe, the CIS countries, and Türkiye. According to data from the Azerbaijan Construction Manufacturers Association, the largest increases in recent years have been observed for Russian metal products and timber. Against the backdrop of global inflation and the depreciation of the Turkish lira, Turkish sanitaryware, rubber, plastic pipes, doors and windows, tiles, wallpaper, and other materials have become considerably more expensive. Prices for imported construction materials from Kazakhstan and other Central Asian republics, as well as from China and South Korea, are also rising.

Moreover, against the backdrop of global price growth, the competitive advantages of locally manufactured construction products in Azerbaijan have become more pronounced. Domestic factories operate flexibly in their supply chains, exporting surplus products abroad. This is further supported by the fact that major local producers hold international quality certifications such as ISO, EN, etc. According to the Azerbaijan Construction Manufacturers Association, exports of domestic construction materials amounted to around $60 million in 2023, $68.5 million in 2024 — an increase of 14.2% — and by the end of 2025, the growth of domestic exports approached 20%.

Cement production is one of the most energy-intensive industries, and with the outbreak of the Russia–Ukraine war, along with the sharp increases in gas and fuel oil prices in several European and CIS countries, industry enterprises faced rapidly rising costs, which significantly pushed up cement prices. Already in 2022, Azerbaijan doubled its cement deliveries to Georgia, and in subsequent years, both the volume and geographic reach of exports expanded, including to Central Asian countries. 

In 2025, cement production in Azerbaijan exceeded 4.142 million tonnes, up 1.7% compared to 2024. At the same time, according to the State Customs Committee of Azerbaijan, during the reporting period, exports of cement and cement clinker reached approximately 957,000 tonnes, a year-on-year increase of 12.5% — meaning that nearly a quarter of the country’s cement output is oriented toward foreign markets.

A favourable market environment is driving increased investment in Azerbaijan’s domestic construction materials sector, and in recent years, this trend has shifted toward the Karabakh region. To optimise supply chains and make use of local resources, much of the in-demand production is planned to take place directly in new industrial zones on territories liberated from occupation. For example, the Aghdam Industrial Park has established a robust production cluster for pipes, metal products, façade plaster, insulation materials, wallpaper, reinforced concrete structures, and roofing materials. Meanwhile, in the Araz Valley Economic Zone in the Jabrayil district, production will be set up for metal structures, various types of adhesive tape, and processing of construction materials from local mineral resources, among other products.

The rich resource base of the territories liberated from occupation supports these plans, according to Shahin Atashov, Deputy Chairman of the Geological Exploration Agency under the Ministry of Ecology and Natural Resources: “As a result of geological exploration conducted between 2020 and 2025 in the Karabakh and East Zangezur economic regions, more than 50 raw material deposits for construction materials were identified and brought into operation.”

Overall, the Karabakh region contains 155 deposits of various types of minerals, including 19 facing stone deposits, 23 sawn and construction stone deposits, 4 cement raw material deposits, 21 pumice and volcanic ash deposits, 10 clay deposits, 9 sand and gravel deposits, 5 construction sand deposits, and 9 gypsum, anhydrite, and clay-gypsum deposits. Among these, the mineral wealth of the mountainous Kalbajar district is particularly notable, with deposits of tuff and refractory clay (used in brick production). Zangilan district has industrial deposits of granite, marble, and refractory clay, while Lachin district is rich in marble, tuff, and nephrite deposits.

Notably, under a presidential decree issued by Ilham Aliyev in December 2024, the responsibility for improving the management of non-metallic mineral deposits was assigned to the state-owned company AzerGold. Last year, AzerGold specialists began relevant studies, including exploration, assessment, and preparation for the development of Karabakh’s mineral wealth.