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Qabil Ashirov

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In the modern world, the openness of a country to foreign markets and foreign investment plays an important role in the development of that country. Foreign investment does not mean only money, but also know-how, new technology, new management systems, and so on. That is why all countries around the world compete with each other to attract more foreign investment.

Being one of the dynamic countries in terms of economy, Azerbaijan is also at the center of foreign investors' attention, and foreign investment in the country has increased year by year since 1995. In the same year, foreign investment in Azerbaijan amounted to $375mln., and it skyrocketed by 31 times and hit a historic record of $11.7 bln in 2014. Later, it gradually lowered and hit the bottom, totaling $6bln, in 2020 which is 16 times more in comparison with the amount in 1995. In 2022, the amount of foreign investment totaled $8.8bln and it is expected to overtake the record in 2014 very soon. Like all governments in the world, the Azerbaijani government is interested in issues, and attracting foreign investments to the country's economy is always at the center of attention.

Moreover, attracting direct foreign investments in non-oil sectors, especially in the processing industry, is of special importance for Azerbaijan, which wants to reduce the level of dependence on oil and gas revenues in a short time by diversifying its economy and exports.

Even it was indicated in the Strategic Roadmap For National Economy Perspective of the Republic of Azerbaijan and the first of the 4 target indicators that the government has set to achieve by 2025 is "increasing the share of foreign direct investments in the non-oil sector to 4 percent in the non-oil GDP" (2015 was defined as 2.6 percent per year).

In recent years, the government has managed to improve the position of Azerbaijan in a number of international rankings in order to stimulate attracting foreign investors to the country's economy. These include the World Economic Forum's International Competitiveness Index, the World Bank's "Doing Business" and other ratings. In addition, Azerbaijan has claimed the eighth spot in the Foreign Direct Investment (FDI) Standouts Watchlist 2024, according to a report by FDI Intelligence on Dec. 11, 2023.

Unfortunately, despite all attempts of the government, Azerbaijan’s oil and gas sector has always overshadowed all other sectors. Foreign investment is not an exclusion as well. Thus, more than 85 percent ($66.8bn) of the direct foreign investment was directed to Azerbaijan's economy between 2000 and 2017; literally, 77.8 billion dollars was allocated to the oil and gas sector. However, the country's non-oil/gas sector, especially the processing industry, could not generate sufficient interest among foreign investors at that time. In a situation where foreign investors are so active in the country's oil and gas production sector, their interest in non-oil/gas (non-production) sectors is so low that it is a thought-provoking situation. To achieve the growth of foreign direct investments in these sectors, it is important to identify the factors that discourage foreign investors and to implement measures to eliminate them.

Azerbaijani government does its best in this direction. Some reforms have been done so far. The establishment of the Alat Economic Zone can be exemplified. Even, adopting a competition code also can be considered an important step to attract foreign investors in the non-oil and gas sector. Since Azerbaijan is located on international trade routes, non-oil and gas sectors are promising sectors in the country. With the development of the non-oil and gas sector, Azerbaijan could be equivalent to the UAE or Saudi Arabia in the Caucasus.

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Qabil Ashirov is AzerNews’ staff journalist, follow him on Twitter: @g_Ashirov

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