The US State Department's report entitled "Investment Climate Statements" stated that despite significant problems remaining, the general investment climate in Azerbaijan continues to improve. "The government of Azerbaijan is trying to attract foreign investments, implement reforms to diversify its economy, and stimulate the growth of the private sector," the report added. However, the State Department believes that Azerbaijan's economy remains heavily dependent on oil and gas production, which accounts for approximately 88 percent of export earnings and more than half of the state budget.
"Azerbaijan's economy grew by 5.6% in 2021 compared to the previous year (in 2020, there was a 4.3% decrease). As the economy continued to recover after the pandemic, both the oil and gas (1.7%) and non-oil and gas (7.2%) sectors of the economy expanded. While the oil and gas sector has historically attracted the largest share of foreign investment, the government of Azerbaijan has targeted four non-oil sectors to diversify the economy: agriculture, tourism, information and communication technologies (ICT), and transport/logistics," the US State Department underlined.
The State Department believes that despite serious efforts to open up the business environment, the structural reforms required to create a diversified and competitive private sector are lagging, and corruption remains a major problem for companies operating in Azerbaijan. "A small group of government-linked companies dominates the economy, intellectual property rights protection is improving but remains insufficient, and judicial transparency is lacking," the report added. The document states that the measures taken in recent years to improve the business environment and carry out reforms in the general economy include the abolition of business license categories, the granting of licensing authority to state service centers under the famous Azerbaijan President for Service to Citizens and Social Innovations (ASAN), simplification of customs procedures, some business inspections, and reform of the tax regime was optimist developments.
The report mentions that there has been a public spread of COVID-19 in Azerbaijan and that the infection of COVID-19 is present in all regions of the country. According to the decision of the Cabinet of Ministers of Azerbaijan dated February 2022, the special quarantine regime has been extended until September 1, 2022. Masks are no longer required. In 2021, 800.8 million manats (471 million US dollars) had been allocated from the state budget for measures to reduce the impact of COVID-19 in Azerbaijan, including the purchase of vaccines, bonus payments to medical workers, and support for the operation of modular hospitals.
According to the report, according to Azerbaijani legislation, foreign investments have complete and unconditional legal protection and cannot be nationalized or appropriated, except in special cases. "Private entities can freely create, acquire and dispose of their interests. Foreign citizens, organizations, and businesses can lease land but do not own it. The government of Azerbaijan has not shown any examples of discrimination against US citizens or institutions through illegal expropriation. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan allows US investors to apply for the settlement of investment disputes using the International Center for Settlement of Investment Disputes (ICSID). The average time required to resolve international business disputes through domestic courts or alternative dispute resolution varies widely," the Department said.
The State Department says that after the announcement of a three-way ceasefire between Armenia, Azerbaijan, and Russia in November that ended intense fighting in the Nagorno-Karabakh conflict in the fall of 2020, the Azerbaijani government is looking for new investments for the territories around Nagorno-Karabakh. "In the 2022 state budget of Azerbaijan, 2.2 billion manats (1.3 billion US dollars) will be allocated for the restoration and reconstruction of these areas. In addition to the restoration of cultural and historical monuments, these funds will be directed to the restoration of road infrastructure, electricity, gas, water, communication infrastructure, education, and healthcare. The government is also implementing green energy projects in this region. Along with the continuation of special budget allocations for the reconstruction and resettlement of these areas, reconstruction works are expected to continue in the coming years. Demining these areas within the framework of reconstruction works remains a priority of the Azerbaijani government," the report stated.
