The Economic Impact of Formula 1 Races in Azerbaijan: Myths and Realities

2nd Article

Pro-government media and experts claim that by hosting Formula 1, Azerbaijan demonstrates its economic strength, development, hospitality, and multicultural values to the world. They believe that holding this race in Azerbaijan is directly linked to the country's power, international reputation, and high economic potential, and that Formula 1 plays an exceptional role in promoting the country's tourism potential globally. In his speech at the 2019 Sports Year-End Ceremony on December 25, President Ilham Aliyev stated[1], "As for the Formula 1 race, I can say that it brings great benefits to our country. First, the cities hosting Formula 1 races are either capital cities of developed countries or major cities. The fact that Baku is among them is a significant event for us."

Myth 3: Hosting Formula 1 races in Baku lifts the spirits of our citizens.

Official Baku emphasizes the importance of Formula 1 for the state and ensures that international obligations related to the race are fulfilled on time and in full[2]. The organization of Formula 1 in Baku is tied to the fact that the Baku City Circuit Operations Company[3] holds a Category 1 license for the organization and management of the race. With this license, Baku City Circuit can only hold the races in Baku. Hosting a Formula 1 street race requires significant reconstruction of existing spaces (main roads, underground stations, etc.) and other supporting infrastructure. According to disclosed information, in preparation for the first Formula 1 Grand Prix in Baku in 2016, a major road renovation project covering an area of 4,500 square meters was implemented in the city. According to the former Minister of Youth and Sports, Azad Rahimov, the cost of the Baku Grand Prix in 2016, including all fees and infrastructure expenses, was approximately $100 million.

The reality is that the equipment installed and infrastructure created in the city center for the race causes significant disruptions (iron fences on the central streets and concrete barriers separating pedestrians from the roadway), understandably causing serious concerns among Baku's residents and visitors. Traffic is restricted on streets in the city center[4], and operations at educational, healthcare, and other public institutions, as well as businesses in the area, come to a halt. All of this leads to dissatisfaction among the city’s population and its visitors, particularly among the majority of Baku’s residents. For eight years, the residents of Baku have endured the inconveniences caused by the restrictions associated with this race.

Myth 4: Formula 1 races boost tourism and increase foreign interest for Baku.

In his speech at the 2019 Sports Year-End Ceremony on December 25, President Ilham Aliyev also stated[5], "The Formula 1 race brings significant economic dividends to our country, just as it does to all other cities. If someone says that it harms us, they either don't know or intentionally want to distort the facts. If it harms us, then it also harms the 20 or so other cities hosting the race, and are they all operating at a loss? Of course not. The multiplier effect of Formula 1 is very large. Thousands of guests from abroad spend money here, bringing great economic benefits. After the first Formula 1 race, there was a massive influx of tourists to Azerbaijan. I remember these dates clearly because I was receiving regular reports on the arrival of tourists, whether monthly or quarterly. After the first race, the number of tourists increased by 24%. The following year, it grew by another 22%, and the year after that by 5%. Finally, this year, in the first eleven months, it has increased by 11%. For the first time in history, more than 3 million tourists visited Azerbaijan."

Indeed, 2019 was a record year in Azerbaijan’s history, with over 3 million foreign visitors and stateless individuals entering the country. However, in the four years since, this record has not been surpassed. In 2023, at least 1 million fewer foreign visitors and stateless persons came to Azerbaijan compared to 2019. Naturally, the COVID-19 pandemic significantly impacted tourist numbers. Although the World Health Organization declared the end of COVID-19's pandemic status[6] on May 6, 2023, Azerbaijan's government continues to keep land borders with neighboring countries closed due to quarantine measures imposed in March 2020. This undoubtedly limits the entry of tourists who would otherwise travel by rail or road, reducing the number of foreign visitors and stateless individuals entering Azerbaijan.

The reality is that official statistical data do not indicate that Formula 1 and other international races have increased tourist attraction to Azerbaijan or foreign interest in Baku. Let's look at Table 1, which characterizes the situation over the last six years in this area.

Table 1. Foreigners and stateless persons arriving in Azerbaijan and their composition (2018-2023)

Source: State Statistical Committee, Tourism in Azerbaijan 2024 Report[7]

As seen from the table data, the number of foreigners and stateless persons arriving in Azerbaijan in 2023 decreased by 26.81% compared to the pre-pandemic year of 2018, and by 34.22% compared to 2019. It is worth noting that in the peak tourism year of 2019, the top five countries of origin for foreigners visiting Azerbaijan—Turkey, Russia, Georgia, Iran, and Ukraine—accounted for 92% of the total[8]. These countries are where many Azerbaijanis have migrated and settled abroad, meaning that the majority of visitors from these neighboring countries were coming to visit family and relatives.

Moreover, the number of foreigners and stateless persons arriving in Azerbaijan for tourism purposes in 2023 decreased by 46.17% and 51.02% compared to 2018 and 2019, respectively. During this period, the decline in the number of foreigners and stateless persons visiting Azerbaijan for business purposes was even more pronounced, dropping by more than fivefold compared to 2018, and by 5.5 times compared to 2019. As shown, there has been a sharp decline in the number of tourists visiting Azerbaijan compared to 2018 and 2019, which indicates a decrease in foreign interest in Baku rather than an increase. Number of foreigners and stateless persons accommodated in hotels or similar establishments compared to 2018 and 2019 in 2023 decreased.

Myth 5: Formula 1 races increase the revenue of the service sector and stimulate the development of local businesses.

The primary businesses serving the Formula 1 races belong to the service sector. Most of the foreign visitors coming for the races use service packages from travel agents and tour operators, staying mainly in hotels. The State Statistical Committee's indicators characterizing the activity of these sectors from 2018 to 2023 provide grounds to say that expectations have not been met. The dynamics of the past six years are reflected in Table 2.

Table 2. Service sector indicators in Azerbaijan (2018-2023)

Source: State Statistical Committee, Tourism in Azerbaijan 2024 Report[9]

As seen from the data, except for the revenues and costs of travel agents and tour operators, all indicators characterizing the service sector showed a decline in 2023 compared to the pre-pandemic years of 2018 and 2019. In 2023, the number of travel agents and tour operators decreased by 74 and 134 units, respectively, compared to 2018 and 2019. The number of tourism packages sold to foreigners and stateless persons for travel within Azerbaijan decreased by 22.88% compared to 2018, and by 2.42 times compared to 2019. The number of tourists received by travel agents and tour operators in 2023 was 2.75 times lower than in 2019. These declines also led to a reduction in the number of employees in this sector during the comparison period. Due to high inflation rates in the country, rising costs of services and expenses have led to an increase in both the revenues and costs of travel agents and tour operators.

The reality is that statistical indicators do not show that Formula 1 races have stimulated the development of local businesses operating in the service sector.

In conclusion, the peak number of tourists in Azerbaijan was recorded in 2019, before the pandemic and before quarantine measures were implemented and the land borders with neighboring states were closed. There is insufficient statistical data to evaluate the economic impact of the Formula 1 race on the tourism and service sectors in that year. However, we can say that Formula 1 races provide an opportunity to attract title sponsors, which is a standard practice to increase revenues. However, the race held in Baku has not always had a title sponsor: SOCAR was the sponsor in 2019, and Qatar Airways in 2024. While the participation of such sponsors can generate additional income and enhance the event’s prestige, the stability of partner engagement remains a question.

The economic impact of Formula 1 races also extends to companies involved in media and advertising. Although companies such as Azercell, Bakcell, and AzTV are involved, no information has been disclosed regarding their revenues or expenses from these sources. Naturally, the lack of a free advertising market and independent press in the country leads to monopolization in this field.

1st Article

[1] https://president.az/az/articles/view/35483

[2] https://racingnews365.com/how-much-formula-1-circuits-are-paying-to-host-2023-grands-prix

[3] https://www.bakucitycircuit.com/en/information

[4]https://www.bakucitycircuit.com/az/news/statement-by-bcc-on%20road%20restrictions%20throughout%20the%20race%20week

[5] https://president.az/az/articles/view/35483

[6] https://news.un.org/en/story/2023/05/1136367

[7]https://www.stat.gov.az/source/tourism/

[8] https://tourism.gov.az/uploads/documents/statistic/+annual_tourism_statistics_2020_final.pdf

[9]https://www.stat.gov.az/source/tourism/