From Reconstruction to Reality: Azerbaijan’s New Strategy Tests an Economy Losing Growth Momentum

Azerbaijan’s drive to modernise one of the South Caucasus’s oldest vehicle fleets is entering a more uncertain phase. After several years of tax incentives that fuelled a surge in hybrid imports, the government is withdrawing key exemptions — a move that risks slowing the transition from ageing internal combustion engines to cleaner models.

At the World Economic Forum in Davos, President Ilham Aliyev spoke at the Azerbaijan Executive Breakfast, a high-level event designed to present Azerbaijan not only as a resource-rich state but also as a strategic center for regional integration, economic diversification, and the attraction of foreign investment.

Food prices in Azerbaijan followed a two-track trajectory in 2025, with sharp increases in staple goods and dairy products counterbalanced by steep declines in vegetables and selected protein items. The result was a net fall in the overall food basket, despite persistent inflationary pressure on everyday essentials.

In 2026, Azerbaijan is likely to move forward not through sweeping political change, but through a careful recalibration of power, priorities and partnerships. Under the leadership of President Ilham Aliyev, the country is expected to maintain firm political control at home, pursue moderate but steady economic growth, and continue a foreign policy based on balance rather than alignment — a strategy shaped by both regional risks and global uncertainty.