U.S. Says Investment Climate In Azerbaijan 'Continues To Improve, Although Significant Challenges Remain'

"The overall investment climate in Azerbaijan continues to improve, although significant challenges remain," the Biden Administration said Thursday in its annual review of how the world governments improve local investment conditions, as well as remaining barriers that may hinder opportunities for U.S. businesses, TURAN's U.S. correspondent reports.

The reports, known as "Investment Climate Statements", were released by the State Department to help U.S. companies make informed business decisions by providing up-to-date information on the investment climates globally. Azerbaijan is among more than 160 economies that have been featured.

"The reports highlight those areas in which countries have improved local investment conditions, as well as remaining barriers that may hinder opportunities for U.S. businesses," State Department spokesperson Ned Price said during his daily press briefing.

"Successful global economic recovery from the pandemic must be grounded in sustainable, equitable, and inclusive growth," he added. "To that end, the statements not only cover market conditions, they assess how governments uphold international labor standards, enable responsible business conduct, combat corruption, and implement policies to mitigate and adapt to the effects of the climate crisis."

Ukraine and Russia are not featured in this year's reports. "We weren’t in a position to collect the appropriate data for Ukraine.. And of course, Russia’s invasion of Ukraine has led to dramatic shifts in the marketplace conditions in Russia," Price said in response to TURAN's questions.

On Azerbaijan, the report highlights that the government has sought to attract foreign investment, undertake reforms to diversify its economy, and stimulate private sector-led growth. The Azerbaijani economy, however, remains heavily dependent on oil and gas output, which account for roughly 88 percent of export revenue and over half of the state budget.

"The economy of Azerbaijan grew 5.6% year-on-year in 2021, compared to a 4.3% contraction in the previous year.  Both oil and gas (1.7%) and the non-oil and gas (7.2%) sectors of the economy expanded as the economy continued to recover from the pandemic," read the report.

While the oil and gas sector has historically attracted the largest share of foreign investment, the Azerbaijani government has targeted four non-oil sectors to diversify the economy: agriculture, tourism, information and communications technology, and transportation/logistics.

Measures taken in recent years to improve the business climate and reform the overall economy include eliminating redundant business license categories, empowering the popular ASAN government service centers with licensing authority, simplifying customs procedures, suspending certain business inspections, and reforming the tax regime.

Despite substantial efforts to open the business environment, progress remains slow on structural reforms required to create a diversified and competitive private sector, and corruption remains a major challenge for firms operating in Azerbaijan, according to the report.

A small group of government-connected holding companies dominates the economy, intellectual property rights enforcement is improving but remains insufficient, and judicial transparency is lacking.

TURAN's correspondent asked spokesperson Price whether this year's reports on the South Caucasian countries reflected potential implications on Russian aggression in the wider region, including the war in Ukraine.

"Our goal with engagement with the South Caucasus is to move forward towards that comprehensive peace that we’ve talked about. I’m not certain that Russia’s aggression against Ukraine – I think the reports will discuss if there’s any implication for market conditions in the South Caucasus, but would need to refer you to the reports for that," he said in response.

Full version of Azerbaijan country report can be found here.

Alex Raufoglu

Wahhington D.C.