Over the past thirty years, Azerbaijan has shaped its economic and investment policies around its substantial oil and gas resources and its strategic position at the crossroads of Europe and Asia. Revenues from international investments in the domestic energy sector have allowed the country to fund multi-billion-dollar infrastructure projects, expand industrial capacity, and address social needs.
Today, however, Azerbaijan faces a more complex challenge: attracting foreign direct investment (FDI) into advanced, non-oil sectors of the economy. The current state of FDI was highlighted on March 17 during a briefing at the Central Bank of Azerbaijan (CBA), which presented the country’s 2025 balance of payments data.
In a report published at the end of January by the United Nations Conference on Trade and Development (UNCTAD), global FDI flows in 2025 rose by 14%, reaching $1.6 trillion, confirming a rebound after a two-year decline. At the same time, UNCTAD notes that over $140 billion of this growth came from “transit flows” routed through global financial centres; without these, the real volume of global FDI would have grown significantly less, indicating that the recovery of core investment activity remains weak.
Another important point highlighted in the UNCTAD report is that the largest FDI inflows—up to $728 billion—went to highly developed economies, with several European countries and financial hubs serving as the main drivers of growth. In the European Union, 56% of FDI growth was driven by large cross-border deals and the revival of activity in economies such as Germany, France, and Italy. Meanwhile, more than one-fifth of the total value of global investment projects in 2025 went into high-tech sectors: for example, over $270 billion was invested in the construction of data centres, and significant capital was directed to semiconductor production, which rose by 35%. This entire demand was driven by the development of artificial intelligence (AI) infrastructure and digital networks, and it was concentrated almost entirely in the world’s developed countries.
Unfortunately, the UNCTAD report confirms that global investment flows continue to bypass developing countries, particularly the poorest ones: their total FDI amounted to $877 billion, down 2% year on year. UNCTAD’s forecasts for 2026 are even more pessimistic, projecting that real investment activity will remain constrained by geopolitical tensions, policy uncertainty, and the fragmentation of the global economy.
The report once again underscores that developing countries will have to make significant efforts to attract FDI: international investment is highly competitive, and contenders from less wealthy nations must demonstrate their creditworthiness through international ratings, show a favourable investment climate, and provide effective core infrastructure.
But how does Azerbaijan’s developing economy fare in light of all this?
“ In general, the business climate in the country is very positive. We have attracted huge investments. If you look at the size of the country and population, 350 billion in investments over the last two decades is really a lot. And as we all know, investments are the main driving force for the development of any country. We have always been open to foreign investments, with our legislation, including production sharing agreements, which were signed 30 years ago,” President of Azerbaijan Ilham Aliyev stated in February, while receiving a delegation from the U.S. Chamber of Commerce.
Notably, in terms of total external debt relative to GDP, Azerbaijan has, over the past decade, held one of the leading positions not only in the post-Soviet space but also remains one of the most financially stable countries in the Central and Eastern Europe region.
“Two major rating agencies upgraded our credit rating. There were Moody’s and Fitch – upgraded to investment level, with a prognosis also upgraded from stable to positive,” President Ilham Aliyev said in an interview with local television channels in January of this year.
Such a favourable ratio of external debt to GDP keeps the domestic financial system out of the risk zone, allows the country to attract loans at more favourable rates, and—most importantly—demonstrates the reliability of the economy and its investment appeal. In recent years, Azerbaijan has also made significant breakthroughs in developing core energy, transport, network, digital, and other infrastructure, which is a key factor in attracting international investors.
“The total volume of foreign direct investment in Azerbaijan’s economy in 2025 exceeded $6.595 billion,” Samir Nasirov, Head of the Statistics Department at the Central Bank of Azerbaijan, stated on March 17 during a briefing. He emphasised that the largest contributions to the domestic economy came from the United Kingdom, with nearly $1.736 billion. The following were investments from Türkiye—almost $1.231 billion, Cyprus—over $751 million, and the UAE—$404.799 million.
Unfortunately, the external capitalisation of Azerbaijan’s economy last year was slightly lower than in the previous year. By comparison, in 2024, FDI inflows into the Azerbaijani economy amounted to $7.046 billion, and including repatriated investments (the return of foreign assets, profits, or capital to the investor’s home country), the total reached $7.3 billion. Overall, FDI declined by 6.4% compared with the previous year. This drop was largely due to unfavourable global conditions: trade tensions, tariff wars, and regionalised supply chains disrupted developing economies and reduced their capacity to attract external capital, and Azerbaijan was not immune to these trends.
A more pressing issue is the structure of FDI. In 2025, the oil sector still accounted for 78.1% of investments, a modest improvement from 79.3% in 2024. Non-oil sectors attracted only about $1.445 billion, which, while higher than in other South Caucasus countries, remains insufficient to support Azerbaijan’s ambitions in export-oriented non-oil industries, advanced “green” technologies, the digital economy, and other strategic sectors.
To address the existing imbalance, Azerbaijan has intensified efforts since last year to attract FDI into priority, high-tech, and export-oriented sectors of the non-oil economy. A key part of this strategy is expanding Azerbaijani–American cooperation: under the recently signed Charter of Strategic Partnership between Azerbaijan and the United States, both countries plan to jointly develop regional projects in transport and transit, renewable energy, and digital transformation. American capital is also expected to participate in projects involving AI, telecommunications, and the establishment of data centres.
Similar agreements targeting industrial, green, and IT-sector initiatives have been signed and are being implemented with China, Türkiye, and several EU countries. These steps indicate that Azerbaijan is gradually overcoming inertia in capitalising on Industry 4.0 sectors.
This positive trend is supported by IMF forecasts, which project total investment in Azerbaijan at 16.3% of GDP in 2026. Anna Bordon, head of the IMF mission to Azerbaijan, notes that capitalisation is expected to reach 16.4% in 2027, 16.5% in 2028, 16% in 2029, and stabilise around 15.3%–16% of GDP through 2031.
Khazar Akhundov
Caliber.Az
