Business Opportunities In Azerbaijan: A Worthwhile Venture?

Azerbaijan has experienced impressive economic growth since gaining independence in 1991, with foreign investment encouraged and welcomed. The country's economy is centred on its oil and gas industry, but business opportunities have diversified as the economy has expanded. The capital, Baku, is the centre of business in Azerbaijan, and most expats working in the country are based there.

The country has seen significant development of its infrastructure and services in recent years, and the government aims to further develop the economy through diversification. Azerbaijan has a high potential for renewable energy sources, and the government plans to increase the share of renewable energy in domestic production to 30% by 2030.

The UK is the largest investor in Azerbaijan, with over 450 UK companies doing business in the country. In addition to oil and gas, UK companies have found success in areas such as construction management, waste management, retail, and education.

While Azerbaijan offers many business opportunities, there are also challenges. The gap between rich and poor has widened, and wealth is increasingly concentrated in the hands of a small elite. Corruption is also prevalent and can affect business dealings. Additionally, the fluctuating commodity prices may negatively impact the emerging economy, which is heavily dependent on hydrocarbon resources.

Despite these challenges, Azerbaijan presents a friendly and hospitable business environment, particularly for those willing to navigate the unique cultural and societal norms of the country.

Azerbaijan's business environment

Azerbaijan has experienced impressive economic growth since gaining independence in 1991, with foreign investment encouraged and welcomed. The economy is centred on the oil and gas industry, which has been the main target of foreign investment. However, as the economy has expanded, business opportunities have diversified. The capital, Baku, is the centre of business in Azerbaijan, and most expats are based here.

Azerbaijan has developed its infrastructure, including its communication, transportation, industrial, agricultural, educational, housing, and healthcare sectors. The country has a relatively sophisticated transportation system, with the Baku International Sea Trade Port providing a faster sea route to Central Asia and China than going via Russia or Iran. The country's strategic location serves as a gateway between Europe, the Middle East, and Asia.

The Azerbaijani government aims to further develop the economy through diversification, with a focus on renewable energy sources and non-oil sectors. The country has high potential for renewable energy, and the government plans to increase the share of renewable energy in domestic energy production to 30% by 2030. The financial sector is also undergoing reforms, with the Financial Market Supervisory Authority abolished in 2019, and its functions entrusted to the Central Bank.

The country has a favourable climate for agriculture, and the government grants 16 types of subsidies to farmers to ensure food security and rural employment. However, desertification and water availability are significant challenges for the agriculture sector.

Azerbaijan's business culture values personal relationships and trust. Building relationships and networking are essential, as business deals are often done through personal recommendations. Decision-making can be time-consuming, and expats should be patient and learn to navigate the hierarchical society. While the official language of business is Azerbaijani, Russian is widely spoken, and English is increasingly used. Interpreters may be necessary for business meetings.

The country has a history of corruption, which can affect business dealings. There is a wide gap between rich and poor, with wealth concentrated in the hands of a small elite. Additionally, inconsistent application of regulations and a lack of transparency can pose challenges for businesses.

The country's economic growth

Azerbaijan has experienced impressive economic growth since it gained independence in 1991, with foreign investment encouraged and welcomed. The country's economy is centred on the oil and gas industry, which has attracted foreign investment since 1994. However, as the economy has expanded, business opportunities have diversified.

Azerbaijan has developed its infrastructure, including its communication and transportation networks, as well as its industrial, agricultural, educational, housing, and healthcare sectors. The country has a relatively sophisticated transportation system, with the Baku International Sea Trade Port providing a faster sea route to Central Asia and China than routes that pass through Russia and Iran.

Azerbaijan's government spends heavily on infrastructure projects, and the country has a strategic location that serves as a gateway between Europe, the Middle East, and Asia. The country has also withstood global financial crises relatively well, and its economy was resilient during the coronavirus pandemic due to the dominant role of the oil and gas sector.

Azerbaijan's GDP for 2021 was £54.62 billion, an increase of 5.6% from 2020. The country's annual inflation rate was recorded at 6.7% in 2021, and unemployment has decreased significantly over the last decade, dropping to 5.7% in 2021.

The government aims to further develop the economy through diversification, particularly in the non-oil sectors. The financial sector is going through reforms, and the country has high potential for renewable energy sources. The government plans to increase the share of renewable energy in domestic energy production to 30% by 2030, with solar, wind, hydro, and bioenergy among the priority areas.

The country also has significant agricultural potential due to its favourable climate conditions, and the government grants 16 types of subsidies to farmers to ensure food security and rural employment.

Azerbaijan's Information and Communication Technology (ICT) sector is another driver of the non-oil economy, with an average annual growth rate of about 20% to 25%. The ICT sector generates annual revenues of £1 billion.

The country's healthcare sector is also undergoing important transformation efforts to increase the quality of healthcare services and decrease out-of-pocket expenditures. Combined public and private healthcare spending is projected to grow by 9% from 2021 to 2024, supporting the government's goals to broaden access to care, reduce financial barriers, and improve the overall quality of healthcare provision.

Overall, Azerbaijan's economic growth has been impressive, and the country offers diverse business opportunities, particularly in the oil and gas, construction, waste management, retail, and education sectors, as well as in renewable energy, agriculture, ICT, and healthcare.

Business culture and customs

Azerbaijan has a friendly and hospitable business environment, welcoming foreign investment since gaining independence. The country has experienced impressive economic growth, centred on the oil and gas industry, which is the main target of foreign investment. However, as the economy expands, business opportunities are diversifying.

The capital, Baku, is the centre of business in Azerbaijan and is viewed as the most Westernised city in the country. It is home to most expats working in the country. The official language of business is Azerbaijani (Azeri), with Russian also widely spoken. English is becoming more common, but it is best to hire an interpreter when doing business in Azerbaijan.

The standard business hours are Monday to Friday, 9 am to 5 pm or 10 am to 6 pm. Some government offices are open on Saturdays. While punctuality is important, meetings may not always start on time. It is customary to begin with a casual conversation about work and family before getting to the formal agenda.

Business attire is formal and conservative, with both men and women usually dressing in Western-style clothing. When greeting, men should wait for a woman to extend her hand first. Gifts are not usually opened immediately and it is customary to offer food or gifts to colleagues and business partners at least three times.

Azerbaijan is a hierarchical society where status is important. Decision-making can be a lengthy process, so patience is essential. Building relationships and trust is vital to doing business in Azerbaijan, as deals are often done through personal recommendations. Networking is key, and expats should aim to build a rapport with local associates first.

While Azerbaijan has made strides in developing its market infrastructure, including legal, tax, and banking frameworks, it faces challenges such as corruption and inconsistent application of regulations. The country is not a member of the World Trade Organization (WTO), which can cause customs issues.

When doing business in Azerbaijan, it is important to avoid discussing politics and criticising the regime. Religion is a private matter, and while most citizens are Muslim, Azerbaijan is a largely secular country.

Business opportunities in Azerbaijan

Azerbaijan has experienced impressive economic growth since gaining independence in 1991, and foreign investment has been encouraged and welcomed. The country's vast oil and gas reserves have been a significant draw for foreign investors, with the oil and gas industry accounting for the bulk of its exports. However, the Azerbaijani government has also been working to develop the non-oil sector to enhance the nation's revenues.

• Information Technology: With the increasing demand for digital solutions, there is a growing market for IT companies in Azerbaijan.
• Agriculture: The Azerbaijani government is targeting the agriculture sector to diversify its economy. U.S. suppliers of agricultural equipment, fertilizers, seeds, pesticides, and animal genetics benefit from government-funded agricultural subsidies.
• Transportation and Logistics: Azerbaijan's strategic location and developing infrastructure make it an attractive option for transportation and logistics businesses.
• Tourism: Azerbaijan's unique cultural and natural attractions make it a promising destination for tourism development.
• Energy: Azerbaijan is an energy-abundant country with vast reserves of oil and natural gas. The country has transformed itself into a regional energy hub, presenting opportunities for energy production and distribution businesses.
• Construction: With ongoing infrastructure development and a growing economy, there is a demand for construction companies in Azerbaijan.
• Food and Beverage: The increasing demand for specialty food and beverage experiences, such as coffee shops and restaurants, presents lucrative business opportunities.
• Consulting: Consulting businesses are booming globally, and Azerbaijan's growing economy creates a demand for various consulting services.
• Real Estate: With economic growth and a developing market, the real estate sector in Azerbaijan offers profitable investment opportunities.
• Financial Services: Navigating the world of finances can be complex, and starting a financial service business can be a rewarding venture to help individuals and businesses with their financial needs.

These are just a few examples of the diverse range of business opportunities available in Azerbaijan. The country's favourable economic climate, strategic location, and supportive government policies make it an attractive destination for investors and entrepreneurs.

The challenges of doing business in Azerbaijan

Azerbaijan has experienced impressive economic growth since gaining independence in 1991, and foreign investment has been encouraged and welcomed. However, there are several challenges to doing business in the country. Here are some key challenges to be aware of:

Language Barrier

While English is increasingly being used in business, it is not widely spoken in Azerbaijan, and most business is conducted in the official language, Azerbaijani (Azeri). Russian is also widely spoken, particularly in the capital city of Baku. To navigate the language barrier, it is recommended to hire an interpreter or learn some key phrases in Azeri or Russian.

Cultural Differences

Azerbaijan has a unique business culture that differs from Western norms. Building personal relationships and trust is essential before conducting business. Decision-making can be time-consuming, and punctuality is not always a priority, with meetings often starting late. It is important to be patient and focus on establishing a friendly rapport with local business associates.

Infrastructure and Market Challenges

Although Azerbaijan has developed its infrastructure and services in recent years, there are still inconsistencies in the application of regulations and procedures related to licensing and certification. The country is also not a member of the World Trade Organization (WTO), which can cause customs issues. Additionally, companies often lack comprehensive English language websites, making it difficult to research and connect with local businesses remotely.

Economic Dependence on Oil and Gas

Azerbaijan's economy is heavily dependent on the oil and gas industry, which accounts for the bulk of its exports. This reliance on hydrocarbon resources makes the country's economy vulnerable to fluctuating commodity prices. While the government aims to diversify the economy, the financial markets remain shallow, and financial products are not well diversified.

Corruption

Corruption is a significant issue in Azerbaijan and can affect business dealings. The country has a history of wealth being concentrated in the hands of a small elite, and corruption can impact decision-making and the implementation of regulations. It is important for foreign investors to be aware of these risks and navigate business dealings carefully.

Intellectual Property Rights

Despite Azerbaijan acceding to conventions designed to protect intellectual property rights, infringement is common. Registering a trademark does not guarantee protection, and disputes related to industrial property rights can be challenging to resolve.

Frequently asked questions