Breaking new ground: Azerbaijan diversifies beyond oil

Azerbaijan, the largest economy in the South Caucasus region, has long been known for what lies underground. With proven reserves of 7 billion barrels, Azerbaijan – also known as the ‘Land of Fire’ – ranks 20th globally in terms of oil reserves. And yet given the unpredictable and at times volatile nature of commodity prices, the country’s leadership is increasingly turning to its resources above ground – and especially on the ground – namely agriculture.

Agriculture has long been a sector of great importance in Azerbaijan: as of 2017, more than 37% of the country’s workforce was employed in the sector. In terms of economic contribution however, agriculture plays a far more limited role, accounting for little over 5%.

The Azeri government wants this to change, and sees foreign direct investment (FDI) as playing a potentially important role in enhancing the country’s agribusiness capabilities, production, processing and export levels. At the same time, Azerbaijan offers some compelling and competitive advantages for potential foreign agribusiness investors – especially when it comes to fruits and vegetables. The country has excellent climatic conditions for an array of produce, with nine different zones, and an extended growing season; exports of fruits, vegetables and nuts more than doubled in just five years between 2013 and 2018; domestic agribusiness retail trade has been rising rapidly, and the country is a leading regional and even global producer and exporter of tomatoes, pomegranates, persimmons and sweet cherries.

Despite these important assets and advantages, investment challenges remain: land allocation and titling remains an issue, as does the dominant position of large holding companies, impeding market access for new players in the country’s agribusiness market. Skills shortages and access to finance represent two other key challenges which the government will need to address if the country is to fulfill its FDI potential in agribusiness and other promising sectors – including tourism, chemicals and pharmaceuticals.

Since December 2018, I have been privileged to be part of an International Finance Corporation (IFC) team working in Azerbaijan to support the Ministry of Agriculture and the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) in identifying and showcasing the most promising sectors and subsectors for FDI. Alongside the promotional work, the government is showing strong signs of its commitment to enhance and improve the business environment for investment.

The future looks promising: with strong and improving connectivity, an array of natural and geographical assets, and a government commitment to step up its game in attracting and retaining foreign investors, Azerbaijan is showing signs that it can truly become a diversified economy and FDI magnet in the region.

Tomatoes galore: one of the larger greenhouse sites near the capital, Baku.