Azerbaijan’s story today is one of dynamic transition, as it seeks to build on its substantial fossil fuel and mineral wealth to diversify and modernise its economy. It may be small, with a population of just over 10m, but in just over three decades of independence it has built itself into a country with a reputation for rapid growth. Thanks to free trade agreements and superior transport links compared with regional neighbours, Azerbaijan is establishing itself as a promising hub for international trade and investment. With 450 UK companies already present in the market (including BP for the past three decades) the UK is the country’s largest foreign investor. But the potential for growth is evident.
Situated at the base of the Caucasus mountains, with the Caspian Sea to the east, it has a strategically important position between Russia, the Middle East and central Asia, as well as enormous reserves of natural resources. Indeed, its nickname ‘the land of fire’ is said to derive from the natural gas which – in its most concentrated deposits – leaks freely from the ground and burns continuously. On Yanar Dag, literally translated as ‘burning mountain’, naturally-occuring gas fires have been reported by travellers for thousands of years.
It may be an emblematic image, as well as the strong foundation underpinning Azerbaijan’s economy, but fossil fuel wealth is just one side of the story. Modern-day Azerbaijan is committed to furthering the country’s reputation as a hub for international trade and investment. In fact, Azerbaijan – and Baku in particular – has been pivotal to supply lines since even before the ancient Silk Road. That evocative name may have been replaced by globalese jargon like ‘Trans-Caspian East-West Trade and Transit Corridor’ but the message is the same: a huge amount of business is done through Baku. The outbreak of war in Ukraine has only accelerated Baku’s rise, with international firms looking to move south from Moscow for a more stable base.
As befits a nation intent on modernising and competing on the world stage, Azerbaijan is also keenly aware that ‘soft power’ matters as much as hard numbers. One key factor in establishing Azerbaijan’s international reputation has been the arrival of the Baku Grand Prix, held in the capital since 2017. The highest-profile sporting event to take place in Azerbaijan on a regular basis, it provides a valuable showcase for the rapidly evolving city, a demonstration of the nation’s rising profile on the world stage, and also a metaphor for its economic journey.
Azerbaijan is acutely aware of the need to diversify its energy portfolio. Oil and gas may still account for the majority of exports and around 50 per cent of the GDP, however, the non-oil sector is growing, and the government has committed to funding renewable sources of energy over the next decade, with a target of 1,500MW generated from renewable sources by 2030, supplying 30 per cent of its electricity.
In line with a more modern energy outlook, the Azerbaijani government has adopted a new strategy for socio-economic development for the next decade, where ‘clean environment and green growth’ have been specified as priority areas, and recently launched an ‘International Finance Corporation (IFC) Offshore Wind Roadmap’. This sets out a vision that takes full advantage of the significant Caspian coastline, and estimates that if fully developed, the country’s offshore wind sector could generate 157GW a year.
Outside of energy, Azerbaijan is enjoying flourishing growth in other developed sectors. IT and communications has been a local success story during the pandemic, reporting 15.5 per cent growth through the first three quarters of 2022 compared with the equivalent period in 2021. Cyber security and infrastructure also offer strong opportunities for UK businesses.
One of the most recently emerging areas of potential, however, is the healthcare sector. In 2016 the government introduced a mandatory social health insurance scheme, establishing a new state agency and opening the door for increased public and private investment. However, the country still needs to draw on more experienced providers across the field, from telemedicine and diagnostic technology to the provision of specialist care and surgery. The UK’s deep knowledge of and experience in medical services and technology will stand businesses in good stead if they are to play a role.
There is no doubt that Azerbaijan is a market offering a broad range of opportunities to UK businesses. Trade between the two countries totalled £1.1bn in the last twelve months, and this only looks set to grow in the coming years.
