With oil prices staying relatively low Azerbaijan’s economy is transforming into a value creating economy. Large scale reforms aim to further improve non-oil sector and the country’s export capacity, in particular. While few international financial institutions, such as EBRD and Asian Development Bank, have forecasted 1% of growth in 2016 for Azerbaijan, this rate of growth seems to matter even more in terms of the country’s sustainable development. Below you can find some opportunities for local and foreign investors:
Equity investment and equity financing makes much more sense than ever before. Due to some reduction in government spending existing companies now have to search for new opportunities. This requires more creativity and investment in new technologies. While banks still lend money, given increased competition and change of economic environment, paying large interest on loans do not seem as attractive as they used to be. Equity investments are turning into much attractive financing option. Coupled with infusion of new technology and know-how, equity investments can provide to local companies significant competitive edge.
Before making equity investments there are few issues to take into account. Firstly, despite being a traditional form of financing, many local companies may not be well aware of its implications. It is, therefore, necessary to make sure the local party understands how they would have to operate going forward.
From legal point of view, the environment for equity investments is quite liberal. In particular, Azerbaijan does not have legislation on joint ventures that would afford greater protection to local entities. Instead, general laws regulate company and joint business formation and most joint venture related matters can be governed based on agreements between parties. The investment of foreign entities is protected under relevant laws on protection of foreign investment. In particular, the laws and regulations provide for equal treatment for foreign investors.
Another area of interest for many companies is likely to be agriculture. Despite government support to agriculture, this area in Azerbaijan remains full of potential. Located in a climatic zone, which is favorable for many types of agro businesses, agro business related opportunities in Azerbaijan are very attractive. Most local agro businesses have lacked the modern technology. Bringing this technology and know-how to Azerbaijan’s agro sector will likely to yield significant returns, as agro products are likely to have the most export potential in Azerbaijan.
Oil and Gas
Azerbaijan has been known as the country with rich oil and gas resources. There are a number of production sharing agreements relating to Azerbaijan’s oil and gas reserves signed between multinational energy companies and Azerbaijan’s State Oil Company. Azerbaijan has developed a legal tradition of approving important and strategic PSAs into laws –the Azerbaijani Tax Code and Customs Code do acknowledge the status of PSAs benefits they provide to contractors and sub-contractors who are engaged in certain oil and gas operations.
Recent Reforms in Azerbaijan
In order to support further economic growth the government has implemented several important reforms. One is the creation of the system of appellate councils. The system requires that local and centralized executive authorities (such as ministries and state committees) create their internal appellate councils. If an entrepreneur faces a challenge from any executive authority and it believes the authority has breached the law, it may appeal the matter to the appellate council of that authority. The internal appellate council must review the complaint and issue its decision. If the entrepreneur is not happy with the decision of the internal appellate council, it may appeal the internal council’s decision to the Appellate Council in the President’s Office. The Appellate Counsel in the Presidential Administration is the highest appellate body in the system.