Azerbaijan

At a glance

Main competitive advantages

  • A rich country, with abundant mineral and climatic resources 
  • A favourable geographical location, on the most convenient route from North-Eastern Europe to Central Asia and the Middle East  
  • A system ensuring political and financial stability, along with one of the fastest economic growth of the post-Soviet territory  
  • A rapidly improving business environment, offering FDI friendly legislation and favourable tax system  
  • A competitive production base, with a strong industrial tradition, a skilled and low-cost labour force and growing R&D capacity 
  • An attractive domestic market generated by the huge oil and gas sector, the wealthy State, the growing demand of local firms for Western expertise and the increasing purchasing power


Economic outline

Key figures

GDP: AZN 53 billion / EUR 49.2 billion (2011)                 Population 9.1 million. Area: 86,600 km²

 

Since its independence from the Soviet Union in 1991, the Republic of Azerbaijan has taken significant steps to transform its planned economy into a market economy based on private initiative: opening of the economy, liberalisation of the conduct of business, introduction of investment-friendly regulations and reduction of the red tape. In 2011, the private sector (around 100,000 registered entities) generated 81.2% of total GDP. The latter’s composition by sector was as follows: industry (53.9%), social and non-formal services (12%), construction (8.3%), agriculture (5.5%), trade (6.5%), transport and communication (6.6%). In 2011, total exports amounted to USD 26.6 billion and imports to USD 9.7 billion.

Market access:

  • Bilateral and multilateral agreements signed with 30 trade partners, including Turkey, Lebanon, Bulgaria, etc. 
  • Free trade agreements with Russia, Moldova, Ukraine, Turkmenistan, Uzbekistan, Georgia and Kazakhstan 
  • General System of Preferences (GSP+) trade regime with the EU: export of 7,200 products free of duty  
  • Generalized System of Preferences (GSP) with the USA: export of 3,400 products free of duty 
  • Negotiations on accession to the WTO started in 1997 
  • Comparatively low import tariffs: 5.8% on average (2009)


Foreign Investment

  • "Welcoming policy" for foreign businesses: non-discriminatory investment regime, guarantees against adverse legislative changes, nationalisations and requisitions, damage compensation and repatriation of profits 
  • Bilateral investment protection treaties signed with 41 countries and 25 under negotiation  
  • Top 5 investor countries in 2011: Great Britain, USA, Japan, Norway, Turkey


Business environment

Ease of doing business

Doing business 2012 rank for Azerbaijan: 66 / 183. Change in Rank: ↑ 3

World’s leading reformer in 2009: jump from the 97th to the 33rd place, the biggest jump ever recorded by the World Bank

Latest improvements in Paying Taxes ↑24: the successful revision of the tax code lowered several tax rates, including the profit tax rate, and simplified the process of paying corporate income tax and VAT

Global Competitiveness 2011/2012 rank for Azerbaijan: 55 / 142 (first economy among the CIS countries). Change in rank: ↑2


Investment climate

Azerbaijan’s investment climate has shown substantial improvements in the past few years, notably with the introduction of an efficient “one-stop shop” system in 2008.

Investing Across Borders (IAB) assessment for Azerbaijan:

  • Investing Across Sectors: only restrictions on foreign equity ownership in the mining, oil and gas sectors (private participation limited to 49%), as well as in the media sectors (limited to 33% for newspaper publishers and prohibited for TV broadcasting companies);  
  • Starting a Foreign Business: establishing a foreign-owned limited liability company (LLC) in Azerbaijan is faster (11 days) and easier (no need for an investment approval, one-stop-shop, only 7 procedures) than the global and regional average. There is no minimal capital requirement; 
  • Accessing Industrial Land: leasing public land (for a maximum of 99 years) is the most common option;  
  • Arbitrating Commercial Disputes: enforcing arbitration awards takes around 51 weeks for domestic awards and 45 weeks for foreign awards.


Tax system and incentives

Azerbaijan offers a favourable tax regime: 18% VAT; 20% income tax; 20% profit tax; 1% property tax; 10% tax on interest. An electronic tax-filing system was launched in 2009, thus reducing the time spent on tax payment.

With a view to increase foreign investment and export, the government implemented the following measures:

  • Bilateral treaties for the avoidance of double taxation signed with 40 countries and ongoing negotiations with Denmark, India, Ireland, Kyrgyzstan, Syria and Sweden; 
  • Special Economic Zones law under preparation: concessional tax and customs regime to be introduced in the eligible territories.

Other schemes aim at supporting entrepreneurship:

  • Simplified tax for SMEs (with an annual revenue of less than AZN 150,000): 4% of the gross revenue for entities operating in Baku, 2% for those operating in other regions, exemption from VAT, profit tax and property tax;  
  • New mechanism of State support to entrepreneurship under preparation.


Referent organisations and useful resources

  • Azerbaijan Republic Chamber of Commerce and Industry: public non-governmental organisation, established in 1922, representing the interests of the business community in Azerbaijan and offering a range of services such as arbitration, trade missions, fairs and exhibitions, examination of goods, force majeure certificates, etc.
  • Azerbaijan Export and Investment Promotion Foundation (Azpromo): joint public-private initiative established by the Ministry of Economic Development in 2003, which aims at increasing FDI in Azerbaijan’s non-oil sectors (Investment Promotion Department, including a "one-stop-shop" for international investors) and developing non-oil exports (Export Promotion Department)  
  • National Confederation of Entrepreneurs (ASK): non-governmental organisation with 4,000 private members (companies, sector associations and individuals), which develops countrywide activities to support entrepreneurship 
  • Azerbaijan Investment Company (AIC): State-owned private equity fund launched with a USD 110 million capital (USD 70 million additional capital injected afterwards) to support greenfield and brownfield projects in Azerbaijan’s non-oil sectors via termed equity injection along with local and foreign co-investors

 

This publication has been produced with the financial assistance of the European Union. The contents of this publication are the sole responsibility of EUROCHAMBRES and can in no way be taken to reflect the views of the European Union.

© 2011 East Invest Support Office
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