Azerbaijan Trade

Subchapters:

  • Business Relationships
  • Foreign direct investment
  • FTAs ​​and Treaties
  • Development Cooperation
  • Prospective fields of study (MOP)

Business relations

Trade relations with the EU

The most important trading partner of AZ in 2021 was the EU with a share of 44.1% of the total turnover. The value of exports to the EU in 2021 was EUR 10.4 billion, which corresponded to 58.8% of total exports. AZ’s main export partners from the EU include Italy (41.6% of total exports), Croatia (3.4%) and Germany (2.9%). The main export items traditionally remain oil and gas (approximately 92.3% of export value in 2021), fruit and vegetables, precious metals and cotton. In the area of ​​imports, the CIS countries are the most important partner with a share of 25.0%, followed by the EU with 18.3%. The main partners for imports from EU countries are Germany (5.4%), Italy (3.6%) and France (1.6%). Mainly machinery and equipment, food, metals and chemicals are imported.

  • Allcountrylist: Overview of major industries in Azerbaijan, including mining, construction, transportation, tourism, and foreign trade.
2017 2018 2019 2020 2021
Exports from the EU (million EUR) 1,453.9 1,597.4 1,838.2 1,498.3 1,470.6
Imports into the EU (million EUR) 9,322.7 11,264.6 10,597.6 6,414.7 10,369.0
Balance with the EU (million EUR) 7,868.7 9,667.2 8,759.4 4,916.4 8,898.4

Source: European Commission

Trade relations with the Czech Republic

The volume of trade has decreased significantly in 2020 and 2021. Mutual trade is affected by the import of energy minerals, especially oil (in 2021, AZ was the 3rd most important supplier of oil to the Czech Republic). Exports from the Czech Republic to AZ are more diversified (mainly parts, machines and passenger cars). The balance of trade has been to the disadvantage of the Czech Republic for a long time.

2017 2018 2019 2020 2021
Exports from the Czech Republic (billion CZK) 23.8 1.6 1.4 1.7 1.9
Imports to the Czech Republic (billion CZK) 2 26.8 25.8 13.1 13.3
Balance with the Czech Republic (billion CZK) -22 -25.2 -24.4 -11.4 -11.4

Source: CZSO

Trade relations with countries outside the EU

Foreign trade outside the EU accounted for 55.2% of total trade in 2021. Turnover with CIS countries was 13.4%. Exports outside the EU reached only 41.2%, the CIS countries had a share of only 8.1%. The most important export partners in 2021 were Turkey (10.4% of total exports), Israel (4.4%) and Ukraine (4.3%). Imports to Azerbaijan from outside the EU reached 81.7%, 25% of total imports were imported from CIS countries in 2021. The most important importers were Turkey (15.8%), China (15.2%), Russia (14.3%) and Kazakhstan (7.9%). The balance of foreign trade outside the EU remains negative due to Azerbaijan’s dependence on the import of food and other finished products.

2017 2018 2019 2020 2021
Exports from countries outside the EU (million EUR) 11,700.4 14,941.9 14,851.6 10 181.6 28,939.0
Imports to countries outside the EU (million EUR) ON ON 1,019.6 2,706.4 138.5
Balance with non-EU countries (million EUR) ON ON 13,832.0 7,475.1 28,800.5

Source: EIU, Eurostat

Foreign direct investment

Measures taken in recent years to improve the business climate and reform the overall economy include eliminating redundant categories of business licenses, empowering the popular “Azerbaijan Service and Assessment Network (ASAN)” government service centers with a licensing authority, simplifying customs procedures, suspending some trade inspections, and reforming the tax mode. Also, the November 2020 Tripartite Ceasefire Agreement has helped to improve the investment climate and created the potential for investment in infrastructure, construction and new technologies, as well as for the repopulation of the areas. Foreign investments are welcome, mainly aimed at reducing operating costs and time.

Foreign investments enjoy full and unconditional legal protection according to the Law on the Protection of Foreign Investments, the Law on Investment Activities and other guarantees contained in international agreements and contracts. In accordance with these laws, Azerbaijan should treat foreign investors, including foreign partners in joint ventures, in a manner no less favorable than the treatment of domestic investors. Azerbaijan’s Foreign Investment Protection Law protects foreign investors from nationalization and requisition, except in specific circumstances. By default, the government of Azerbaijan shows no pattern of discrimination against foreign entities through illegal expropriation.

Over the past few years, the Azerbaijani government has actively sought to attract foreign investment. In the area of ​​foreign investments in 2021, the situation saw a recovery. After 2020, when foreign direct investment reached only 1.2% of GDP, preliminary estimates for 2021 predict an increase to 3.7% of GDP. Experts expect that the volume of foreign direct investment in the period 2022-2026 will be in the range of 3.3-3.7% of GDP. In 2021, 83% of the total value of foreign investment was going to the oil sector, with Great Britain becoming the most important investor. Foreign investment in the government’s priority sectors for economic diversification (agriculture, transport, tourism and ICT) is limited so far.

FTAs and treaties

Treaties with the EU

Treaties with the EU Relations with the EU are based on the Partnership and Cooperation Agreement, signed in 1996. In February 2017, negotiations on a new partnership agreement to replace the 1996 agreement were officially launched. The draft agreement has significant ambitions to bring the current practice in most areas of the economy closer to European customs, which, of course, causes some difficulties in its negotiation. This continues, and in December 2021 it was announced by President I. Aliyev that only 10% of the agreement remained to be completed. According to the representatives of the EU and Azerbaijan, the agreement should be signed in 2022.

Within the platform of the Eastern Partnership countries, Azerbaijan is rather a passive partner. AZ representatives want to have a more prominent position within this platform, which results from economic strength. However, Azerbaijan itself shows little activity towards the initiative.

Contracts with the Czech Republic

  • Treaty between the government of the Czech Republic and the government of the Republic of Azerbaijan on the prevention of double taxation and the prevention of tax evasion in the field of income and property taxes (2005);
  • Agreement on cooperation in the field of tax administration activities between the Ministry of Finance of the Czech Republic and the Ministry of Taxes of the Republic of Azerbaijan (2007);
  • Agreement between the government of the Czech Republic and the government of the Republic of Azerbaijan on economic, scientific, technical and cultural cooperation (2009);
  • Agreement between the government of the Czech Republic and the government of the Republic of Azerbaijan on air transport (2010);
  • Agreement between the Czech Republic and the Republic of Azerbaijan on the promotion and mutual protection and investments (2011);
  • Agreement between the Government of the Czech Republic and the Government of the Republic of Azerbaijan on the exchange and mutual protection of classified information (2011);
  • Agreement on cooperation in the field of tourism between the Ministry for Regional Development of the Czech Republic and the Ministry of Culture and Tourism of the Republic of Azerbaijan (2012);
  • Joint Declaration on Strategic Partnership between the Czech Republic and the Republic of Azerbaijan (2015);
  • Agreement on cooperation in the field of energy between the Ministry of Industry and Trade of the Czech Republic and the Ministry of Energy of the Republic of Azerbaijan (2021).

Developmental cooperation

Azerbaijan is not a recipient of development aid from the Czech Republic, with the exception of small local projects. In 2019, two such projects were implemented with a focus on the development of the field of addictionology in Azerbaijan (in cooperation with the Clinic of Addictionology of the 1st Faculty of Medicine of Charles University and the General Faculty Hospital in Prague) and on better preparation of students of five selected schools in the Şamaxı district for technical profession using the Merkur Toys kit with manuals in Azerbaijani.

Azerbaijan does not receive development aid from the EU either. This allows Azerbaijan to use some financial instruments within the Eastern Partnership platform. There is a lot of interest especially in cooperation in the area of ​​twinning programs.

Prospective fields of study (MOP)

The aim of the medium-term economic strategy for the period following the last crisis, reflected in the government’s Action Plan of April 4, 2020, is to stimulate domestic production and consumption. Even in connection with post-conflict reconstruction, hopes are pinned on the development of the agrarian sector, construction and building the position of a transport-logistics hub, where, however, efforts to build a North-South corridor still run into US anti-Iranian sanctions. The lack of connection between Nakhchivan and the rest of Azerbaijan was also a problem, but thanks to the negotiations between Azerbaijan and Armenia at the end of 2021, this should be restored within 2-3 years. Privatization of some state enterprises can be expected. In the early phase of the crisis, Azerbaijan relied on reserves from fatter years accumulated in the State Oil Fund, thinning together with Central Bank reserves as a result of maintaining the exchange rate of the national currency against the dollar. It has been fixed since 2017, when the manat lost half of its original value after a double-jump devaluation. In their upcoming steps, the Azerbaijani government and the Central Bank must weigh, on the one hand, the social effect of a possible unpopular devaluation of the manat, and on the other hand, the consequences of accepting obligations associated with foreign loans.

Current sector opportunities can be found in the Strategic Opportunities Map on the website of the Ministry of Foreign Affairs.

Energy industry: Export of oil and gas is the main income for the state budget of Azerbaijan. Due to this, special attention is paid to the petrochemical industry, and the modernization of the existing infrastructure is one of the current topics. As part of the diversification of the use of energy sources, the country has begun to show interest in renewable sources, the potential of which is estimated at 27,000 MW. At the same time, the electrical system is being modernized and programs are being implemented to increase efficiency in the use of electrical energy. In 2022, the European Bank for Reconstruction and Development will start a lighting modernization project in the city of Ganja with an initial investment of EUR 1 million.

Water management and waste industry: The environment is one of the priorities of the government of Azerbaijan until 2030. The main attention is given to water management and waste management. The pilot city for the implementation of the waste management strategy is the city of Ganja, to which the European Bank for Reconstruction and Development will provide a loan of EUR 10 million for the purchase of waste management equipment. The insufficient capacity of the drinking water and sewage system in the country is a pressing problem in the territory of the entire state, which the government, together with the municipalities, is trying to solve as a matter of priority. In addition, the country continues to solve problems related to the extraction of polluted water resources.

Construction Industry: The construction industry is quite a proven rescue strategy of the Azerbaijani economy after the oil crises. The government is also betting on it in connection with post-conflict reconstruction. Modern residential complexes for the rapidly growing population of the Baku agglomeration are being built on brownfields, including places where environmentally unfriendly oil extraction took its toll. Following the ever-increasing market demand, Baku plans to build new or transform old infrastructure on 2,800 ha by 2040. All this also means an opportunity for companies dealing with land remediation, landscape design and stabilizing building modifications.

Healthcare and pharmaceutical industry: Azerbaijan’s healthcare industry is a promising sector not only in the field of hospital equipment and balneological services, but also in terms of pharmaceuticals. Interest is primarily in modern hospital equipment, such as beds and monitoring equipment. As part of the post-conflict reconstruction, the announcement of two dozen tenders for the construction of hospitals and public social infrastructure and their equipment is announced for 2022. Significant potential is also perceived in the area of ​​patient nutrition at specialized workplaces. This opens the possibility for cooperation in the field of sharing practice and importing the products themselves.

Transport industry and infrastructure: Azerbaijan considers the tripartite agreements concluded with Armenia and Russia following the 2nd Karabakh War from autumn 2020 as the basis for building railway and road corridors connecting the core of its territory by the shortest route with the Nakhchivan exclave and further with Yerevan and Turkish and Iranian territory. In addition, the country sees itself as a transport hub connecting Europe with Asia with the port in Alat, the modernization of which is planned to be invested by the European Union in the amount of EUR 10 million. Opportunities for Czech entities are also linked to the development of infrastructure, including the renewal of the road network and the solution to the complex traffic situation in large cities. Baku has the best transport infrastructure development plan, which plans to create a suburban rail transport system by 2027.

Agriculture and food industry: The government of Azerbaijan considers agriculture and its related processing industry as a strategic sector of the economy, which is given extraordinary attention and is centrally supported by subsidies and grants. In 2021, activities aimed at increasing efficiency in agriculture and the use of innovative technologies were designated by the government as strategic starting points for the sector. Azerbaijan has been solving issues related to the use of water for agricultural purposes for a long time, thus supporting projects dealing with irrigation technologies and water management. In 2022 and 2023, the European Bank for Reconstruction and Development plans to support more efficient use of water with its grants of EUR 8.3 million. There is also potential for the planned modernization of agroparks and interest in the construction of new farms.

Azerbaijan Trade