2017 Investment Climate Statements: Azerbaijan

Policies Toward Foreign Direct Investment

Over the past few years, the Government of Azerbaijan has worked to integrate the country more fully into the global economic marketplace, attract foreign investment, diversify its economy, and boost economic growth and employment. Attracting foreign direct investment to support economic diversification continues to be the government’s stated goal with President Aliyev and his government particularly targeting the following sectors: agriculture, transportation – including the infrastructure needed to realize the new Silk Road connecting East and South Asia with western Europe, tourism, and information/communication technology.

The drop in world oil prices that began in summer 2014 – and their concomitant impact on government budget revenues – contributed to the Azerbaijani government’s efforts to undertake more comprehensive reforms. In February 2016, the government introduced amendments to the Tax Code, which provides tax benefits to legal and physical entities engaged in certain investment activities. With these amendments, physical and legal entities can be exempt from paying taxes for 50% of their revenues and incomes, respectively, for up to seven years. Moreover, amendments to the law On Customs Tariff allow legal and physical entities to be exempted from customs duties and value-added tax (VAT) on import of capital equipment for up to seven years. In addition, any organization or industrial or technology park operator who plans to import capital equipment in certain designated sectors may apply for permission to construct production facilities, or conduct research, test, and development activities. Also, in June 2016 Azerbaijan’s parliament amended the country’s Tax Code, launching a tax-free system, under which the goods purchased in the country’s territory by foreigners and stateless persons are exempted from VAT. On December 16, 2016 President Azerbaijan signed a law amending the Tax Code (the “Amendment Law”), which included 201 modifications to the tax code. The amendments that have come into force since January 2017, including those on tax amnesty, have attracted significant business interest; especially changes regarding taxation of e-trade.

In 2015, Azerbaijan twice devalued its local currency, the manat (AZN), by 35% in February and again by 48% in December as a result of continued low world oil prices. While the move relieved pressure on the country’s foreign currency holdings, since early 2015 many Azerbaijanis have converted their savings accounts into dollars such that the rate of dollarization of deposits is believed to exceed 80%, and for loans 60%. However, there are no restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate.

The country’s financial services sector – of which banking comprises more than 90% – remains underdeveloped, a factor that constrains economic growth and diversification. Many state-owned enterprises (SOE’s) enjoy quasi-governmental or near-monopoly status in their respective sectors, with unclear lines of separation between regulatory bodies and state corporate interests. Responsible Business Conduct (RBC) is a relatively new concept in Azerbaijan and local companies generally consider basic charitable donations and paying taxes as acts of social responsibility. There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.

The Azerbaijan Export and Investment Promotion Foundation (AZPROMO) is a joint public-private-initiative, established by the Ministry of Economy and Industry in 2003 to foster the country’s economic development and diversification by attracting foreign investment into the non-oil sectors of the economy and stimulating expansion of Azerbaijan’s exports of non-oil goods to overseas markets. AZPROMO has been involved in a number of business forums on investment opportunities in Azerbaijan and training events for SMEs looking to export their products both in Azerbaijan and internationally.

President Aliyev signed a decree in March 2016 establishing a free trade zone area next to the Alat seaport, located 65 km south of Baku, and tasked the Ministry of Economy with drafting the necessary legislation to complete the project. Those documents, however, have not yet been released. Amendments to the Customs Tariff law provide exemptions of up to seven years to entrepreneurs importing capital equipment for any of the priority sectors previously mentioned. Additionally, up to 50% of their revenues can be exempted from income, property, and land taxes for up to seven years. Azerbaijan’s business community reported seeing real improvements in customs processing in 2016, including better transparency and improved, systematized customs fee collection procedures. Azerbaijan has worked to improve its regulatory system over the past several years, but opaque procedures in a number of areas and continued allegations of corruption remain barriers to more direct investment and overall economic development.

In early 2016, several roundtable discussions brought government and business community representatives together, including an April-session President Aliyev held with the board of the American Chamber of Commerce in Azerbaijan. Both sides welcomed and applauded that initiative to increase communication and engagement. This robust public-private dialogue continues.

On January 26, 2017 President Aliyev signed a decree to appoint trade representatives in the Azerbaijani embassies and consulates. Under that decree, the trade representatives will work to expand Azerbaijan’s trade and economic relations with the countries where they are appointed.

Azerbaijan is also set to strengthen its position as a Digital Trade Hub and expand its foreign trade operations. Under a February 23, 2017 Presidential Decree, the Center for Analyses of Economic Reforms and Communications is tasked with creating a ”Digital Trade Hub of Azerbaijan” section at its export promotion portal azexport.az , which makes Azerbaijani locally produced products available to potential buyers anywhere in the world.

The Azerbaijani government has focused on developing its agricultural sector, noting that exports have increased 30% over the past five years. However, 90% of agricultural exports are to the Russian market. Azerbaijan is interested in applying modern machinery and equipment to increase productivity and efficiency in the sector. The country’s priority is the production of export-oriented products, including products such as hazelnut, chicken meat, carrots, wine, butter, cottonseed, apples, pomegranates, rock salt, and tea.

To develop Azerbaijan’s tourism potential, the government enacted various reforms, including simplified visa procedures and reduced costs for tourist visas. On January 10, 2017 the State Agency on Public Services and Social Innovations (ASAN) started to provide electronic tourist visas for citizens of specific countries, including the U.S., through the “ASAN Visa” system. The E-visas are adjudicated within three working days after the visa application is submitted. The tourist visas are valid for 30 days and the fee is $20. According to the State Statistics Committee of Azerbaijan, 2.25 million tourists visited Azerbaijan in 2016, up 12.1% from 2015. The majority of this increase was from Arab tourists, after Azerbaijan implemented a visa-upon-arrival system for a variety of countries. The government also continues to host large, international events, such as the Formula 1 Grand Prix and the Islamic Solidarity Games of 2017, as part of its effort to attract tourists.

Azerbaijan considers travel to the region of Nagorno-Karabakh and the surrounding territories unlawful and could make a traveler ineligible to visit Azerbaijan in the future. These areas have been occupied by pro-Armenian forces as a result of a conflict that began in the late 1980s. Engaging in any commercial activities in Nagorno-Karabakh and the surrounding territories, whether directly or through business subsidiaries, can result in criminal prosecution and/or other legal action being taken against individuals and/or businesses in Azerbaijan; it may also affect the ability to travel to Azerbaijan in the future.

Limits on Foreign Control and Right to Private Ownership and Establishment

Azerbaijan imposes more than average restrictions on foreign equity ownership compared to countries in the Eastern Europe and Central Asia region included in the IFC’s Investing Across Borders Report. Sectors where investment is restricted include those relating to national security and defense. The Government of Azerbaijan also exerts some control over other key sectors, such as agriculture, communications, oil, and mining. Under Azerbaijani laws, the state must retain a controlling stake in companies operating in the mining or oil and gas sectors. Thus, foreign (as well as domestic) capital participation is limited to a maximum of 49% ownership. Foreign ownership in the media sector is strictly limited as well. Unless there is an international agreement with Azerbaijan providing otherwise, foreign shareholding in media companies is limited to 33% in newspaper publishing and is prohibited in TV broadcasting companies. Restrictions on foreign equity ownership in the financial services sectors (banking and insurance) have been abolished; however, there are still limits within these sectors for how much total foreign capital participation is permitted.

Foreign investments enjoy complete and unreserved legal protection under the Law on the Protection of Foreign Investment, in addition to any guarantees contained within international agreements or treaties. This law stipulates that Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner not less favorable than the treatment accorded to national investors. The law also allows repatriation of profits, revenues, and other investment-related funds as long as applicable taxes have been paid. Azerbaijan has endorsed limits on foreign control in the domestic insurance market. In compliance with the amendments to the Law on Insurance Activity, which Azerbaijan’s Parliament approved in 2013, a foreign individual cannot hold more than ten percent of the total equity capital of an insurance company while the total share of foreign capital in insurance companies’ equity cannot exceed 50%. International financial institutions of which Azerbaijan is a member are exempt from these limits.

Other Investment Policy Reviews

Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review in the past three years nor a United Nations Conference on Trade and Development (UNCTAD) investment policy review. However, it made gradual progress over the past years in The World Bank’s Doing Business Report: http://www.doingbusiness.org/data/exploreeconomies/azerbaijan 

Business Facilitation

Azerbaijani law requires all companies operating in the country to be registered. Without formal registration, a company may not do business in Azerbaijan (e.g., maintain a bank account, clear goods through customs). As part of the ongoing business law reforms, a “One Window” principle was introduced January 1, 2008. The registration procedures involving several government bodies (Ministry of Justice, Social Insurance Fund, and State Statistics Committee) have been eliminated, and businesses only have to register with the Ministry of Taxes. The established period for registration with the Ministry of Taxes is officially set at three days for commercial organizations. Online registration is available at http://taxes.gov.az/modul.php?lang=_eng&name=birpencere&bolme=registration  and works adequately.

Azerbaijan ranks 63rd in Ease of Doing Business and 7th in Starting a Business out of 189 countries in The World Bank’s Doing Business Report (rankings are available at: http://www.doingbusiness.org/rankings ).

Outward Investment

Azerbaijani entities have made outward investments in various countries. Investments by state-owned enterprises, such as SOCAR or through the State Oil Fund of Azerbaijan (SOFAZ), the country’s sovereign wealth fund, are particularly important. According to government officials, Azerbaijan has invested $3 billion in the United States. Azerbaijan also has large investments in Turkey, mainly in the oil and gas sector through projects such as the Star Refinery and Southern Gas Corridor (SGC) pipeline, and in Ukraine with gas stations. The lower oil receipts, resulting from the levels of world oil prices prevailing since late 2014, have had an impact on Azerbaijan’s outward investment. As a result, the government’s focus has shifted to boosting economic diversification and increasing local production of goods to decrease dependence on imports and expand non-hydrocarbon exports.

Azerbaijan has signed 48 Bilateral Investment Treaties (BIT) – including one with the United States – as well as 51 tax treaties to protect against double taxation.

The 2001 BIT between the United States and Azerbaijan encourages the reciprocal protection of investment.

Azerbaijan also has bilateral investment treaties with Albania, Austria, Belarus, Belgium, Bulgaria, Czech Republic, China, Croatia, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Italy, Jordan, Kazakhstan, Korea, Kyrgyzstan, Kuwait, Latvia, Lithuania, Lebanon, Macedonia, Montenegro, Moldova, Norway, Pakistan, Poland, Qatar, Romania, Russia, San-Marino, Serbia, Saudi Arabia, Syria, Switzerland, Tajikistan, Turkey, UAE, Ukraine, the United Kingdom, and Uzbekistan.

Azerbaijan has free trade agreements (FTAs) with Russia, Ukraine, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Moldova and Belarus. Under the FTAs, goods can be imported from those countries free of customs duties.

The United States signed a tax treaty with the USSR, to which Azerbaijan is considered a successor state. The United States and Azerbaijan are also parties to the OECD Convention on Mutual Administrative Assistance in Tax Matters. Azerbaijan signed an intergovernmental agreement with the United States to implement the Foreign Account Tax Compliance Act (FATCA) on October 9, 2015, based on the “IGA Model 1a” form.

In February 2016, the government amended the Tax Code to provide tax benefits to legal and physical entities engaged in certain investment activities. These amendments potentially exempt physical and legal entities from paying taxes on 50% of their revenues and incomes for up to seven years. Moreover, the government approved amendments to the Law on Customs Tariff, under which legal and physical entities can be exempt from customs duties and value-added tax (VAT) on imports of capital equipment for up to seven years. In addition, any organization or industrial or technology park operator who plans to import capital equipment in certain sectors may apply for permission to construct production facilities, or conduct research, test, and development activities, and their equipment will be exempt from customs duties.

In addition, in June 2016, Azerbaijan’s parliament approved amendments to the country’s Tax Code, launching a tax free system under which the goods purchased in the country’s territory by foreigners and stateless persons are exempted from paying VAT. On December 16, 2016 Azerbaijan’s President signed a law amending the Tax Code (the “Amendment Law”), which included as many as 201 tax code amendments. The amendments that came into force in January 2017, including a tax amnesty, received much attention from the business community, especially changes in the taxation of e-commerce and move to mandate cashless payments. Companies and consulting firms report they are still analyzing these amendments, their expected impact, and implementation.

Several U.S. companies with operations and investments in Azerbaijan report they have been subject to repeated tax audits for several years and have also been subject to court-imposed fines for violations of the tax code.

Transparency of the Regulatory System

The Azerbaijani government has worked to improve its regulatory system over the past several years, using transparent policies and effective laws to foster competition and establish clear rules of the game. Legal, regulatory, and accounting systems are approaching international norms. However, continued limited transparency and allegations of corruption in regulatory matters remain a problem. Draft legislation is neither made available for public comment nor usually run through a public consultation process. However, the government has begun engaging business organizations, such as the American Chamber of Commerce in Azerbaijan (AmCham) and consulting firms on various proposed draft laws, including the Strategic Roadmaps, which address the country’s economic diversification/reform thinking, released in December 2016. Azerbaijan has yet to develop informal regulatory processes managed by private sector associations. Limited transparency and inconsistent enforcement of rules to foster competition are serious impediments to foreign direct investment.

In August 2013, Azerbaijan’s Parliament passed a law on the regulation of inspections in entrepreneurship and the protection of the rights of entrepreneurs. Under the law, businesses are to be divided into high, medium, and low risk groups, with the frequency of inspections determined by the category of risk. Entrepreneurs who have not committed any legal infraction for a specified period of time were categorized as low risk, which will result in less frequent inspections. Subsequently, on October 19, 2015 President Aliyev signed a decree that suspending inspections for entrepreneurs for two years as of November 1, 2015.

On December 21, 2015 President Aliyev signed a Decree “On Certain Measures in the area of Licensing.” In accordance with the new regulations, all licenses will be issued indefinitely. The Ministry of Economy was designated as the authority responsible for issuing, suspending, resuming, and cancelling licenses (except for licenses issued for activities related to national security). The Ministry will conduct these licensing activities through ASAN centers (http://www.asan.gov.az/en ). Licenses are to be issued within 10 days of application (previous regulations provided for a 15-day period). In accordance with the List of Licensable Activities, the number of activities requiring a special permit (license) was reduced from 60 to 32, while the amount of fees payable for the issuance of licenses was reduced by up to 50%. Activities no longer requiring a special license include tourism services and the sale of tobacco and alcoholic drinks.

On April 20, 2016 President Aliyev signed a decree on the implementation of Law No. 176-VQ “On Licenses and Permits”, dated March 15, 2016 (the “Law”). The Law’s main purposes are to enhance the entrepreneurial environment, eliminate barriers to business, encourage new businesses, and simplify procedures for issuing licenses and permits. The Law sets the criteria for when licenses and permits are required to do business in Azerbaijan, lists the relevant activities, and sets out the principles of the state regulation of the licensing and permit system. It also covers the issuance of licenses/permits, rules on the re-issuance, suspension, renewal and cancellation of licenses /permits, and the responsibility of the authorities issuing licenses/ permits and license/permit holders. One of the Law’s innovations is the creation of the legal basis for permits. Thus, the Law explains the concept of a “permit” as an official document issued by the relevant body (permission, approval, certification, authorization, accreditation) for carrying out certain specific business activities. The other major innovation in the Law is the “one-stop shop” principle, which simplifies administrative processes governing licenses/permits and reduces the number of required documents, as well as time and costs. Moreover, all licenses effective as of June 1, 2016 (the date on which the Law entered into force) are deemed to be issued indefinitely.

International Regulatory Considerations

Azerbaijan has had observer status at the World Trade Organization (WTO) since 1997. A working party on Azerbaijan’s succession to the WTO was established on July 16, 1997, and Azerbaijan began negotiations with WTO members in 2004. The working party met for the thirteenth time in July 2016. The WTO Secretariat reports Azerbaijan is less than a quarter of the way to full membership. In 2016, Azerbaijan imposed higher tariffs on a number of imported goods, including agricultural products, to promote domestic production and reduce imports. Currently, Azerbaijan is negotiating bilateral market access with 19 economies.

Legal System and Judicial Independence

Azerbaijan’s legal system is based on Civil Law. Disputes or disagreements arising between foreign investors and enterprises with foreign investment, Azerbaijani state bodies and/or enterprises, and other Azerbaijani legal entities, are to be settled in the court systems of Azerbaijan or, upon agreement between the parties, in a court of arbitration, including international arbitration bodies. Businesses, however, report problems with the reliability of judicial processes in Azerbaijan. While the government promotes foreign investment and the laws guarantee national treatment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests.

The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts. The Supreme Court and appellate courts have civil, criminal, administrative, economic, and military panels. Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court. The Supreme Court is the highest court in the country. Under the Civil Procedure Code of Azerbaijan, the appellate court judgments are published within three days of issuance but may, in exceptional circumstances, be published within ten days. The Constitutional Court has the authority to review laws and court judgments for compliance with the Constitution. The decisions of the Constitutional Court are published in print and online. In addition, on February 3, 2016, President Aliyev established Boards of Appeal in the State Committee for Property Issues and the State Customs Committee to ensure transparency and impartiality in the review of complaints from entrepreneurs concerning their business operations.

The procedure for the enforcing foreign judgments in Azerbaijan is established by the Civil Procedure Code. The Code only requires the enforcement of foreign judgments either pursuant to an international treaty or based on the principle of reciprocity and provides that foreign arbitral awards may be enforced in Azerbaijan, so long as they do not contravene local legislation or public policy, and if reciprocity exists. A Bilateral Investment Treaty between the United States and Azerbaijan – which went into force in 2001 – provides U.S. investors with recourse for the settlement of investment disputes through the International Center for the Settlement of Investment Disputes.

The Law on Protection of Foreign Investments, dated January 15, 1992 (the Foreign Investment Law), provides guidance to foreign investors seeking to resolve investment disputes, either through Azerbaijani courts or, alternatively, through dispute resolution procedures agreed to by the parties involved. Resolution of investment disputes may include international arbitration, either in Azerbaijan or abroad. The Law on International Arbitration, dated November 18, 1999 (the Arbitration Law), provides guidance on the conduct of international arbitration in Azerbaijan.

Azerbaijan has entered into several other bilateral treaties – principally with neighboring states – to facilitate enforcement of foreign judgments, and is a party to the 2004 Commonwealth of Independent States (CIS) Convention on Mutual Legal Assistance in Civil, Family and Criminal Cases. In addition, Azerbaijan is a party to the Convention on Resolving Business Disputes, dated March 20, 1992 (also known as the Kyiv Convention). Azerbaijan is also a member of the Multilateral Investment Guarantee Agency (MIGA).

Laws and Regulations on Foreign Direct Investment

Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as by domestic legislation. These include the Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, which encourages the reciprocal protection of investment, dated August 1, 1997; the Azerbaijan-EC Cooperation Agreement dated April 22, 1996; the Law on Protection of Foreign Investment dated January 15, 1992 (the Foreign Investment Law); the Law on Investment Activity dated January 13, 1995 (the Investment Activity Law); the Law on Investment Funds dated October 22, 2010 (the Investment Funds Law); the Law On Privatization of State Property dated May 16, 2000 (the Privatization Law); and the Second Program for Privatization of State Property of the Republic of Azerbaijan dated August 10, 2002 (the Second Privatization Program), as well as by-laws regulating specific sectors of the Azerbaijani economy. This legislation permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited by law. Azerbaijani law is evolving in accordance with the government’s strategic goal of creating a more welcoming environment for foreign businesses; as such, foreign investments are protected by guarantees provided under Azerbaijani law. The website of Azerbaijan’s National Parliament, http://meclis.gov.az/ , lists all the country’s laws, but only in the Azerbaijani language.

Competition and Anti-Trust Laws

Over the past few years, Azerbaijan has updated several key pieces of legislation that affect the business environment. On April 28, 2016, President Aliyev signed an amendment to the law on Antimonopoly Activity and an Amendment to the Criminal Code. The amendments introduced the concept of cartel agreements or arrangements into Azerbaijan’s antimonopoly legislation. A cartel agreement is now understood as “a voluntary combination of two or more financially and legally independent businesses competing in the same market to exclude others or prevent new competitors from entering the market by dividing territories, sales volumes, types of goods or customers, or by refusing to purchase or sell goods (services)”. Increasing or decreasing prices, maintaining prices at the same level, implementing privileges, rebates or bonuses, or other methods of restraining competition are also included in the definition of a cartel agreement. A new version of the Competition Code began undergoing revision in Parliament in late 2014, and some observers expect the law to pass in 2017. The difficulty of getting established Azerbaijani businesses to adopt standard investor-friendly practices, such as those associated with the concept of good corporate governance or international accounting norms, is regarded as a factor hindering foreign direct investment.

The State Service for Antimonopoly Policy and Consumer Rights’ Protection  under the Ministry of Economy is another venue where businesses can seek to address claims of monopolies and competition-related concerns.

Expropriation and Compensation

The Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under certain specified circumstances. Nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan. Requisition – by a decision of the Cabinet of Ministers – is possible in the event of natural disaster, an epidemic, or other extraordinary situation. In the event of nationalization or requisition, foreign investors are entitled under the law to prompt, effective, and adequate compensation.

Amendments made to Azerbaijan’s Constitution in September 2016 enable authorities to expropriate private property under in instances where necessary for social justice and effective use of land: “The property rights over land plots might be limited by law to ensure social justice and effective use of land plots.” (Article 29, VI.) The Azerbaijani government has not shown any pattern of discriminating against U.S. persons by way of direct expropriations.

Dispute Settlement

Azerbaijan is a member of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention). Azerbaijan is also a party to the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which provides for the recognition of foreign arbitral awards resulting from international arbitration. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, which went into force in 2001, provides U.S. investors recourse to settle any investment dispute using the ICSID convention.

Over the past 10 years, the U.S. Embassy in Baku has been notified of three investment dispute cases regarding U.S. citizens. None of these cases, however, have been resolved.

International Commercial Arbitration and Foreign Courts

The Law on International Arbitration guides the process of international arbitration in Azerbaijan:

“Under these rules, parties may select independent arbitrators of any nationality, proceedings may be conducted in any language chosen by the parties, the applicable law (except for those matters that must be exclusively resolved under Azerbaijani legislation) and arbitration procedure may be chosen by the parties, and, in general, parties may stipulate the terms of the arbitration process. Where the terms have not been stipulated by the parties, any omission may be resolved by the Supreme Court of the Republic of Azerbaijan.”

Source: https://www.bakermckenzie.com/en 

In addition, on February 3, 2016, Azerbaijan’s President established Boards of Appeal in the State Committee for Property Issues and the State Customs Committee to ensure transparency and impartiality in reviewing complaints from entrepreneurs. “All physical and legal entities engaged in entrepreneurship activities can make a complaint to the appropriate boards of appeal in the case of absolute or partial dissatisfaction with the decision taken on their business activities by the central or local authorities, refusal to make a decision, and an action or inaction.”

“If a complaint of an entrepreneur submitted to an executive body is not considered, or if there is a dispute in decision-making, the entrepreneur will have an opportunity to submit a complaint directly to the Boards of Appeal of the central and local executive authorities, and if he/she is not satisfied with their decision he/she can appeal to the Board of Appeal under the President of Azerbaijan.”

Bankruptcy Regulations

Azerbaijan’s Bankruptcy Law, which experts report does not function effectively and is rarely used, remains a factor affecting economic development, as do the country’s weak credit reporting institutions. Under Azerbaijan’s Bankruptcy Law, which applies only to legal entities and entrepreneurs – not to private individuals – bankruptcy proceedings may be initiated by either a debtor facing insolvency or by any creditor. In general, the legislation focuses on liquidation procedures. For instance, a court-approved “rehabilitation plan” may not exceed two years.

The World Bank’s Doing Business Report includes in its country rankings the ease of “resolving insolvency” (rankings are available at: http://www.doingbusiness.org/data/exploreeconomies/azerbaijan/resolving-insolvency ). Azerbaijan ranks 84 out of 189 countries in this category.

Investment Incentives

Since early 2016, the government introduced tax and investment incentives for entrepreneurs and legal entities in non-oil export sectors as part of the overall economic reform/diversification effort. These measures include certain partial, temporary exemptions from corporate and property taxes, and favorable tax treatment for manufacturing facilities and imports of manufacturing equipment. In 2016, an investment promotion certificate was introduced by the Presidential decree on additional measures in investment promotion. Investment certificate holders are exempt from paying 50% of income tax and land tax owed, and from paying customs duties on machinery, equipment, and devices imported for investment purposes in priority industries of the economy for up to 7 years. The priority projects include work in industrial parks, creation of manufacturing plants, and research work.

Foreign Trade Zones/Free Ports/Trade Facilitation

Although the government announced its intention to create special economic zones in 2003 – and passed a law to establish such zones in 2009 – there are no foreign trade zones or free ports operating in Azerbaijan to date. President Aliyev signed a decree on March 17, 2016 on measures to create a free trade zone/special economic area next to the Alat seaport, 65 km of Baku, and the government announced in May 2017 a draft of the Free Trade Zone Law is ready to be presented to Parliament. With these developments, there may be commercial opportunities for international firms to be involved in this project with consulting, management, and engineering.

The Ministry of Transport, Communications, and High Technologies has discussed plans to create other special economic zones, including a petrochemical complex and regional innovation zones to boost development of the telecommunications sector and to turn Azerbaijan into a regional information and communications technologies hub, and a special zone to encourage the production of renewable energy. Such projects represent consulting, engineering, and other potential commercial opportunities for international firms.

Performance and Data Localization Requirements

According to Azerbaijani law, foreign individuals wishing to work in Azerbaijan must obtain a work permit from the State Migration Service through their employers. A work permit is issued for a term of up to one year and may be extended for an unlimited number of times, but each permit will have a duration of no more than one year. However, one does do not require a work permit if one is:

• a permanent resident of Azerbaijan,
• married to an Azerbaijani citizen, provided that person’s spouse is registered at his/her place of residence,
• engaged in entrepreneurial activity,
• employed in a managerial position at an organization established under an international agreement,
• employed at a diplomatic representative office or an international organization,
• the head or deputy head of a branch or representative office of a foreign legal entity in Azerbaijan, or
• assigned to a business trip for up to 90 days during a year.

A work permit is issued upon the foreigner’s employer’s application to the State Migration Service. The timeframe for obtaining a work permit is 20 working days after submission of the complete application package. The fee payable for a work permit and for any extension of the term of the permit is AZN 350 (approximately $200) for up to three months, AZN 600 (approximately $350) for up to six months, AZN 1,000 (approximately $550) for one year.

Real Property

In 2006, the Government centralized the processing of residential real estate transactions through a network of notary offices under the Ministry of Justice. Since 2013, Azerbaijan’s State Real Estate Registry Service at the Committee for Property Issues has been the lead agency managing the real estate registration system. In April 2016, Azerbaijan’s President approved amendments to the Law on Immovable Property Register. The amendments cut the period of registration of property rights and the provision of extracts from the Register from 20 to 10 working days.

Amendments to the Law “On State Registration of Real Estate” (the “Law”) dated November 14, 2016 are intended to simplify the state registration of residential houses. According to the new edition of Article 8.0.9.1. of the law, the state registration of houses requires only the document certifying property rights of the owner of the land where the house is situated.

The World Bank’s Doing Business Report includes Azerbaijan in its country rankings on the Ease of Registering Property. Rankings are available at: http://www.doingbusiness.org/data/exploreeconomies/azerbaijan/#registering-property . Azerbaijan ranked 22nd out of 189 countries in this category in 2015.

Intellectual Property Rights

Since 1996, Azerbaijan has implemented a national system to register and protect intellectual property rights. Intellectual property rights in Azerbaijan include all rights to industrial property (including inventions, industrial designs, utility models, trademarks, geographic names, and domain names) and copyright and related rights. Current legislation pertaining to intellectual property includes the Law on Copyrights and Related Rights (the Copyright Law), the Law on Trademarks and Geographic Designations (the Trademark Law), the Law on Patents (the Patent Law), the Law on the Topology of Integrated Microcircuits, the Law on Unfair Competition (the “Unfair Competition Law”) and the Law on Securing Intellectual Property Rights and Combating Piracy (the “Anti-Piracy Law”). The legal structure covering intellectual property protections in Azerbaijan is relatively strong, but experts note the level of enforcement within the country is weak. Piracy and blatant infringements on intellectual property rights, such as fake international computer shops that are open for business in the capital, are commonplace. The Business Software Alliance put the software piracy figure at 85% in 2013. Moreover, the estimated value of unlicensed software in Azerbaijan was $103 million in 2013, compared to $52 million in 2009.

Azerbaijan is a party to the Convention Establishing the World Intellectual Property Organization (WIPO), the Paris Convention for Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works. Azerbaijan is also a party to the Geneva Phonograms Convention and acceded to the two WIPO Internet treaties in 2005. Violation of intellectual property rights can result in civil, criminal, and administrative charges.

Azerbaijan tracks and reports on seizures of counterfeit goods but does not publish statistics on this effort.

Capital Markets and Portfolio Investment

Azerbaijan’s financial services sector – of which banking comprises more than 90% – remains underdeveloped, a factor that inhibits economic growth and diversification. Non-bank financial sector staples such as capital markets, insurance, and private equity are in the early stages of development. An effective regulatory system that encourages and facilitates portfolio investment, foreign or domestic, is not fully in place. There is not sufficient liquidity in the markets to enter or exit sizeable positions, and existing policies limit the free flow of financial resources into the product and factor markets. However, the Government of Azerbaijan and Central Bank respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions, and credit is allocated on market terms. Foreign investors are also able to obtain credit on the local market, and the private sector has access to a variety of credit instruments.

The two currency devaluations in 2015 due to the drop in world oil prices led to further dollarization of the economy, weakened bank balance sheets, and led to a drop in financial soundness indicators while raising concerns about the country’s financial stability. The government has taken steps to begin to address the situation. In February 2016, the government established the Financial Market Supervisory Authority (FMSA), a new financial supervisory authority, to take over all functions of the Azerbaijan State Committee for Securities, the State Insurance Supervision Service under the country’s Ministry of Finance, and the Financial Monitoring Service under the Central Bank of Azerbaijan. The FMSA aims to license, regulate and control the securities market, investment funds, insurance, credit organizations (banks, non-banking credit organizations and operator of postal communication) and payment systems. It also aims to improve the oversight system for combatting money laundering and preventing the financing of terrorism as well as to provide transparency and efficiency in this sphere.

Money and Banking System

The drop in world oil prices that began in summer 2014 and the resulting strain on Azerbaijan’s foreign currency earnings and the state budget exacerbated problems that had existed in the country’s banking sector. Furthermore, the manat depreciation that resulted from the drop in oil export earnings generated challenges for the banks, given the high proportion of foreign currency loans to residents with local currency earnings. According to the State Statistics Committee, the growth rate for non-performing loans stood at 15% during the first six months of 2016, totaling 1.53 billion manats, a figure approaching $1 billion at current exchange rates. According to other reports , the current volume of non-performing loans exceeds one-third of the capital in the country’s banks. By December 2016, there were 32 banks registered in Azerbaijan, including 15 banks with foreign capital and two state-owned. As of January 1, 2017, 569 branches and 131 departments of banks operated in Azerbaijan, as compared to 41 banks with 750 branches and 164 departments in late 2015. The newly created bank regulator FMSA closed 10 banks in 2016 and continued restructuring of the country’s largest bank, the International Bank of Azerbaijan (IBA). As of January 1, 2017, 144 non-bank credit organizations operated in the country, including 97 credit unions. Lending by global banks to Azerbaijan’s financial sector has been minimal.

Total banking sector assets stood at approximately $17 billion as of December 2016, with the top five banks holding almost 58% of this amount. The state-owned International Bank of Azerbaijan (IBA) accounts for approximately 40% of the country’s banking assets and has received several large cash infusions over the past several years from the government. In January 2017, the Ministry of Finance increased the government’s stake in the IBA from 54.96% to 76.73%. The government is undertaking a substantial cleanup of the assets of IBA, including transferring IBA’s non-performing assets at book value to Agrarkredit, a government-owned non-financial enterprise funded by the Central Bank. The amount of transferred assets totaled 10 billion manats in 2015-2016 and a further 5 billion manat transfer is planned for 2017 (25% of 2016 GDP in total). In May 2017, IBA entered formal restructuring, similar to U.S. Chapter 11 Bankruptcy.

Several recent projects designed to strengthen Azerbaijan’s financial services sector, including the Capital Market Modernization Project (CMMP), the diversification of the State Oil Fund’s (SOFAZ) investment strategy, and pension reform represent opportunities for U.S. firms that provide asset management and global custodian services.

Although the Baku Stock Exchange (BSE) was established in 2000, the securities market is still at an early stage of development. The CMMP is an attempt by the government to build the foundation for a modern financial capital market, including developing market infrastructure and automation systems, and strengthening the legal and market frameworks for capital transactions. One major hindrance to the stock market’s growth is the difficulty in encouraging established Azerbaijani businesses to adapt to standard investor-friendly practices that are generally required for publicly listed companies.

In February 2017, Fitch Ratings affirmed Azerbaijan’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at ‘BB+’ with Negative Outlooks. On January 27, 2017, S&P Global Ratings affirmed its ‘BB+/B’ long- and short-term foreign- and local-currency sovereign credit ratings for Azerbaijan. The outlook remained negative. In February 2017, Moody’s Investors Service confirmed Azerbaijan’s long-term issuer rating, as well as senior unsecured debt ratings at Ba1. The country’s rating was last changed in February 2016 while the outlook on it was changed to “negative” in April 2016. The agency downgraded the government bond and issuer ratings of the country to Ba1 from Baa3. A key factor here has been the country’s continued dependence on oil exports for its foreign currency earnings and this sector’s outlook internationally.

Foreign Exchange and Remittances

Foreign Exchange

There are no statutory restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. Foreign exchange transactions are governed by the Law on Currency Regulation. The Central Bank administers the overall enforcement of currency regulation. Among those regulations is a requirement that local cash sales be conducted in Azerbaijani manats (AZN), in accordance with the country’s constitution. Foreign companies and individuals may have both manat and foreign currency accounts at a local bank. Currency conversion is carried out through the Baku Interbank Currency Exchange Market (BICEX) and the Organized Interbank Currency Market. The average time for remitting investment returns is two to three business days. Some requirements on disclosure of the source of currency transfers have been imposed in an effort to reduce illicit transactions. Azerbaijan’s foreign currency reserves are based on the reserves of the Central Bank of Azerbaijan, those of the State Oil Fund of Azerbaijan (SOFAZ), and the assets of the State Treasury Agency under the Ministry of Finance. As of January 1, 2017, the Central Bank’s foreign exchange reserves totaled $3,997,400,000. Compared to the same period in 2016, foreign exchange reserves of the Central Bank dropped 20.77% or $1,042,300,000. The SOFAZ’ assets as of January 1, 2017 stood at $33.15 billion. On January 12, 2017, Azerbaijan dropped the band it had used for foreign-exchange transactions in a move to let the country’s manat currency float freely. The exchange rate band had controlled the rates commercial banks could buy and sell the manat at +/- 4% the official rate set by the Central Bank. The SOFAZ continues to convert foreign assets into manats and transfers these local currency proceeds to the government.

Remittance Policies

Foreign investors are subject to a corporate branch remittance tax of 10% on the remittances of all profits derived from business activities in Azerbaijan. There have not been any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There do not appear to be time limitations on remittances, including dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees. Nor does it appear to be limits on the inflow or outflow of funds for remittances of profits or revenue. Azerbaijan is a permanent member of the international Financial Action Task Force (FATF) and is listed as a country of concern. (The continuum of FATF listings are countries of primary concern, countries of concern, and monitored.) The main obstacle Azerbaijan faces is the endemic level of corruption, but other generators of illicit funds include robbery, tax evasion, smuggling, trafficking, and organized crime.

Sovereign Wealth Funds

Azerbaijan’s sovereign wealth fund is the State Oil Fund of Azerbaijan (SOFAZ). Its mission is to transform hydrocarbon reserves, which are a depletable resource, into financial assets generating perpetual income for current and future generations and to finance strategically important infrastructure and social projects of national scale. Since it was established in 1999, SOFAZ has financed several projects relating to infrastructure, housing, energy infrastructure, and education. According to its bylaws, SOFAZ is not permitted to invest domestically. The State Oil Fund publishes an annual report and submits its books to an independent audit. The fund’s assets totaled $33.1 billion as of January 1, 2017. More information is available at oilfund.az.

In Azerbaijan, state-owned enterprises (SOEs) are active in the oil and gas, power generation, communications, water supply, railway, and air passenger and cargo sectors, among others. There is no published list of SOEs. Statistics are not available on the percentage of resources SOEs allocate to research and development (R&D). While there are no SOEs that officially have been delegated governmental powers, companies such as the State Oil Company of Azerbaijan (SOCAR), Azerenerji (electricity), and Azersu (water) – all of which are closed joint-stock companies with majority state ownership and limited private investment – enjoy quasi-governmental or near-monopoly status in their respective sectors.

SOCAR is wholly owned by the government of Azerbaijan and takes part in all oil and gas activities in the country. It publishes regular reports on production volumes, the value of its exports, estimates of investments in exploration and development, production costs, the names of foreign companies operating in the country, production data by company, quasi-fiscal activities, and the government’s portion of production-sharing contracts. SOCAR’s annual financial reports are audited by an independent external auditor and include the consolidated accounts of all SOCAR’s subsidiaries, but revenue data is incomplete.

There have been cases where many powerful state-owned enterprises have used their regulatory authority to block new entrants into the market. In sectors that are open to both the private and foreign competition, SOEs generally receive a larger percentage of government contracts or business than their private sector competitors. While SOEs regularly purchase or supply goods or services from private sector firms, domestic or foreign, private enterprises have faced problems competing with SOEs under the same terms and conditions with respect to market share, products and services, or incentives. Private enterprises do not have the same access (including terms) to financing as SOEs. However, SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. The SOEs are also afforded material advantages such as preferential access to land and raw materials, advantages that are not available to private enterprises. There is little information available on Azerbaijani SOEs’ budget constraints due to the limited transparency in their financial accounts.

Privatization Program

A renewed privatization process started with President Aliyev’s decree on additional measures to improve the process of state property privatization on May 19, 2016, as well as the presidential decree from July 19, 2016, on measures to improve the management efficiency and accelerate privatization of state property. Under these decrees, accelerating privatization is defined as an important direction of economic policy. The portal providing information on privatization, privatization.az, launched in July 2016, contains information about the facilities, their addresses, location, and even initial costs with an aim facilitating the process. In addition, the State Committee on Property Issues has developed a draft of the Third State Privatization Program (the “Privatization Program”). The main objectives of the Privatization Program are to attract foreign investment, increase efficiency and transparency in respective sectors, and save government funds. Nevertheless, the government does not plan to privatize certain strategic assets. Funds derived from the Privatization Program are planned to be invested in further developing the non-oil sectors.

Responsible business conduct (RBC) is a relatively new concept in Azerbaijan. Producers and consumers do not have a general awareness of responsible business conduct, including environmental, social, and governance issues. No information is available on legal corporate governance, accounting, and executive compensation standards to protect shareholders in Azerbaijan. Larger foreign entities tend to follow generally accepted RBC principles – mainly in line with their international corporate ethos – and aim to educate their local partners, who generally consider basic charitable donations and paying taxes as acts of social responsibility. The American Chamber of Commerce in Azerbaijan (AmCham) established a Corporate Social Responsibility Committee in October 2011 to encourage companies to embrace the concept of social responsibility and encourage a positive impact through activities and dialogue with relevant stakeholders. In addition, AmCham published a guide on RBC/corporate social responsibility for businesses in Azerbaijan. The standards of corporate governance, evaluation methodology of the application of these standards and the Code of ethical behavior in corporate governance sphere were developed by the Ministry of Economy in 2011. The Ministry’s task is to meet with entrepreneurs and explain the importance of using corporate governance standards.

In 2009, Azerbaijan became the first participating country to become fully compliant with the Extractive Industries Transparency Initiative (EITI) requirements. The EITI Board downgraded Azerbaijan to “candidate” status in  April 2015, due to deep concerns  about the ability of civil society to engage fully in the EITI process in Azerbaijan. The Board decided to suspend Azerbaijan’s membership in EITI in March 2017, noting that Azerbaijan did not fully meet the corrective actions related to improvements in the civil society space set by the Board in October 2016. Azerbaijan’s EITI National Chair subsequently announced Azerbaijan would withdraw from EITI.

Pervasive corruption continues to be a major challenge for U.S. and other international firms operating in Azerbaijan. Although anti-corruption legislation is in place and the government has acted to tackle low-level corruption, corrupt practices remain a barrier to greater foreign investment. Azerbaijan does not require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials, nor does it provide protections to NGO’s involved in investigating corruption. Nevertheless, some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. United States firms have identified pervasive corruption as an obstacle to FDI in the following areas: government procurement, awarding of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

The Government of Azerbaijan recognizes that corruption is a problem and has been a participant in regional anti-corruption initiatives, but to date laws and regulations to combat corruption have not been effectively or consistently enforced. Azerbaijan has made modest progress in implementing a 2005 Anticorruption Law, which created a commission with the authority to require full financial disclosure from government officials.

Azerbaijan continues to focus on e-government, service delivery, and simplification of regulations to prevent corruption. Anti-corruption reforms started in licensing regulations, and in the tax and customs sectors. Azerbaijan has explicitly stated its goal to reduce red tape and promote open government. However, fundamental results in key anti-corruption areas such as the civil service, public procurement, and the judiciary are yet to be achieved. Nevertheless, financial resources allocated to some measures such as improving service delivery, specifically ASAN centers demonstrates the political will to reform this particular area.

On September 5, 2012, President Aliyev issued a decree for a National Action Plan on Open Government and a National Action Plan on Combating Corruption. On April 27, 2016, President Aliyev approved the “National Action Plan on Promotion of Open Government for 2016-2018. ASAN service centers created by the State Agency for Public Service and Social Innovations under the President of the Republic of Azerbaijan were established in July 2012 by Presidential decree and became operational in February 2013. Eleven centers across Azerbaijan provide 30 government services from nine state entities, including the registration of commercial legal entities and tax payers, notary services, state registration of civil status acts, and the renewal of identity cards/passports of citizens. ASAN centers are intended to provide more transparent and accountable services through a “one window” model that reduces opportunities for rent-seeking and petty government corruption. ASAN Communal Centers were launched with the Presidential Decree of May 4, 2016. Azerbaijan’s President signed a decree on the launch of ASAN Service Index to measure the quality of public service delivery in June 2016.

Azerbaijan has made progress in preventing corruption in several sectors, such as public services delivery, traffic police, and public education, and reforms have started in customs and business licensing. However, serious and complex corruption challenges have yet to be tackled. Popular opinion identifies the Ministry of Taxes and the judiciary as difficult barriers to business in Azerbaijan. The business community has mentioned that there has been real improvement and transparency in customs procedures in 2016. Since late 2016, there have been extensive reforms in the tax regime, but these remain to be fully understood and analyzed by the business community. Transparency International’s 2013 Global Corruption Barometer – which examined bribery involved in people’s contact with customs, education, the judiciary, land related services, medical services, the police, registry and permit services, tax authorities and utilities – found that roughly 50% of Azerbaijani respondents had paid a bribe to one of the nine service providers in the twelve preceding months.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Azerbaijan signed and ratified the UN Anticorruption Convention and is a signatory to the Council of Europe Criminal and Civil Law Conventions. Azerbaijan is not currently a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contact at Government of Azerbaijan responsible for combating corruption:

Kamal Jafarov
Acting Executive Secretary
Commission on Combating Corruption
Baku, Azerbaijan
(+994 12) 492-04-65
kamal.jafarov@antikorrupsiya.gov.az

Contact at Transparency Azerbaijan (local chapter of Transparency International):

Rena Safaraliyeva
Executive Director
Transparency Azerbaijan
Baku, Azerbaijan
(+994 12) 497 81 70
rena@transparency.az

There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.

Azerbaijan considers travel to the region of Nagorno-Karabakh and the surrounding territories occupied by pro-Armenian forces unlawful and could make a traveler ineligible to visit Azerbaijan in the future. Although not illegal by U.S. law, engaging in any commercial activities in the Nagorno-Karabakh and the surrounding territories, whether directly or through business subsidiaries can result in criminal prosecution and/or other legal action being taken against individuals and/or businesses in Azerbaijan; it may also affect one’s ability to travel to Azerbaijan in the future.

A Labor Code that took effect in 1999 still regulates overall labor relations and recognizes international labor rights. The work week generally is considered to be 40 hours. The right to strike exists, though industrial strikes are rare. Azerbaijan is a member of the International Labor Organization (ILO) and has ratified more than 57 ILO Conventions. In practice, labor unions are strongly tied to political interests. Collective bargaining is not practiced. Azerbaijan has regulations to monitor labor abuses, health, and safety standards in low-wage assembly operations, but enforcement is less effective. A labor contract between employer and employee technically may be written or oral, but in order to be official there must be a signed agreement. This employment agreement is required for the employee to receive any unemployment or other employment related benefits.

Employment relations are established by an employment contract, which, in most cases, does not necessarily indicate a fixed term of employment. An employer must give an employee two months’ notice of termination in the event the employee is made redundant. However, certain exceptions to this rule are available (e.g., in the case of a gross violation of the employee’s duties). An employee can terminate his/her employment contract at any time, but must give one month’s notice. Upon termination of formally registered employment, employers must pay departing employees monetary compensation for unused vacation leave. A formally registered employee who becomes unemployed is entitled to 70% of his/her average monthly wage, calculated over the past 12 months at the last place of work.

Unemployment benefits can be paid for a maximum of 26 weeks within a 12 month period. People who become unemployed and are unable to find suitable employment within 12 months of registering as unemployed are entitled to an extension of unemployment benefits. In this case, unemployment benefits are set at the minimum level approved by law, which is $50. Azerbaijan currently is working with the World Bank and the European Union on a program to reform the state pension system.

Azerbaijan has an abundant supply of semi-skilled and unskilled laborers. Approximately 40% of the Azerbaijani population works in agriculture, although this constitutes only 6% of GDP. The construction sector tends to use temporary and contractual workers; reportedly many of these workers’ agreements are not formally registered with the government. The relatively limited supply of highly skilled labor remains one of the biggest challenges in Azerbaijan’s labor market. As of 2017, government sources estimate the rate of unemployment at 5%, but other sources estimate the figure at 15% or higher, with underemployment being much higher. The average monthly wage as of December 2016 was $285, and the official minimum wage increased to AZN 116 per month (approximately $68) in 2017.

The Overseas Private Investment Corporation (OPIC) and the U.S. Export-Import (Ex-Im) Bank are open for business in Azerbaijan, providing political risk insurance, as well as financing and loan guarantees. Azerbaijan is also a member of the Multilateral Investment Guarantee Agency (MIGA), and the European Bank for Reconstruction and Development (EBRD). The World Bank, Asian Development Bank, and other third-country institutions are active in providing financing and insurance for investment in Azerbaijan.

Over the past two decades, OPIC has invested around $230 million in Azerbaijan in 24 business projects. While Azerbaijan’s financial services sector has been the major area for investments, OPIC-funded projects include investments in the energy (BTC oil pipeline), franchising, banking, microfinance, and hotel and hospitality sectors of Azerbaijan. OPIC has repeatedly provided funds for numerous banks operating in Azerbaijan in order to expand their small and medium enterprise (SME) lending portfolios, including $4.8 million to Rabita Bank in 2008 and $7.3 million to Turan Bank in 2009. In 2011, OPIC provided Muganbank a loan guarantee for $10 million to expand its operations, targeting SME borrowers. OPIC has also provided $1 million and $3 million to FinDev and CredAgro for microfinance lending, respectively. In 2012, OPIC provided loan insurance to Viator Microcredit Azerbaijan LLC ($500,000), NBCO Vision Fund Azercredit LLC ($2 million), and FinDev again ($1 million). In 2013, OPIC signed a memorandum with Turanbank for a loan in the amount of $7 million with a term of seven years for SME financing. As of 2015, OPIC has active loan projects with two non-banking credit organizations: “KredAgro” and TBC Kredit.

In its 2014 annual report, Ex-Im Bank stated that it has outstanding insurance and loan guarantees for Azerbaijan in the amount of $211.9 million, primarily in support of aviation sales. In 2011, Ex-Im Bank closed a $116.6 million loan with a ten-year repayment period to finance the Azerbaijani space agency’s purchase of the AzerSat-1 satellite from Orbital Sciences. In June 2015, Ex-Im Bank finalized a $211.9 million loan to finance Azerbaijan Airline’s purchase of Boeing commercial aircraft.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Yusif Abasov
Economic Assistant
U.S. Embassy in Baku, Azerbaijan
+994-12-488-3300, ext. 3539
AbasovY@state.gov