Page 98 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.80, # 1, 2023, pp. 94-105

In conclusion, the challenges of foreign direct investment in developing countries are
significant and multifaceted. Political instability, poor infrastructure, lack of skilled
labor, corruption, and cultural differences are just some of the obstacles that foreign
investors may face when trying to establish a presence in these countries. However,
despite these challenges, foreign direct investment remains an important source of
economic growth and development for many developing countries.

CURRENT SITUATION OF FOREIGN DIRECT INVESTMENTS IN
AZERBAIJAN
For Azerbaijan, attracting foreign direct investment is more crucial than ever. The
growth of the non-oil sector and the diversification of the economy have taken on even
more importance in light of the current state of global uncertainty. On the other hand,
despite high oil prices, oil output has decreased recently, and despite this, the country's
revenue from energy sales is lower than it was before to 2014. Taking into account
the post-pandemic environment, 2021 was considered comparatively challenging in
terms of FDI flow. Regional instability as a result of the post-war period also played
a significant role in the assessment. (Center for Economic and Social Development,
2022). For a deep understanding of the current situation of FDI flows in Azerbaijan
and its effect on the Azerbaijan GDP, it is important to make a SWOT analysis of the
current FDI condition.

Strengths:
• Azerbaijan has a strategic location between Europe and Asia, making it an
attractive destination for FDI.
• The country has abundant natural resources, including oil and gas, which has led
to the development of a strong energy sector.
• The government has implemented several reforms to improve the business
environment, including simplifying procedures for starting a business and
reducing bureaucracy.
• Azerbaijan offers a favorable tax regime for foreign investors, including
exemptions and reductions on corporate income, property, and land taxes for up
to seven years.

Weaknesses:
• Despite its efforts to diversify its economy, Azerbaijan is still heavily reliant on the
energy sector, which makes it vulnerable to fluctuations in global oil and gas prices.
• The country's infrastructure is still developing, particularly in the regions outside
of the capital city of Baku, which can pose challenges for investors.
• Corruption and lack of transparency can still be a concern for foreign investors.
• The country has a relatively small market size compared to other countries in the
region.

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