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Nazrin Abdul

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Foreign investment in Azerbaijan continues to reflect both opportunities and challenges in the country’s economic trajectory. According to the State Statistics Committee, in January of this year, investments in fixed capital from foreign financial sources amounted to 401.9 million manats, which is 26.1 percent more than in the same period of 2025. This growth demonstrates renewed interest from international investors, yet the sectoral distribution reveals a familiar imbalance.

It is clear that investments were mainly allocated to the oil and gas sector. Thus, 374.5 million manats of investments in fixed capital from foreign sources covered this sector. However, an increase was also observed in the non-oil and gas sector compared to the previous year, though the figure, 27.4 million manats, remains significantly less. The contrast is striking: while oil and gas investments rose by 80.2 percent compared to January 2025, non-oil investments fell by 75.3 percent. This sharp divergence suggests that foreign countries and companies still recognize Azerbaijan primarily as an energy exporter and remain cautious about committing resources to other industries.

This perception raises a critical question: is Azerbaijan’s non-oil sector truly too risky, or are investors simply slow to adjust to new realities?

Azerbaijani officials have repeatedly emphasized that foreign companies should take into account the soft and favorable investment conditions in Azerbaijan. With conflicts in the South Caucasus largely resolved and trade between Azerbaijan and Armenia beginning, the geopolitical environment has shifted. Yet investors may be waiting for sustained proof that these changes translate into long-term stability.

International financial institutions are already signaling confidence. Reports from Fitch Solutions predict inflation will decrease to 5 percent in 2026, while the banking sector maintains high stability. Similarly, S&P notes that Azerbaijani banks will demonstrate strong capitalization and expanding loan portfolios. These forecasts indicate that the macroeconomic environment is improving, which should, in theory, encourage broader investment beyond hydrocarbons.

It should also be noted that in January 2026, 1.406 billion manats, 75.6 percent more than in January 2025, were invested in fixed capital from all financial sources for the development of the country’s economic and social sectors. The volume of investments directed to the oil and gas sector was 78.3 percent higher, while the non-oil and gas sector saw a 73.9 percent increase. Of the total investment, 758.6 million manats (54.0 percent) went to production sectors, 551.0 million manats (39.2 percent) to service sectors, and 96.3 million manats (6.8 percent) to residential construction. Importantly, 82.8 percent of investments came from the non-state sector, and 71.4 percent were financed by domestic sources, showing that local capital is actively driving diversification even if foreign investors remain hesitant.

These figures illustrate a notable contrast in investment patterns. On one side, Azerbaijan’s economy shows signs of stabilization, with domestic investors and institutions contributing to diversification efforts. On the other, foreign capital remains concentrated in hydrocarbons, a trend that reflects both the continued global demand for energy and cautious attitudes toward investment in other sectors.

The challenge for Azerbaijan lies in bridging this gap, transforming favorable macroeconomic indicators and political stability into tangible investor confidence across industries. Until that happens, the country’s investment profile will remain energy-centric, with diversification more a domestic reality than an international one.