The World Bank has announced key challenges related to foreign direct investment in Azerbaijan.
Elchi.az reports that the World Bank has determined that the transfer effect of foreign direct investment (FDI) to other sectors of the economy in Azerbaijan is limited.
According to the Bank’s report, in resource-rich countries of the Europe and Central Asia region (ECA), including Azerbaijan, foreign direct investment is mainly directed to the oil, gas and mining sectors. Although these investments contribute to the introduction of advanced extraction technologies and the increase of state revenues, the enclave nature of these areas limits the transfer of technology and productivity to other sectors of the economy.
According to the World Bank’s assessment, this investment model has a weak impact on the formation of local supplier networks, and as a result, productivity growth in the non-oil sector is not ensured on a large scale. In this regard, Azerbaijan is shown in the same group as Kazakhstan and Russia in the report.
For comparison, it is noted that foreign direct investments directed to the manufacturing sector in Central European countries (Hungary, Romania and Slovakia) have led to the creation of local automotive and electronics component manufacturing supplier networks over time and have formed a stronger economic transfer effect. In Southeast Europe and the Western Balkans, these effects have been uneven.
The World Bank emphasizes that the positive transfer of foreign direct investment to the economy is not an automatic process and depends on the technological capabilities of local companies, the institutional environment, and the sectoral distribution of investments. According to the report, directing investments to the production and processing sectors, as well as increasing the absorption capacity of local businesses, is considered an important condition for strengthening the transfer effects to the economy.