Azerbaijan strengthens ties with emerging economies amid changing FDI landscape

In 2024, Azerbaijan’s foreign direct investment (FDI) landscape experienced notable shifts, reflecting the country’s strategic position as a regional economic hub. The total volume of FDI in Azerbaijan increased to 7.046 billion US dollars, representing a 5.83% rise from the previous year. However, a closer examination of these inflows and outflows reveals intricate patterns of economic activity, particularly in relation to Azerbaijan’s investments in other countries and the inflow of foreign capital from key partners.

UAE's growing investment in Azerbaijan

The United Arab Emirates (UAE) played a significant role in Azerbaijan’s economic development, with FDI from the UAE rising by 53.7% to 490.1 million US dollars in 2024. This marked a substantial 171.2 million US dollar increase from 2023, underscoring the UAE’s growing confidence in Azerbaijan’s economic potential. The UAE’s share of total FDI in Azerbaijan reached 7%, signaling its prominent position in the country’s investment framework.
Such a sharp increase in UAE investments could be indicative of the UAE’s long-term strategy to strengthen ties with Azerbaijan, particularly in sectors such as energy, infrastructure, and tourism. The UAE’s expertise in these areas, coupled with Azerbaijan’s favorable investment climate, creates a synergistic environment for mutual growth. Moreover, the diversification of UAE’s investments into sectors beyond energy could signal a strategic shift towards broader economic collaboration.

Azerbaijan's expanding investment in the UAE

Conversely, Azerbaijan made significant strides in enhancing its investment portfolio in the UAE, with the volume of Azerbaijani investments reaching 457.5 million US dollars in 2024. This represents a dramatic 4.8-fold increase compared to 2023, reflecting Azerbaijan’s commitment to strengthening its economic presence in the UAE, which has become a key business hub in the Middle East.

The specific weight of Azerbaijani investments in the UAE—accounting for 26% of Azerbaijan’s total outward FDI—highlights the strategic importance of the UAE in Azerbaijan’s foreign economic activities. The large increase in Azerbaijani investments is likely tied to the diversification of Azerbaijan's economy, with an emphasis on non-oil sectors, technology, and infrastructure projects. By investing heavily in the UAE, Azerbaijan aims to capitalize on the UAE’s advanced financial sector and business ecosystem, creating opportunities for cross-border partnerships and knowledge exchange.

A mixed outlook for Turkish-Azerbaijani investments

Turkiye, traditionally one of Azerbaijan’s largest investment partners, saw a decrease in FDI inflows to Azerbaijan, dropping by 6.4% to 1.2 billion US dollars in 2024. While the Turkish share in the total FDI inflows to Azerbaijan still accounted for 17.3%, the decline in investments signals a possible slowdown in the Turkish economy, which could be affecting its appetite for overseas investments.

On the other hand, Azerbaijan’s investments in Turkiye plummeted by a staggering 86.3%, from 1.8 billion US dollars in 2023 to just 248.9 million US dollars in 2024. This dramatic drop, accounting for 14.1% of Azerbaijan’s total outward FDI, suggests a shift in Azerbaijan’s investment strategy, possibly influenced by geopolitical factors or a reallocation of resources toward other, more profitable markets. While Turkiye remains a crucial partner in terms of trade and political ties, Azerbaijan’s reduced investments could reflect a recalibration of priorities amid changing regional dynamics.

Hungary’s rapid rise as an FDI partner

Perhaps the most striking development in Azerbaijan’s foreign investment landscape is the significant rise in Hungarian investments, which surged 5.1 times to 1.018 billion US dollars in 2024. The Hungarian share of total FDI inflows to Azerbaijan reached 14.5%, a clear indication of Hungary’s expanding role in Azerbaijan’s economy. This increase can be attributed to enhanced economic cooperation between the two countries, particularly in areas such as high-tech industries, manufacturing, and infrastructure development.

The rapid growth of Hungarian investments may also point to Hungary’s strategic interest in tapping into Azerbaijan’s natural resources and its favorable investment climate. Moreover, the EU-Azerbaijan relationship has been strengthening in recent years, and Hungary’s role as a conduit between the EU and Azerbaijan is likely contributing to this growth.

A diverse and evolving investment landscape

In conclusion, the data reveals a diverse and dynamic foreign direct investment landscape in Azerbaijan in 2024. While traditional partners like Turkiye have seen a decrease in investment flows, newer partners such as the UAE and Hungary have significantly increased their contributions. Azerbaijan’s outward investments, particularly in the UAE, demonstrate a shift toward broader international engagement and diversification.

As the Azerbaijani economy continues to diversify and integrate into global markets, these trends will likely evolve further. A careful analysis of these shifts will be crucial for policymakers and businesses alike, as Azerbaijan seeks to balance its inflows and outflows of investment to ensure sustainable long-term growth. The growth of investments from the UAE, Hungary, and other emerging economies signals an opportunity for Azerbaijan to enhance its international partnerships, diversify its economic base, and improve its standing as a key player in regional and global markets.