Driving economic growth: Analysis of increased investments in fixed capital in Azerbaijan

In the months of January-February of the year 2024, investments in fixed capital in Azerbaijan amounted to 2638.1M manats ($1551.82M), which is 15.5% higher compared to the corresponding period of the previous year.

According to Azernews citing the State Statistics Committee, the volume of investments in the oil and gas sector has increased by 12.5%, while investments in non-oil and gas sectors have increased by 17.1%.

Of the utilized investment, 1439.7M manats ($846.88M) (54.6%) were allocated to manufacturing sectors, 1064.7M manats ($626.29M) (40.3%) to service sectors, and 133.7M manats ($78.65M) (5.1%) to residential construction. Domestic investments accounted for 2121.3M manats ($1247.82M) (80.4%) of investments in fixed capital. 1921.3M manats($1130.18M) (72.8%) of investments in fixed capital were directly spent on construction and installation works.

The increase in investment directed towards fixed capital in Azerbaijan, particularly during the months of January-February 2024, signifies several positive indicators for the economy.

One of the positive indicators for the economy is economic growth. The rise in investments in fixed capital suggests a growing confidence in the economy, as businesses and investors are willing to commit resources to long-term projects. This increase of 15.5% compared to the previous year indicates a momentum toward economic expansion.

The other one is diversification. The fact that investments in non-oil and gas sectors have increased by 17.1% is particularly noteworthy. It suggests a diversification strategy, with the Azerbaijani economy moving away from over-reliance on the oil and gas industry towards other sectors. This diversification is crucial for long-term sustainability and resilience against fluctuations in global commodity prices.

The main positive indicators for the economy is sectoral allocation. The allocation of investments across various sectors provides insights into the priorities of the Azerbaijani government and private investors. The substantial portion allocated to manufacturing sectors (54.6%) indicates a focus on industrial development, which can stimulate job creation, technological advancement, and export potential. Similarly, significant investments in service sectors (40.3%) underline the importance of services in driving economic activity and catering to domestic demand.

Domestic Investment is another positive indicator for the economy. The dominance of domestic investments, accounting for 80.4% of total investments in fixed capital, reflects confidence among local investors in the domestic economy. This could indicate a favorable business environment, government policies supportive of local entrepreneurship, and reduced reliance on external financing.

Construction Sector is the positive indicator for the economy, as well. The sizable portion of investments (72.8%) directed towards construction and installation works highlights the importance of infrastructure development and real estate in driving economic growth. This not only creates immediate employment opportunities but also lays down the groundwork for future economic activities and urban development.

Generally, the increase in investment directed towards fixed capital in Azerbaijan during the mentioned period portrays a positive outlook for the economy, characterized by diversification, sectoral growth, and a strong emphasis on domestic investment and infrastructure development. However, continued efforts to maintain economic stability, enhance competitiveness, and foster innovation will be essential for sustaining this positive trajectory in the long run.