Understanding the Low Levels of FDI Inflows to Azerbaijan in Non-Oil Sectors: Sectoral Trends and Investment Barriers

This capstone project examines the consistently low levels of Foreign Direct Investment (FDI)
in Azerbaijan’s non-oil sectors, identifying the main structural and policy-related obstacles to
diversification. The three main causes analyzed are market concentration and state dominance,
regulatory and bureaucratic obstacles and infrastructure and trade-related costs. The study
looks at how strong state-owned businesses, weak institutions and lack of transparency
discourage investors from investing in non-oil sectors, by using official statistics, expert
interviews and comparative analysis with neighboring countries like Georgia and Armenia.
The paper proposes three policy options to address these causes, which include prioritizing
institutional reforms over expanding incentive programs, reducing barriers to investment
through regulatory reform, and Addressing infrastructure and trade related costs .
Then it assesses the effectiveness of each policy option in creating an environment that is more
accessible, investor-friendly and competitive. The findings highlight the necessity for a
strategic change toward strengthening institutions, decreasing market concentration and
systemic trade constraints to fully maximize non-oil business's potential in Azerbaijan,
enhancing the regulatory framework to promote transparency and predictability in the
investment sector,particularly attention is drawn to improving infrastructure quality and
reducing trade costs which are important fact for making Azerbaijan a more attractive
destination for foreign investors beyond the oil and gas industries.