World Bank: Azerbaijan needs structural reforms to stimulate private investment

The World Bank (WB) recommends that Azerbaijan step up reforms aimed at improving the business climate and attracting private investment.

Report informs, citing WB, that special attention should be given to ensuring the predictability of tax policy, creating equal conditions for businesses, and improving judicial mechanisms.

"Azerbaijan's Socio-Economic Development Strategy (2022-2026) stresses the importance of diversifying the economy and transitioning towards a new growth model centered around the private sector. In this regard, mobilizing private investment is critical to revive growth and lift the long-term growth potential of the non-hydrocarbon sector," the report notes.

According to WB experts, in order to stimulate private investment, it is necessary to implement structural reforms that eliminate existing barriers in the business environment: "The government of Azerbaijan has been taking steps to support entrepreneurship by addressing business environment challenges."

Analysts emphasize that regular consultations between the public and private sectors will be key to identifying and addressing issues that hinder investment activity.

One of the measures proposed to improve the predictability of the tax system is the adoption of a medium-term tax framework document, which would allow for advance notification of planned tax policy changes. According to the WB, this would increase business confidence and reduce uncertainty risks for investors.

To create a level playing field for the private sector, the report recommends strengthening the legal and institutional framework for competition and ensuring the enforcement of antitrust regulations through appropriate by-laws and regulations. The WB also highlights the importance of encouraging greater participation of companies in the market. Moreover, it is recommended to introduce the principles of competitive neutrality in line with international standards and to separate the state's regulatory, policy-making, and operational functions in key sectors dominated by state-owned enterprises. This would expand opportunities for private sector participation.

The WB also considers it necessary to develop and adopt a framework for state oversight of support measures to prevent market distortions when providing assistance to certain state-owned or private companies.

The report stresses that to enhance the predictability of business and investment policies, it is essential to ensure long-term commitments to reform implementation involving all stakeholders - both public and private. The main goal is to reduce market uncertainty and improve the efficiency of existing legal and institutional mechanisms.

In this context, the WB recommends strengthening support for micro, small, and medium-sized enterprises (MSMEs) by improving their access to domestic and foreign markets through the expansion and better targeting of services provided by the Small and Medium Business Development Agency, AZPROMO, and AzExport.

In addition, the World Bank advises continuing judicial reforms aimed at improving the efficiency of court proceedings and eliminating gaps in existing legislation. Particular attention, according to experts, should be paid to dispute resolution mechanisms, especially those related to the protection of intellectual property rights.

The implementation of structural reforms that address these barriers can stimulate the inflow of private investment and contribute to further economic diversification, the WB concludes.