Azerbaijan’s business climate suffers from a large informal economy, widespread corruption, unpredictable tax audits, a lack of judicial independence over commercial and tax disputes, and large holding companies that dominate significant portions of the non-oil economy.  The government creates regulatory laws without regular or codified conferring with the business community. Azerbaijan’s score on Transparency International’s Corruption Perceptions Index fell seven places, from 30 out of # in 2021 to 23 in 2022.     

U.S. companies working in the Azerbaijani market have in the past reported pressure to localize production or establish joint ventures.  In general, small- and medium-sized enterprises are often crowded out of the market by larger players who enjoy both economies of scale and privileged access to the government.  U.S. companies have notified Embassy officials of challenges in resolving disputes with Azerbaijani private firms and government agencies, citing the lack of transparency and independence of the judiciary.  While the government has made some judicial reforms, further progress is needed to foster true judicial independence.  This lack of independence contributes to weak IPR protection and enforcement.  The IP Agency has not made notable progress in institutionalizing IP protections.  In fact, companies have notified the Embassy of widespread use of unlicensed software and applications in the public and private sector. Government and business leaders acknowledge that poor IPR protections are an issue for economic expansion and the government is taking steps to increase enforcement capacity.  There has been some improvement.  The Business Software Alliance estimated in 2015 that the prevalence of software piracy was 84 percent, including government ministries.  In 2022 that figure fell to 71 percent.

Azerbaijan has worked to improve its regulatory system over the past several years, adopting a series of reforms to tax and customs regulations.  Azerbaijan’s business community reports significant improvements in customs declarations and collections following customs reforms implemented in 2018.  The introduction of “one-stop” public service centers, known as “ASAN” (“Easy”) e-government service centers, has increased efficiency and transparency for many basic business needs, such as registering companies, property titles, and receiving licenses.

Business transparency is an ongoing concern.  Tender procedures are opaque, and a small number of businesses dominate certain sectors of the economy.  The Law on Commercial Secrets allows companies to withhold information about their registration, ownership, and structure.  U.S. citizens considering doing business in Azerbaijan are advised to conduct due diligence carefully and seek out businesses that regularly comply with third party audits through reputable international firms.