BAKU, Azerbaijan, September 18. Azerbaijan is
gradually reshaping an economic model in which oil and gas have
played a major role for decades, supporting the country’s budget,
export revenues and investment capacity.
The shift does not mean abandoning the oil and gas sector.
Rather, the goal is to use the capital accumulated through the
energy sector to develop industries capable of generating
additional sources of growth beyond the resource-based economy.
That approach is already reflected in the country’s long-term
policy priorities. In 2021, Azerbaijan approved five national
priorities under the “Azerbaijan 2030” agenda, focusing on a
competitive economy, an inclusive society, human capital and
innovation, the Great Return program, and a clean environment and
green growth.
In May 2025, the government also ordered the preparation of
Azerbaijan’s Socio-Economic Development Strategy for 2027–2030,
which is expected to define the next stage in implementing those
priorities.
The key question today, therefore, is not so much whether to set
new goals, but how effectively existing priorities can translate
into higher productivity, investment, exports and new sources of
employment.
From energy capital to technology exports
Diversification is one of the central challenges of Azerbaijan’s
economic transformation.
For Azerbaijan, this means gradually increasing the role of the
non-oil sector not only in GDP but also in exports. Potential
growth areas include traditional industries and agriculture, as
well as sectors that can scale beyond the domestic market.
The digital economy is one such area.
A significant part of the necessary digital infrastructure has
been developed in recent years. In December 2025, Azerbaijan
approved its Digital Economy Development Strategy for 2026–2029,
followed on Feb. 27, 2026, by an Action Plan to Accelerate Digital
Development for 2026–2028. The action plan covers digitalization,
e-government, artificial intelligence, innovation and the
development of national technological capabilities.
The technology sector, however, remains relatively small.
According to data published by Reuters in August 2026, the sector
accounted for about 2.1% of GDP in 2025. That year, 22 startups
raised $2.62 million, while three venture funds had combined
capital of about $11 million.
These figures suggest that the potential of Azerbaijan’s digital
economy remains significantly larger than its current scale.
One potential avenue for further development is attracting
international capital and creating conditions for regional
technology and research centers to establish operations in
Azerbaijan.
The opportunity is not necessarily to build a traditional IT
outsourcing hub, but rather to develop a regional technology and
R&D hub. International companies could use Azerbaijan as a base
for engineering teams, software development, research activities
and exports of digital services.
The effectiveness of any incentives should be measured not only
by the number of companies registered, but also by broader
indicators such as jobs created, export revenues, research and
development spending, training of local specialists and investment
volumes.
Such an approach could gradually shift the focus from the mere
presence of international businesses to their contribution to
Azerbaijan’s long-term technological capabilities.
Helping promising technologies scale
Another element of the ecosystem is the gradual development of
alternative financing mechanisms.
Azerbaijan already has a legal framework for crowdfunding, and
the Central Bank includes the relevant legislation among the
country’s existing financial-market regulations.
Government support for innovative entrepreneurship is also
expanding. As of Aug. 19, 2026, 292 small and micro businesses had
received a “Start-up Certificate,” which provides a three-year
exemption from profit or income tax on income derived from
innovative activities.
The next challenge could be not only creating new startups but
also helping them scale.
One potential tool would be greater participation by private
venture capital. For example, co-financing mechanisms involving
private investors or venture funds could increase the resources
available to startups while preserving a significant role for the
private sector in selecting projects.
Another potential instrument is pilot government procurement of
innovative solutions. For young technology companies, one of the
most difficult stages is often moving from product development to
the first major commercial deployment.
Government institutions and other public-sector organizations
could test solutions through pilot projects in areas such as
artificial intelligence, transportation, energy, cybersecurity,
water-resource management and smart-city technologies.
If successfully implemented, such projects could serve not only
to digitalize public services but also as a first real market for
domestic technology companies.
Human capital as the foundation of the new
economy
Technological transformation will inevitably change the
structure of the labor market.
Artificial intelligence, automation and digitalization can
create new occupations while changing the nature of existing ones.
As a result, increasing importance is being placed not only on
supporting people who change or lose their jobs, but also on giving
workers opportunities to regularly update their skills.
Potential tools include individual mechanisms for financing
education, such as training vouchers or programs in which funding
is partly linked to learning outcomes, certification and subsequent
employment.
Areas likely to remain in demand include artificial
intelligence, data analytics, cybersecurity, engineering,
automation, energy, water-resource management and modern
agricultural technologies.
Such programs could gradually evolve beyond retraining into a
broader lifelong-learning system. As technology changes rapidly,
workers may increasingly need opportunities to update their skills
throughout their careers rather than rely on a single profession
for life.
At the same time, cooperation among schools, universities and
businesses remains important. Existing initiatives, including STEAM
Azerbaijan, could provide a foundation for further development of
such a system.
Another potential resource is the pool of Azerbaijani
specialists working abroad. Their participation in research
projects, technology entrepreneurship and educational programs
could provide an additional channel for transferring knowledge and
expertise to Azerbaijan.
International experience, however, shows that bringing
specialists back does not by itself create an innovation ecosystem.
Research teams, laboratories, funding sources and mechanisms for
commercializing developments are also needed.
One possible approach, therefore, is to develop mechanisms for
so-called “brain circulation,” allowing specialists working abroad
to participate in projects in Azerbaijan without necessarily
returning permanently.
More broadly, economic transformation can be viewed as a gradual
shift from one form of capital to another: from natural capital to
human capital, from human capital to technological capital, and
from technology to higher-value products and services.
From this perspective, reducing dependence on resource revenues
does not mean abandoning oil and gas. It means expanding the number
of sources of future economic growth.
Karabakh as a platform for new technologies
The reconstruction of Karabakh and Eastern Zangazur creates an
opportunity to introduce modern solutions as new infrastructure is
being built.
Smart cities, digital infrastructure-management systems, modern
energy networks and renewable energy are already being considered
as elements of development in these territories. The Great Return
is also one of Azerbaijan’s five national priorities.
Digitalization of agriculture could offer particular
potential.
Satellite monitoring, unmanned systems, soil-moisture sensors
and automated irrigation can improve the efficiency of resource
use. For a country facing growing water-supply risks, agricultural
efficiency could increasingly be measured not only by crop yields
but also by the amount of output generated per unit of water
used.
Karabakh and Eastern Zangazur could provide a platform for
testing modern agricultural technologies, water-management systems
and other digital solutions that could later be scaled up in other
parts of Azerbaijan.
Digital and green economies can develop
together
Another area likely to gain importance in the coming years is
the intersection of digital and green technologies.
The expansion of renewable energy creates demand not only for
new generation capacity but also for systems that forecast
electricity production, manage energy consumption, store power and
improve grid efficiency.
In the first half of 2026, electricity generation from renewable
sources, including hydropower, totaled 2.7937 billion kWh in
Azerbaijan. During the same period, wind power generation reached
475.7 million kWh, while solar generation totaled 282.7 million
kWh.
Azerbaijan is also continuing to develop wind and solar projects
as well as regional energy links.
This creates a potential niche for energy technology, or
energy-tech — digital solutions linked to the power system,
including smart-grid management, supply-and-demand forecasting and
energy-efficiency technologies.
A similar approach could be applied to water resources.
Water management is becoming increasingly important at the
national level. In 2026, government agencies highlighted the need
to improve the resilience of water supply and resource management,
while water-supply issues in Baku and the Absheron Peninsula became
the subject of a separate state program.
Under these conditions, digital monitoring, automated
irrigation, soil-moisture sensors, reductions in water-network
losses, the reuse of treated wastewater and, where economically
viable, desalination technologies could address environmental
challenges while creating demand for new technological
solutions.
In January 2026, Azerbaijan approved a State Program for
Improving Water Supply, Stormwater and Wastewater Systems in Baku
and the Absheron Peninsula for 2026–2035. The program provides for
infrastructure modernization, greater resilience of water supplies
and reduced risks associated with heavy rainfall and flooding.
The water sector could therefore become an example of how an
environmental challenge can simultaneously create a technological
and economic opportunity.
From energy capital to new forms of capital
Ultimately, Azerbaijan’s economic transformation does not
necessarily have to mean replacing one economic model with
another.
A more gradual approach could involve using the strengths of the
oil and gas sector — financial resources, infrastructure, energy
expertise and accumulated human capital — to develop new sources of
growth.
In this sense, the oil and gas sector can remain an important
part of the economy while providing a resource base for developing
human capital, technology, infrastructure and new export-oriented
industries.
The next stage could involve strengthening the link between
public investment, private capital and measurable outcomes,
including higher productivity, exports of digital and technology
services, skilled job creation and the development of local
capabilities.
For the digital economy, this means gradually moving from
support for individual projects toward creating conditions for them
to scale. For the green economy, it means not only expanding
renewable energy but also developing new technology industries
around it. For human capital, it means creating opportunities for
workers to continuously update their skills and apply them in the
real economy.
Ultimately, the goal is not to replace oil with technology. It
is to transform the energy capital accumulated over previous
decades into human, technological and export capital for the next
stage of development.
The success of that transition will be an important factor in
Azerbaijan’s ability to build a more diversified and resilient
growth model.
