Fitch: Azerbaijan will see slight rise in investment in next two years

One source of continued headwind to the recovery momentum will remain the sluggishness in capital investment which continues to underperform due to delays faced by public works and investments in the hydrocarbon sector.

Report informs, citing "Fitch Solutions" company, that a close correlation between capital investment and nominal wage growth suggests that private consumption growth could be capped by a still slow investment environment.

"This component of GDP has been slower to recover as much of it is driven by the oil and gas sector in Azerbaijan. While oil prices have risen over recent months, this has yet to translate into robust investment growth, not least as the country is making its own efforts to reduce its economic reliance on the oil and gas sector," said the company.

In recent years, Azerbaijan's government has tried to court investments into the country's tourism, telecommunication, and agriculture sectors – this remains a cornerstone of its medium-term strategic development plan that will run up to 2025.

"In 2021, some fiscal consolidation by the government following various stimulus measures that had to be undertaken to support the economy in 2020. As a result, public investment will continue to slow; therefore, we have factored in a modest 0.3pp contribution of capital investment to growth in 2021, which will increase to 0.7pp in 2022 as the economy returns to a more organic growth path," analysts at Fitch Solutions noted.