Azerbaijan seeks to nurture tech sector as it looks beyond oil

By Nailia Bagirova

BAKU, Aug 17 (Reuters) - Long reliant on oil and gas exports, Azerbaijan is courting foreign investment in its small but growing technology sector with a series of reforms aimed at attracting tech companies and venture capital.

The former Soviet republic has been heavily dependent on energy exports since it gained independence in 1991. At the height of the oil boom, hydrocarbons accounted for about three-quarters of economic output and 90% of exports, according to the International Monetary Fund.

The technology sector, in contrast, accounted for just 2.1% of gross domestic product last year, up from 1.9% in 2024, but the government aims to grow that share and turn the capital, Baku, into a technology and innovation hub on the Caspian Sea.

LEGISLATION ESTABLISHES INVESTMENT FRAMEWORK

Legislation passed in July creates a legal framework for investment instruments, which the government says will allow startups and investors to structure deals in Azerbaijan rather than setting up entities in foreign jurisdictions, reducing costs and making subsequent funding rounds easier.

Foreign venture capital and corporate and institutional investors are expected to provide a significant share of new funding to the industry, Deputy Digital Development Minister Rashad Hasanov told Reuters.

Baku also plans to launch a fund to combine local and international capital, Hasanov said, with the details yet to be finalised.

"The size will be set by the quality of the pipeline and the partners we bring in, not the other way around," he said, adding that officials had studied the experience of countries including Singapore and Estonia for examples of best practice.

Azerbaijan's venture capital market remains small. Just 22 startups raised $2.62 million in 2025, while three venture funds - Caucasus Ventures, INMerge Ventures and Tumar Ventures - operate in the country with total disclosed capital of about $11 million.

Azerbaijani entrepreneur Tural Selimli of local tech firm Sera AI welcomed the new investment framework, but said the commodity-exporting country would also need to build awareness and trust among foreign venture capital and angel investors.

But Central Bank Governor Taleh Kazimov told Reuters he expects new players to enter the market now a legal framework for equity- and debt-based crowdfunding has been established. The bank has six months to approve the regulations.

"We are waiting for applications," Kazimov said.

(Reporting by Nailia Bagirova; Editing by Helen Popper)