BAKU, Azerbaijan, December 25. Trend's exclusive interview with Alfonso Garcia Mora, Vice President of the International Finance Corporation (IFC) for Europe, Latin America, and the Caribbean
What was the purpose of your visit to Azerbaijan and what was the outcome?
Alfonso Garcia Mora, IFC's Vice President for Europe, Latin America, and the Caribbean
This was my first visit to Baku as IFC’s Regional Vice President. As you may know, IFC is keen to support Azerbaijan in unlocking the private sector’s potential, and I was very much looking forward to gaining new insights and discussing new opportunities. I’m happy to say that I had extremely productive meetings with the Prime Minister, government officials, private sector representatives, and partners.
Azerbaijan will host next year's COP29 climate change summit. In this context, could you, please, elaborate more on the latest development in the climate area for Azerbaijan?
Alfonso Garcia Mora, IFC's Vice President for Europe, Latin America, and the Caribbean
We welcome the news that Azerbaijan will host COP 29. It is a clear sign of the country’s strong commitment to the climate agenda and its decarbonization plans. Azerbaijan’s revised Nationally Determined Contribution committing to a 40 percent reduction in emissions by 2050, compared to 1990 levels, conditional on international support.
We are all aware that climate change severely impacts people’s lives in the developing world, hampering efforts to alleviate poverty. Unfortunately, Azerbaijan is no exception. On average, floods already impact 100,000 people every year. Almost the entire country is prone to both droughts and water scarcity, and the frequency and intensity of these extreme weather events will only increase.
Large-scale decarbonization and resilience actions are urgently needed. In fact, the World Bank Group’s Country Climate and Development Report for Azerbaijan estimates that $44 billion in investments are needed until 2060. Based on our report, meeting climate targets cannot be achieved without a quick ramp up of clean energy investments to about $1 billion per year by 2030. A significant share of the required investments should come from commercial and private sector financing.
Fast-tracking decarbonization is crucial to remain competitive in the global economy and ensure a prosperous future for generations of Azerbaijanis. It is in the country’s best interest to invest in the low-carbon transition and climate resilience measures – and implement the necessary policy reforms.
Seizing the opportunities outlined in this report will help the country future-proof its economy and safeguard the population from climate change. IFC is ready to support Azerbaijan to achieve its climate goals, building on its long-term work in the country.
Could you elaborate more on how does IFC support Azerbaijan in green transition?
Alfonso Garcia Mora, IFC's Vice President for Europe, Latin America, and the Caribbean
Azerbaijan has achieved remarkable economic growth and welfare gains over the past 30 years, driven by the country’s oil and gas sector, which accounts for a third of GDP, 90 percent of exports, and 71 percent of Foreign Direct Investment (FDI).
Azerbaijan would certainly benefit from diversifying its economy away from fossil fuels to achieve a successful low-carbon transition and create sustainable economic growth. Innovative private sector solutions are a key driving force in this regard, and we are ready to support the country in taking advantage of the current window of opportunity to unleash the private sector’s potential in various sectors of the economy.
For example, renewable energy is an important part of our overall focus in the country. Azerbaijan’s offshore wind potential is estimated at 157 gigawatts, as an analysis by the World Bank’s Energy Sector Management Assistance Program shows. This is massive, compared to the country’s current total installed capacity of around 8 gigawatts. An offshore wind roadmap—released by Azerbaijan’s Ministry of Energy, the World Bank, and IFC—shows the country has the potential to install 7 gigawatts of offshore wind power by 2040. Harnessing this wind power will help create over 69,000 full-time equivalent years of employment and up to $7 billion in local gross value added.
We are well-placed to work with Azerbaijan in developing its offshore wind potential and help it reach the next level, by leveraging private investment. IFC and the World Bank are working with the government on how to implement an offshore wind roadmap, to initiate offshore wind development, and attract developers and private investors to the country.
What are IFC’s other plans on cooperating with Azerbaijan in 2024 and which sectors look most promising and attractive for IFC?
Alfonso Garcia Mora, IFC's Vice President for Europe, Latin America, and the Caribbean
IFC is eager to support the country in developing its non-oil sectors, boosting competitiveness, and helping to unlock the private sector’s vast potential. Harnessing the private sector’s capital and knowhow through public-private partnerships (PPPs) in infrastructure and healthcare is a priority, as well as attracting more private investment in key sectors such as renewables, pharmaceuticals, transport, and logistics, among others.
We see significant prospects in digital infrastructure. E-mobility is an emerging area across the region. In Azerbaijan, the transport sector’s share of total energy consumption is 22.6 percent. To reduce environmental impact, investments will be needed to accelerate the roll out of charging infrastructure for privately financed electric vehicles and the renewal of urban transport, including the country’s bus fleet.
The government has already implemented tax breaks for electric vehicles. However, the large-scale adoption of clean vehicles will require policy and regulatory changes. Steep increases in fuel efficiency standards, incentives to replace old internal combustion engine vehicles, and efforts to make freight transport operations more efficient, should be priorities. IFC can support Azerbaijan’s efforts by helping develop regulatory, policy, and institutional frameworks to facilitate the e-mobility market as well as by providing financing for private sector projects.
Last but not least is digital financial services, which could improve access to finance through innovative solutions.
IFC has supported Azerbaijan over many years. What are the key results of your work?
Alfonso Garcia Mora, IFC's Vice President for Europe, Latin America, and the Caribbean
Over the past decades, IFC has invested over $850 million in Azerbaijan, financing nearly 60 projects in financial services, infrastructure, and manufacturing. IFC has also implemented over a dozen advisory services projects focusing on the business environment, financial sector development, corporate governance, micro, small, and medium enterprises (MSMEs), and agribusiness.
As part of our efforts to support country’s diversification agenda, IFC, in partnership with the Swiss State Secretariat for Economic Affairs SECO has been working with the government to make it easier for companies to invest in the non-oil economy. That work has contributed to fundamental business reforms, including in registration, inspections, licensing and permitting systems.
IFC provided strategic advice on adopting three laws. The Law on Tourism aims to introduce methods to reduce time and costs for the private sector, including market and competition-based means of regulation and quality assurance. The Law on Food Safety introduced new methods to quality control the food chain and modernize the national food safety management system. The Law on Investment Activity provides investment protection guarantees to help attract more investment. IFC has also provided advice on small and medium enterprises (SMEs) and Agricultural Insurance laws.
Together with SECO, we’ve also supported a series of regulatory reforms to improve the country’s financial infrastructure and boost access to finance for smaller businesses. For example, the adoption of a modern law on credit bureaus led to the creation of the first private credit bureau in 2018. In addition, IFC supported the development of a secured transactions law. This allows small businesses, which often lack assets like real estate, to use their movable assets—inventory, accounts receivable, and equipment—as collateral. The reform helped create a movable collateral registry.
Our support provided to the Central Bank of Azerbaijan through IFC’s Electronic and Digital Financial Services project included the development of Payment Systems and payment services law, and facilitated the adoption of the open banking roadmap, identifying steps for sharing of Application Programming Interface by financial institutions.
To ease access to finance and further strengthen the financial sector, IFC has launched its Asset-Based Finance (ABF) project, which aims to support the enhancement of the legal framework governing prudential regulation of ABF products.
To boost access to finance for smaller businesses and women entrepreneurs, and help build the financial sector’s resilience, in January 2023, we signed a financing package of up to $40 million to Bank Respublika, our long-standing client in the country.
Our work in Azerbaijan has had a positive impact on the private sector, but I believe the future holds even bigger opportunities. Through investment and advisory work, IFC aims to boost green growth, strengthen transport corridors and connectivity, enhance financial inclusion, and support sustainable (or climate smart) agriculture.
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