BAKU, Azerbaijan, July 16. The International Finance Corporation (IFC) is ready to support Azerbaijan in low-carbon transition, Ines Rocha, IFC’s Regional Director for Europe said in an exclusive interview with Trend.
"Climate change is the biggest threat of our time, particularly in emerging economies. Unfortunately, extreme weather events are likely to increase. In Azerbaijan, floods already impact 100,000 people every year, and droughts and water scarcity are constant threats. Azerbaijan’s role as host of COP29 signals its strong commitment to the climate agenda. The country’s revised Nationally Determined Contribution commits to a 40 percent reduction in emissions by 2050, compared to 1990 levels," she said.
Rocha noted that fast-tracking decarbonization will be crucial to remain competitive in the global economy and ensure a sustainable future.
"The World Bank Group’s Country Climate and Development Report for Azerbaijan estimates that $44 billion in investments is needed until 2060 to achieve this, with a significant share coming from commercial and private sector financing. The country would benefit from diversifying its economy away from fossil fuels, investing in climate resilience measures, and implementing the necessary policy reforms to drive a low-carbon transition. We at IFC are well placed to support the country on this journey. Renewable energy is a key focus area for us. Azerbaijan’s offshore wind potential is estimated at 157 gigawatts, according to an analysis by the World Bank’s Energy Sector Management Assistance Program, compared to a current total installed country capacity of around 8 gigawatts," she added.
IFC's regional director noted that according to an offshore wind roadmap released by Azerbaijan’s Ministry of Energy, the World Bank, and IFC, Azerbaijan has the potential to install 7 gigawatts of offshore wind power by 2040.
"Harnessing this wind power would help create over 69,000 full-time equivalent years of employment and up to $7 billion in local gross value added. The Azerbaijan Renewable Energy Agency estimates the country’s economically viable onshore wind and solar potential to be even higher, at 27 gigawatts. Reaching the government’s target of a 30 percent share of renewable energy sources in electricity production by 2030, from the current level of 7 percent, will require a change of pace," she said.
Rocha pointed out that IFC is well-placed to work with Azerbaijan in developing its renewable energy potential, including solar and onshore and offshore wind.
"Together with the World Bank, we are working with the government on implementing an offshore wind roadmap to kickstart development and help attract developers and private investors. One new area we are proud to support is green building. A recent example: AlatBay Logistics Center, operating within the Alat Free Economic Zone, has successfully completed the design, construction, and audit stages of EDGE—an innovative green building certification system implemented by IFC—and been awarded the EDGE Advanced certificate. As part of these efforts, the company has reduced its energy use by over 40 percent and water consumption by over 25 percent," she added.
More areas for cooperation
Rocha went on to add that another new area IFC is looking at is water.
"Azerbaijan’s water resource scarcity is projected to increase. Between 50 and 70 percent of its runoff enters the country from neighboring states, which are also facing increasing water demand and projected water resource decreases. This high dependence on transboundary water sources, combined with declining water availability and increasing droughts, salinization, and water pollution, poses a significant water security risk. IFC can support Azerbaijan in developing a comprehensive strategy to bolster the sector’s sustainability," she said.
Rocha noted that another area the IFC is working on is supporting women, particularly regarding climate.
"Women and their communities can be the greatest accelerators for achieving global climate goals. Decarbonization and climate adaptation will not be possible without their active participation as leaders, employees, entrepreneurs, and stakeholders in climate dialogue, policymaking, and finance. Pursuing gender-inclusive climate investment is also critical because women are both disproportionately impacted by climate change and less likely to gain from new climate-related opportunities. We are exploring avenues to support Azerbaijan in this direction," she said.
Micro, small, and medium enterprises (MSME) Finance Platform
IFC's regional director noted that the organization has been supporting micro, small, and medium enterprises (MSMEs) in Azerbaijan through investments in existing partner banking institutions and plan to continue that through existing and new partners.
"This includes the recently approved MSME Finance Platform, a global up-to $4 billion equivalent financing package focused on investing in priority sectors. It includes a mobilization component, leveraging IFC’s own and donor resources while consolidating key existing MSME financing tools. In Azerbaijan, we are also working to expand outreach through new banking and non-banking financial partners. IFC will provide funding to the financial institutions, who will channel the proceeds to MSME borrowers. At the same time, IFC will continue supporting its client financial institutions as needed, with advisory services to assist with capacity building as well as activities to raise awareness among their MSME clients," she added.
Empowering women entrepreneurs
Rocha noted that to boost inclusion, especially for smaller businesses and women entrepreneurs, IFC provided $40 million to its longstanding client Bank Respublika last year, and the organization is currently exploring how it can accelerate this work.
"IFC promotes sustainable agricultural practices in Azerbaijan through events and workshops for financial institutions. We also support these institutions in introducing financial products focused on climate-smart agriculture. These products fund technologies and practices that foster sustainable agriculture and equip farmers with the tools and knowledge they need to adapt to, and combat, the effects of climate change – helping to bolster the sector’s sustainability and resilience," she explained.
IFC’s other priority focus areas in Azerbaijan
Rocha pointed out that Public-private partnerships (PPPs) are key to harness the private sector’s capital and know-how to bolster critical sectors such as infrastructure and healthcare.
"This is an area in which we are ready to work more with the government. Digital infrastructure, and e-mobility especially, is an emerging focus area, especially with COP29 on the horizon. The transport sector currently contributes 22.6 percent to total energy consumption. This could be reduced through investments that boost the roll-out of charging infrastructure for privately financed electric vehicles and increase urban transport options—for example, by renewing the country’s bus fleet, a process that has already started," she said.
IFC's regional director noted that the organization welcomes the government’s tax breaks for electric vehicles.
"Other measures such as increasing fuel efficiency standards, providing incentives to replace old vehicles, and making freight transport operations more efficient are also important. The government is currently developing the necessary regulatory, policy, and institutional frameworks and IFC aims to provide both advisory and investment support along the value chain where private sector solutions can be deployed. We are also committed to supporting Azerbaijan’s ongoing efforts to attract more private investment in pharmaceuticals, transport and logistics, and other productive industries.
Last but not least are digital financial services and the innovative solutions they offer. With IFC’s advisory support, the Central Bank of the Republic of Azerbaijan is launching a regulatory sandbox, which will help promote this by enabling companies to test new products and models in a restricted environment, under a regulator’s oversight. That will help minimize any risk, while boosting innovation, and consumer and investor confidence," she said.
Benefits of Public-private partnerships for Azerbaijan
Rocha noted that leveraging the private sector’s capital and expertise through PPPs is vital to help free up financing from the public purse.
"The country has already taken positive steps in this direction. The adoption of a new law on PPPs in December 2022 was a key move towards restructuring the legal and organizational framework to encourage PPPs, with the Ministry of Economy playing a pivotal role in establishing a national PPP policy.
The establishment of a PPP Unit within the Ministry of Economy early in 2023 was another welcome strategic move to identify potential PPP projects and develop the necessary methodologies. That underscores the growing interest in utilizing PPPs for infrastructure development. IFC has been engaged in discussing potential projects in Azerbaijan, and we are ready to work with the government to help address some of the issues, including building PPP capacity within the broader government, to boost private investment in public infrastructure and social services," she said.
IFC’s key results in Azerbaijan
Rocha noted that IFC has invested over $850 million in Azerbaijan to date, financing nearly 60 projects in financial services, infrastructure, and manufacturing, as well as advising on improving the business environment, financial sector development, corporate governance, small and medium enterprises, and agribusiness.
"Highlights include our work (in partnership with the Swiss State Secretariat for Economic Affairs SECO) to boost diversification by making it easier for companies to invest in the non-oil economy. That has contributed to fundamental business reforms, including in registration, inspections, licensing and permitting systems. In addition, we’ve supported three laws with strategic advice. The Law on Tourism aims to help reduce time and costs for the private sector. The Law on Food Safety introduced new methods to quality control the food chain and modernize national food safety management. And the Law on Investment Activity provides investment protection guarantees to help attract more investment," she said.
IFC's regional director pointed out that given agriculture’s high potential to boost non-oil growth and support rural jobs in Azerbaijan, IFC is working with the government to introduce innovative financing instruments, such as crop (pre-season) and warehouse (post season) receipts, to strengthen the sector and connect smaller farmers to global value chains.
"Small farmers often find it difficult to access loans because they lack real estate collateral, a requirement for banks. Crop receipts can be an effective solution, allowing farmers to use future harvests as collateral to obtain working capital financing to purchase seeds and fertilizers. Warehouse receipts, meanwhile, allow farmers to access financing using their stored crops in warehouses as collateral. In partnership with SECO, we have also supported local financial institutions in launching value-chain financing products, helping selected value chains (strawberry and hazelnut crops) increase competitiveness in export markets," she said.
Rocha noted that together with SECO, IFC has also supported a series of reforms to improve the country’s financial infrastructure and boost access to finance for smaller businesses.
"These include the modern law on credit bureaus, which led to the creation of the first private credit bureau in 2018, and the secured transactions law, which allows smaller businesses, which often lack assets, to use their movable assets—inventory, accounts receivable, and equipment—as collateral. To further strengthen the financial sector, IFC launched its asset-based finance (ABF) project to enhance the legal framework governing the regulation of ABF products. Looking ahead, we believe private sector solutions are key and we are committed to helping unleash the private sector’s potential to drive a sustainable and inclusive transition and create jobs," she concluded.
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