The Global Startup Ecosystem Report 2024

Unraveling Azerbaijan: From Oil Empire to Eurasian Tech Hub

Central Eurasia is an underestimated digital innovation hot spot, and Azerbaijan is a hidden gem of tech entrepreneurship in the region.

Azerbaijan was once known as a key player in the oil market, supplying over half the world’s oil in the early 1900s and continuing to play a crucial role in this industry even now. Today, the government has new priorities. The National Priorities for Socio-Economic Development initiative has set a target of increasing the non-oil contribution to GDP by 130% by 2026 through digitalization and a turn towards a Green Economy.

This push for diversification is creating demand for technological solutions and providing opportunities for IT startups in the country, fostering growth, and driving positive change. Azerbaijan is taking major steps to provide the best conditions for local startups to maximize their potential.

International Openness and Stability

Once situated along the Great Silk Road, Azerbaijan has had many people pass through its lands, helping to shape the nation’s long tradition of acceptance and hospitality. This history is also the source of the strong political and economic ties that the country actively maintains. Today, Azerbaijan acts as a link between Europe and Asia, with access to the markets of the Caucasus, the Middle East, and Central Asia. It is also set to play a crucial role in China’s Belt and Road initiative.

As a testimony to its international outlook, Azerbaijan was chosen as the location for the Global Astronautical Congress in 2023, hosting 5,000+ people, and expects 80,000 international attendees at the November 2024 UN Climate Change Conference COP29. The country has welcomed visitors and delegations from around the world while hosting several key industry events, including the InMerge Innovation SummitBaku ID (Baku Investment Day), and M360 Eurasia. Azerbaijan sees political and financial stability as the foundation for business development and the basis for innovation. The country is known for its business friendly policies, allowing founders to easily obtain credit and start a company.

Enabling Tomorrow by Building It Today

ICT is the fastest-evolving sector of the economy in Azerbaijan, with 18% annual growth of IT service income. Establishing a foundation for tech companies to build on is one of the main priorities of the government.

With the support of the Innovation and Digital Development Agency, Azerbaijan has launched the Mygov portal to streamline government-to-citizen communications. Over 450 e-services from various state authorities are already available.

“The progressive development of the local business and innovation ecosystem is key to the rapid growth of the tech field, and we acknowledge that digitalization of all processes is a step towards the future,” says Inara Valiyeva, Chairman of the Innovation and Digital Development Agency. “Azerbaijan has utilized the best international experience to develop government platforms that allow ecosystem players to create innovative solutions.”

As the development of digital products continues, AItechnologies are being incorporated to streamline processes and increase accessibility and user friendliness. Azerbaijan is also working to introduce a more efficient, paperless government that is built on the principle of openness and allows users to leverage existing IT investments. The aim is to help businesses simplify their workflows and cut through red tape.

However, this level of digitalization creates an increased risk of cyber attacks. To address this challenge, the Azerbaijan Cybersecurity Center was established to conduct research and develop new cutting-edge cyber security products.

A Tax Haven With No Work Permit Hassles

The Technopark residence law introduced in 2022 offers benefits for local and international IT companies opening in Azerbaijan, including tax waivers for ten years. This includes a 0-5% income tax rate, zero tax on profits, and zero social tax for expat IT specialists. Foreigners such as directors, deputy directors, and IT specialists are exempt from the work permit requirement and automatically receive a residence permit.

Over 80 residents have already benefited from this law and 15 international companies from Türkiye, Israel, Cyprus, Pakistan, and the UAE have committed to becoming Technopark residents.

Supporting the Rapid Growth of the Startup Ecosystem

Azerbaijan’s tech potential has already been recognized by well known international brands such as Microsoft, Samsung, and Xiaomi, who have expanded their businesses in the country. More than 100 startups with a minimum viable product are already operating in the market, with a goal to boost the number to 500 by the end of 2026 with at least one company valued at more than $50 million. Growth in the startup ecosystem is already showing tremendous potential, with Baku’s ecosystem value increasing over 40% between GSER 2022 and GSER 2024, according to Startup Genome research.

There is dedicated startup support in Azerbaijan, including acceleration and incubation programs organized locally to train talent and produce more companies. Over 190 teams were involved in incubation programs in 2023. Currently, there are four active accelerators and the same number of incubators helping local entrepreneurs. Overall, 10 programs have been organized by international and local players, including Startup Wise GuysViveka, and SABAH.Hub.

Improving the investment environment is a challenge that Azerbaijan proactively faces. The Azerbaijani VC fund Caucasus Ventures made 15 investments in 2023. The country also supported the creation and operation of two angel investor clubs.

Technovate-Sabah Angels ClubDIVIDA Angel Club, and LTC Angels Network organize regular matchmaking sessions between startups and investors, as well as training sessions led by international experts. Azerbaijan aims to expand the investment pool by bringing more than 100 investments into the country in the next two years.

The Central Bank has accepted a new regulation establishing a regulatory sandbox to encourage the formation of new startups, especially in the Blockchain space. Overall, the Azerbaijani market remains largely untapped for both local and international startups, meaning companies and investors will find many opportunities and relatively little competition.

“The progressive development of the local business and innovation ecosystem is key to the rapid growth of the tech field, and we acknowledge that digitalization of all processes is a step towards the future.”

Inara Valiyeva undefined
Chairman of the Innovation and Digital Development Agency

Developing Human Capital and Building a Strong IT Community

“In IT, people are key and a strong community is the best way to empower the tech industry,” says Dominique Piotet, Director of Technoparks at IDDA. “Azerbaijan has a lot of talented IT professionals and all they need to unravel their potential in a place where they can easily communicate with each other, exchanging ideas and sharing their experience. This is exactly what we are going for.”

Azerbaijan has always been known for its united, tight-knit society. This is reflected in the way the IT community has developed. High-quality and accessible tech education has helped the community grow and strengthen. Technest, established by IDDA in 2021, is one of most prominent scholarship programs for IT specialists. As part of this program, selected candidates get 70-100% of their tuition covered, and 4,000 scholarships have already been granted across 29 regions in Azerbaijan. The number of applications has exceeded 20,000. Technest graduates show an impressive 90% employment rate, meaning the number of qualified IT professionals in Azerbaijan is continually growing.

Six universities in Azerbaijan are running innovation programs. With the help of the Azerbaijan Cybersecurity Center, the country has also welcomed renowned international academic programs including Holberton School - pioneers in IT peer-to-peer education - and Israel’s most prestigious technological university, Technion, which have established academic programs in Azerbaijan. Technion has graduated 60 alumni in Azerbaijan, 78% of whom were employed in state bodies and leading companies, and seeks to train more.

Community members have also organized 86 events to exchange knowledge and experience and support one another. To reinforce these efforts, Technopark in Baku is set to open its doors to aspiring entrepreneurs in mid2024. Both big companies and tech startups will reside at Technopark, allowing for the exchange of experience and mutual benefit. It will host trainings, workshops, and meetings to fuel the creativity of the IT community.

Introducing A Diverse and Welcoming Environment

Azerbaijan is a young country where a diverse population has been living in peace for centuries. Most of Azerbaijan’s 10 million citizens are multilingual from birth. These cultural and linguistic assets make the country a great launchpad for Türkiye, former Soviet republics, and MENA.

The country offers businesses competitive operating costs and affordable office space, utilities, and living expenses in comparison to other countries in the region. Overall, Azerbaijan is a country with big business potential, both nationally and regionally, and a high quality of life. It is an ideal home from which young professionals and ambitious startups can begin their journeys in IT.