As Azerbaijan accelerates efforts to diversify its economy and reduce its dependence on hydrocarbons, a new World Bank report offers timely insights that closely align with the country’s strategic direction. The report, ‘Waves of Change: Igniting Productivity Growth in Europe and Central Asia,’ argues that the region’s economic slowdown since the 2008 financial crisis stems largely from stagnating productivity, a point that resonates strongly with Azerbaijan’s current development trajectory.
The World Bank notes that although many countries in Europe and Central Asia have continued to invest capital and expand their labor force, overall efficiency has declined. Productivity growth in the region has halved since the financial crisis, limiting the impact of investment flows. According to the report, even a 10 percent improvement in productivity could generate nearly 2 million new jobs, underscoring the direct connection between productivity, employment, and living standards. Had the region maintained its pre-crisis pace of productivity growth, its GDP today could be 62 percent higher. These findings highlight why improving efficiency, rather than expanding resources, is now central to sustainable economic development.
For Azerbaijan, the message is particularly relevant. The country has, in recent years, deepened its cooperation with the World Bank across a broad spectrum of sectors, including digital governance, education, agriculture, water management, transport, and green energy. These projects support Azerbaijan’s key long-term priorities, such as strengthening the non-oil sector, boosting human capital, expanding renewable energy, and promoting balanced regional development. In essence, the World Bank’s reform recommendations mirror the strategy that Baku has already set in motion.
At the core of the report is the TIDES model, which outlines targeted reforms in trade, investment, digitalization, efficiency, and skills. Although developed for a wide regional context, the model fits Azerbaijan’s circumstances almost exactly. In trade, Azerbaijan still has substantial untapped potential in non-oil exports, which could be unlocked through streamlined customs procedures, improved logistics, and alignment with international standards. In investment, the country has made progress in attracting foreign capital, yet further liberalization and predictable regulatory conditions would help channel investment into high-value sectors and deepen technological transfer.
Digital transformation, one of Azerbaijan’s strongest recent achievements, remains another pillar of the TIDES framework. Initiatives such as ASAN Service, myGov, and DOST have already demonstrated how digital governance can reduce costs and increase transparency. However, the next stage will require strengthening cybersecurity, expanding digital infrastructure across regions, and supporting the growth of the local startup ecosystem. These steps would not only modernize public administration but also enhance the competitiveness of the private sector.
Efficiency remains a critical area where Azerbaijan can significantly benefit. State-owned enterprises, energy systems, and agricultural production still face structural inefficiencies that limit output. Modern corporate governance standards, improved energy efficiency programs, and innovation incentives for SMEs could substantially increase productivity and reduce fiscal burdens. This is especially important in sectors where Azerbaijan aims to achieve export diversification.
Finally, the report emphasizes the importance of human capital, an area where Azerbaijan has already launched several reforms, particularly in education, vocational training, and youth employment. Strengthening the link between universities and industry, expanding technical and digital training and improving access to employment for women and young people will be crucial for building a workforce equipped for a modern economy.
The report also highlights an issue of particular importance for Azerbaijan, the prevalence of ‘missing trade’ in the region. According to World Bank data, informal or unrecorded trade flows remain high across Europe and Central Asia, with some countries showing gaps that exceed half of their official trade volumes. Azerbaijan is included among the higher-risk group with an estimated rate of 58 percent. This places the country alongside several Central Asian economies, including Uzbekistan at 59 percent, Kyrgyzstan at 63 percent, and Tajikistan at 64 percent. The World Bank links these figures to a combination of strict trade regulations, informal customs practices, incomplete statistical reporting, and a notable share of intra-regional unregistered trade.
In Azerbaijan, enhanced customs digitalization, simplified procedures, and greater transparency in trade flows could help reduce these discrepancies and improve the accuracy of non-oil trade data.
Overall, the TIDES model offers a coherent framework that aligns closely with Azerbaijan’s own goals. The country already possesses several strategic advantages, including a strong digital governance base, substantial energy revenues that can be redirected into reforms, a favorable geographic position, and a non-oil sector with significant growth potential. Implementing productivity-centered reforms in line with the World Bank’s recommendations could therefore enable Azerbaijan to accelerate its transition to a more diversified, knowledge-based and resilient economy.
