The Key to Azerbaijan Startup Growth: Innovation in the energy sector

27 August, 2021


After Azerbaijan left the Soviet Union, it was the oil industry that contributed to the country’s economic development. But in the 1990s, no one could have imagined that dependence on oil would become a key contributor to future economic crises. Awareness of this issue first arose between 2005-2008. It was then that the government of the republic began to take measures for a smooth transition to non-oil sectors. It was decided to focus on tourism, high tech and agriculture. But a country that had been dependent on oil for much of its history could not simply change overnight.

The tension between Azerbaijan’s established oil industry and its aspirations for other growth paths is especially reflected in the innovation ecosystem. The country has faced an uphill battle in establishing sustainable technological growth due to the brain drain of programmers and engineers leaving for the West.

Over the course of the past 10 years, laying out brick by brick elements of the innovation ecosystem, Azerbaijan has achieved significant success. Innovation centers appeared, state programs began to support startups, grants were allocated, and foreign investments were attracted. But with all this, the ecosystem did not meet world standards. Most startups failed to go global, and those that did expand did not gain international recognition.

In early 2020, priorities were revised. It became clear that it will continue to be difficult for Azerbaijan to compete in the consumer software startup market. Therefore, it was decided to double-down on the development of innovation specifically in the oil, gas and alternative energy sector. 


As mentioned above, there’s a long history of local growth in the oil sector. The focus on Azerbaijani oil extends much further back in time than the 1990s. Since ancient times, oil was extracted on the territory of Azerbaijan, then called “Medes oil.” It was in Azerbaijan that the first oil well was drilled, and it was the Azerbaijanis who built an entire industrial island on the water, called “Oil Rocks.” It was Azerbaijani engineers who were able to find oil fields in Vietnam in the 1960s, after American engineers failed to do so. 

It’s clear that the country’s centuries of experience in the oil sector has produced excellent specialists. Their knowledge, coupled with technological advances in the industry, can drive real innovation. With this in mind, the local oil company SOCAR is actively investing in the development of innovative methods of oil and gas production. Moreover, the intercontinental company BP, announced that in Azerbaijan, it will invest not only in oil, but also seeks to support the emergence of new startups focused on renewable energy sources. Designated teams have already been created within the company, which are supervised by specialists from the Innovation Agency of Azerbaijan.

It is likely that soon we will hear about the first startups from Azerbaijan offering solutions to problems in the oil and gas sector. There’s certainly a wealth of capital being invested to this end. In 2019 alone, Azerbaijan received US$85 billion of foreign investments geared towards energy innovation.