Azerbaijan is a sound investment destination. It has significant hydrocarbon reserves. The climate is favorable for agriculture, and the labor force is inexpensive and highly educated (BAYULGEN 2010). Several risks hinder adequate investment in Azerbaijan. This includes transactional risk, owing from the delay is settling of contracts, which foreign exchange rates affect. This added to the currency risk since the currency that is the New Azerbaijani Manat’s regulation falls in the central Bank roles of controlling the monetary policy.
Languages spoken in Azerbaijan include Azerbaijani, Lezgi, and Russian (COFACE, 2003). Azerbaijani accounts for about 90% of the language spoken. This will play into the cultural background of the people, which dates back to the times of the ancient Persian and Median Empire. The risk is the language barrier and adapting to the predominantly Muslim culture. This pegged with the unrest in the Middle East poses a considerable challenge to new investors.
Azerbaijan’s political situation is favorable (BAYULGEN 2010). However, the opposition and civil rights groups face serious problems due to the repressive regime. The investment environment faces impediment from the high levels of corruption and ineffective bureaucracy. The region faces another hurdle due to unrest with the neighboring countries, the importance of this stems from the use of transportation routes to outside markets.
Lack of clear legislation concerning the oil and gas industry may pose a significant risk for investment (MO 2003; BAYULGEN 2010). There are also beneficial laws that protect investors from illegal activities by state authorities. The laws allow for the licensing of most businesses except a few such as telecommunications and chief constructions. The risk of a change in legislation is significant because of political uncertainty; a new government may impose barriers or create an improved investment environment.
In conclusion, mitigation of the risks could boost investor confidence, through proper risk management models. The investment opportunities are ripe in Azerbaijan and could yield a substantial return to expanding businesses.