Azerbaijan, Islamic Development Bank forge sustainable partnership Azerbaijan's green future

Macroeconomic stability, attractive investment regime, as well as the strong position of a regional energy and transportation hub contribute to the successful implementation of projects of international donors in Azerbaijan. Among them, Azerbaijan has been successfully cooperating with the Islamic Development Bank (IsDB) for about 32 years, providing more than $1.3 billion for various projects. In January this year, the government of Azerbaijan and IsDB signed a Memorandum of Understanding for the Preparation of the Country Cooperation Framework for Azerbaijan, including lending in the sphere of "green" energy, transport, ICT, participation in the Karabakh revival projects, etc. On the sidelines of the IsDB's “golden jubilee” in Riyadh, Azerbaijan’s Minister of Economy Mikayil Jabbarov congratulated the bank on its 50th anniversary and took part in the round table "Towards COP29".

Founded in December 1973, the Islamic Development Bank is considered the main international financial structure providing concessional lending to the vast Islamic region, including loans and technical assistance for capital-intensive, energy, infrastructure, industrial and agricultural projects, as well as fully supporting mechanisms of Islamic finance, the development of "halal" food industry, etc. The IsDB is headquartered in Jeddah, with Saudi Arabia being the largest shareholder among the 57 member countries of the IsDB.

From April 27 to 30, 2024, the Saudi Arabian capital is hosting annual meetings and a special event to commemorate the 50th anniversary of the launch of the Islamic Development Bank Group. Addressing the forum, the UN Secretary General, the leadership of the International Monetary Fund and the European Bank for Reconstruction and Development praised the activities of the IsDB, which has made an important contribution to the development of member countries and Muslim communities around the world through long-term affordable financing and grant programs, which is especially important in the recent crisis.

As a reminder, the annual meetings of the IsDB South-South Cooperation attract international and regional attention and include a series of side events involving high-level government officials, international economic and financial organizations, private sector representatives, academia, and civil society. The current forum and anniversary events brought together ministers of economy, planning and finance from 57 IsDB member countries, including the Azerbaijani delegation led by Economy Minister Mikayil Jabbarov.

"The high level of partnership between the Islamic Bank and Azerbaijan developing in the format of long-term and multilateral cooperation was hailed at the meeting. We convey our sincere congratulations to the staff of the IsDB, wish success in future activities, and are confident that our joint initiatives will continue to flourish and enrich," Minister Jabbarov wrote on his official X account.

Note that since Azerbaijan gained full membership in 1992, the IsDB has approved over 70 projects on development of transport, energy, agrarian and social infrastructure, covering also the financial sector, social sphere, water supply, ecology. In turn, access to concessional financing for trade structures and other small businesses, including SMEs affected by the COVID-19 pandemic, has been improved.

In particular, IsDB financial support has created 1,060 MW of power generation capacity in Azerbaijan and 230 MW in the green energy sector, while 287 km of transmission and distribution lines have been laid and 400 transformer stations have been installed or modernized, improving energy security and increasing electricity exports. Loans to the water and sanitation sector enabled the construction from scratch or rehabilitation of more than 100 small regional water networks in rural communities with a population of 75,000 people. In the agriculture sector, Islamic Bank loans have facilitated irrigation projects on 85,000 hectares of land, as well as the purchase of modern agricultural equipment for farmers. Overall, over the thirty-plus years, the bulk of financing - $956 million - has come directly from the Islamic Bank. The rest of the country portfolio (including insurance products), estimated at a total of $391, was provided by the Islamic Corporation for the Development of the Private Sector (ICD), the International Islamic Trade Finance Corporation (ITFC), and other IsDB funds and units.

Alas, during the global energy crisis of 2014-2018, as well as during the coronavirus pandemic in 2020-2021, the IsDB's activity in Azerbaijan somewhat decreased: nevertheless, three infrastructure projects were being implemented, mainly to rehabilitate water supply and sewerage systems in the country's regions. However, since the beginning of last year, there has been a marked increase in the activity of IsDB group entities, seeking to discuss key priorities and ensure the Bank's participation in these endeavors during numerous delegation visits to Azerbaijan and meetings at government and departmental levels.

The results of this work were summarized at the end of this January: Azerbaijan’s Ministry of Economy and the IsDB management signed a Memorandum of Understanding for the Preparation of the Country Cooperation Framework. In particular, the draft country strategy outlines the basic vectors: it is financing of environmentally friendly, sustainable infrastructure, including support for Karabakh reconstruction, development of renewable energy sources (RES), sustainable extraction of hydrocarbon resources. The Islamic Bank will support the growth of competitiveness and diversification of the non-oil sector of the economy, including exports and innovations in agriculture, as well as the “halal” ecosystem. Digital transformation, Islamic finance, etc. are also prioritized. In particular, in the fall of last year, the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) unit of the IsDB group studied the prospects of financing the project of the green energy corridor, which envisages the laying of a power cable under the Black Sea that will connect Azerbaijan, Georgia, Romania, Hungary, and Bulgaria.

It is noteworthy that in recent years the IsDB has been promoting a new vector - Islamic finance with a focus on environmental responsibility, and the bank believes that Islamic credit instruments are ideally suited to support such endeavors: in particular, on the margins of the annual meeting of the IsDB group in Riyadh, a roundtable "Towards COP29" was held and attended by the head of Azerbaijan's economic department. "During the roundtable we discussed priority areas of initiatives to combat climate change, including measures implemented in the sphere of green growth and realization of sustainable energy potential of Azerbaijan, promotion of joint actions aimed at implementation of global climate commitments, creation of mechanisms for centralized financing of projects in the field of RES," Economy Minister Mikayil Jabbarov posted on his X account.