Value Added Eco- and Agri-Tourism Infrastructure and Services
Value Added Eco- and Agri-Tourism Infrastructure and Services
Business Model Description
Set up or invest in tourism establishments, including guest houses and associated services, that offer sustainable and responsible travel experiences prioritizing conservation of natural environments while integrating local communities, cultural and agricultural assets and local expertise into the tourism value-chain.
Expected Impact
Boost income generation in rural areas while also minimizing the sector's environmental impact.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Azerbaijan: Lankaran - Astara
- Azerbaijan: Shaki - Zagatala
- Azerbaijan: Guba - Khachmaz
- Azerbaijan: Mountainous Shirvan
Sector Classification
Services
Development need
The share of the services sector in Azerbaijan's non-oil economy is significant, having contributed to 42.3% of total GDP in 2016 (9). As the country is promoting diversification away from hydrocarbons, the government is taking steps to enhance logistics, tourism, and ICT services under the tertiary economy. Indeed, tourism and transportation accounted for the majority of Azerbaijan's export of services in 2019, yet this was concentrated to business travel requiring further expansion in commercial services for balanced economic growth (9, 10, 11).
Policy priority
Azerbaijan 2030: National Priorities for Socio-Economic Development emphasizes diversification of the economy away from the oil sector to realize the country's export potential of goods and services, while the 2022-2026 Social and Economic Development Strategy underlines the goal to offer high-quality and competitive trade and logistics services and development of the tourism industry, targeting to increase tourism revenues by 20% (12, 6).
Gender inequalities and marginalization issues
The rise of the services economy is positively correlated with female participation in the workforce. In Azerbaijan, following agriculture, the services sector including trade, education and healthcare are the largest employers for women, constituting 18.2%, 11.7%, and 6.1% of total female employment, respectively (13, 14).
Investment opportunities introduction
The Azerbaijan Doing Business Guide lists hotels, recreation zones, online services, restaurant and catering, and event and conferences as potential investments opportunities in the rising services sector which can be further complemented by associated logistical support and skills training offerings for relevant personnel (15, 10).
Hospitality and Recreation
Development need
Azerbaijan ranks 63rd out of 117 countries in terms of its tourism enabling environment, tourism infrastructure, travel and tourism demand and drivers, and tourism sustainability. Before the COVID-19 pandemic, the tourist inflow in 2019 had exceeded 3 million people in Azerbaijan, dropping to 796,000 in 2020. The tourism sector needs to tap into diversified and greener tourism products while recovering from the throwbacks of COVID-19 to increase the sectoral revenues (1, 2, 3).
Policy priority
Strategic Roadmap for the Development of Specialized Tourism Industry, 2016 prioritizes strengthening sustainable tourism potential including eco-tourism with the goal to render Azerbaijan a well-known destination for ecotourism by 2025. State Program of Socio-Economic Development of Regions of the Republic of Azerbaijan 2019-2023 sets to develop different types of tourism, including rural green tourism, ethnotourism and eco-tourism (4, 5).
Gender inequalities and marginalization issues
Although women accounted for 62% of employees in tourism and entertainment sector in 2021, their overall share in managerial positions were limited as only 36.2% of employees with managerial positions were female. Tourism development also supports rural employment and infrastructure development, with sub-sectors such as ecotourism and cultural tourism spurring growth beyond the capital district (17, 4).
Investment opportunities introduction
Strategy of Socioeconomic Development of the Republic of Azerbaijan between 2022 – 2026 states that the government targets to increase tourism revenues by 20% by 2026. Azerbaijan Ecotourism Association (AETA) has been established in 2020 to promote the development of eco-culture- and eco-tourism (6, 7).
Key bottlenecks introduction
Lack of access to trained personnel, lack of availability of low-cost accommodation options, infrastructural deficiencies in rural areas such as road, water and power supply, lack of awareness around ecotourism activities are the key bottleneck of the hospitality sector (8).
Hotels and Lodging
Pipeline Opportunity
Value Added Eco- and Agri-Tourism Infrastructure and Services
Set up or invest in tourism establishments, including guest houses and associated services, that offer sustainable and responsible travel experiences prioritizing conservation of natural environments while integrating local communities, cultural and agricultural assets and local expertise into the tourism value-chain.
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
712 hotels and similar establishments in 2021
Inbound tourist expenditure in Azerbaijan accounted for AZN 1.217 billion (USD 715.9 million) for January-November 2022. Volume of investments in tourism industries reached AZN 242.4 million (USD 142.6 million) in 2021 (23, 21).
There were 712 registered hotels and similar establishments in 2021, of which an estimated 431 operate as guest houses as of 2021 (22, 23).
The average annual nominal growth of value added in tourism was 9.1% during 2015-2019 (28).
Indicative Return
10% - 15%
> 25%
An investment fund in Azerbaijan, which has provided concessional financing to a guesthouse development in Azerbaijan, estimated that ecotourism and guest house investments can achieve an internal rate of return between 10-15% and a gross profit margin up to or higher than 25%. Commercial financing may deliver lower returns, as the provided soft loan entailed more generous terms than market loans (24).
Investment Timeframe
Medium Term (5–10 years)
According to Azerbaijan's Export and Investment Promotion Agency's investment catalogue the construction of a 3-star hotel in the Talysh Mountains in Astara Province can produce a project payback period of 7 years (25).
An investment fund in Azerbaijan, which has provided concessional financing to a guesthouse development in Azerbaijan, estimated that ecotourism and guest house investments can generate a positive cash flow in less than 5 years (24).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Highly Regulated
Market - High Level of Competition
Market - Volatile
Impact Case
Sustainable Development Need
Azerbaijan has rich natural and cultural tourism offerings, including forests, rivers, waterfalls, national parks and mud volcanoes and unique traditional and culinary practices. However, significant challenges prevent development of rural tourism, including insufficient infrastructure in rural regions, varying quality of services and unclear branding (4, 8).
The majority of tourist arrivals into Azerbaijan is for business travel confined to the capital city of Baku accounting for 75% of arrivals and more than half of hotels, limiting value-addition and positive spill-over to the outer regions (4, 8).
The tourism industry contributes to 2.8 % of direct GDP and 2.6% of direct employment, which remains below the world average of 3% and 3.6% respectively, signifying the need for further expanding the sector in a sustainable and inclusive manner (4).
Gender & Marginalisation
Tourism resources in rural cities are not sufficiently developed due to transportation and infrastructure problems, preventing operators to reap the benefits of the growing sector (27).
Road sections from main roads to tourist sites remain unpaved and damaged, accommodation and service facilities remain absent along the main road to rural eco and agri-tourism establishments (27).
Although women accounted for 62% of employees in tourism and entertainment sector in 2021, their overall share in managerial positions were limited as only 36.2% of employees with managerial positions were female (17).
Expected Development Outcome
Promotion of eco and agri-tourism will lead to reduced development gap between Baku and other regions through fostering sustainable and inclusive growth in rural areas (21).
Local residents near eco- and agri-tourism establishments will benefit from enhanced employment opportunities providing both direct and indirect services including guides, transportation, local crafts, food products etc.
The diverse climate, flora and fauna of the country will be preserved through ecotourism while new opportunities including mountaineering, hiking, fishing etc. can be developed (8).
Gender & Marginalisation
Development of rural tourism through expansion of eco and agri-tourism will facilitate self-employed practices, develop utility infrastructure in rural districts and increase livelihood opportunities particularly among women (4).
Primary SDGs addressed
8.9.1 Tourism direct GDP as a proportion of total GDP and in growth rate
During 2015-2019, the proportion of tourism in total GDP was 4.5%; falling to a low of 4.3% in 2018. The average annual nominal growth of value added in tourism was 9.1% (28).
The 2022-2026 Social and Economic Development Strategy of Azerbaijan aims to increase tourism revenues by 20% by 2026 (6).
12.2.2 Domestic material consumption
12.b.1 Implementation of standard accounting tools to monitor the economic and environmental aspects of tourism sustainability
N/A
Currently there are no label or monitoring products for sustainable tourism in Azerbaijan (22).
N/A
The State Tourism Agency is planning on rolling out an ecolabel/sustainability label and commence certification of projects (22).
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Corporates
Outcome Risks
Additional infrastructure requirements and associated construction for the development of tourism offerings in remote settings may create environmental externalities.
Unless planned accordingly, eco- and agri-tourism projects may intensify the pressure on natural wildlife and habitats that were previously detached from tourism value-chains.
Impact Risks
Limited transport infrastructure and public transportation into rural districts may limit accessibility to eco- and agri-tourism establishments, curtailing expected impact (27).
Unavailability of trained personnel in sustainable tourism, absence of specialized local travel agencies may limit operationality and promotion of eco- and agri-tourism establishments (27).
If locally sourced inputs are not readily available, the expected impact of tourism establishments for local value chain integration may be limited.
Impact Classification
What
Eco- and agri-tourism establishments including guest houses will increase income generation opportunities in rural districts integrating small and local actors into the value-chain while reducing the environmental footprint of the sector.
Who
Eco- and agritourism establishments, guest house operators, local service providers and producers, and the environment will benefit from the expansion and localization of sustainable tourism.
Risk
Availability of locally sourced personnel and inputs, limited monitoring mechanisms for eco-practices, and deficient nature of transportation infrastructure may limit expected impact.
Contribution
In addition to government infrastructure investments, eco and agri-tourism can expand value-addition of tourism to local communities in Azerbaijan, where 75% of all tourist arrivals are concentrated in the capital city mainly for business pu
How Much
Expanding tourism offering through eco- and agrit-ourism can help meet government's goal of increasing tourism revenues by 20% by 2026 (6).
Impact Thesis
Boost income generation in rural areas while also minimizing the sector's environmental impact.
Enabling Environment
Policy Environment
Strategic Roadmap for the Development of Specialized Tourism Industry in the Republic of Azerbaijan, 2016: includes activities for supporting the development of the tourism sector including wellness, winder, and eco-tourism to ensure an integrated tourism development across the country (4).
Socio-Economic Development Strategy for 2022-2026 of the Republic of Azerbaijan: highlights development of tourism and recreation zones as part of its sustainable growth and competitive economy goal, with the ambition to increase tourism revenues by 20% by period-end (6).
Azerbaijan Tourism Strategy 2023-2026: includes fostering sustainable and inclusive growth in rural areas and promoting a tourism-led economic growth model balancing quality and sustainable use of resources among its key principles (21).
State Program of Socio-Economic Development of Regions of the Republic of Azerbaijan 2019-2023: aims enabling different types of tourism including rural green tourism, ethnotourism and eco-tourism, among others for the sustainable development of rural regions (5).
National Climate Policy of the Republic of Azerbaijan (2019-2022): Development of ecotourism is included among the key interventions implemented under the national climate policy's efficient use of natural resources and energy efficiency agenda (29).
Financial Environment
Financial incentives: Entrepreneurship Development Fund under the Ministry of Economy provides soft loans for up to AZN 10 million (USD 5.8 million) at a 5% interest rate for eligible innovative and sustainable projects in the non-oil industry, including the tourism sector (31).
Fiscal incentives: Under the investment Promotion Certificate, eligible entrepreneurs are exempt from VAT and customs duties on the import of equipment and facilities, from property tax and land tax from lands owned or used. For individual entrepreneurs 50% of income is tax free (32).
Other incentives: The government has founded the Azerbaijan Ecotourism Association (AETA) comprising of a group of experienced professionals to support the creation of new eco-tourism products including agri-tourism and eco-hospitality and advocate for the conservation of environmental protection (33).
Regulatory Environment
Law on Tourism No. 448-VIQ, December 2021: replacing the law on tourism of 1999, aims to ensure the sustainable and competitive development of the tourism sector, assigning the State Tourism Agency the approval of minimum requirements for tourism establishments and service providers including tour operators and sets in place an electronic registration platform (30).
Law on Nature and Protected Areas, March 2000: covers state natural reserves, natural parks, ecological parks, nature sanctuaries, forests, health treatment and resort establishments, setting the operational management and budgetary rules (27).
Law on Protection of Historical and Cultural Monuments, 1998 revised 2010: classifies historical and cultural heritage, sets the rules for the ownership, regulation and protection of monuments and heritage, and related intellectual property rights (27).
Marketplace Participants
Private Sector
Lakeside Garden, Citrus Valley, Biogarden, Four Seasons, Fairmont, Hilton, Autograph Collection, Sheraton Hotels, Hope Lake Guesthouse, Ilgar's Hostel.
Government
State Tourism Agency, Ministry of Ecology and Natural Resources, Ministry of Culture, Ministry of Economy, Azerbaijan Export & Investment Promotion Foundation.
Multilaterals
World Bank, European Union (EU), United Nations Development Programme (UNDP), Asian Development Bank (ADB).
Non-Profit
USAID, German Development Cooperation (GIZ), Japan International Cooperation Agency (JICA), International Ecotourism Society, World Wide Fund for Nature, REM Caucasus Regional Eco Center, Azerbaijan Nature Protection Society, Azerbaijan Tourism Association, Azerbaijan Eco-Tourism Association, Azerbaijan Tourism and Management University, Baku Tourism Vocational School.
Target Locations
Azerbaijan: Lankaran - Astara
Azerbaijan: Shaki - Zagatala
Azerbaijan: Guba - Khachmaz
Azerbaijan: Mountainous Shirvan
References
- (1) World Bank. 2020. International tourism, number of arrivals Azerbaijan. https://data.worldbank.org/indicator/ST.INT.ARVL?locations=AZ.
- (2) UNDP. 2020. Greening Prosperity: A Pathway Toward Green Jobs, Green Livelihoods and Green Recovery in Azerbaijan. Available Upon Request.
- (3) Report News Agency. June, 2022. Azerbaijan advances eight positions in Travel and Tourism Development Index. https://report.az/en/tourism/azerbaijan-advances-eight-positions-in-travel-and-tourism-development-index/.
- (4) Presidency of the Republic of Azerbaijan. 2016. Strategic Roadmap for the Development of Specialized Tourism Industry in the Republic of Azerbaijan. https://monitoring.az/assets/upload/files/d53a6f3606f2ec987a4084ee6664380e.pdf.
- (5) Republic of Azerbaijan Ministry of Economy. 2019. The State Programme on Socio-Economic Development of the Regions for the period from 2019 to 2023. https://economy.gov.az/storage/files/files/1029/ckaZ7sv78T43pEDXtvRGR3rexllt6N5g86xeTPyJ.pdf.
- (6) Republic of Azerbaijan. 2022. Socio-Economic Development Strategy for 2022-2026 of the Republic of Azerbaijan. Available upon request.
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- (9) European Training Foundation. 2019. Azerbaijan Education, Training and Employment Developments 2018. https://www.etf.europa.eu/sites/default/files/2019-03/Azerbaijan%202018.pdf.
- (10) United States of America International Trade Administration. July, 2022. Azerbaijan Country Commercial Guide. https://www.trade.gov/country-commercial-guides/azerbaijan-transportation-and-logistics.
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- (17) Economic Policy Research Center. 2022. Gender Equality in Work Domain: The Case of Azerbaijan and Georgia. https://eprc.ge/en/news/gender-equality-in-work-domain-the-case-of-azerbaijan-and-georgia/.
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- (22) UNDP Stakeholder Consultation with the State Tourism Agency, March 2023.
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- (27) Japan International Cooperation Agency. February, 2017. Data Collection Survey on Tourism Development in Azerbaijan. https://openjicareport.jica.go.jp/pdf/12286167.pdf.
- (28) Republic of Azerbaijan. 2021. Third Voluntary National Review Azerbaijan. https://sustainabledevelopment.un.org/content/documents/279452021_VNR_Report_Azerbaijan.pdf.
- (29) Republic of Azerbaijan Ministry of Ecology and Natural Resources. Interventions to be Implemented under the National Climate Policy of Azerbaijan between 2019 and 2022. http://eco.gov.az/frq-content/plugins/pages_v1/entry/20190823174624_94868000.pdf.
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- (31) Entrepreneurship Development Fund of the Ministry of Economy. March 2023. Presentation on the Entrepreneurship Development Fund. Available Upon Request.
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