Since its victory in the Second Karabakh War with Armenia in 2020, the Azerbaijani government has begun a massive reconstruction of the former war-torn region.

Azerbaijan has demonstrated a firm commitment to reconstructing Nagorno-Karabakh, which was largely neglected and left unattended for three decades.

According to the Azerbaijani state media, between 2020 and 2023, the authorities have allocated AZN12 billion  to Karabakh's reconstruction/rebuilding process and an additional AZN4 billion AZN in 2024. Overall, the state programme dubbed “Great Return” envisions the allocation of AZN30.5 billion from the state budget between 2022 and 2026.

Considering the fact that the reconstruction is a lengthy and costly process, at the first stage, Azerbaijan prioritized the reconstruction of larger urban areas such as Aghdam, Lachin, Shusha, Fuzuli, and Zangilan in order to initiate the steady return of former Azerbaijani IDPs, making those areas economically attractive for potential local and foreign investors.

In 2021, the first Azerbaijani families were able to return to Zangilan (Aghali village) district with a total number of 649 citizens in Fuzuli 2,689 residents settled as of April 2024,  while on May 9, 2024, the first Azerbaijani families, around 88 people, returned to the city of Shusha.

The government plans to return around 25,000 Azerbaijanis to 27 settlements in the Karabakh region by the end of 2024 and increase this number up to 35,000 residents by 2027, according to Samir Nuriyev, the head of the Presidential Administration of Azerbaijan.  

The issue of the ethnic Armenian community that left the region following Azerbaijan’s invasion last September, however, remains complex.

After its military victory in 2020, Azerbaijan had unveiled plans for the gradual reintegration of the ethnic Armenians into Azerbaijani society by ensuring their rights and providing better socio-economic conditions for them, though this stirred little enthusiasm within the Armenian community.

The absence of the ethnic Armenian community from the reconstruction process and the future fate of some Armenian monuments remain controversial issues, even though the Azerbaijani government has vowed to preserve the Armenian cultural heritage.

During the military operation in September, Baku openly stated that it did not want ethnic Armenians to exodus, vowing to provide genuinely secure and better living conditions for them. Nevertheless, Baku's assurances were insufficient to prevent the Armenian exodus.

Investment focus

Now Azerbaijan is much more focused on making Nagorno-Karabakh an attractive region for foreign companies and investment.

The Azerbaijan government attempts to attract foreign companies by offering special conditions for operating in Karabakh, such as lower tax rates, as well as support from the government in terms of additional subsidies, particularly in the agricultural field.

As of May 20, a government official stated that 503 foreign companies officially requested to be involved in the Karabakh reconstruction. 

Turkish companies maintain the leading role in the sense of state contracts to foreign companies. For example, in December 2023, the Ministry of Economy of Azerbaijan revealed that the value of contracts concluded by Turkish companies on Azerbaijan's Karabakh reconstruction exceeded $3.4 billion.

In May 2024, Azerbaijani Prime Minister Ali Asadov, during a speech at the Azerbaijan-Turkey Business Forum, emphasized that more than 4,000 Turkish companies are operating in Azerbaijan, with 20 of them implementing about 50 projects in the Nagorno Karabakh region with a total value of $4bn.

Azerbaijan is keen to involve more foreign companies in the process. In this vein, on May 10, Chairman of the Azerbaijani Parliament Sahiba Gafarova met with the Ambassador of Switzerland to Azerbaijan to discuss Swiss companies' potential involvement in the reconstruction process.

In addition, in 2024, Hungary announced that the government would finalize a new strategy that envisioned Hungarian companies' participation in the reconstruction process in Karabakh.

Undoubtedly, British companies' involvement in the reconstruction of Karabakh is particularly important for Azerbaijan, given the strategic partnership between the two countries. However, the United Kingdom (UK) government encourages local companies to get involved rather in the reconstruction of territories surrounding the Nagorno-Karabakh region, namely traditionally Azerbaijani-populated territories to avoid controversies.

The most well-known British company involved in reconstructing erased towns in the Nagorno-Karabakh region is Chapman Taylor. In 2021, the company signed a contract worth $2.29 million with the Azerbaijani government to prepare a master plan for Shusha city.

Smart region

Baku wants to turn Karabakh into a smart region with modern technology, making it more attractive for foreign companies. 

The “smart village” concept was first implemented in Zangilan's Aghali village in 2022 as a pilot project. Since residents returned to Aghali successfully, the AZE government has revealed plans to build additional smart villages in the Gubadli district, Aghdam City. 

For example, the Slovakian government will build a new smart village in Aghdam according to the recent agreement. If successful, AZE will likely build one smart village in all regained territories to boost its image as an eco-friendly country ahead of the COP29 climate conference this autumn.

The post-war reconstruction of the former war-torn Karabakh region, particularly the de-mining process, will take approximately more than 10 years and more significant allocations and investments.

The massive reconstruction of the region will eventually form a unique showcase of a country rebuilding an entire region from scratch.