Investment policy relates to a country’s laws, regulations and practices that directly enable or

discourage investment and that enhance the public benefit from investment. The quality of a
country’s investment policies directly influences the decisions of investors, be they small or large,
domestic or foreign. Transparency, property protection and non-discrimination are core
investment policy principles that efforts to create a quality investment environment for all.

Investors are also concerned with the way that investment policy is formulated and changed.
They will avoid circumstances where policies are modified at short notice, where governments do
not consult with industry on proposed changes and where laws, regulations and procedures are
not clear, readily available and predictable.

The Investment Policy identifies through eight questions the most important issues relevant for
judging the effectiveness of a country’s investment policies and practices. The issues are often
directly relevant to the specific needs of foreign investors, but they apply in most instances to
domestic investors as well. The eight PFI questions on Investment Policy relate to:

 Laws and regulations. Firms need to know what the rules of the game are and require some
assurance that those rules will not change once they have invested.
 Effective ownership registration.Investors need to be confident that their ownership of, or
right to use, property is legally recognised and protected.An essential part of any system
designed to protect property rights is the creation and maintenance of a registry of property
ownership

 Intellectual property rights.Intellectual property (IP) rights give businesses an incentive to

invest in research and development, the creation of innovative products and processes. They
also give their holders the confidence to share new technologies .  In this way, successful
innovations are in time diffused within  bringing higher productivity and growth.

 International co-operation and periodic review.International investment agreements promote

cross-border investment. They can reduce restrictions on sectors closed to international
investment, offer investors minimum levels of protection based on international legal standards  
and make the rights and obligations of the parties more stable and predictable.
 Contract enforcement and dispute resolution.Good enforcement procedures enhance
predictability in commercial relationships and reduce uncertainty by assuring investors that their
contractual rights will be upheld promptly by local courts

 Non-discriminatory treatment for national and international investors. Government treat

enterprises controlled by national no less favourably than domestic enterprises

 International arbitration instruments. It provide a mechanism for resolving disputes between

a host country government and an investor,typically relating to commitments made in
international investment agreeements.

 Expropriation laws and review processes.Government have right to take private property for
public purposes in certain circumstances.To develop infrastructure,such as roads and etc.When
government expropriates property,compensation should be timely,adequate and effective.

The Law of the Republic of Azerbaijan “On Investment Activity” dated January 13, 1995 states
that investments consist of financial resources invested in the objects of entrepreneurship and
other activities for the purpose of obtaining income (profit) or social benefits, as well as material
and intellectual resources.

Investment activity is a set of all actions of investors related to the investment and its
implementation. There are the following types of investment activities: 1) private investment
activities; 2) public investment activity; 3) foreign investment activity; 4) joint investment activities;
5) innovation activity.

Citizens of the Republic of Azerbaijan, non-governmental departments, enterprises, organizations

and institutions with private investment activities; government agencies with public investment
activities; foreign citizens with foreign investment activity, legal entities, states, international
financial organizations, as well as stateless persons; Citizens and legal entities of the Republic of
Azerbaijan and foreign countries may engage in joint investment activities.

Innovation activities include: 1) implementation of long-term scientific and technical programs; 2)

development, release, and application of new, economical types of equipment and technology.
Investments are divided into two parts: 1) investments in production; 2) financial investments.
Investments in production mean investments in tangible and intangible assets of enterprises. With
their help, equipment is upgraded, production is expanded, staff is trained and human capital is
developed. The purpose of financial investments is to capitalize income, using "financial
instruments" such as stocks, bonds, bank deposits, certificates, etc.

In international statistics, direct and indirect investments are widely used in the total volume of
investments made by one country or its enterprises in another country. Direct investment means
that the country or enterprise that invests the capital is directly involved in or manages it. Indirect
investment means investing in foreign investments, securities and shares of enterprises to earn
income.

The economic role of the state in the investment process is determined by various indicators.
One of them is the volume of investments in the public sector of the economy, and the other is the
volume of public investments financed from the state budget.

Investment risk means that an investor incurs certain losses as a result of an accidental change in
economic conditions. In fact, the risk can result in the loss of capital invested by the investor.
Therefore, risk assessment is very important for all investors, especially those who invest abroad.
Because the foreign investor falls into an unfamiliar environment. Therefore, he should be aware
of the pros and cons of this new environment.

Investment institutions define and limit the behavior of investors in the investment sphere, and
therefore often call them "rules of the game." However, because these rules are set from the
outside, investors can never change them. There are many investment institutions. The main of
them is the contract. Contract, rights and responsibilities of participants.