Peace In The South Caucasus Could Redraw The Region’s Investment Map – OpEd

Peace could transform a forgotten frontier into a strategic crossroads, but investors will need to look beyond sovereign ratings to find real value.

The peace framework between Azerbaijan and Armenia brokered by President Trump in August could open an economic window in the South Caucasus that has been closed for decades. If a durable agreement does emerge, it will accelerate a transition from an era defined by war and blockades to one shaped by connectivity and growth. A region long dismissed as a remote outpost of Russian influence would become a strategic crossroads where roads, rails, pipelines and financial flows knit together Europe, Central Asia and the Middle East. The South Caucasus would stop being treated as a geopolitical fault line and start being viewed as a vector of economic integration – with benefits extending well beyond its borders.

For investors and policy makers to make the most of this opportunity, it is not enough to grasp the history and politics. They also need a framework to assess the underlying financial systems of the three key economies – Armenia, Azerbaijan and Georgia – and to identify where the investable opportunities lie. I recently led the inaugural South Caucasus Banking & Investment Review 2025, a comparative study that attempts to answer two simple questions: if the region is to undergo a renaissance, which country is best placed to lead in financial services, and where should international investors focus?

Our study built a 17 pillar composite index to evaluate the health and trajectory of each country's banking and investment landscapes. The pillars range from the depth of capital markets and quality of regulation, to ease of doing business, fintech penetration, human capital density and diaspora remittances. Scores are weighted so investors can compare not just headline performance but also the institutional and policy foundations that underpin growth and risk appetite.

On the surface, the headline result is unsurprising: Georgia still leads the region with a composite score of 87.8 out of 100. But two nuances stand out. First, Armenia is rising fast. It scores 82.4, just five points behind Georgia, reflecting improvements in the business environment, a well educated, tech-savvy workforce, strong diaspora investment and growing fintech agility. If relations with Azerbaijan normalise, Armenia is well placed to play a pivotal role in the new regional connectivity, and its financial sector could soon be snapping at Georgia's heels.

Second, Azerbaijan also has strengths but of a different order. Its composite score of 69.2 trails its neighbours, yet the country outperforms them on sovereign buffers, external balances and fiscal liquidity. To its benefit, Azerbaijan is beginning to diversify away from hydrocarbons into infrastructure, technology and finance. But it lags on transparency and innovation, with slow Basel III implementation and a politicised regulatory landscape.

The upshot for investors is there is no single, homogeneous "South Caucasus market". Georgia is the clear regional leader in most categories, but Armenia's trajectory is converging, and Azerbaijan offers balance sheet strength and diversification potential. A peace dividend would amplify all three stories by knitting them more tightly into global trade and capital flows.

One of the more provocative findings of our work relates to sovereign credit ratings. Earlier this year, Fitch and Moody's both upgraded Azerbaijan to investment grade (BBB ), the first such rating for any South Caucasus sovereign. On solvency and liquidity alone, the move makes sense. But under our broader 17 pillar framework, Azerbaijan still trails Georgia and Armenia because it scores lower on governance, diversification and innovation – factors that matter greatly for resilience in the long term.

This discrepancy underscores an important point: investors should treat frontier and emerging market ratings as necessary but insufficient by themselves. Rating agencies excel at assessing whether a country can meet its financial obligations, but they are less able to capture the quality of institutions, the credibility of reforms or the adaptability of growth models to political shocks. In a region undergoing rapid change, a wider matrix can offer a more accurate map of risk and opportunity. Put simply, do not judge a country by its credit rating alone.

If the peace process does hold, the South Caucasus could cease to be a geopolitical cul de sac and become a vital corridor for goods, capital and ideas. Georgia would leverage its first mover advantage in banking reform to deepen its role as the region's financial hub. Armenia would parlay its educated workforce, vibrant diaspora and fintech agility into a technology enabled services centre. Azerbaijan would continue to diversify its oil backed war chest into infrastructure, technology and capital markets development.

For global investors, the message seems clear: treat the South Caucasus not as a single troubled neighbourhood, but as three distinct financial futures that are competing, converging and increasingly investable. Connectivity projects linking the Black Sea to the Caspian, reforms that boost regulatory clarity and digital adoption, and a peace dividend that reduces geopolitical risk could redraw the region's investment map. Those who look beyond the headlines and delve into the underlying financial ecosystems will be better placed to ride the next wave of growth at the crossroads of Europe and Asia.

• Ivan Tchakarov is a former chief economist for the Caucasus and CIS regions at Citi, Bank of America, Renaissance Capital and Nomura. This article is based on findings from the inaugural South Caucasus Banking & Investment Review 2025, which he authored for GlobalSource Partners.