Investigating the factors affecting the attraction of private investment in water resources development projects in East Azerbaijan province

Background and Objectives: Considering the importance of investment as a fundamental factor for economic growth and development, attracting private investment, especially in the water resources’ sector, has become an unavoidable necessity. In East Azerbaijan Province, this necessity is increasingly felt due to the growing limitations of water resources and the rising water demand. Recent political and economic challenges, particularly in the past years, have hindered the government's ability to adequately fund necessary budgets for infrastructure and ongoing projects. Consequently, the absence of private investors in water resource development projects has become strikingly evident. Water resource development must be considered vital in societies' economic and social planning. Therefore, this research aims to examine the factors influencing the attraction of private investment in water resource development projects within the operational scope of the East Azerbaijan Regional Water Company. This study aims to identify and prioritize these factors using analytical methods and global and local experiences, to propose effective strategies for improving the conditions for attracting private investment and enhancing water resource management in this province. This research can contribute to clarifying existing challenges and providing effective solutions for sustainable water resources development and improving water infrastructure in the region, significantly reducing pressures and issues arising from water resource scarcity.
Methodology: In this research, we utilized the Analytical Hierarchy Process (AHP) to systematically analyze and prioritize the factors influencing the attraction of private investment in water resource development projects. The AHP framework allowed us to decompose the complex problem into a structured hierarchy of criteria and sub-criteria, facilitating a comprehensive evaluation of each factor’s significance. Our study identified four main categories of influencing factors: macroeconomic variables, water economic issues, infrastructural and structural problems, and government support and regulations. To address macroeconomic variables, we considered factors such as interest, inflation, exchange rates, government spending, and economic growth. Additionally, we examined water economic issues, which include low water productivity, the absence of competitive water pricing, the impacts of climate change, and traditional water consumption patterns. Furthermore, we explored infrastructural and structural problems, focusing on political and macroeconomic risks, inefficiencies within the administrative and executive systems, high returns in competitive markets, and information dissemination and advertising deficiencies. Lastly, we assessed government support and regulations, highlighting the instability of policies, the complexity of obtaining legal permits, and the lack of banking credits. To gather the necessary data for our analysis, we conducted in-depth interviews with 15 economists, whose insights provided valuable qualitative information regarding the identified factors.
Findings: This study examined the factors influencing private sector investment in water resource development projects in East Azerbaijan Province. The results identified four main factors: first, infrastructure and structural issues, which were recognized as the most significant barriers to attracting private investment, stemming from weak water infrastructure and inefficient resource management; second, high returns in competing markets, where potential investors focus on comparing returns on investment in other economic sectors, leading to less interest in water projects when competing markets offer higher profitability; third, the complexity of obtaining legal permits, which creates a significant deterrent for private investors due to lengthy and cumbersome administrative processes; and fourth, the lack of competitive water pricing, where non-market-based pricing, influenced by government subsidies and traditional market structures, diminishes the appeal of water sector investments and raises concerns over inefficiency in water consumption and reliance on state resources.
Conclusion: The sub-criterion of policy instability has been identified as the most important factor in attracting private investment. Establishing a stable and transparent legal and policy framework is essential to boost investor confidence. This can be achieved by formulating comprehensive laws and effectively consulting the private sector. Additionally, the sub-criterion of high returns in competing markets has been recognized as the second effective factor, and policymakers need to work on reducing investment risks and ensuring the expected returns of investors. This can be accomplished by providing financial and tax incentives, simplifying administrative processes, and improving water resource management. The complexity of obtaining legal permits has also been identified as the third deterrent factor in attracting private investment. Simplifying and clarifying the permit acquisition process, creating a one-stop shop for administrative services, and coordinating among various organizations can significantly impact investment attraction. Furthermore, the lack of competitive water pricing has been recognized as the fourth effective factor influencing investment attraction. Utilizing cost-based pricing models and establishing water markets can aid in the optimal allocation of resources and the discovery of competitive prices, ultimately leading to increased efficiency and resource conservation. Utilizing cost-based pricing models and establishing water markets can aid in the optimal allocation of resources and the discovery of competitive prices, ultimately leading to increased efficiency and resource conservation.