FROM STALLS TO SUPERMARKETS

The residents of Baku have already become accustomed to the rapid changes in the appearance of their home town. High-rise buildings are being erected in the capital, parks are being laid out and new roads built; Baku is turning into a megalopolis. Against this backdrop, over the past few years another trend has become apparent, namely stalls, kiosks and small shops are being replaced by large supermarkets.

Shopping, which has demonstrated double-digit growth rates over the last few years, has become one of the most dynamically developing sectors in Azerbaijan's non-oil economy. The average annual growth rate in this sphere over the last 10 years has been 12.1 per cent. As a result the share of commerce in non-oil GDP has increased to 14 per cent. At this time, this is the biggest sector of the country's non-oil economy after construction. 

The main factors underpinning the high growth rates in the commerce sector in Azerbaijan are the growth in the purchasing power of the population, the expanding middle class, the appropriate demographic situation and the continuing dynamic process of urbanisation.

The authors of a study made by PASHA Bank devoted to retail trade in the country believe that the growth rates in Azerbaijan's commercial sector in the next few years are expected to be 7-9 per cent per year on average. Judging from the results of a survey conducted by the CEEMEA Business Group, two-thirds of respondents are expecting a 10- to 15-per-cent growth in incomes in this sector, while one-third are expecting a 15 to 20 per cent growth rate. According to the A.T. Kearney global management consulting firm's estimates, the trade turnover in the non-food items will increase to 13.5 per cent in Azerbaijan in 2015-1018.

At the same time, the per capita trade turnover index in Azerbaijan is half that of Russia and 1.2 times less than that of Belarus. The authors of the study think that this difference points to the existence of potential for growth in this sphere in Azerbaijan.

According to data from the State Statistical Committee, in 2014 retail trade turnover amounted to 22bn manats, 50.1 per cent of which were made up of foodstuffs, and 49.9 per cent of non-food items. By the way, the share of foodstuffs in the structure of retail trade is declining - in the year 2000 it made up 72 per cent. This is also an indicator of the growth in the population's well-being, the development of a middle class and an increase in incomes. 

Today approximately 100 large shops and supermarket chains are operating in Baku. But, as the analysis has shown, the share of supermarkets against the overall backdrop is still small.

Thus, the five major players on the retail food market in Azerbaijan only account for 5 per cent of its turnover. "In France, supermarkets and hypermarkets account for 96 per cent of the retail food trade. In Germany, this figure is 80 per cent and in Turkey 60 per cent. There are no official figures for this sphere, but, according to the estimates of a number of local experts and international organisations, this figure is at best 10 per cent in Azerbaijan," it states in the study group's report.

According to Azerbaijan's State Statistical Committee, in 2014 juridical persons made up for 11.7 per cent, natural persons for 88.3 per cent of the volume of retail trade. There were thereby a large number of participants with the major players accounting for a very small share in the overall turnover on the retail markets that are currently in the process of being formed.

One of the rapidly growing and promising commercial sectors in Azerbaijan is the trade in e-commerce. The average annual growth rate in the volume of online shopping is two to three times higher than that of the country's entire trade turnover. According to the report, Azerbaijan is becoming one of the TOP-20 countries in the world in the growth of its online shopping market. "In spite of the dynamic growth over the last few years, the share of online trade in Azerbaijan over the last few years is still very low. Whereas the per capita volume of e-trade in Azerbaijan is worth 35 US cents, in Russia this figure is 29 dollars, in Turkey 38 dollars, and in the Czech Republic 217 dollars," it says in the bank's study.

In Azerbaijan a law on e-commerce was adopted in 2005. As this market has expanded, however, the need may arise for amendments to be introduced into the tax legislation to regulate online payment processes and make them subject to tax.

It is noteworthy that, according to official statistics, the level of Internet access in Azerbaijan is more than 70 per cent, and, according to this figure, Azerbaijan is a leader in the CIS [Commonwealth of Independent States]. The Ministry of Communica-tions and Information Technologies states that in the medium term, every home in Azerbaijan will have access to high-speed broadband. This is creating good grounds for a growth in e-commerce in the future.

The opportunities for this sector to flourish will also cause the government to extend measures to encourage non-cash payments. The growth in the volume of online trade, the continuing processes of consolidation on the market, the development of chains of shops throughout the country will remain the main lines along which the retail trade market in Azerbaijan will develop. The expectations of the government and international financial institutions regarding the country's economic growth, especially in the non-oil sector, are providing grounds for forecasting a stable growth in the retail commerce market in the next few years as well.