4 December 2021

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Azerbaijan to support the development of startups targeting innovative solutions

Author:

01.05.2021

In fact, about 99% of enterprises in Azerbaijan are micro, small and medium-sized businesses (SMEs), with a total number of entrepreneurs (individuals) exceeding one million people. This data were recently published by the Agency for the Development of Small and Medium-Sized Businesses (KOBIA).

This huge pool of representatives of the business community includes small workshops for the production or processing of various products, facilities providing services and goods for everyday life, transport, agriculture, etc.

There are also startups that become increasingly popular these days. They represent a kind of modern form of implementing a small business. During the pandemic, there is a special emphasis on similar projects. Therefore, Azerbaijan has taken a number of steps over the past year to develop the start-up movement in the country.

 

Innovation and fast profitability

Experts have not identified any special differences between a startup and a classic small business. According to some of them, a startup is the initial stage of a project, be it a mobile application or, say, a youth cafe. As an example, they name the largest social networks with a billion-dollar profitable business, which started as startups.

On the other hand, a number of experts insist that this is a special type of business with its own rules of the game. The main thing here is uniqueness and innovation: one among the hundreds of similar businesses cannot be considered a startup, it must have a little twist of its own. A project can get financial backup if it has the ambition and desire to open new market niches, technologies, products and services. And the most important thing is the focus on rapid development and profit. That is, if a small business can afford to gradually gain a client base and increase turnover, then it is initially necessary to know the client base and the shortest possible period the company can start making profit.

It is these qualities that have made startups the most popular form of business organization during the pandemic. In fact, the development of the global startup ecosystem began back in 2016. And even before the introduction of quarantine restrictions, its volume was estimated at more than whopping $3 trillion.

But it was the pandemic year of 2020 that triggered a startup boom in the largest world economies: the number of new companies in the US, Britain, France and other countries significantly exceeded the indicators of the previous year, because the laid off employees of large companies found a way out in organising their own businesses. Fortunately, new niches appeared on the market, which can be taken with the use of modern technological solutions.

Last year, European tech companies attracted a record volume of venture capital investments (about $41 billion), which is about $500 million more than in 2019.

At the same time, according to the Global Startup Ecosystem 2020 report, these projects do not receive proper support from the state. “Government programs to help and support start-ups usually have strict criteria for allocating funds and focus on companies with good profitability and collateral. But as a result, many startups are left behind,” the report says.

 

Tax concessions

In Azerbaijan, the opposite is true – the start-up sector is currently on-foot mainly thanks to state support. There are no national venture funds in Azerbaijan, which are known to be the main investors in such projects in the developed countries. The interest of international funds, unfortunately, is still very weak. Private investors, however, do not take such young projects seriously and are in no hurry to invest in them. As President Ilham Aliyev noted, “our policy related to startups is, of course, positive. However, when we met with these talented young people, it turned out that many of them work abroad, visiting Azerbaijan only for a while. We must create such conditions so that our talented youth do business in Azerbaijan, and can fully realize their knowledge here to serve the national economy, to increase our potential."

To fulfil this instruction of the president, the government has already taken a number of new and effective measures. Recently, Minister of Economy Mikayil Jabbarov said that SMEs that received a start-up certificate in Azerbaijan would not pay income tax and income tax on income received from innovation activities for three years. This is a powerful enough motivation for both project initiators and investors.

Just a few days ago, KOBIA began accepting applications for the issuance of startup certificates. “To obtain a certificate, we register the applications on the same day. All the attached documents, including the application, are reviewed within 30 days and submitted for assessment to the Expert Council. On the basis of the Council's conclusion, we make a decision to issue a certificate or turndown the application,” says the KOBIA statement.

Expert Council consists of representatives of the ministries of Economy, Transport, Communications and High Technologies, State Agency for the Provision of Services to Citizens and Social Innovations under the President of Azerbaijan, Intellectual Property Agency, ANAS and independent experts.

There are explicit criteria that make the projects submitted for review eligible for a good tax break. First, there should be a taxable micro or small business with the share of founders not exceeding 49%. Also, a startup should have traditional qualities such as innovative solutions, introduction of new technologies, competitiveness, uniqueness and, of course, quick profitability.

 

Good prospects

However, as mentioned above, the main problem of Azerbaijani startups is to find investments for at least the first stage of the project. So far the project mainly includes state funds or organisations, such as the State Fund for the Development of Information Technologies, Youth Fund, National Fund for the Support of Entrepreneurship, etc. Many government agencies occasionally announce various grant competitions. For example, during the pandemic, the Youth Foundation announced the Stay at Home, Implement Idea! Competition to provide funding for ideas for creating multimedia products and projects in social networks. Ministry of Transport, Communications and High Technologies, together with the UN Development Program, launched the website evdeqal.az, which, among other things, publishes the services that small companies provide after receiving calls during the pandemic.

In addition, last year the Agency for Innovations under the Ministry of Communications of Azerbaijan signed a memorandum of understanding and an agreement on joint activities in entrepreneurship with the 500 Startups Fund. The documents mainly focus on the development of the Azerbaijani startup ecosystem, the implementation of joint acceleration and investment programs with the agency. The agency also helped to launch the first $5-million-worth joint venture fund with Turkish partners.

State Employment Agency under the Ministry of Labour and Social Protection has also provided funds to support start-ups through a self-employment program.

Centre for Analysis of Economic Reforms and Communication launched the website enterpriseazerbaijan.com, which will become a data bank on investment projects, startups, etc., and will also help them with access to financial resources not only in Azerbaijan, but also abroad.

But again, all this support is provided by government agencies and funds. Experts note that to improve the quality and increase the number of start-ups in Azerbaijan, it is necessary to increase the interest of private investors and attract independent capital. It is, of course, impossible to do this by force or administratively. Therefore, in addition to the above benefits and preferences, it is necessary to strengthen educational work, inform about successful examples of local startups entering the international market, about the prospects for return on investment, etc.

It is also necessary to expand the coverage of these projects in various sectors of the economy. The most popular startups operating in Azerbaijan are focused on educational (online courses), e-commerce and social networking projects. These are the most resource-intensive projects, as they don’t require special financing and their success depends mostly on the correct selection of the team. At the same time, there are enough examples of successful startups working in agriculture, transport and other sectors in the world.

Having in mind the objective of restoring the liberated lands of Garabagh and creating ‘smart’ villages and cities there, the demand for resource-intensive and innovative projects will noticeably increase. Therefore, Azerbaijan has good prospects for the development of startups. Where there is a will, there is a way...



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