AN INDUSTRIAL OASIS

The increase in the contribution of the non-oil sector to the general growth of Azerbaijan's GDP, which has been noticeable in the last couple of years, is relegating to the background doubts about the dependence of the country's economy on a change the volume of oil extraction. Whereas according to statistics the growth in Gross Domestic Product in the first quarter as a whole was 3.1%, the development of the non-oil sector was 11.4%.

The success of projects in the spheres of telecommunications, the agro-industrial sector, tourism, infrastructure and so on is encouraging the government to develop new programmes and other currently not very active branches of the non-oil economy: for example, the full-scale use of the potential of Azerbaijan's industrial production, the creation of new production lines and finding innovative solutions through introducing state-of-the-art technology to obtain in the long term competitive and export-orientated output. This is precisely the objective being pursued by an idea now being put into practice to create special economic zones and industrial townships.

A legal base

The idea of creating special economic zones (SEZ) is not a new one and has been actively introduced in many countries over the last few decades. Such zones are a unique permanent form of support for investors (particularly foreign investors) and they are created in order to improve the economic-legal base and thereby improve the competitiveness of the local economy. The main aim of these SEZ is to economically activate individual regions by restructuring them using tax privileges for investors. Special importance is focused in these zones on attracting foreign strategic investors, their capital and their technology.

The idea of creating SEZ began to take specific shape in Azerbaijan following the establishment of a law to this effect in 2009. It should be pointed out that the project "The development of special economic zones and industrial townships in Azerbaijan" is being directly implemented by the country's Ministry for Economic Development, with consulting support from the Korean International Cooperation Agency (KOICA).

An important step in implementing this grand undertaking was the adoption at the end of last year of a package of draft laws on the activities of special economic zones in accordance with the Customs Code. These include changes in the Tax Code, as well as draft laws on submitting changes to the laws "On special economic zones", "On endorsing the 'Regulation on service in the customs bodies'", "On border troops" and "On the state border of the Azerbaijani Republic".

Specifically, the changes in the Tax Code provide for exemption from excise duty of goods imported into the country for re-export.

The Ministry for Economic Development was given permission to issue a document to approve the import of equipment for industrial and technological estates by company managers and operators. According to the amendments, the residents of industrial and technological parks would be exempt for a period of seven years for the payment of profit tax, land tax, property tax and customs duty when importing technological equipment. In addition, company managers and the operators of technological parks would be exempt from the payment of profit tax on that part of their income which is sent for construction and the upkeep of the park infrastructure.

At the same time, apart from the obvious economic objectives and advantages expressed in the creation of modern specialist enterprises, as well as in the development of allied branches of the economy, the creation of SEZ is also a part of resolving important social questions, primarily the creation of new jobs, which helps to eradicate the problem of the exodus of the population of the regions to the capital.  And bearing in mind that we are talking about attracting state-of-the-art technology to the SEZ, attention will be focused on improving the qualifications of current staff and training new personnel.

Forward-looking towns

So, a definite legal base for the SEZ has already been created, the project has been worked out and the towns where these zones will be located have been selected - Baku, Sumqayit and Ganja. Originally, Saki had also been included in this list, but afterwards it was decided to stick to the first three for the time being. This choice was not made accidentally - these regions have traditionally been industrial centres in Azerbaijan and the agro-industrial sector is poorly developed here.

As far as Baku is concerned, we are talking about the Balaxani eco-industrial park, where the foundations were laid on 19 December last year in the presence of Azerbaijani President Ilham Aliyev. According to Minister for Economic Development Sahin Mustafayev, the aim of creating the park is to expand the production of competitive industrial output in the country based on high technology, the steady development of the non-oil sector, getting more people employed in the production sphere and also improving the ecological situation of Baku and its suburbs. The recycling of plastic scrap, tyres, electrical instruments, batteries, non-ferrous metals, cable and other household waste is to be carried out in the industrial park.

The proximity of the park to the Balaxani site and a plant for burning off household waste, the "Tamiz Sahar" ("Pure City") open joint-stock company, as well as to the main transport infrastructure links creates additional opportunities for future investors for the profitable marketing of raw materials or ready-made output. In order to raise the interest of potential investors in "green" business, especially waste recycling, it is planned to create the whole internal and external infrastructure of the park. Thus, it is being proposed that roads be built, electricity, gas and water supplies be laid on, as well as sewerage and telephone lines. At the entrance to the park there will be a registration point and weighing machines, an office and operations building, and so on.

Work is also proceeding successfully at the Sumqayit chemical and industrial park, which is being created within the context of the Azerbaijani president's decree of December 2011 to improve the potential of the chemical industry, create private enterprises in this sphere and obtain competitive output from local raw materials. According to the decree, SOCAR (Azerbaijani State Oil Company), together with the Ministry for Economic Development, have been instructed to carry out measures to create and develop chemical-industrial park output and processing sectors relating to the chemical industry at the Sumqayit chemical-industrial park.

To create the park SOCAR was allocated an area of 168 hectares which had been previously used for industrial production and, according to the Ministry for Economic Development, the dismantling of old production lines has already been completed and cleaning-up operations have been carried out. Work has begun on creating special facilities and an infrastructure, including roads and communications and new enterprises is being designed.

Furthermore, reports have reached the media about a possible expansion of the area of the park to create additional chemical production facilities, including polymers and liquid chemicals which are used in Azerbaijan and are also in demand in neighbouring and foreign markets. The whole process of creating the park could take 2.5 - 3 years; in other words, work on commissioning the enterprises there could be completed by 2015.

As far as Ganja is concerned, actual work has not yet begun and the best options of the proposed projects and ideas are being selected.

Another participant

Bearing in mind the quite high interest not only of local but also foreign investors in the creation of enterprises within the context of existing SEZ, the country's President Ilham Aliyev put forward a proposal to include Mingacevir in the list of towns with SEZ. "Mingacevir is also an industrial town. One may say there is no agriculture there. Decisions must be taken on the construction in Mingacevir of state-of-the-art industrial complexes. It is recommended that structures wishing to invest should at the same time have a look at Mingacevir. I believe that if we achieve this, then there will be four main industrial centres in the country. I think this is enough for a country like Azerbaijan," President Aliyev said, speaking at a session of the country's Cabinet of Ministers on the socio-economic results of the first quarter of this year.

Work on this instruction has already begun at the Ministry for Economic Development. Although the main directions of the work of the industrial zones in Ganja and Mingacevir are not yet known, as the head of state said, the enterprises operating there must have the strategic character for an economic zone. "Of course, only competitive export-orientated output should be produced there. I am confident that in the next few years we shall see the creation of new technological parks," Aliyev said.

Thus, another significant contribution towards solving the question of the diversification of the Azerbaijani economy and reducing its dependence on the oil sector will be made, turning it into an exporting country not only of oil and gas, but also high-quality industrial goods.