COOPERATION FOR A GOOD CAUSE

The information and communications technology sector promises to become the driving force behind economic development in Azerbaijan in the decade to come. By the year 2020, revenue in the ICT sector will grow to 9bn dollars - almost fivefold compared to 2013. The blueprint titled "Azerbaijan-2020: looking into the future" sets priorities for the development of ICT.

It sets ambitious goals such as doubling GDP on the basis of the non-oil sector, diversifying the economy and exports, and other goals that directly show the importance of ICT development and also expansion of its use. 

Naturally, this blueprint is based more on the dominant role of the private sector with government support. For this reason the topic of public-private partnership has lately become increasingly more important. The term PPP (Public-Private Partnership) can be heard increasingly more often in speeches by representatives of the public authorities of different levels and from representatives of the business community.

Cooperation between the government and business in the ICT sector was the main theme at a conference organized by the American Chamber of Commerce in Azerbaijan (AmCham Azerbaijan).

Communications and High Technology Minister Ali Abbasov outlined important areas of cooperation between the public and private sectors, which is a vital part of the development of the IT sector and something that high hopes are pinned on.

Strengthening the potential of the ICT sector

That is the primary goal which, according to Abbasov, can be achieved through developing education and science, innovative entrepreneurship, new technology and creating a favourable competitive environment in the market.

The minister believes that partnership between the government and the private sector will play an important role in this matter. The load will be placed on the shoulders of the private sector, which is called upon to become the key player and the driving force behind the development the IT industry.

The public sector is the main investor, and currently many local and foreign companies focus on global projects implemented at state level. A huge number of major ICT projects are being implemented in Azerbaijan. These include development of infrastructure for digital television and radio broadcasting, broadband internet and other projects, to implement which huge amounts of money are spent.

A major project that will be launched very soon is to develop broadband internet and is called "Optics in each home". The project, which costs 500m dollars, is of strategic importance and will be implemented with money from Azerbaijan's State Oil Fund. The ultimate goal of the project is to ensure that all of the country, including remote rural population centres, is covered by high-speed internet. It will become the prerogative of the private sector to deliver internet services to the end user. In addition to developing network infrastructure, the project also contributes to the creation of a favourable competitive environment, and this will have a positive impact on the development of the internet market as a whole.

The minister said that e-government is another major project. He said that although the number of e-services endorsed to date is greater than 400, basic services provided to citizens are yet to be fully automated. To this end, a state programme has been developed, which is currently going through a financial expert examination. Private companies will also be involved in its implementation.

Abbasov also revealed prospects for possible cooperation with the private sector in education, satellite communications, nano-and biotechnology, nuclear energy, etc.

"The government will continue to be a major customer and to suggest new areas of cooperation with the private sector. We are also willing to be a partner and to implement joint projects. In this regard we could consider launching production lines, which is very important in light of the fact that the year 2014 was declared Year of Industry in Azerbaijan," the minister said.

In particular, this is about launching production of export-oriented output or providing IT services, which could be delivered not only to the domestic market but to foreign ones too.

Abbasov said that the government is willing to invest in the construction of factories and also to do its best to help the private sector become the driving force. Opportunities will be opened to make joint investment in projects. The minister requested that foreign companies, in addition to working on government orders, also consider giving financial support to projects that are attractive from an investment point of view.

Abbasov believes that the basic model of cooperation aimed at intensifying the activities of private companies is built on three fundamental aspects. The first one is development of human capital. Good results have already been achieved in this area - the government sends Azerbaijani students to study abroad.

The second important thing is to create a favourable environment for business development, the presence of which is acknowledged by international financial and economic institutions.

The most recent report by the World Economic Forum ranks Azerbaijan 38th in the ranking of the most competitive economies. This means Azerbaijan has improved its ranking, rising one position in comparison with the previous year. What is more, Estonia is the only post-soviet country that Azerbaijan lags behind.

The third factor is access to financial resources. Abbasov said that the private sector is currently waiting for tax and customs duty concessions. As an example, he cited the model of creating a network of industrial parks (participants in industrial parks are exempt from taxes). The blueprint developed by the ministry sets a new approach and provides for the formation of a network of branches of the IT industrial park throughout the country. This blueprint covers a period of time during which it is planned to build a high-tech park, which will take approximately two years. During this period of time, companies operating in this country - the factory Kur in Mingacevir, which produces computer equipment, and the plant Billur in Ganca, where entrepreneurs can implement their projects - will perform the function of branches of the industrial park to be created.

Another ambitious project by the ministry is to create a free trade zone for high-tech products. Negotiations towards its implementation are currently held with several countries. The project is primarily aimed at expanding the IT market and enabling the business sector to do free trading in certain types of IT products and services. The project may be launched as a pilot one together with a regional country, Georgia, for example.

Forming a favourable competitive environment

Creating an atmosphere of healthy competition is also a priority for the ministry. Undoubtedly, there are errors in this area still but, nevertheless, the ministry as the regulator takes measures needed to eliminate them.

The reason, the minister believes, lies with the material and technical superiority of state-owned companies over private companies and also with the presence of corruption in this field. The fight against corruption is being conducted at the highest level.

Normalization of a competitive environment does not depend entirely on the government, therefore, in order to achieve good results it is necessary to coordinate the efforts of the public and private sectors. In this regard, the minister believes, it would be appropriate to hold debates and organize meetings with representatives of government institutions.

Unfortunately, contrary to expectations, the association of IT companies of Azerbaijan, established earlier, has not demonstrated its effectiveness. This agency never issued recommendations, requirements or suggestions.

"Another reason for the low competitive ability of private companies is limited access to concessionary financial resources. The issue of lowering interest rates for private businesses is the subject of debates that are currently held with players in the banking market. Unfortunately, high interest rates do not allow private entrepreneurs to compete with foreign companies because the latter have access to money from their banks at the lowest interest rates," Abbasov said.

To improve this situation it is planned to establish foundations. One of the major foundations operating in Azerbaijan is the State Oil Fund, which provides concessionary financing to major strategically important projects. For small projects, there is the Fund to Support Entrepreneurship, which also provides financial support to participants in the IT market. In addition, under the ministry there is the Information Technology Development Fund, whose money is envisaged both for issuing grants to finance start-up projects and for issuing soft loans for their development.

Abbasov says that today it is a priority to create private foundations, and foreign investors are willing to do so. 

"It would be appropriate for this field of activity to be transformed into a business over time. Therefore, our expectations from the private sector, business people are that they will help new business projects to develop," the minister said.

The minister also paid attention to the issue of Azerbaijani business people expanding their activities to foreign markets. He firmly emphasized that the ministry is ready to help local IT companies in this regard.

"Although the Azerbaijani IT market is small in size, it is in active development. Several Azerbaijani companies have already begun exporting their technology solutions to the markets of regional countries. They are often faced with certain kinds of problems in this regard, and the ministry is willing to do all it can to help deal with this situation," Abbasov said.

This could be both the possibility of providing financial assistance and helping in dealing with tax and customs duties.

In addition, Abbasov noted the importance of online business development. The minister said that exempting owners of electronic trading platforms from customs duties and taxes could give an impetus to the development of e-commerce.

Proposals to this effect are being prepared by the Communications and High Technology Ministry in order to support development of e-commerce. Certain action towards creating acceptable conditions for the development of retail e-commerce in the country has now been taken at legislative level. In particular, the value of goods that can be purchased outside the country (through electronic trading platforms) without customs duties being paid has been increased from 200 to 1,000 manats.

As for major business activities over the internet, it is also suggested that tax and customs duty concessions should be applied. The Communications Ministry is set to initiate talks to this end with relevant state agencies. 

According to data from the State Statistics Committee of Azerbaijan, at the end of 2013 the volume of the e-commerce market in Azerbaijan was 2.6m manats, which is more than in 2012 by a factor of 1.6. In January-July 2014, the volume of the e-commerce market increased 10 per cent to 1.5m manats.

Development of the internet economy will play an important role in the development of traditional industries of the economy. It is the internet economy that makes it possible to create a new environment for use and participation, improve productivity, achieve strategic advantage over competitors, strengthen relationships with partners, make an optimal use of information resources and improve the welfare of society as a whole.