THE FORMAT OF INDUSTRIAL DISTRICTS

The decline in oil prices in the world markets has reaffirmed the need to reduce the dependence of Azerbaijan's economy on the oil factor as much as possible. Oil has become cheaper by 10-15 per cent in the last three months alone, as evidenced by OPEC data.

In the light of these events, it is safe to say that the proclaiming of 2014 the Year of Industry in Azerbaijan could not have come at a better time. This is expected to bring about not only an increase in the non-oil sector's share in the country's GDP, but also an expansion of non-oil exports, as now about 90 per cent of Azerbaijan's exports is still provided by the sale of hydrocarbons.

From parks to districts

Non-oil exports should be sustained by accelerated development of the non-oil sector, the average annual growth of which is projected at the level of 7.7 per cent until 2020. According to government forecasts, the share of the non-oil sector in GDP will reach 61.5 per cent in 2014 and 72.4 per cent in 2017.

The government intends to ensure this kind of development at the expense of the regions with industrial districts. Of late, Azerbaijan is witnessing the proliferation of industrial parks, and some of them - the Sumqayit and Balaxani industrial parks, as well as the Hi-Tech Park - have already been opened. According to Minister of Economy and Industry of Azerbaijan Sahin Mustafayev, the continued dynamic development of the country makes it necessary to accelerate the formation of industrial areas that rely on existing natural and economic resources and create large amounts of gross value added. Therefore, it is also planned to provide for the construction of modern industrial townships in Ganca and Mingacevir and in the Qaradag district of Baku.

The idea of creating industrial districts has first been mentioned in the action plan, approved on 12 March 2014, in connection with the proclaiming of the Year of Industry.

On 8 October, President Ilham Aliyev signed a decree "On the creation of industrial districts and the organization of their activities". As noted in the document, industrial districts are of great importance in terms of reducing infrastructure costs in the organization of the production process, strengthening cooperative ties, developing small and medium-sized enterprises and solving other issues.

According to the decree, the decision on the establishment of industrial districts is made by the president of the country on the basis of a proposal submitted by the Ministry of Economy and Industry. The ministry is also to provide for activities related to bringing the corresponding areas into a suitable condition, the creation of external and internal infrastructure, etc., whereas the organization and regulation of the operation of industrial districts are assigned to the Azerbaijan Investment Company.

The dream of a novice businessman

The Ministry of Economy and Industry is reportedly considering the possibility of creating the first industrial district in Neftcala and has already begun project design work. According to the head of the Ministry's Department of Industry, Samad Basirli, industrial districts are planned to be created in other parts of the country in the future. "The format of industrial districts will be such as to allow for their creation in small regions of the country, too. At first, it is planned to organize one industrial district in each economic zone of Azerbaijan, and then in other regions of the country," Basirli said.

What are the advantages of industrial districts? First of all, entrepreneurs do not waste money on creating infrastructure for their enterprise, as the territory of industrial districts already has the needed internal and external infrastructure (electricity, heating, gas, water, sewerage, communications, transportation, fire protection facilities, office buildings, etc.).

Entrepreneurs will be provided with special premises to enable them to set up a production line and start producing goods. "This means that businessmen will not bear the cost of construction and will only pay a small rental fee," the ministry's representative says.

In addition, entrepreneurs operating in industrial districts can also rely on certain advisory assistance, as all this is a continuation of measures to support private sector development in the country. The main objective is to enable entrepreneurs to start their activity with minimal expenses.

Given that the organization and regulation of the operation of industrial districts are assigned to the JSC "Azerbaijan Investment Company", it is expected, based on the specifics of activity of the investment company, that it will set itself to the task of attracting investors to the newly created industrial districts.

For the process of creating industrial districts to be effective, the Ministry has studied the experience of several countries in this field. In particular, the experience of China, Turkey, Russia and other CIS countries has been analyzed. In May, an Azerbaijani delegation visited Turkey and got acquainted with the activities of the industrial districts in Ankara and several other cities in the country. Then, at the invitation of the Ministry of Economy and Industry, Turkish experts visited Azerbaijan and inspected the places allocated for the creation of industrial districts. After that, from the point of view of economic efficiency, preference was given to the Turkish model, but only in part, because the government of Azerbaijan intends to extend state aid, whereas in Turkey industrial districts are also created by the private sector.

Azerbaijan is rich in natural resources that allow for maximum use of the industrial potential. Raw materials available in the Ganca-Daskasan area alone are sufficient for the creation of new industrial enterprises and technology parks.

A potential does exist

According to forecasts of the Ministry of Economy and Industry, more than 500 new industrial enterprises will be created in Azerbaijan within the next 10 years.

What is currently produced by the non-oil sector of the industry? Competing for a place in the market of cement products are three major companies that intend to considerably expand their production. The combined output of these enterprises should be several times greater than the country's demand for cement. Thus, all three companies are doomed to compete not only domestically but also in foreign markets. For the first time ever, we are going to see how the Azerbaijani companies enter into fierce competition in the international market, where the value-for-money aspect and the novelty of products are the key factors. However, the economy is not accustomed to the expected import substitution on such a large scale. As President of Azerbaijan Ilham Aliyev noted in his speech at the cabinet meeting devoted to the socio-economic results of the first nine months of 2014, a similar approach should be adopted in relation to the production of other construction materials. "We need to both provide for ourselves and export as much as we can. I refer to the development of the aluminium, steel, and metal industry. Here, there is a great potential, too," Aliyev said.

It should be noted that significant steps were taken in 2014 regarding the development of the iron and steel industry. It is due to sufficient volume of local raw materials and natural resources required for the development of the iron and steel industry that four plants are now being built in the industry.

The construction of new fertilizer plants is also considered to be a priority in the country. Looking into the future, there are plans to create a new petrochemical complex meeting the highest international standards, implement a number of state programmes in the field of alternative and renewable energy sources, as well as increase the activity of small and medium-sized businesses in the industrial sector with the involvement of investors in this area. "The process of creating industrial clusters should continue in the future. The future development of Azerbaijan must be linked with the industrial development. It should also be noted that currently Azerbaijan has sufficient funds and we must attract public investment in the industrial branches that are of strategic importance to us," the head of state said.

Thus, the industrial districts will become another very strong link in the chain of development of the industrial potential of Azerbaijan and will effectively help achieve a change in the structure of exports in favour of the non-oil sector.