INDUSTRIAL SURGE

In summing up the results of 2014, which President Ilham Aliyev declared the Year of Industry in Azerbaijan, one may confirm that the government has successfully carried out its undertaking to update and diversify the non-oil sector of the economy. This course was the logical continuation of the effective socio-economic changes of the past decade, particularly the diversified infrastructure and industrial base, which had been developed in the country's regions. And the strategy of new industrialization, which has been carried out in the past few years, is destined to elevate industry to a qualitatively new level of development by 2020.

"In the past decade the Azerbaijani economy has trebled in size: there are few states in the world capable of achieving such high rates of growth in a comparatively short period of time," Azerbaijan's deputy prime minister, Ali Ahmadov, said at a conference "10 Years of Development: 2004-2014" at the end of December. "I can state with every confidence that our country's industrial surge is an economic miracle of the first decade of the 21st century."

The number of industrial projects carried out in the past decade is truly impressive. Projects supported by the state investment programme have breathed new life into our traditional industries - farming, the petrochemical industry, non-ferrous metallurgy, machine-building and the production of building materials - modernizing and improving existing production capacities. A number of new industries have also taken shape during this period, along with the expansion of traditional spheres in the country.

"The launching of the country's first communications satellite paved the way for the establishment of the space industry, and this process is now being vigorously continued and new satellites are being prepared for launching," Azerbaijan's Minister of Economics and Industry Sahin Mustafayev said. "The defence industry is growing rapidly, as well as enterprises involved in the production of equipment for alternative sources of energy and energy-saving technology. With the commissioning of a shipbuilding plant our industry has also acquired a completely new component which is potentially productive for the development of our exports."

Hundreds of major industrial enterprises, which have appreciably increased the phasing out of imports, have been opened in recent years. By way of comparison: whereas a decade ago the ratio of the non-oil sector in the structure of GDP was 37 per cent, today it is almost 60 per cent. And this positive dynamic has altered the structure of the whole economy in a qualitative way, appreciably increasing the proportion of output with high added value in our exports.

The significance of this stage of the reforms for the country's economic surge is also reaffirmed by the fact that of the 200bn dollars of investments made in the country's economy during the years of independence about 90 per cent have been made in the last ten years. The sphere of small and medium-size business has not been ignored, either: from 2004 to 2014 about 25,000 small and medium-size businesses have received preferential credits to the value of 1.5bn manats. In this context, it is no surprise that despite the global crises of the past six years, Azerbaijan's economy has been developing steadily. Moreover, whereas in 2004 our republic was responsible for about half the economy of the South Caucasus, today the figure is over 78 per cent.

At the same time, a new strategic course of the intensive development of the non-oil economy was defined in the medium-term development concept "Azerbaijan 2020: Outlook on the Future". Specifically, the proportion of non-oil production in the overall structure of GDP is due to approach 80 per cent, and non-energy output is due to make a decisive contribution towards doubling GDP in the next five years. By then Azerbaijan plans to move up to the higher level of countries with a "high average income" based on the classification of the World Bank and a "high level of human development" as defined by the UN.

What are the mechanisms and tactics of the Azerbaijani government's industrial policy likely to be in the short-term perspective?

"The basic essentials of the industrial policies of modern states are built on the principles of competitiveness, science-intensive products, technological effectiveness and ecological safety," Azerbaijani President Ilham Aliyev said. "Numerous infrastructure projects, efforts to diversify the economy and ensure macroeconomic stability, as well as state support for private enterprise and investment activity have become effective tools in forming a modern industrial base in our country. At the current stage a most important priority of the state is the implementation of the policy of new industrialization and the development of non-oil exports."

In order to achieve this objective fundamentally new mechanisms of the concentration of production capacities are being applied in the country: a number of multi-faceted industrial estates and business incubators have been set up, all entrusted with prescribed tasks. For example, high-tech parks are designed primarily for the localization of major plants and factories and developing large-scale production designed, among other things, for supplying output to foreign markets. High-tech parks have become a key element in the government's industrial policy: in recent years the Sumqayit and Balakan industrial estates have been functioning actively, and a High-Tech park and Chemical tech-park are also being created. And there is good reason why the creation of new industrial estates in Ganca and Mingacevir was provided for in the range of measures to mark the Year of Industry.

The task of the business incubators is rather different. Here the plan is to introduce projects for the development of the ICT sector and innovations in the sphere of Internet services, as well as the development of small-series science-intensive production and applied research. Comparatively recently another component in the industrial triad began to take shape - the creation of industrial districts. Unlike high-tech parks and business incubators, it is planned to localize the operating and service structures of small and medium-size businesses. These are companies dealing in repair and servicing, small workshops making building materials, engineering organizations, small clothing and footwear businesses, and so on. This process has already begun and last October the head of state issued a decree on the creation of industrial regions, the first of which is due to be set up in Neftcala District.  

The medium-term strategy for Azerbaijan's industrial development, which was drawn up by experts of the Ministry of Economy and Industry, has taken into account the advanced experience of other countries. Specifically, these include New Zealand's practice of registering business structures and protecting the rights of investors, Hong Kong's experience in issuing construction permits, Iceland's in connecting to the electricity network, Georgia's in registering property rights, Malaysia's in issuing loans, Singapore's in export-import operations and Japan's in matters of closing down enterprises.

Close attention is being focused on studying South Korea's wealth of experience in creating special economic zones, high-tech parks and effective scientific-production structures. A distinctive feature of the Korean economy was the formation of vertically integrated mega-holdings merging the industrial and banking components. There are pre-requisites for implementing similar experience in Azerbaijan, too: for many years diversified holding companies have been a key element of the country's economic landscape.

One may be confident that the implementation of the new industrialization may attract investment and know-how to the country's non-oil sector and thereby shape a competitive and export-orientated economy.

The know-how of ministries and departments, as well as the practical experience accumulated in recent years of the development of modern industry has been brought together in an extensive document defining specific measures for the country's industrialization over the next six years. We are partly referring to the "State Programme for the development of industry in Azerbaijan for 2015-2020", which was endorsed at the end of last year in an instruction of Azerbaijani President Ilham Aliyev.

A number of key points in the new State Programme provide for the development of effective statutory mechanisms and the development of new forms of business activity. Specifically, the Azerbaijani Ministry of the Economy and Industry, together with a number of other ministries and departments, has been instructed to draw up this year a mechanism for encouraging investments in the industrial sphere and the draft of a law to this effect. Proposals are to be prepared to improve existing legislation and regulate the industrial sphere, and also to draw up a draft law regulating the creation and activity of industrial districts. In 2015 changes are also to be prepared to laws aimed at tightening control over industrial facilities that cause harm to the environment. A range of measures is to be drawn up to create local brands and to promote them at core markets, as well as to support the registration of national inventions and protect patent rights. Over the next six years the adaptation of standards of corporative management and the formation of associations in various spheres of industry is to be encouraged in every way. Proposals to simplify the licensing of industrial equipment and technology must also be drawn up this year.

The State Programme recommends that a package of proposals on industrial development be drawn up this year: these include proposals to support the creation of new enterprises and industrially orientated start-up projects operating on local raw materials and natural resources and measures to introduce power-saving and ecologically pure technologies and to develop petroleum engineering. At the same time, a number of measures aimed at improving the productivity and qualification standards of personnel will be adopted in order to ensure that high-tech enterprises operate more efficiently.

The new State Programme also provides for a number of specific measures to develop the industrial infrastructure and new forms of organization. Specifically, new technology parks will open in Ganca and Mingacevir by 2019 , and the infrastructure work on the Sumqayit chemical-industrial park and the Balaxani industrial park is due to be completed in 2015-2017.  This year and next the Ministry of Communications and High Technology is also due to complete the formation of an infrastructure and commence work on a High-Tech Park. In broad terms, industrial clusters are due to be created in the country and work begun on industrial quarters in the period from 2015 to 2020.

One may be sure that the implementation of all the points of the State Programme for the development of industry will help attract investments and know-how to the country's non-oil sector and thereby shape a competitive and export-orientated economy.