IN DEFIANCE OF CRISIS

Amid falling global energy prices, it is becoming increasingly important to speed up the process of diversifying the national economy. This is primarily about developing traditional machine-building, and attracting investment in knowledge-intensive and IT production. These tasks were once again formulated by President Ilham Aliyev at a government meeting devoted to the results of the country's socio-economic development in the first quarter of this year.

"Crisis processes have escalated in the world and the region since the second half of last year, but despite this negative pattern, our country managed to ensure the dynamic development of the economy, and we completed the year 2014 with stable indicators," President Ilham Aliyev said. "We managed to preserve the positive development dynamics in the first quarter of this year as well: Gross Domestic Product grew 5.3 per cent." Azerbaijan has for more than a year ensured the dynamic development of the non-oil sector: the growth rate of the latter in the first quarter of this year was 7 per cent.

The president said that the creation of technology parks where modern industrial complexes operate has helped increase industrial output. The country has lately begun to form industrial districts and business incubators that house small and medium-sized businesses.

The process of non-oil industrialization and of development of a modern production base increased noticeably last year, which was declared a year of industry in Azerbaijan. In the reporting period, more than 230 large industrial enterprises were created, and the construction of more than 530 facilities in the production field continued. This trend was also observed in the first quarter of this year: according to the State Statistics Committee, the nominal volume of industrial output in Azerbaijan reached 5.792 billion manats, and annual growth was 3.9 per cent.

"The private sector plays a significant role in the process of industrial development. It generates about 80 per cent of the country's Gross Domestic Product," President Ilham Aliyev said at the government meeting. "Owing to private investment in the production of building materials, Azerbaijan not only provides for import substitution to a significant extent, but also exports a wide range of products in this segment." Establishment of industrial districts is a new trend in industrial production. He said that processes of import substitution in agricultural production are developing equally successfully.

However, the production of agricultural output and building materials are not the only areas to develop in Azerbaijan's non-oil sector. The country is implementing projects in the field of machine-building and knowledge-intensive production. A good example of this is the joint Russian-Azerbaijani project to produce trucks. Incidentally, the first comparatively successful experience of this kind was the plant established by Azmotors Co LTD in 2002 at the B. Sardarov factory for the semi-knocked down assembly of Russian KamAZ trucks. The design capacity of the plant was to produce about 500 trucks a year. However, over the few years of operation, the small-batch assembly production failed to reach the target level, and the project was suspended due to low profitability and several other reasons.

In subsequent years, the management of the Kamsk automobile factory every now and again resumed negotiations with the Azerbaijani government and local companies on the possibility of establishing a larger assembly plant in Azerbaijan. It has become possible to implement this project this year: during the recent working visit that the president of the Republic of Tatarstan, Rustam Minnikhanov, paid to Azerbaijan, a ceremony was held in Ganca to launch an assembly line for KamAZ trucks at the production association Ganca Automobile Plant (GancAZ). In February this year, GancAZ and the Kamsk automobile factory signed an agreement to assemble trucks in Azerbaijan and also an agreement to organize technical maintenance services in Baku and Ganca.

Under the agreement, within phase one, it is planned to produce at the plant GancAZ six models of high-capacity KamAZ trucks, including flatbed trucks, towing vehicles and heavy dump trucks, and subsequently agricultural dump trucks and different kinds of street-cleaning vehicles will be produced. It is planned that when output reaches maximum level, output volumes of the assembly line will reach 1,500 vehicles a year, and the range may be increased to 31 truck models. The partners in project are also studying the possibility of subsequent location of production of some parts and components directly in Azerbaijan. This will significantly reduce the cost of output, which is very important given the project participants' plans to export KamAZ trucks assembled in Ganca to third country markets.

A very important dimension in the diversification of Azerbaijan's non-oil economy is creation of high-tech industry. To this end, infrastructure of a high-tech park (HTP) is being built in the island of Pirallahi and the production of IT products has been arranged in the Sumqayit Technology Park (STP) and in the Mingacevir branch of the HTP.

Thus, the production of knowledge-intensive products has started at STP enterprises in Sumqayit: in particular, they produce solar panels and heat generators, LED lamps, different surveillance cameras, and computerized face control, security and fire safety systems. They also assemble monitors and modern payment terminals. Apart from being supplied to the domestic market, these products are also exported to Georgia and Kazakhstan.

The KUR factory, which was put into operation in Mingacevir in 2005 and is so far the only one in the South Caucasus, plays a tangible role in the development of the IT industry in Azerbaijan. It has started assembly-line mass production of computer equipment. Subsequently, in addition to assembling computers, the range of products put out by the company has come to include assembly of computerized photo kiosk labs, information terminals, digital TV decoders, ADSL modems and other equipment. Part of the output has been exported to Georgia, Turkmenistan and other former Soviet countries.

KUR company continues to try to keep up with market trends, and plans to start production of tablet PCs under its own brand.

It is noteworthy that the decision of the Ministry of Communications and High Technologies (MCHT) to give the Mingacevir factory the status of branch of a high-tech park contributes to the expansion of the potential of the factory. On its basis, there will be created a technology park, which will house infrastructure, research and production facilities for experimental and design work and commercial production of innovative products.

The new status gives KUR factory a number of tax and customs preferences and opens up opportunities for the implementation of joint projects together with the world's leading IT vendors. These advantages have already translated into specific initiatives: in the near future, the factory will begin mass production of personal computers of the famous Taiwanese company Acer, using Intel processors and chips. The project is expected to be funded by the State Fund for the Development of Information Technologies - initial investment is estimated at about 10 million manats. Azerbaijani IT company BestComp Group will be a partner in the project.

It should be noted that this is not the only project to attract world brands to the production of computers in Azerbaijan. Intel is considering the possibility of starting in the country the production of Classmate PCs, the target group for which are children and school students.

These examples are evidence that even in an unfavourable global economic situation the government is not going to reduce the pace of the modernization of the economy but, on the contrary, is ready to fully engage foreign investors and the banking sector in this process.

FYI

The Ganca Automobile Plant, which started operation in December 2004, actively cooperates with Belarusian manufacturers of agricultural machinery and trucks. Over the period it has operated, the plant has produced a total of about 5,500 Belarus tractors of eight models and about 2,400 MAZ trucks in 21 versions. This work will be expanded in 2015: the plant plans to make up to 500 MAZ trucks, about 50 HALLER street-cleaning vehicles, 1,400 Belarus tractors of different models, and dozens of KamAZ vehicles.