ALAT FREE ECONOMIC ZONE

The last decade has seen the emergence of new trends and management models in the global economy. Among the most successful of them is the creation and development of free economic zones (FEZ). Azerbaijan also joined this trend and officially launched its own free economic zone project in the Alat settlement of the Garadagh district of Baku. The groundbreaking ceremony of the Alat FEZ was held in early July with the attendance of President Ilham Aliyev.

Created on the territory of the new Baku International Sea Trade Port, the Alat FEZ is designed to play an instrumental role in boosting the export potential of the national economy, and becoming the main driver of its development in various directions.

A special advantage

"Azerbaijan is one of the countries that do not have access to open seas. Therefore, the development of free economic zones in such countries is much more difficult... That’s why we needed, given Azerbaijan’s geographical location, to work even more efficiently and offer investors more attractive conditions," President Ilham Aliyev said at the groundbreaking ceremony of the new free economic zone. That is why Azerbaijan did not rush to launch the SEZ, but first carried out a phased economic assessment of the project with international organisations, and also determined a package of benefits for investors and the legal status of the zone.

The main advantage of creating a free economic zone in Alat is, first of all, the geographical position of the zone, its location at the intersection of the North-South and East-West transport corridors. At the same time, there is a large export market with a population of 150 million people and a gross economy of more than $3 trillion within a 1000 km radius from the settlement. This can be considered a key factor in the effective operation of the SEZ.

Another important incentive that increases the strategic importance of the Alat FEZ is the growing dynamics of the negotiation process between the US and Iran to lift off the sanctions on the latter. The success of these negotiations will contribute to the growth of the Iranian economy: some studies show that in a favourable scenario, Iran's GDP can grow by 4-5% in the post-sanction period. And the opening of a new sales market will accelerate imports into the country. Thus, thanks to the production facilities of the Alat FEZ, it will be possible to quickly and competitively access the Iranian market.

International experience shows that the success of special economic zones can be guaranteed by the introduction of various management models. However, most of these models, including those used in the FEZs of Morocco and Turkey, are based on public-private partnerships. Most of the special economic zones make a significant contribution to the development of national economies by increasing employment and exports, as well as attracting foreign direct investment. For example, in the Asia-Pacific region (APR), FEZs provide 2.3% of jobs and 41% of exports, and in the USA – 1.2% and 39%, respectively.

Thanks to the new Baku International Sea Trade Port and the relevant logistical works, it is now possible to increase the volume of cargo transportation in the East-West and North-South directions through Azerbaijan.

On the EU focus

The port of Baku is in the focus of the EU in terms of ensuring sustainable transport supplies, and the organization it represents is ready to continue investing in various projects carried out in the port, including digitalization and green projects, said EU Commissioner for Enlargement and Neighborhood Policy Oliver. Varkheli. This means that the EU supports the processes aimed at turning the Baku port into a reliable transport hub in the Caspian Sea, which will increase the attractiveness of the Alat FEZ for investors. According to the latest statistics, the cargo turnover of the Baku port in the first quarter of 2021 increased by about 17% compared to the same period last year. The total volume of transit cargo in the port, which is an important part of the Trans-Caspian international transport route, for the same period of this year amounted to more than 1.4 million tons, which is 16.7% more than in 2020. In the first three months of this year, the share of transit cargo amounted to 93% of the total port turnover. In other words, the creation of a FEZ will increase both the volume and the cost of transit cargo entering the country through the value chain in the Alat FEZ.

The development of the Alat FEZ is also in line with the National Priorities for Socio-Economic Development: Azerbaijan 2030 approved by the presidential decree on February 2, 2021. Priorities such as sustainable economic growth, increasing the value of human capital and introducing innovation will have a positive impact on the implementation of the above goals.

As well, one of the important factor for the development of FEZs are systems of benefits and preferences. Before making any investment, every investor carefully examines the investment benefits and conditions provided to him by the hosting country. Each state or region willing to create a FEZ determines the amount of its concession fees. Practically, the system of benefits provided by the FEZ can be determined individually and be closely linked with programs and projects implemented on the territory of a particular state or region. In this sense, the choice of the international consulting company DP World (UAE) as a consultant for the development of the Alat FEZ will allow this process to be carried out using the most advanced international experience. In parallel, Alat FEZ will contribute to the expansion of opportunities in other regions of Azerbaijan in the context of their economic potential.

The main direction of the new economic model, which will become effective after 2021, will be the creation of a production chain in the non-oil industry. The construction of an industrial infrastructure like a FEZ will make it possible to expand the production from the export of raw materials to the export of semi-finished and finished products. Studies based on various scenarios show that the development of FEZs will help the Azerbaijani economy create an added value of $20-50 billion by 2050.

Positive contribution

As to other advantages of free economic zones, they will also influence the country's labour market. In general, if we look at the history of all post-war economies, we can notice that their successful development was possible thanks to the creation of factories and plants. This process gradually and positively affects both the quality and the value of human resources. As a result, this requires better staffing of capacious sectors of the economy, which, in turn, will increase the significance of secondary vocational education in Azerbaijan and deepen ties between business and education. The expansion of production also creates a strong competitive environment for attracting labour. According to experts, in the near future FEZs will create of 30,000-40,000 new jobs in the service and manufacturing sectors of Azerbaijan.

In addition, the development of knowledge-intensive industrial zones determines the accelerated development of various cities, improving the quality of their financial, insurance and service sectors. This is essential for building an inclusive society.

The development of the Alat FEZ is also important for the internal migration. The concentration of large industrial centres in Baku and the Absheron Peninsula in recent years has accelerated the process of migration from regions to the centre. In the new economic period, the increasing industrial potential of Alat and the liberated territories in and around Garabagh may have a reverse effect on the migration process.

In a nutshell, Alat FEZ will make it possible to materialise not only economic, but also social and scientific goals: to increase trade turnover; to accelerate the process of investments; to increase the level of employment in other regions of the country; to accelerate the integration of the national economy into the world economy; to expand opportunities for improving the level of education and professional experience of qualified personnel.

By the way, the Strategic Roadmap approved by the government of Azerbaijan provides for an average annual real GDP growth of more than 3% by 2025 and the creation of more than 450,000 new jobs. Thus, the development of the Alat FEZ will have a positive effect on both the implementation of medium-term goals and the improvement of the social well-being of the population and the achievement of the highest human development index, which is the main goal of the Azerbaijani government for the period after 2025.