LIFE IN CLOUDS

In recent years, digital transformation in the world through the introduction of modern IT technologies in business processes and financial sectors, as well as in state and public organisations is getting increasingly popular. Azerbaijan fully supports the development of this significant trend too. Recently, President of Azerbaijan issued a decree, which introduced cardinal changes related to the communications sector and established the Agency for Innovation and Digital Development.

New trend, new goals

Initially, digitalisation and the associated processes meant only the widespread introduction of paperless workflow, as well as the transfer of some organisational mechanisms to electronic format. Currently, this concept is much broader and involves fundamental changes in approaches to management, corporate culture, and external communications. Digitalisation of management processes and production covers entire industries, transforms industrial companies, retail trade, banking sector, as well as public administration, changing the life of every person and every company.

Similar processes are taking place in Azerbaijan, where a significant portion of public and financial services has long been provided in electronic format, also with the introduction of digital signature mechanisms.

The determining factor of digital transformation within any society is its pace and completeness of coverage of commercial structures and public institutions with Internet services. But Azerbaijan is still expecting significant reforms to keep up with the most developed countries (US, EU, China) in line with the sectoral digitization index of the McKinsey Global Institute. In particular, in the development of several fields yet to be sufficiently represented in the local market, including the introduction of AI mechanisms in management and robotisation of manufacturing industry, massive use of the Internet of Things (IoT) in the utilities and civil sectors, introduction of chat bots in e-commerce, banking and insurance sectors, etc.

The above presidential decree dated April 27, 2021 highlights the urgency of accelerating digital transformation processes in Azerbaijan and sets new tasks for government bodies responsible for the communications sector. A logical continuation of this trend was another presidential decree issued on October 11, 2021 on some measures to improve the management of digitalisation, innovation, high technologies, and communications.

Thus, based on the new vision of tasks and goals of the communications department, it was renamed the Ministry of Digital Development and Transport. It now has four agencies functioning as legal entities of public law. One of them is the Agency for Innovation and Digital Development (AIDD), responsible for organising and coordinating digital transformation operations in Azerbaijan. Agency is to implement a set of significant measures to support scientific, technical, innovation activities and relevant experiences in the field of high technologies, development of nuclear technologies, to assist individuals and legal entities in the acquisition of modern technologies and solutions, etc.

Digitalisation of government agencies

According to the expert community, the new presidential decree will further improve the ICT sector in line with the Strategic Roadmap for the Development of Telecommunications and Information Technologies (2016). In the updated interpretation of the strategy, a number of solutions for digital transformation, innovative scientific research and start-up projects are now bundled under a separate package to be implemented by AIDD. Digital transformation involves the complete digitalisation of government activities. At the same time, all government services are provided in electronic format. Various commercial digital products are also developed; business processes are automated. In short, a digital society prepared to use open data sources is actively created in Azerbaijan.

Remarkably, a number of government departments are increasingly introduce digital transformation measures as part of their local projects. Thus, Digital Transformation Council founded by the State Tax Service (STS) develops an information technology and digitalisation strategy based on new standards. The goal is to transform the existing electronic tax administration system into a digital one. The Council is actively updating the electronic portal of STS, improving the Automated Tax Information System (AVIS), and creating a mobile application.

For several years, Caspian Innovation Center (CIC) created by SOCAR has been engaged in digital transformation of operations related to planning, drilling, and commissioning of wells in oil and gas operations. Similar activities are carried out in the processing and marketing of products, environmental protection, labour safety, prevention of accidents, etc. In the future, AIDD will support similar steps in other state departments.

Private initiatives

Private Azerbaijani companies also have large perspectives in terms of digital transformation. According to a PwC research covering over 120 various companies, about 60% of local business leaders plan to invest in digital transformation (introduction of AI, robotics and other IT technologies), while 67% of them identified staff development as a priority.

The highest rates of implementation of digital technologies and solutions are observed in the financial sector of Azerbaijan, including tech solutions and e-banking mechanisms, as well as digital payment services. Central Bank of Azerbaijan (CBA) supports the development of Open Banking platform. Existing roadmap covers a period up until 2026, including the introduction of open banking mechanisms in all credit structures of Azerbaijan. Digitalization of society is the basis of all these transformations.

Another important field of Azerbaijan's digital transformation should be the Azerbaijan Digital Hub program implemented by AzerTelecom. It plans the construction of Digital Silk Way, as well as the upgrade of internal telecommunications infrastructure in compliance with the standards of the developed countries. Under the project, it is planned to create the largest data centre in the region, which will provide resources to the external market, transforming Azerbaijan from an importer into an exporter of digital services. This will create a basis for the development of a number of Industry 4.0 areas.

AIDD has set the most significant vector of its operations the further improvement of the start-up ecosystem through large-scale perspective projects, attracting investments in this area, and creating favourable conditions for healthy competition. In particular, AIDD will provide technical, consulting, and financial support to incubation and acceleration centres, programming schools, and other specialised private structures within some universities, the National Academy of Sciences, and government departments. This year, a number of other positive steps have already been outlined in this context. Support to innovative businesses is provided through fiscal preferences. Small and medium-sized businesses with startup certificates are exempt from income and profit tax from innovation activities for a period of three years.

International tandem

There is also a tendency to expand international cooperation in the development of startup ecosystem. Turkey is the most active country in this field. Thanks to the support of the Ministry of Industry and Technology, next year it is planned to create a joint Turkish-Azerbaijani technopark focused on the implementation of innovative projects. Azerbaijan Innovation Agency and the Turkish technopark GOSB also plan to implement a set of joint acceleration and technology transfer programs, including the creation of smart villages and cities, development of renewable energy sources, introduction of energy-saving technologies, and IoT components in utilities, industry, as well as the development of electronic agriculture. Turkish companies help to materialise one of the first such initiatives in the Aghali village of Zangilan. Turkish partners are ready to provide financial support to local innovative projects. As a first step in this direction, Turkish venture fund Boğaziçi Ventures allocated $5 million for the acceleration of Azerbaijani start-up projects. In mid-September, Azerbaijani-Turkish working group signed a roadmap focused on the development of digital transformation operations, as well as human resources. Azerbaijani-Turkish cooperation will help to fulfil the mission of AIDD, including the implementation of the concept of digital transformation, cooperation in cyber security, personal data protection, development of the Government Cloud project, etc.

Azerbaijani startups receive technical, consulting, and grant support from other sources as well. Microsoft provides assistance in obtaining digital knowledge, programming, system integration, expanding the opportunities for local startups to participate in the Silicon Valley projects, etc. BP-Azerbaijan is also implementing its own support project, which has launched several modules of education, trainings, and consultations for students, which provides start-up businesses with an opportunity to visit the world's leading innovation centres. Recently, Azerbaijan Investment Company concluded a deal with the world's largest venture investment company OurCrowd (Israel), which will expand the access of Azerbaijani startups to capital and opportunities for the commercialisation of their projects.

In other words, Agency for Innovation and Digital Development will accelerate the process of digital transformation in Azerbaijan thanks to contributions from the initiatives of government agencies, private sector and expanding international partnerships.