BY SEA, AIR AND LAND

Almost five years have passed since construction work began on the first phase of infrastructure development for the Alat Free Economic Zone (FEZ). Today, this site boasts a full range of utilities and administrative buildings, having been fully acquired by investors. These investors are developing a range of structures, including warehouses and production facilities. In view of the growing demand, the FEZ administration is implementing the second phase of the project across an area of 138 hectares. By the start of next year, construction of an international airport with a cargo terminal will be completed near the zone. The meeting, which was held at the Ministry of Economy of Azerbaijan, focused on the potential for infrastructure development, ongoing construction projects, and strategies for attracting investors.

Further state assistance

In July 2021, work commenced on the establishment of the Alat SEZ and a transport and industrial hub, operating in close collaboration with the Baku International Sea Port (BISP), with the involvement of international capital. Following the opening ceremony for the site, which was attended by President Ilham Aliyev in June 2023, residents began to actively engage in the range of activities available across the 60-hectare site. At present, the majority of the companies registered here have already commenced construction, while others are finalising their design work.

The FEZ territory is divided into three zones for different purposes, each with well-developed infrastructure. A production and logistics hub with an export orientation is to be established here. The aim is to attract freight carriers and investors to the industrial sector.

As part of the second phase of development, the FEZ was expanded ahead of schedule by 138 hectares, with the majority of these already allocated to investors. The work has also begun on a plot designated for an industrial zone in Alat. In particular, earthworks have been completed on an area of 364 hectares for the siting of heavy industry facilities. In 2026, plans are in place to commence further infrastructure projects on this site, with Azerenerji CJSC set to begin construction of a substantial substation in the near future. It is encouraging that business proposals have already begun to arrive from potential SEZ partners regarding promising projects on the territory allocated for heavy industry enterprises.

According to information provided by the Ministry of Economy following the Working Group meeting, Alat SEZ is undergoing comprehensive work to stimulate export-oriented production based on best management practices that generate high added value. Minister of Economy Mikayil Jabbarov provided an update on the discussions held concerning the work carried out in the zone. The topics covered included the progress of the international airport construction, infrastructure development, effective organisation of activities and attracting investment. The importance of strengthening the zone's activities for attracting investors using innovative technologies, expanding their cooperation with local companies and creating new jobs was emphasised during the meeting.

Following the third meeting of the Working Group, it is important to note that additional state support was provided for the development of initiatives in this cluster. By a decree of the Head of State dated 24 April, entitled 'On additional measures to ensure the operation of the Alat Free Economic Zone', a plot of land measuring 1,453.09 hectares was transferred free of charge to the authorised body of the Alat FEZ with the right of permanent use. This plot of land is located within the administrative territory of the village of Alat in the Garadagh district of Baku.

Unique opportunities

The expansion of the FEZ's area is a crucial trend, indicating growing interest from international capital in the opportunities offered by this cluster. Ilham Aliyev noted the following during a press briefing with Latvian President Edgars Rinkevics, who had arrived in Azerbaijan on an official visit:

"The Free Economic Zone in Alat offers high-quality services, supported by legislation that is very favourable to investment, which is already enabling it to attract significant volumes of foreign investment." "In my professional opinion, the legal framework, coupled with its strategic location in close proximity to the primary commercial seaport and the railway network, renders the FEZ a highly attractive proposition."

A key advantage of the Alat FEZ lies in its unique legislative framework, which provides potential resident investors with tax, customs and other non-fiscal incentives. Companies that invest in the Special Economic Zone (SEZ) are exempt from Value Added Tax (VAT), income tax and any other corporate tax. They are also exempt from customs duties and taxes on imports and exports from the zone. The income tax regime for foreign specialists and recruited employees is extremely liberal. Another option for foreign legal entities and individuals is the absence of restrictions on property ownership within the territory of the SEZ.

Furthermore, foreign investors are not required to have local partners or to hold a stake in the company. There are no restrictions on foreign exchange transactions or the repatriation of profits within the free zone.

In an interview with local media, Valeh Alasgarov, Chairman of the Board of the Alat SEZ's authorised body, recalled the history of the cluster's creation, emphasising that all key aspects had been taken into account during its development: "In order to enhance its appeal, we studied the experience of free economic zones not only in our region but also in other countries around the world. This involved analysing their legislation, operating conditions and the reasons for their successes and failures. Currently, there are over 4,500 free economic zones worldwide, though it is important to note that not all of them can be considered successful."

Another key benefit for potential investors is the FEZ's strategic location near the seaport (BISP) and its position at the intersection of the North-South and East-West international transport corridors. This allows companies to make effective use of sea, rail and road transport, saving time and costs. It is also crucial that the area boasts a well-developed energy, transport and utility infrastructure, modern office premises, and spacious warehouse and industrial sites. A key benefit of the SEZ is the introduction of a project by Silk Way, a leading Azerbaijani cargo airline, to construct a large airport in Alat. A 750-hectare site has been allocated for this purpose, which will house not only the airport infrastructure but also facilities for the delivery, storage and distribution of cargo belonging to residents and other companies intending to use this airport. The airport's cargo and business aviation segments are scheduled to come into operation no later than the end of the first quarter of 2027. The initial cargo throughput at the airport is estimated at 500,000 tonnes per year, with a subsequent increase to 1.5–2 million tonnes.

Old and new projects

It is no surprise that all of the above is attracting companies from Central Asia, the European Union, China, India, Israel, Turkey and Russia to Azerbaijan. A memorandum of understanding has been signed with partners from Uzbekistan to establish warehouses in the Special Economic Zone (SEZ) for the transhipment of sugar and other cargo. Companies from China and Kazakhstan are planning to set up their own logistics and warehousing infrastructure here.

It is also beneficial for China to set up manufacturing operations in the Alat SEZ and to export products to Europe and other markets. This approach allows for a reduction in the 'delivery distance' and enables companies to take advantage of the other benefits and opportunities offered by this cluster. Businesses from China have recognised these opportunities, and the Chinese company Sunsync has been granted a plot of land to build a solar power station. Furthermore, the Chinese company will transfer advanced technologies and innovative potential by establishing a solar panel manufacturing plant within the SEZ.

"The majority of the output will be exported, as production volumes are expected to be very high. The aim is to enter not only the Azerbaijani market but also the global market," said Valeh Alasgarov. "It is our recommendation that investors consider utilising solar panels manufactured by the Chinese company for enterprises under construction in the SEZ, as well as in tenders held in Azerbaijan." He confirmed that negotiations are underway with the business community regarding the localisation of wind turbine equipment production, which will reduce the costs of their construction in the country and eliminate transport and logistical difficulties in delivering them to Azerbaijan.

According to current SEZ legislation, a favourable regime of tax and customs preferences is available to residents who export around 75% of their output. Consequently, the industrial cluster in Alata is being considered as a regional hub for pharmaceutical companies and investors willing to focus their production primarily on exports to Caspian and other post-Soviet countries.

Negotiations are underway regarding major industrial projects that could be implemented in the SEZ in the near future. These include the establishment of an aluminium production plant. The raw materials required for this project will be sourced from overseas suppliers, including Vietnam and Guinea, and will be delivered by sea.

In addition to logistics and manufacturing projects, the SEZ site will also serve initiatives in the field of digitalisation and the provision of network services. Plans are in place to establish a data centre and a cloud platform for the development of artificial intelligence (AI). "During our meeting with the CEO of an American company specialising in artificial intelligence, we discussed the prospects for developing AI infrastructure in Azerbaijan. Particular attention was paid to strategic proposals in this area, including the creation of a data centre and a cloud platform in the Alat SEZ, as well as potential cooperation in establishing the relevant regulatory framework and supporting technology transfer," Mikayil Jabbarov wrote on social media platform X.

As we can see, all necessary steps are being taken to promote Alat's existing logistics and industrial potential internationally and to attract foreign investors willing to increase the SEZ's capitalisation.