Karabakh entices private investors
Review by Caliber.Az

ANALYTICS  20 September 2022 - 12:34

For two years now, Azerbaijan has been implementing a large-scale program to revive the territories of the Karabakh and East Zangazur economic regions liberated from occupation. Not only Azerbaijani companies, but also dozens of contractors and equipment suppliers from Türkiye, Europe, Israel, and post-Soviet states are involved in these works, which are almost completely financed by the state budget.

Baku is interested in enticing international capital and local investors to the Azerbaijani lands liberated from the occupation, and so far about 1,300 such applications have been registered. Achievements and prospects of attracting investments to the Karabakh region were discussed during the recent Shusha Business Forum.

The key area of investment activity of the Azerbaijani government in the past and current year remained the sphere of the revival of the road, energy, utilities, and other infrastructure destroyed in the Karabakh region during almost thirty years of Armenian occupation. Practically all works in the restored territories began from scratch, as over 300 cities and towns were completely ruined, agricultural and industrial enterprises were destroyed and plundered, and the accompanying communications and infrastructure were put out of order. Within two years, an enormous amount of demining, the construction of roads, power lines, and substations, and the restoration of water and other utilities have begun on the liberated lands. In particular, in October last year, the Fuzuli airport was put into operation, and tentatively, on October 20 this year, the ceremony of launching the Zangilan airport will be held.

Well, the main thing is that this year new industrial and agricultural parks have been laid in the Karabakh region, the first "smart" village of Aghali in the Zangilan district has been put into operation, where the first residents are already settling, as well as social, residential and other facilities are being built in Shusha, Aghdam, etc.

The whole volume of work on the creation of the primary infrastructure, construction of housing, and social and community facilities is provided at the expense of state funding: in the last and the current year 4,4 million manats were allocated from the budget for these purposes. With such a substantial infusion of capital, the Azerbaijani government has been able to attract dozens of local and foreign contractors - construction, engineering, consulting and design companies, launching an unprecedentedly large-scale work front for the revival of the Karabakh region. An additional 1.447 billion manats were allocated in June this year as a result of the revision of the budget revenues, and most of these funds will also be used for road infrastructure projects in the liberated lands.

At the same time, Azerbaijan is keen to attract private investors and other sources of capitalisation for industrial, agrarian, tourism, and other initiatives. Moreover, local and especially foreign companies are not only implied as a source of capitalisation for the future economy of the liberated territories, but also as a way of attracting modern technology and know-how, creating a competitive environment, reducing financial and technical costs, and providing a base for the creation of new jobs and the production of export-oriented products. Although demining and road and other infrastructure projects are still ongoing in the de-occupied areas, the first pilot business initiatives are already underway.

"On the arable lands of Karabakh and East Zangazur economic regions 50 thousand hectares are allocated for spring and winter sowing, in subsequent years the area of sowing will increase. Starting last year, pilot projects for sheep breeding and the creation of apiaries are implemented in Lachin and Kalbajar regions, and Dost agro park, an export-oriented cattle farm with its own feed base, is formed in the Zangilan region together with Turkish businessmen," Agriculture Minister Inam Karimov said recently at a business forum of Turkic states dedicated to the restoration and development of the Karabakh region, held in Shusha.

A total of 146 small and medium-sized enterprises have been established in the Karabakh economic region in 2021 alone, with 32 more to come this year. In the East Zangazur economic region, there are 44 and 7 established enterprises respectively. Many thousands of individual entrepreneurs are already operating in the new economic regions, mainly in the agricultural, service, and trade sectors. And this work continues successfully.

"As of today, about 1,300 applications from entrepreneurs wishing to establish a business in Karabakh have been registered, of which over 460 applications come from foreign companies from 40 countries," another forum participant, chairman of the Small and Medium Business Development Agency (KOBİA) under the Ministry of Economy Orhan Mammadov noted. More than half of foreign applications come from member countries of the Organisation of Turkic States, the KOBİA head said. The leading companies here are Turkish companies planning to develop mineral resources in the Karabakh region, including gold and copper deposits, as well as to develop the sphere of tourism, agricultural processing, production of clothing and consumer goods, construction materials, construction services, etc. About 65 applications were received from Kazakhstani companies wishing to implement business initiatives in Karabakh, there are also some proposals from Hungarian and Uzbek entrepreneurs.

Speaking about the prospects of industrial development of the liberated territories, we should note that the residents of the Aghdam industrial park in the region started primary works in August, in order to implement here about 15 production projects. Among them are application on ventilation, fire-fighting equipment, and metal products, production of concrete, maintenance of heavy machinery, as well as restoration and production of some metal parts, production of orthopedic mattresses and upholstered furniture, sewage and drinking water pipes. In turn, the Azerbaijani authorities are ready to provide technical assistance to entrepreneurs and invest in the construction of enterprises in Aghdam to produce and process leather, as well as broom and glazed tiles. "Nine residents are currently registered in Aghdam Industrial Park, and they are expected to invest over 50 million manats in the cluster, creating more than 1,000 jobs," chairman of the Azerbaijan Economic Zone Development Agency Elshad Nuriyev said speaking at a special session on "Investment opportunities of Karabakh and East Zangazur economic regions" during the business forum in Shusha. The head of the Agency also recalled that the "Araz Valley Economic Zone" is being formed in Jabrayil for the purposes of agro-industrial development of the East-Zangazur economic region.

Since the end of the last year works on the creation of primary infrastructure have been carried out in the territory of the future economic zone of the Jabrayil region. Design and construction work on the formation of an industrial park with an area of 200 hectares is carried out. A service centre has already been launched here on an area of 1.5 ha - a joint enterprise of PA "Ganja Automobile Plant" and Russia's OJSC "KamAZ", where trucks and agricultural machinery will be serviced and repaired. The KamAZ service centre is expected to be commissioned by the end of 2022. And in the longer term, the establishment of the technical service centre and the assembly plant of Iveco Truck & Bus in this industrial zone cannot be ruled out. It is also planned to establish logistics and trade centres, various services, a refrigerating complex, and customs warehouses in Araz Industrial Zone. Private capital will be allocated for the construction of enterprises for the production of facing, insulation and construction materials, various additives, and metal structures for construction. It is envisaged to establish plants for packing agricultural products, production, and processing of fruits and vegetables, dairy and meat products, wine, fodder, fertilisers, as well as silk and cotton processing plants.

Moreover, in order to encourage local and foreign investors, starting from 2023, the Azerbaijani government plans to provide a number of tax incentives for businesses, including producers of agricultural products. These preferences are designed primarily for residents operating in the liberated territories - in Karabakh and Eastern Zangazur. It should be mentioned that currently the residents of the industrial parks are relieved for 10 years from paying income tax, property and land tax from the date of their registration, as well as VAT for imported machinery, technological equipment, and installations. In addition, residents are exempt from customs duties on imported machinery, technological equipment, and installations for seven years.

The participation of the world donor structures in the projects with their low-interest and "long" credit lines can be significant support in attracting domestic and international businesses to the Karabakh big construction. According to the information recently published by the Ministry of Finance on the formation of the budget for 2023 and for the following three years, the government plans to expand cooperation with leading international financial institutions (IFIs) in 2023-2026, attracting their loans and grants for Karabakh and Eastern Zangezur. In particular, the Ministry of Economy and a number of other institutions are successfully negotiating with the World Bank (WB), the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB), and several other IFIs whose financing in Karabakh could be used to support SMEs as well as green economy development, energy efficiency projects, construction of wind and solar plants, small hydropower plants, etc.

Caliber.Az