Alat FEZ: Azerbaijan’s emerging logistics and manufacturing hub From sea to sky

Alongside discussions of global environmental, energy, and climate issues, the ongoing UN conference COP29 in Baku has provided an optimal platform to showcase new infrastructure projects of international significance.

In particular, the Silk Way Group has announced plans to build a new cargo airport in the Alat Free Economic Zone (FEZ). The key goal of the Alat FEZ, which works in close cooperation with the Baku International Sea Trade Port (BMTSP), is to become a major manufacturing and logistics hub in the region, attract international capital, and ensure technology transfer. According to international experience, the creation of a modern air hub in Alat is an important milestone in achieving this goal.

The work that began in July 2021 as part of the first phase of developing the Alat Free Economic Zone is progressing successfully. On a 60-hectare area, administrative buildings have been constructed, and work continues on other facilities. Additionally, customs control facilities have been built at the entrance to the FEZ to optimize logistics operations. This process was further accelerated following the official opening ceremony of the FEZ on June 9, 2023, with the participation of President of Azerbaijan Ilham Aliyev.

According to the Chairman of the Board of the Alat Free Economic Zone's authorized body, Valeh Alasgarov, at the initial stage of the Alat FEZ development, a 60-hectare area has been developed, and the majority of the land allocated for enterprises has already been handed over to investors. Most of the registered companies have started construction, while others are working on design projects. The FEZ area is divided into three zones with different purposes, all equipped with developed infrastructure. Among them, a manufacturing and logistics hub focused on exports will be created, aiming to attract freight carriers and investors to the industrial sector. In particular, active construction is taking place on a designated site within the Alat Free Economic Zone for heavy industry enterprises, with completion expected by the end of next year.

According to Alasgarov, given the demand and growing interest in heavy industry, construction work has begun ahead of schedule on a 284-hectare area designated for industrial purposes, initially planned to begin in two years. The upcoming development phase will focus on designing facilities for standard manufacturing enterprises, logistics centres, and heavy industry enterprises on specially allocated lands totalling 349 hectares.

One of the key advantages of the Alat Free Economic Zone lies in its unique legislative framework, which offers potential resident investors a range of tax, customs, and other non-fiscal incentives. Specifically, companies investing in the FEZ are exempt from VAT, profit tax, and any other corporate taxes, as well as from customs duties and taxes on imports and exports to and from the zone. The FEZ operates under an extremely liberal regime for income taxation of foreign specialists and hired employees.

Another notable feature is the absence of restrictions on property ownership for foreign legal and natural persons within the FEZ. Foreign investors are not required to have local partners or shareholders. Additionally, the zone imposes no limitations on currency transactions or the repatriation of profits.

Another significant advantage for potential investors is the convenient location of the FEZ near the Baku International Sea Trade Port (BMTSP), along with its extensive energy, transport, and utility infrastructure, modern office facilities, and, in the near future, spacious storage and production areas. These features make Azerbaijan an attractive destination for companies from the Caspian region, the European Union, China, and Türkiye. For instance, last year, a memorandum was signed with Uzbek companies to establish warehouses in the FEZ for sugar and other goods. Additionally, companies from China and Kazakhstan plan to develop their own logistics and storage infrastructure in the zone.

“The location of the free zone along the routes of the Middle Corridor is no coincidence. For China, in particular, it is advantageous to establish production in the Alat FEZ and export to Europe. This approach allows for avoiding additional transportation costs while benefiting from the incentives and opportunities offered by the FEZ,” says Valeh Alasgarov.

An agreement has also been signed with the Hungarian company Hell Energy to build a plant in the Alat FEZ for manufacturing aluminium cans and bottling non-alcoholic beverages. Plans are underway to localize pharmaceutical production in the zone, with companies from Israel, Türkiye, Pakistan, and several other countries considering such projects. One of the first foreign residents of the FEZ is the Israeli pharmaceutical company BioPharmax, which plans to produce around 50 types of medical products in Alat, with the prospect of exporting them throughout the Caspian region.

In the next stages, the FEZ will feature an automated logistics hub with warehouse facilities, and there are plans to create a platform capable of handling 100,000 standard containers. To support this, the Azerbaijani government has reserved over 7,000 hectares for the zone’s future expansion.

A significant milestone for the Alat FEZ will be the commissioning of the first phase of cargo terminals at the airport currently under construction within the zone, expected by mid-2026. Initially, these terminals will enable the transportation of approximately 500,000 tons of cargo annually, with plans to increase this capacity to around 1.5 million tons per year.

Alongside the port, the international cargo airport, whose construction began late last year, is set to become the logistical core of the Alat FEZ.

The presence of cargo airports, combined with maritime and land transport networks, is a critical element in the development of free economic zones worldwide. This approach was central to the creation of some of the world's largest FEZs and free trade zones during the 1960s-1980s in Hong Kong, Singapore, China, and especially the United Arab Emirates (UAE). Notably, the Alat FEZ was initially modelled after the UAE's economic zones, such as Jebel Ali in Dubai.

In this regard, establishing a dedicated cargo airport in Alat is particularly significant. It will reduce delivery times for exporting finished products and accelerate the supply of components and parts for assembly. Air transport is especially crucial for high-value goods, electronics, equipment, and similar items.

This model draws on the extensive experience of the Dubai Airport Free Zone Authority (DAFZA) and Al Maktoum International Airport, launched in 2010, as well as the SAIF Zone at Sharjah International Airport. These facilities have demonstrated that streamlining and expediting cross-border and customs procedures significantly enhances trade and logistics efficiency.

Azerbaijan is committed to implementing advanced international practices in this field. During the COP29 conference, the Silk Way Group unveiled an ambitious infrastructure project: the construction of a new CAT III cargo airport within the Alat Free Economic Zone. It was highlighted that the new cargo airport will operate under the management of Silk Way Alat Free Economic Zone, an official entity established to promote logistics and infrastructure initiatives.

The project, expected to be completed by 2026, includes the construction of 18 aircraft parking stands, a 4,000-meter runway, taxiways, an air traffic control centre, and other airport infrastructure. Advanced technologies, such as CEDD for ground lighting systems, are also planned for implementation. The airport project will feature dedicated freight forwarder warehouses, terminals for perishable goods, modern office buildings, and more.

Moreover, the cargo terminals at Heydar Aliyev International Airport are currently operating at high capacity. Additionally, unloading goods delivered by air to this airport, loading them onto trucks, and their subsequent transportation through the congested streets of Greater Baku takes considerable time. In this regard, the Alat Airport will be free from such challenges from the outset, allowing international freight forwarders to seamlessly utilize this air hub, progressively increasing cargo handling volumes year by year.