Azerbaijan gears up for digital transformation on the horizon World Economic Forum appreciates Baku's efforts in IT sector

The digital transformation of the economy and the introduction of modern IT technologies into production and business processes have been recently the mainstream directions in the development of civilisation.

The listed trends are also noticeable in Azerbaijan, where incubation centres operate. An ecological niche for IT startups is being created. The work is underway to create powerful DATA centres and the G-cloud system. The Azerbaijani Centre for Analysis and Coordination of the Fourth Industrial Revolution has been created under the Azerbaijani Economy Ministry. A bill “On Innovation Activity” is being prepared there.

Azerbaijan’s efforts in developing digital trends have been praised by the World Economic Forum (WEF), and this progress was outlined in the recently published report “IDEA: Investing in the Digital Economy of Azerbaijan”.

According to the WEF report, the Azerbaijani government is pursuing major reforms focusing on the digital economy. The innovation sector has been recently seen as an integral component of the country's long-term socio-economic development goals.

The MPs think that foreign direct investments (FDI) will play an important role in promoting digital growth and enhancing global competitiveness in line with its national vision of economic diversification, which envisages a decrease in dependence on extractive industries (oil and gas sector).

According to the report, most of the new investment projects in the country were concentrated in such sectors as financial/business services, software and IT services, and industrial equipment production from 2016 to April 2023.

According to the WEF document, the progress in digitalisation of the economy is obvious, first of all, in the creation of numerous institutions and programmes aimed at supporting the development of high-tech business and promoting innovations, such as large-scale specialised events organised by the government, the development of specialised technology parks and business incubators, as well as support for the startup movement.

The Economy Ministry is developing a bill “On Innovation Activity” under the decree of Azerbaijani President Ilham Aliyev, for coordination and development in this sphere, the report says.

WEF experts also note the development of the “Strategy for the Development of the Digital Economy of Azerbaijan” among the ongoing measures.

A special working group has been created since December 2022 under the auspices of the Centre for Analysis and Coordination of the Fourth Industrial Revolution (C4IR Azerbaijan) to develop this document, aimed at creating a sustainable and competitive IT sector.

The new strategy covers the digitalisation in several sectors, including tourism, transport and logistics, industry, agriculture and food security. The strategy also includes Big Data, AI, IoT, and digital marketing.

The document envisages the active implementation of public-private partnership mechanisms. About 34 projects are planned to be implemented in the private sector, while about 14 initiatives - in the public sector.

WEF specialists initiated the creation of the C4IR Centre in Baku under the Ministry of Economy two years ago. This center became the first such centre of the WEF in the CIS countries, and its activity is intended to make an important contribution to accelerating the introduction of modern technologies, digitalisation and the application of innovations in Azerbaijan.

This work is carried out through three main platforms, including the development of artificial intelligence and machine learning, the development of IoT systems and urban transformation, and the promotion of digital trade.

Cooperation within the creation of the C4IR Centre is not the only joint project, and the World Economic Forum has outlined several priority steps to attract FDI into the domestic digital economy.

“We are actively working to understand the needs of local companies and determine a list of measures that will promote investment growth in the digital economy and foreign direct investments in the digital sphere,” WEF representative Matthew Stephenson said in a video message addressed to participants in the export and foreign investment readiness training programme “Digital SMEs and Startups Ready to Scale Up” held in Baku.

“Today's workshop is aimed at implementing these priorities, supporting investment growth and addressing existing challenges, all of which are a unique opportunity to work together to improve Azerbaijan's digital readiness,” he added.

The two-day workshop was organised within the three-phase project “Investments in the Digital Economy of Azerbaijan” (IDEA), implemented through the WEF, as well as the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

These initiatives are aimed at accelerating the capacity of Azerbaijani small and medium-sized enterprises in the IT sector and startups, attracting FDI and increasing the export of digital services.

In particular, the most important goal of the workshop is to work practically with startups that are at the expansion stage and teach them how to attract corporate venture capital.

“This global venture capital market is worth trillions of dollars, and scale-up startups have the potential to access this funding, but most startups face challenges finding and attracting investors,” UNESCAP representative Heather Lynne Taylor-Strauss noted during the workshop.

“The workshop participants will learn how to find corporate venture investors, establish contacts and present their projects, and this knowledge will help startups use capital to expand and scale their companies,” she said.

The potential of the Smart Industry Readiness Index (SIRI), created by the Singapore Economic Development Board (EDB) in partnership with leading technology companies, consulting firms, and experts, was used in the process of developing a digitalisation roadmap for Azerbaijan through the organisational support of the WEF and UNESCAP.

The SIRI Index includes frameworks and tools assisting manufacturers regardless of sector to start, expand and support their digital transformation.

The assessment of the development of basic infrastructure elements of the IT sector (broadband internet, DATA centres) in Azerbaijan indicated in the WEF report has been fully justified. Azerbaijan has also recently achieved visible progress in the development of the legislative framework, the creation of electronic platforms and tools, as well as in training personnel for digital transformation.

The work has been underway for several years to create an ecological niche for IT startups and create specialised incubation centres in research centres and universities to develop the software business, and train startups. The pilot projects are being implemented to introduce IoT and AI technologies. Drones are assembled for civilian use.

The digital management systems for “smart” cities and villages with components of “green” energy and energy-efficient technologies in the utility sector are being introduced in Baku, Ganja and the reviving cities of the Karabakh region within the Smart City programme.

The work is being carried out in this sphere through the support of companies and specialists from Türkiye, Israel, several European countries, and China.

In turn, the projects on digital government, digital competencies and innovation ecosystem are being implemented under the single Digital Azerbaijan brand. This also applies to the development of products within the Digital Academy, Digital Finance, Mygov, Digital Docs, Digital Login, etc.

In particular, the Chairperson of the Innovation and Digital Development Agency under the Azerbaijani Ministry of Digital Development and Transport Inara Valiyeva said that the number of active startups in the country may increase from 220 to 500 by 2026.

“An increase in the number of startups is directly correlated with the minimum viable products (MVPs). There are currently about 105 startups offering MVPs, and we plan to add 115 more MVPs to the market this year,” she said.

According to the Agency, the most important step that made Azerbaijan attractive to both local and foreign IT companies is related to the broad tax benefits and several other preferences which are given to the companies in the system integration and software structures.

To date, 70 legal entities out of more than 200 applications have received a certificate of registration of residence in a corresponding technology park.

The Agency also plans to create two innovation clusters and seven innovation centres in the country. Among the most successful initiatives was the implementation of the Technest scholarship programme, aimed at training highly qualified personnel for the IT sector.

The number of graduates of this programme has already exceeded 4,000 people, and shortly the number will be increased to 19,000 people.

A promising direction in the Agency’s activity is the creation of an identification fund to support startups with a capital of $10 million by the end of this year, as well as the expansion of investment projects with angel investors and venture funds.