Azerbaijan's Alat FEZ open up vast opportunities for overseas investors Another successful deal is struck

About a month has passed since the launch of the first stage of the Alat Free Economic Zone (FEZ) held with the participation of Azerbaijani President Ilham Aliyev. Alat FEZ is set to become a major regional centre uniting logistics and production clusters with the attraction of international resources and technologies. One of the first projects to be implemented by the future resident of the FEZ was outlined the other day.

Azerbaijan Investment Holding CJSC and Hungarian company Hell Energy signed an agreement on the construction of a plant for the production of aluminium beverage cans in the Alat zone. This container will be exported to the countries of the region and will also be used for bottling beverages on the domestic market.

Free economic zones of various types have long been recognised as the most effective and tested tool for attracting investment in the transport, logistics and production sectors.

According to the provisions of the international Kyoto Convention of May 18, 1973 "On the Simplification and Harmonisation of Customs Procedures", the concept of free economic zones, as well as special economic zones (SEZ) is defined as a part of the country's territory (enclave), where goods are considered as objects located outside the national territory on the principle of "customs extraterritoriality", due to which they are not subject to the usual customs control and taxation.

At the same time, residents of such FEZs not only enjoy duty-free customs, transit and trade regimes but also generally more liberal economic rules than in the rest of the country. As a result, in such zones foreign and local companies are allowed to import and export, as well as to store raw materials and components, packaging and simple processing, labelling, quality control and kitting of wholesale and retail batches. The availability of fiscal, utility, rent and credit privileges favours the construction of industrial enterprises in FEZs, the products of which are mainly export-oriented.

All this makes it much easier to attract investment in capital-intensive industrial endeavours, and the payback period of such projects is accelerated by at least half as compared to conventional industrial projects.

The Alat free economic zone being created next to the key transit hub of the Caspian region, the Baku International Sea Trade Port (BISTP), also has a favourable regime. Companies investing in the FEZ are exempt from VAT, withholding tax, income tax and any other corporate tax, as well as customs duties and taxes on imports and exports from the zone.

There are no restrictions on foreign exchange transactions or repatriation profit in the Alat Zone, in addition, investors' property cannot be nationalised and their intellectual property rights are fully protected. Foreign companies are not restricted from owning property in the FEZ, nor are investors required to involve local partners or be a shareholder in their endeavours. Finally, the Alat Zone has the most liberal income tax and social benefits for salaried employees and highly skilled foreign specialists.

Recently, Azerbaijan Investment Company CJSC and Hungary's Hell Energy signed an agreement on joint construction of the plant: at the initial stage, the annual capacity of the enterprise will be 415 million cans. The project, the cost of which is estimated at $211 million, provides for the construction of a plant for the production of aluminium cans, as well as the creation of shops for bottling beverages.

As a leader in the Hungarian market and in a number of other countries, Hell Energy plans to use the capacity of the Alat plant to serve both local and regional markets - supplying both cans and finished products. When the plant reaches full capacity, more than 300 permanent jobs will be created.

It is noteworthy that the Azerbaijani-Hungarian project is the country's first endeavour in the production of metal containers for the food industry. Due to the lack of fine steel rolling capacity in Azerbaijan, local producers are still forced to purchase materials for the production of canned food in metal containers, tin screw caps (for glass jars) abroad, and all rolled products - finished tin cans for filling beer, energy drinks and soft drinks - are also fully imported.

Despite the relatively developed aluminium complex in Azerbaijan, the country has never established the production of thin aluminium rolled products for packaging.

But soon the situation with its production may change completely: in July last year, the Azerbaijan Industrial Corporation (ASK), Azeraluminium LLC and German company Achenbach Alpha GmbH signed a contract on the establishment of a joint venture (JV) in Ganja to modernise the alumina and smelting complex, as well as the construction of a plant for the production of rolled aluminium. The total investment cost of the project is estimated at $451.2 million, with $132 million to be invested in the first stage.

During the two stages of the project implementation, it is planned to increase production to 105,000 tonnes of aluminium products per year, including the production of food-grade aluminium foil and rolled sheet materials suitable for use in the food industry.

According to the plans of Hungary's Hell Energy, the aluminium cans plant is expected to be put into operation in 2025, and thin-rolled goods production is expected to start in Ganja a few years later. Thus, the enterprise in Alat FEZ will be supplied with local raw materials, which will significantly reduce production costs.

It is noteworthy that the preferential regime is also very attractive for turning the Alat FEZ into a regional centre for the production of pharmaceutical products, a significant part of which will be exported. "It is planned to build several pharmaceutical factories on the territory of Alat FEZ. In this regard, specialists from Israel, Türkiye and a number of other states have already arrived in Azerbaijan," Chairman of the Milli Majlis Committee on Health Ahliman Amiraslanov said not long ago.

In particular, one of the first foreign residents of the Alat FEZ was the Israeli pharmaceutical company BioPharmax, which is planning not only to fully satisfy the domestic market of Azerbaijan but also to expand the supply of its medicines (about 50 items) throughout the Caspian region by localising production in the free economic zone. GEN, a leading Turkish pharmaceutical company, also intends to set up production of medicines in Azerbaijan, so it is quite likely that in the future the facilities of the Turkish manufacturer will also be located in the FEZ.