Azerbaijan's robust industrial clusters show significant growth with strong focus on export Review by Caliber.Az

The strategic goal of transforming the national economy is to increase the competitiveness of the non-oil industry and its orientation towards foreign markets. The optimal solution to this task is the development of economic zones of various profiles. Today, they account for a significant share of the production and export of non-oil products. Moreover, despite the negative impact of the global recession or the decline in the dynamics of domestic GDP, the interest of entrepreneurs to invest in these clusters is growing. This is confirmed by the statistics quoted the day before by the Minister of Economy of Azerbaijan, Mikayil Jabbarov, on his X page: "In 2023, 26 companies will receive the status of residents in the industrial zones of the country."

The global recession in 2023, leading to an economic slowdown in the European Union and the United States, contributed to a decline in world energy prices. This, as well as high inflation and lower demand for trade in the neighbouring countries - the leading trade and economic partners of Azerbaijan - have influenced the slowdown of the domestic economy. Last year, our country's overall GDP grew by just 0.8 per cent, due in large part to the fall in output (exports) in the oil industry.

However, the indicators of the development of the country's non-oil sector look remarkably better against this very difficult background: in January-November last year there was a 7.8% growth in production in the non-oil industries. Things are even more optimistic for non-oil exports. They reached $3.3 billion at the end of last year, according to calculations by the Centre for Analysis of Economic Reforms and Communications (CAERC).

Furthermore, the Azerbaijani government forecasts that the growth of non-oil industrial production will reach 8.5 per cent in 2024, and the average annual growth rate will increase to 9.4 per cent in 2025-2027.

These forecasts show that despite the successes in the gas industry and the increase in deliveries of "blue" fuel to European countries and Türkiye, the Azerbaijani government has a clear goal to reduce dependence on the resource-based economy in favour of the development of high-tech industry, "green" energy and digitalisation of production chains in general.

In particular, the key directions of the "National Priorities of Socio-Economic Development: Azerbaijan 2030" adopted about two years ago and the medium-term "Socio-Economic Development Strategy of Azerbaijan for 2022-2026" implemented within the framework of this document are focused on these goals. These documents are designed to ensure a qualitative transformation of the national economy by increasing the competitiveness of the agro-industrial sector and strengthening its position in foreign markets. In particular, the implementation of the tasks set out in the strategy will increase the volume of non-oil and gas exports to $5.3 billion by 2027, according to estimates by the Ministry of Economy.

To achieve all these plans, Azerbaijan is creating a healthier and more competitive business environment, and consistently expanding support for entrepreneurial development. Major tax and customs reforms are being implemented, public procurement has become more transparent, tenders are being conducted in digital format, the Competition Law has been adopted, and this year the fight against monopolising certain segments of trade will be intensified and unfair competition in production will be suppressed. Support mechanisms for the start-up ecosystem and incubators are being improved, and access for small and medium-sized enterprises to new preferential financing mechanisms is being expanded. All this will make it possible to increase the share of the private sector in the country's economy to 88 per cent.

It is obvious that the effective steps taken in recent years within the framework of Azerbaijan's new industrialisation programme are responsible for the success of recent years in domestic non-resource production. The main tool for diversification of the non-oil economy and industrial breakthrough is the expansion of the number of residents in the country's fifty agro-parks, seven industrial parks and five industrial districts, as well as the first phase of the production and logistics FEZ in Alyat, which was launched last summer. The list of industrial clusters is expected to be completed in 2024 with the creation of the Absheron Valley Innovation Cluster. A budget of $130 million has been earmarked for its development.

There is no need to doubt the effectiveness of the tools used to develop diversified industrial zones: all residents operating here have been granted several tax, customs, utility and other concessions, and the necessary infrastructure has been created at the expense of state investments, production and office premises have been constructed, and access to transport communications has been ensured. All this, together with preferential credit programmes, attracting foreign investors, export certificates and other support for entering foreign markets, enabled enterprises in industrial zones to focus on producing competitive export products. Accordingly, the process of capitalising on the country's clusters is progressing steadily, despite external negatives or changing market conditions.

"In 2023, 26 economic entities received the status of residents in industrial zones under the jurisdiction of the Economic Zones Development Agency (IZIA)," Azerbaijan's Minister of Economy Mikail Jabbarov wrote the day before on X platform. - Including 7 new residents registered in Aghdam Industrial Park, 5 - in Araz Valley Economic Zone Industrial Park, 8 - in Sumgayit Chemical Industrial Park, 3 - in Pirallahi Industrial Park, one - in Hajigabul Industrial Quarter and two - in Sabirabad Industrial Quarter". The residents intend to invest $277 million and create more than 3,100 permanent jobs in the industrial clusters in the near future, the minister stressed.

The largest industrial park in the republic, the Azerbaijan Agricultural Industrial Park, can be cited as an example of the effectiveness of industrial zones in Azerbaijan. In the 12 years of its operation, 31 resident companies registered here have produced products worth $5.5 billion, created more than 6600 permanent jobs, and the total investment amounted to about $3.4 billion.

The car assembly sector, located in the industrial zones, is developing very actively: for example, by the end of 2023, the number of cars produced was 4,233, which is 2.1 times higher than the previous year's figures. Business activity in the Pirallahi industrial park, which is mainly focused on the production of pharmaceutical products, has also intensified: six companies are now registered here, and the total volume of investment exceeds $67 million.

In general, by the beginning of 2023, 108 business entities have been granted resident status in the industrial zones of the republic, and more than sixty of them are already actively working.

Entrepreneurs have invested more than $3.7 billion in industrial zones. More than 10.1 thousand permanent jobs have been created. Industrial clusters are actively exploring foreign markets, both near and far, and their products are exported under the common brand "Made in Azerbaijan" to more than 50 countries of the world. The peak of foreign economic activity of the industrial zones was reached in 2022: about 1/3 ($1.3 billion) of the production value of over $999 million was exported.