Future airport to expand Alat FEZ's logistics mobility Caliber.Az review

Free Economic Zones (FEZs) of various types have long been recognised as the most effective and tested tool for attracting investments in transport, logistics and production spheres.

Azerbaijan is also following this path, having launched the first phase of the Alat FEZ in June this year, operating in close cooperation with the Baku International Sea Trade Port (BISTP). The key objective is to turn the port FEZ into the region's most important production and logistics hub, attract international capital and ensure technology transfer. In less than a year and a half, the first phase of the cargo airport, the construction of which has recently started, will be put into operation in the Alat FEZ.

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

At the same time, these restricted areas not only enjoy duty-free customs, transit and trade regimes but also generally have more liberal economic rules than the rest of the country. As a result, these zones allow foreign and local companies to import and export, as well as to store raw materials and components, packaging and simple finishing, labelling, quality control and kitting of wholesale and retail shipments.

Residents of such hybrid FEZs enjoy several fiscal, utility, lease and credit incentives, particularly favourable to the construction of industrial enterprises whose products are mainly export-oriented. To date, there are about 4,300 FEZs and SEZs of various types in more than 130 countries around the world.

The first phase of the Alat FEZ, which was commissioned in June this year, is also being developed as an export-oriented production and logistics hub focused on attracting cargo carriers and investors in the industrial sector. The key advantage of the Alat FEZ is the unique legislative framework that provides potential resident investors with tax, customs and other non-fiscal incentives.

Companies investing in the FEZ are exempt from VAT, income tax and any other corporate tax, as well as from customs duties and taxes on imports and exports from the zone. There is an extremely liberal regime in the area of income taxation of foreign specialists and hired employees. Another option for foreign legal entities and individuals is that there are no restrictions on ownership of property in the FEZ, and foreign investors are not imposed requirements to have local partners and be shareholder. There are no restrictions on currency transactions or repatriation of profits in the free zone.

In the aggregate, the convenient location of the FEZ near the Alat port, broad fiscal preferences, extensive energy, transport and utility infrastructure, as well as modern office space, and in the near future warehousing and production sites, attract companies from the Caspian region, EU countries, China, Türkiye, etc. to Azerbaijan.

Thus, this year, a memorandum was signed with companies from Uzbekistan on the creation of sugar transhipment warehouses in the FEZ, and an agreement was signed with the Hungarian company Hell Energy on the construction of a plant for the production of aluminium cans in the Alat zone. There are also plans to localise the production of pharmaceutical products here: companies from Israel, Türkiye, Pakistan and several other countries are considering such plans, and one of the first foreign residents of this FEZ was the Israeli pharmaceutical company BioPharmax, which plans to produce about 50 medical products in Alat with the prospect of exporting them to the entire Caspian region.

The number of applications from international investors is gradually increasing and the design and preparatory work for the next phase of development of the zone for standard manufacturing plants and logistics centres, which will be located on 138 hectares, is currently underway and earthworks will start soon. A 211-hectare plot intended for heavy industry enterprises is also being designed. At the next stages in the FEZ will work automated logistics base, where warehouses will be created, in the future, a site for servicing 100,000 standard containers may be created. To this end, the Azerbaijani government has reserved more than 7,000 hectares for further expansion of the FEZ territory.

"Alat FEZ, where three zones are being formed - 206 hectares, 433 hectares and 211 hectares with developed infrastructure, is aimed at creating favourable conditions for attracting investors in the development of entrepreneurial activity. The key priority is to attract companies ready to establish production of high value-added products in line with international standards, with the prospect of exporting about three-quarters of the goods produced," the head of the board of the FEZ authorised body Valeh Alasgarov recently said at the Azerbaijani-Turkish investment forum. According to him, an airport with a cargo terminal will be created in the Alat zone, which along with sea transportation will allow solving all logistical problems.

In particular, it concerns the two-phase construction of a cargo airport in the Alat zone: during the first phase, which will be completed no later than the first quarter of 2026, the air harbour will be able to receive/dispatch 0.5 million tonnes of cargo per year. Upon completion of the second phase, the cargo handling capacity of the airport will be increased to 1.5 million tonnes. An appropriate plot of land has been allocated for the construction of the aerodrome and cargo terminals in the FEZ, where design has already begun and preparatory work is underway.

Here it is appropriate to recall that the presence of cargo airports in combination with sea and land transport communications is an extremely important element of the development of free economic zones all over the world. In particular, the world's largest FEZs and Free Trade Zones were formed according to this scheme back in the 60-80s of the last century in Hong Kong, Singapore, China and the United Arab Emirates (UAE).

In particular, the Alat FEZ was also initially designed along the lines of free economic zones in the UAE, such as Jebel Ali in Dubai. DP World, a UAE company, acted as a consultant on the project and developed the feasibility study and other regulatory documents for the Alat zone. Subsequently, the project was modernised, with more options for the formation of production clusters, opportunities for handling stored goods (repackaging for local markets, adding value to the goods) and their subsequent re-export to third countries.

In fact, the active development of production clusters in the near future requires the creation of its own cargo airport in Alat, the main task of which is to reduce the "delivery shoulder" when exporting manufactured finished products, or to speed up the delivery of components and assemblies for assembly. Aviation shoulder is especially important for the transhipment of high-value cargo, electronics, equipment, etc. Such a scheme is based on the rich experience of the Dubai Airport Free Zones (DAFZA) and Sharjah Airport Free Zones (SAIF Zone), where the simplification and acceleration of logistics and customs procedures have significantly increased the efficiency of production processes.

For the realities of Azerbaijan, it should not be overlooked that the cargo terminals at Heydar Aliyev International Airport are currently overloaded, while the unloading of cargo delivered by aircraft to the airport in Bina, its loading onto trucks and further transport through the "traffic jam" streets of Greater Baku also takes a lot of time. In contrast, there will be no such problems at Alat airport, and international freight forwarders will be able to use this air harbour for multimodal transport schemes, and residents localised in the FEZ will be able to transport all the products they need quickly by air.