Industrial clusters of Azerbaijan - driving force behind non-oil sector An analysis by Caliber.Az

Despite the negative developments in world trade, the decline in economic dynamics in the EU and the US, the decline in exports to China and so on, the rate of non-raw exports increased in Azerbaijan by almost 18% for the period of January-July this year. The growth of production in the non-oil sector is quite substantially supported by the activity of industrial parks and districts, whose products are today being exported to 60 countries under the brand "Made In Azerbaijan". According to recently published data by the Agency for the Development of Economic Zones (IZIA), the development of industrial clusters in the country continues at a high rate with the number of its new residents increasing and investment in export-oriented industrial projects growing.

As for the world economy, according to recently published reports by experts of the Geneva Secretariat of the World Trade Organization (WTO), they predict that it is unlikely to grow steadily in the third quarter of this year, although the trade situation improved slightly in the second quarter compared to the year-to-year failures. The slowdown in trade is particularly pronounced in the industrial sector: according to a new WTO indicator, named "Goods Trade Barometer", export orders declined in most primary areas with the exception of the automobile industry, which recorded a growth of 110.8 points. "On a 100-point scale, the component of export orders for the third quarter remains weak", the WTO report says. "Most indicators of the barometer remain below the baseline of 100 points. This applies to export orders (97.6 points), container transport (99.5), air transport (97.5), commodity trade (99.2) and electronics components (91.5)".

The impact of the energy and food crises of the past year, unprecedented inflation and never-before-seen efforts in North America and the European Union to raise interest rates to counter rising prices account for this difficult situation. The other side of these measures led to a raised cost of debt, reduced investment, and reduced production, which, since the beginning of 2023, have left industries in the world’s leading economies in a recession - a decline in production and trade dynamics.

All this global negativity has to some extent affected the economies of developing countries and, in particular, affected the post-Soviet region, whose trade cooperation faced the challenges of war in Ukraine, the disruption of transport logistics and other risks. However, unlike many post-Soviet countries, the pace of non-oil production and export in Azerbaijan has shown enviable stability this year and, generally speaking, managed to maintain the momentum gained in the last two years. In particular, in 2021, aggregate supplies of non-oil and gas products exceeded $2.713 billion, increasing by a record 47.2%, and this positive trend continued in 2022 - more than $3,047 billion worth of goods were shipped abroad, which is 12.3% more than last year.

According to the recently published data of the Center for Analysis of Economic Reforms and Communications (CAERC), Azerbaijan’s non-oil exports in January-July 2023 amounted to $2 billion, which is 17.8% more than in the same period last year. This is a very good start, giving hope for a full implementation of the government’s projections for non-oil exports in 2023 at $3.5 billion. On the other hand, export growth testifies to the competitiveness of Azerbaijan’s industrial and agricultural products and the presence of steady demand for them not only in the post-Soviet region, but also in foreign countries.

It is worth noting here, that geopolitical conflicts and the negative impact of the recession on the economies of developed countries have opened a window of opportunity for many developing country exporters, who have multiplied exports to Europe, the US and other developed world markets. The beneficiary of these changes, along with the Central Asian republics, has also been non-aligned, neutral Azerbaijan, where domestic production has maintained the necessary volumes and, above all, possesses relatively more affordable prices. Our country has in particular quite dynamically increased external supplies of industrial products - carbamide fertilizers, polymers, fuel, other petrochemical products, as well as building materials, concentrates of ores, copper cables and aluminum rolled, precious metals, fresh fruit and processed food products, and more recently, electricity (for the first 7 months of 2023 $314.46 million was exported). The latest milestone for Azerbaijan’s export strategy was the manifold increase in the supply of electricity, since, unlike the export of raw materials, they involve different production industries, providing a higher level of added value.

It is noteworthy that our country owes its steadily growing industrial exports primarily to the effective measures taken in recent years aimed at developing the program of the new industrialization of Azerbaijan. This program focuses on the formation of industrial zones, industrial districts, and other profile clusters, including the recently launched first phase of the Production and Logistics Free Economic Zone at the Alata Port. In particular, according to recently published data from the Agency for Development of Economic Zones, 7.18 billion manats (approx. $4.22 billion) have been invested in the industrial parks and industrial quarters created in the country in recent years, of which 6.56 billion manat ($3.86 billion) have already been spent. These steps have made it possible to create 10,600 new jobs, with the volume of investment to amount to 690 million manat (approx. $405 million) in the next stage, which will also create more than 5,200.

The leading position among the industrial clusters created in the country is occupied by the Sumgayt Chemical-Industrial Park (SCIP): the total investment in industrial facilities registered in SCIP's 37 residents exceeds 5.3 billion manat (approx. $3.12 billion), thanks to which more than 4,000 jobs were created in the chemical park. And in the next few years, the investment of another 386 million manat (approx. $227 million) is expected, creating more than 2,000 new vacancies. It should be noted, that the SCIP is the leader both in terms of production and export volumes - 8.67 and 3.12 billion manat (approx. $5.10 and $1.84 billion) respectively.

"Currently, 134 business entities have been registered as residents of Azerbaijani industrial clusters, from the beginning of their activities and until August 1, 2023, a total of 10.23 billion manat (approx. $10.23 million) production was produced in industrial parks and quarters. Of this volume, products worth 3.35 billion manat (approx. $1.97 billion) sold in 60 countries under the "Made In Azerbaijan" brand were exported", a statement by IZIA read.

This positive investment was maintained in the first half of the current year as well: 1.4 billion manat (approx. $820 million) of production was produced in the industrial zones of the country, and more than a third of the total output was exported. At the same time, in the current year, Azerbaijani and foreign businesses continue to actively develop the capabilities of the country’s industrial clusters: in January-July 2023, 19 businesses received the status of new residents, whose investment in the creation of enterprises is estimated at 244 million manats (approx. $143 million), and this will create an additional 1,500 new jobs.

In general, according to the estimates of the Ministry of Economy, by 2027 Azerbaijan can expect to increase the volume of non-oil exports to at least $5 billion, and this is quite achievable given the high rate of development of agro-industrial clusters, including in the Garabagh region. In order to increase non-oil production and export within the framework of the four-year "Strategy of socio-economic development of Azerbaijan until 2026", one of the main tasks is to bring the share of small and medium-sized businesses in GDP in the non-oil sector to 35%, and the employment rate in the non-raw segment of SMEs is up to 60%. Finally, more needs to be done to expand the geographical distribution of non-oil products, primarily to China, but also to the Persian Gulf, North Africa and Eastern Europe.