Valeh Alasgarov: Alat FEZ to become main export point for Azerbaijani enterprises

The construction work at the Alat Free Economic Zone (FEZ), which is considered a new stage in the Azerbaijani economy and is already attracting the interest of investors, is underway at an accelerated pace. Representatives of the FEZ conduct “road shows” in many foreign countries to demonstrate the capabilities of Alat, and foreign companies are provided with information at international exhibitions.

The chairman of the board of the authorized body of the Alat FEZ, Valeh Alasgarov, spoke about the features of the Alat FEZ and its differences from similar entities in other countries, and the impact it will have on the economy of Azerbaijan in an interview with Report.

- What are the advantages and features of the Alat FEZ compared to similar zones in other countries?

- When creating the Alat FEZ, naturally, the experience of successful and unsuccessful free zones operating in other countries was studied and analyzed in detail.

Among them was the Shannon FEZ in Ireland, at that time one of the poorest countries in Europe. The management principle, approach to investors, etc., applied in this free zone were very different from others, and the correct policies pursued here gave a serious impetus to the rapid development of the country's economy.

While in 1960 the gross domestic product per capita in Ireland was $685 at the 2020 exchange rate, as a result of the successful implementation of the Shannon management system throughout the country, the GDP in 2020 exceeded $100,000. In 2022, Ireland's annual exports exceeded $213 billion, with more than 85% of high value-added industrial products. With an area of ​​70,000 km² and a population of 5 million, Ireland has no exportable natural resources, i.e. oil, gas, gold or coal.

However, by spreading the management approach implemented in the Shannon Free Trade Zone throughout the country, Ireland ensured rapid economic development from both an industrial and technological point of view.

Today, all taxes and customs duties apply to both local and foreign investors in all regions of Ireland, but despite this, Ireland remains one of the most attractive countries for foreign investors. The main reason for this is the presence of a proper management system, the provision of land plots with the necessary infrastructure to investors and other important factors.

In addition, the implementation of a single window system simplifies the investor registration and documentation procedure, since all these issues are resolved in one place without the need to contact any government agency.

All of the above provides an excellent opportunity to attract investors, which is why Ireland today is one of the most developed countries in the world.

Since 1965, this successful Irish experience has been applied in Singapore and other countries. For example, in Singapore, a special body has been created, which operates independently, to manage the free zone. At that time, Singapore was one of the poorest countries in the world. As mentioned in Singapore Prime Minister Lee Kuan Yew's book From the Third World to the First, the free zone created on the artificial island led to significant economic progress, making Singapore one of the world's most developed economies. .

Just like in Ireland, Singapore offered investors industrial land with ready-made infrastructure, which in turn, as I mentioned earlier, is a distinctive and attractive offer for investors.

It is on this principle that the Alat free economic zone was created. The foreign consultants we hired to regulate the activities of the free zone and effectively apply this principle are people who have worked in the Shannon Free Economic Zone for 30-35 years.

Their experience once again proves that exemption from taxes and customs duties is not enough to attract investors; the availability of ready-to-use land plots is also very important. Therefore, when creating the Alat FEZ, one of the most important points for us was the provision of land plots equipped with ready-made internal and external infrastructure, engineering and communication systems.

We have taken all measures to ensure that the Alat FEZ is attractive not only in Azerbaijan or neighboring countries, but also in a wider geography.

It is known that currently the transport infrastructure is rapidly developing in Azerbaijan. But let's not forget that access to the sea is important for investors, but we don't have it. It is for this reason that the Alyat SEZ should have been more attractive.

Of course, Alat FEZ offers such benefits as exemption from taxes and customs duties. But this factor alone cannot interest investors. Therefore, along with ready-to-use plots, it is important to have the necessary legislation. The Milli Majlis adopted the law "On the Alat Free Economic Zone", which was approved by the President as the main law of Azerbaijan. It ensures the extraterritoriality of the economic zone, as well as its functioning, development and management.

I have to note that no government agency has the right to regulate the activities of the Alat FEZ, as well as legal entities, financial institutions and their employees registered here. At the same time, other laws of the country cannot be applied in the FEZ, except for criminal laws and laws on combating the legalization of property acquired by criminal means and the financing of terrorism, including targeted financial sanctions. In order to avoid any contradictions between the legislation of the Alat FEZ and the general legislation of the country, appropriate changes and additions have been made to more than 90 laws to ensure the supremacy of the law on FEZ, and this process continues.

The grand opening of the first site with an area of ​​60 hectares, the construction of which began on July 1, 2021, took place on June 9, 2023 with the participation of Head of State Ilham Aliyev. The business center building located here with a total area of ​​16,000 square meters consists of three functional parts: the authorized body of the Alat FEZ, an office for servicing investors on a one-stop-shop principle and an office for customs officers.

What is planned to be done in the Alat FEZ this year and are there any innovations in the activities of foreign companies in the Alat FEZ?

- At the initial stage of development of the Alat FEZ with an area of ​​60 hectares, most of the territory intended for enterprises has already been transferred to investors. Most registered companies have already started construction. Other enterprises are also carrying out design work. In general, the use of high international standards in design is one of the main conditions we impose. Even the requirements for some territorial factors are higher than in Europe. So, while in Europe seismic resistance during design is 5 points, in the Alat FEZ this figure is 8 points. In addition, special attention is paid to fire resistance, wind load and other technical safety measures of the buildings being constructed. Only after all the listed requirements are met, the investor begins construction of the enterprise.

Considering the great interest in the Alat FEZ, we began construction of the next stage of development with an area of ​​138 hectares 18 months ahead of schedule.

At the same time, taking into account the demand and growing interest in heavy industry, we have already started construction work on 284 hectares of territory allocated for heavy industry enterprises, the construction of which is planned in two years. In order to provide investors with land plots equipped with ready-made internal and external infrastructure and engineering and communication systems, we plan to complete construction work no later than the end of next year.

- When will the construction of a cargo airport in the Alat FEZ begin and when will it be put into operation? What is the capacity and performance of the cargo airport?

- It is known that one of the main advantages of the Alat FEZ is its strategic geographical location. In the free zone, located at the intersection of international transport corridors and in close proximity to the Baku International Sea Trade Port, it is possible to provide rail, mainline and sea transportation.

However, in order to ensure the air transportation of goods of enterprises, as well as other companies that will operate in the free zone, it is also planned to build a cargo airport on the territory of the free zone. Of the 4,313 hectares of territory allocated for the Alat FEZ by the relevant order of the head of state, a cargo airport that meets modern standards will operate on an area of ​​more than 1,200 hectares. Construction work has already begun. This airport is planned to be put into operation no later than the first quarter of 2026. In general, the airport’s carrying capacity at the first stage will be 500,000 tons per year, and at the next stage it will be increased to 1.5 million tons per year. It is planned to locate multimodal transport hubs around the airport, as well as high-tech manufacturing enterprises.

- Which product-makers are currently given preference in the Alat FEZ as investors?
What other requirements are applied to them?

- Of course, we take into account all received investment projects. However, when evaluating these projects, certain requirements are taken into account. At the center of the activities of the Alat FEZ are investors capable of providing high added value, export-oriented production and relevant international services based on international standards and innovative technologies. That is, at least 75% of the products produced by enterprises operating in the Alat FEZ must be exported. Only in this case the provided benefits are applied to the investor.

I should note that in a number of cases we are criticized for requiring a minimum export of 75%. However, the main purpose of such a decision is not to impede the activities of enterprises in the main economy. That is, due to the applied benefits and favorable conditions, enterprises operating in the Free Zone will begin to sell their products to the local market at a lower price, which can cause serious damage to the domestic market. In addition, given that Azerbaijan has a population of 10 million people, it is known that there is not a large market for large enterprises here.

- Has the preparation of the Master Plan of the Alat FEZ begun? What will be included in the Master Plan?

- The primary working group for the Alat FEZ was created in September 2018. The main purpose of creating the group was primarily to determine the territory and size of the Free Zone. As a result, a site with an area of ​​850 hectares was selected near the Baku International Sea Trade Port, where international transport corridors intersect. A conceptual plan related to the infrastructure and development of the said area was prepared, and based on it, a Master Plan was prepared. The development of the Alat FEZ is carried out in stages. First, the first stage of development was carried out - the territory of FEZ 1 with an area of ​​60 hectares was designed, and based on this, construction work was carried out. The goal of the currently operating working group is also the development and implementation of transport projects (railway and highways) and engineering and communications support (water, gas, electricity, sewerage, etc.) allocated to the Alat FEZ, as well as for territories which will be allocated in the future.

- Can any foreign company take on the financing of the Alat FEZ and perform the functions of a free zone management body? Is there such a practice, and why don’t we use it now?

- Of course, such practice exists and it can be done. However, I can say with confidence that, unfortunately, this practice is not successful. If you look at successful free economic zones, you can see that each of the zones in Ireland, Singapore, China and other countries was created on the basis of public investment. The main reason for this is that it is difficult for private companies to take risks such as investing in a free economic zone or creating ready-made infrastructure. The management company often requires the investor to guarantee that the projects being implemented will be effective. This creates new obligations to the investor and thus reduces the ability of the obligated investor to obtain a loan, and the value of his securities decreases.

On the other hand, if the necessary obligations are not fulfilled on time by the private company managing the free zone, it will have to go to court, which, in turn, causes additional loss of time and problems for both the investor and the private company.

I will note one point: there are virtually no companies that have direct access to the open sea and are engaged in production in free zones that have been in operation for more than 10-15 years. The reason is that these zones are managed by private companies and, as a result, there are no land plots with ready-made infrastructure. The biggest advantage of the Alat FEZ is its extraterritoriality and the presence of a legislative framework that ensures the independence of the Authorized Body of the Alat FEZ, as well as the provision of land plots equipped with ready-made intra-territorial and external territorial infrastructure and engineering and communication systems to investors.

- What problems and obstacles stand in the way of the development of the Alat FEZ, and what are the plans to solve them?

- Interest in the Alat FEZ is growing day after day. Therefore, more intensive development of territories and the construction in a short time of ready-made industrial land plots, provided with the necessary infrastructure, are one of the main goals facing us at the present time.

-When is it planned to begin full activities (production and export) at the Alat FEZ?

- Considering that design and construction work is also an activity, I can say that there are already companies that have registered and started their activities in the Alat FEZ. Some companies will begin production in two years, others in two and a half and three years. It is known that to build a complex functional production enterprise, an investor needs a certain time. And we, in turn, are taking the necessary measures to create all opportunities for investors registered in the free zone. Because it is important to create the conditions necessary for investors to organize effective activities and ensure a quality production that creates added value. Our practice is to make a long-term contribution to the development of the country's economy and attract foreign investment to the country.

I should also note that the establishment of effective cooperation between enterprises that will operate in the free zone and companies operating in the main economy of Azerbaijan is supported. As noted in the legislation of the Alat FEZ, products sold by local enterprises to companies operating in the Alat FEZ are also exempt from value added tax and customs duties. This creates a favorable export point for enterprises in the main economy. In addition, if we take into account the cost of transportation and insurance of raw materials that will be exported from abroad, it will, of course, be more profitable for investors who will work in the Free Zone to buy products from an Azerbaijani company.

However, if a product is sold from a free zone to the main economy, then it is an import for the Azerbaijani buyer, meaning customs duties and value added tax must be paid. This is due to the protection of the manufacturer, the domestic market, preventing companies operating in the free zone from using these advantages to sell cheaper products on the domestic market.

In general, we have two main goals: firstly, to create the most favorable business environment for investors who will work in the Alat FEZ, and to support their development and expansion in the future.

The second is to demonstrate internationally what the transition to a competitive and knowledge-based economy means in practice. Thus, we intend to support our entrepreneurs and business entities in learning and applying a new business culture, new technologies, and create conditions for the creation of innovative enterprises that will create real value for the economy and people of Azerbaijan.