Top 5 main economic developments in Azerbaijan in 2018

By Fikret Dolukhanov (Baku)

A number of interesting financial and economic events took place in Azerbaijan in 2018, such as reforms in tax legislation, expansion of foreign economic relations, etc.

Here are the Top 5 most important events that took place in the country in the past year;

  1. Significant reforms in tax legislation

For business and for citizens, the most important and memorable event was the adoption of amendments to the Tax Code, which provide for a major change in the tax system. Undoubtedly, the largest and most important innovation in the legislation has been the income tax exemptions for employees in the non-state and non-oil sectors. In addition, according to the amendments to the Code, the government of Azerbaijan will provide long-term tax incentives for micro, small and medium-sized enterprises (SMEs).

The amendments to the code also touched upon the simplified tax, according to which both benefits and restrictions are provided.

In general, the tax department intends to open a new page of relations with taxpayers, to create opportunities for them to work transparently.

  1. Azerbaijan launches the Azerspace-2 telecommunications satellite from the Kourou cosmodrome

Azerspace-2 satellite was launched on the night of September 26 and became the third satellite that Azerbaijan launched into orbit over the past 5.5 years.

The satellite will be operated for 20 years and commercial revenues from its operation will amount to $400 million. The commercial exploitation of the satellite is scheduled to begin in the 1Q2019. The new satellite will expand the range of services provided by Azercosmos, the geography of the company’s activities, and will also become a reserve in orbit for the Azerspace-1 satellite.

  1. Government Debt Management Strategy
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In January 2018, at a meeting of the Cabinet of Ministers dedicated to the results of 2017, President of Azerbaijan Ilham Aliyev instructed the government to tighten foreign borrowing policies and achieve a reduction in foreign debt. In August, the head of state approved the “Medium-term and long-term state debt management strategy”, according to which Azerbaijan’s foreign debt is planned to be reduced from 22.8 percent of GDP by the end of 2017 to 12 percent of GDP by 2026.

According to the strategy, in 2018-2025, the government of Azerbaijan plans to carry out external borrowings totaling $2.075 billion. In particular, during this period it is planned to attract credit resources totaling $500 million from the Asian Development Bank (ADB) for various economic reforms. Another $325 million are planned to be attracted for the improvement of the activities of Azerbaijan Railways CJSC (ADY) and for the construction of the Baku-Yalama railway (border with Russia).

In addition, Azerbaijan intends to attract $1 billion 250 million from the placement of Eurobonds.

  1. A number of large industrial enterprises opened in Azerbaijan

On March 29, the Azermash automobile plant began work in Neftchala. The plant’s founders are Iranian Iran Khodro and Azerbaijani AzEuroCar. The automobile plant is located in the Neftchala industrial district in the south-east of Azerbaijan. Investments in the creation of the enterprise at the first stage amounted to $15 million.

The production plan for 2018 was 1,500 cars, for 2019 – 3,000 cars, and for 2020 – 5,000 cars. The plant produces two models – Khazar LD and Khazar D. The price of Khazar LD is 18,000 manats, Khazar SD – 16,000 manats. All cars produced at the plant comply with Euro-5 standards.

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One of the strategic goals of the plant is to organize the export of cars. For this purpose, cars were shown at the Moscow Motor Show.

In addition, a number of enterprises in the Sumgayit Chemical Industrial Park (SCIP) began operating in 2018. Among them, Tabaterra tobacco factory (investment amounted to $48 million). The company will produce 11 billion cigarettes a year, which will cover 80 percent of domestic demand in Azerbaijan.

The plant for the production of building mixtures (investment $ 3.5 million) has also been commissioned in SCIP.

In 2019, four more new enterprises will be commissioned On the territory of SCIP: an enterprise for the production of bags for industrial use (SumPlast), a plant for the production of glass sheets by thermoforming (AzerFloat), an information processing enterprise (Nexsus Labs) and a factory for the production of natural wool (Azerkhalcha).

Currently, 18 companies have the status of park residents, nine enterprises are already operating in the park. Until now, residents of the park have invested $2.2 billion in enterprises. In the following years, the volume of investments will be increased to about $3 billion

  1. Azerbaijan expands the network of trading houses, forms a network of wine houses

In 2017, the Ministry of Economy of Azerbaijan began to promote the idea of creating trading houses abroad in order to increase non-oil exports under the brand “Made in Azerbaijan”. The first trading house was opened in Minsk.

In 2018, the Ministry of Economy continued its expansion to the West with trading houses being opened in Kiev, Riga, Warsaw. Thus, the Ministry of Economy has created a bridge for the entrepreneurs, who want to export their products to the markets of the EU countries.

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In 2019, the Ministry of Economy intends to switch the focus to the East. In particular, it is planned to open trading houses in the UAE, Kazakhstan, China and Russia. In general, 10 trading houses are planned to be opened in 2019.

Simultaneously with the opening of trading houses, the Ministry of Economy began to create wine houses. The first two wine houses have been opened in China – in Urumqi and Shanghai. Two wine house are also scheduled to open in Moscow in 2019, with the opening of wine houses in Yekaterinburg and St. Petersburg at the next stage. Today, Russia and China are the main markets for Azerbaijan’s wine products.