| Azerbaijan | Jun 06, 2015
With the Year of Industry at an end, Azerbaijani firms are under pressure to meet the government's aims for the expansion of the non-oil sector.
Officially announced in early January 2014, the Azerbaijan Year of Industry has provided focus for the nation’s many manufacturers, and clarified government strategy for the promotion of the sector. A key element of the state’s broader diversification program, industrial production in Azerbaijan has come into its own in recent years, largely as a result of the administration’s business-friendly attitude and fostering of competitive entrepreneurship. The Year of Industry served to inform, encourage, and support Azerbaijani firms both established and new.
The volume of production in the non-oil industrial sector increased by approximately 7% in 2014. The food and beverage segments, as well as automobile production and the manufacture of defense products were all areas of noted growth over the course of the year. As part of the Year of Industry initiative, closer cooperation among the heads of departments of the Ministry of Economy and Industry were held over the course of the year, and President HE Ilham Aliyev took the opportunity to outline the administration’s renewed focus on developing industry. The establishment of dedicated industrial zones, facilities, and clusters within provincial towns across the nation is central to this new strategy, with the first such district founded in early 2015 in the Neftchala district on the country’s Caspian coast. In 2014, the share of the non-oil industrial contribution to GDP rose above 60%, and the volume of funding from the state oil fund SOFAZ to the national budget dropped by over 15%, indicating the growing importance of other industries in the economy.
Another notable development for the sector was the promulgation of the Competition Code, a comprehensive piece of legislation intended to improve fairness in competition for industrial entities. The trend of decreasing imports due to stricter regulations for several segments, primarily construction materials and automobiles, is also positively affecting the non-oil current account deficit. These advances helped to insulate Azerbaijan from the effects of falling oil prices to some extent in 2014, and have laid the foundations for a more comprehensive role for industry in the economy in the coming years. The government’s stated goal is to increase the per capita volume of non-oil exports to $1,000 by 2020. Azerbaijan now receives the highest per capita level of foreign investment in the CIS as of 3Q2014, further underlining its achievements in creating a better business environment for domestic and foreign companies alike.
One of the pre-eminent segments of industrial manufacturing in Azerbaijan is metallurgy and the production of tubes and other materials from plastics and metals. The mining of numerous metals including aluminum, cobalt, copper, and zinc has driven the growth of domestic production of goods from these resources. Plants in Sumgait and Ganja refine aluminum to create various by-products, and the latter maintains its role as an important tube producer since the mid-20th Century. Most recently in this segment, an MoU signed by the Sumgait Chemical Industrial Park, the Azerbaijan Investment Company (AIC), and SouthWest NanoTechnologies from the US has set in motion a new industrial program to manufacture carbon nanotubes. Additional companies with strong involvement in the sector are Baku Steel Company and Baku Steel Casting, while the Det-Al smelter plant, online since 2012, has considerably increased the output of refined aluminum products such as sheets and coils.
THE DIET OF BAKU
The Azerbaijani food industry is another key area of the industrial matrix, benefiting from favorable climactic conditions and low labor costs, as well as long-established farming and agricultural methods and practices. Those involved in the sector make the most of the opportunity to showcase their wares at the WorldFood exhibition in Baku, an event which has received growing numbers of attendees since its inception two decades ago. The 2014 exhibition featured 251 exhibitors from 36 countries, with just under 7,000 trade visitors in attendance. This represented a distinct expansion of the event compared with the 2013 exhibition, at which 185 firms had booked space, further cementing the exhibition’s place as the region’s foremost food industry.
The segment provides numerous export products in addition to meeting much of the domestic demand for foodstuffs and beverages. One sub-segment which has been traditionally profitable, largely thanks to the high proportion of consumers in the surrounding region and main export markets is tobacco production. Thousands of people are employed in this area, and around 3,500 tons of the plant were produced in 2013. Prominent brands such as Samsun and Trabzon are also grown here, for subsequent export to the Turkish market, and the majority of this industry is based around the north-western part of the country. Separately, key horticultural products such as seeds, chestnuts, walnuts, hazelnuts, and fruit as diverse as peaches, apricots, pomegranates, and quince are produced in other parts of the country. Many of these products are refined within the country, notably into fruit beverages such as pomegranate juice. Both alcoholic and non-alcoholic beverages continue to contribute considerably to the overall sector.
A significant component of the Azerbaijani industrial sector is the production of passenger cars. According to World Bank data, the number of car owners per thousand citizens was 112 in 2011. Realizing that the continued import of cars from Georgia had become unsustainable, the government has pushed the development of the domestic manufacture of vehicles to avoid becoming dependent on imports. Moreover, Azerbaijan recently adopted the Euro-4 environmental standard, meaning that many vehicles would have previously passed customs are now falling below the required regulations, necessitating the consolidation of a local industry tailored to these new demands. The main elements of this new standard relate to carbon monoxide, nitrogen oxide, hydrocarbon, and solid particles content, with a view to reducing harmful emissions into the atmosphere. The Euro-4 standard will supersede the Euro-2 standards, which have been complied with since 2010. Almost 8,000 cars were produced between 2005 and 3Q2014, with the volume of production expanding considerably in recent months, coming to a total of 1,771 between January and August 2014. This figure is 5.4 times higher than the same period in 2013, indicating the extent to which the country is embracing this key industrial segment. The production of automobiles in Azerbaijan is divided between plants in Ganja and a factory in the exclave of Nakhichevan, as well as the AzSamand plant in Shamaki. The importance of the sector is also reflected in the growth of the Baku International Motor Show (BIMS), an event which garners a growing number of attendees with each passing year. In May 2014, the eighth annual BIMS took place at the Baku Expo Centre, hosting 85 companies from 14 different countries, with more than half of these hailing from Azerbaijan.
These new regulations affect not only the production of cars, but also trucks and vehicles used in the agricultural sector. Approximately 230 units of trucks were manufactured in 2014, with around 25 trailers and semi-trailers created in the same year. The government plans to expand production in these particular segments by over 30% by 2018. Meanwhile, the number of tractors made within the country continues to reach consistent volumes of between 700 and over 900 units annually.
LOCK ‘N’ LOAD
Undoubtedly, however, the production of armaments and defense technology has become the most promising industrial segment in recent years. The Ministry of Defence Industry of Azerbaijan was formed after the merging of the State Departments for Military Industry and Armaments and the Military Science Center in 2005. Defense spending is expected to rise in 2015 to the tune of $4.8 billion, a significant increase on the $3 billion budget of 2012, ostensibly in response to the continued conflict with Armenia over the Nagorno-Karabakh region. The national industry is now responsible for the production of over 900 products in over 50 facilities across the country, with the recent addition of smart bombs to the defense production portfolio indicating a heightened level of sophistication among Azerbaijani manufacturers.
The importance of Azerbaijan in the development of new products for the global defense industry was evident in its presence at the ADEX-2014 Baku defense expo in mid-September. Attendance by representatives from Turkey, Russia, Belarus, South Korea, Israel, Poland, and Ukraine was welcomed by event organizers and the ministry itself, laying the foundation for the continued export of Azerbaijani armaments and military vehicles. The range of products under development at present include equipment for the army and airforce, air defense and aircraft armament systems, ICT programs, and other aerospace technology, with each field appealing to different countries’ militaries for unique reasons. In addition to showcasing its merchandise to the dozens of nations represented at the event, Azerbaijani defense products have been promoted around the world at such prestigious events as the International Defense Industry Fair 2013 in Turkey, the Defense Services Asia Exhibition and Conference (DSA-2014) in Malaysia, and at the Gulf Defense and Aerospace exhibition in Kuwait, among others. Products offered by Azerbaijani manufacturers range from rocket launchers and assault weapons to sniper rifles and drones, bombs, and armored vehicles. Another successful event is expected in the ADEX-2016 exhibition, scheduled to take place in September of that year.