Azerbaijan has succeeded in diversification of the routes of supply of its hydrocarbon resources having seven oil and gas pipelines going in different directions.
Now it is becoming an active participant and even originator of new trade routes crossing its territory. In addition to well-known East-West (China-Europe) and North-South (Russia-Iran) transport corridors there are several new ones with the country being at the heart of them. Some of the projects are in the stage of negotiations, and some have been already in progress with test container trains passing through the country to their new destination.
According to “Strategic road map for the development of logistics and trade”, adopted in late 2016, it is planned to increase Azerbaijan’s share of maritime cargo transportation via the Central Asia-Black Sea route to 40 percent, via the Central Asia-Europe route to 25 percent, via the China-Europe route to 3 percent, via the Russia-Iran route to 40 percent and via the Iran-Black Sea route to 25 percent.
Ability of Azerbaijan as a transit country to receive and transship great volumes of cargo will require availability of sophisticated transport infrastructure.
For the time being, a first-rate international trade port is being built near town of Alat south of Baku. This port, together with geographic location of Azerbaijan at the crossroads of Asia and Europe and its largest trade fleet on the Caspian Sea, makes it an important transit part of the Eurasian goods flow process. Estimated transshipment of the new port complex is: up to 10-11 million tons of cargo and 50 thousand TEU at the first stage, 17 million tons of cargo and 150 thousand TEU at the second stage and up to 25 million tons of cargo and 1 million TEU at the third stage of the project implementation. Stage 1 is planned to be completed for the rest of 2017. In 2016, the Port transshipped three million tons of cargo. The volume of cargo transportation through the Port (excluding bulk oil) grew 43.5 percent and amounted to 1.9 million tons in the first half of 2017.
But, taking account of world experience, Azerbaijan is not going to limit itself only with the port logistics and storage activities. In March 2016, President Ilham Aliyev signed a decree on establishment of a free trade zone type special economic area covering the territory of the Port, where a range of value-added goods and services, mainly meant for export, such as processing, light manufacturing and assembling, refinishing, labeling will be performed before cargo is shipped for a new trade market.
By now business circles from Turkey, Italy, Estonia, Russia, China and Austria are showing their interest in business terms at Alat FTZ.
To make it world-class, the Ministry of Economy and the Port of Baku have entered into an advisory agreement with the world famous DP World Group from Emirates, one of the world’s major port operators with 78 marine and inland terminals in its portfolio, to share its international experience in multi-modal transport links, logistics and the supply chain across its network.
By late May, DP World has already prepared a feasibility study, regulations governing special economic zones, and a master plan for phase one of the project.
DP World also suggested creating an independent arbitration system in the FTZ, where it will be guided not only by legal system of Azerbaijan, but also by international law.
Establishment of the FTZ is now at its initial stage. Documents prepared by DP World Group shall undergo an examination and then be approved. This is why, as an example, let’s have a quick look at what the major trade and logistics hub in the Middle East and a flagship subsidiary of DP World Group - Jebel Ali free trade zone (JAFZA) - is like, as it can be a model for future development of Alat FTZ.
JAFZA was established near the Jebel Ali Port and commenced operations in 1985 with 19 companies.
As of now, there are more than 7100 companies from over 100 countries having business registration within JAFZA, providing about 140,000 jobs and attracting more than 20% of the UAE’s foreign direct investment. JAFZA contributes to national economy by creating more than 50% of all exports in the entire Dubai emirate.
JAFZA grew its non-oil foreign trade by 17 percent from 23.9 million to 27.9 million tons in 2016, worth $80.2 billion, says the official website of the FTZ.
Machinery, electronics and electrical goods accounted for 49% of JAFZA’s total trade. Petrochemicals, oil and gas sector had 16% of total trade, followed by food and fast-moving consumer goods (FMCG) (8%), textiles and garments (7%), automotive and spare parts (6%).
JAFZA registered 122 new companies from 33 countries during the first three months of 2017. Of them, 20 percent were in the general trading and retail sector, followed by 11 percent in steel and building materials, with 10 percent each in the automotive & transport, equipment, machinery and services sectors.
JAFZA has implemented a digital signature system so that the documents can be directly emailed to customers’ registered email addresses.
JAFZA also has launched a special educational program that provides UAE nationals with work experience and employment opportunities. Training periods range from 6 to 12 months with a monthly salary with the possibility of employment in the companies working within JAFZA.
Finally, JAFZA offers some unique incentives for the one who is going to register a business there. That includes 100 percent foreign ownership, zero percent corporate tax for a period of 50 years, zero percent import and export duties, no personal income tax, unrestricted capital and profits repatriation, no recruitment restrictions, etc.
In spite of the global downturn, growth of international trade volumes continues and this fact indicates that Azerbaijan has made a strategic decision with establishing a regional trade hub on the Caspian shore. Attracting investment capital, creating employment, generating export revenues, transfer of know-how into the country – this is not a full list of what the nation can benefit from, but provided that a business-friendly environment is generated in Alat FTZ and all kinds of bureaucratic red tape are minimized.
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