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Azerbaijan's IT sector to grow at 16.3 pct in 2018

1 June 2018 13:35 (UTC+04:00)
Azerbaijan's IT sector to grow at 16.3 pct in 2018

The past year was marked by the stabilization of the Azerbaijani economy after stagnation in 2016 and the crisis phenomena of 2015-2016 years. Thanks to a balanced macroeconomic policy and structural reforms, the country managed to stop the decline in GDP and outline a course for further economic growth.

This was largely achieved due to tightening of monetary policy and a more flexible exchange rate policy. In the real sector of the economy, the rise in oil prices, as well as the growth of non-primary sectors of the economy, such as agriculture and services, led to the restoration of aggregate demand and revenues to the budget.

All these measures could not but have a positive impact on the IT market of the country, which, according to IDC, grew by 8.2 percent in 2017, compared to a 20.1 percent decline in the most severe crisis of 2016. The main reason for such a large drop in the IT market in 2016 was the reduction in expenditures in public sector, oil companies, the suspension of major projects and the reduction in effective demand due to the devaluation of the national currency. These are the same factors that influenced the stagnation of Kazakhstan's IT market in 2015-2016.

At present, there are a number of prerequisites, which testify to good prospects for the growth of the IT market in Azerbaijan in 2018 and for the near-medium term.

First of all, this concerns structural reforms, government actions in the real sector and a favorable world situation, which will increase aggregate demand in the economy. Among the most positive changes that in the coming years will significantly affect Azerbaijani economy in general and the country’s IT market in particular, the following issues can be noted:

  • Restructuring of the banking sector, which found itself in the most vulnerable position after the decline in oil prices and devaluation of the national currency, launched in 2017;
  • Reform in the social sphere in the form of the creation of an unemployment insurance fund and the beginning reform of the pension system (so far only with the increase in the retirement age, the cancellation of the basic pension and the increase in the required length of service);
  • Completion and launch of major projects, in particular the completion of the Baku-Tbilisi-Kars railway at the end of 2017, the planned start of production and export of gas from the Shah Deniz field via the TANAP gas pipeline to Turkey;

These changes, combined with rising oil prices and the planned growth of the non-oil sector of the economy by 4 percent in 2018, according to the International Monetary Fund, will restore the country's ability to make significant capital investments of the state and private sector.

In addition to stimulating the real sector of the country, the Azerbaijani government continues to pursue an active policy of supporting and developing the country's IT market. Thus, previously launched programs in the field of education and e-government for citizens and businesses are continuing in such projects as the creation of a test center for Microsoft, the digitization of schools and universities in the regions of the country, the expansion of the range of e-services for business and the population (issuance of identity cards), deployment of data centers (construction of a backup data center). Along with the restructuring of the banking system, the National Bank announced the creation of a digital identification system based on blockchain technology.

The creation of a joint venture between SOCAR and IBM - Caspian Innovation Center Ltd - in January 2018 to support the oil and gas industry in the areas of business analytics, transformation of production and increasing business efficiency became the important event in the oil and gas industry.

Great progress has been made by Azerbaijani software companies, which are currently implementing projects in such areas as navigation, workflow, electronic accounting of school performance in countries such as Iran, Georgia, Ukraine, Uzbekistan and Kazakhstan.

The pace of economic development as well as qualitative and quantitative information received by IDC during the annual studies have become the main components for IDC in forecasting the development pace of the IT market in Azerbaijan.

In this regard, IDC estimated the growth forecast for IT sector in Azerbaijan in 2018 at 16.3 percent, of which 15.7 percent falls for the equipment market, 18.8 percent - IT services, 19.7 percent - software. The volume of the market will be $903.8 million.

In the medium term, until 2022, Azerbaijani IT market will maintain double-digit growth rates largely due to the influence of the above-mentioned factors, as well as measures taken by Azerbaijan in the field of government digitalization, the spread of broadband Internet, and digital transformation of the private sector.

The Compound Annual Growth Rate (CAGR) of the IT market for the period of 2018-2022 will be 12.3 percent, of which 11.3 percent will fall for IT equipment, 16.4 percent - IT services, 16.7 percent - software. By 2022, the volume of the IT market will double in comparison with the level of 2018 and amount to $1.6 billion.

International Data Corporation (IDC) is a leading provider of information, consulting services and event organizer in the IT, telecommunications and consumer technology markets. IDC helps IT professionals, managers and investors make informed decisions about the purchase of technology and the choice of a business strategy. More than 1,100 IDC analysts study the technology, trends and capabilities of the industry at global, regional and local levels in 110 countries.

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Kamila Aliyeva is AzerNews’ staff journalist, follow her on Twitter: @Kami_Aliyeva

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