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Could Azerbaijan’s Free Economic Zone catalyze the Caucasus’ prosperity?

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Over the past several decades, international commerce has seen the blooming of several important global business hubs. From Hong Kong to Singapore, to Dubai, the common denominator of all these cities was a commitment by leaders to open their economic systems to the world–and make them as inviting as possible to the rest of the globe, writes Luis Schmidt.

Now that companies and investors have seen such centers of business thrive in Asia and the Middle East, it seems that it is the Caucasus’ turn to shine.

Back in May of 2020, the Azerbaijani government unveiled plans for its new free trade zone, to be called the Alat Free Economic Zone (FEZ). The 8,500,000 square meter project was announced as part of the emerging trade and logistics hub in the Alat settlement located along the Caspian Sea coast.

Plans for Alat had been in the works for years. The law pertaining to the FEZ, delineating its special status and regulatory policies, was affirmed by the country’s parliament back in 2018. Work on the Zone’s construction began shortly thereafter.

With the opening of the FEZ to foreign business now imminent, Azerbaijan’s leadership is now inviting the world to come to Alat.

There are a few key drivers behind the brand new hub along the Caspian. The first factor is the long-term strategy adopted by the Azerbaijani government to extend the country’s economy into information industries and diversify it away from the energy sector, traditionally Azerbaijan’s most cash-generating field. “The idea of establishing the Alat Free Economic Zone is based on our policy. In particular, the work done to develop the non-oil sector in recent years has given an impetus to the establishment of this zone,” President Ilham Aliyev said in an interview with Azerbaijan Television following the groundbreaking ceremony of Alat Free Economic Zone. “We saw that investment in the non-oil sector was made more by the state than local companies. Foreign companies tended to invest more in the oil and gas sector,” said Aliyev. The president concluded he is confident the Alat project will be instrumental in expanding the non-energy sectors.

The second important factor in the FEZ’s establishment is the creation of incentives for Foreign Direct Investment (FDI) into Azerbaijan’s economy. The law governing Alat’s administration provides very attractive conditions for investors. This includes a special tax and customs regime to be applied for the companies operating within the free economic zone. No value-added tax will be imposed on the goods, works, and services imported to the zone, and will also receive a full exemption from customs fees. “This is a very progressive law that fully meets the interests of both our state and investors. This is very important. Because if there were any uncertainties for investors in the legislation, of course, it would not be possible to attract them here,” President Aliyev told reporters in a July 1st interview, noting that the COVID pandemic has also increased the demand for seamless, unfettered pathways to grow companies and international business activity.

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The FEZ’s framework is specifically geared toward the needs of start-ups and individual entrepreneurs. Speaking at Azerbaijan’s small business confederation, the ANCE, the group’s president Mammad Musayev told listeners how essential Alat would be for developing the country’s business environment. “Work has already begun on launching the activities of the Alat FEZ, meetings with investors are being held. We are ready to devote time to every entrepreneur who wants to work with us,” said Musayev.

Finally, the Alat FEZ is uniquely situated both geographically and infrastructurally, to provide a world-class business platform. The Baku International Sea Trade Port, also known as the Port of Baku, is currently the most developed structure in the Alat project. The port already has a cargo capacity in the tens of millions of tons and is still expanding. Currently, the transportation hub links Turkey to the west, with India to the south, as well as Russia and other Northern European nations. An airport to be situated alongside the zone is already in the planning stages. “The fact that the North-South and East-West transport corridors pass through the territory of Azerbaijan, as well as its proximity to large markets, will increase the economic efficiency of the FEZ and give it the opportunity to serve the markets of Central Asia, Iran, Russia, Turkey and the Middle East,” said ANCE president Musayev. Administratively, the Alat Business Services Center will provide licenses, visas, and other critical services to the firms and individuals operating in the FEZ.

The progress attained by Azerbaijan in the Alat project has shown a firm commitment to moving the country towards establishing itself as a knowledge-based economy, and further modernizing its economic system.

If it can meet its expectations, the Alat FEZ will spell an economic boom not just for Azerbaijan, but for the entire Caucasus region.

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