Free trade zone: what benefits can Azerbaijan reap?

Business Materials 18 March 2016 22:00 (UTC +04:00)
Azerbaijan is set to actively work in the next six months to create its first-ever free trade zone.
Free trade zone: what benefits can Azerbaijan reap?

Baku, Azerbaijan, March 18


Azerbaijan is set to actively work in the next six months to create its first-ever free trade zone.

The free trade zone is being created under an order signed by President Ilham Aliyev on March 17. It will be located in the Alat township of Baku's Garadagh district and will also include the new Baku International Sea Trade Port.

The presidential order states that the purpose of creating the free trade zone is to ensure a sustainable economic development and increase competitiveness, strengthen Azerbaijan's position as a logistics and transportation center, and create a multi-vector transportation infrastructure in the country.

So, what benefits can Azerbaijan, its economy and citizens make from the free trade zone?

More foreign investments

The creation of the free trade zone is a logical continuation of Azerbaijan's policy of becoming a logistics and transportation hub, and attracting transit cargo flows.

There are many examples of how the free economic zones, such as, for example, those in Hong Kong or the UAE's Jebel Ali, turned the cities into centers attracting investors from around the world and bringing huge profits to their governments.

The most successful free trade zone has been China's Shenzhen Free Trade Zone, created in 1980 near Hong Kong. It brought thousands of foreign investors and made it possible for Chinese authorities to experiment with reforms in a small area. Currently, Shenzhen, a city with population of 10 million, has a GDP exceeding 185 billion euros.

So, first of all, it is expected that the free trade zone's creation in Azerbaijan will bring a large amount of foreign investment.

In a recent comment, the Director General of the Baku International Sea Trade Port Taleh Ziyadov said the free trade zone's creation will bring up to $1 billion just in the first few years.

This will be possible thanks to the special tax and customs policies in the free trade zone. Tax benefits in the free trade zone may cover the profit tax, VAT, income tax and, in particular, the property tax.

Facilitation of cargo transportation

Currently, Azerbaijan is actively working to set a single tariff for cargo transportation with the countries involved in the Trans-Caspian Transport Corridor. A tentative agreement has been already reached with Georgia. Single tariff talks are underway with Kazakhstan, Turkmenistan and Turkey. If the single tariff plans are realized, the competitiveness of the Trans-Caspian Transport Corridor will increase greatly.

In addition to the benefits set by the rules in the free trade zone, Azerbaijan has reduced the costs for cargo transportation by high-capacity vehicles by 40 percent.

And as a result, the carriers operating between China, India and the EU will also pay attention to Azerbaijan.

Large range of goods for Azerbaijani consumers

Azerbaijani consumers too will benefit from the free trade zone's creation. As for example, the range of goods in the country will expand.

Moreover, the increased competitiveness and removal of customs duties will lead to lower prices for certain goods.

The increased competitiveness will also force the local producers to improve the quality of their products.

Further development of infrastructure

A free trade zone needs good infrastructure that usually provides more advantages than tax benefits. A free trade zone also often requires large capital investments in the modernization of roads, railways and ports, which is currently underway in Azerbaijan.

For instance, according to Taleh Ziyadov, a roll-on/roll-off (ro-ro) terminal will be built at the new Baku port by late 2016, and the first phase of its development will end in 2017.

Meanwhile, it is planned to increase the speed of trains running through Azerbaijan's territory up to 80 to 120 kilometers per hour.

Azerbaijan can also consider constructing an airport near the new Baku port.

Great work is ahead of Azerbaijan, which will eventually bring large investments and benefits, and will turn the Baku free trade zone into a large logistics and trade center standing at the crossroads of China, India, Iran, Russia and Europe.


Maksim Tsurkov is Trend Agency's staff journalist, follow him on Twitter: @MaksimTsurkov