Beyond all pessimist forecasts, free economic zones will appear in Azerbaijan. And it will be placed not in Alat, as it was debated before, but in Alat village of Garadagh District, outskirts Baku. A feasibility study of FEZ has been prepared with the technical assistance of the European Bank for Reconstruction and Development (EBRD) and submitted to the Ministry of Economic Development (MED).
The process is developing is rapid pace: the MED has appealed to the relevant body of the Executive Power for allocation of area for the development of the FEZ. The funds will be allotted by investors and there are people who voiced interests after obtaining relevant information from the EBRD. Two foreign investors willing to upgrade their business have submitted their proposals. One of the proposals is linked with electron business, the next export of oil services. The second company is active n Azerbaijan. All investors involving the FEZ will be released from payment of taxes and customs duties.
Big transnational corporations regard the establishment of private production in the FEZ as important direction of their expansion. The FEZ represents part of national economic area functioning on special system of privileges and incentives, which is not applied in the rest part of he country. Still the terms do not fully represent the essence of this establishment. The application of economic rules, special administrative laws do not release from definite legal and economic regime, but only simplify it, represent privileges, stimulating the entrepreneurship. The countries here reduce its interference into the economic processes. The international corporations in search of privileged terms for heir activities regard the FEZ as favorable territory where excess profit can be obtained.
There are several variants of feasibility study of the establishment of FEZ in Azerbaijan industrial, for services and financial. The Minister for Economic Development, Heydar Babayev, has recently stated that for it type the first FEZ in the country will represent a synthesis of exiting variants. The government plans to make it as a historic fact for time being. It is planed to construct a port there. While selecting a bridge for FEZ first of all the existence of territory free for construction of different facilities and nearby transport infrastructure will be taken as priority. Alat located in 80km of Baku is favorable for construction of the port and it has necessary transport infrastructure(railway, modern motorway), digital mobile communications of CDMA type, as well as another infrastructure (electricity and gas) and nearby location to the coast. Small offshore field are located not too far from the shore. The Scottish company Eurasia Energy Limited (former Pacific Alliance Ventures Ltd.) take interest in this field.
What will be Azerbaijans benefits from the FEZ? Why they are so widely spread worldwide? The key objective of the establishment of the FEZ depends on the level of socio-economic level of the countries organizing it, their strategic economic plans. So, the reasons and goals of establishment of FEZ might differ in every concrete case.
In difference to countries with industrial growth the major force in the developing countries is given to the attraction of foreign capital, technologies, upgrade of industry, improvement of the workforce. The similar goals are pursued in Azerbaijan.
Along with the said goals and reasons, the establishment of FEZ is linked with three major tasks:
- stimulating of industrial export and achievement of currency on its base;
- growth of employment;
- transition of zones to polygons for experiencing new management methods, a zone of growth of national economy.
The establishment of FEРЎ is regarded as an important chain in the implementation of principles of open economy. There functioning is related to the liberalization and intensification of the foreign economic activities. The economy is highly open for the world, whereas the customs, tax and investment regime is favorable for foreign and internal investments. At the same time the formation of a free economic zone could mean that the country, unwilling to open its economy for foreign economy or benefit special investment climate, use partial, or local openness in the form of special zones.
Over the past decade there has appeared an acute rivalry in the world economy among the countries in the sphere of taxes and privileges, presented for attraction of capital from other countries. A wave of tax privileges, fixed in the national legislations has been named tax revolt. Free economic zones play considerable role in it. They represent original traps for capital migrating in the world scope.
The investors to work in FEZ in Alat will be released of payment of taxes and customs duties. Such encouragement is the major principle of functioning of the FEZ. The stimulating system includes the following privileges: foreign trade (cut or concealment of export-import duties, simplification of the order conduct of foreign trade operations); fiscal (cut in tax base and level of tax rates, permanently or temporarily taxfree activities or conduct of entrepreneurs); financial (СЃgrants-in-aid in the form of low prices for communal services, cut in rents); administrative (simplification of procedures on registration of enterprises and visits of foreign citizens, some other services). The privileges applied in different combinations and zones splitting economy give incentives to the realization of advantages for any territory.
Thus, Azerbaijan expects only advantages from the establishment of the free economic zone in its territory and the free economic zone in Alat will be the first the first step in this direction. By the way, over 10 free economic zones exist in the United Arab Emirates and the results are obvious.