Azerbaijan – a country of many transformations
Azerbaijan is a relatively populous country in terms of population in the Transcaucasia region. Its community, amounting to 9.9 million people, is almost three times higher than the number of people living in neighbouring Georgia and Armenia. A large consumer market is one of the key factors attracting foreign capital here. Moreover, in recent years, the country has entered an exceptionally fast track of transition. The development of the mining sector, on the one hand, and, on the other, legal changes in compliance with the recommendations of the World Bank contributed to the dynamic growth of GDP. Azerbaijan is currently ranked 57th in the Doing Business ranking due to the implementation of the new tax ordinance, the Civil Code and the Code of Civil Procedure. In addition, the government's policy manifested, for instance, in pursuit of a complete integration of the Azeri market with world markets, economic diversification and keeping the economic growth, contributes to creating a favourable investment climate.
A natural potential
The transit location of Azerbaijan, linking Europe with Asia, is a key factor determining the prospective opportunities for cooperation with this country. In addition to its location, the country's size and numerous mineral resources are also advantages of the country. The oil sector is a key factor of the economy – it produces over 40 percent. GDP generates nearly 70 percent of the budget revenues. In world markets, the oil boom has a decisive influence on the development of Azerbaijan's economy. Almost all export revenues are generated through the sale of energy resources (91%). More than half of foreign direct investment concerns only oil and gas extraction. The fertile soil, which has not yet been fully developed, also deserves attention.
In addition to the energy sector, where the cooperation may include the supply of machinery and equipment for oil and gas processing, industries such as banking and finance, ICT, tourism, as well as transport and agriculture are considered the most prospective for foreign investments. Also, exporters from the construction, pharmaceutical, cosmetics and furniture industries should consider contribution in Azerbaijan. For Polish investors, 2019 was certainly an important date, when agreements were signed on cooperation between the ministries of agriculture of Poland and Azerbaijan and cooperation in seed and phytosanitary production. The talks also concerned the issue of energy cooperation and the development of a cluster of Polish companies in the free zone of the Baku-Alat airport.
The import structure of Azerbaijan is dominated by machinery (25%), means of transport (11%), metals (9.9%), chemical products (9.8%) and food products (7.8%). The largest recipients of exports from Azerbaijan are Italy (USD 5.64 billion), Turkey (USD 2.86 billion), Israel (USD 1.33 billion), India (USD 956 million) and Germany (USD 932 million). The most important source of imports is Russia (USD 2.29 billion), Turkey (USD 1.65 billion), China (USD 1.43 billion), Switzerland (USD 1.21 billion) and the United States (USD 769 million).
The Azeri market is also within the reach of Polish companies, and the success they have achieved in it confirms its business potential. The Polish export offer includes products that are primarily in demand in Azerbaijan. The structure of Azeri imports and Polish exports is dominated by machinery and equipment (43.8% in 2018), as well as chemical products (18.0% in 2018), metallurgical products (12.5% 2018) and agricultural and food products (13 8% in 2018).
On the other hand, imports from Azerbaijan to Poland include mainly products of the chemical industry (66.1%), primarily propylene, bentonite, and polyethylene packaging and some types of juices.
Incentives for investors
The friendly tax policy is certainly an incentive to consider operating on the Azeri market.
In February 2016, the Azeri legislative organ introduced amendments to the Tax Code, which provide privileges to legal and physical entities involved in individual investment activities. The introduced changes make it possible to exempt relevant entities from tax on 50% of income and revenues over a seven-year period. The Azeri government also approved amendments to the Duty Tariffs Act, under which legal and physical entities may be exempt from duty tariffs and VAT when importing capital equipment. Importantly, goods manufactured in Azerbaijan by foreign investors are fully exempt from export duty. Work is also conducted to create special economic zones – a refinery and petrochemical complex and local innovation spaces, aimed at transforming the country into an information and communication technology centre in the region. These projects create a number of business opportunities for Polish specialists.
Polish cooperation with Azerbaijan is based on the Agreement on Partnership and Cooperation (PCA) concluded by Azerbaijan and the European Union in 2004. Additionally, in March 2005 the governments of the Republic of Poland and Azerbaijan already signed an agreement on economic cooperation, which does not interfere with the competences of the European Union in the field of trade policy.
Apart from the economic ones, other agreements and treaties were signed that favoured bilateral cooperation between Poland and Azerbaijan. These include the Agreement on Civil Air Transport, Agreement on Cultural and Scientific Cooperation, Agreement on the Avoidance of Double Taxation and the Prevention of Tax Evasion in the Area of Taxes on Income and Property, Agreement on Cooperation in the Field of Tourism, Agreement on Mutual Promotion and Protection of Investments , Agreement on cooperation and mutual assistance in customs matters, Agreement on international road transport, Memorandum on cooperation in the veterinary field between the Minister of Agriculture and Rural Development of the Republic of Poland and the Ministry of Agriculture of the Republic of Azerbaijan and the Agreement on international road transport.