According to an announcement by Azerbaijan’s Economy Minister Mikhail Dzhabarov, Azerbaijan will increase automobile production within its industrial zones in 2023, increasing by 2.1 times compared to the previous year. The positive momentum in the automotive sector reflects its growth trajectory, with the number of cars produced in industrial zones increasing from 712 in 2018 to 4,233 in 2023.
Amid this change, Farid Mehralizadeh, an expert in the field, says: Azel Newsprovided valuable insights into the current state of automobile production in Azerbaijan and the strategic measures needed to improve it.
Mehralizad acknowledged the regulatory role of institutions involved in the industry and highlighted the possibility of developing incentive mechanisms. He recalled that last year Azerbaijan took a pivotal step in granting locally produced cars a 10-year exemption from value-added tax. According to Mehralizadeh, these tax concessions, together with support in areas such as customs, territorial technical assistance and other individual measures, could significantly strengthen the activities of companies involved in automobile production.
“I remember that last year a step in this direction was taken in Azerbaijan. Locally produced cars were exempted from value-added tax for 10 years. In this regard, what they can do is such a step . Provides certain support to enterprises involved in the production of automobiles, such as tax incentives, taxes, customs duties, local technical support, etc. These institutions, by taking certain measures and introducing incentive mechanisms, We can support corporate activities.”
Mr. Mehralizadeh expressed critical views on the policies implemented so far and pointed out the current problems in Azerbaijan’s automobile production strategy. He noted that although various attempts have been made, many of the companies involved, particularly China and Iran, were more focused on assembling the cars than on actual production. As he emphasized, the problem is that the added value to Azerbaijan’s economy is limited, given that most of the spare parts are imported and assembled domestically.
“Frankly, I do not believe that the policies implemented so far regarding car production in Azerbaijan have been successful. and Iranian car companies have also been involved, but here a problem arose. The problem is that car production does not create much added value to the Azerbaijani economy. Because spare parts are produced abroad and collected and sold only in Azerbaijan, this car production should be produced within Azerbaijan in order to bring more income to the Azerbaijani economy. . It is not enough to just assemble machines. On the other hand, most of the companies that have entered the Azerbaijani market so far have been unknown companies and have not been able to generate that many sales, ”the expert emphasized. .
In order to solve the aforementioned problems, experts emphasized the need to move from mere assembly to full-scale car production within Azerbaijan. To achieve this he proposed his two main routes. The first involves large own investments and is potentially risky due to the presence of existing companies, which may be hampered by technological and human limitations. A more realistic approach, according to Mehralizadeh, is to encourage large companies with the capacity to produce cars in Azerbaijan.
“I think there are two ways to build a successful car manufacturing industry in our country. One is you have to make a big investment yourself, which is a bit risky. There are already established companies in the market. There are companies, and on the other hand, our technology and the potential of human resources may not allow it. In this regard, I think it is most realistic to encourage large companies to produce cars in Azerbaijan. Of course, this requires other factors as well. I think one of them is the need to eliminate problems related to the rule of law that hinder the improvement of the investment climate in Azerbaijan, ”said the expert. added.
For this approach to be successful, the economists emphasized, it is important to address the challenges related to the rule of law that currently hinder an optimal investment climate in Azerbaijan. Mehralizad said important steps include building confidence in the judicial system, developing financial markets and further liberalizing customs policies. By creating conditions that foster a freer and more competitive business environment, Azerbaijan can attract strong and competitive companies and foster a vibrant and sustainable automobile manufacturing industry.
“It is necessary to resolve the problems related to the rule of law that are hindering the improvement of the investment climate in Azerbaijan. can create conditions for large and well-known competitive companies to engage in production in Azerbaijan. Otherwise, unfortunately, less competitive companies will only do business in Azerbaijan. Therefore, it is important to create conditions for the domestic business environment to be more free and competitive so that powerful companies are also interested in doing business in Azerbaijan,” he suggested.
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