Published by: Dubai Chamber of Commerce and Industry Business Support Department P.O. Box 1457 Dubai, United Arab Emirates Tel: 800 CHAMBER (2426237) Website: www.dubaichamber.com All rights reserved. No part of this publication may be reproduced, stored in any retrieval or computer system, or transmitted in any form or by any means electronic, mechanic, photocopying, taping or otherwise, without the prior written permission of the publisher. 2 | P a g e Table of Contents 1. Overview ............................................................................................... 4 2. Introduction .......................................................................................... 4 2.1 Azerbaijani Agreements with Other Countries .......................................... 8 2.2 Import Tariffs .................................................................................... 10 3. Certification Standards & Import Regulations ...................................... 11 3.1 Documentation Requirements ............................................................ 11 3.2 Labeling and Packaging Requirements ................................................ 12 3.3 Standards Conformity Requirements .................................................. 13 4. Export Opportunities to Azerbaijan ....................................................... 14 5. Conclusion ............................................................................................ 18 6. References ........................................................................................... 19 6.1 Further References ........................................................................... 23 3 | P a g e 1. Overview This guide has been prepared to assist Dubai-based businesses looking to export to Azerbaijan. It contains information relevant to exporters about Azerbaijan including: tariffs and trade agreements, certification, labeling and other documentation requirements, quality standards required of goods entering the country and specific export opportunities. Links and sources are provided for readers who require more detailed information on topics covered. Dubai Chamber has opened its first international office in Baku, which promises to be a fast-rising emerging market with substantial room for expansion in its trade position vis-à-vis the United Arab Emirates. Azerbaijan’s opaque market structure raises the necessity to secure a local partner with an ability to navigate otherwise murky waters. Dubai exporters should pay particular attention to minimizing their transportation costs, given that Azerbaijan continues to register import costs far above the regional average. Keeping abreast of local policy and market-impacting changes is of paramount importance to exporters. 2. Introduction Azerbaijan is heavily dependent on oil exports, and therefore its fortunes are tied intimately with prevailing global oil prices. Box 1: Azerbaijan's Economic & Trade Highlights Population (mn, 2013 est.) 9.59 GDP ($ bn current, 2013 frcst.) 78.17 Current account balance ($ bn, 2013 frcst.) 12.56 Trade to GDP ratio (2011) 86.96 Exports to GDP ratio (2011) 62.80 Imports to GDP ratio (2011) 24.16 Local bank transfer delays (months) 2-3 Transfer FX/bank delays (months) 3-4 Merchandise trade by commodity type (%) Exports Imports Mineral products & base metal items 94 14 Machines, vehicles & machinery equipment 1 41 Food & beverages 1 0 Exports by destination (%) Imports by destination (%) Italy 33 Russia 17.4 France 8.7 Turkey 11.7 Israel 8.2 Germany 9.2 Sources: Central Bank of Azerbaijan, State Statistical Committee, IM F & US Census Int'l 4 | P a g e The past decade has seen both extraordinary oil price volatility as well as a fundamental change in the pricing paradigm – to borrow from GMO’s Jeremy Grantham. It still remains to be seen whether such a move is permanent however, especially considering the lackluster state of the global economy and demand for the commodity. The oil industry in Azerbaijan has benefited tremendously given the relative low cost of exploiting existing reserves versus developing new ones in more costly areas. As a result, large oil revenues have entered into the public coffers and trickled down to the rest of the economy. The redistribution of income has largely just started to get underway. Rising average salaries facilitate the expansion of the broader non-oil economy. In January 2013, Azerbaijan’s average real month wage grew by 7.3% according to the State Statistics Committee. With nearly 4.5 million employed workers (out of a population of 10 million) Azerbaijan has a fast- developing consumer market, which is growing at 9-10% per year. Promisingly, the Taxes Ministry recently disclosed that the tax base – accounting for both individuals and businesses – grew by 3.8% in the first quarter of 2013 compared to the same period last year. The non-oil economy is emergent, albeit growing from a low Source: State Statistics Committee base. That said, the vision is for it to account for 80% of GDP by 2020 according to Minister of Economic Development Shahin Mustafayev. Non-oil sector exports increased by 19.1% over 2012 showing particular promise, yet they only accounted for 5.93% of total exports. Non-oil GDP growth is registering impressive gains that are meant to continue in 2013 – the IMF projects 9% while the government forecasts 11.7%, which is very encouraging given that this grouping accounts for 48.9% of total GDP as of January-February 2013. Despite the expansion in the non-oil economy, there is significant room for more players in the space to make an impact; at the end of 2011, the share of small enterprises in this component was only 5%. Government policy-makers realize the potential and are investing heavily in expanding infrastructure, from roads to fiber optics, to lessen the economy’s dependence on oil and the oil sector. The government has recently set a target to bring non-oil exports per capita up to $5,000 by 2025. This goal is all the more important in light of the recent declines in oil GDP and a gloomy outlook in the sector – barring new discoveries. That said, non-hydrocarbon growth is very much dependent on public outlays – and in the first 5 | P a g e half of 2012 nearly 96% of the state’s revenues came from the sale of hydrocarbon products. The thrust of the government’s diversification strategy is to construct the groundwork for future expansion across the spectrum and enable the consumer market to take root and thrive. The majority of government investment efforts are concentrating in erecting infrastructure, similar to what Ethiopia is doing (see author’s guide). In addition, the Ministry of Industry and Energy has developed a program of industrialization for the country in association with South Korean experts. Services are also envisioned to grow as the average citizen is able to afford a wider range of tailored amenities. Transport infrastructure is currently in focus as the country invests in its future. Everything from road, rail, seaports and airports are expanding in scope as the non- oil economy expands. Bridges, junctions and roads are being repaved and rebuilt with the assistance of international lenders such as the Asian Development Bank. Railways are being modernized, the Baku-Tblisi-Kars railway line will soon be in operation and new cars are being brought online in anticipation of the Silk Wind project – with customs clearance procedures also being simplified. The aviation sector is being invested in as airport facilities and fleets are restored to the tune of $1.226 billion in recent years and a new airport is under construction in the northern region to service tourists. As of April 9, 2013 Azerbaijan has commenced issuing e- visas for tourists, which is hoped to attract increased visitors to Baku and the Shahdag tourist complex. The largest seaport of the Caspian Sea in Alat is being constructed to receive loads from Kazakhstan, Turkmenistan and China to transfer for further transport over land to Georgia, Turkey and Western Europe. A transport and logistics center will be built in the coming years to take advantage of the new infrastructure, which is also meant to lower trade transportation costs. At the present time, costs to export and import are higher than the regional average. According to recent data, the cost to import into Azerbaijan stood at 71% higher than the regional average while the cost to export out of Azerbaijan was 66% higher than the regional average (see Box 2 below for details). The overwhelming reason for high transportation costs stem from that fact that Azerbaijan is a land-locked country, although the new railway could provide efficient access to the world’s sea lanes and reduce associated costs. Broadband internet infrastructure is also receiving warranted attention to enable to expansion of the information and communications technology (ICT) sector. The government is allocating over $130 million in 2013 to further develop fiber optic lines. Private sector companies are increasingly interested in tapping customers beyond the existing 200,000 broadband connections, with 19 operators currently providing services outside Baku. This year has been declared the ICT year with an all-encompassing strategy expected to be unveiled shortly. The creation of high-tech parks, one of which is envisioned to be completed by year end with 20 hectares apportioned to it, should encourage programmers and start-ups to spring up – especially with the support of the State Fund under the ICT Ministry.