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Development of the ICT Sector and Competitiveness-Building Challenges in Azerbaijan |
16 May 2012Fuad Aliyev & Jahandar Gadirov, Contributors
The role of information and communication technologies (ICT) in gaining a competitive advantage in fierce international competition for investments and markets should not be underestimated. The latest studies and empirical evidence prove that technological readiness on all levels is a crucial factor of any national economy’s competitiveness.
The emerging economies of the post-Communist countries, having multiple ex-ante competitive disadvantages of political, institutional, economic and other natures, face an even more complicated position in the global arena. This status quo requires both quick and at the same time effective policy decisions followed by their appropriate and timely implementation. This is the biggest challenge that many governments of these countries are left to face. Most of them cannot be said to be successful in addressing these problems and overcoming the digital divide to significantly improving their global competitiveness.
However, there are some hopeful cases too. One of them is the case of the Republic of Azerbaijan, a post-Soviet nation that gained its independence in 1991, passing through a military conflict, occupation, refugees, and IDPs as well as rich hydrocarbon resources with all their advantages and disadvantages for sustainable development.
This article demonstrates how Azerbaijan has recently advanced in terms of technological readiness during a short period of time against all odds. And actually this advancement was led by the state sector rather than private, which also raises questions about the role of the state in development in the transitional context.
The 21-year history of Azerbaijani independence, which follows the strategic line of development through the liberalization of the economy, expansion of foreign economic relations, implementation of institutional reforms, directing the development of other sectors of the economy through oil revenues, resulted in successfully-implemented programs to increase its economic potential. Attracting investments plays a vital role in the long-term sustainable and balanced development in Azerbaijan. The further improving of the investment climate by increasing the quantity and quality of investments aims to address the major tasks facing the country. No doubt, large multinational companies and corporations first study the country's business infrastructure and investment climates and only then make their investment decisions.
The main point of attention is that the country declared the ICT sector and investment in this field a priority area following the energy sector, due to its rapid and dynamic development and acting as a major locomotive for the non-oil sector. 1.8 billion USD has been invested in this field over the last six years, of which approximately 20-21% is from foreign investment. This fact points to the interest of foreign investors in this field. In 2011, 527.6 million USD was invested in the ICT sector, which is more than a two-fold increase in comparison with the previous year.
An irreplaceable role in the formation of information telecommunication technologies belongs to a healthy investment environment in the country. Thus, the tax burden reduction and simplification of tax procedures, application of the "one-stop shop" principle in state registration and immigration control, and low-interest loans to entrepreneurs' business projects accelerated the development of the private sector.
Today, Azerbaijan’s economic policy aims to achieve non-oil sector development, economic diversification and the creation of opportunities for the development of new industrial areas. This was demonstrated clearly at the end of 2011. This shows that the real sector is developing in the country and the dependence on oil is being eliminated. The ICT sector’s development has played the leading role in the development of ICT in the country. ICT being given a priority role is approved of in Azerbaijan’s development concept while the sector’s development policies are implemented in accordance with the adopted national strategy and state programs. Thanks to the state support this sector is developing dynamically, thus contributing to the overall progress of Azerbaijan.
As the most dynamically-developing country of the region, Azerbaijan has great opportunities in the expansion of the ICT sector today. And one of the most important of these opportunities is integration into the world community. As a result, the internationally-recognized Global Competitiveness Index (GCI) ranked Azerbaijan 55th among the world's 142 countries and number 1 among the CIS countries. Comparing the GCI’s Technological Readiness, Innovation, and Network Readiness rankings for Azerbaijan to last year’s reveals some interesting relationships between them.
Table 1. Azerbaijan’s GCI sub-indices for the last four years: comparative overview
Source: WEF 2008-2012
In the Innovation indicator, Azerbaijan advanced slightly to the 60th rank. If in the previous report Russia ranked 57th and was the leader among CIS countries, this time Azerbaijan with its 60th rank replaces it. The other CIS countries got the following ranks: Ukraine 74, Armenia 112, Kazakhstan 116, and Georgia 118. Major regional powers Turkey and Iran were ranked 69th and 70th respectfully.
In the WEF’s “The Global Information Technology Report 2011-2012,” Azerbaijan places 61st among the world’s 142 countries on the Networked Readiness Index. It is worth mentioning that this year was one of tremendous technological readiness development in all CIS countries, except for Tajikistan and Kyrgyzstan, with the latter even going backward in the ranks. Russia in particular has made an unbelievable jump from the 77th rank to 56th, becoming the second-ranked CIS country in terms of technological readiness after Kazakhstan.
Source: WEF 2006-2012
In general, Azerbaijan, Kazakhstan and Russia are top performers in terms of ICT development among the former Soviet republics going far ahead of the others. All three countries count on affordable access to ICT infrastructure, although the development of this infrastructure is superior in the case of the Russian Federation (40th, compared to 71st and 72nd for Kazakhstan and Azerbaijan). However, the vision and commitment of the government to boost ICT as a driver of economic growth is highest in Azerbaijan, ranked 38th in the world and 1st among CIS countries in terms of Government Usage of Internet. This indicates the point that in Azerbaijan the government is the main inspirer of and driving force behind the ICT development.
In the International Telecommunication Union (ITU) report “Measuring the Information Society – 2011,” Azerbaijan advanced 9 ranks forward in its ICT Development Index (IDI) rating compared to the previous year and ranked 74th among 152 countries.
There also was growth in all respective sub-indices.
Source: ITU 2009, 2011
It is worth mentioning that Azerbaijan was in the top ten countries with the highest positive change in IDI ranking.
Source: ITU, 2011
As far the “Measuring the Information Society 2011” report ICT Price Basket indicator is concerned, Azerbaijan being 99th in 2009 became 53rd in 2010, advancing 46 ranks. According to this report, Azerbaijan, with its 81.7% relative change, heads the top ten countries with the highest relative change.
Source: ITU, 2011
A closer look at the sub-indices reveals that this significant change was achieved due to a dramatic price reduction in broadband services (88%) and mobile communications (21%).
Azerbaijan with its rank of 53 is number 3 among CIS countries. For example, Russia is 32nd, Kazakhstan is 50th, Ukraine 69th, Armenia 102nd and Georgia 111th. Azerbaijan is also ahead of one of the broader regional leaders Turkey, which is ranked 80th.
Thus Azerbaijan seems to overcome the challenges raised by the resource curse to a certain extent through the diversification of its economy, and the ICT sector has been chosen as the means for the country’s long-term and sustainable development. Domestic and regional ICT projects (including the annual BakuTel Exhibition, Trans-Eurasian Information Superhighway and Europe Persia Express Gateway) carried out in accordance with the government programs and strategies, as well as the sector growth rate and evaluations by international experts, allow for the expectance of the ICT sector of Azerbaijan to catch up with oil revenues by 2025 and become a regional ICT hub.
*Dr. Fuad Aliyev, JHU-SAIS, Central Asia – Caucasus Institute & Jahandar Gadirov, Expert on ICT market and data analysis.
*Acknowledgement: The authors would like to thank the Azerbaijan Marketing Society ICT Marketing Center for the information and research support. |
16 May 2012
Fuad Aliyev & Jahandar Gadirov, Contributors
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