Wanting to diversify its energy-export-dependent economy, officials in Azerbaijan have expressed a desire to turn Baku into a high-tech hub. But industry executives in Baku say the government is not backing its words with actions.
For the past few years, information technologies have ranked as Azerbaijan's second official economic priority after the oil & gas sector. A Baku computer manufacturer's efforts to break into the EU market, though, is serving as a test case of the government's commitment to put Azerbaijan on the global map of high-tech producers.
The Baku-manufacturer, Ultra, claims to hold about 20 percent of Azerbaijan's notebook market. Since 2005, the firm has been exporting its Nexus notebooks to regional states, including Georgia, Iran, Kazakhstan, Uzbekistan and Turkmenistan.
A pilot consignment of Ultra's notebooks was shipped to two firms in Belgium and Germany in early 2009. Ultra Chief Executive Officer Tahir Mirkishili tells EurasiaNet.org that the company now plans to ship 5,000 to 7,000 notebooks per month to the two countries for distribution in retail stores throughout the European Union. But, he claimed, Ultra has run into a snag: without an exemption from Azerbaijan's 18-percent Value Added Tax (VAT) and customs duties, the Azerbaijani notebook will find it hard to compete pricewise in Europe against larger-volume producers like HP, Toshiba and Acer, asserted Mirkishili.
"All these companies produce notebooks for the EU market in the free economic zone (FEZ) in China, thus they are exempt from VAT, some other taxes and customs duties," claimed Mirkishili. "There is no FEZ in Azerbaijan."
Ultra prices range from $375 for a 1.6Ghz/512 kilobytes model to $2,750 for a 2 GhZ/2megabyte Nexus.
Mirkishili said that Ultra has petitioned Prime Minister Artur Rasizade for discounts on export duties and exemptions from VAT. So far, the talks are ongoing. And could be ongoing for some time.
A senior source in Azerbaijan's Cabinet of Ministers told EurasiaNet.org that the government cannot grant exemptions to such duties and taxes to a single company. "It could be preferences . . . to all exporters in a non-oil sector, or to all exporters of IT products. But such an issue is not on the government agenda at present," said the source, who asked not to be named.
Aside from Ultra, Azerbaijan has two other PC makers: the state-owned Kur manufacturer in the city of Mingachevir in western Azerbaijan and the privately held firm AZEL in Baku.
Not all Azerbaijani IT experts, are optimistic about the Ultra notebook's chances for success in the EU market, even if they secure exemptions from export duties and VAT.
"It is a very competitive market," commented Dmitri Andrianov, editor of the IT magazine InfoCiti. "[T]here are several known notebooks producers in Turkey, including Beko, but even they have not been able to enter the European market yet." Andrianov estimated Ultra's maximum export capacity at only a handful of notebooks.
Regardless of the competitiveness of Ultra's products, one IT sector watchdog, Multimedia, raised questions about the government's role in high-tech exports. It identified a possible conflict-of-interest, noting that the government is at the same time a market regulator and market player.
Frustration has been expressed over the government's actions in the much-hyped "The People's Computer" program. The initiative, run by the Ministry of Communication and Information Technologies, aims to provide more than 100,000 teachers and students with computers and notebooks at prices discounted by 25 to 40 percent.
But rather than one of Azerbaijan's computer producers, the government picked HP as its approved computer vendor for the program. Some 6,300 packages of computers and software have so far been sold under the program.
"I think it would be logical to support local producers with such a large contract," commented InfoCiti Editor Andrianov.
Deputy Communication and Information Technologies Minister Elmir Velizade, however, stated that while the government initially considered local computer producers for the project, "some organizational issues" prevented their participation. "Moreover, HP made a very good offer which allowed us to get good-quality computers with fine technical parameters for a price lower than the market one," Velizade said. He did not provide details.
Ultra's Mirkishili tells a slightly different tale. The government expected vendors participating in The People's Computer program to finance promotion for the campaign and declined to provide VAT discounts, he claimed. "We considered this project not commercial, but about social welfare, and believed that the government should pay for it," Mirkishili said. When the government balked at providing financial incentives, Ultra opted not to participate, he claimed.
State-owned Kur supplies broadband modems for the program, and AZEL, Symantec's main retail partner in Azerbaijan, sells anti-virus software at 30-percent discounts. The project coordinator is Baku-based IT company BestComp Group.
The heads of AZEL and Kur declined to comment about the decision to opt for a foreign PC-maker for the program. AZEL President Igor Yakovenko, however, asserted that the quality of local PC and notebook producers' products is the same as that of "leading international brands."
Shahin Abbasov is a freelance correspondent based in Baku. He is also a board member of the Open Society Institute-Azerbaijan.