flat72.jpg)
•
•
•
• Demographics
•
•
•
•
•
•
• Foreign Trade
• Privatization
•
•
•
•
•
•
• Caspian Basin Issues
•
•
• Oil & Gas Agreements
•
•
• Agriculture
• Industry
•
•
• Travel
•
•
.jpg){kind=small}
|
To obtain the following articles, please contact USACC
The construction market in Azerbaijan has rapidly evolved from a state controlled monolith to several upstart architectural, design and building firms with a thirst for the latest western technologies and building materials. The construction sector is still heavily dependent on the development of the oil and gas sector, the backbone of Azerbaijan's economy. Lack of acceptable financing resources (i.e. bank loans and working capital on reasonable terms) force Azerbaijani construction companies to rely on private capital. However for targeted proposals backed by trade finance, there is potential business growth for U.S. firms with interest in this challenging market. Apartment and commercial renovation, construction related to the oil and gas sector, and demand for modern construction equipment and materials are key elements of future market growth. Large-scale development projects, particularly pre-fabricated housing and warehousing for the oil and gas industry portend huge potential in procurement needs from 2001 to 2003. Project pipelines involving international financial institutions, as well as sub-contracted turnkey projects for the international oil consortia in the Caspian region should also be considered.
Development of the Azerbaijani Construction Market As part of the Soviet Union, Azerbaijan had many large-scale industrial construction companies as part of Ministries or state companies (e.g. construction firms under the Ministry of Communications, Ministry of Labor and Social Welfare, etc). At present these construction companies have been transformed into open joint stock companies and are operating independently and more or less on a commercial basis. Although most of the infrastructure of these companies is based on the Soviet legacy, Azerbaijani construction managers realize the importance of Western technologies and construction equipment. The "oil boom" in Azerbaijan from 1994-1999 fueled demand for quality construction materials and services. Given that existing Azerbaijani industry could not meet demand, Turkish construction companies, along with private contractors, moved into the market. While Turkish companies took a considerable chunk of the construction business in 1994-1997, local private companies have recently gained a stronger market share. Most bids were awarded to Turkish companies even though workmanship and timeliness factors were equal. However, Azerbaijani companies developed a key competitive advantage in providing post-completion maintenance. "We are glad that our message was heard," says a manager of one prominent Azerbaijani construction firm. Market Snapshot Based on interviews with several Azerbaijani construction firms, today's market is more results-oriented, time sensitive, and largely rejects low quality materials and workmanship. Stock is a key element for Azerbaijani firms since clients want timely delivery of building materials and services. In the words of one Azerbaijani construction executive: "Azeri's do not want to wait - they want their renovation done yesterday. That is why in order to maintain a good client base, you need to have good inventory and available materials all the time. If you keep large stock you can't afford many product choices, and with many choices and less stock, you can't pull in the orders." Thus, a key element in the Azerbaijani construction market is a large inventory with broad selection and stock at the same time -- a financial challenge and risk for many Azerbaijani construction firms.
Most construction work in Azerbaijan is based on stone and brick, which are locally available and very cheap. Residential construction primarily consists of monolithic frame house apartments built with reinforced concrete. This style is commonly used in Baku and many other regional centers of Azerbaijan. In order to respond to market demand for building reinforcements against natural disasters such as landslides and earthquakes (Baku experienced a 6.2 magnitude earthquake in November 2000), Azerbaijani construction firms are interested in developing more modern building methods, particularly frame houses based on metal construction. It should be noted that the construction materials import market in Azerbaijan hinges on two key clientele: the oil and gas consortia and commercial and residential demand fueled by the Azerbaijani elite. What is Moving in the Azerbaijani Construction Market?
In response to several U.S. Embassy Commercial Service interviews with leading Azerbaijani construction firms, the following construction materials are now considered to be in demand and represent opportunities for U.S. firms: Assortment of different colored woods for parquet floors and finishing; Ceramic products (tiles, mats, etc); Doors insulated windows and American style window frames; Drywall; Architectural, construction, and engineering (ACE) services; Heat, ventilation, air conditioning systems; Building materials suited for extreme temperatures; Open vinyl sidings; U.S. standard sanitary engineering and lighting accessories; Varnish paints; Various types of wallpapers; Water and sound proofing materials.
These building materials can be found on the Azerbaijani market, mostly traded out of Turkey and Dubai and perceived to be of lesser quality. U.S. and European materials enjoy a stronger reputation and while more expensive, are preferred by Azerbaijani consumers that are in a position to pay.
The long term leasing of construction equipment also presents opportunity for U.S. construction equipment firms, however, development and implementation of legislation that will secure lessor rights will be critical. Leasing of earthmovers, bulldozers, small forklifts, etc. -- particularly targeted at the oil patch -- can be a commercially profitable business. This will become increasingly prevalent over the 2001-2003 period, when major design and construction tenders for offshore oil and gas fields and hydrocarbon transportation are expected to be announced. SWOT Analysis of the Azerbaijani Construction Materials Market: Strengths Need for top quality materials: buyers recognize the need for top quality materials, with preference for U.S. and European brand names. Established oil and gas industry: Azerbaijan's oil and gas sector will continue to expand, opening up new opportunities for industrial construction and infrastructure. Several major tenders are expected to be announced in the 2001-2003 timeframe, adding further buoyancy to the market. No high-quality local production: Azerbaijani-made construction materials are sporadic in supply, do not see strong demand, and are simply non-competitive with imported materials. Weaknesses Low purchasing power: Azerbaijani importers often lack strong financial backing, with purchases based on private capital, thus limiting longer-term purchasing power. An irrevocable L/C confirmed by a western bank is strongly recommended for any initial transaction with an Azerbaijani customer; Weak access to reasonably priced credit: as the Azerbaijani market is not fully developed and the risk environment is high, banks do not offer commercially reasonable credit terms. However, some banks have invested in the construction sector because construction companies maintain fixed securable assets, as opposed to smaller trading and service companies. Customs Delays: Customs can be a major problem in getting your U.S. goods into Azerbaijan - let the Azerbaijani importer handle the customs clearance. Opportunities Major tenders expected from various oil and gas consortia in the 2001-2003 period, for onshore and offshore field development as well as pipeline transportation. Baku is ideally situated as a business development hub throughout the Caspian region, with air, rail, sea, and road links for market projection into the Caucasus and Central Asia; All imports under Production Sharing Agreements signed by the international oil consortia are VAT and customs duty free; Azerbaijani firms are extremely interested in establishing long-term relations with U.S. suppliers. Threats Third country competition: Turkish, Russian, Iranian, and Italian firms have strong market share and developed distribution networks; Legislative, customs, and tax environments are challenging and make doing business in Azerbaijan difficult; Price Construct to Baku from U.S. U.S. exporters should consider the following factors when doing a price construct for the Azerbaijani market: total customs and import duties are generally about 39.5%, which includes VAT, excise tax, customs and customs processing fee at the border. To avoid unnecessary customs delays, let the Azerbaijani importer handle customs clearance. A 20 foot container of general, non-hazardous cargo from Baltimore to Baku is on average $4000 per container. Transit time is approximately 35-40 days, via Poti, Georgia. Selected Contacts in the Azerbaijani Construction Market ABC Construction Modern Construction Group Muller Interiyer Nurgun Construction Real Holding Ugur - 97 To learn more about business development in Azerbaijan, including U.S. Embassy Commercial Service products marketed exclusively to American companies, please contact: Michael A. Lally, Commercial Attaché
This brief report provides an overview of commercial and investment opportunities in the IT and Telecom sectors focused on the Baku region. With the rapid growth of oil and gas investment in Azerbaijan since 1994, the telecommunications sector has attracted increasing foreign investment. The expected increase in the number of tenders in the oil and gas sector for onshore, offshore, and pipeline projects, will also result in opportunities for U.S. telecommunications equipment suppliers, operators, and system integrators. In 2001-2002, U.S. firms should monitor direct contract and sub-contracting opportunities to the international oil consortia, which will require expanded telecoms services, particularly for data. In 2001-2002 initial privatization of Azeri telecoms is expected, however it is unclear when the state's 51% share in Aztelecom will be sold. Below are selected sub-sector "snapshots", which have potential for robust growth in the 2001-2003 timeframe.
Snapshot: Wireless Communication
Wireless communication is presently the most active sub-sector of the telecom industry in Azerbaijan. It has continued to receive considerable foreign investment since 1994, when the GSM900 network was initiated. There are two mobile operators in Azerbaijan - Bakcell (GSM 2000) and Azercell (GSM 900). Mobile communications operators have a key competitive advantage, since they do not have to adhere to the low telecom tariffs dictated by the Ministry of Communications. Telephone density in Azerbaijan varies from region to region, - reaching as high as 50% in Baku, the national capital, and as low as 10-15% in small towns, - wireless mobile and wireless local loops are often the only alternatives to obsolete and inefficient wireline networks. With recent investments into the mobile communications sector, international telecom equipment manufacturers and service providers indicate that some market players are ready to invest based on expectations of long term future dividends. The Ministry of Communications is talking to several companies to establish a third mobile operator in Azerbaijan. Currently, Azercell is the largest mobile communications operator with more than 400,000 subscribers, most on the popular, pre-pay Sim Sim program. Bakcell is the second cellular operator and has gained market shore in 2000-2001 through heavy investment in its network infrastructure. Prepaid mobile communications services, mobile banking, Internet, SMS, and other value-added services have allowed mobile communications operators to attract customers from other telecom sectors, such as paging and trunking. Snapshot: Internet
The Azerbaijani Internet services market is young and limited, but has strong prospects for development. Internet penetration is still low at only 12,000 subscribers countrywide, however Azerbaijani firms and IT-savvy Azerbaijanis are showing more and more interest in the Internet. The overall economic situation, the business environment for small and medium size companies, the role of the Ministry of Communication as both regulator and commercial partner, and very limited Azerbaijani purchasing power will determine the pace of Internet market growth. Differing from the U.S. and Western Europe, the Azerbaijani market for Internet services depends more on the availability of telecom and computer infrastructure than on demand for ISP services. This dependence is due to the monopoly of Aztelecom in the public telephone system and the high charges for access to international channels. Obstacles to the development of Internet services are: the lack of local loop development; legislation that would determine the legal status of Internet-related businesses (e.g. Internet telephony, e-commerce, information security, encryption products, etc.); and lifting of price (i.e. VSAT) and other monopolistic measures increasingly taken by the Ministry of Communications conflicted by both its role as telecoms regulator and shareholder in several joint ventures.
Internet services are subject to licensing by the Ministry of Communications. All ISPs are established as joint ventures with the Ministry of Communications. In these JV charters, the Ministry is usually a shareholder of 51% of the venture and provides general facilities as its portion of the charter capital, while the other partner is expected to provide operating and investment capital in the venture and act as an operator of the company. There are no official statistics for the number of Internet users in Azerbaijan, however, the Embassy estimates that there are approximately 12,000 Internet users in Azerbaijan. Main users are corporate businesses, the local private sector, educational centers, and academia. The ISP sector is currently viewed as low in profitability, with the need for reinvestment reaching 95 percent based on anecdotal evidence.
To expand the local market for Internet services, Azerbaijan needs to create its own backbone network. The Ministry of Communications is completing construction of the Azerbaijan portion of the Trans - Asia - Europe fiber-optic cable link. Once this cable is operational, it will enable Azerbaijan to access global communications channels throughout Europe and Asia. The project will take fifteen months to finalize. ISP companies that operate outside of Baku are at a disadvantage, because they have to pay for access to international channels and use radio relay channels that are outdated and unreliable, or voice band frequencies of Aztelecom. In the near future, regional ISPs may opt for more reliable satellite channels. Many of the larger ISP providers sense a growing demand for additional Internet connectivity. Increasing Internet traffic and expensive international channels have forced ISPs to look for affordable Internet services over satellite solutions. This need potentially represents one of the best sales prospects for U.S. equipment manufacturers and network integrators.
Snapshot: Technology Suppliers and System Integrators
The Azerbaijani market features several strong local firms providing the latest IT technologies and full integrator services. Most Azerbaijani computer hardware and software sales companies offer system integration to their clients. Azerbaijan Electronics (AZEL) has been a leader in system integration since 1991 and now provides complete solutions and service support for corporate clients using Hewlett-Packard, Microsoft, APC, Compaq, Oracle, AutoDesk, JVC, BASF, IBM and other suppliers. AZEL's strategy was and remains integrated solutions in the field of information technology. The R.I.S.K. COMPANY offers cohesive business process consultancy, application consultancy and IT infrastructure consultancy, based on technology planning, lifecycle cost management and project planning. R.I.S.K. is an authorized reseller for sales and service for all of the major information systems vendors. R.I.S.K. operates as a Microsoft Solution Provider with Windows NT specialty, DELL Distributor, IBM Distributor & Solution Provider, CISCO Networking Reseller & Solution Provider, Compaq (former Digital) Solution Provider & Distributor, and many others. Snapshot: Data Transmission
The Azeurotel 92/97 exchange represents the only Azerbaijan-based telephone operator utilizing the powerful System X digital switching system. Azeurotel, a U.K.-Azerbaijani joint venture with Lukoil participation, is a platform for a variety of telecommunication services: local telephone networks, national and international communication, multipurpose trunking communication, Nokia Actionet, and packet data transmission. Today, the 92/97 Exchange is connected to all stations of Baku by fiber-optic cable, where SDH multiplexing equipment is installed and thus allowing an increase in the number of channels with great capabilities for data and voice transmission. Azeurotel is also utilizing the DECT standard wireless network system. It is a uniquely digital standard and therefore, provides all digital communication services, including ISDN. The sphere of DECT application ranges from the simple wireless telephone to a system providing various telephonic services.
Selected Contacts in the Azerbaijani IT Market
ADaNet Araz Computer AZEL AzerIn AzEuroTel Azeronline Azkom AzInternet Serices Baknet Bestcomp Group Cenpaq Computer System IntraNS (Intra Network Systems) R.I.S.K. To learn more about business development in Azerbaijan, including U.S. Embassy Commercial Service products marketed exclusively to American companies, please contact: Michael A. Lally, Commercial Attaché |
