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Young Entrepreneurship Synergy (YES!

)
Network for Georgia-Azerbaijan
Cross Border Cooperation
Baseline Study
This Baseline Study has been produced with the assistance of the European Union. The content of the this
publication is the sole responsibility of CiDA-led partnership and can in no way be taken to reflect the views
of the European Union.

The “Young Entrepreneurship Synergy (YES!) Network for Georgia–Azerbaijan Cross Border Cooperation”
project is co-funded by the European Union within the framework of the Eastern Partnership Territorial Coop-
eration (EaPTC).

EaPTC opens an opportunity for Eastern Partnership countries to identify and jointly address common
challenges in their border regions towards sustainable economic and social development at local level.

EaPTC comprises four territorial cooperation programmes: Armenia-Georgia, Azerbaijan-Georgia, Belar-


us-Ukraine and Moldova-Ukraine.

www.eaptc.eu

This report was prepared by PMO during May-June 2018 as commissioned by CiDA. PMO collected information
from a variety of sources, filtered it carefully and analyzed it with the help of industry experts. Based on the
analysis of the collected information, the PMO Team derived conclusions and developed a Baseline Study of
the cross border regions of Azerbaijan and Georgia as requested by the client.

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into this document are intellectual property of PMO. The passing whole or part of the document to third
parties or/and copying, distribution, re-processing or any other usage of the document without the written
approval by PMO is not allowed.

CONTACT INFORMATION
PMO can be contacted at the following:

PMO Business Consulting

Lika Inashvili, Managing Partner

(+995) 5 99 92 91 57
Lika@pmo.ge

Levan Gogoladze, Partner

(+995) 5 95 78 00 67
Levani@pmo.ge

Salome Makaridze, Partner

(+995) 5 92 27 39 39
Salome@pmo.ge

7 N. Nikoladze street, II Fl., Tbilisi, 0108, Georgia


(+99532) 2 37 73 07
contact@pmo.ge
www.pmo.ge
TABLE OF CONTENT
ABBREVIATIONS 6
1. Executive Summary 7
2. Georgia - Azerbaijan Relations 10
Introduction 10
National Policies on Regional Development and Cross-Border
Cooperation in Azerbaijan and Georgia 11
Economic Relations and Trade 13
3. Review of Tax System in Azerbaijan and Georgia 17
Review of Tax System in Azerbaijan and Georgia 17
Georgian Tax System and Tax Rates 17
Azerbaijan Tax System and Tax Rates 20
Customs Clearance 23
4. Overview of Kakheti Region 27
Demographic trends 27
Labor Market 28
Economy 30
Small and Medium Enterprises 32
5. Key findings of Sagarejo Municipality 33
Introduction 33
Infrastructure 33
Local Government 33
Youth 33
Gender 34
Business Environment, Employment and Private Sector 34
Tourism 35
Education 35
EU integration and cross border cooperation 35
Border 36
6. Overview of Kvemo Kartli Region 37
Demographic trends 37
Labor Market 38
Economy 39
Small and Medium Enterprises 40
7. Key Findings of Gardabani Municipality 41
Introduction 41
Infrastructure 41
Local Government 41
Youth 42
Gender 42
Business Environment Employment, private sector 42
Tourism 43
Language Barriers 43
Education 43
EU integration and cross-border cooperation 44
8. Overview of Ganja-Gazakh Region 45
Overview 45
9. Agstafa 48
Demographic Statistics 48
Economy 50
10. Gazakh 53
Demographic Statistics 53
Economy 55
11. Key Findings of Gazakh and Agstafa Municipalities 61
12. Comparative Analysis 64
TABLE OF FIGURES
1. Trade between Azerbaijan and Georgia, mln USD, 2010-2017 13
2. Comparative table of Georgia–Azerbaijan trade flow structure 14
3. List of Customs Check-Points located at borderline of Azerbaijan
and Georgia 15
4. Turnover of Cargo by Customs Regime and Customs Check Points, 2017 15
5. State Level Taxes in Georgia 18
6. Tax Exemptions and Preferential Regimes in Agriculture 18
7. Simplified Tax Regime 20
8. Tax Rates in Republic of Azerbaijan 22
9. Exemptions for commodities imported by individuals for personal use 24
10. The distribution of population by municipalities (1000 people), Kakheti region, 2018 27
11. Labor Market Structure (000 people), Kakheti region, 2017 28
12. Average Monthly Salary (GEL) by Type of Economic Activity, Kakheti region, 2016 29
13. Business sector turnover (mln GEL), Kakheti region, 2010-2016 30
14. Primary production of agriculture, Kakheti Region, 2016 31
15. Employment by the people employed in enterprises (left), Kakheti region, 2016 Share in total turnover by size of
enterprises (right), mln GEL, Kakheti region, 2016 32
16. The distribution of population by municipalities (000 people), Kvemo Kartli Region, 2017 37
17. Labor market structure (000 people), Kvemo Kartli Region, 2017 38
18. Average wage by type of economic activity, Kvemo Kartli region, 2016 38
19. Business sector turnover (mln GEL), Kvemo Kartli Region, 2012-2016 39
20. Structure of the economy by share in value added, Kvemo Kartli region, 2016 39
21. People Employeed by the size of enterprises (left); Share in Total Turnover by Size of enterprises (right), million Gel,
Kvemo kartli region, 2016 40
22. Average Wage Comparison (Manat) 45
23. Economic Structure of Ganja-Gazakh Region, million Manat 46
24. Real Growth of Output of the Economy in Ganja Gazakh Region in 2017 47
25. Real Growth of output of the economy in Ganja-Gazakh Region, 2010-2017 47
26. Growth of Output of the Economy in Ganja Gazakh Region, 2017 48
27. Distribution of Population by Age, 2016 48
28. Civil service employement by Gender and Age groups in Ganja Gazakh region 49
29. Economic Growth in Agstafa, 2010-2017 50
30. Output Growth by Type of Activity in Agstafa, 2017 50
31. Number enterprises by types of activity in Agstafa, 2015 51
32. Share in output by types of Economic Activity, million Manat 51
33. Share in output by types of Economic Activity, million Manat 52
34. Urbanization Rate and Gender Structure of population in Gazakh, 2016 53
35. Population by Age Group in Gazakh, 2016 53
36. Level of Education in Gazakh; Gender distribution by level of education, 2016 54
37. Number of Newly Opened Jobs in Gazakh, 2010-2016 55
38. Economic Structure of Gazakh, million Manat, 2016 55
39. Annual Growth of Output in Gazakh (left), Growth by Types of Economic Activity in Gazakh (right), 2017 56
40. Number of Small Enterprises by Types of Activity in Gazakh (2015) 56
41. Annual Turnover of Small Enterprises by Types of Activity in Gazakh, 2015, Million Manat 57
42. Regions’ share in agricultural output in Ganja-Gazakh region 57
43. Share of Ganja-Gazakh region in Total Agriculture Production by Product Types, Plants (Left), Livestock (Right) 58
44. Number and Share of Employees in Agricultural Enterprises by Regional Units of Ganja-Gazakh Region 58
45. Share of Regional Units in Total Retail Trade Turnover of Ganjza-Gazakh Region, 2016 59
46. Growth of retail trade turnover, 2011 – 2016 59
ABBREVIATIONS
BTC | Baku-Tbilisi-Ceyhan (Crude Oil Pipeline)

CPI | Corruption Perception Index

DCFTA | The Deep and Comprehensive Free Trade Area between Georgia and EU

DTF | Distance to Frontier (Doing Business Index)

DTT | Double Taxation Treaties

EU | European Union

EaPTC | Eastern Partnership Territorial Cooperation (EaPTC) Georgia – Azerbaijan


program

ENP | European Neighborhood Policy

EP | Eastern Partnership

FTA | Free Trade Agreement between Georgia and Azerbaijan

HGA | Product Government Agreements

NATO | The North Atlantic Treaty Organization

PSA | Production Sharing Agreements

PCA | Partnership and Cooperation Agreement between Azerbaijan and EU

SME | Small and Medium-Sized Enterprises

TANAP | Trans Anatolian Natural Gas Pipeline

TAP | Trans Adriatic Pipeline

TI | Transparency International

VAT | Value Added Tax

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EXECUTIVE SUMMARY
This study was conducted within the framework of the Eastern Partnership Territorial Cooperation (EaPTC)
Georgia – Azerbaijan program by PMO business consulting, commissioned by Civil Development Agency
(CiDA). The goal of the study was to provide a snapshot of the current social and economic conditions of
the cross-border regions of Azerbaijan and Georgia, identify formal and informal barriers hindering
cross-border cooperation and economic development of the target regions and to develop practical
recommendations that will be applied to build efficient cooperation mechanism and develop strong busi-
ness networks among the private sector representatives operating in the cross-border regions of Azerbai-
jan and Georgia.

The focus of the study was the Agstafa and Gazakh municipalities of the Ganja-Gazakh economic zone
from Azerbaijan and the Gardabani municipality of the Kvemo Kartli region and Sagarejo municipality of
the Kakheti region from Georgia. Quantitative and qualitative research tools were applied during the
study, including statistical analysis of data, a desk review of existing research studies, face-to-face inter-
views with local stakeholders, as well as with representatives of local government and the private sector.
In addition, focus group meetings with all relevant stakeholders were held in each target municipality to
discuss the key challenges and opportunities as well as the prospects of cooperation

The key findings of the study are provided below:

Economy

• Azerbaijan and Georgia have developed strong partnership links by incorporating joint strategic projects
in energy and transportation. Although the full potential of economic cooperation has not fully been
absorbed and there remains space to expand the area of cooperation through the diversification of trade
and tourism by implementing joint management mechanism of cultural heritage and natural sites locat-
ed in the cross-border areas of Azerbaijan and Georgia, there is also the potential for value-chain devel-
opment of the food processing industry and construction sectors.

• Georgia and Azerbaijan enjoy a bi-lateral free trade agreement with each other, as well as with former
CIS countries. However, Georgia is the only country in the region that has signed free trade agreements
with both the EU and China. This creates potential for both countries to expand cooperation in terms of
trade and join local resources to thrive on the international market.

• The huge gap in economic development between the capital city and the regions is a common problem
in Azerbaijan and in Georgia. The low level of economic development and income in the regions limits the
possibility of the local population to improve their living conditions and maintain high living standards.

• Agriculture and retail trade are the main sources of income for Georgian, as well as for Azerbaijan’s
bordering regions. Most people are self-employed and work on small scale farms or run small shops. The
population in both regions lack basic entrepreneurial skills, which limits their potential to expand their
businesses and generate high income over a long period of time.

• The adoption of modern technology in the production process is low, resulting in low productivity levels
of local industries and makes local production less competitive for export.

• The lack of access to finance is another drawback that hinders the development of local business. The
government of Georgia and international donors run programs to support the economic development of
the regions. However, the local population is either not aware of the existing programs, or do not have
enough skills to fill-out the application forms or write grant proposals in order to participate, which is a
barrier to them receiving financial and technical assistance for expanding their businesses. According to
the feedback from focus group discussions, the same problems are affect Azerbaijan. Additionally, most
people do not even know how to use credit cards to perform financial transactions.

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• Trade relations between the cross-border regions is undeveloped, as there is no intensive trade takeing
place between them. Although there is a high interest among businesses in exporting products to neigh-
boring countries, the possibility for export is limited. The main problem is that people are not aware of
the rules and regulations imposed on exported goods in the neighboring regions. They are also not aware
of how to establish partnership links with business entities in neighboring countries

Tourism

• There is great potential for cooperation within the tourism sector. The existence of an airport in the
Ganja region is an additional advantage for the development of tourism transportation. In addition, there
are attractive tourist sites in Ganja-Gazakh, as well as in the Kvemo Kartli and Kakheti regions. Some of
touristic sites include the Davit Gareja complex and Jandara Lake cross the border of Georgia-Azerbaijan,
which creates the possibility to develop joint management mechanisms for shared cultural heritage and
nature sites to increase the interest of tourists and share the benefits from growing income.

• Underdeveloped infrastructure and a lack of promotion of touristic sites in targeted regions are the
main barriers limiting the development of the tourism industry in cross-border regions of Azerbaijan and
Georgia.

• The use of digital technology to attract new visitors and increase sales is low among the local population
and greatly limits their capacity to attract new clients and promote their business using online sources.

Business Environment

• Georgia is the leading country in the region for Ease of Doing Business1. Georgia has lowest level of
corruption in the region2, simplified and transparent procedures to register and run business, a prefera-
ble tax environment (tax exemptions are imposed on activities related to agricultural production, hotel
service and IT products). Both countries Georgia and Azerbaijan have simplified tax regimes for SME’s with
low tax rates and simple tax administration procedures which are defined by national tax codes.

• Azerbaijan is carrying out reforms to improve the business environment and reduce corruption.

• There is controversial attitude among local population towards the recent reforms carried out by the
government of Azerbaijan3. Many of the local population confirm that reforms have led to improvement
of business environment, while another group of people perceive that challenges persist and environ-
ment is still volatile;

• Most of the population is unaware of the country’s tax system and customs regulations. This creates
inaccurate perceptions within society regarding the performance of public organizations. Both the
governments of Georgia and Azerbaijan must apply strong strategic communication tools to increase the
level of awareness of the local population on the national tax system and customs regulations.

Local Government

• There is almost no cooperation between the local government authorities of the cross-border regions
of Azerbaijan and Georgia. However, representatives of local government from both sides are willing to
develop partnership ties and implement joint solutions for the common problems.

• Local government authorities in the Sagarejo and Gardabani municipalities as well as in Gazakh and
Agstafa are developing strong ties to the local population, and they are aware of the local problems and
use local sources to find appropriate solutions. Moreover, the local governments actively supports the
government and donor-funded projects and encourage the local population to participate.

1
“Doing Business 2018-Regional Profile”, World Bank Group, October, 2017
2
“Corruption Perception Index 2017”, Transparency International, 2018; see the link: https://www.transparency.org/news/fea-
ture/corruption_perceptions_index_2017#regional last accessed 30/08/2018
3
Interviews and focus group discussions with local population

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• It is important to develop a cooperation platform for the local government authorities of the cross-bor-
der regions in Azerbaijan and Georgia, as they have better knowledge and expertise on the challenges
and opportunities that exist on the municipality level and also have close ties to the local population.

Youth, Gender and Education

• Youth migration is a common problem for the cross-border regions in Azerbaijan and Georgia. The young
population is leaving regions to study in the capital city or abroad and often do not come back. The
migration of the young labor force is the main threat to the regions, as it will limit the prospects for
economic development of regions.

• Although there are education facilities in Ganja-Gazakh region, the focus group participants consider
them to be of the lower quality, than in the capital, which is why most of the young population prefer to
receive education in Baku or abroad;

• There are villages in the Gardabani and Sagarejo municipalities that are densely populated by ethnic
minorities (Azerbaijani). The integration of the Azerbaijani population in Georgian society is low, because
of social, cultural and language differences. Most of the Azerbaijani population does not know the Geor-
gian language, or any other language at all. Compounding the problem, there is no incentives among the
ethnic Azerbaijani population to establish links with Georgian society.

• Compared to men, women’s participation in economic activity is limited in Agstafa and Gazakh munici-
palities, even though women have equal rights as men by law. However, it is expected that men will have
sufficient knowledge and social capital to engage in business and, therefore, women’s access to educa-
tion and employment is relatively limited;

• Similar to Azerbaijan, women have restricted access to education and job opportunities in villages popu-
lated with ethnic minorities in the Sagarejo and Gardabani municipalities. The situation is slightly differ-
ent in Gardabani, where Azerbaijani families living in the city of Gardabani hold more modern views and
do not restrict women’s pursuit of education and employment. In the villages however, women and young
girls rights are restricted by their families

• There is a potential to cooperate in terms of the development of vocational education. Both Azerbaijani
and Georgian regions expressed the need of vocational training centers.

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GEORGIA - AZERBAIJAN RELATIONS
Introduction

Azerbaijan and Georgia are strategic partner countries in the South Caucasus region and have developed
strong economic ties and diplomatic relations. Diplomatic relations between Azerbaijan and Georgia
started in 1992 and 26 years of cooperation have resulted in joint strategic projects in the field of energy
and transportation, which in turn, has strengthened the economic and national security of both coun-
tries.

In terms of international policy, both countries share common values and have declared its western
orientation and their will to join the European Union (EU) and North Atlantic Treaty Organization (NATO).
In terms of western institutions, Georgia’s aspirations are stronger, and the country carries out an active
policy to become part of the EU and NATO alliance. Despite the fact that it has declared a western-orient-
ed policy, Azerbaijan’s policy actions to incorporate western values and approximate western institutions
are more passive compared to Georgia.

In terms of economic relations, Azerbaijan and Georgia have developed strong ties for cooperation within
the energy sector. Georgia’s geographic location and the oil and gas deposits of Azerbaijan have helped
both countries cooperate in the energy field. Azerbaijan transits oil and gas resources through Georgia.
These relations became stronger after the opening of the South Caucasus Pipeline, which transits hydro-
carbons from the Caspian Sea to the EU market. The strategic pipelines crossing Georgia include the
Baku-Tbilisi-Ceyhan oil pipeline, the Baku-Tbilisi-Erzurum gas pipeline and the Trans Anatolian Natural
Gas Pipeline (TANAP), which is connected to the Trans Adriatic Pipeline (TAP) and provides for the transit
of hydrocarbons from the Caspian Sea to the EU market through Azerbaijan, Georgia and Turkey. This is
one of the most strategic objects ensuring the energy security of Georgia and also reduces the depen-
dence of the EU on Russian gas. On top of that, Azerbaijan plays a crucial role in ensuring the security of
Georgia’s energy supply. Azerbaijan is the main supplier of gas to Georgia (almost 90% of the gas con-
sumed in Georgia is imported from Azerbaijan).

Geographic location, highways, railways and sea ports increase the potential for developing strong transit
routes and connecting European and Asian markets. The Baku-Tbilisi-Kars railway line connects Azerbai-
jan and Turkey through Georgia and forms a channel to transit commercial cargo from Central Asia to the
EU market. These routes are already functioning and used to pass commercial and military cargo from
central Asia to the EU market. It should be mentioned that the transit potential of these countries has not
fully been realized and there is still great potential for the enhancement of cooperation in trade between
Azerbaijan and Georgia.

According to recent data from the National Statistics Bureau of Georgia, Azerbaijan is one of Georgia’s
most important trade partners, making up an 8.2% share of total trade turnover and ranking fourth
among the largest of Georgia’s trade partners. On the other hand, Georgia is not among the 10 largest
trade partners of Azerbaijan. According to the recent data from National Statistics Office of Azerbaijan,
Georgia ranked 12th in 2016 among the largest trade partner countries of Azerbaijan and its share
accounted for 2.2% of total trade turnover of Azerbaijan. The value of imported commodities from Georgia
makes up only 0.6% of total value of imports in Azerbaijan. Georgia has relatively more importance as an
export country for Azerbaijan and is among the top ten export partner countries taking 9th position with
a 3.8% share in total export of Azerbaijan. The importance of Georgia as an export market for Azerbaijan
is mainly a result of the expense of oil and petroleum products. Oil and petroleum products are the main
commodities exported to Georgia and account for 72% of the total value of the exported commodities
from Azerbaijan to Georgia.

It must be noted that despite the declared partnership, economic cooperation is mainly concentrated on
the energy sector. This is likely the result of the structure of Azerbaijan’s economy, as it largely relies on
the oil industry and is not diversified. In addition, Georgia does not have a well-developed export-orient-
ed industry, which is probably why the scope of trade cooperation between the two countries is limited.

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An additional factor is the difference in business environment. After the oil price shocks and economic
recession, the government of Azerbaijan realized the importance of the diversification of its economic
sectors and began making reforms in 2016 to reduce corruption and create a more favorable environment
to do business and attract investors. The progress is obvious, as by 2017 Azerbaijan moved from 158th
place up to 122nd in the corruption perception index.4 The declared will of the government of Azerbaijan
to eliminate corruption and support private sector development opens a window of opportunity for Geor-
gia to expand the spheres of economic cooperation and strengthen economic ties with Azerbaijan.

Azerbaijan and Georgia share a 480 km-long border, but the cooperation of cross-border regions is low.
In fact, there is almost no cooperation between the cross-border regions of Azerbaijan and Georgia.
Although the villages located at the border are densely populated with ethnic Azeris, they do not have
any ties with the neighboring regions in Azerbaijan. Economic development and the social conditions in
the neighboring regions are low. Lack of skills and knowledge, as well as a low level of development of
local industries are common problems for the cross-border regions in Azerbaijan and Georgia. Despite
the fact that the two countries have enjoyed 26 years of diplomatic relations, cooperation mainly occurs
at the national level of government. Local government authorities of the cross border regions in Azerbai-
jan and Georgia do not cooperate at all, as they do not have efficient mechanisms to build a cooperation
platform or find joint solutions for common problems.

National Policies on Regional Development and Cross-Border Cooperation in


Azerbaijan and Georgia

Azerbaijan and Georgia continue to establish partnership links with the EU. Georgia has already signed an
Association Agreement (AA) and an agreement on the establishment of the Deep and Comprehensive Free
Trade Area (DCFTA) with the EU. Azerbaijan has ongoing negotiations with EU to sign a comprehensive
agreement that is going to replace EU-Azerbaijan Partnership and Cooperation Agreement (PCA) singed in
1999. Azerbaijan and Georgia are also part of the European Neighborhood Policy and Eastern Partnership
Initiative that provides an efficient platform for cooperation in different areas to achieve common objec-
tives such as strengthening democracy, economic well-being and national security.

Strengthening regional development and cooperation of the cross-border regions is among the common
objectives shared by Azerbaijan and Georgia. The fundamental principles of regional development and
economic cooperation of the cross-border regions is defined under the EU-Georgia Association Agree-
ment. Similar principles are given in the PCA agreement between Azerbaijan and EU. Support the develop-
ment of multi-level governance, with special emphasis of active involvement of local stakeholders,
encourage involvement of local government authorities in regional cooperation, build and promote
cross-border and regional business networks are guiding principles for building territorial cooperation
strategy among the cross-border regions5.

Inequality in economic development between the capital cities and the regions are common problems –
both for Azerbaijan and Georgia. Aside from the EU-supported programs, both countries have developed
national policies to support social and economic development of the regions and reduce income
inequality.

In 2014 Azerbaijan adopted the “State Program on Socio-Economic Development of the Republic of Azer-
baijan 2014-2018”, that sets objectives and defines prior areas of development. The main goal of the
program is to stimulate regional development and support the growth of the non-oil industry. Improve-
ment of the business environment, support for private entrepreneurship, implementing support mea-
sures for the development of agricultural production, the stimulation of export oriented industries, a
defined optimal tax level, development of local infrastructure and the support of the adoption of Infor-
mation and Communication Technologies (ICT) are among the objectives of this program. In addition,
Azerbaijan introduced a new strategy on the development of the hospitality industry, which aims to

4
Transparency International “Corruption Perception Index”, “The State of Corruption: Armenia, Azerbaijan, Georgia, Moldova and
Ukraine”, 2015
5
EU-Georgia Association Agreement, Chapter 21; E

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increase the flow of tourists by simplifying border crossing and the visa regime for several countries, with
particular focus on the Persian Gulf States, expansion on of new flights abroad and the establishment of
new tour agencies. In addition, the government of Azerbaijan supports the development of accommoda-
tion facilities in the regions, including the Ganja-Gazakh economic zone, to create favorable infrastructure
for local and foreign visitors.

Similar to Azerbaijan Georgia also runs number of state programs to strengthen the socio-economic
development of its regions. Georgia has developed a regional development strategy for each region for
2014-2021. Agriculture production, tourism and export-oriented industries are among the priorities of
regional development policy of Georgia. Reviewing the national strategies of socio-economic develop-
ment of the regions, it is clear that both countries share the same challenges and have common objec-
tives in terms of regional development.

Additionally, international organizations provide a wide range of support for stimulating economic
growth, the development of democracy and the establishment of strong civil society. Both countries ben-
efit from the financial and technical assistance provided from the EU to support the economic and social
development of the country, improve the performance of government institutions and strengthen territo-
rial cooperation. As an example, since its independence, Azerbaijan has already received development
grants from the EU totaling 500 million Manat. Also, as a part of the EaPTC program, both Georgia and
Azerbaijan receive benefits from donor- funded projects implemented for strengthening tourism poten-
tial, the development of the hospitality industry, improving employee skills among the local population
and supporting regional development and cross-border cooperation.

Outside of EU support, USAID and the UNDP also actively work in Georgia and Azerbaijan to address
economic, social and other development challenges the countries are facing today. In fact, the UNDP runs
a number of projects in the Ganja-Gazakh region to support the socio-economic development of the
region, particularly projects on:

• Modernization of Vocational Education centers in Ganja City


• Modernization of ICT infrastructure and ICT services in Ganja City
• Enhancing capacity in Border control and border management in Gazakh

The UNDP also provides significant assistance to Georgia for the achievement of its development goals.
Overall, 32 ongoing and complete projects for strengthening public administration, encouraging rural
development and raising the skills of the local population are6 being implemented with UNDP support.
Most of the listed projects (about 22 projects) are concentrated in Tbilisi.

Since its independence (1991), Azerbaijan received $377 million in benefits from USAID for strengthening
its capacity, supporting economic development and building democracy in the country. In 2017, Azerbai-
jan received more than $10 million from USAID7, out of which, the largest part of the funds was allocated
to support socio-economic development of country, strengthen the agricultural sector and support SME
development. Similar to Azerbaijan, USAID provides significant contributions for economic development
and strengthening democracy in Georgia. In 2017, Georgia received about $41 million8 in funding to imple-
ment projects in various fields, with a key emphasis on building good governance, supporting the
efficiency of agricultural production, promoting the rule of law and economic development.

It is evident that countries receive significant technical and financial assistance from International donor
agencies for support of socio-economic development and implementing good governance practices. All
of the projects are concentrated on the key issues countries are facing today and fully comply with the
objectives set by each country’s socio-economic development strategy. However, the awareness level of
the projects among populations living in rural areas is comparatively low in both countries. Most of the
people lack the skills to participate and receive benefits from the donor-funded projects.

6
http://www.ge.undp.org/content/georgia/en/home/about-us/funding-and-delivery.html
7
https://explorer.usaid.gov/cd/AZE?fiscal_year=2018&implementing_agency_id=1&measure=Obligations
8
https://explorer.usaid.gov/cd/GEO?fiscal_year=2017&implementing_agency_id=1&measure=Obligations

12
Economic Relations and Trade

Azerbaijan is considered as one of Georgia’s largest trade partners. According to recent statistics, in 2017,
Azerbaijan was the fourth largest trade partner of Georgia holding an 8.2% share of total trade turnover of
the country and the second largest partner in terms of export holding a 10% share of total value of export
of Georgia. It must be mentioned that there is a positive trend in export to Azerbaijan. Compared to 2016,
export in Azerbaijan increased by 78% in 2017. According to the data of first five months of 2018, there has
been a 156% increase of export value compared to the same period of the previous year. After a sharp
decline in Georgia’s export to Azerbaijan from 2014-2016, which was mainly caused by the imposition of
new EURO 5 standards on imported automobiles in Azerbaijan, the recent growth trend in export can be
considered a positive sign, signaling that countries are recovering its trade ties.

1 | Trade between Azerbaijan and Georgia, mln USD, 2010-2017


164%
Growth of Export to Azerbaijan

Growth of Import from Azerbaijan


129%
Growth of Trade Turnover

66% 78%

47%
43%

25%
13%
31%
3% -3%
11% -16%
-13%
-7%
-34% -37%
-23%
-53%
-56%
-60%

704 710
636 656 638
627
573
544 539
485
426

256 272
241 217
153

2010 2011 2012 2013 2014 2015 2016 2017

Export to Azerbaijan (mln USD) Import to Azerbaijan (mln USD)

Source: National Bureau of Statistics of Georgia

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As mentioned before, Azerbaijan has a primary position among Georgia’s largest trade partners, while
Georgia takes a moderate share in the trade statistics of Azerbaijan. According to the National Statistics
Office of Azerbaijan, Georgia is 12th place (2.2% share in total trade turnover of Azerbaijan in 2016). The
share of imported commodities of Georgia makes up 0.6% of total import of Azerbaijan and Georgia ranks
28th among Azerbaijan’s import trade partners, while export to Georgia comprises 3.8% of total value of
export of Azerbaijan, making Georgia the 9th largest partner in export for Azerbaijan. Oil and Petroleum
products are the main commodities exported to Georgia holding a 72% share of total value of Azerbaijan’s
export to Georgia. Construction material such as cement and metal constructions and armor are the
second largest commodity groups taking a 7.1% of exported commodities from Azerbaijan to Georgia.

2 | Comparative table of Georgia –Azerbaijan trade flow structure

N: GEORGIA’S EXPORT STRUCTURE PERCENTAGE AZERBAIJAN’S IMPORT STRUCTURE PERCENTAGE

1 Cooper ores and concentrates 15.4% Machinery and transport equipment 33.0%

Manufactured goods classified


2 Ferro-alloys 11.3% chiefly by material 22.3%

3 Cars 8.6% Food and live animals 13.9%

4 Wine and fresh grapes 6.3% Miscellaneous manufactured articles 10.7%

5 Medicaments 5.2% Chemicals and related products 10.5%

Mineral fuels, lubricants and related


6 Spirituous beverages 4.6% materials 3.2%

7 Mineral and aerated waters 3.5% Beverages and tobacco 2.5%

8 Hazelnuts and nuts 3.0% Crude materials, inedible, except fuels 2.2%

Animal and vegetable oils, fats


9 Mineral or chemical fertilizers 2.8% and waxes 1.5%

Gold unwrought or in
10 semi-manufactured forms 2.6% Other 0.2%

11 Other 36.7%

Source: National Bureau of Statistics of Georgia 2017; The State Statistical Committee of Azerbaijan, 2016

Considering the export structure of Georgia and Import structure of Azerbaijan, we indicated the types of
commodities for trade. It must be noted that a large share of exports from Azerbaijan (87%) are oil and
petroleum products and natural gas, followed by construction materials and fruits and vegetables. Azer-
baijan also imports processed foods and live animals. Because both cross-border regions are specialized
in agriculture production and both countries are dependent on processed foods, there is a possibility to
develop food-processing factories in cross-border regions and ensure the supply of processed foods to
each other.

14
This significantly lowers transportation costs of foods and also brings benefits to the local population in
terms of increased income.

In addition, Georgia is an importer of construction materials and metal armor that is produced in the
bordering regions of Azerbaijan. The development of the construction industry will also bring benefits
and enhance the trade structure of Azerbaijan and Georgia.

Nowadays, Georgia and Azerbaijan share a 480 km borderline and there are 5 customs check-points for
the transfer of passengers and cargo.

3 | List of Customs Check-Points located at borderline of Azerbaijan and Georgia

N: CUSTOMS CHECK POINT CUSTOMS CHECK POINT OBJECT OF CONTROL CATEGORY


NAME IN GEORGIA NAME IN AZERBAIJAN

All categories of cargo and 1st Category


1 Red Bridge Red Bridge
Passenger transfer Automobile

All categories of cargo and 1st Category


2 Mtkvari/Vakhtangisi Sadikhli Passenger transfer Automobile

All categories of cargo and 1st Category


3 Gardabani Beiuk Kasik Passenger transfer Railroad

All categories of cargo and 1st Category


4 Lagodekhi Belokani Passenger transfer Automobile

All categories of cargo and 1st Category


5 Samtatskaro Mughanlo Passenger transfer Automobile

Source: Revenue Service Georgia www.rs.ge

Total turnover of commercial cargo through these custom crossing-points amounts to 8.3 million tones
out of which, 69% is transit, 29% is import and only 2% is export. Most shares of cargo are transported
over the Red Bridge (38% of total tonnage of cargo) and the Gardabani (57%) railroad custom points.
Lagodekhi takes only a 6% share and no cargo was transported over Mtkvari in 2017 at all.

Cargo subject to a transit regime from and to Azerbaijan are mainly transported via the Gardabani
railroad customs point. That means that the railroad is the most-used transportation means for the inter-
national transportation of goods. Regarding exports and imports, the highest share of goods is transport-
ed through the red bridge.

4 | Turnover of Cargo by Customs Regime and Customs Check Points, 2017

863

473

244

44 18 1 0.01 6

Red Bridge Gardabani Lagodekhi Mtkvari

Import from Azerbaijan (mln GEL) Export to Azerbaijan (mln GEL)

15
2,436
29%

Transit to Azerbaijan (Share in Total Tonage)


2,555
8,293 31% Transit from Azerbaijan (Share in Total Tonage)
133 Thousand Tons
2%
Export (Share in Total Tonage)

Import (Share in Total Tonage)

3,170
38%

120.0%

100.0% 0.7% 0.8% 0.9%


16.3%
26.4% 21.6%
80.0%

60.0%
50.0%
90.1%

40.0% 77.6%
72.8%

20.0%
33.6%

9.3%
0.0%
Transit to Azerbaijan (KG) Transit from Azerbaijan (KG) Export (KG) Import (KG)

Red Bridge Gardabani Lagodekhi

Source: Revenue Service Georgia

It is visible from the data provided that Azerbaijan and Georgia are extensively using its transit potential,
as almost 70% of total tonnage of transferred cargo is for transit. The most frequently used transportation
means for international transit is railway. In terms of trade, Azerbaijan and Georgia mainly use land trans-
port. The greatest shares of exported and imported goods are transported through the red-bridge. The
Gardabani railroad check point is second by its share of imported and exported cargos between Azerbai-
jan and Georgia. The Lagodekhi Customs crossing point is not as intensively used for the transportation
of traded goods. The rest of the customs points mainly are used for transfer of passengers between Azer-
baijan and Georgia.

16
REVIEW OF THE TAX SYSTEMS IN AZERBAIJAN
AND GEORGIA
Review of the Tax Systems in Azerbaijan and Georgia

The tax system and state tax policy of a country plays a crucial role in investment decisions and the
development of private sector activity. A transparent tax system with simple tax administration proce-
dures and low tax rates is influential in creating an attractive business environment and encouraging
private sector activity.

Georgia is considered a country with a favorable tax environment. Georgia has the lowest tax rates and
simple rules and procedures for tax administration. According to the “Doing Business” report, Georgia
ranks 22nd by its 85.89 Distance to Frontier (DTF) score among 190 economies by paying taxes. Georgia has
the most favorable tax environment in the European and Central Asia regions. According to the “Doing
Business 2018” report, total tax and contributions rate constitute a 16.5% share of total profits and is the
second best performing country after Lithuania by its tax system within the Europe and Central Asia
regions. Although it must be noted that time devoted to tax administration procedures (269 hours) is still
higher than the regional average (218.4 hours).

Azerbaijan holds 35th place by ease of paying taxes in the Doing Business 2018 ranking, although the tax
rates in Azerbaijan are relatively high compared to the regional average. The total tax and contributions
rate constitute a 39.8% share of total profits and takes 5th place among the countries from the Europe and
Central Asia region. It must be noted that Azerbaijan significantly improved its positions in terms of
paying taxes since 2013 by carrying out reforms in its tax system to simplify tax collection and administra-
tion procedures. In 2015, the government of Azerbaijan introduced an e-system for filling and paying
social contributions. In 2017, Azerbaijan removed the vehicle taxes for its residents. Those reforms helped
improve the tax system, but there are still more actions needed to create a more favorable tax climate in
the country.9

Georgian Tax System and Tax Rates

The Georgian Tax Code was adopted in 2011 and it unites tax and customs legislation. According to the
Guide to Taxation and Investment in Georgia report (Deloitte, 2017), the adoption of a new tax code was
considered a “major step forward” in the process of Georgian market reform. There are two types of taxes
in Georgia – state level taxes that are collected and transferred to the state budget and local taxes, which
are transferred to the budget of local government authorities. The rate of state level taxes is defined in
the tax code, while local level taxes are defined by low and upper bound limits in the tax code, but rates
are defined by local government.

There are five different state taxes in Georgia10: Personal Income Tax, Profit Tax, Value Added Tax, Excise
Tax and Import Tax. Tax on property and land belong to local taxes. The tax rate is determined by local
government authorities and differs by region. Also, local government is limited in defining the local tax
rate as lower and upper bounds for local level taxes. In addition, conditions for tax exemptions are deter-
mined by the Tax Code of Georgia.

9
“Doing Business 2018”, World Bank Group, October, 2017
10
Tax Code of Georgia

17
5 | State Level Taxes in Georgia

N: TAX TYPE TAX RATE

1 Personal Income Tax 20%

Profit Tax
2 * Imposed only on the distributed profits, reinvested profits are 15%
exempt from the profit tax

3 Excise Tax Tax rate differs by commodity types

4 Value Added Tax 18%

Import Tax
5 *Tax rate depends on the commodity types, most of the imported 0%; 5%and 12%
products in Georgia are subject to the 0% import tax rate

Source: Tax Code of Georgia

Personal income tax is imposed on the total income received by physical persons from different sources,
including wages, payments for service provisions or from entrepreneurial activities. The personal income
tax rate is 20%, although there is 5% tax rate on the income received by individuals from renting residen-
tial space, or from selling a vehicle or house.

Profit tax is imposed on the profits that are received from the commercial activities of legal entities. The
legal entities that are registered abroad and have permanent establishment status in Georgia are consid-
ered foreign tax residents and are subject to income tax on the income received by Georgian sources. In
addition, Georgia has signed treaties on the avoidance of double taxation with 54 countries including
Azerbaijan.

In 2017, Georgia adopted the Estonian model of the profit tax system, according to which profit tax is
imposed only on distributed profits. The share of profits that is reinvested is exempt from taxation. The
profit tax rate is 15% and companies shall submit profit tax declaration on a monthly basis and all
incurred taxes shall be paid no later than on 15th day of the following month.

Moreover, because the development of agriculture is among the priorities of government policy, there are
tax exemptions for agricultural production.

6 | Tax Exemptions and Preferential Regimes in Agriculture

N: TYPE OF ACTIVITY TAX EXEMPTION

The initial supply of primary agricultural production if the annual


1 income from this activity is less than 200 000
Exempt from the profit Tax

The initial supply of agricultural production produced by agriculture


2 cooperatives if the income is less than 200 000 GEL (Valid until 1.01.2023)
Exempt from the Profit Tax

Source: Tax Code of Georgia

18
Agriculture profit tax exemptions can be applied to business entities operating in the hospitality industry,
IT technology sectors, as well as enterprises operating in high the mountain zones of Georgia:

• The profits of hotels operating in Special Tourist Zones that are defined by the government of Georgia
are exempted from profit tax (the tax exemption is valid until January 1, 2026).
• Enterprises and business entities operating in high mountain zones (the status of high mountain zones
is pre-defined by the government of Georgia) are exempt from profit tax for a 10-year time period.
• Profit that is received by entities that hold the status of a Virtual Zone Person from the selling of created
IT products abroad is exempt from the profit tax.

Value added tax (VAT) is imposed on the supply of goods and services, as well as imported commodities.
The tax rate is 18%. Tax exemption applies to certain types of goods and services that are defined by the
tax code. According to the Georgian tax regime, VAT exemption shall be applied with or without the right
to offset VAT. The import of certain medicines, passenger cars, publications, mass media and baby prod-
ucts are exempted without the right to recover input VAT. The export of goods is exempt from VAT with a
right to offset input VAT.

Georgian tax code allows foreign citizens the possibility to refund VAT for goods purchased in Georgia. The
following conditions should be satisfied for VAT refund: the value of goods and services should not be
less than 200 GEL (excluding VAT) and shall be exported within the three months from purchase. Foreign
citizens shall provide documents to claim the tax refund when crossing the border. This presents a great
opportunity to stimulate internal trade and encourage foreign visitors to make purchases in Georgian
shops, although despite the simplified procedures to obtain tax refund services it is still difficult, since
most foreigners are not aware of the tax refund rules and procedures, limiting their possibility to benefit
from this service.

Some groups of products are subject to excise tax. Excise tax is imposed on wine, beer, liquor, cigarettes
and tobacco products, cars, natural gas, and oil products. The tax rate is defined by the Georgian tax code
and differs by type of goods and services. The government is eligible to change the excise tax rate for
each calendar year.

The import tax rates are set at 0%, 5% and 12% according to product type. Most of the imported commodi-
ties are subject to the 0% tax rates. In addition, Georgia has free trade agreements with Turkey, the EU,
Azerbaijan and preferential trade regimes with CIS countries that consider the exception from import
tariffs. Also, Georgia is the only country in the region that has a Free Trade Agreement with both the EU
and China.

The import of the goods produced in Free Industrial Zones (FIZ) are exempt from the import tax.
Georgia also has a simplified tax regime and tax exemptions to support the development of various
industries, including agriculture, tourism and the adoption of innovation, as well as supporting the devel-
opment of MSME.

The special tax regime applies to two types of business entities:

• Entities that hold micro business status. Individuals that perform commercial activities and have an
annual turnover up to 30,000 GEL receive micro business status (Georgian Tax Code, Article 84)
• Entities holding small business status and are subject to special tax regime. Individual entrepreneurs
that perform commercial activities and have an annual turnover of up to 100,000 GEL (this limit will be
increased to up to 500,000 GEL from July 1, 2018)

In addition, there is a list of activities defined by government decree that can be considered a micro busi-
ness regardless of the amount of annual turnover. These types of activities include the trade of merchan-
dise and repair services of consumer durables. The business activities that require permission and licens-
ing, as well as the production of goods subject to tax, such as gambling business, currency exchange
services are not able to receive the micro business status regardless the amount of annual turnover.

19
Entities that hold the status of micro business are exempt from the income tax. Small businesses are
taxed by 3% or 5% out of their annual income considering the amount of expenses incurred during the
performing their activities. It must be noted that from July 1, 2018, new amendments will come into force
in simplified tax regimes that will lower tax rates imposed on the micro and small business entities. Small
business entities will pay 1% of their total income and in the case that their turnover exceeds 500,000
GEL, they will maintain the status of small business but only pay a 3% tax rate on total annual income.

In addition, there are types of activities defined by government decree that are taxed by a fixed rate
regardless the income. The fixed rate of tax ranges from between 1 - 2,000 GEL per object of taxation or a
fixed 3% rate is imposed on annual income.

7 | Simplified Tax Regime

N: STATUS EXISTING TAX RATE TAX RATE FROM JULY 1 2018

1 Micro business Exempted from Tax Exempted from Tax

• 5% of annual income • 1% of total annual income


2 Small business • 3% if incurred activity related expenses are • 3% in case total annual turnover
more than 60% share of total income will exceed 500, 000 GEL

• 1-2,000 GEL per object depending


3 Fixed tax rates the type of activity -
• 3% of annual income

Source: Tax Code of Georgia

Local tax includes property tax and land tax. Physical persons with an annual income over 40,000 GEL and
enterprises are subject to property tax. The range of property tax is between 0.5-2% and differs by munici-
pality. The land tax depends on the location and amount of land and is calculated by an annual base tax
rate multiplied by a territorial coefficient and land area. The maximum rate for non-agricultural land is
0.24 GEL per square meter. The annual declaration for property tax shall be submitted no later than the
1st of November (for physical persons) and 1st of April (for legal entities).

The extraction of natural resources, organizing gambling houses or lotteries are subject to a fee for the
use of natural resources and a fee on gambling business that is fully transferred to the local budget of
the municipality.

Azerbaijan Tax System and Tax Rates

Person who spends more than 182 consecutive days in Azerbaijan is considered a tax resident of Azerbai-
jan and is subject to taxation according to the tax code. All legal entities that have permanent establish-
ment in Azerbaijan should be registered at the state tax office. The tax code of Azerbaijan was adopted in
2001. There are three different tax regimes in Azerbaijan:

• The statutory tax regime, which applies to all legal entities, including local, as well as foreign organiza-
tions, with the exception of companies operating in the production and transportation of oil and gas
• Production Sharing Agreements (PSA)
• Host Government Agreements (HGA) that apply exclusively to the Baku-Tbilisi-Ceyhan BTC and South
Caucasus Pipelines

The PSA and HGA are the more favorable tax regimes and offer simplified procedures for the companies
that are operating in the oil and gas industry. Azerbaijan has 24 ratified PSA and 2 HGA regimes. The PSA
rules do not apply to Azerbaijan legal entities. Under the PSA, the profit tax rate is 5-8% with 0% VAT and
customs duties.

20
The taxes under the statutory tax regime can be divided into three groups:11

• State Tax – Taxes that are obligatory for payment on the entire territory of Azerbaijan, including: person-
al income tax, profit tax, VAT, excise tax, property and land use taxes levied on legal persons, road fund
taxes, mineral royalty taxes and simplified taxes.

• Municipality Tax – These are taxes that are obligatory for payment to local municipalities, including:
property and land use taxes levied on natural persons, mineral royalties on construction materials and
property tax on the entities that are considered municipality property;

• Tax in the Autonomous Republic – The tax rate is defined by the State Tax Code of Azerbaijan but taxes
are obligatory for payment within the Nakhichevani Autonomous Republic.
Unlike Georgia where state taxes are defined by the tax code and cannot be changed without a referen-
dum, the tax code of Azerbaijan is defined only by upper bound rates for the state taxes and the govern-
ment is eligible to introduce different state tax rates on an annual basis. This may bring some uncertainty
to investors, even though they are informed about the changes via website of the Ministry of Taxes. How-
ever, for further improvement it will be better to incorporate the mechanisms that ensure the formation
of stable tax rate and limit government possibility to change tax rates every year.

All legal entities that are registered in Azerbaijan are subject to profit tax. Exceptions are individuals and
legal entities that are agricultural producers and they are not taxpayers, but their employees pay income
tax; profit tax is reported at annual bases and is paid quarterly. The corporate profit tax rate is 20%. There
are different tax rates and tax exemptions are imposed to the permanent establishment of foreign owned
companies and residents of industrial and technological parks and to the people who obtained invest-
ment promotion.

Profit for the permanent establishment of foreign-owned entities is taxed at 10%, the companies that are
residents of industrial and technological parks are exempted from the profit tax rates for 7 years after
their registration. There are also simplified tax regimes for small and medium enterprises (SME), the
different rates exist for SME’s operating in Baku and outside the capital city. SME’s operating in Baku are
taxed by 4% out of the gross revenue and 2% rate is for SME’s operating in the regions.

Simplified tax regime applies to the following companies:

• Persons with annual turnover of up to 200,000 Manat


• Persons that provide catering and trade services with an annual turnover more than 200,000 Manat have
an option to select a simplified tax regime (the following tax rates are applied):
o Catering Service 8%
o Trade Service 6%
• Persons involved in selling and construction of residential and non-residential housing are subject to
the fixed cost rate per square meter.
• Gambling operators are taxed at rates of 6% of the gross receipts from gambling participants
Tax rates on dividends and income from the interest is 10%. Azerbaijan has Double Taxation Treaties (DTT)
with foreign countries; the tax rate on dividend will be reduced by the amount defined under the DTT.
Income from the interest on deposits placed in Azerbaijan banks; also income received from investment
securities is exempt from the taxation.

The VAT tax rate is 18% in Azerbaijan. Companies with turnover of more than 200,000 Manat shall register
as VAT payers. Imported goods are also subject to the VAT tax, and exemptions might be applied for
certain categories of goods that are defined by the Cabinet of Ministers.

The preferences are imposed for the companies operating in industrial and technological parks.

11
“The Tax Code of the Republic of Azerbaijan”

21
The import of the equipment by the resident companies of industrial and technological parks is exempt
from VAT. The period of tax exemption is 7 years for resident companies of technology parks and 5 years
for the resident companies of industrial parks.

Certain commodities are subject to excise tax, including:

• Alcoholic beverages
• Tobacco products
• Petroleum products
• Light vehicles
• Leisure and sports yachts
• Imported Jewelry
• Processed, sorted, framed and fixed diamonds

There is a progressive income tax in Azerbaijan. Income up to 2,500 Manat is taxed at 14% rate, above that
amount the 25% tax rate is imposed. Individual entrepreneurs’ income is taxed by a fixed 20% rate.12

Tax on imported goods ranges from 0% to 15% and differ by the type of commodity.

In addition, there are other types of taxes that belong to the municipality level taxes, such as land tax,
property tax and road tax.

There are obligatory payments to social insurance funds; the employer must pay 22% of gross salary of
the employ and the employ shall make payment 3% of their gross salary to the social insurance fund.
The list of taxes and relevant exemptions and preferential regimes is given in the table below:

8 | Tax Rates in Republic of Azerbaijan

TAX TYPE TAX RATE TAX EXEMPTIONS

7 Years of tax exemption period for the Resident


Corporate Profit Tax 20%
Companies of Industrial and Technology Parks

Profit Tax on Permanent Establishment


10% N/A
of Foreign Owned Entities

Withholding Tax on Income

This rate will be decreased if DTT are applied


Dividends 10% Dividends from investment securities
are exempted from the tax

Interest from the deposits in Azerbaijan banks,


Interest 10% or interest income on investment securities are
exempted from tax

Rent and Royalty 14% N/A

Telecommunications Services 6% N/A

“Tax Guide 2018 Foreign Nationals Coming to Azerbaijan”, Deloitte, 2018


12

22
Financial Leasing and Insurance
Payment 4% N/A

Income Tax

Income of 1,860 Manat is exempted from tax if annual


Up to 2500 Manat 14% income is below 30,000

Income of 173 is Exempted from tax if monthly


2500 Manat and more 25% income is below 2,076 Manat

Companies with turnover below 200,000


VAT 18% are not subject to VAT
Certain types of commodities are subject to tax exemption

Depends on the
Excise Tax type of commodity N/A

0-15% range depends on Certain types of commodities are


Import Tax the type of commodity subject to tax exemption

1% of annual residual
Property Tax N/A
value of fixed assets

0.1 – 20 Manat
Land Tax
per 100 Sq.m

Agricultural lands 10 Manat per Sq.m

Source: PWC “Doing Business and Investing in Azerbaijan”, 2016; Azerbaijan Economic Reforms Review-Special Edition for
Doing Business Reforms, 2018; Deloitte “Tax Guide for Foreign Nationals Coming to Azerbaijan”, 2018

Customs Clearance

For strengthening economic cooperation and enhancing capacity in trade between cross-border regions
it is fundamental to develop an efficient customs system that will be based on transparent rules and
procedures and will not create informal barriers to trade.

Georgia carried out reforms in its customs system in 2010 and as a result, Georgia now has a well-func-
tioning customs system. Georgia has simple and transparent customs procedures, and import and export
procedures do not take a large period of time. There is also the possibility to save time by submitting doc-
uments via the e-system in advance for customs processing. According to the Doing Business report
(2018), Georgia ranks 62nd among the 185 countries by ease of trade across borders. Time spent on docu-
ment compliance procedures is 2 hours, 6.7 times less than the regional average. The time spent on
border compliance for import is 15 hours.

Customs regulation and procedures were main barriers for trade with Azerbaijan. According to “Doing
Business 2013” report Azerbaijan ranked at 169 position by easiness of trade across border out of 185
countries. According to estimations from “Doing Business 2013” Export and import of goods in Azerbaijan
required 8 documents and 38 days and estimated costs per standard container amounted of 3, 430 USD.
Since 2012 the government of Azerbaijan started to carry out the reforms to simplify customs clearance
procedures and remove the informal trade barriers and corruption in customs system. Since then new
wave of reforms started to be carried out to simplify procedures for trade in Azerbaijan, new Customs
Code came into force and Law on Customs Tariff was introduced. In 2016 e-declaration system was intro-
duced allowing entities to submit all documents and fill declaration online. As a result, the total time

23
required to perform export reduced to 25 and time required to perform import in Azerbaijan reduced to
the 28 days. According to latest report of “Doing Business 2018” Azerbaijan ranks 83 place by easiness of
trade. The total period required to trade procedures is reduced and ranges 29-38 hours to execute border
and documentary compliance and cost is reduced to 500 USD.

9 | Exemptions for commodities imported by individuals for personal use

N: EXEMPTIONS AND PREFERENCES FOR EXEMPTIONS AND PREFERENCES FOR


PHYSICAL PERSONS IN GEORGIA PHYSICAL PERSONS IN AZERBAIJAN

Consumer goods with a value of up to 500 GEL


and with a weight of up to 30 Kg that is brought Goods with a total value not exceeding $1,000
1
once per 30 days through the land border from equivalent or with weight not exceeding 50 kg;
physical persons and is not for commercial use

Consumer durables with a value up to Goods handled by international postal services with
2 15, 000 GEL when person was not present in the total value not exceeding $200 equivalent or with
country for more than 6 moths a weight not exceeding 20 kg;

Critical household appliances with a value of $20,000


Import of consumer durables and consumer
equivalent for foreign citizens immigrating to the
3 products when a person comes to the country
Azerbaijan Republic or citizens of the Azerbaijan Republic
for permanent living
emigrating from the Azerbaijan Republic;

Pharmaceutical products intended for personal


4 use up to 10 standard packages
Pharmaceutical products intended for personal use

4 liters of wine, 16 liters of beer, 2 liters of


5 beverages with up to 22% of alcohol and 1 liter 3 liters of alcoholic beverages for personal use;
of beverages with more than 22% alcohol

6 200 Unit of cigarettes, 50 cigars or 250 grams


3 cartons of cigarettes;
of tobacco products brought by passengers

Fuel in the vehicle fuel tank at the volume specified in


7
technical passport;

Art, historical, scientific and cultural items can be


8
imported without any limitations.

Source: SOURCE: PMO ANALYSIS

24
The customs rules and procedures are regulated by the customs code and the Law of the Republic of
Azerbaijan on Customs Tariff. The customs code defines the rules and procedures to organize a ware-
house and duty-free zones in Azerbaijan, also defined the procedures for the temporary import of com-
modities and processing of goods inside and outside the territory of Azerbaijan and rules for re-import
or re-export of goods.

Except the taxes defined under each customs regime customs clearance fee shall be paid. The customs
clearance fee is 550 Manat. This is a fee for the service of filing a declaration and executing procedures
under the appropriate customs regime.

Imported goods are subject to customs clearance procedures. The official duties on imported commodi-
ties range from between 0% - 15% depending on the commodity type. According to the new regulations,
customs duties on imported goods were defined to be 0.5%, 5%, 10% and 15%. Tax exemptions were
defined for several types of commodities. The export of goods from Azerbaijan is free-of-charge except
the export of specific types of metals and metal products. The partial relief from taxes is defined for the
temporary import of commodities, as well as the processing of commodities inside and outside the terri-
tory of Azerbaijan.

Customs rule and procedures of customs clearance is defined in Tax Code, customs procedures in Georgia
are simple and transparent. Similar to Azerbaijan Georgia has following customs regimes:

• Export is fully exempted from tax and there is a possibility to offset incurred VAT when exporting
predefined types of goods from Georgia
• Re-export - allows to export foreign goods imported to Georgia again outside of territory of the country
and gain back extra taxes paid by day of the import
• Import - VAT 18% is applied for the goods imported to Georgia, most of the goods are subject to 0%
import tariff but specific types of goods are under 5% and 12% of import taxes. Also Excise taxes is applied
to the imported goods subject to excise tax. Additionally, customs service fee for preparing declaration
has to be paid the fee differs by the value and amount of the goods imported to Georgia
• Transit-Is free from any taxes, in case of transit special document is issued at the entrance border to
monitor that goods left the territory of Georgia predefined period of time
• Goods temporarily imported to Georgia are subject to declaration, the taxes for temporary import in
Georgia include VAT 0.54% of value of the good per every month of presence of goods in territory of Geor-
gia, import tax is 3% out of the value of import tax that would be paid in case of import of those commod-
ities per every month of presence of goods in territory of Georgia,
• Processing of Goods within the territory of Georgia - this allows to bring commodities necessary for
processing and export the final product without paying import taxes
• Processing of Good outside the territory of Georgia-This regime allows to send some type of goods for
processing abroad and exclude the proportion of import tax when bringing final product in Georgia
• Place of goods in customs Warehouse - Allows to keep goods in customs warehouse for predefined
period of time without paying import taxes
• Free Industrial Zones - Goods exported and imported to and from are exempted from taxes

Azerbaijan has signed bilateral Free Trade Agreements (FTA) with Georgia in 1996; countries agreed on
removal of tariff and non-tariff barriers and opened their market for each other. Although it must be
noted, that access to the Azerbaijan market for Georgian products remained limited, as customs proce-
dures (number of documents and days needed for export) was a disincentive for local population to
engage in free trade with Azerbaijan. Additionally this might be caused by lack of awareness of the Geor-
gian population and entrepreneurs about the rules and regulations of customs. On the other hand, since
the customs system of Azerbaijan is under transition process it might be the case that corruption within
the system is not fully eliminated. Based on the international reports there is positive trend in reducing
corruption in Azerbaijan. According to report of Transparency International TI Corruption Perception
Index (CPI)Azerbaijan improved its ranking in 2018 and moved from 127 to 122 place among 180 countries

25
It must be mentioned that customs reform is vital for development of trade and strengthening coopera-
tion particularly between cross-border regions. Existence of FTA and DCFTA between EU and Georgia
creates significant potential for development of efficient value chain and join sources to export products
to EU market. In addition, Georgia has signed FTA’s with China that opens access to one of the largest
market for the commodities produced in Georgia. It is possible to form the value chain that will process
primary products in Georgia and will prepare it for the export to EU market. Although even the legal
framework on trade is ideally structured without the elimination of corruption it cannot be achieved. That
is why Azerbaijan and Georgia should strengthen cooperation to develop customs system, increase infor-
mation of local society regarding rules and procedures of importing and exporting goods and join
resources to fight against corruption within the customs system.

26
OVERVIEW OF KAKHETI REGION
Demographic trends

Kakheti is located in eastern Georgia and represents a cross-border region. Kakheti borders with Russia
in the north and with Azerbaijan in south and east. According to official data, Kakheti consists of 8 munici-
palities, 9 cities and 333 villages13. The total area of the Kakheti region is 11,310 square kilometers and
makes up 17.5% of the total area of the country14. Based on official statistics of Georgia, the total popula-
tion of the region amounts to 314.7 thousand people. Kakheti is characterized by low rate of urbanization;
77.3% of the population is living in rural areas.

The population of Kakheti has steadily declined over the last few years. There was 3.7% decline in popula-
tion since 2011 (11, 600 people). This reduction was mainly caused by the decline in the rural population,
which has fallen by 8, 400 people. The existence of abandoned villages due to large-scale migration is a
common problem. People, especially youths, are leaving their homes to find a job. According to a recent
population census that was held in 2014, the young population (15-29 year-old age group) made up only
a 17% share of total population of the Kakheti region. Youth migration is the biggest challenge for the
prospects of the social and economic development of the region, as it leads to the faster aging of the
local population and a reduction in the labor force.

10 | The distribution of population by municipalities (1,000 people), Kakheti region, 2018

30 30
9% 19%

20 Kvareli Municipality
6%
Telavi City
52
17% Akhmeta Municipality
30
9% Gurjaani Municipality
Total Dedoplistskaro Municipality
314.7
Telavi Municipality
Lagodekhi Municipality
41
13%
53 Sagarejo Municipality
17%
Signaghi Municipality

37 Source: Geostat
21
12%
7%

Sagarejo is second after the Gurjaani municipality in population. It must be noted that while the popula-
tion of the Kakheti region was decreasing over the years, there was a steady growth trend in the popula-
tion of the Sagarejo municipality that has increased by 1.6% throughout the 2011-2018 period.

National Bureau of Statistics of Georgia - GEOSTAT


13

Development Strategy of Kakheti Region 2014-2021


14

27
Labor Market
The unemployment rate has decreased over the last seven years. According to recent statistics, in 2017,
the unemployment rate was 3.7% in the Kakheti region. The decrease of unemployment was partly caused
by migration of the labor force in the region. The number of economically active population has been
reduced by 14, 600, which is a 5.5% decrease throughout the years of 2011-2017. Although, it should be
noted that there was a positive change in the number of employed people that was growing steadily since
2011 and has been increased by 3.1 thousand (1.8%) compared to 2011.

72% of the employed population of Kakheti region is self-employed, mainly in agriculture, which does not
generate enough income to sustain proper living standards for households.
resources to fight against corruption within the customs system.

11 | Labor Market Structure (1,000 people), Kakheti region, 2017

Thousand Person Share in population above 15 years

Labor Force 186 74%

Population out of Labor Force 65 26%

Thousand Person Share in economically active population

3.7%
Unemployed 7

96.3%
Employed 180

Hired 50 27%

Self-Employed 130 69%

Source: Geostat

The average monthly salary in Kakheti is 561.80 GEL, almost 40% lower than the country’s average. Mining,
and the production and supply of electricity, water and gas, construction and manufacturing are the four
largest paid industries in the region.

28
12 | Average Monthly Salary (GEL) by Type of Economic Activity, Kakheti region, 2016

2161

810
725
569 525 497 486 451 401 398 346
149 129

Mining and Electricity, Construc- Manufac- Health and Hotels and Agriculture, Real Communi- Transport Wholesale Fishing Education
Quarrying gas and tion turing social work restaurants hunting estate, ty, social and com- and retail
water and renting and munication trade;
supply forestry and personal repair of
business service motor
activities activities vehicles
and
personal
Source: Geostat and
(Recent Data is Available for 2016) household
goods

The largest share of the population is employed in wholesale and retail trade (29%), followed by the man-
ufacturing industry with a 25% share in total number of employed labor force. Construction holds third
place at 9.7% and agriculture takes only a 7% share of the employed labor force.

The employment rate has grown steadily in the wholesale and retail trade sectors. Manufacturing was
also characterized by positive growth in employment, while the employment in other industries does not
have clear trends and is changing year-to-year. The reason behind the unclear trend can be due to the
sensitivity of those industries towards economic and political processes taking place in the country.

The growth of employment was positively affected by the development of real estate services and the
construction industry in general, which should be considered a good development potential for the
region. However, it should be noted that this industry is particularly vulnerable to the economic and polit-
ical changes in the country. There is a positive trend in the labor market, the increase in the number of
hired people signals that there is a positive trend in economic activity and job creation, although the
recent impact is moderate and further actions have to be applied to boost the economic activity of the
population. The large share of the self-employed population is working in small-scale low productive
subsistence farms that are producing goods mainly for self-consumption. The small size of farms does
not allow to benefit from economies of scale from increased production and make their products com-
petitive in the market, the generated income is low and not enough to support high living standards.
There is a lack of entrepreneurial skills among population. In addition, the minimal use of modern tech-
nologies in agriculture production represents one of the main barriers that limits economic development
and income growth in the region. Despite the fact that there are a number of state and donor supported
programs to support the development of agriculture, the local population is not able to participate as
they do not have enough skills to fill-out the necessary application documents. The problem is most
severe in villages that are densely populated with ethnic minority groups (mostly with Azeri’s). Their main
activity is agriculture production and trade. The integration of ethnic minority groups is low, most of them
do not know the state language and also do not have any incentive to become a part of Georgian society.
Most of the economic sectors are very sensitive towards changes in the economic environment, while the
retail trade and manufacturing industry is characterized by steady growth and the creation of new jobs.

29
Economy

Economic activity is unevenly distributed between the capital city and the regions. Kakheti generates only
2.1% of total Value Added of the country. The development of the private sector is moderate in Kakheti
compared to other regions in Georgia. Almost 72% of the total turnover of businesses is generated in
Tbilisi. Kakheti takes seventh place with a 1.7% share in the total annual turnover of the country, which
indicates the low level of business sector development in the region.

It must be noted that except in 2015 (5.4% decline), business sector turnover in Kakheti has been charac-
terized by positive growth since 2011, followed by 14.6% growth in 2016. All told, the total annual turnover
of the business sector almost doubled since 2011.

13 | Business sector turnover (million GEL), Kakheti region, 2010-2016

63% 1104
1018
963
909

642 42%
541
332 19% 12% 15%

-5%

2010 2011 2012 2013 2014 2015 2016

Business Sector Turnover in Kakheti Region (mln GEL)


Growth Rate of Business Sector Turnover in Kakheti Region

Source: Geostat

Manufacturing is the leading industry in the Kakheti region, largest share of value added, 48% is generat-
ed in the manufacturing industry. Wholesale and retail trade is the second largest industry in the region
with a 13.2% share of total value added, followed by construction (10.2%) and electricity, gas and water
supply services (8.2%).

Construction was one of the fastest growing industries in the Kakheti region in 2016, as the growth of the
value added in the construction industry amounted to 62%, and value added in the manufacturing indus-
try grew by 53% in 2016.

Despite the moderate share of the hospitality industry in the total economy of the region, hotels and
restaurants have showed a positive growing trend since 2012. In fact, the output produced within the
sector almost doubled compared to 2012 and the turnover in the hotel and restaurant industry grew by
53% on average over the last few years. In addition, the value added generated by hotels and restaurants
more than doubled in 2016. As for the employment trends in the same industry, they nearly doubled since
2012, reaching their peak in 2014. However, employment growth slowed down in 2016. Kakheti has signifi-
cant potential for tourism industry development. However, while Kakheti is one of the most visited sites
in the country the tourism potential of the regions has not yet been fully realized.

The development of the hospitality industry is among the prior goals of the regional development plan.
Kakheti is one of the most visited regions of Georgia and the number of foreign visitors to the region has
been increasing since 2015. According to recent data, in 2017 the growth of foreign visits to the Kakheti

30
Considering the geographic location, local nature and the existence of cultural heritage objects, there is
also significant potential for the development of the hospitality industry in the Kakheti region. There are
many sites where, if the infrastructure is developed, will become attractive places for local and foreign
visitors. One example is the village Udabno, a cross-border village of Georgia completely detached from
the region. The village is bounded by desert and the local population comes from different regions of
Georgia. The unique landscape and variety of culture of the local population creates the potential to
make the village interesting for tourists. Moreover, there is the Davit Gareja complex near to the village
that is part of national cultural heritage. One part of the Gareja complex is located on the territory con-
trolled by Azerbaijan.

While the village has the potential to become a frequently visited site, low development of public infra-
structure, accommodation facilities and transport are fundamental barriers to achieving that goal. More-
over, since part of the Davit Gareja complex is located on territory controlled by Azerbaijan there is a
window of opportunity for the countries to cooperate in the tourism sector by implementing joint mecha-
nism for the preservation of national cultural heritage and to develop joint management system to
attract visitors and share the benefits from the development of the tourism industry at cross border
regions.

Kakheti produces 13.3% of country’s total value added generated in the agriculture industry. However,
there are fluctuations in the growth rate of the agriculture industry in the Kakheti region. After a 12%
decline in 2013, the value added of the agriculture industry increased by 54% in 2014, followed by 13% in
2016. These fluctuations might be explained by the large dependence on weather conditions for their crop
yield. The local population does not institute risk mitigation measures to insure their yield from natural
disaster. The Agro insurance program run by state government does not make any difference, as insur-
ance is mainly used by large scale farmers, while small farmers find the purchase of agro insurance
expensive and prefer to take a risk. Kakheti is a leading region in the production of grapes, wheat, barley,
melon, sheep and goats. The figure bellow shows the share of the Kakheti region in total agriculture
production of the country.

14 | Primary production of agriculture, Kakheti Region, 201615

LIVESTOCK PRODUCTION SHARE IN COUNTRY PLANTS PRODUCTION SHARE IN COUNTRY


(1,000 HEADS) TOTAL (1000 TONE) TOTAL

Sheep 482 55% Melons 62 85%

Goats 23 38% Wheat 103 81%

Beehives 45 22% Stone Fruits 31 55%

Pigs 26 19% Barley 2 49%

Poultry 1187 14% Maize 77 32%

Cattle 97 10% Vegetables 16 11%

Dairy Cows and


Buffaloes 49 10% Fruits 38 21%

Source: Geostat

The recent data of primary production of agriculture is given for the year 2016
15

31
Despite the fact, that there is a number of state and donor-funded projects for the development of the
agriculture industry in the region, the level of development of the industry is still low, which means that
those opportunities for development have not been fully realized. The average salary in the agriculture
industry is 486 GEL which is 15% lower than the country’s average. A possible explanation for the low aver-
age salary is the low productivity of the sector, which is caused partly by the low-skilled labor force.
Another factor of low productivity is the lack of adoption of modern technology in agriculture production,
as most of farmers use outdated equipment in the processing of the land. Mekanizatori was established
by the state and was equipped with modern machinery to process agricultural land. Mekanizatori allows
local farmers to use machinery for processing their own land, but the local population does not use this
opportunity since the rent for the equipment is high and sometimes the farmers have to wait until the
required machinery is available. According to interviews, local farmers find this machinery useless and
they say that the machinery is not convenient and adjusted to the geographical specificities of the local
land.

Small and Medium Enterprises

Small and medium enterprises are responsible for the creation of the largest share of jobs. 67.2% of the
population employed in the business sector work for SMEs. In large and medium enterprises almost
98-99% of the workforce are hired, while in small enterprises, the hired workforce constitutes a 58% share
of the total employed laborers. Although the average wage in an SME is almost twice less than the aver-
age wage in large enterprises and 27% lower than average wage in the region, it must be noted that the
average wage in small enterprises increased by 41% in 2016 compared to the previous year.

15 | Employment by the people employed in enterprises (left), Kakheti region, 2016;


Share in total turnover by size of enterprises (right), million GEL, Kakheti region, 2016

320
7,140 29%
33%

21,750 1,104
10,208 people million GEL
47%
576
53%
207
18%
4,402
20%

Large Enterprise Large Enterprise


Medium Enterprise Medium Enterprise
Small Enterprise Small Enterprise

Source: Georgian National Bureau of Statistic

Despite the fact that SMEs are responsible for the largest share of job creation in the region, the share
of SMEs in total turnover is still low. Half of the total business sector turnover is generated by large enter-
prises. Small and Medium enterprises are characterized by steady growth in turnover, moreover, in 2015,
when turnover of large enterprises fell by 20%, SME turnover continued to grow. The share of SMEs are
increasing in total business sector turnover. Compared to 2013, the share of SMEs in total business sector
turnover increased from 39.4% (2013) to 47.8% in 2016. The trend indicates that there is growth potential of
SMEs and as they are responsible for the most job creation, SME development must be a focus of regional
development policy. This approach could be a powerful tool to address the problem of unemployment.

32
KEY FINDINGS OF THE SAGAREJO MUNICIPALITY
Introduction

In order to identify the current situation and analyze the perspective of cross-border regions focus group
meetings, face-to-face interviews were conducted in target regions. Two focus groups were organized in
the Sagarejo municipality. The total number of participants were 19. The main topics of discussion includ-
ed private sector structure and challenges, youth representation and activities, gender equality, integra-
tion and cooperation between the Georgian and Azerbaijan population, business relationships in border-
ing municipalities, as well as government and donor interventions. Among the participants were repre-
sentatives of the private and public sector and the local community.

Aside from the focus group meetings, 11 face-to-face interviews were conducted on site. Respondents
included the representatives of the same target groups. The findings represented below summarize the
results of the study.

Infrastructure

• Education infrastructure is developing. A new school was been built in Lambalo and renovated in
Kakabeti.
• Gasification is the major problem for Udabno and other villages. Besides the gasification problem, they
don’t have preferential tariffs for utilities.
• Land registration is also problematic, especially in terms of financing. Banks do not issue loans if the
owners do not have land legally registered.
• Regular transportation is not available between villages and the city, which hinders the villagers from
working in the city.
• Access to internet and computer is good but internet and computers are mainly used for private purpos-
es, the usage of internet to promote local business is low
• Villages lack sports infrastructure like stadiums and other facilities for youth entertainment

Local government

• Local government is aware of the problems of the population and is actively involved in solving infra-
structural projects such as waste management, water supply and irrigation.
• Interaction with the local population is high. Public meetings are frequently held in different villages of
Sagarejo. Local government is also putting efforts into closely cooperating with the Azerbaijani popula-
tion. The Mayor of Sagarejo had a high level meeting with the Shiite religious leader, which represented
a big step towards strengthening relations between the two communities.
• Local government is also supporting public organizations working on regional topics by providing a
venue, the dissemination of information and the mobilization of the local population for various projects
and activities. For instance, local government is taking part in organizing a Rural Festival in Udabno that
is implemented by NGO Droni16 and the Erasmus project.

Youth

• The young generation does not have extracurricular activities after school. Respondents think it will be
good to develop handcrafting or needlework classes for girls.
• The main entertainment for youths are sports and art activities such as wrestling classes for boys and

https://www.droni.org/
16

33
folk music and dance classes for school children.
• The integration of young representatives of ethnic minority groups is low, as there exists cultural, social
and language barriers. Most of the young people from ethnic minority groups do not know the state
language or their level of language knowledge is low and not enough for communication. Moreover, they
do not even know other foreign languages aside from Azeri.
• The Azeri and Georgian youth do not have common interests or a common place to gather and establish
links for further communication.
• There are almost no opportunities for enhancing education and professional development of the local
youth, particularly for ethnic minorities, and there is no places of entertainment for youth to spend their
free time. The main entertainment for boys is gathering in the yard, while girls are not allowed to leave
home and they spend their free time watching Turkish TV-series at home.
• The civil sector also works in the direction of youth. For instance, the initiative Youth for Changes17 is a
group located in Sagarejo. The group focuses on increasing the civil activism among young people and
implements different projects in this direction. The Youth for Changes initiative has also implemented
projects in cooperation with the Regional Development Center (donor organization).

Gender

• Gender issues such as early marriages and low level of education are acute in Azerbaijani villages. No
such problems are seen on the Georgian side, but there are limits, and strict rules for girls in Georgian
villages as well
• The municipality pays attention to gender issues and have special employees assigned to work on
gender topics. With the involvement of the municipality the Kakheti Women’s Room has been opened in
the village of Lambalo. The aim of the project is to empower the women in Azerbaijani villages to be
actively involved in social-economic activities.
• NGO SPEKTRI18 and Women for Tomorrow19 are also working in Sagarejo. Spektri is a not-for-profit organi-
zation in Georgia. Its goal is to assist in the development of a civil society in Georgia and to take part in
social-economic and environmental problem-solving on the local level. The fields of the organization
include education and science, waste management, energy efficiency, social and healthcare, and the
development of small businesses. Women for Tomorrow focuses on strengthening the role of women in
the process of economic development by creating an empowering network of women business leaders
and empowers its members through collaboration. The organization provides education, development
and mentoring for female entrepreneurs and business representatives at every level of leadership; advo-
cates for equal opportunities, effective participation, and advancement of female leaders in business;
empowers women of the region in their business endeavors and supports them in the development of
their careers; promotes the idea of women as business leaders and supports innovative approaches in
business.

Business Environment, Employment and Private Sector

• People are mostly employed in public sector and agriculture specifically in husbandry and greenery.
• Meat production is in high-demand and a potentially important sector. There are a number of slaughter-
houses for sheep, cows, quail and pigs in Sagarejo. The highest demand for meat products comes from
Iran and Middle Eastern businesses. They do not have Azerbaijan partners right now but are open to new
opportunities.
• Locals envision beekeeping, dairy production and greenhouses as potentially important directions.
However, they need incentives in terms of financing. One of the respondents mentioned that silkworm
farms were very successful in the past and might be interesting to start again.

17
https://www.facebook.com/AxalgazrdebiCvlilebebistvis/
18
https://spectri.org.ge/
19
https://www.w4t.online/

34
• There has been a number of attempts to establish cooperatives but most of them have not been
successful. The main problems are compliance with the agreement requirements and standards, as well
as internal disagreement between cooperative members.
• Two main problems for private sector development is lack of skills and ideas to develop innovative proj-
ects and the availability of cheap financial resources.
• The Ministry of Agriculture20 is very active in the region, as well as the donor organizations such as Mercy
Corps21, the EU22, Heks Epper23 and others. They are working mostly in the direction of agriculture develop-
ment. For instance, the ENPARD24 project has invested in 65-hectares of almond orchards where local
people from Sagarejo and Patardzeuli are employed. Elkana25 has also financed 60 projects from agricul-
ture and tourism development in the municipality.
• Awareness of Enterprise Europe Network26 is very low and no one has used it.

Tourism

• Tourism is not well developed in Sagarejo but certain movements are visible in that direction. For
instance, the village of Udabno has various guesthouses, café’s and entertainment services such as
horseback riding.
• Sagarejo has huge potential in tourism. Sites like Jandari Lake, Khorughi Agkvetili, camping zones and
Davit Gareja including the dessert territories that would be interesting to many tourists. According to
respondents, monasteries and the caves of David Gareja that are popular right now make up only 5% of
the entire complex. More tours can be planned for the tourists to use the full potential of the site.
• The main problem in tourism according to respondents is tourism infrastructure.
• Additional tourist activities such as bird watching, hiking, cycling and ATV riding tours can be developed
to explore the half-desert and desert slopes located in Sagarejo.

Education

• Respondent think that the level of secondary education is high. However, there is a problem of teachers
who do not retire. According to respondents, their methods of teaching are outdated and ineffective.
• There is a Farmers Center in Sagarejo, Ninotsminda and Sartichala. Vocational education for farmers
targets vegetable cultivation, husbandry and poultry. Vocational directions that would be good to develop
are veterinary, winemaking, tourism (tour guide classes) and trade.
• Secondary education is playing large role in the integration and cooperation of Azerbaijani and Georgian
people. Mixed classes, Georgian language lessons and sporting and cultural activities positively affect the
process.

EU integration and cross border cooperation

• There are some steps taken for advancing cooperation in this sphere but major problems still exist. For
instance, respondents have mentioned a program initiated by the Azerbaijani Women’s Association27 that
provides teacher exchange programs between Azerbaijan and Georgia. Teachers are selected from
Ninotsminda and Ganja for exchange programs that aim to strengthen cooperation and communication
on a school level.
20
http://www.moa.gov.ge/En/
21
http://www.mercycorps.ge/
22
https://eeas.europa.eu/delegations/georgia_en
23
https://en.heks.ch/worldwide/europe/georgia
24
http://enpard.ge/en/
25
http://www.elkana.org.ge/index.php?action=0&lang=eng
26
https://een.ec.europa.eu/
27
https://www.crin.org/en/library/organisations/azerbaijan-womens-association

35
• The local population does not possess information regarding trade regulations and the Azerbaijani
market.
• The local population is not aware of how to make connections in Azerbaijan and also assume that they
will have problems in terms of language.
• Despite the lack of information and communication, the local population is open to start cultural and
business relationships with Azerbaijan. For instance, one respondent had the desire to implement a
cultural tour in Azerbaijan to introduce a local folk ensemble to their Azerbaijani peers.

Border

• Respondents are aware of border crossing procedures. Respondents in Udabno have mentioned an EU
program that has conducted training in border-crossing rules and procedures.
• Border crossing procedures are very strict from the Azerbaijani side. Everything is strictly checked and
analyzed. For instance, the Kakhi check point does not allow private items such as icons, food and Geor-
gian books to be transferred across the border.28
• Strict border procedures also impede the development of the tourism sector. For instance, on the Davit
Gareja territory, the border is not clearly marked and if someone mistakenly crosses the border, they
might be arrested from the Azerbaijan side. Locals have also mentioned that the price of a passport is
high and do not have any incentive to take it to cross the border.
• Despite the fact that the distance to the border from Udabno is only 17 km, there is no customs crossing
point and so the only way to get to Azerbaijan is via the Gardabani or the Lagodekhi municipalities, which
are more than 50 km away. So, the large distance to the border crossing points represents additional
barriers that limit cooperation of the cross-border regions.
• Moreover, there is Jandara Lake, located 29 km from the village of Udabno. Part of the lake is located in
Azerbaijan and the part of the lake is located in Georgian region, there is an opportunity to create joint
tours from Udabno village to Jandara Lake. Opening of customs check point will positively affect the coop-
eration. Local population can be employed at customs crossing point that will also have positive influ-
ence on the employment and income growth of local population.

The information is derived from the interviews and focus group meetings with local population
28

36
OVERVIEW OF THE KVEMO KARTLI REGION
Demographic trends

The Kvemo Kartli region is located in the southeast Georgia. The region borders Samtskhe-Javakheti to
the west, Tbilisi, Shida Kartli and Mtskheta-Mtianeti to the north, Kakheti to the east, the Republic of Azer-
baijan to the southeast and Armenia to the south. Its area is 6,500 m2, and represents 9.3% of the coun-
try’s territory.

The region is comprised of 347 settlements – 7 towns, 6 municipalities and 334 villages. 38.3% of the
region’s population lives in cities, and 61.7% in villages. There are seven municipalities in the region – the
self-governing city of Rustavi and Bolnisi, Marneuli, Dmanisi, Tetritskaro, Gardabani and the Tsalka munic-
ipalities. The mountainous settlements are the Dmanisi municipality, which includes 19 villages (1,500 m
above sea level), the Tsalka municipality, which includes 46 villages (1.500 m above sea level) and the
Tetritskaro municipality, which includes 35 villages (1,300 m above sea level).

The population of Kvemo Kartli is 513.1 thousand, which is 11.4% of the country’s population. The popula-
tion is mixed and is comprised of Azerbaijanis (45.1%), Georgians (44.7%), Armenians (6.4%), Greeks, Rus-
sians, Ossetians, Ukrainians, Abkhazians and Kurds.

16 | The distribution of population by municipalities (000 people), Kvemo Kartli Region,


2017

19
4%

106 127 Tsalka Municipality


25% 29%
Rustavi City
Bolnisi Municipality
Gardabani Municipality
Dmanisi Municipality
22 Tetrtskaro Municipality
5%
Marneuli Municipality
20
5% Source: Geostat

55
81 13%
19%

Rustavi city is the largest in this region with a population of 127,000 people, followed by Marneuli and
Gardabani with 106,000 and 81,000 people respectively.

37
Labor Market

The main problem for young people in the region is unemployment and poor social-economic conditions.
The problem goes beyond the regional scale and is of national importance. Young people living in the
region do not have access to a small number of economic projects, which are operating in the country.
There is only one vocational retraining center in the region – in the city of Rustavi – and its services aren’t
accessible for the young people living in the settlements and villages. Unemployment has been increas-
ing over the years – going from 12.5% in 2012 to 14.1% in 2017.. Approximately 50% of the active force is
self-employed – mainly in agriculture – which does not generate enough income to sustain proper living
standards for households.

17 | Labor market structure (000 people), Kvemo Kartli Region, 2017

Labor Force 236

Population out of Labor Force 90

Unemployed 33

Employed
203

Hired
85

Self-Employed 118

Source: Geostat

The average salary in Kvemo Kartli is 763.8 GEL, which is 19 % lower than the country average. Mining and
quarrying, the production and supply of electricity, gas and water and manufacturing are the three high-
est paying industries in this region.

18 | Average wage by type of economic activity, Kvemo Kartli region, 2016

1457

1267

867
829 815
741
671
527
474 448 424
335

149

Mining and Electricity, Manufac- Agriculture, Construc- Communi- Real Health and Transport Education Wholesale Hotels and Fishing
Quarrying gas and turing hunting tion ty, social estate, social work and com- and retail restaurants
water and and renting munication trade;
supply forestry personal and repair of
service business motor
activities activities vehicles
and
personal
Source: Geostat and
(Recent Data is Available for 2016) household
goods

38
The largest share of the population is employed in the manufacturing industry (26%), followed by whole-
sale and retail trade (21%) and construction (8%).

Employment in the manufacturing industry has shown a decreasing trend over the last few years. Howev-
er, employment has been growing quite steadily in trade and construction. An increase in self-employ-
ment and a decrease in employment will have a negative impact on the development of the region.

Economy

Economic activity is unevenly distributed between the capital city and the regions. Kvemo Kartli generates
only 5.3% of Total Value Added of the country. The development of the private sector is moderate in
Kvemo Kartli compared to the other regions of Georgia. Almost 72% of total turnover of business is gener-
ated in Tbilisi. Kvemo Kartli is third with a 5.6% share in total annual turnover of the country, indicating
the low level of business sector development in the region.

19 | Business sector turnover (million GEL), Kvemo Kartli Region, 2012-2016

3603
33% 3347
2830
2506 2662
2302
1726
18%

9%
6%
6% 8%

2010 2011 2012 2013 2014 2015 2016

Growth Rate of Business Sector Turnover in Kvemo Kartli Region


Growth Rate of Business Sector Turnover in Kvemo Kartli Region

Source: Geostat

The dominant industries in the Kvemo Kartli economy are electricity, gas and water supply services 22.8%
share of region value added and manufacturing - 21,9 %. The most fast growing industries according to
value added are above mentioned industries, as well.

20 | Structure of the economy by share in value added, Kvemo Kartli region, 2016

5%
3% Electricity, gas and water supply
3%
23% Manufacturing
3%
Mining and Quarrying
5%
Wholesale and retail trade; repair of
motor vehicles and personal and household goods
7% Construction
Real estate, renting and business activities
Agriculture, hunting and forestry
Community, social and personal service activities
12%
22% Transport and communication
Other

Source: Geostat
17%

39
Generally, the value added by these industries shows a very significance growth trend. For example, value
added of manufacturing increased by 104% from 2010 to 2016, transport and communication – 247%,
social and personal service activities – 169 %.

Kvemo Kartli is a leading region in agricultural production. One of the reasons for that is its location and
climate conditions. The region can reap its harvest 2-3 times annually and the region produces 7,200 tons
of wheat, which is 7.3% of the country’s production, 2,700 tons of barley (6.1%), 4,400 tons of cucumber (5.1
%), 4,100 tons of potatoes (20.6 %), 3,900 tons of vegetables (28 %) and 9,500 tons of fruits (5.1%). On the
other hand, livestock husbandry is not that widespread and Kvemo Kartli holds only the 10th position in
terms of meat production.

The region also has a good prospects for tourism development, as there are more than 500 tourist attrac-
tions, good climate conditions and a lot of beautiful views.

Small and Medium Enterprises

Small and medium enterprises create 51% of the jobs, while the other 49% is created by large enterprises.
According to the statistics, the average salary offered by these firms is the following: large companies
offer 1,082 Gel (17% lower than the country’s average); medium enterprises offer 565 Gel (21% lower than
the country’s average); and small enterprises offer 260 Gel (41% lower than country’s average). This differ-
ence is caused by the low rate of business development.

In this region 85% of products are produced by the large enterprises and only 15% by others. In addition,
81% of total turnover is generated by the same large enterprises.

21 | People Employeed by the size of enterprises (left); Share in Total Turnover by size of
enterprises (right), million GEL, Kvemo kartli region, 2016

49%

35%

2,908
39,953 3,603
81%
people million GEL
436
12%

258
7%
16%

Large Enterprise Large Enterprise


Medium Enterprise Medium Enterprise
Small Enterprise Small Enterprise

Source: Geostat

40
KEY FINDINGS OF THE GARDABANI MUNICIPALITY
Introduction
In order to confirm the results of the official data sources, desk documents field work was conducted in
each target region. Two focus groups were conducted in the Gardabani municipality with 17 participants
in total. The participants were representatives of the public and private sector, such as owners of guest-
houses, beekeepers, owners of fisheries and farms, as well as representatives of local government and
schools. In addition, seven face-to-face interviews were conducted with the same target group represen-
tatives. The following section represents the results of the fieldwork sorted by the relevant topics identi-
fied for the study.

Infrastructure
• The main infrastructural problems in Gardabani are transportation and water supply. Participants of the
study have mentioned the inflexible schedule of public transport that hinder their mobility between
cities and villages and create problems in terms of education and work. Internal roads are damaged and
there is a lack of transportation inside Gardabani’s villages. The lack of infrastructure significantly affects
tourism development. Road failure, water and gas supply problems, strongly impede the operation of the
hospitality sector.
• Municipality representative are aware of the water supply problem and are taking steps to address this.
It is expected that the problem will be partially solved by 2019.
• Another problem with the infrastructure is the absence of windbreaks and the erosion caused by wind
greatly damages the soil.
• Gardabani is one of the leaders among the regions in terms of its waste management system. Gardabani
and Rustavi residential waste is collected and taken in New Samgori, one of the villages of Gardabani.
New Samgori also has a mini waste processing plant.
• One of the issue in the agricultural sector is the lack of machinery used for soil cultivation. There are
two brigades of machinery in the whole municipality that creates bottlenecks in the cultivation process.
Meqanizatori services are mostly used by large farmers but the smaller ones try to find other resources.
• Sport is very popular among youths. However, Gardabani lacks sporting infrastructure. Respondents
wished to have a sporting complex and swimming pool infrastructure in the municipality
Access to computers and internet
• Most of the population has access to the internet and a computer. Even in the remote areas of the
municipality where there is no cable internet available, the Zanet Company has installed modems for
internet access.
• In terms of computer infrastructure, e-education has majorly influenced the situation. First graders
receive computers before starting school and that has also increased the access to computers in the
region.
• Steps has been taken towards the improvement of computer literacy. However the Internet is mostly
used for entertainment. The use of the internet for business purposes is not apparent in the region.

Access to computers and internet


• Most of the population has access to the internet and a computer. Even in the remote areas of the
municipality where there is no cable internet available, the Zanet Company has installed modems for
internet access.
• In terms of computer infrastructure, e-education has majorly influenced the situation. First graders
receive computers before starting school and that has also increased the access to computers in the
region.
• Steps has been taken towards the improvement of computer literacy. However the Internet is mostly
used for entertainment. The use of the internet for business purposes is not apparent in the region.

41
Local Government
• Representatives of local government are keenly aware of the problems and concerns of the local popu-
lation. Municipality representatives have had frequent meetings with the population to discuss the
common problems. They also focus on the needs of the young population and have met with students in
order to identify their needs. Information about public sessions are published on the official website as
well as disseminated verbally to the local population. However, according to local government represen-
tatives, interest and attendance is not high. There is a potential for devising more effective ways to
increase the participation of local citizens.

• Gardabani’s Mayor holds weekly public sessions. Besides the meetings, the mayor also undertakes site
visits to closely interact with the local population. Even though the municipality is open to actively coop-
erate with the local population they still struggle to establish effective communication with ethnic
minorities.
• The communities mostly address local government regarding land registration and the legalization of
property, as well as infrastructural projects. There is a government program which allows the local popu-
lation to register their lands free-of-charge. This program is very popular among civil society.
• Local government is also actively involved in supporting governmental and donor-initiated projects by
disseminating information and providing venues for communication. For instance, they have supported
GITA meetings regarding access to internet and information. The project was very interesting for the pop-
ulation. They have also hosted debate sessions between Georgian and Azerbaijani youths.
• Local government is focusing on the development of sports. NNLE Sports Centre, which is financed by
the municipal government, is actively involved in the development of various sporting directions (for
instance judo, wrestling, basketball, football, chess and fencing classes). They are also involved in
strengthening cross-cultural cooperation among Georgian and Azerbaijani youths by implementing vari-
ous sporting events and competitions.

Youth
• The main attraction for the young population in Gardabani is sporting events and activities. Gardabani
youths are actively involved in sports.
• Youth employment is a major issue in Gardabani. Based on the field research, young people are mostly
employed in the public sector (City Hall, public educational institutions). The employment of the young
generation has increased in public institutions in recent years. The main driver of this is the knowledge
of technologies and foreign languages. Despite the growing tendency, the public sector does not provide
a sufficient number of jobs to satisfy the young population.
• Unavailability of jobs are causing labor migration within the young population. As mentioned in the
focus groups, 99% of young employees are working outside Gardabani. Besides the scarcity of employ-
ment opportunities, low salary levels also play a role in labor migration.

Gender
• A gender issue common for the Azerbaijani population is early marriage. School representatives men-
tioned that girls only attend nine grades, after which, they get married and cease learning. The Azerbaija-
ni population has also confirmed this fact, but said that this trend is slowly improving and the awareness
regarding early marriages are spread in the population. For instance, one of the secondary schools has
won a grant to implement awareness-raising on the harmful effects of early marriages. Although gender
issues are improving in the younger generation, parents still play a significant role in it.
• In general, women are more active then men in terms of formal employment and they represent the
majority working in the public sector.
• Girls are also involved in sports (karate, fencing).

Business environment, employment, private sector


• The same problem is present between adult job markets. Most of the people in Gardabani are self-em-

42
ployed and work in agriculture – more specifically in animal husbandry and land cultivation. Agricultural
activities are more popular among the Azerbaijani populations. Other large sectors are financial institu-
tions and small-scale trading. People are also employed in transportation (railway) and the energy sector
(hydropower plant, gas, etc.)
• Since Gardabani is near the capital, people are also seeking jobs in Tbilisi and in other cities. Focus
group members mentioned that people are employed at the Lilo Mall (trade) and Rustavi car trading
centers. Besides that, people are also migrating to neighboring countries to find jobs (Azerbaijan, Turkey,
Russia, Kazakhstan)
• Many people are unaware of the various programs and activities that are ongoing in Gardabani. For
instance, one focus group member did not know about the Farmers’ Center that is functioning in Gard-
abani.
• Some of the private sector representatives have used Enterprise Georgia programs for the development
of business activities and are satisfied with the results. Program benefits could be spread to other sector
representative, however, most of them lack skills in terms of application and proposal writing in order to
receive funding. According to focus group respondents, 80% of the applications submitted from the
municipality were filled-out with the help of the employees of the Agriculture Consulting Center.

Tourism
• Tourism has been more active in the past but has declined in recent years in Gardabani. The main
reason for this is the change in regional borders that transferred the Davit Gareji Monastery to the Kakheti
region.
• In general, Kvemo Kartli has good potential to develop tourism directions such as agro-health and
cultural tourism. For instance, Manglisi is considered a health resort and already has its own tourist infor-
mation center. In addition, there are several historical monuments in the Kvemo Kartli canyons of Dash-
bashi, Birtvisi, Samshvilde and others that are not included in tourist routes. Khrami Hydropower Station
also has potential for becoming a tourist draw.
• The Tetritskaro Municipality also offers horse riding tours to Dmanisi and back. There is also the Algheti
protected zone and Bolnisi sightseeing. The main problems in terms of tourism development is infra-
structure such as roads and the water supply, which significantly impedes tourism development

Language Barriers
• Language barriers are mostly apparent among the older population. The younger population learns
Georgian in schools. Besides that, there are other resources to learn Georgian for all age groups – for
instance, classes for public servants, preschool classes and summer camps for youth where Georgian
language is taught.
• Although schools offer Georgian classes and native language is taught in kindergarten, the Azerbaijani
population still has problems analyzing information in Georgian. Most all lessons in Azerbaijani settle-
ments are in the Azerbaijani language.

Education
• Free secondary education is a big advantage for the local population. They are also satisfied with the
quality of education. Schools have integrated classes where Georgian and Azeri students learn together.
Schools use an electronic learning approach. Sports and art direction is also included in the learning
process.
• Although secondary education attendance is high, the Azerbaijani population has mentioned the low
level of higher education between ethnic minorities.
• One of the problems in secondary schools is the older teachers who do not want to retire and allow the
new generation of teachers to take their place. There are three schools in Gardabani and all of them have
the same problem. Teachers are coming for internships from universities but could not start a job
because there are no free positions available.
• Government program “1+4” supports young bilingual teachers to work in schools as assistant teachers.
One of the Azeri respondents mentioned that her friends are employed by this program and are very
satisfied: “This program has tremendously improved the knowledge of Georgian language between Azer-
baijani communities.”
• Vocational education is becoming more trendy among the population. Respondents have mentioned
that the young generation is enrolling in vocational institutions.

43
• There is no vocational institution in the region. The small distance between the capital and Gardabani
however, provides students the opportunity to get a vocational education.

EU integration and cross-border cooperation


Focus group participants mentioned that the donor interventions were more active in the past. Nowa-
days, there is the Civic Integration Foundation30 that works towards civic integration in Georgia. Together
with the United Nations Association of Georgia (UNAG)31 they established the Gardabani Youth Center,
which is aimed at raising the awareness of Human rights, tolerance, cultural diversity, domestic violence
and conflict prevention.

Another public organization is the IDP Women’s Association32, which is involved in informal education
activities in Gardabani.

Export and border procedures


• Local beekeepers think that honey export is a potentially attractive business since the prices in Azerbai-
jan are twice as high as in Georgia and the Georgian honey is a well-known and desirable product. Howev-
er, unofficial border taxes create an unfavorable environment for the initiation of trade.
• The private sector is skeptical towards the Azerbaijani market, as they perceive it as monopolistic and
corrupt. Border procedures are also perceived as a barrier. A lack of information is also visible among
respondents.
• Another challenge in terms of export is the quantity. Respondents say that they do not have sufficient
quantity to satisfy large markets. Therefore, it should be organized so that someone will collect the
production, standardize it and then export it. Respondents mentioned that they have attempted to create
cooperatives but could not handle it because of cultural and because of different views among the partic-
ipants
• One of the major problems with the border is new regulation towards car insurance. There are only two
operators working that cause delays and lines at the border. There is an online portal that allows custom-
ers to take insurance remotely but procedure seems complicated for customers because of the language
barriers.
• Some of the respondents mentioned that an additional crossing point from the villages might incentiv-
ize the cooperation between Azerbaijan and Georgia

Cooperation and integration


• Economic relationships with Gazakh or other districts of the Ganja-Gazakh region are not visible among
respondents and they are not aware of the current situation in the cross-border region, as most economic
activities stay within the municipality
• There are no documented economic relationships between bordering regions or systematic trade. There
are only relationships at the individual level.
• There is no mechanism of cooperation between the local government of Azerbaijan and Georgia, it only
happens at the state level. Any kind of communication that exist right now is at the individual level.
• Regarding the Georgian Azerbaijani integration process in Gardabani, the Georgian side says that the
needs of the Azerbaijani people are accounted for and respected. However, the Azerbaijani people think
that their representation in the public sector and in local activities are minor compared to the actual
numbers. They also say that they are only involved in important occasions such as pre-election activities
but in reality they are not considered as important parts of society. The Georgian side says that the only
barrier hindering Azerbaijani people to be involved in political and social life is the language barrier.
• Integration and communication problems are less visible among the young generation. There are a
number of intellectual, sporting and cultural activities for youth cooperation on a school level that also
positively affects the integration process

30
https://cif.org.ge/
31
http://www.una.ge/
32
https://www.peaceinsight.org/conflicts/georgia/peacebuilding-organisations/consent/

44
OVERVIEW OF THE GANJA-GAZAKH REGION
Overview

The Ganja-Gazakh economic region is located in the western part of Azerbaijan and is the second largest
economic region in the country. The total area of the region is 12.5 thousand square meters, representing
14.4% of the total territory of the country. The Ganja-Gazakh region is divided into nine administrative
units: Agstafa, Dashkesen, Gadabay, Goranboy, Goygol, Gazakh, Samukh, Shamkir and the Tomuz adminis-
trative regions. There are also two cities – Naftalan and Ganja, which is the second largest city of the
country.

Ganja-Gazakh is the second largest region of the country by population and amounts to 1,265 thousand
people. The share of the population living in urban areas is 45.9%. The rest of the population lives in rural
areas. The urbanization rate differs by administrative units of the region. The Dashkesen and Goygol
districts are mostly urbanized districts, comprising more than 40% of the urban population, while the
Tovuz and Gadabay districts are the least urbanized districts with more than 80% of the population living
in rural areas. The low urbanization rate is characteristic of the Agstafa and Gazakh regions. In Agstafa
only 24.5% of the population are living in urban areas, the greatest share of the population (75.5%) is
living in rural areas. Similar to Agstafa, the urbanization rate is low for Gazakh (22.5%) with 77.5% rural
population.

22 | Average Wage Comparison (Manat)

742

500

292
258 240

Baku Azerbaijan Ganja-Gazakh Region Gazakh Agstafa

Source: State Statistical Committee of Azerbaijan

Similar to Georgia, there is large gap in economic development between the capital city Baku and the
regions of the country. Most business entities are operating in Baku. Among the regions, Ganja-Gazakh is
second in the number of business entities registered. There are 7,200 legal entities registered in the Gan-
ja-Gazakh region, the number of people employed in the business sector is 96,631, representing a 14.1%
share of the business sector employment of the country. The average wage in the region is 299 Manat,
which is 40% lower than the country average and 59% lower compared to the average wage in the capital
city.

The large average wages discrepancy between Baku and the regions indicates the low productivity of the
labor force in the region that can be attributed to a lack of knowledge and skills and can be considered
the main challenge for prospective economic development of the region.

45
The largest share of the output is generated in Baku, holding a 71% share in total output produced in the
country. The rest 29% is redistributed among the regions. The Ganja-Gazakh region is second after the
Aran region by economic importance of the country, holding a 4.6% share of the total output of the coun-
try. Agriculture, construction, retail trade and industry are most prominent sectors of the region’s econo-
my.

The Ganja-Gazakh region is second among the regions by its share in agriculture production of the coun-
try. Out of 16.9% of total agricultural production is generated in Ganja-Gazakh region and is outpaced only
by Aran region with 32.2% share in total agricultural production of the country. The main areas of agricul-
ture production are meat and dairy products, grains including wheat, grapes, and potatoes.

23 | Economic Structure of Ganja-Gazakh Region, million Manat

626
18%

Industry
Agriculture
955
27% Construction
1,062
30% Transportation and Storage
Information and Communication
Trade and Repair of Transport means
12 Source: State Statistical Committee of Azerbaijan
0.4%
107
3%

785
22%

Construction makes up 22% of the economy in the region. About 6.3% of total output in the construction
industry is produced in the Ganja-Gazakh and ranks third among the regions by this indicator. There are
metal-concrete, brick-ceramic and marble factories operating in the construction industry of this region.33

Industrial production generates 18% of total output of the region. It must be noted that 87.4% of industrial
output is generated in Baku, the other 12.6% is redistributed among the regions. Ganja-Gazakh ranks third
by its share of total output in industrial production (1.6%). The main industrial products are electric tools,
telecom equipment, agricultural machinery, metallurgy, cotton, textile, ceramics, glass production and
food industry.

The economy in the region has steadily grown since 2010, but this growth began to decline in 2014 due to
the oil price shock. However, the economy managed to recover quickly and positive a growth trend is now
been present since 2016. The largest growth took place in the construction industry (31.3%), followed by
agriculture (10.8%) and transportation (10% growth). The lowest growth was in trade (1.5%) and industrial
production fell by 18.7% in 2017.

“Economy of Azerbaijan: 25 Years of Independence”, Osman Nuri Aras, Elchin Suleymanov, Karim Mammadov, 2016
33

46
24 | Real Growth of Output of the Economy in Ganja Gazakh Region in 2017

Construction 31.3%

Agriculture, foresting and fishing 10.8%

Transportation and storage 10.0%

Information and communication 6.6%

Trade, repair of transport means 1.5%

-18.7% Industry Growth rate by sectors


Source: State Statistical Committee of Azerbaijan

According to international geographers’ overview of Ganja-Gazakh, the region is divided into four zones
that differ by landscape characteristics and climate: sloping plains, foothill zone, middle uplands zone
(1,000-2,000 m above sea level) and the alpine zone (more than 2,000 m above sea level). The variety of
landscape, characteristics of nature and the combination of forests, mountains and mineral waters,
creates valuable potential for the development of tourism within the region.

The region’s baseline tourism infrastructure also supports the development of the region. Other factors
supporting its development is its transport network, as important highways, railways and air routes pass
through the region. There are three airports operating in the region located in Ganja, Naftalan and Agsta-
fa. Ganja airport mainly hosts domestic flights and services to and from CIS countries. However, new
flights could be extended to other countries if they were in demand. Being a cross border region also
creates additional potential to develop links and networks to Georgia.

25 | Real Growth of output of the economy in Ganja-Gazakh Region, 2010-2017


18%

16%

11%

8%

6%

3%

0%

2010 2011 2012 2013 2014 2015 2016 2017

-2%

Real Growth of physical volume of the output


Source: State Statistical Committee of Azerbaijan

47
AGSTAFA
Demographic Statistics

Agstafa is located in the cross-border region and borders Georgia. The distance to Baku is 461 km. The
population of Agstafa is 86.6 thousand people. The last census of population was held in 2009. The popu-
lation of Agstafa experienced steady growth since 2010 and the average annual growth rate of the popula-
tion is 1.2%. The greatest share of the population lives in rural areas. The urbanization rate is 25.1%, and
the rest of the population is living in villages.

26 | Growth of Output of the Economy in Ganja Gazakh Region, 2017

74.9%

49.3% 50.7%

25.1%

Urban Rural Male Female

Urbanization Rate Population structure


by Gender

Source: State Statistical Committee of Azerbaijan

The population is evenly distributed by gender. 99% of the population is Azeri. However, representatives of
other nationalities include Georgians, Russians, Turks, and Kurds, but their share of the total population
of region is low. 89% of the population is below the age 60, and young populations (15 to 29 years of age)
constitute 25.9% of the total population in the region.

27 | Distribution of Population by Age, 2016

3%
7%

23%
0-14
15-29
19%
30-44
45-59
60-74
75 and more

Source: State Statistical Committee of Azerbaijan


26%
22%

48
The overall level of literacy in Agstafa is quite low, as only 9.5% of the local population has received higher
education. The largest share of population (64.8%) has received full secondary education, 1.2% of the
population does not have an education. The low rate of literacy of the local population is partially
explained by the fact that most of the youth receive their higher education in Baku or abroad and a
majority of them stay there to work. It must be noted that among the illiterate population, the number
of women out-paces the number of men. The difference between the number of women and men shrinks
at the higher level of education. Moreover, the share of women with higher education is slightly more
than men with a similar level of education.

Labor Market

According to The National Bureau of Statistics of Azerbaijan, more than half of the populations of Agstafa
are employed, but this is mainly at the expense of self-employment. The number of employed in Agstafa
is 43.5 thousand persons, out of which only 8.6 thousand are employees, the rest of the people are
self-employed. It must be noted that the employment in Agstafa is steadily increasing. Since 2010
employment increased by 10% from 39.3 to 43.5 thousand people in the Agstafa district. Employment
growth is attributed to the growing self-employment in the region, while the number of hired employees
has been decreasing since 2010 from 9 to 8.6 thousand people.

The wages in Agstafa are low compared to the country’s average. The average monthly nominal wage is
240.3 Manat in Agstafa, which is 17.5% lower than the regional average and 52% less than the national
average wage. At the same time, there is a growing trend of average salary in the country and in the Gan-
ja-Gazakh region, the average wage in Agstafa slightly decreased since 2014. The low wage indicates low
productivity of the population and a lack of professional skills and knowledge.

Overall 2,804 persons are employed in the civil service sector in the Ganja-Gazakh region. Out of which
31.7% (824) are women, almost half of them (42%) are employed in lower positions and supplementary
posts. The largest share of administrative positions in the civil service is held by men.

28 | Civil service employement by gender and age groups in Ganja Gazakh region

1980
1854

824
474
349
126

Civil Serivce Emploees Administrative posts according to Suplementary posts


4-7 classifications in civil service
Women Men

25.3% 13.5%

49.5% 56.2%

25.2% 30.3%

Administrative posts according to Suplementary posts


4-7 classifications in civil service

Under 35 35-54 55 and older

Source: State Statistical Committee of Azerbaijan

49
25.8% of those employed in civil service are under the age of 35, most of them hold administrative posi-
tions. The largest share (75.8%) of civil servants are between the ages of 35-54, so it can be considered
that the civil service of Azerbaijan has a young labor force. There is a large difference between men’s
and women’s participation in the civil service, as most of the women hold low positions. A similar gap is
presented in terms of women’s entrepreneurship. The number of women entrepreneurs is 949 in Agstafa
(only 19.1% of the total number of entrepreneurs). The reason behind the low participation of women
is their families. If family members are against women working they do not work and take care of their
families instead.

29 | Distribution of Population by Age, 2016


19,748 19,906

4,422
2,898 2,962 3,213 3,642
2,193
458 1,051 532
211

Higher Education Secondary Full General Elementary Non-Education


Specialized Secondary Secondary Education
Institutions Institution Education

Men Women
Source: State Statistical Committee of Azerbaijan

The amount of women with no education or only elementary education is more than two times larger
than the number of men with similar levels of education The large gender gap at the lower education
level indicates that girls are still facing barriers in obtaining education.

Economy

The output generated in 2017 in the Ganja-Gazakh economic region is 3.5 billion Manat, that is 4.5% of the
total output of the country. The largest share of the regional output is produced in Ganja (27%), followed
by Shemkir (16.9%). Agstafa generates a 5.9% share of total regional output and 5.7% of total output is
generated in Gazakh.

The construction industry represents the largest share of the economy in Agstafa, followed by agriculture
and trade at 32% and 21% respectively. Despite the fact that the regional economy has experienced steady
growth (except during the 2014-2015 oil shock), there is still a large gap between the regions and the capi-
tal. Production per capita in Agstafa is 2,415 Manat, which is eight-times lower than in Baku.

30 | Economic Growth in Agstafa, 2010-2017 45.1%

26.5%
19.4% 20.5%
14.3%

2.7%

2010 2011 2012 2013 2014 2015 2016 2017


-0.2%
Real Growth Rate of Output in Agstafa
Source: State Statistical Committee of Azerbaijan -17.2%

50
Aside from during the oil shock years of 2014-2015, there has been a steady growth trend of production in
the Agstafa region. The fastest growing sectors in 2017 were construction (+133.9%), followed by industry34
(+44.4%) and agriculture (+14.8%). It is worthy to note that in 2017, industrial production decreased 18% in
the Ganja-Gazakh region, but Agstafa experienced large growth in industrial production.

31 | Output Growth by Type of Activity in Agstafa, 2017

Construction 133.9%

Industry 44.4%

Agriculture, foresting and fishing 14.8%

Information and communication 6.1%

Transportation and storage 4.0%

Trade, repair of transport means 1.6%


Source: State Statistical Committee of Azerbaijan

There were 22,430 small enterprises operating in the Ganja-Gazakh region, 93% of them were owned by
individuals. The largest share of small enterprises (46.8%) operate in trade and repair services and gener-
ate 56% of total production generated by small enterprises. In 2015, the total output generated by small
enterprises in Ganja-Gazakh region amounted to 417 million Manat (11.7% of regional output).

There are 1,534 small enterprises in Agstafa , out of which 95.6% are owned by individuals. Total output of
small enterprises is 23.3 million Manat (11% of total output of Agstafa). The largest number of small enter-
prises is operating in retail trade, generating 74% of total output produced by small enterprises in the
Agstafa region.

32 | Number enterprises by types of activity in Agstafa, 2015

25
18
2%
1%
19
290 1%
Agriculture, foresting and fishing
19%
Industry
Construction
Trade, repair of transport means

120 Transportation and storage


8% 1,534 724
Accommodation and food service activities

47% Other fields

Source: State Statistical Committee of Azerbaijan

338
22%

34
Under the term of industry is unified whole industrial sectors

51
33 | Share in output by types of Economic Activity, million Manat

5%
3.4%
6%

Trade, repair of transport means


11.8% Transportation and storage
Accommodation and food service activities
23.3 Industry
Other fields

Source: State Statistical Committee of Azerbaijan

74%

Total number of employees in small enterprises in the Ganja Gazakh region is 8,491 (9.7% of total employees
working in small enterprises in Azerbaijan). 164 people are employed in small businesses in Agstafa and in
Gazakh, 97235 people are employed in small enterprises.

The latest statistics is given for 2015


35

52
GAZAKH
Demographic Statistics

Gazakh is located next to the Georgian border, neighboring the Agstafa region. The distance to the capital
Baku is 470 km. The total population of Gazakh is 95.8 thousand (7.6% of the total population of Ganja
(Gazakh region) and is sixth by amount of population within the Ganja-Gazakh region. Similarly, to Agsta-
fa, the urbanization rate is low in Gazakh, as 77.5% of population lives in rural areas in Gazakh. The gender
structure of the population is almost equal, with females slightly making up more of the population
(about 51.1%)

34 | Urbanization Rate and Gender Structure of population in Gazakh, 2016

77.5%

48.9% 51.1%

22.5%

Urban Rural Male Female

2017 2017

Source: State Statistical Committee of Azerbaijan

99.5% of the population are Azeri nationality, while the number of ethnic minority groups is low. 88% of
population is below 60 years of age, and young people make up about 25% of the total population. Prob-
lems with an aging population or a young labor force is not present.

35 | Population by Age Group in Gazakh, 2016

4%
8%
22%
0-14
15-29
30-44
20% 45-59
60-74
75 and more

Source: State Statistical Committee of Azerbaijan


25%

21%

53
The overall education level of the population is low, as only 13% of the population above age 15 years of
age have a higher education. Most of the population (61.3%) have received secondary education. Women
and men have almost an equal share among the people with secondary educations, while at the lower
level of education women’s share is higher. Among the people with elementary education, women share is
66.9% and women’s share among people with no education is 68.8%. This figure indicates that women still
have lower access to education and are forced to leave educational institutions at an early age. Women
also represent a slightly higher share among people with higher education. In total, 8,968 people have
received a higher education, out of which 51.2% are women.

36 | Level of Education in Gazakh; Gender distribution by level of education, 2016

9%

13%
Higher Education
Secondary Specialized Education

2% Fully Secondary Education

3% General Secondary Education


Elementary Education
61% Non-education
12%

21379 20900

4375 4593 4143 4544


3819
2279
640 1294 667
302

Higher Secondary Fully General Elementary Non-education


Education Specialized Secondary Secondary Education
Education Education Education

Men Women

Source: State Statistical Committee of Azerbaijan

54
Labor Market

According to the recent statistics almost 631 thousand people were employed in the economy of the Gan-
ja-Gazakh region. The number of employed people in Gazakh is 49.4 thousand (71% of the adult popula-
tion). Most people are self-employed, only 23% (113,000) of all employed personnel are hired. In 2016,
employment grew by 2.1% out of which 4.5% growth took place in the number of hired workers.

The number of new jobs increased by 184% and accounted for 2,141 jobs in 2016. 95% of new jobs were
permanent jobs.

There are 539 legal entities registered in Gazakh comprised of 7,506 employees. The average monthly
salary in Gazakh is 258.1 Manat, which is 13% lower than the regional average and 71.3% lower than the
national average.

37 | Number of Newly Opened Jobs in Gazakh, 2010-2016


2141
2031

1064
889 957 877 907 867
753
467 493
376

2010 2012 2013 2014 2015 2016

Number of Opened Jobs, Total Permanent Jobs


Source: State Statistical Committee of Azerbaijan

Economy

The value of total output produced in Gazakh amounted to 200 million Manat (5.7% share in total value
of the output produced within the Ganja-Gazakh region). After a 15% decrease in 2016, the real growth of
production in 2017 reached 23.4% in Gazakh. Agriculture makes up the largest share of the economy of
Gazakh (39%), followed by trade (30%) and industry (18%).

38 | Economic Structure of Gazakh, million Manat, 2016

36
18%
59 Industry
30% Agriculture, foresting and fishing
Construction
Transportation and storage
200.6
million Manat Information and Communication
Trade, repair of transport means
1.4
1%
59 Source: State Statistical Committee of Azerbaijan
3%
78
18 39%
9%

55
39 | Annual Growth of Output in Gazakh (left), Growth by Types of Economic Activity in
Gazakh (right), 2017

29.8%
23.4% Construction 2.8%
21.5%
Transportation and storage 17.7%

Industry 17.6%
1.5% 2.0% 0.2%
Information and Communication 13.4%
2010 2011 2012 2013 2014 2015 2016 2017
Trade, repair of transport means 1.2%

-13.0% Agriculture, foresting and fishing 0.9%


-15.0%

Source: State Statistical Committee of Azerbaijan

Since 2013, the region experienced fluctuations in economic growth. The high growth rate indicates the
region’s resistance to recover faster after recessions. Construction was the fastest growing sector of the
economy, followed by transportation and industry. Agriculture represents the largest share of the econo-
my but experienced the lowest growth in 2017.

There are 1,773 small enterprises operating in the region, out of which 91% are owned by individuals.
According to the latest statistics, the number of people employed in small enterprises was 972 in 2015. The
total output generated by small enterprises was 27.7 million Manat (16% of total output generated in
Gazakh). Most small enterprises operate in the trade, services, transportation, and storage sectors.

40 | Number of Small Enterprises by Types of Activity in Gazakh (2015)

35 26
48 10
2% 1%
3% 1%

134 Trade, repair of transport means


8%
Transportation and storage

Other Fields

Accomodation and Food Service Activities


310
17% 840 Agriculture, foresting and fishing
47%
Industry

Construction

Other Fields

370
21%

56
41 | Annual Turnover of Small Enterprises by Types of Activity in Gazakh, 2015,
Million Manat
2
7%
2.5
9%

Trade, repair of transport means

Transportation and storage

27.7 Accomodation and Food Service Activities


5.8 million Manat
21% Other Fields

17.3 Source: State Statistical Committee of Azerbaijan


63%

Construction

Construction comprises 42% of the economy in Agstafa. In addition to a large stake, the growth of the
construction sector in 2017 came to +133%. On the one side this growth might be explained by the large
drop of construction output in 2016 but still the growth is impressive in terms of fast recovery. There are
72 enterprises operating in the construction sector in the Ganja-Gazakh region, out of which 9 operate
in Gazakh and 7 in Agstafa. The value of work executed by construction enterprises in the Ganja-Gazakh
region is 166 million Manat. Although the share of construction in the Ganja-Gazakh economy is the larg-
est, it only makes up a 2% share in total output of the construction sector in the country. The construction
sector employees 3,555 persons, out of which, 158 are employed in Agstafa and 151 in Gazakh. The average
wage is 243.1 Manat in Agstafa and 332.6 Manat in Gazakh. The average salary is much lower compared to
Baku’s figure of 1,062 Manat. This gap indicates the low productivity of labor in the region.

Agriculture

Agriculture makes up 30% of total output in the Ganja-Gazakh region. Agriculture is one of the key sectors
taking a 38.3% share in total production of Agstafa and a 38.8% share in the Gazakh region. The largest per-
centage of agricultural production of the Ganja-Gazakh region is produced in Shamkir (31.1%). Agstafa and
Gazakh make up 6.1% and 7.3% of total agricultural production of the Ganja-Gazakh region respectively.

42 | Regions’ share in agricultural output in Ganja-Gazakh region


7%
7%

31%
5%
Shamkir Gadabay

9% Tovuz Goranboy

Naftalan Goygol

Ganja Gazakh

13% Aghstafa Samukh

19% Dashkasan
3%
6%
0%
0% Source: State Statistical Committee of Azerbaijan

57
Total area of agricultural land in the Ganja-Gazakh region is 195,000 hectares (12% share of the total area
of agricultural land of the country). Out of 195,000 hectares, Gazakh and Agstafa make up 14.9 thousand
and 21.1 thousand hectares respectively. The largest portion of the land is used for the production of cere-
als (42% of total agricultural land used). Wheat is the most commonly sown cereal in the Ganja-Gazakh
region (54,000 hectares). Potatoes are second in terms of sown area (31,000 hectares or (14.3%). Fruits and
berries are third (7.3% share in total sown area of the Ganja-Gazakh region). Grapes produced in the Gan-
ja-Gazakh region account for 41% of total production of the country.

43 | Share of Ganja-Gazakh region in Total Agriculture Production by Product Types,


Plants (Left), Livestock (Right)

Sunflower and Seed 58.50%


Poultry 73.56%
Potato 50.33%
Grape 41.06% Sheeps and Goats 19.91%

Sugar Beet 24.49% Bee Families (units) 14.99%


Vegetables 17.19%
Large Hornecattle 12.10%
Fruit and Berry 15.73%
Cereals ans Cereal Legumes 9.07% Including Cows and Buffaloes 12.04%
Including Wheat 8.84%
Pigs 2.79%
Cotton 4.85%

Regional Share in Countries Total Series1


Agricultural Production, Plants
Source: State Statistical Committee of Azerbaijan

In terms of livestock, 73% of poultry is produced in the Ganja-Gazakh region, followed by sheep and goats
with a 20% share of country’s total livestock production.

There are 211 agricultural enterprises in the Ganja-Gazakh region, out of which 13 operates in Gazakh and
15 in the Agstafa district. All enterprises in Agstafa and Gazakh are profitable. In total, 1,759 employees
work in agricultural enterprises in the Ganja-Gazakh region (12% of the national total of employees in
agricultural enterprises). In the Ganja-Gazakh region, Agstafa is leads in the number of employees in agri-
culture enterprises with a 28.3% share. The Goydol and Samukh districts are second and third with a 25%
and 19.8% share respectively.

44 | Number and Share of Employees in Agricultural Enterprises by Regional Units of


Ganja-Gazakh Region
0%
2%

14%
20%
Samukh Region Aghstafa Region

1% Goy Gol Region Tovuz Region


4%
Goranboy Region Shamkir Region

Ganja City Gadabay Region


1759
Gazakh Region Dashkasan Region

25% Source: State Statistical Committee of Azerbaijan


28%

3% 3%

58
Trade and repair of means of transportation

Retail trade is the third largest economic sector in the Ganja-Gazakh region, making up a 21% share of the
economy of Agstafa and a 29.6% share of total output of the economy in Gazakh.

45 | Share of Regional Units in Total Retail Trade Turnover of Ganjza-Gazakh Region, 2016

2% 1%
4%
5%
Ganja Goygol
5%
Tovuz Aghstafa
32%
Shamkir Samukh
6%
Goranboy Dashkasan

Gadabay Naftalan
7%
Gazakh

8% Source: State Statistical Committee of Azerbaijan

3%
15%

In terms of retail trade, the Ganja-Gazakh region makes up 8.2% of total trade turnover in the country. The
share of districts in the trade turnover of the region is the following:

1. Ganja city - 31.5%


2. Tovus - 15%
3. Shamkir 14.6%
4. Gazakh - 5.4%
5. Agstafa - 4.8%
Almost 99% of trade turnover is from retail trade of non-oil products. Total share of imported products
in retail trade for the Ganja-Gazakh region is 31%. The trend is similar in Gazakh and Agstafa, both with
a 22.1% and 29.7% share in total trade turnover respectively.

46 | Growth of retail trade turnover, 2011 – 2016


22.0%
21.7%
17.6%
15.6%
18.8%
16.7%
10.8% 13.5%
9.0%
6.6% 11.1%
9.5% 9.7%
4.3% 6.9%
5.2%
1.1% 2.7%

2011 2012 2013 2014 2015 2016

Ganja-Gazakh Economic Region


Gazakh
Aghstafa

59
The share of imported goods in retail trade has slightly increased for the Ganja-Gazakh region since 2013.
On the other hand, the share of imported goods for Agstafa decreased by 6% in 2016 while for the Gazakh
district, this number increased by 0.5%. The decrease in import volume in Agstafa might be attributed to
overall growth decline in total trade turnover.

60
KEY FINDINGS OF GAZAKH AND AGSTAFA
MUNICIPALITIES
In order to identify the key trends in the Gazakh and Agstafa regions, field work – including focus group
meetings and face-to-face interviews – were conducted in Azerbaijan. In addition, we have conducted
online interviews to fill-out the missing information. A united focus group was organized from the within
the Gazakh and Agstafa municipalities featuring 15 participants from the public and private sectors. Four
in-depth interviews and five informal interviews were also conducted with the representatives of the
private sector and the local population.

Economic development and potential of growth

• Agriculture is one of the leading sectors of the economy; the highest share of income is generated from
the primary production of agriculture that is sold on the local market.
• The main challenge is the low skills and use of modern technologies in the production process, which
lowers the productivity of the sector.
• Although people have high interest in exporting their products to neighboring countries, they have limited
possibilities to do this. The main problem is that people are not aware of the rules and regulations imposed
on exported goods in neighboring regions.
• The most prominent sector of agriculture is poultry and husbandry.
• There is no food processing factory to process the products of primary agricultural production and
prepare for the export market
• There is a need for vocational education to upgrade the skills of the local farmers and to use modern
tools in agriculture production
• Retail trade is another source of income for the local population. Most of them however, lack entrepre-
neurial skills and that limits the possibility to expand their businesses.
• Tourism is considered one of the preferential sectors that have development potential within the region.
Although there is no cultural heritage and interesting sightseeing in Agstafa and Gazakh, the other districts
of the Ganja-Gazakh region have resources such as mineral water, forests and mountains that could attract
tourists.
• The state supports the development of tourism infrastructure – in particular accommodation units
and travel infrastructure. New service centers were opened at the border check-points that issue visas
for international visitors directly at the border. The fee for visa issuance is about 20 Euro and visas are
issued within 5-10 minutes.
• An overall lack of awareness and information hinders sectorial development. Moreover, the local popu-
lation does not hold the general skills needed to manage and promote their businesses and attract
potential clients. This inability to use digital marketing tools also hinders the development of tourism
within the region.
• The armed forces stationed at the borders are considered as one of the main restriction of tourism
development.
• There is a potential for construction industry development. Agstafa and Gazakh have cement quarries with
the potential to produce high-quality cement that could be processed and sold on local and international
market.
• Most of the hired people are employed in the public sector, particularly in schools, healthcare institutions
and other government agencies.
• Average salaries are very low and not enough to meet the demands of the local population. Low salary
rates encourage informal ways (tips, bribes) to get an extra income.

61
Business Environment

• Although every business entity has the possibility to enter the Azerbaijani market legally, there are infor-
mal barriers to entry hindering local and neighboring business entities to enter the market
• After the presidential election, the government of Azerbaijan started to carry out reforms to improve the
country’s business environment. The reforms were carried out in customs regulation to remove bribes
and illegal payments.
• Access to finance is low because of the low skills of the population to fill-out the application for the
issuance of credit, and some groups within the local population are not aware of how to use a bank credit
card to execute transactions and payments even for private use.

Gender Equality and Women’s Participation in Economic Activity

• Participation of women in the country’s economic activity is low. Moreover, most companies formally
include women in the workforce but do not actually include them in the working process. The situation is
similar in the civil sector. The share of women employed in civil service is much lower and those who are
employed mostly perform technical tasks and are not involved in the decision making process.
• Most employed women are working in healthcare and the education system
• There is no organization working on the development of support mechanisms for women’s participation
in economic activities and decision making process
• The women themselves do not express the initiative or interest to be involved in economic activity. This
is mainly influenced by the social perception. Although it must be noted that women with higher educa-
tion are admired.
• Family plays a crucial role in supporting women’s engagement in economic activities and access to edu-
cation. Most families decide whether a girl is allowed to work and study or not. This attitude is more
common in the regions. The situation is totally different in the capital city.
• Most women refuse to work because they have obligations towards family and childcare. According to
respondents, kindergartens do not provide a sufficient amount of time to become a working mom.
• There are no statistics on early marriages but the problem is present – especially in IDP communities.
• Sex selective abortions is common in the regions, most families cannot afford many children and choose
to select children by gender.
• Gender pay gaps are also present in the region. Women get lower salaries compared to men.

Youth

• Youth migration is also an issue in the region. The youth population can be divided into two groups –
those who continue their studies in higher education institutions in Baku or abroad and those who stay
in the regions and are involved in family businesses. Those who get higher education do not tend to come
back and continue to work in Baku or abroad.
• Very few people get scholarships from abroad in Agstafa, moreover most of the young people do not
apply to the education institutions abroad because of conservative attitudes of the family.
• Youth centers are present in the region, but they do not meet its real function. Centers are mostly used
by boys who use computers for entertainment purposes. Although girls are allowed to participate in the
operation of youth centers, social perceptions hinder them from actually getting involved in the process.
Girls also do not participate in events organized by youth centers. This attitude is mainly common in the
regions. In Baku there is no formal or informal restrictions for the participation in public events based on
gender however.
• The language barrier is an important issue in the region. Most young people do not speak English well.
The Russian speaking population are mainly older people.

62
Education

• Despite the fact that there are higher education institutions in Ganja-Gazakh region the quality of edu-
cation is moderately low. The Gazakh University does not provide enough qualification for their students
to get the well-paid jobs.
• Receiving a higher education diploma is considered a must, however, the knowledge and the quality are
not regarded as an important factor. Education at the school level is considered good and satisfies the
local requirements.
• Vocational education is unpopular. People apply for vocational education centers only in cases of failure
to enter the University. Ganja has several vocational centers specializing in handcrafting (knitting,
sewing). Agstafa also has private vocational centers mostly offering art specializations (music school,
knitting and sewing)

EU integration and cross-border cooperation

• EU integration and the cooperation level with the cross-border region is low. Although people have the
will to cooperate, no real actions are taken in this regard.
• There are no cooperation mechanisms at the local government level. Local government authorities from
the cross-border regions do not communicate and collaborate to achieve joint solutions for the common
problems of their regions. On the other hand, Gazakh is the twin city of Lithuania, which supports the idea
that such connections are possible.
• Despite the advantage of being a bordering settlement, Gazakh and Agstafa are still very poor. That situ-
ation could be improved by enabling cross-border trade relationships. There was an unofficial market in
a neutral zone between the borders where local people could exchange their products, it also supported
the development of informal relations among people. However, the market was closed due to the suspi-
cion of trade in illegal goods.
• The imposition of legal requirements and customs procedures reduce incentives for cross-border trade.

63
COMPARATIVE ANALYSIS
GAZAKH-AGSTAFA COOPERATION AREAS GARDABANI-SAGAREJO

Strengths Strengths

Productive land Productive land


Natural Resources Touristic sites (not in Gardabani but near areas)
Attractive Landscape Closeness to Tbilisi
Developed Infrastructure (hotels, Guesthouses) Existence of near marketplaces (Rustavi, Lilo)
Young Labor Force Gasification and electrification of villages
Young Employees in Public Sector Favorable business environment
Transparent customs system and regulation

Weakness Weakness

Unskilled of labor force EXPANSION OF TRADE RELATION- Underdeveloped infrastructure (irrigation, road)
SHIPS
Lack of entrepreneurial skills Underdeveloped tourism infrastructure (Guesthouses public
Lack of modern technologies infrastructure)
ESTABLISHMENT OF VALUE CHAIN
Low economic development compared to capital city Small lands, inefficiency of production
IN FOOD PROCESSING INDUSTRY
Weak education sector No processing factories
Lack of computer literacy Low level of youth initiatives
Lack of vocational schools in Gazakh and Agstafa JOINT VOCATIONAL EDUCATION Low participation of women in economic activity in ethnic minorities
CENTERS
Lack of knowledge to engage in international trade Lack of entrepreneurial skills
Absence of processing factories Unwillingness to meet international standards to access export
COOPERATION IN TOURISM
Low participation of women in economic activity markets
Absence of cooperation mechanisms between local government Absence of cooperation mechanisms between local government of
of cross border regions VALUE CHAIN IN CONSTRUCTION cross border regions
INDUSTRY
Absence of vocational education centers Lack of vocational education centers
Lack of Youth Initiatives Lack of skills to adopt modern technologies in business
Lack of skills to access financial support and funding programs JOINT EFFORT TO THRIVE IN EU Low level of computer literacy
Language barriers EXPORT MARKET Lack of skill to develop business plans and proposals for accessing
donor and government funding
Low integration of ethnic minorities living in rural areas
EXPERIENCE SHARING IN PUBLIC
Language barriers
SECTOR REFORMS

COOPERATION AT LOCAL GOVERN-


Opportunities MENT LEVEL Opportunities
DEVELOPMENT OF TRANSPORTA-
Governments focus in agriculture and in tourism development in Development of manufacturing and food processing industries
TION ROUTES
regions Government’s focus to the regional development (Agriculture and
Potential of export in construction materials Tourism)
Increase in cross-border cooperation due to customs system JOINT MANAGEMENT OF Usage of transportation routes for the development of cross
reform CULTURAL HERITAGES LOCATED IN border cooperation
CROSS-BORDER AREAS (GAREJI,
Availability of transportation routes (railroad, Ganja Airport, JANDARA LAKE) Strong background of economic and diplomatic relations with
highways) Azerbaijan
Strong background of economic and diplomatic relations with Cooperation in Agriculture and Tourism industry
Georgia USAGE OF ONLINE RESOURCES TO Strengthening business sector by implementing government and
ESTABLISH PARTNERSHIPS AND international donor projects
DEVELOP BUSINESS Possibility of Bio Production development
Government support to vocational education
Internetization project for increasing access to digital technologies
in regions

Threats Threats

Youth Migration Instability in business environment


Low involvement and interest in government initiatives Low involvement and interest of local population in government
High influence of government in private and public organizations initiatives
Inefficiency of Government Reforms No will for cooperation from Azerbaijani side
Deterioration of business environment due to possible Youth Migration
escalation of frozen conflicts
Low interest in local government in developing the cross border
cooperation

64
Recommendations

Considering the existing challenges and the analysis of the strengths and weaknesses of cross-border
regions in Azerbaijan and Georgia, the following recommendations should be taken into account to
address the challenges the cross-border regions are facing today and should be used to build a strong
platform for the development of close ties and enhance the cooperation between the cross-border
regions of Azerbaijan and Georgia.

• National governments should concentrate on the expansion of the cooperation area, with particular
focus on trade diversification and the development of export-oriented industries. Azerbaijan and Georgia
should join their resources to establish new export opportunities and increase the competitiveness of
local products at the international market
• The measures applied by the Anti-Corruption Commission resulted in the improvement of the business
environment and a reduction in corruption within the country. Despite these successes, Azerbaijan must
continue the reforms to help improve the business environment and eliminate corruption to sustain the
results over a long period of time.
• Both countries should develop a strong communication strategy with target groups, in particular with
populations living in rural areas and the regions to ensure the on-time provision of information, on-going
reforms and results achieved through the reforms to avoid misunderstandings and misperceptions
among the population
• National government should continue to actively communicate with international organizations and
support them in implementing the projects that have high importance for the socioeconomic develop-
ment of the regions
• Local government engagement and the development of partnerships between the local government
authorities of cross-border regions in Azerbaijan and Georgia is a crucial part of strengthening cross-bor-
der cooperation between the countries. Local government authorities have a more clear understanding
of the challenges and opportunities existing within the region and also have more efficient communica-
tion tools with the local population that will make a valuable contribution to establishing primary links
with the cross-border regions and develop strong partnerships among local business entities and people
living in the target regions
• It is important to develop cooperation mechanism using modern ICT technologies and apply other
policy measures to help business entities operating in the neighboring regions of Azerbaijan and Georgia
establish primary links and develop strong partnership in the areas of their work.
• National governments, with the active engagement of local government and international donor organi-
zations, should promote the development of the food processing industry in target regions, which will
reduce the dependence of countries on imported food, increase their food security and also promote
local products, increase economic activity in the regions and result in growth of income among the local
population
• National governments with the active engagement of local government and international donor organi-
zations, should promote the development of vocational education centers and vocational training
programs with a particular focus on increasing the entrepreneurial skills among the local population that
will support the enhancement of employment possibilities.
• National government, local government, international donors and private sector shall join forces and
apply practical measures to support the adoption of ICT and modern technologies by local business enti-
ties to increase the productivity and sales.
• National and local government should work on the development of public infrastructure and make it
more visually attractive and convenient for international visitors.
• Azerbaijan and Georgia should develop mutual management mechanisms for shared cultural heritage
and natural sites that have large tourism potential.
• National and local government, international donor organizations and NGOs should apply measures to
encourage women’s participation in economic activity and girls’ participation in local youth initiatives.

65
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66
Contact Information
Civil Development Agency (CiDA)
1 Megobroba Ave., 3700 Rustavi, Georgia
+ 995 591 211 811
+ 995 341 258 8 22
www.cida.ge
yes.network@cida.ge

West-Resource Public Union on Civil


Society Development Support
Azerbaijan, Gazakh city, A.Suleymeanov str. 1st turning, house 7
+994 222 954 067
+994 503 202 076
www.garbresurs.org
yes@garbresurs.org; wesresgaz@gmail.com

2018