May. 5, 2013
Despite Azerbaijan's deep involvement in the oil and gas industry, the country's ICT sector has blossomed as the second highest recipient of FDI. In January, President Aliyev signed a decree declaring 2013 as the “Year of ICT." The Ministry of Communications and Information Technologies was mandated to prepare a plan of measures in relation to this plan, and submit it to the President by February 2013. In an interview with the press, the Minister of Communications and Information Technologies, Ali Abbasov, stated that, “President Ilham Aliyev declared the ICT sector as a priority field and emphasized that the future of the Azerbaijani economy will be directly related to this field," adding,“the transition from Azerbaijan's historical resource base to the technological and innovative economy is a vital issue." In 2012, the ICT sector generated 1.9% of Azerbaijan's GDP, and has registered an average annual growth rate of 25%-30% over the past decade. In 2012, the growth rate was 18.2% and the volume of the sector exceeded €1.5 billion.
In late 2011, President Aliyev announced a new development concept, “Azerbaijan-2020: A View into the Future," with the main aim of increasing Azerbaijan's GDP two fold through the development of the non-oil sector. According to the plan, the country is working todiversify the economy by “turning black gold into human gold." Minister Abbasov also explained that “revenues from the ICT sector are expected to reach $8 billion-$9 billion by 2020, compared to $1.7 billion in 2011."
Mobile phone penetration reached an all-time high in 2012, at a rate of 115%, well above the world average of 80%. This can be attributed to the increasing number of subscribers who own several different types of handsets. According to the CEO of Bakcell, Richard Shearer, “We have seen significant growth in data transferred on our network. Data is a very large component of our overall traffic mix. Customer numbers for mobile broadband and mobile internet are increasing at an exponential rate."
Meanwhile, fixed telephony penetration has seen less impressive results, with the volume of traffic declining by between 30% and 35%, according to the CEO of Aztelekom. This situation is further exacerbated by the fact that a large proportion of the population living in rural areas tends to be mobile-only users.
The IT climate in Azerbaijan is poised for further growth. Minister Abbasov launched the Azerbaijani Information and Communication Technologies Development Fund in January 2013 in order to finance large projects within the sector. The AZN15 million fund is to be financed by the state budget and will put an emphasis on science and technology startups.
Fixed-line growth has been somewhat stunted by the poor telecoms infrastructure carried over from the country's Soviet past. However, the fixed-telecoms sector in Azerbaijan had a penetration rate of 18% in 2012. According to Kent McNeley, CEO of Nar Mobile, “The development of fixed-line infrastructure was not a huge priority in the former Soviet states, and so when mobile telephony was introduced, it was an easy way to expand and reach people."
Today, the vast majority of fixed lines are located in urban areas. The low fixed-line penetration rate in urban areas stems from the ease of access to mobile telephony and the fact that almost 48% of the population live in rural areas that have little access to the fixed network. The country's fixed telephony sector is mainly controlled by the two state-owned entities: Aztelekom and Baktelekom, which together own a 93% market share.
The Azerbaijani mobile telephony sector is controlled by three main players: Azercell, Bakcell, and Nar. Azercell is the oldest mobile operator in the country, having been founded in 1996, and enjoys a 53% market share. As much as 70% of the revenues in the ICT sector are generated by mobile communications. For an emerging market like Azerbaijan, where nearly half of the population lives in rural areas, distances are significant, and with fixed-line penetration under 20%, accessibility is the most important benefit that mobile communications can bring to people. Further innovation in the sector is expected to continue at the same rate. Kent McNeley, CEO of Nar Mobile stated, “We are one of the first companies in the CIS to implement in-air phone calls in cooperation with Swedish company 'OnAir.' We have an agreement with Azerbaijani Airlines (AZAL) to provide our customers with mobile communication services while flying on its newer aircraft." This is unique given the fact that AZAL will be among the first 20 airlines in the world to offer such a service. Growth in the sector has remained stable, at around 11.1%. The total revenue from mobile services in Azerbaijan stood at $87.6 million as of January 2013.
The broadband sector continues to look very promising for Azerbaijan, a country that has maintained its position as the leader in the CIS region in terms of broadband penetration. Penetration increased from 65% to 70% in 2012. In addition to this, AZN103 million has been allocated from the 2013 state budget for the implementation of a broadband internet development project. This will lead to increased internet access for the Azerbaijani population, especially for those who live in regional areas, and thereby increase the total internet penetration in Azerbaijan to 85%. Azerbaijan is expected to reach the internet penetration level of a developed country by 2017.
Understanding the necessity for the further promotion of the ICT sector, Minister Ali Abbasov launched the Azerbaijani Information and Communication Technologies Development Fund in January 2013 in order to finance large projects. The AZN15 million fund is to be financed by the state budget and will put an emphasis on science and technology startups by allowing Azerbaijani companies to gain access to both monetary and fiscal benefits. The importance of ICT startups has also been emphasized. In January 2013, Eldar Abbasov, Managing Director of InfiPro, organized Azerbaijan's first-ever competition for ICT startups. The aim of this program is to create successful, “home-grown" Azerbaijani companies, which would then demonstrate Azerbaijan's potential to the world and subsequently attract more investment. Additionally, the government is investing heavily in technology parks around the country, the largest of which is to be located in Sumgait and close to Baku. The Ministry of Communications and Information Technologies is also working on incentive programs geared toward providing ICT companies with special privileges in terms of taxation and customs, which will further solidify Azerbaijan's role as a technology-friendly country.