E-RISE

Azerbaijan 2016 | FINANCE | FOCUS: E-COMMERCE

The e-commerce industry in Azerbaijan has been steadily rising, and has at least doubled in volume for the past two years in a row.

Additional emphasis is placed on rapidly emerging markets as Azerbaijan endures a decline in oil and gas prices. One specific market has been growing at an incredible rate, attracting the attention of investors and businesses alike. E-Commerce has posted record growth in the country and this trend does not appear to be slowing down any time soon.

To place the growth of this industry in perspective, e-commerce has doubled its volume over the past year alone, posting a record AZN8.9 million in 2014. That same year, the e-commerce market in Azerbaijan more than doubled. With two consecutive years of phenomenal overall growth, the e-commerce industry carries with it implications that go much deeper than a simple retail trend. Accordingly, almost 97% of online transactions in Azerbaijan were to purchase manufactured goods. The e-commerce growth that has taken place in Azerbaijan thus far represents only the first phase of thorough, country-wide implementation, as seen in e-commerce development trends in other countries. Although e-commerce still comprises a comparatively small area of the AZN15.9 billion retail sector, the focus is on the future. This is still the first phase of e-commerce development in Azerbaijan, meaning the future will provide significant opportunities for expansion and increased business prospects. For example, it took over eight years for this type of B2C e-commerce market to grow from 2% to 6% of the retail sector in the US. With the current domestic growth rate of e-commerce, this market is poised to reach 3% of the total retail sector of Azerbaijan within 5 years.

This e-commerce movement comes at an interesting time in Azerbaijan. In 2008, the percentage of Azerbaijani internet users were 17% of the total population. By 2013, this number had jumped to over 60%. Azerbaijan ranks 48th in the world in terms of fixed broadband connections per 100 residents, even besting countries such as Russia, Poland, and Turkey. In addition, mobile phone penetration currently sits at 110% in Azerbaijan, an important figure when considering businesses are offering e-commerce applications to consumers. More importantly, mobile broadband connections in Azerbaijan rank 46th in the world, which has interesting implications for the mobile future of e-commerce as well. The ICT sector of Azerbaijan in general has been exploding, averaging a 25-30% expansion rate every year since 2005

The next two phases of e-commerce implementation will take place after the culture of online payments and shopping becomes more ingrained and established as an ordinary practice in Azerbaijan. Accompanying Phase II, and already slowly creeping into Azerbaijan, is that more companies will start to offer e-commerce solutions to customers in order to cater to new needs. Apart from standard online retail shopping, which is the overwhelming juggernaut in the current e-commerce market, an example of growth is the purchasing of movie tickets online. GoldenPay, a key company that is driving the e-commerce market in Azerbaijan, recently began offering this service for movie tickets. Similarly, more businesses in the food industry are providing the option of ordering food online. While this practice already exists in Azerbaijan, most customers still prefer to pay in cash when the food is delivered rather than pay online. Thus, businesses have been increasing the amount of e-commerce services as it grows in popularity, which will continue to increase as more people adopt its use.
In the final phase, from the perspective of consumers, e-commerce will become increasingly pervasive in the lives of Azerbaijanis. As more people begin to use e-commerce in everyday life, they will begin to expect a business to provide online services. Essentially, people's increased use of available online services will necessarily increase the amount of businesses that offer it, so long as businesses wish to remain competitive. As the progression continues, there will likely be a rise in the number of business-oriented mobile applications to facilitate e-commerce activity, as we are already seeing. This is especially relevant due to Azerbaijan's preferable mobile phone situation. Consumer expectations for online services will act as a driving force for the e-commerce industry. The year 2016 is merely part of the rise of what is shaping up to become an important domestic industry.