Trade & Logistics Centers
Trade & Logistics Centers
Business Model Description
Construct or operate trade and logistics centers connected to key land, rail, and marine trade routes that offer warehousing, cold-storage, transport, and transit customs services from a single-point to ensure proper storage of products including agricultural, pharmaceutical or industrial goods, and timely and safe delivery to markets.
Expected Impact
Spur internal economic activity and take advantage of the country's geographic position in linking local producers and farmers to markets while improving the quality of both imported and exported products through proper handling and storage services.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Azerbaijan: Baku
- Azerbaijan: Nakhchivan
- Azerbaijan: Absheron - Khizi
- Azerbaijan: Central Aran
Sector Classification
Infrastructure
Development need
Even though infrastructure development fares well compared to neighboring countries, expanding and raising the quality of existing assets such as road, water, waste and sanitation services is essential to support economic diversification. Increased efforts are needed to maintain and modernize the existing road and rail network, while water resources are threatened by the heavy oil industry and untreated sewage and industrial waste (1, 2, 3).
Policy priority
Strategic Roadmap for National Economy Perspective 2016 highlights investments in high-quality infrastructure to position Azerbaijan as a regional hub by 2025. Azerbaijan 2030: National Priorities for Socio-Economic Development lists development of international and regional transport corridors and building of modern infrastructure to harness country-wide economic potential among its key goals (4, 5).
Gender inequalities and marginalization issues
Regional differences in the delivery of infrastructure services are significant, with rural areas being neglected in favor of the capital city region, severely hampering their economic prospects (2). Women spend on average three times as much as men on unpaid domestic labor. Due to the deterioration of roads, water and sanitation systems women spend longer hours to finish both paid employment and domestic tasks (2, 5).
Investment opportunities introduction
Azerbaijan’s planned and current transport infrastructure projects reached USD 7.5 billion in 2019, while accounting for 15% of total greenfield FDI, among the highest in the region. In line with government objectives to diversify its economy significant opportunities exist for freight forwarders, logistics/supply chain developers and transport equipment investments (6, 7).
Key bottlenecks introduction
Budgetary constraints due to high capital requirements for infrastructure development and maintenance, despite ambition to diversify the economy, continuing emphasis on hydrocarbon exports and associated groundwork, dominant role of the public sector for providing infrastructure, and uncompetitive tariffs and utility prices are among the key challenges limiting private sector participation in the sector (2).
Infrastructure
Development need
Azerbaijan's capital stock per capita is among the lowest among the former Soviet countries, indicating a need for increased investments in infrastructure including road, rail and key trade structures. The majority of the country's infrastructure was inherited from the former Soviet Union, and although large investments were made in upgrading electricity supply, deficiencies remain for transportation infrastructure (1, 2)
Policy priority
Strategic Roadmap for Development of Logistics and Trade sets medium and long-term policy targets by 2025 to position Azerbaijan as a regional logistics and trade hub. The State Programme on Socio-Economic Development of the Regions (2019-2023) includes the goal to realize the country's transit potential between Europe, Caucasus and Asia and strengthen rail and highway infrastructure (8, 10).
Gender inequalities and marginalization issues
The trade and transportations sectors are the second largest employer for women at 18.2% of women employment, yet women remain employed in low-pay tranches as evidenced by their relatively smaller contribution to GDP. Transport infrastructure is pivotal in enhancing regional cooperation and supporting the domestic economy by linking rural population which suffer from lack of well-paying jobs and limited infrastructure, to urban and international markets (11).
Investment opportunities introduction
Azerbaijan's investment promotion agency lists logistics centers among investment opportunities in infrastructure, particularly in relation to the agriculture sector (9). The government plans on attracting AZN 3160 million (USD 1,858 million) from public and private resources to realize its goals under the Strategic Roadmap for Logistics and Trade (8).
Key bottlenecks introduction
Small supply of qualified personnel in logistics and transport infrastructure, low potential load bearing capacity of existing transshipment vehicles, delays in construction and completion of infrastructure projects, currency fluctuations and high cap-ex requirements, and high-level of competition in trade routes are cited among the key constraints facing investors (8).
Engineering and Construction Services
Pipeline Opportunity
Trade & Logistics Centers
Construct or operate trade and logistics centers connected to key land, rail, and marine trade routes that offer warehousing, cold-storage, transport, and transit customs services from a single-point to ensure proper storage of products including agricultural, pharmaceutical or industrial goods, and timely and safe delivery to markets.
Business Case
Market Size and Environment
> USD 1 billion
230 million tons of bulk cargo and containers can be treated through the establishment of logistics services (8).
The Republic of Azerbaijan's Strategic Roadmap for Development of Logistics and Trade states that a total of AZN 3.16 million (USD 1.86 billion) of investments from public and private resources to realize proposed actions including strengthening role as logistics and trade hub, completion of new port of Baku, establishing logistics centres and increasing share of private sector (8).
Of total required investments for the Strategic Plan, improving logistics operations requires AZN 1400 million, (USD 823.5 million) and establishing logistics centers in Baku and throughout the country necessitates AZN 430 million (USD 252.9 million) (8).
The amount of additional trade volume that Azerbaijan could capture by tapping into East-West and North-South trade corridors is estimated at 230 million tons of dry bulk, liquid bulk and containers (8).
Indicative Return
15% - 20%
10% - 15%
5% - 10%
Absheron Logistics Center, the first private logistics center in the country, experienced a net profit of AZN 1.64 million (USD 963,800) for the reporting period ending in December 2021. The operating income was reported as AZN 24,169,093 (USD 14.2 million) and cost of sales as AZN 22,063,807 (USD 12.98 million), resulting in an estimated gross profit margin of 8.7% (18).
Investors providing financing to logistics center projects in Azerbaijan and the region have referred to returns in the 15-25% range in terms of internal rate of return and 10-15% for return on investment. Accordingly, investors in trade and logistics centers can achieve a gross profit margin up to or higher than 25% (19, 20).
Investment Timeframe
Medium Term (5–10 years)
Investors providing financing to logistics center projects in Azerbaijan and the region, including two state-owned funds, report a medium-term payback period (19, 20).
Global examples reveal similar payback periods, including a case study from Turkey which featured seven years to achieve positive returns on a logistic hub investment in the Black Sea region (21).
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Market - Highly Regulated
Market - High Level of Competition
Business - Supply Chain Constraints
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Azerbaijan has a strategic geographic location at the center of multiple trade routes including the east-west corridor connecting Europe to the Caucuses and Asia, and the north-south corridor between the Russian Federation and Iran. Yet, trade and logistics sector remains undeveloped with a mean LPI (Logistics Performance Index) score of 2.45 between 2012-18, and ranking of 123 among 167 countries (22, 23).
Logistics facilities remain critical for connecting the local economy to global markets, while serving the agricultural sector. Although Baku has modern cold storage facilities, they remain standalone and disconnected from each other. Agricultural areas outside of the capital lack readily available cold storage facilities (24).
Limited cold storage and warehousing infrastructure force farmers to sell their produce directly from the field at lower prices limiting value addition and export opportunities for local producers (26).
Gender & Marginalisation
Despite large-scale investments on the transportation network, roads in rural regions remain in poor condition especially in remote regions, increasing the cost of transportation for services and goods (25).
Even though there are relatively smaller gender gaps in the labor market, women tend to work lower-wages whereas men dominate better renumerated fields such as transport and storage with men earning 35.2% more than women on average (27).
Expected Development Outcome
The improvement of the trade and logistics sectors will help spur internal economic activity while capitalizing on the country's geographic position at the hub of trade and travel routes, and global demand for agricultural products (22).
Establishment of logistics centers will advance the country's ambition to become a major regional logistics hub, and enhance the diversity and traffic of container traffic in railways and ports contributing to the development of non-oil sectors in the country (8).
Enhanced logistics infrastructure will encourage multimodal transportation which has proven environmental benefits related to energy efficiency (22).
Gender & Marginalisation
Expansion of logistics centers across the country will help connect local producers and farmers to better storage and handling infrastructure including cold-storage and warehousing, enabling access to international trade opportunities.
Women who are primarily involved in low-paying jobs can expand employment opportunities in the storage and transport sector where 18.2% of employees were already women in 2019 through the development of logistics and trade centers (12).
Primary SDGs addressed
2.3.2 Average income of small-scale food producers, by sex and indigenous status
Average monthly nominal income of the people employed in agriculture of which 90% are privately-owned small farms, forestry and fishing is 456.9 AZN in 2021 (268 USD) (41, 42).
The 2022-2026 Social and Economic Development Strategy of Azerbaijan sets a target of 10% growth in overall income (3).
12.3.1 (a) Food loss index and (b) food waste index
Overall food waste per capita was 136.331 kg in 2019, of which 15.6402 was from the retail sector (28).
N/A
9.1.2 Passenger and freight volumes, by mode of transport
Freight turnover by rail was 5,086 million tonnes, 1,712 million tonnes by sea and 2,794 million tonnes by road in 2021 (38).
The Strategic Roadmap for Development of Logistics and Trade states that the country can tap into 230 million tons of dry bulk, liquid build and containers in its regional trade corridors (8).
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
Gender inequality and/or marginalization
Corporates
Outcome Risks
Unless energy efficient measures are adopted, increased logistics activity may lead to higher green gas and CO2 emissions leading to negative environmental impacts (30).
The construction and upgrading of new logistics facilities may result in environmental degradation including land degradation and marine pollution unless proper mitigation measures are adopted.
Impact Risks
External weather factors impacting sea-routes, relatively smaller volume of freights in the North-South trade corridor may limit arrivals to Azerbaijan logistics facilities, limiting expected impact of logistics and trade facilities (8).
Deficiencies related to the connecting transport infrastructure including low speed of existing cargo trains or delays in border crossings may reduce competitiveness and positive impact of logistics centers (8).
Lack of skills management and know-how around customs procedures and logistics management may hinder efficiency of trade facilitation services unless appropriate training is provided (22).
If logistics and trade centers remain concentrated in the capital, impact will be limited to urban regions limiting the access to rural residents and producers to storage and handling services.
Impact Classification
What
Improving trade and logistics infrastructure will spur internal economic activity and take advantage of the country's geographic position in linking local producers and farmers to markets.
Risk
External weather and trade patterns can limit expected impact, rural producers and consumers may remain excluded if infrastructure is limited to urban and industrial centers.
Contribution
In addition to the country's geographic location enabling increase in trade volumes, trade and logistics center investments will optimize the country's advantage and link local producers to international value chains.
Impact Thesis
Spur internal economic activity and take advantage of the country's geographic position in linking local producers and farmers to markets while improving the quality of both imported and exported products through proper handling and storage services.
Enabling Environment
Policy Environment
Strategic Roadmap for Development of Logistics and Trade, 2016: Sets medium and long-term policy direction for economic development in logistics and trade by 2020-25 and beyond, including strengthening the country's role as a regional logistics and trade hub, improving logistics operations and establishing new centers, increasing share of private sector involvement (8).
State Programme on the Development of the Regions, 2019: highlights the importance of the development of logistics centers for the improvement of food security and diversification of the non-oil sectors in the country, outlining target regions for such establishments including Sumgayit and Absheron (10).
Social and Economic Development Strategy, 2022-2026: under the target to diversify and improve transport and communication linkages, has the goal to capture the country's transit potential and developing trade and logistics and adopt policy measures to emphasize country's role in international transport corridors (3).
Azerbaijan 2030: National Priorities for Social Economic Development, 2021: highlights the goal to develop trade and economic ties to enhance the country's role in the South Caucasus, liberalizing trade practices and harnessing regional transport and logistics corridors (5).
Financial Environment
Financial incentives: The Entrepreneurship Development Fund (EDF) under the Ministry of Economy offers concessional loans for projects under eligible sectors including logistic services and warehouse services, with soft loans for up to AZN 10 million (USD 5.8 million), at a 5% interest rate and 10 year term, and interest subsidy and guarantee mechanisms (35).
Fiscal incentives: The Alat Free Economic Zone, located next to Baku International Sea Trade Port offers investors exemptions from taxes including VAT and income tax and customs duties on imports and exports as well as a self-regulated arbitration processes for logistics operators operating in the zone (6, 36).
Other incentives: The European Bank of Reconstruction (EBRD) has provided West & East Forward LLC and Alat Bey Industrial Development (AFEZCO) a senior secured loan up to USD 4 million for the construction of a cold and dry warehouse with 5,000 tons of storage capacity to boost Azerbaijan's transit capacity (37).
Regulatory Environment
Customs Code of the Republic of Azerbaijan, June 2011: determines the legal, economic and institutional basis of customs affairs, including general procedures and rules involving import, export and transit of goods and the associated vehicles, outlining the rights and obligations of those involved in customs operations (31).
The Law on Customs Tariff No. 687-IVQ, June 2013: establishes the rules around formulation and application of customs tariffs and the movement of goods across the Republic of Azerbaijan (32).
Decree No 1732 on List of Raw Materials and Goods Exempted from VAT Payment During Importation, February 2023: details the raw materials and material exempted from import value added tax covering agricultural inputs, construction, chemicals and transportation sectors (33).
Resolution of the Cabinet of Ministers No. 500, November 2017: sets the commodity nomenclature of foreign economic activity, rates of import customs duties and rates of export customs duties (34).
Marketplace Participants
Private Sector
WE Forward, Alat Bay Industrial Development AFEZCO, Absheron Logistica LLC, Azersun, Shamkir Agropark, AVT Logistics LLC, Milli Broker, Baku International Sea Trade Port, Azerbaijan Caspian Shipping Company, Azerbaijan Railways, Azerbaijan Airlines.
Government
State Customs Committee, State Oil Fund of Azerbaijan, Entrepreneurship Development Fund, Azerbaijan Investment Company, Ministry of Digital Development and Transport, Ministry of Economy, Ministry of Finance.
Multilaterals
World Bank Group, Asian Development Bank, European Bank of Reconstruction and Development, International Monetary Fund, European Union, Organization for Cooperation of Railways, OECD, Black Sea Economic Cooperation, European Investment Bank.
Non-Profit
Azerbaijan International Road Carriers Association (ABADA), Azerbaijan Entrepreneurs Confederation (ASK).
Target Locations
Azerbaijan: Baku
Azerbaijan: Nakhchivan
Azerbaijan: Absheron - Khizi
Azerbaijan: Central Aran
References
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