AZERBAIJAN INVESTMENT PROMOTION

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AZERBAIJAN INVESTMENT PROMOTION AND ADVISORY
FOUNDATION
Your Reliable Guide in Azerbaijan
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Azerbaijan Investment Promotion and Advisory
Foundation

• Azerbaijan Investment Promotion and Advisory
  Foundation started its activities on July 22,
  2003.

Main goals of the Foundation are

• Achieve balanced development of the economy of
  the country both from sector and regional
  perspectives
• Implement measures necessary for the attraction
  and promotion of inflow of investments for
  creating within framework of the poverty
  reduction strategy new jobs in the country, and
  particularly in its rural regions.

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Azerbaijan Investment Promotion and Advisory
Foundation

• One of the activity directions of the Foundation
  is presenatation of economic data by sectors and
  regions.
• Hereby we kindly present brief info on the
  agricultural sector of the economy of the
  Republic of Azerbaijan.

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Agriculture the Republic of Azerbaijan General
information

• Development of one of the traditional and main
  fields of Azerbaijan economy i.e. agriculture and
  process industry are factors seriously affecting
  socio-economic situation in the country.
• more than half of country population lives on
  rural area.
• 40 of active labor force of the Republic. Thus
  a/c sector is the main employer in Azerbaijan
• agricultural sector accounts for 13,1 of GDP

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Agriculture of the Republic of Azerbaijan General
information

• Starting from 90s of the last century and in the
  first years of the XXI century farming and a/c
  industry are characterized by independent
  activities in the new political, social
  economic conditions.
• transition to market economy
• liquidation of central planning system in
  farming
• conducting of agrarian reform in the countryside
• privatization of formerly public land and
  property
• legalization of product sale at market price
• overall liberalization of economy.

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Agriculture of the Republic of Azerbaijan General
information
During the Soviet time the country was a flagman
of agricultural development among the former
soviet republics. Notwithstanding somewhat
upward distortion inherent in the economic system
of USSR the figures demonstrate to some extent
the level the sector achieved. Azerbaijan was one
of the leaders in the production of
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Agriculture of the Republic of Azerbaijan General
information
Following the decline of early 90-s starting
from 1995 the agricultural sector of the country
started to gradually recover. Ever since the
sector demonstrates stable growth.
Agriculture products (all categories of holdings)
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Agriculture of the Republic of Azerbaijan General
information
If during 1992-1995 years the volume of gross
domestic production in agriculture decreased
annually on average 12 since 1996 the index
increased every year in 2002 - 6,4 in
2003 - 8 . In 2003 in comparison with 2002
the volume of stock-raising products grew by 6,3
, crop production by 8,3 .
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Agriculture of the Republic of Azerbaijan General
information
The main reason of agricultures particular
weight loss in countrys GDP during last 5 years
is characterized by development of other spheres
of national economy and especially oil gas
sector
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Agriculture of the Republic of Azerbaijan General
information
Agricultural yield (thousand tons)
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Agriculture of the Republic of Azerbaijan General
information
Despite emerging of a positive trend in covering
domestic demands (import replacement) there are
still gaps and also need in development of the
a/c export potential of the country. It is
important to emphasize that the structure of the
agricultural sector has changed substantially due
to the new environment e.g. loss of most of the
former USSR markets, more emphasize on domestic
needs, cessation of central planning and command
distribution system, lack of fertilizers and
virtually no state subsidies for more than a
decade. As the result decline in several
positions was very substantial while some other
production grew substantially. As demonstrated
in the charts below the most affected by the new
environment were the sectors requiring most
capital investments and state support.
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Agriculture of the Republic of Azerbaijan General
information
The ban for production and sale of spirits in
the end of 80s and beginning of 90s in the USSR
affected production of grape and vine.
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
The volume of grain production increased in all
regions, especially in Guba-Khachaz, Nakhchivan,
Ganja-Gazakh, Absheron economic regions. In
Dagliq Shirvan economic region production of
grain, barley and vine per capita substantially
exceeded average level in the Republic. Zaqatala
economic region grain, barley and
fruits, Ganja-Gazakh potato, vegetables,
fruits and vine, Nakhchivan barley,
vegetables, truck crops, fruits and
vine, Kur economic region grain, barley and
truck crops, Middle Kur grain, barley,
vegetables, truck crops and
fruits, Lankaran-Astara production of potato
and vegetables greatly exceeded mean level
by Republic.
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
By the end of 2002 agriculture sown area
increased in comparison with 2001 by 60 thsd
hectares or 5,2 . In 2002 total sown area of
agriculture plants formed 1222,9 thsd hectares,
including cereals and grain crops - 821,9 thsd
hectares (increase 8,0 ) potato - 60,05 thsd
hectares (increase 8,8 ) vegetables - 70,24
thsd hectares (icrease 5,8 ) truck crops -
30,36 thsd hectares (increase 5,2
) fruit-gathering - 87,56 thsd hectares
(increase 4,0 )
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan General
information
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Agriculture of the Republic of Azerbaijan Animal
breeding sector

• Animal breeding sector is dynamically developing
  for last decade
• distribution of privatized cattle stock from
  collective farms to inhabitants
• gradual rehabilitation of the activities of
  processing enterprises
• organization of exchange relations positively
  influenced increase in the volume of production.

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Agriculture of the Republic of Azerbaijan Animal
breeding sector

• By the end of 2002
• 99,2 of present cattle stock,
• 96,5 of sheep and goat,
• 77,3 of pigs and
• 83 of birds
• belonged to population and farms.

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Agriculture of the Republic of Azerbaijan Animal
breeding sector
Production of main livestock products (all
categories of agricultural holdings)
By January 1, 2004 there were 2241,8 thsd
cattles, 7280,1 thsd sheep and goats and this is
2,9 and 4,2 growth relatively to January 1,
2002.
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
Meat production (all categories of agricultural
holdings, carcass weight, thsd tons)
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Animal
breeding sector
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Agriculture of the Republic of Azerbaijan Import
and export of agriculture products

• Despite the advancement in supply in order to
  satisfy domestic demand by inclination of local
  farmers to corresponding market niches, in 2002
  in comparison with 2001
• the import of agriculture and food products
  increased by 1,7 to 234,9 mlns USD,
• the export of same products increased 34,1 to
  89,7 mlns USD.

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Agriculture of the Republic of Azerbaijan Import
and export of agriculture products
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Agriculture of the Republic of Azerbaijan Food-pro
cessing
The total volume of production in food-processing
sphere by the end of 2002 was 4,6 more than
that in 2001. The production increased
in meat - 5,5 , sausage products - 47,8
, milk - 4,1 , butter - 4,5
, margarine - 91 , tinned fruits
- 0,6 , vegetable oil - 47 , bread and
bread products - 1,2 , natural tea - 13,9 .
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Agriculture of the Republic of Azerbaijan Cotton-g
rowing sector

• Important role in agrarian sector of economy.
• Developed since 1970s. Large industrial
  potential.
• Peak cotton production was n 1981 - 831,2
  thousand tons
• with capacity of processing industry - 1
  million tons.
• Since 1989 cotton manufacture decreased year by
  year due to
• - unstable social and political situation in
  Azerbaijan,
• - the collapse of Soviet Union,
• - infringement of former trade relations.

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Agriculture of the Republic of Azerbaijan Cotton-g
rowing sector

• Basic directions of development cotton-growing
  (governments strategy)
• attraction of local and foreign investments for
  the development of cotton
• growing
• delivery of credit facilities to manufacturers of
  cotton
• implementation of actions for manufacture of a
  productive and high-quality
• cotton
• organization of insurance farms activity
• support for creation of pits for sale of raw
  material and ready made products
• after processing
• creation of a/c information services with the
  purpose of delivery of modern
• technology to cotton-growers, manufacturers,
  processors and marketing agents
• in the sector.

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Agriculture of the Republic of Azerbaijan Cotton-g
rowing sector

• Creation of following modern competent service
  spheres for development and increase of cotton
  production
• Agro technical service.
• Technique and leasing service.
• Agro chemical and biological conservation
  services.
• Creation of Association of Cotton-grower farms
  (with free acting private services under its
  auspices ).
• Creation of centralized terminal of cotton pit.

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Agriculture of the Republic of Azerbaijan Cotton-g
rowing sector
The programme of cotton planting and production
in Azerbaijan in 2002-2006 years
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Agriculture of the Republic of Azerbaijan Cotton-t
extile industry
Currently all cotton processing plant are
privatized. Raw cotton is directly purchased by
cotton cleaning plants. It shows that plant
owners are interested in processing sufficient
amount of cotton for appropriate price. The raw
cotton is a very important export good. In 1997
the share of cotton export was 62 in total
agricultural and agro-processing industry. This
ratio fell to 22 in 2001. Another vital point
is efficient cooperation with the spinning
industry of the country. Spinning mills are
currently can not compete with imported products
and the volume of goods sold decreases each year.
This situation also decreases the demand for raw
cotton and cotton refined from seeds. Thus the
pre-processing industry is not able to use the
potential of domestic market in full.
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Agriculture of the Republic of Azerbaijan Silkworm
breeding sector
Sericulture is one of the ancient craft forms in
Azerbaijan. Thank to its high quality Azeri silk
was always in the centre of attraction of
historians, farmers and merchants. In regions
such as Zangilan, Gubadli, Daglig Karabakh,
Jabrail, Fizuli and Agdam 1,100 tones of silkworm
were processed annually. The reasons of
depression in silkworm breeding sector are broken
ties with Ordubad silkworm opening plant as a
result of blockade of Nakichevan remaining of
Khankendi silkworm-opening plant under
occupation. The other reason is that the only
purchaser of raw silkworm Sheki-Silk Joint
Stock Company didnt cover the cost of products
purchased from head silkworm drying houses in
region during 1995-1996. As head silkworm drying
houses were not able to pay for silkworm seed
plants producing silk worm stopped their activity
(except Sheki Silkworm Seed Plant).
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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking

• Until 1990-s viticulture and winemaking complex
  occupied the major place in the countrys economy
  and was one of the most profitable sector in
  agriculture. It accounted for 27-30 of total
  profit.
• Destruction of saplings by former USSR government
• Loss of traditional markets
• Deterioration of equipment
• Led to crisis in the sector.
• Currently there are 126 pre-processing and
  processing enterprises (all private)
• Lack of domestic production of raw material is
  the reason half of them (circa 60) are not
  sufficiently effective

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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking

• Winemaking plants in Azerbaijan produce
• Vodka liqueur products
• Red table varieties
• Sparkling vine
• Brandy

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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking

• The processing plants are engaged in
• Pre-processing of grape
• Production of raw spirit
• Production of brandy alcohol
• Wine-making
• Bottling
• Winemaking is one of the sectors which has
  prolificacy capabilities. Investment put in one
  deciliter is able to give profit of 200-300 .
• During 70-80-s of last century as plants of the
  republic were capable to sell at USSR market,
  they had 200-300 profit.

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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking
Although collapse of the USSR led to loss of
markets for products of the winemaking industry
it played the main role in export of agrarian
industry products till 1998. The share of
alcoholic beverages in agrarian industry products
export was 50. The highest export
volume - 15,4 USD million (1997) Starting from
1998 export decreased and was 3 million USD in
2001.
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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking
However, the production in the sector grew
substantially due to mainly domestic consumption
and import replacement Production of spirits in
Azerbaijan, 1000 decalitre
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Agriculture of the Republic of Azerbaijan Viticult
ure and Winemaking

• Wine products of Azerbaijan achieved nearly 120
  medals in international exhibitions held in
  Spain, France, USA, Russia, Hungary, Denmark,
  Malta and Turkey.
• The main market for viticulture products of the
  country are CIS countries, in particular, Russia
  where Azerbaijani wines traditionally take
  substantial niche

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Agriculture of the Republic of Azerbaijan Governme
nt strategy

• The Government of Azerbaijan in addition to
  national treatment of foreign investor offers
  additional guarantees
• Guarantee against deterioration of legislation
• Guarantee against nationalization and
  requisition
• Guarantee of compensation of damages
• Guarantee of repatriation of profits
• Excellent legal normative base in a/c (more than
  70 laws, other normative acts and documents)

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Agriculture of the Republic of Azerbaijan Governme
nt strategy

• Establishing of market based economy since 1995
• carrying out of agrarian reforms in rural areas
• especially dissolution of sovhoz and kolhoz
  system
• distribution of lands
• distribution of livestock and property
• liberalization of product pricing
• privatization of processing facilities

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Agriculture of the Republic of Azerbaijan Governme
nt strategy

• There a no protective customs duties for the a/c
  production imported in Azerbaijan or non trade
  barriers in order to support local producers in
  a/c sector
• The subsidies to the a/c sector during the last
  decade were virtually non existent. However,
  approx. 20 mln USD in cheap credits are assigned
  from the state budget both in 2004 and 2005. The
  figure is likely to increase in the years to come
  in view of overall revenue growth

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Agriculture of the Republic of Azerbaijan Steps
taken by the Government

• 2239 kolkhoz, sovkhoz and interfarm enterprises
  were dissolved and their property and land were
  distributed among farmers at the 1st stage of
  agrarian reforms.
• This bold step that had no analogues either on
  territory of CIS or in the East gradually dragged
  out agriculture from the crisis of early 90-s and
  gave it a new life.
• As the result of agrarian reforms carried out in
  the country 1360 thousand hectares or 97.7 of
  1,392 thousand hectares planned to be distributed
  to 870 thousand households (or 3.4 mln people).
  other land was kept as municipal and government
  estate.

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Agriculture of the Republic of Azerbaijan Steps
taken by the Government

• In order to provide proper development of farming
  and entrepreneurship at privatized land
  agricultural producers exemption from current
  debts and giving long tax holidays at the 2nd
  stage of agrarian reforms began.
• Based on Law of Azerbaijan Republic About
  providing long-term tax concessions to farmers
  legal persons employed in agriculture (including
  industrial) were exempted from all taxes except
  land tax for 3 years since January 1 2001.
• At the same time farmers employed in agrarian
  production are exempt from taxes for 5 additional
  years since 2004.

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Agriculture of the Republic of Azerbaijan Steps
taken by the Government

• Financial assets for financial help to
  entrepreneurship subjects, including farms are
  planned in the state budget annually. While the
  amount of these assets was 13 bln manats (2,7
  billion USD) in 2002, this indicator came to 57
  bln manats (11,5 billion USD) in 2003. It is
  planned to provide 100 bln manats (20,3 billion
  USD) concession credit to entrepreneurs,
  including farmers, for each year 2004 and 2005.
• A number of important steps was made in respect
  to expansion of possibility to use alternative
  forms of financing (creation of compound credit
  unions, etc.)
• There are a number of credit organizations
  though, including those supported by foreign
  donors who run programmes of microfinancing,
  leasing of equipment small grants etc. in the
  agriculture.

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Agriculture of the Republic of Azerbaijan Steps
taken by the Government
As the result the 99 of production in the
agriculture of Azerbaijan is currently in the
private sector.
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Agriculture of the Republic of Azerbaijan Steps
taken by the Government

• Program of development of agrarian sector in
  Azerbaijan Republic in 2002 - 2006
• State Program on Producing high-quality and
  valuable tobacco in Azerbaijan Republic
• Medium-term programs for economic development of
  different sectors, including canning,
  wine-growing and wine-making, cotton-growing,
  sericulture.
• State Program on Social-Economic Development of
  the Regions (2004-2008)

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Agriculture of the Republic of Azerbaijan Steps
taken by the Government
Recently the volume of investments invested by
local and foreign businessmen, international
financial institutions increased as a result of
agrarian reforms privatization (reorganization
into joint stock companies) or of entities
processing meet, milk, bread, cotton,
fruit-vegetable, tobacco and tea and also due to
improvement of overall business climate Taking
into consideration and observing the
abovementioned steps international financial
institutions, World Bank, International Monetary
Fund also International Fund of Agriculture
addressed different projects for further
development of agrarian sector.
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Agriculture of the Republic of Azerbaijan Investme
nt Opportunities
Biggest enterprises with foreign investment in
food processing sector European Tobacco
(UK) - more than 51 million USD Caspian Fish
Co. (UK) - more than 56 million USD Baku
Castel (France) - more than 30 million USD
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Agriculture of the Republic of Azerbaijan Investme
nt Opportunities

• Wine and spirits production
• Ganja-Sharab-2 JSC, Baki Shampan Shrablari
  JSC
• Packing industry
• Guba-Konserv JSC, Miri-Pak and Most-Sanaye
• Cotton processing
• Jekot Company, MKT Production Commerce Firm
• Poultry production
• Siyazan-Broyler JSC, Mardakan-Broyler JSC,
  Davachi-Broyler JSC
• Milk processing workshops in stock-breeding
• Milk-PRO LTD , Zeytun-Ruzi JSC, Khirdalan and
  Baki Barakat
• Meat production
• AzAt JSC, Baku-At JSC.

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Agriculture of the Republic of Azerbaijan Investme
nt Opportunities
In general, during last years about 1600
different processing enterprises were established
with participation of local and foreign
investors In 2002 functioned 522 enterprises
including, 43 - meat and meat products, 15 -
fish and fish production, 38 - fruit and
vegetables processing and conserving, 94 -
alcoholic and nonalcoholic drinks, 6 - vegetable
fat and adipose production, 35 - milk
processing, 75 - grain production, 2 - tobacco
production, 216 - other food products production
and processing enterprises. However, In
2002 only 18,9 million USD was directed to the
development of agrarian sector from 2,2 billion
USD capital invested by local and foreign
investors into countrys economy
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Agriculture of the Republic of Azerbaijan Conclusi
ons

• Azerbaijan posseses strong potential posibilities
  and comparative advantages in production of
  traditional agriculture products.
• The advantages are
• location in favourable land climatic conditions
  diversity of climate
• cheap labour
• location on important international trade
  crossroads
• access to traditional markets of CIS
• possibility of promoting organic brand of the
  Azerbaijani a/c
• production

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Agriculture of the Republic of Azerbaijan Conclusi
ons

• Reconstruction of agrarian sector infrastructure
  to appropriate market economy demands includes
  resolution of the below issues
• insufficiency of fertile quality seeds
• upgrade of melioration system
• financial services to farmers
• building of storages
• maintainance of equipment
• packaging facilities
• transportation
• marketing and agro service systems
• veterinary medicine
• breeder services
• others.

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Agriculture of the Republic of Azerbaijan Investme
nt Opportunities

• Sectors with prospective for improvement as per
  local demand
• Sugar beetroot production
• Construction of vegetable oil processing
  enterprises
• Tinned food factories
• - Wine processing enterprises
• Poultry farms
• Establishment of modern hotbeds for vegetable
  production in winter
• Glass tare plants and thermo regulating clock
  rooms
• Reconstruction of sorting, packaging and
  marketing service systems
• Organization of technical and chemical
  (fertilizer) services in the regions
• Financial services to farmers (credits, leasing
  etc.).

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Agriculture of the Republic of Azerbaijan Investme
nt Opportunities

• Azerbaijan has potential not only for import
  replacement of a/c but also for increase in
  export of a/c production.
• Substantial export capacity potential exist in
• Grape
• Cotton
• Vegetables Processed food
• Tobacco
• Tea
• Hazelnuts