Young Entrepreneurship Synergy Network For Georgia-Azerbaijan Cross Border Cooperation - BASELINE STUDY

Young Entrepreneurship Synergy (YES!
)
Network for Georgia-Azerbaijan Cross
Border Cooperation
BASELINE STUDY
June 2018
 PMO | 1
CONTACT INFORMATION
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 collected information, PMO Team derived conclusions and developed Baseline Study of cross border regions of
Azerbaijan and Georgia as requested by the client.
CONFIDENTIALITY NOTICE: This document and all ideas, concepts, frameworks and recommendations
included 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.
The project „Young Entrepreneurship Synergy (YES) – Network for Georgia Azerbaijan Cross border
cooperation” is implemented by Civil Development Agency (CiDA) in Georgia and West Resource Public
Union (WRPU) In Azerbaijan.
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
Cooperation (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, Belarus-

Ukraine and Moldova-Ukraine.
This study has been produced with the assistance of the European Union. The content of 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.
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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
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Table of Contents
TABLE OF CONTENT
CONTACT INFORMATION ............................................................................................... 2

ABBREVIATIONS ............................................................................................................... 7
1. Executive Summary ........................................................................................................ 8
2. Georgia - Azerbaijan Relations..................................................................................... 11
Introduction .................................................................................................................................................11
National Policies on Regional Development and Cross-Border Cooperation in Azerbaijan and Georgia..12
Economic Relations and Trade....................................................................................................................14
3. Review of Tax System in Azerbaijan and Georgia ...................................................... 19

Review of Tax System in Azerbaijan and Georgia .....................................................................................19
Georgian Tax System and Tax Rates ..........................................................................................................19
Azerbaijan Tax System and Tax Rates ........................................................................................................22
Customs Clearance ......................................................................................................................................26
4. Overview of Kakheti Region ........................................................................................ 31

Demographic trends ....................................................................................................................................31
Labor Market ...............................................................................................................................................33
Economy......................................................................................................................................................35
Small and Medium Enterprises ...................................................................................................................37
5. Key findings of Sagarejo Municipality ......................................................................... 39

Introduction .................................................................................................................................................39
Infrastructure ...............................................................................................................................................39
Local Government .......................................................................................................................................39
Youth ...........................................................................................................................................................40
Gender .........................................................................................................................................................40
Business Environment, Employment and Private Sector ............................................................................41
Tourism .......................................................................................................................................................41
Education .....................................................................................................................................................42
EU integration and cross border cooperation ..............................................................................................42
Border ..........................................................................................................................................................42
6. Overview of Kvemo Kartli Region ............................................................................... 44

Demographic trends ....................................................................................................................................44
Labor Market ...............................................................................................................................................44
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Table of Contents
Economy......................................................................................................................................................46
Small and Medium Enterprises ...................................................................................................................47
7. Key Findings of Gardabani Municipality ..................................................................... 48

Introduction .................................................................................................................................................48
Infrastructure ...............................................................................................................................................48
Local Government .......................................................................................................................................49
Youth ...........................................................................................................................................................49
Gender .........................................................................................................................................................50
Business Environment Employment, private sector ....................................................................................50
Tourism .......................................................................................................................................................50
Language Barriers .......................................................................................................................................51
Education .....................................................................................................................................................51
EU integration and cross-border cooperation ..............................................................................................51
8. Overview of Ganja-Gazakh Region .............................................................................. 54

Overview .....................................................................................................................................................54
9. Agstafa .......................................................................................................................... 58
Demographic Statistics ................................................................................................................................58
Economy......................................................................................................................................................61
10. Gazakh........................................................................................................................... 64
Demographic Statistics ................................................................................................................................64
Economy......................................................................................................................................................66
11. Key Findings of Gazakh and Agstafa Municipalities ................................................... 72

12. Comparative Analysis ................................................................................................... 75
Table of Figures
1. Trade between Azerbaijan and Georgia, mln USD, 2010-2017 ........................................................................ 15
2. Comparative table of Georgia –Azerbaijan trade flow structure ....................................................................... 16
3. List of Customs Check-Points located at borderline of Azerbaijan and Georgia ............................................. 16
4. Turnover of Cargo by Customs Regime and Customs Check Points, 2017 ...................................................... 17
5. State Level Taxes in Georgia ............................................................................................................................ 20
6. Tax Exemptions and Preferential Regimes in Agriculture ................................................................................ 20
7. Simplified Tax Regime ..................................................................................................................................... 22
8. Tax Rates in Republic of Azerbaijan................................................................................................................. 25
9. Exemptions for commodities imported by individuals for personal use ........................................................... 28
10. The distribution of population by municipalities (1000 people), Kakheti region, 2018 ............................... 31
11. Labor Market Structure (000 people), Kakheti region, 2017 ........................................................................ 33
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Table of Contents
12. Average Monthly Salary (GEL) by Type of Economic Activity, Kakheti region, 2016 ............................... 34
13. Business sector turnover (mln GEL), Kakheti region, 2010-2016 ................................................................ 35
14. Primary production of agriculture, Kakheti Region, 2016 ............................................................................ 37
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 ...................................................................................... 38
16. The distribution of population by municipalities (000 people), Kvemo Kartli Region, 2017 ....................... 44
17. Labor market structure (000 people), Kvemo Kartli Region, 2017 ............................................................... 45
18. Average wage by type of economic activity, Kvemo Kartli region, 2016 .................................................... 45
19. Business sector turnover (mln GEL), Kvemo Kartli Region, 2012-2016 ..................................................... 46
20. Structure of the economy by share in value added, Kvemo Kartli region, 2016 .......................................... 46
21. People Employeed by the size of enterprises (left); Share in Total Turnover by Size of enterprises (right),
million Gel, Kvemo kartli region, 2016 .................................................................................................................... 47
22. Average Wage Comparison (Manat) ............................................................................................................ 54
23. Economic Structure of Ganja-Gazakh Region, million Manat..................................................................... 55
24. Real Growth of Output of the Economy in Ganja Gazakh Region in 2017 .................................................. 56
25. Real Growth of output of the economy in Ganja-Gazakh Region, 2010-2017 ............................................. 57
26. Growth of Output of the Economy in Ganja Gazakh Region, 2017 .............................................................. 58
27. Distribution of Population by Age, 2016 ...................................................................................................... 58
28. Civil service employement by Gender and Age groups in Ganja Gazakh region ......................................... 59
29. Economic Growth in Agstafa, 2010-2017..................................................................................................... 61
30. Output Growth by Type of Activity in Agstafa, 2017................................................................................... 62
31. Number enterprises by types of activity in Agstafa, 2015 ............................................................................ 62
32. Share in output by types of Economic Activity, million Manat .................................................................... 63
33. Urbanization Rate and Gender Structure of population in Gazakh, 2016 ..................................................... 64
34. Population by Age Group in Gazakh, 2016................................................................................................... 64
35. Level of Education in Gazakh; Gender distribution by level of education, 2016 ......................................... 65
36. Number of Newly Opened Jobs in Gazakh, 2010-2016 ................................................................................ 66
37. Economic Structure of Gazakh, million Manat, 2016 ................................................................................... 66
38. Annual Growth of Output in Gazakh (Left), Growth by Types of Economic Activity in Gazakh (Right),
2017 67
39. Number of Small Enterprises by Types of Activity in Gazakh (2015) ......................................................... 67
40. Annual Turnover of Small Enterprises by Types of Activity in Gazakh, 2015, Million Manat .................. 68
41. Regions’ Share in agricultural output in Ganja-Gazakh region..................................................................... 69
42. Share of Ganja-Gazakh region in Total Agriculture Production by Product Types , Plants (Left), Livestock
(Right) 69
43. Number and Share of Employees in Agricultural Enterprises by Regional Units ofGanja-Gazakh Region . 70
44. Share of Regional Units in Total Retail Trade Turnover of Ganjza-Gazakh Region, 2016 .......................... 70
45. Growth of retail trade turnover, 2011 – 2016 ................................................................................................ 71
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Abbreviations
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
1. EXECUTIVE SUMMARY
This study was conducted under the framework of 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 on current social and economic conditions of cross-border regions of
Azerbaijan and Georgia, identify formal and informal barriers hindering cross-border cooperation and economic
development of target regions and develop practical recommendations that will be applied to build efficient
cooperation mechanism and develop strong business networks among the private sector representatives
operating in cross-border regions of Azerbaijan and Georgia.
The focus of the study was Agstafa and Gazakh municipalities of Ganja-Gazakh economic zone from Azerbaijan
and Gardabani municipality of Kvemo Kartli region and Sagarejo municipality of Kakheti region from Georgia. The
quantitative and qualitative research tools were applied, including statistical analysis of data, desk review of
existing research studies, face to face interview with local stakeholders, including with representatives of local
government and private sector. On top of that focus group meetings with all relevant stakeholders were held in
each target municipality to discuss the key challenges and opportunities as well as prospects of cooperation
The key findings of the study are given below:
Economy
 Azerbaijan and Georgia has developed strong partnership links by incorporating joint strategic projects in
Energy and Transportation. Although full potential of economic cooperation is not fully absorbed and
there is a space to expand area of cooperation by diversification of trade, development of tourism by
implementing joint management mechanism of cultural heritages and natural sites that is located in
cross-border areas of Azerbaijan and Georgia; There is also a potential of value chain development of
food processing industry and construction sector;
 Georgia and Azerbaijan has free trade regime with each other and also with former CIS countries,
moreover, Georgia is the sole country in the region that has signed Free Trade Agreement (FTA) with EU
and with China that creates potential for both countries to expand cooperation in terms of trade and join
local resources to thrive in international market;
 The huge gap in economic development between capital city and regions is common problem as in
Azerbaijan as well as in Georgia. The low level of economic development and income in regions limits the
possibility of local population to improve their living conditions and maintain high living standards;
 Agriculture and retail trade are main source of income as for Georgia as well as for Azerbaijan’s
bordering regions. The most people are self-employed in small scale farms or run small shops. Population
in both region lacks entrepreneurial skills that limits their possibility to expand their business and generate
high income over long period of time;
 The adoption of modern technology in production process is low, that causes problem of low productivity
of local industries and makes local production less competitive for export.
 The lack of access to finance is another drawback hindering development of local business. Government
of Georgia and international donors run programs to support economic development of the regions,
although local population either is not aware of the existing programs, or does not have enough skills to
fill application forms or write grant proposals to participate and get financial or technical assistance for
expanding their businesses. According to the feedback from focus group discussion similar problems are
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Georgia - Azerbaijan Relations
apparent for Azerbaijan. The most of the people do not even know how to use credit cards to perform
financial transactions.
 Trade relations between cross-border regions is very low, no intensive trade takes place between cross-
border regions . Although people have high interest to export their production to the neighboring
countries, they have limited possibility for the export. Main problem is that people are not aware of the
rules and regulations imposed on the exported goods in neighboring regions. They are also not aware
of how to establish partnership links with the business entities in neighboring countries
Tourism
 There is a potential of cooperation in tourism sector. The existence of an airport in Ganja region is an
additional advantage for the development of tourism transportation; On top of that, there are attractive
tourist sites as in Ganja-Gazakh as well in Kvemo Kartli and Kakheti region. Some of touristic sites such as
complex of Davit Gareja and Jandara Lake cross the border of Georgia-Azerbaijan, that creates possibility
to develop joint management mechanisms for shared cultural heritages and natural sites to increase
interest of tourists and share benefits from growing income.
 Underdeveloped infrastructure and lack of promotion of touristic sites in targeted regions are main
barriers limiting the development of tourism industry in cross-border regions of Azerbaijan and Georgia.
 The usage of digital technologies to attract new visitors and increase sales is low among local population
that also limits their capacity to attract new clients and promote their business using online sources.
Business Environment
 Georgia is the leading country in the region by easiness of doing business. Georgia has lowest level of
corruption in the region, simplified and transparent procedures to register and run business, preferable
tax environment (tax exemptions are imposed on the 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 are defined by national tax codes;
 Azerbaijan is carrying out the reforms to improve business environment and reduce corruption. Azerbaijan
has already applied the measures to reform customs system, although the result of the reforms is not
evident yet;
 There is controversial attitude among local population towards the recent reforms carried out by
government of Azerbaijan. Some of the local population confirms that reforms lead to improvement of
business environment, while another group of people perceive that problem of corruption and
monopolization of industries is still present in Azerbaijan;
 Most of the population is not aware about the tax system and customs regulation that creates wrong
perceptions of society regarding the performance of public organizations. Both Government of Georgia
and Azerbaijan shall apply strong strategic communication tools to increase awareness level of local
population on national tax system and customs regulations;
Local Government
 There is almost no cooperation between local government authorities of cross-border regions of

Azerbaijan and Georgia. Although representatives of local government from both sides are willing to
develop partnership ties and implement joint solutions for the common problems.;
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 Local government authorities in Sagarejo and Gardabani municipalities are developing strong ties to local
population, they are aware of local problems and use local sources to find relevant solutions, moreover
local government actively supports the government and donor funded projects and encourages local
population to participate.
 It is important to develop cooperation platform for local government authorities of cross-border regions
in Azerbaijan and Georgia. As they have better knowledge and expertise on challenges and opportunities
that exist at municipality level and also have close ties to local population.
Youth, Gender and Education

 Youth migration is common problem for cross-border regions in Azerbaijan and Georgia. Young population
is leaving regions for getting education in capital city or abroad and do not come back. Migration of young
labor force is the main threat for the regions as it will limit prospect economic development of regions;
 Although there are education facilities in Ganja-Gazakh region the quality of education does not satisfy
modern requirements. Extra payments and tips is common practice in education system in
Azerbaijanalthough issues with informal payments has slightly improved within the last years .
Unsatisfactory quality of education and existence of extra payments in education sector are the reasons
why most of the young population prefers to receive education in Baku or abroad;
 There are villages in Gardabani and Sagarejo municipalities that are densely populated by ethnic minorities
(Azerbaijani). The integration of Azerbaijani population in Georgian society is low, because of social,
cultural and language differences. As most share of Azerbaijani population do not know Georgian,
moreover they do not know any other foreign language at all. In addition, there is no incentives among
ethnic Azerbaijani population to establish links with Georgian society.
 Women’s participation in economic activity is limited in Agstafa and Gazakh municipalities, although
women have equal rights as men by law, but in fact women’s access to education and employment
depends on the decision of family;
 Similar to Azerbaijan women have restricted access to education and job opportunities in villages
populated with ethnic minorities of Sagarejo and Gardabani municipality. Situation is slightly different in
Gardabani, those Azerbaijani families living in Gardabani city are sharing more modern views and do not
restrict girls to get education and find a job, while in villages the women and young girls rights are
restricted by perception of 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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2. GEORGIA - AZERBAIJAN RELATIONS

Introduction
Azerbaijan and Georgia are strategic partner countries in the South Caucasus region and has developed strong
economic ties and diplomatic relations. Diplomatic relations between Azerbaijan and Georgia started in 1992 and
26 years of cooperation resulted in the joint strategic projects in the field of energy and transportation that
strengthens economic and national security of both countries.
In terms of international policy both countries share common values and has declared its western orientation and
their will to join the European Union (EU) and North Atlantic Treaty Organization (NATO). Countries’ aspirations
towards western institutions are stronger in case of Georgia that carries out active policy to become part of the
EU and NATO alliance. Despite the fact, that country has declared western oriented policy Azerbaijan’s policy
actions to incorporate western values and approximate to western institutions are more passive Compared to
Georgia.
In terms of economic relations Azerbaijan and Georgia has developed strong ties for cooperation in energy sector.
Georgia’s geographic location and oil and gas deposits of Azerbaijan helped countries to cooperate in energy field
and Azerbaijan transits oil and gas resources through Georgia. Moreover, this relation became stronger after
opening of South Caucasus Pipeline which transits hydrocarbons from Caspian Sea to EU market. The strategic
pipelines crossing Georgia include Baku-Tbilisi-Ceyhan oil pipeline, Baku-Tbilisi-Erzurum gas pipeline, Trans
Anatolian Natural Gas Pipeline (TANAP) that is connected to the Trans Adriatic Pipeline (TAP) and provides transit
of hydrocarbons from Caspian Sea to EU market through Azerbaijan, Georgia and Turkey. This is one of the most
strategic objects that ensures energy security of Georgia and also reduces dependence of EU on the Russian gas
supply. On top of that, Azerbaijan plays crucial role to ensure security of energy supply of Georgia. Azerbaijan is
the main supplier of Gas and almost 90% consumption of Gas in Georgia are imported from Azerbaijan.
Geographic location, highways, railways, sea ports increase the potential of developing strong transit routes and
connecting European and Asian markets. Baku-Tbilisi-Kars railway line connects the Azerbaijan and Turkey through
Georgia and forms the channel to transit commercial cargo from Central Asia to EU market. These routes are
already functioning and used to pass commercial and military cargo from central Asia to EU market. It should be
mentioned that transit potential of those countries are not fully absorbed and there is still high potential for
enhancement cooperation areas in trade between Azerbaijan and Georgia.
According to the recent data from National Statistics Bureau of Georgia Azerbaijan is one of the largest trade
partners for Georgia taking 8.2% share of total trade turnover and ranking at the fourth place among the largest
trade partner countries. On the other hand, Georgia is not among the 10 largest trade partner countries of
Azerbaijan, according to the recent data from National Statistics Office of Azerbaijan Georgia ranked at 12th
position in 2016 among the largest trade partner countries of Azerbaijan and its share accounted to 2.2% of total
trade turnover of Azerbaijan. Value of imported commodities from Georgia takes only 0.6% shares of total value
of import 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 3.8% share in total export of Azerbaijan. The
importance of Georgia as an export market for Azerbaijan is mainly caused at the expense of oil and petroleum
products. The oil and petroleum products are main commodities exported to Georgia accounting to 72% of 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 might be caused due to the structure of Azerbaijan’s economy as it largely relies on the oil
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industry and is not diversified. Also Georgia does not have strong developed export oriented industry that is why
the scope of trade cooperation is limited. Additional factor is the difference in business environment. Over years
Azerbaijan was considered as one of the corrupted countries in the region1. Monopolization of economic sectors
and corruption in customs system created informal barriers for foreign investors and reduced incentives for
cooperation in trade. After oil price shocks and economic recession government of Azerbaijan realized the
importance of diversification of economic sectors and started reforms in 2016 to reduce corruption and create
more favorable environment to do business and attract investors. The results of the reforms are not evident yet
and monopolies are still existent problem in the country. Also according to anecdotal evidence from respondent’s
situation has become better compared to previous years. The declared will of government of Azerbaijan to
eliminate corruption and support private sector development opens window of opportunity for Georgia to expand
the spheres of economic cooperation and strengthen economic ties with Azerbaijan.
Azerbaijan and Georgia share the 480 km border line but the cooperation with cross-border regions is really low.
In fact, there is almost no cooperation between cross-border regions of Azerbaijan and Georgia. Although, the
villages located at the border line is densely populated with ethnic Azeri people they do not have any ties with
neighboring regions in Azerbaijan. Economic development and social condition in neighboring regions is low. Lack
of skills and knowledge, as well as low level of development of local industries are common problems for the cross-
border regions in Azerbaijan and Georgia. Despite the fact that countries have 26 years of diplomatic relations,
cooperation mainly occurs at the national level of government. Local government authorities of cross border
regions in Azerbaijan and Georgia do not cooperate at all, as they do not have efficient mechanism to build
cooperation platform and find joint solutions for the common problems.
National Policies on Regional Development and Cross-Border Cooperation in

Azerbaijan and Georgia
Azerbaijan and Georgia continue to establish partnership links with EU. Georgia has already signed Association
Agreement (AA) and agreement on establishment Deep and Comprehensive Free Trade Area (DCFTA) with EU.
Azerbaijan has ongoing negotiations with EU to sign comprehensive agreement that is going to replace EU-
Azerbaijan Partnership and Cooperation Agreement (PCA) singed in 1999. On top of that Azerbaijan and Georgia
are part of the European Neighborhood Policy and Eastern Partnership Initiative that provide efficient platform
for cooperation in different areas to achieve common objectives such as strengthening democracy, economic well-
being and national security of partner countries.
Strengthening regional development and cooperation of cross-border regions is among the common objectives
shared by Azerbaijan and Georgia. The fundamental principles of regional development and economic cooperation
of cross-border regions is defined under the EU-Georgia Association Agreement. Similar principles are given in PCA
agreement between Azerbaijan and EU. Support the development of multi-level governance, with special
emphasis of active involvement of local stakeholders, encourage involvement of local government authorities
1
Transparency International “Corruption Perception Index”, “The State of Corruption: Armenia, Azerbaijan, Georgia,
Moldova and Ukraine”, 2015
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in regional cooperation, build and promote cross-border and regional business networks are guiding principles
for building territorial cooperation strategy among the cross-border regions2.
Inequality in economic development between capital city and regions are common problem both for Azerbaijan
and Georgia. Except 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 Azerbaijan for
2014-2018 years”, that sets objectives and defines prior areas of development. The main goal of the program is
to stimulate regional development and support growth of non-oil industry. Improvement of business environment,
support private entrepreneurship, implementing supporting measures for the development of agricultural
production, stimulation of export oriented industries, define optimal tax level, develop local infrastructure and
support adoption of Information and Communication Technologies (ICT) are among the objectives of this program.
In addition, Azerbaijan introduced new strategy on development of hospitality industry that aims to increase the
flow of tourists by simplifying border crossing and visa regime for several countries, with particular focus on
Persian Gulf States, expansion on new direction of flights abroad and also establishment of new tour agencies. In
addition, government of Azerbaijan supports the development of accommodation facilities in the regions,
including 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 socio-economic development of
its regions. Georgia has developed regional development strategy for each region for 2014-2021 years. Agriculture
production, tourism, export oriented industries are among the priorities of regional development policy of
Georgia. Reviewing the national strategies of socio-economic development of regions, it is visible that both
countries share same challenges and have common objectives in terms of regional development.
On top of that international organizations provide wide range of support for stimulating economic growth and
development of democracy and establishment of strong civil society. Both countries benefit from the financial
and technical assistance from EU to support economic and social development of the country, improve
performance of government institutions and strengthen territorial cooperation. As an example since the
independence Azerbaijan received development grant about 500 mln Manat from EU. Also as a part of the EaPTC
program both Georgia and Azerbaijan get benefits from donor funded projects implemented for strengthening
tourism potential, development of hospitality industry, improving employee skills among local population and
supporting regional development and cross-border cooperation.
Except the EU support USAID and UNDP also actively work in Georgia as well as in Azerbaijan to address the
economic, social and other development challenges countries are facing today. As an example UNDP runs number
of projects in Ganja-Gazakh region to support 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
UNDP also provides significant assistance to Georgia for achievement of development goals. Overall 32 ongoing
and complete projects for strengthening public administration, encourage rural development and raise employee
2
EU-Georgia Association Agreement, Chapter 21; E
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skills of local population are3 implemented by UNDP support. Although the most of the listed projects (about 22
projects) are concentrated in Tbilisi.
Since the independence (1991) Azerbaijan received 377 mln USD benefits from USAID for strengthening its
capacity, supporting economic development and building democracy in the country. In 2017 Azerbaijan received
more than 10 mln USD from USAID, out of which the largest part of funds was allocated to support socio-economic
development of country, strengthen agricultural sector and support SME development. Similar to Azerbaijan
USAID provides significant contribution for the economic development and strengthening democracy in Georgia.
In 2017 Georgia received about 41 mln USD funding to implement project in various fields, with key emphasis on
building good governance, support the efficiency in Agricultural production, promote the rule of law and economic
development within the country.
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 practice. All of the projects are
concentrated on the key issues countries are facing today and fully comply with the objectives set by countries’
socio-economic development strategy. Although, the awareness level on the projects among population living in
rural areas is comparatively low in both countries. Most of the people lack skills to participate and get benefits
from donor-funded projects.
Economic Relations and Trade

Azerbaijan is considered as one of the largest trade partners for Georgia. According to recent statistics in 2017
Azerbaijan was the fourth largest trade partner of Georgia holding 8.2% share of total trade turnover of the country
and second largest partner in export holding 10% share of total value of export of Georgia. It must be mentioned
that there is positive trend in export to Azerbaijan. Compared to 2016, export in Azerbaijan has increased by 78%
in 2017. According to the data of first 5 months of 2018 there is 156% increase of export value compared to the
same period of previous year. After sharp decline of Georgia’s export to Azerbaijan in 2014-2016 that was mainly
caused by the imposition of new EURO 5 standards on imported automobiles in Azerbaijan recent growth trend in
export can be considered as a positive sign, signaling that countries are recovering its trade ties.
3
http://www.ge.undp.org/content/georgia/en/home/about-us/funding-and-delivery.html
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1. Trade between Azerbaijan and Georgia, mln USD, 2010-2017

200% Growth of Export to Azerbaijan Growth of Import from Azerbaijan Growth of Trade Turnover
164%
150%
129%
100%
66% 78%
50% 43% 47%

31% 25%
13% -3%
3%
0% -16%
11% -13%
-7% -34%
-23% -37%
-50%
-53%
-56% -60%
-100%
704 710
636 627 656 638
544 573
539
485
426
256 241 272

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 PMO
As mentioned before, Azerbaijan takes primary positions among the largest trade partners of Georgia, while
Georgia takes moderate share in the trade statistics of Azerbaijan. According to National Statistics Office of
Azerbaijan Georgia is at 12th place by its 2.2% share in total trade turnover of Azerbaijan in 2016. Share of imported
commodities of Georgia is 0.6% of total import of Azerbaijan and Georgia ranks at 28 th position among the trade
partners in import of Azerbaijan, while export to Georgia is 3.8% of total value of export of Azerbaijan, makes
Georgia 9th largest partner in Export for Azerbaijan. Oil and Petroleum products are main commodities exported
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to Georgia holding 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 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
Cooper Ores and Machinery and Transport

1 15.4% 33.0%
Concentrates Equipment
Manufactured Goods Classified
2 Ferro-Alloys 11.3% 22.3%
Chiefly by Material
3 Motor Cars 8.6% Food and Live Animals 13.9%
Miscellaneous Manufactured
4 Wine and Fresh Grapes 6.3% 10.7%
Articles
5 Medicaments 5.2% Chemicals and Related Products 10.5%
Mineral fuels, Lubricants and
6 Spirituous Beverages 4.6% 3.2%
Related Materials
7 Mineral and Aerated Waters 3.5% Beverages and Tobacco 2.5%
Crude materials, inedible,
8 Hazelnuts and Nuts 3.0% 2.2%
except fuels
Mineral or Chemical Animal and Vegetable Oils, Fats
9 2.8% 1.5%
Fertilizers and Waxes
Gold unwrought or in Semi-
10 2.6% Other 0.2%
Manufactured Forms
11 Other 36.7%
SOURCE: National Bureau of Statistics of Georgia 2017; The State Statistical Committee of Azerbaijan, 2016 PMO
Considering the Export structure of Georgia and Import structure of Azerbaijan we indicated the types of
commodities for trade. It must be noted that large share of exports from Azerbaijan (87%) lies on the oil and
petroleum products and Natural Gas, followed by construction materials and fruits and vegetables. Also Azerbaijan
imports processed foods and live animals. As both cross-border regions are specialized in agriculture production
and both countries are dependent on the processed foods there is a possibility to develop food-processing
factories in cross-border regions and ensure supply of processed foods to each other. This significantly lowers
transportation costs of foods and also brings the benefits to local population in terms of increased income.
In addition, Georgia is importer of construction materials and metal armors that is produced in bordering regions
of Azerbaijan. Development of construction industry will also bring benefits and enhance trade structure of
Azerbaijan and Georgia.
Nowadays Georgia and Azerbaijan share 480 km borderline and there are 5 customs check points for the transfer
of passengers and cargos.
3. List of Customs Check-Points located at borderline of Azerbaijan and Georgia
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CUSTOMS CHECK POINT CUSTOMS CHECK POINT

N: OBJECT OF CONTROL CATEGORY
NAME IN GEORGIA NAME IN AZERBAIJAN
All categories of cargo and 1st Category Automobile

1 Red Bridge Red Bridge
Passenger transfer

2 Mtkvari/Vakhtangisi Sadikhli
Passenger transfer
All categories of cargo and 1st Category Railroad

3 Gardabani Beiuk Kasik
Passenger transfer

4 Lagodekhi Belokani
Passenger transfer

5 Samtatskaro Mughanlo
Passenger transfer
SOURCE: Revenue Service Georgia www.rs.ge PMO
Total turnover of commercial cargos through these custom crossing-points amounts to 8.3 mln tones out of which
69% is transit, 29% is import and only 2% is export. The most shares of cargo are transported through the Red
Bridge (38% of total tonnage of cargos) and Gardabani (57%) railroad custom points, Lagodekhi takes only 6%
share and no cargos were transported through Mtkvari in 2017 at all.
Cargos subject to transit regime from and to Azerbaijan are mainly transported through Gardabani railroad
customs point that means that railroad is the mostly used transportation means for international transportation
of goods. Regarding the exports and imports the highest share of goods is transported through the red bridge.
4. Turnover of Cargo by Customs Regime and Customs Check Points, 2017
863
473 Import from Azerbaijan (mln GEL)

Export to Azerbaijan (mln GEL)
244
44 18 6
1 0.01
Red Bridge Gardabani Lagodekhi Mtkvari
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2,436
29%
2,555
133 31%
2% 8,293
Thousand Tons
Transit to Azerbaijan (Share in Total Tonage)
Transit from Azerbaijan (Share in Total Tonage)
3,170
Export (Share in Total Tonage)
38%
Import(Share in Total Tonage)
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 PMO
As it is visible from the data Azerbaijan and Georgia using extensively its transit potential, as almost 70% of total
tonnage of transferred cargos is for transit. The mostly used transportation means for international transit is
railway. In terms of trade Azerbaijan and Georgia mainly use land transport. The most shares of exported and
imported goods are transported through the red-bridge. Gardabani railroad check point is at the second place by
its share of imported and exported cargos between Azerbaijan and Georgia. Lagodekhi Customs crossing point is
not as intensively used for transportation of traded goods and the rest of the customs points mainly used for
transfer of passengers between Azerbaijan and Georgia.
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Review of tax system in Azerbaijan and Georgia
3. REVIEW OF TAX SYSTEM IN AZERBAIJAN AND

GEORGIA
Review of Tax System in Azerbaijan and Georgia
Tax system and state tax policy of the country plays crucial part in investment decisions and development of private
sector activity. Transparent tax system with simple tax administration procedures and low tax rates is influential to
form attractive business environment and encourage private sector activity.
Georgia is considered as a country with favorable tax environment. Georgia has lowest tax rates and simple rules
and procedures for tax administration. According to “Doing Business” reports Georgia ranks 22th place by 85.89
Distance to Frontier (DTF) score among 190 economies by paying taxes. Georgia has the most favorable tax
environment in Europe and Central Asia region. According to “Doing Business 2018” total tax and contributions
rate constitute 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 region. Although it must be noted that time devoted to tax
administration procedures (269 hours) is still higher than regional average (218.4 hours).
Azerbaijan holds 35th place by easiness of paying taxes in rankings of Doing Business 2018, although the tax rates
in Azerbaijan is relatively high compared to regional average. Total tax and contributions rate constitute to 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 the
reforms in tax system to simplify tax collection and administration procedures. In 2015 Government of Azerbaijan
introduced e-system for filling and paying social contributions. In 2017 Azerbaijan removed the vehicle taxes for its
residents. Those Reforms took its contribution in improvement of tax system in Azerbaijan, although there are still
more actions needed to form favorable tax climate in the country
Georgian Tax System and Tax Rates

Georgian Tax Code was adopted in 2011 and it unites tax and customs legislation. According to Guide to Taxation
and Investment in Georgia report (Deloitte, 2017) adoption of new tax code was considered as “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 that are transferred to the budget of local
government authorities. The rate of state level taxes is defined in tax code while for local level taxes there are
defined low and upper bound limits in the tax code but rates are defined by local government.
There are 5 different State Taxes in Georgia: Personal Income Tax, Profit Tax, Value Added Tax, Excise Tax and
Import Tax. Tax on property and land belong to local taxes. Tax rate is determined by local government authorities
and differs by regions. Also local government is limited in defining local tax rate as lower and upper bounds for
local level taxes; as well conditions for tax exemptions are determined by the Tax Code of Georgia.
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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 PMO
Personal income tax is imposed on the total income received by physical person from different source 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 individual from renting residential space, or from selling a
vehicle or house.
Profit tax is imposed on the profits that are received from commercial activities of legal entities. The legal entities
that are registered abroad and have permanent establishment in Georgia are considered as foreign tax residents
and are subject to income tax on the income received by Georgian sources. In addition, Georgia has signed treaties
on avoidance of double taxation with 54 countries including Azerbaijan.
In 2017 Georgia adopted Estonian model of 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. Profit tax rate is 15% and
companies shall submit profit tax declaration monthly basis and incurred tax shall be paid no later than 15th day
of the following month.
Moreover, as 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 Exempt from the profit Tax
income from this activity is less than 200 000
The initial supply of agricultural production produced by agriculture

2 cooperatives if the income is less than 200 000 GEL (Valid until Exempt from the Profit Tax
1.01.2023)
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Except the agriculture profit tax exemptions can be applied to the business entities operating in hospitality industry,
IT technology as well as enterprises operating in high mountain zones in Georgia:
 Profit of the hotels operating in Special Tourist Zones that are defined by the Government of Georgia is
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
predefined by the Government of Georgia) are exempted from profit tax for 10 years’ time period;
 Profit that is received by entities that hold the status of Virtual Zone Person from the selling of the created
IT product to abroad is exempted from the profit tax;
Value added tax is imposed on the supply of goods and services, also imported commodities are subject to the VAT,
the tax rate is 18%. Tax exemption applies to certain type of goods and services that are defined by Tax Code.
According to Georgian tax VAT exemption shall be applied with or without a right to offset VAT. Import of certain
medicine, passenger cars, publications, mass media and baby products are exempted without the right
to recover input VAT. Export of goods is exempted from VAT with a right to offset input VAT.
Georgian tax code allows foreign citizens the possibility to refund VAT for the 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 the purchase. The foreign citizens shall
provide documents to claim tax refund when crossing the border. This is great possibility 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 informed about the rules and procedures
for tax refund that limits their possibility to benefit from this service.
Some groups of products are subject to excise tax. Excise tax is imposed on wine, beer, liquors, cigarette and
tobacco products, cars, natural gas, and oil products. The tax rate is defined by Georgian tax code and differs by
type of goods and services. Government is eligible to change the excise tax rate for each calendar year.
The import tax rates are set as 0%, 5%, 12% according to product type. Most of the imported commodities are
subject to the 0% tax rates. In addition, Georgia has free trade agreements with Turkey, EU, Azerbaijan and
preferential trade regimes with CIS countries that consider the exception from import tariffs. Also Georgia is only
country in the region that has Free Trade Agreement simultaneously with EU and China.
The import of the goods produced in Free Industrial Zones (FIZ) are exempted from the import tax.
Georgia also has simplified tax regimes and tax exemptions to support the development of prior industries,
including agriculture, tourism industry, and adoption of innovation and as well support the development of MSME.
Special tax regime applies to two types of business entities:
 Entities that hold Micro Business Status-Individuals that perform commercial activities and their annual
turnover is up to 30,000 GEL receive the 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 annual turnover is up to 100,000 GEL (this limit will be increased up to
500,000 GEL from July 1 2018)
In addition, there are list of activities defined by decree of government that can be considered as a micro business
regardless the amount of annual turnover, this type of activities Includes trade of merchandise goods and repair
services of consumer durables. The activities that are required for permission and licensing, also production of
goods subject to excise tax, gambling business, currency exchange services are not able to receive the Micro
business status regardless the amount of annual turnover.
PMO | 21
Entities that are holding status of Micro Business are exempted from the Income Tax. Small Business is 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 in force in simplified tax regimes that
will lower tax rate imposed on the Micro and Small Business entities. Small business entities will pay 1% of their
total income and in case their turnover exceeds the 500,000 GEL they will keep the status of small business but
only pay 3% tax rate of total annual income.
In addition, there are types of activities defined by decree of Government that are taxed by fixed rate regardless
the income. Fixed rate of tax ranges between 1 – 2,000 GEL per object of taxation or 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

 3% if incurred activity income
2 Small Business related expenses are  3% in case total
more than 60% share annual turnover will
of total income exceed 500 000 GEL
 1-2000GEL per object
depending the type
3 Fixed Tax Rates -
of activity
 3% of annual income
Local tax includes property tax and land tax. Physical persons with the 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 municipality.
The land tax depends on the location and amount of land and is calculated by annual base tax rate multiplied by
territorial coefficient and land area. 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 1st of November (for physical persons) and 1st
of April (for legal entities).
The activity that implies use or extraction of natural resources, also organizing gambling houses, lotteries are
subject to fee for the use of natural resources and fee on gambling business respectively that is fully transferred to
the local budget of municipality.
Azerbaijan Tax System and Tax Rates

Person who spends more than 182 consecutive days in Azerbaijan is considered as a Tax resident of Azerbaijan
and are subject to the taxes according to tax code. All legal entities that have permanent establishment in
Azerbaijan should be registered in the state tax office. Tax code of the Azerbaijan is adopted in 2001. There are
three different tax regimes in Azerbaijan:
 The statutory tax regime-that applies to all legal entities, as local as well foreign organizations, with the
exception of companies operating on production and transportation of Oil and Gas
 Production Sharing Agreements (PSA)
PMO | 22
 Host Government Agreements (HGA) that apply exclusively to Baku-Tbilisi-Ceyhan BTC and South
Caucasus Pipelines
PSA and HGA define more favorable tax regimes and simplified procedures for the companies that are operating
in Oil and Gas industry. Azerbaijan has 24 ratified PSA and 2 HGA. PSA rules does not apply Azerbaijan legal entities.
Under the PSA profit tax rate is 5-8% and 0% VAT and Customs duties.
The taxes under the statutory tax regime can be divided into three groups:
 State Tax- taxes that are obligatory for payment in entire territory of Azerbaijan, including: personal
income tax, profit tax, VAT, Excise tax, property and land use tax levied from legal persons, road fund tax,
mineral royalty tax, simplified tax;
 Municipality Tax - taxes that are obligatory for payment in local municipalities, that are: property and
land use taxes levied on natural persons, mineral royalty on construction materials and property tax on
the entities that are considered as municipality property;
 Tax in Autonomous Republic-tax rate is defined by the State Tax Code of Azerbaijan but taxes are
obligatory for Payment in Nakhichevani Autonomous Republic;
Unlike Georgia where state taxes are defined by tax code and cannot be changed without the referendum, tax
code in Azerbaijan is defined only by upper bound rates for the state taxes and government is eligible to introduce
different state tax rates at annual basis. This brings some kind of uncertainty for investors and 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; 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.
Profit for 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 simplified tax regimes for the 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 up to 200,000 Manat
 Persons that provide catering and trade services with annual turnover more than 200,000 Manat have an
option to select simplified tax regime and 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 6% rates from gross receipts from gambling participants
Tax rates on dividends and income from the interest is 10%. Azerbaijan has Double Taxation Treaties (DTT) with
the foreign countries; the tax rate on dividend will be reduced by the amount defined under the DTT. Income from
PMO | 23
the interest on deposits placed in Azerbaijan banks; also income received from investment securities is exempt
from the taxation.
VAT tax rate is 18% in Azerbaijan. Companies with turnover more than 200,000 Manat shall register as VAT payers.
Imported goods are also subject to the VAT tax, exemptions might be applied for the certain categories of the goods
that are defined by cabinet of Ministers.
The preferences are imposed for the companies operating in industrial and technological parks. The import of the
equipment by the resident companies of industrial and technological parks is exempted from the 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.
The certain commodities are subject to the 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 progressive income tax in Azerbaijan. The 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 20% fixed rate.
Tax on imported goods ranges from 0% to 15% and differs by the type of the commodity.
In addition of this 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, employer must pay 22% of gross salary of employ and
employ shall make payment 3% of his/her gross salary to social insurance fund.
The list of taxes and relevant exemptions and preferential regimes is given in the table below:
PMO | 24
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 of Foreign 10% N/A
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 , or

Interest 10% interest income on investment securities are exempted
from tax
Rent and Royalty 14% N/A
Telecommunications N/A
6%
Services
Financial Leasing and N/A

4%
Insurance Payment
Income Tax
Up to 2500 Manat 14% Income of 1,860 Manat is exempted from tax if annual
income is below 30,000
2500 Manat and Income of 173 is Exempted from tax if monthly income
25%
more is below 2,076 Manat
Companies with turnover below 200,000 are not subject

to VAT
VAT 18%
Certain types of commodities are subject to tax
exemption
Depends on the type of

Excise Tax N/A
commodity
0-15% range depends on Certain types of commodities are subject to tax

Import Tax
the type of commodity exemption
1% of annual residual
Property Tax N/A
value of fixed assets
PMO | 25
0.1 – 20 Manat per 100

Land Tax
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 PMO
Customs Clearance
For strengthening economic cooperation and enhancing capacity in trade between cross-border regions it is
fundamental to develop efficient customs system that will be based on the transparent rules and procedures and
will not create informal barriers for trade.
Georgia carried out reforms in customs system in 2010 and as a result of reforms nowadays Georgia has well-
functioning customs system, Georgia has simple and transparent customs procedures and import and export
procedures does not take large period of time, there is a possibility to submit documents via e-system in advance
for customs processing and save the time. According to Doing Business 2018 Georgia ranks 62th place among the
185 countries by easiness of trade across borders. Time spent on document compliance procedures is 2hrs, 6.7
times less than regional average also 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. The corruption, illegal payments and
bribes was typical of Customs system in Azerbaijan. 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 introduced allowing entities to submit all documents and fill declaration online. As a result, the total
time 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.
There is controversial believes among the society regarding the progress of the reforms carried out in customs
systems, some representatives and business entities, (even Georgian business entities) confirm that improvement.
Also, it must be noted that there is a still perception in society about the existence of bribes and illegal payments
in customs check points at the border4. As there is a controversial perception regarding customs procedures among
the society we can conclude that the customs system in Azerbaijan is under the transition stage and the progress
is heavily dependent on the government’s will to continue the reforms for removing corruption and improvement
of the performance of the system.
4
These findings are the result of Focus Groups and Face to Face Interviews
PMO | 26
PMO | 27
9. Exemptions for commodities imported by individuals for personal use
N: EXEMPTIONS AND PREFERENCES FOR PHYSICAL PERSONS IN EXEMPTIONS AND PREFERENCES FOR PHYSICAL
GEORGIA PERSONS IN AZERBAIJAN
Consumer goods with the value up to 500 GEL and with Goods with total value not exceeding 1,000 USD
weight up to 30KG that is brought once per 30 days equivalent or with weight not exceeding 50 kg;
1 through the land border from physical persons and is
not for commercial use
The consumer durables with value up to 15 000 GEL Goods handled by international postal services
when person was not present in the country for more with total value not exceeding 200 USD
2 than 6 moths equivalent or with weight not exceeding 20 kg;
Import of Consumer durables and consumer products Critical household appliances at the value of
when person is coming to the country for permanent 20,000 USD equivalent for foreign citizens
living immigrating to the Azerbaijan Republic or
3
citizens of the Azerbaijan Republic emigrating
from the Azerbaijan Republic;
Pharmaceutical products intended for personal use up Pharmaceutical products intended for personal
4 to 10 standard package use;
4L of wine, 16 L of Beer, 2 L of beverages with up to 3 liters of alcoholic beverages for personal use;
5 22% of alcohol and 1L of beverages with more than
22% alcohol
200 Unit of Cigarettes, 50 Cigars or 250 g of tobacco 3 cartons of cigarettes;

6 products brought by passengers
Fuel in the vehicle fuel tank at the volume

7 specified in technical passport;
Art, historical, scientific and cultural items can

8
be imported without any limitations.
SOURCE: PMO ANALYSIS PMO
The customs rules and procedures are regulated by customs code and the Law of Republic of Azerbaijan on Customs
Tariff. Customs code defines rules and procedures to organize warehouse and duty free zones in Azerbaijan, also
defined the procedures for the temporary import of commodities and processing of goods inside and outside the
territory of Azerbaijan and rules for re-import or re-export of goods.
PMO | 28
Except the taxes defined under each customs regime customs clearance fee shall be paid. Customs clearance fee is
550 Manat that is fee for service of filling declaration and executing procedures under the relevant customs regime.
Imported goods are subject to customs clearance procedures. The official duties on imported commodities range
between 0% - 15% depending on the commodity type. According to new regulation customs duties on imported
goods was defined to be 0.5%, 5%, 10% and 15%, also tax exemptions was defined for several types of commodities.
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, also processing of commodities
inside and outside the territory 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
Georgia, import tax is 3% out of the value of import tax that would be paid in case of import of those
commodities 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
market of Azerbaijan for Georgian products remained limited, as customs procedures and corruption lower
incentive of local population to engage in free trade with neighboring countries. Despite the fact that Azerbaijan
declared its readiness to fight against corruption the social perception on the existence of corruption in Azerbaijan
customs system is still present. This might be caused because most of the local population are not aware about the
rules and regulations of customs, they do not have information about the officially accepted taxes and consider
official payment to customs as bribes. 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 According to report of
PMO | 29
Transparency International TI Corruption Perception Index (CPI)Azerbaijan improved its ranking in 2018 and moved
from 127 to 122 place among 180 countries by 31 CPI score. Although, despite the improvements, the CPI index is
still below the average that means that problem of corruption is still present in Azerbaijan and more actions are
required to make the difference.
It must be mentioned that customs reform is vital for development of trade and strengthening cooperation
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 information of local society regarding rules and procedures of importing and
exporting goods and join resources to fight against corruption within the customs system. As Georgia has already
gone the similar path in reforming the most corrupted customs system, Georgian side can assist Azerbaijan in
carrying out the reforms by sharing the experience.
PMO | 30
Overview of Kakheti region
4. OVERVIEW OF KAKHETI REGION

Demographic trends
Kakheti is located in eastern part of Georgia and represents 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 municipalities, 9 cities
and 333 villages5 . The total area of Kakheti region is 11,310 thousand square meter and takes 17.5% share of the
total area of the country6. Based on official statistics of Georgia total population of the region amounts to 314.7
thousand people. Kakheti is characterized by low rate of urbanization; 77.3% share of population is living in rural
areas.
Population of Kakheti is steadily declining over the last years. There was 3.7% decline of population since 2011 by
11.6 thousand people; this reduction was mainly caused by the decline in rural population, which has been falling
by 8.4 thousand people. The abandoned villages due to large migration is a common problem, people especially
youth is leaving their home to find a job. According to recent population census that was held in 2014 the young
population (15-29 age groups) amounted only 17% share of total population of the Kakheti region that is below to
the youth share in the population of total country that was 21%. Youth migration is the biggest challenge for the
prospects of social and economic development of the region, as it leads to faster aging of local population and
reduction of labor force.
10. The distribution of population by municipalities (1000 people), Kakheti region, 2018
30
30
10%
9% 20, 6%
30
52 Telavi City Akhmeta Municipality
9%
17%
Gurjaani Municipality Dedophlisckaro Municipality
Total 314.7
Telavi Municipality Lagodekhi Municipality
53, 17%
41 Sagarejo Municipality Sighnaghi Municipality
13%
21
37 Kvareli Municipality
7%
12%
SOURCE: Geostat PMO
Sagarejo is at the second place after Gurjaani municipality by number of population. It must be noted that while
the population of Kakheti region was decreasing over years there was steady growth trend in population of Sagarejo
municipality that has been increased by 1.6% throughout the 2011-2018-year period.
5
National Bureau of Statistics of Georgia - GEOSTAT
6
Development Strategy of Kakheti Region 2014-2021
PMO | 31
PMO | 32
Labor Market
The unemployment rate was decreasing over the past seven years, according to recent statistics in 2017
unemployment rate was 3.7% in 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 14.6 thousand
which is 5.5% decrease throughout the years of 2011-2017. Although, it should be noted that there was 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.
The largest share, 72% of employed population of Kakheti region is self-employed, mainly in agriculture, which
does not generate enough income to sustain proper living standards for households.
11. Labor Market Structure (000 people), Kakheti region, 2017
Share in population above 15

Thousand Person
years
Labor Force 186 74%
Population out of Labor Force 65 26%
Share in economically active

Thousand Person
population
Unemployed 7 3.7%
Employed 180 96.3%
Hired 50 27%
Self-Employed 130 69%
SOURCE: Geostat PMO
Average monthly salary in Kakheti is 561.8 GEL, almost 40% lower than country’s average. The mining, production
and supply of electricity, water and gas, construction and manufacturing are the four largest paid industries in the
region.
PMO | 33
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 Construction Health and social Agriculture, hunting Community, social Wholesale and retail Education
Quarrying work and forestry and personal service trade; repair of
activities motor vehicles and
personal and
household goods
SOURCE: Geostat (Recent Data is Available for 2016) PMO
The largest share of the population is employed in wholesale and retail trade (29%), followed by manufacturing
industry with 25% share in total number of employed labor force and construction holding third place by 9.7%.
Agriculture takes only 7% share of employed labor force.
The employment rate was growing steadily in the wholesale and retail trade, 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 unclear trend can be sensitivity of those industries towards economic
and political processes taking place in the country.
Growth of employment was positively affected by development of real estate services and construction industry in
general, which should be considered as a good development potential of the region. However, should be noted
that this industry is particularly vulnerable to the economic and political changes in the country. There is a positive
trend in the labor market, the increase of the number of hired people gives signal that there is positive trend in
economic activity and job creation, although recent impact is moderate and further actions has to be applied to
boost the economic activity of population. The large share of self-employed population is working in small scale
low productive subsistence farms that are producing goods mainly for self-consumption, small size of farms does
not allow to benefit from economies of scale from increased production and make their products competitive 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, low adoption of modern technologies in agriculture production is main
barriers that limits economic development and income growth in the region. Despite the fact that there are number
of state and donor supported programs to support the development of agriculture local population is not able to
participate as they do not have enough skills to fill necessary documents of application main challenge for the labor
market of the region. 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 does not even know state language and also do not have any incentive to become the
part of Georgian society. Most of the economic sectors are very sensitive towards changes of economic
environment while retail trade and manufacturing industry is characterized by steady growth and creation of new
job places.
PMO | 34
Economy
The economic activity is unevenly distributed between capital city and regions. Kakheti generates only 2.1% of total
Value Added of the country. The development of private sector is moderate in Kakheti compared to other regions
in Georgia. Almost 72% of total turnover of businesses is generated in Tbilisi. Kakheti takes sevenths place by 1.7%
share in total annual turnover of the country, which is really low and indicates the low level of business sector
development in the region.
It must be noted that business sector turnover in Kakheti was characterized by positive growth since 2011 year,
except 2015 year with 5.4% decline, followed by 14.6% of growth in year 2016. To sum up, total annual turnover
of business sector almost doubled since 2011.
13. Business sector turnover (mln GEL), Kakheti region, 2010-2016
1200 1104 70%

63% 1018 963
1000 909 60%
50%
800 642 42% 40%
600
541 30%
400 332 19% 20%
12% 15%
10%
200 0%
-5%
- -10%
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 PMO

Manufacturing is a leading industry of the economy in Kakheti region, largest share of value added, 48% is
generated in the manufacturing industry. Wholesale and retail trade is the second largest industry of the region
with 13.2% share of total value added of the region, followed by construction (10.2%) and electricity, gas and water
supply services (8.2%).
Construction is one of the fastest growing industries in Kakheti region in 2016 the growth of the value added in
construction industry accounted 62%, value added in manufacturing industry grew by 53% in 2016.
Despite the moderate share of hospitality industry in the total economy of the region, hotels and restaurants show
positive growing trend since 2012, the output produced within the sector almost doubled compared to 2012 and
the turnover in hotel and restaurant industry grew by 53% on average in last years. In addition, the value added
generated by hotels and restaurants more than doubled in year 2016. As for the employment trends in the same
industry, it nearly doubled since year 2012 and reached its peak in 2014. However, the employment growth slowed
down by year 2016. Kakheti has significant potential of tourism industry development, although it is one of the
most visited sited of the country the tourism potential of the regions is not fully absorbed yet, and further
Development of hospitality industry is among the prior goals of regional development plan. Kakheti is one of the
most visited regions of Georgia and the number of foreign visitors to region was increasing since 2015. According
to recent data in 2017 the growth of foreign visits to Kakheti region was 42% compared to previous year. There are
also positive trends in internal tourism to Kakheti region. In first quarter 2018 number of internal visitors to Kakheti
region amounted 68.2 thousand people, that is already 8% more than annual number of internal visitors in 2017.
PMO | 35
Kakheti has significant potential of tourism industry development, although it is one of the most visited sited of the
country the tourism potential of the regions is not fully absorbed yet. The share of foreign visits to Kakheti region
is only 5.4% out of total foreign visits conducted in Georgia.
Considering the geographic location, local nature and existence of cultural heritage objects there is also significant
potential for the development of hospitality industry in Kakheti region. There are many sites which in case of
developed infrastructure will become attractive place as for internal as well for foreign visitors. One of the example
is the village “Udabno” that is cross border village of Georgia and is completely detached from the region, the
village is bounded with desert and local population are coming from different regions of Georgia. The unique
landscape and variety of culture of local population creates the potential to make the village interesting sites for
tourists. Moreover, there is a Gareja complex near to the village that is national cultural heritage, the part of the
Gareja complex is located to the territory controlled by Azerbaijan. The village has good potential to become one
of the visited sites, but low development of public infrastructure, accommodation facilities and transport are
fundamental barriers to achieve that goal. Moreover, since the part of the Gareja complex is located in territory
controlled by Azerbaijan there is a window of opportunity for the countries to cooperate in the tourism by
implementing joint mechanism for preservation national cultural heritage and develop joint management
system to attract visitors and share the benefits from the development of tourism industry at cross border
regions.
Kakheti produces 13.3% of country’s total value added generated in agriculture industry. However, there is
fluctuations in growth rate of agriculture industry in Kakheti region after 12% decline in 2013 the value added of
agriculture industry increased by 54% in 2014, followed by 13% growth and share decline to 1.1% in 2016. These
fluctuations might be explained the large dependence of yield on weather conditions, local population does not
apply risk mitigation measures to insure their yield from natural disaster, Agro insurance program run by state
government did not make any difference, insurance mainly is used by large scale farmers, while small farmers find
purchase of agro insurance expensive and prefer to take a risk. Kakheti is a leading region in production of grapes,
wheat, barley, melon, sheep and goats. The figure bellow shows the share of Kakheti region in total agriculture
production of the country.
PMO | 36
14. Primary production of agriculture, Kakheti Region, 20167

SHARE IN PRODUCTION SHARE IN
PRODUCTION COUNTRY (1000 TONE) COUNTRY
LIVESTOCK PLANTS
(1000 HEADS) TOTAL
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 49 10% Fruits 38 21%

Buffaloes
SOURCE: Geostat PMO
Despite the fact, that there is a number of state and donor funded projects for the development of agriculture
industry in the region, the level of development of the industry is still low, which means that those opportunities
of development are not fully absorbed. The average salary in agriculture industry is 486 GEL which is 15% lower
than country’s average. Possible explanation of the low average salary low productivity of sector, which is caused
partly by low skilled labor force, another factor of low productivity is the lack of adoption of modern technology in
agriculture production, most of the farmers use outdated equipment in processing of the land. Mekanizatori was
formed by state and was equipped with modern machinery to process agriculture land, Mekanizatori allows local
farmers to use machinery for processing their own land but local population does not use this opportunity since
the rent for equipment is high and also sometimes farmers have to wait until the required machinery will be
available for production. Also according to interviews local farmers find this machinery useless and they say that
machinery is not convenient and adjusted to geographical specificities of local land.
Small and Medium Enterprises

Small and medium enterprises are responsible for creation of the largest share of job places. 67.2% share of people
employed in business sector work in SME. In large and medium enterprises almost 98-99% workforce are hired,
while in small enterprises hired workforce constitutes 58% share of the total employed labor. Although the average
wage in SME is almost twice less than average wage in large enterprises and 27% lower than average wage in the
region. It must be noted that average wage in small enterprises increased by 41% in 2016 compared to the previous
year.
7
The recent data of primary production of agriculture is given for the year 2016
PMO | 37
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
47%; 33%; 29%; 320

10,208 7,140
Large Enterprise 1,104 Large enterprise

21,750
people Medium Enterprise mln GEL Medium enterprise
Small Enterprise Small Enterprise

18%; 207
20%; 53%; 576

4,402
SOURCE: Georgian National Bureau of Statistic PMO
Despite the fact that SME is responsible for the largest share of job creation in the region, the share of SME in total
turnover is still low. Half of the total business sector turnover is generated by large enterprises. Also it must be
noted that, 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 SME is increasing in total
business sector turnover. Compared to 2013 share of SME in total business sector turnover increased from 39.4%%
(2013 year) to 47.8% in the year of 2016. The trend indicates that there is growth potential of SME and as they are
responsible for the most share of job creation the SME development shall be in prior focus on regional development
policy. This approach could be a powerful tool to address the problem of unemployment. Although it must be
noted, that low wages in SME indicates low productivity of labor force that has remained as main challenge for
sectoral development and income growth.
PMO | 38
Key findings of Sagarejo Municipality
5. KEY FINDINGS OF SAGAREJO MUNICIPALITY

Introduction
In order to identify the current situation and analyze the perspective of cross border regions focus group meetings
and face to face interviews were conducted in target regions. Two focus groups were organized in Sagarejo
municipality. A total number of participants accounted to 19. The main topics of discussion included private sector
structure and challenges, youth representation and activities, gender equality, integration and cooperation
between Georgian and Azerbaijan population, business relationships in bordering municipalities as well as
government and donor interventions. Among the participants were representatives of the private and public sector
and local community.
Besides 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. New school has 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 that hinders the villagers to start
working in the city.
 Access to internet and computer is good but internets and computers are mainly used for private purpose,
the usage of internet to promote the local business is low
 Villages lack sports infrastructure for instance stadiums and other facilities for entertainment of youth
Local Government
 Local government is aware of problems of the population and is actively involved in solving infrastructural
projects such as waste management, water supply and irrigation.
 Interaction with local population is high. The public meetings are frequently held in different villages of
Sagarejo. Local Government is also putting effort to closely cooperate with the Azerbaijani population.
Mayor of Sagarejo had a high level meeting with the Shiites religious leader that also is a big step towards
strengthening ties between Azerbaijani villages.
 Local government is also supporting public organizations working on regional topics by providing venue,
dissemination of information and mobilization of local population for various project and activities. For
PMO | 39
instance, local government is taking part in organizing Rural festival in Udabno that is implemented by NGO
Droni8 and Erasmus project.
Youth
 Young generation do not have extracurricular activities after school. Respondents think it will be good to
develop handcrafting or needlework classes for girls.
 The main entertainment for youth are sport and art activities such as wrestling classes for boys, folk music
and dance classes for schoolchildren.
 Integration of young representatives of ethnic minority groups is low, there exist cultural, social and
language barriers, most of the young people from ethnic minority groups does not know state language or
their level of language knowledge is low and not enough for communication. Moreover, they do not even
know any other foreign language except Azeri.
 The Azeri and Georgian youth does not have common interests and also common place to gather and
establish links for further communication.
 There are almost no opportunities for enhancing education and professional development of local youth,
particularly for ethnic minorities, there is no place of entertainment for youth to spend their free time,
main entertainment for boys is gathering in the yard, while girls are not allowed to leave home and they
spend their free time on watching Turkish TV-series at home.
 Civil sector also works in the direction of youth. For instance, Initiative youth for changes 9 is a group
located in Sagarejo. The group focuses on increasing the civil activism among young people and implements
different projects in this direction. Initiative Youth for changes has also implemented projects in
cooperation with Regional development center (donor organization).
Gender
 Gender issues such as early marriages, low level of education, are acute in Azerbaijani villages. No such
problems are seen in Georgian side.
 Municipality pays attention to gender issues and have special employee assigned working on gender topics.
With the involvement of municipality and financial support of Moli Kakheti Women’s Room has been
opened in village Lambalo. The aim of the project is to empower the women in Azerbaijani villages to be
actively involved in social-economic activities.
 NGO SPEKTRI10 and Women for tomorrow 11are also working in Sagarejo. NGO Spektri is a not-for-profit
organization in Georgia. Its goal is to assist in development of civil society in Georgia, take part in social-
economic and environmental problem solving at local level. The fields of the organization are: education
and science, waste management, energy efficiency, social and health care, development of small
8
https://www.droni.org/
9
https://www.facebook.com/AxalgazrdebiCvlilebebistvis/
10
https://spectri.org.ge/
11
https://www.w4t.online/
PMO | 40
businesses. Women for tomorrow focuses on strengthen the role of women in the process of economic
development by creating an empowering network of women business leaders and empowers the synergy
of collaboration of its members. The organization provides education, development and mentoring for
female entrepreneurs and business representatives at every level of leadership; advocates for equal
opportunities, effective participation, and advancement of female leaders in business; empowers women
of the region in their business endeavors and supporting them in the development of their careers;
promotes the idea of women as business leaders and supporting innovative approach in business.
Business Environment, Employment and Private Sector

 People are mostly employed in public sector and agriculture specifically in husbandry and greenery.
 Meet production is highly demanded and potentially important sector. There are number of
slaughterhouses for sheep, cow, quail and pig in Sagarejo. The highest demand for meet product comes
from Iran and Arabian Businesses. They do not have Azerbaijan partners right now but are open for new
opportunities.
 Locals envision beekeeping, dairy production and greenhouses as potentially important directions however
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.
 There has been number of attempts to establish cooperatives but most of them were not successful. The
main problems are compliance of 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 projects
and availability of cheap financial resources.
 Ministry of Agriculture 12 is very active in the region, as well as the donor organizations such as Mercy
corps13, EU14, Heks Epper15 and others. They are working mostly in direction of agriculture development.
For instance, ENPARD16 project has invested in 65-hectare almond orchard where local people from
Sagarejo and Patardzeuli are employed. Elkana17 has also financed 60 projects from agriculture and tourism
development in the municipality.
 Awareness of Enterprise Europe Network18 is very low and none has used it.
Tourism
12
http://www.moa.gov.ge/En/
13
http://www.mercycorps.ge/
14
https://eeas.europa.eu/delegations/georgia_en
15
https://en.heks.ch/worldwide/europe/georgia
16
http://enpard.ge/en/
17
http://www.elkana.org.ge/index.php?action=0&lang=eng
18
https://een.ec.europa.eu/
PMO | 41
 Tourism is not well developed in Sagarejo but certain movements are visible in that direction. For instance,
in village Udabno various guesthouses, café’s and entertainment services such as horse-riding, has been
established.
 Sagarejo has a huge potential in tourism. There are sightseeing of Jandari Lake, Khorughi Agkvetili, Camping
Zones, David Gareja including half dessert and dessert territories. According to respondent’s monasteries
and caves of David Gareja that are popular right now are only 5% of the whole complex. More complex
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 half-desert and desert slopes located in Sagarejo.
Education
 Respondents’ think that 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. Farmers’ vocational education is
working on directions of vegetable cultivation, husbandry and poultry. Center is popular among owners of
farms. Vocational directions that would be good to develop are veterinary, winemaking, tourism (tour
guide classes) and trade.
 Secondary education is playing large role in integration and cooperation of Azerbaijani and Georgian
people. Mixed classes, Georgian language lessons and sporting and cultural activities positively affects the
process.
EU integration and cross border cooperation

 There are some steps taken for advancing the cooperation but still major problems exist. For instance,
respondents have mentioned program initiated by Azerbaijani Women association19 that provides teacher
exchange program between Azerbaijan and Georgia. Teachers are selected from Ninotsminda and Ganja
for exchange program to strengthen cooperation and communication on a school level.
 Local population does not possess information regarding trade regulations and Azerbaijani market overall.
 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 local population are open to start cultural and business
relationships with Azerbaijan. For instance, one of respondent had the desire to implement cultural tour in
Azerbaijan to introduce local folk Ensemble to their Azerbaijani peers.
Border
 Respondents are aware of border crossing procedures. Respondents in Udabno have mentioned EU
program that has conducted training in border-crossing rules and procedures.
19
https://www.crin.org/en/library/organisations/azerbaijan-womens-association
PMO | 42
 Border crossing procedures are very strict from Azerbaijani side. Everything is strictly checked and analyzed
for instance Kakhi check point do not allow private items such as icons, food and Georgian books to be
transferred to the border.
 Strict border procedures are also impeding the development of tourism sector. For instance, in David
Gareja territory border is not clearly marked and if someone mistakenly crosses the border they might be
arrested from Azerbaijan side. Locals have also mentioned that price of passport is high and do not have
incentive to take it to cross the border.
 Despite the fact that the distance to the border from Village Udabno is 17 km there is no customs
crossing point and only way to get to the Azerbaijan is through Gardabani or Lagodekhi municipalities
that is more than 50 km far, the large distance to the border crossing points is additional barrier that
limits cooperation of cross border regions. Moreover, there is Jandara Lake from 29 km far to village
Udabno, the part of the lake is located to Azerbaijan and the part of the lake is located in Azerbaijan
region, there is an opportunity to create joint tours from Udabno village to Jandara Lake and opening up
customs check point will positively affect the cooperation. Moreover, local population can be employed
at customs crossing point that will also have positive influence on the employment and income growth of
local population.
PMO | 43
Overview of Kvemo Kartli region
6. OVERVIEW OF KVEMO KARTLI REGION

Demographic trends
Kvemo Kartli region is located in the South-Eastern part of Georgia. The region borders Samtskhe-Javakheti to the
west, Tbilisi, Shida Kartli and Mtskheta-Mtianeti to the north, Kakheti to the east, Republic of Azerbaijan to the
south-east and Republic of Armenia to the south. Its area is 6.5 thousand m2, 9.3% of the country’s territory.
The region comprises of 347 settlements – 7 towns, 6 municipalities and 334 villages. 38,3% of the region’s
population lives in cities, and 61,7% – in the villages. There are seven municipalities in the region – self-governing
city of Rustavi and Bolnisi, Marneuli, Dmanisi, Tetritskaro, Gardabani and Tsalka municipalities. Mountainous
settlements are Dmanisi municipality including 19 villages (above 1500 m), Tsalka municipality including 46 villages
(above 1500 m) and Tetritskaro municipality including 35 villages (above 1300 m) villages.
The population of Kvemo Kartli is 513.1 thousand, which is 11.4% of the country’s population. The population is
mixed between Azerbaijanis (45.1%), Georgians (44.7%), Armenians (6.4%), Greeks, Russians, Ossetians,
Ukrainians, Abkhazians and Kurds.
16. The distribution of population by municipalities (000 people), Kvemo Kartli Region, 2017
SOURCE: Geostat PMO
19
106 4%
25%
Rustavi city Bolnisi municipality
127
22 29%
5% Gardabani municipality Dmanisi municipality
20
5%
Tetrtskaro municipality Marneuli municipality
81 55
19% 13% Tsalka municipality
Rustavi city is the biggest one in this region by the population of 127,000, followed by Marneuli and Gardabani with
106 thousand and 81 thousand people respectively.
Labor Market
The main problem of young people in the region, as well in the country, 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 increased during the last years, from
2012 (12,5%) to 2017 (14,1%). Approximately 50 % of active force is self-employed, mainly in agriculture, which
does not generate enough income to sustain proper living standards for households.
PMO | 44
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 PMO
Average salary in Kvemo Kartli is 763.8 GEL, which is 19 % lower than country average. Mining and quarrying,
production and supply of electricity, gas and water, manufacturing are three most paid 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 Manufacturing Construction Real estate, renting Transport and Wholesale and retail Fishing
Quarrying and business communication trade; repair of
activities motor vehicles and
personal and
household goods
SOURCE: Geostat PMO
The major share of labor is employed in manufacturing industry with 26%, followed by wholesale and retail trade
21% and construction by 8% respectively.
Employment in manufacturing industry had a decreasing trend in the last years, however in trade and construction
employment has been growing quite steadily. Increase in the self-employment and decrease in employment will
have a negative impact on development of the region.
PMO | 45
Economy
The economic activity is unevenly distributed between capital city and the regions. Kvemo Kartli generates only
5.3% of Total Value Added of the country. The development of private sector is moderate in Kvemo Kartli compared
to the other regions of Georgia. Almost 72% of total turnover of business is generated in Tbilisi, Kvemo Kartli takes
3rd place by 5.6% share in total annual turnover of the country, which is really subtle and indicates the low level of
business sector development in the region.
19. Business sector turnover (mln GEL), Kvemo Kartli Region, 2012-2016
4000 3603 40%

33% 3347
3500 35%
2830
3000
2506 2662 30%
2500 2302 25%
18%
2000 1726 20%
1500 15%
9% 8%
1000 6% 6% 10%
500 5%
- 0%
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 PMO
Dominant industries in 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
3… 5% Electricity, gas and water supply

3%
3% Manufacturing
5% 23%
Mining and Quarrying
7% Wholesale and retail trade; repair of motor vehicles

and personal and household goods
Construction
22%
12% Real estate, renting and business activities
Agriculture, hunting and forestry

17%
SOURCE: Geostat PMO
PMO | 46
Generally, the value added by these industries has 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. The one of the reasons for that is its location, and climate
conditions. They can reap the harvest 2-3 times annually. Region produces 7,200 tons of wheat, that is 7.3 % of
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 the 10th place in terms of meat production.
It should be admitted that the region has a good perspective for a tourism development, as there are more than
500 tourist attractions, good climate conditions and a lot of beautiful views.
Small and Medium Enterprises

Small and medium enterprises create 51% of working places while the rest 49 % is created by large enterprises.
According to the statistics average salary offered by these firms is the following: 1,082 Gel (17% lower than
country’s average) in large, 565 Gel (21% lower than country’s average) in medium and 260 Gel (41% lower than
country’s average) in small enterprises. This difference is caused by the low rate of business development.
In this region 85% of products is 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
81%
2,908
Large Enterprise
35% Large enterprise
39,953
3,603
12% 49%
Person
mln GEL Medium
Medium
436 Enterprise
enterprise
SmallEnterprise
Small Enterprise SOURCE: Geostat
16% PMO
7%
258
PMO | 47
Key Findings of Gardabani Municipality
7. KEY FINDINGS OF GARDABANI MUNICIPALITY

Introduction
In order to confirm the results of the official data sources as desk documents field work was conducted in each
target regions. Two focus groups were conducted in Gardabani municipality with 17 participants in total. The
participants were representatives of the public and private sector, such as owners of guesthouses, beekeepers,
owners of fisheries and farms, representatives of local government and schools. In addition, seven face-to-face
interviews were conducted with the same target group representatives. The following section represents the
results of the field work sorted by the relevant topics identified 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 the mobility between cities
and villages and creating problems in terms of education and work. Internal roads are damaged and there
is lack of transportation inside Gardabani villages. The lack of infrastructures significantly affects tourism
development. Road failure, water and gas supply problems, strongly impede the operation of hospitality
sector.
 Municipality representative are aware of the water supply problem and are taking steps towards that
direction. It is expected that the problem will be partially solved for 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 leading between the regions in terms of the 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 the mini waste processing plant.
 One of the issue in 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. LTD
Meqanizatori services are mostly used by large farmers but the smaller ones try to find other resources.
 Sport is very popular among young generation, however Gardabani lacks sporting infrastructure.
Respondents wished to have sporting complex and swimming pool infrastructure in the Municipality
Access to computers and internet
 The most of the population has access to the internet and computer. Even in the remote areas of the
municipality where there is no cable internet available, company Zanet installs modems for internet access.
 In terms of computer infrastructure, the e-education has majorly influenced the situation. The first graders
receive computers before starting the school and that has also increased the access to computer in the
region.
 Steps has been taken towards the improvement of computer literacy, however Internet is mostly used for
entertainment. The use of internet for business purposes is not apparent in the region.
PMO | 48
Local Government
 The level of awareness of key problems and concerns of local population is high in representatives of local
government but the real results are not visible among population. Representatives of municipality have
frequent meetings with the population to discuss the common problems. They also focus on the needs of
young population and have meetings with students in order to identify their needs. Information about
public sessions are published at the official website as well as disseminated orally between local
population. According to the local government representatives interest and attendance is not high. There
is potential of devising more effective ways to increase the participation level of local society.
 Gardabani Mayor holds weekly public sessions. Besides the meetings Mayor also has site visits to closely
interacts with local population. Even though municipality is open to actively cooperate with local
population they still struggle to establish effective communication with ethnic minorities.
 Mostly communities are addressing local government regarding land registration and legalization of
property as well as for infrastructural projects. There is a government program which allows the local
population to register their lands free of charge. This program is very popular for local population.
 Local Government is also actively involved in supporting governmental and donor initiated projects by
disseminating information and providing venue for communication. For instance, they have supported
GITA20 meeting regarding the access to internet and information. Project was very interesting for the
population. They have also hosted debate sessions between Georgian and Azerbaijani Youth.
 Local government is paying attention to 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 youth by implementing various
sporting events and competitions.
Youth
 The main attraction for young population in Gardabani is sporting events and activities. Youth is actively
involved in sports.
 Youth employment is a major issue in Gardabani. Based on the field research young people are mostly
employed in public sector (municipality city hall, public educational institutions). Young generation
employment has been increased in public institutions in recent years. The main driver of this tendency is
the knowledge of technologies and foreign languages. Despite the growing tendency public sector could
not provide the sufficient amount of jobs to satisfy young population.
 Unavailability of jobs are causing labor migration in young population. As mentioned in the focus groups
99% of young employees are working outside Gardabani. Besides the scarcity of employment opportunities
low salary levels also play role in the labor migration.
20
https://gita.gov.ge/
PMO | 49
Gender
 Gender issue common for Azerbaijani population is early marriages. The school representatives mentioned
that Girls only attend nine grades and after that they get married and cease learning. Azerbaijani population
has also confirmed the fact but said that these trend is slowly getting better and the awareness regarding
the early marriages are spread in the population. For instance, one of the secondary school has won a grant
to implement awareness raising on the harmful side 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 man in terms of formal employment and they are represented in
public sector in majority.
 Girls are also involved in sports (karate, fencing) respondents mentioned Azerbaijani girl from Gardabani
who has won European Championship in Karate
Business Environment Employment, private sector

 The same problem is present between adult job markets. Most of the people in Gardabani are self-
employed in Agriculture more specifically in animal husbandry and land cultivation. Agricultural activities
are more popular between Azerbaijani populations. Other large sectors are financial institutions and small
scale trading. People are also employed in transportation (railway) and energy sector (hydropower plant,
Socar Gas and etc.)
 Since Gardabani is near to capital people are also seeking jobs in Tbilisi and in other cities. Focus group
members mentioned that people are employed in Lilo Mall (trade) and Rustavi Car Trading Centers. Besides
that, people are also migrating in neighbor countries to find jobs (Azerbaijan, Turkey, Russia, Kazakhstan)
 People are not aware of various programs and activities that is ongoing in Gardabani. For instance, focus
group member did not know about Farmers Center that is functioning in Gardabani.
 Some of the private sector representatives have used Enterprise Georgia programs for the development of
the 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 to get funding.
According to focus group respondents 80% of the applications submitted from the municipality were filled
with the help of the employees of the Agriculture Consulting Center.
Tourism
 Tourism has been more active in the past but has declined in the recent years in Gardabani. The main
reason for it is the change in regional borders that has transferred Davit Gareji Monastery into Kakheti
region.
 In general, Kvemo Kartli has a good potential to develop some of the tourism directions such as agro health
and cultural tourism. For instance, Manglisi is considered as a health resort and already has its own tourist
information center. Besides, that there are several historical monuments in Kvemo Kartli canyons of
Dashbashi, Birtvisi, Samshvilde and others that are not included in tourist routes. Khrami Hydropower
Station can also be considered as one of the potentially attractive tourist sightseeing.
 Tetritskaro Municipality also offers Horse riding tours to Dmanisi and back. There is also Algheti protected
zone and Bolnisi sightseeing. The main problems in terms of tourism development is infrastructure such as
roads and water supply which significantly impedes the tourism development
PMO | 50
Language Barriers
 Language barriers are mostly apparent in older population. 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 level still Azerbaijani
population has problems with analyzing information in Georgian. Mostly all lessons in Azerbaijani
settlements are in Azerbaijani language only Georgian lessons are led in Georgian that is also creating
barriers in terms of learning Georgian. This also creates problems when children proceed education at the
university level.
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. School
uses electronic learning approach. Sports and Art direction is also included in the learning process.
 Although the 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 old teachers who do not want to retire and allow new
generation of teachers to proceed the work. 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 with the help as an
assistant teacher. One of the Azeri respondents has mentioned that her friends are employed by this
program and are very satisfied. “This program has tremendously improved the knowledge of Georgian
language between Azerbaijani communities.”
 Vocational education is becoming more trendy among population. Respondents have mentioned that
young generation is enrolling in vocational institutions.
 There is no vocational institution in the region. Small distance between capital and Gardabani give students
opportunity to get vocational education.
EU integration and cross-border cooperation

Focus groups participant mentioned that the donor interventions were more active in the past. Nowadays there is
Civic Integration Foundation21 that works towards civic integration in Georgia. Together with United Nations
Association of Georgia (UNAG)22 they have established Gardabani Youth Center that is aimed at raising awareness
of Human rights, tolerance, cultural diversity, domestic violence conflict prevention and others.
21
https://cif.org.ge/
22
http://www.una.ge/
PMO | 51
Another public organization is IDP Women’s Association23, who is involved in informal education activities in
Gardabani.
Export and border procedures

 Local Beekeepers think that Honey export is potentially attractive business since the prices in Azerbaijan
is twice as high as in Georgia and the Georgian honey is well-known and desirable product. However
unofficial border taxes make unfavorable environment for the initiation of trade.
 Private sector is skeptical toward Azerbaijani market, they perceive it as monopolistic and corrupted.
Border procedures are also perceived as a barrier. 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 production
standardize it and then send for export. Respondents mentioned that they have attempted to create
cooperative but could not handle it because of cultural and mental differences and also different views
among participants.
 One of the major problems with the border is new regulation towards car insurance. There are only two
operators working that causes delays and lines at the border. There is an online portal that allows
customers to take insurance remotely but procedure seems complicated for customers because of the
language barriers.
 Some of the respondents mentioned that additional crossing point from the villages might incentivize the
cooperation between Azerbaijan and Georgia
Cooperation and integration

 Economic relationships with Gazakh or other districts of Ganja-Gazakh region are not visible among
respondents they are not aware of current situation in cross border region and the most of economic
activities stays within the municipality
 There are no proven economic relationships between bordering regions or systematic trade it is only 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, Georgian side says that needs of
Azerbaijani people are accounted and respected. Azerbaijani people think that their representation in
public sector and local activities are minor compared to actual numbers. They also say that they are only
involved in important occasions such as pre-election activities but in the real life they are not considered
as important parts of society. Georgian side says that the only barrier hindering Azerbaijani people to be
involved in political and social life is language barrier.
23
https://www.peaceinsight.org/conflicts/georgia/peacebuilding-organisations/consent/
PMO | 52
 Integration and communication problems are less visible among young generation. There are number of
sporting intellectual and cultural activities for youth cooperation on a school level that also positively
affects the integration process
PMO | 53
Overview of Ganja-Gazakh region
8. OVERVIEW OF GANJA-GAZAKH REGION

Overview
Ganja-Gazakh economic region is located on the western part of Azerbaijan and is the second largest economic
region of the country. The total area of the region is 12.5 thousand square meters that is 14.4% share of the
territory of the country. Ganja-Gazakh region is divided into nine administrative units: Agstafa, Dashkesen,
Gadabay, Goranboy, Goygol, Gazakh, Samukh, Shamkir and Tomuz administrative regions, also there are two cities
Naftalan and Ganja that 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 population living in urban areas is 45.9%, the rest of the population lives in rural areas of the region.
The urbanization rate differs by administrative units of the region, the Dashkesen and Goygol districts are mostly
urbanized districts, with more than 40% of urban population, while Tovuz and Gadabay districts are in the least
urbanized districts with more than 80% of population living in rural areas. Low urbanization rate is characteristic
of Agstafa and Gazakh regions. In Agstafa only 24.5% of population are living in urban areas, most share of
population (75.5%) is living in rural areas, similar to Agstafa 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 PMO
Similar to Georgia, there is large gap in economic development between capital city and regions of the country.
Most of the business entities are operating in Baku, among the regions Ganja-Gazakh stays at the second place by
number of business entities registered. There are 7,200 legal entities registered in Ganja-Gazakh region, the
number of people employed in business sector is 96,631 that is 14.1% share of business sector employment of the
country. The average wage in the region is 299 Manat that is 40% lower than country average and 59% lower
compared to the average wage in the capital city.
The large discrepancy of average wages between capital city and region indicates the low productivity of labor
force in the region that is mainly caused by the lack of knowledge and skills and can be considered as main
challenge for the prospective economic development of the region.
PMO | 54
The largest share of the output is generated in capital city, Baku holding 71% share in total output produced in the
country, the rest 29% is redistributed among the regions. Ganja-Gazakh region stays at the second place after Aran
region by economic importance of the country, holding 4.6% share of the total output of the country. Agriculture,
Construction, Retail trade and Industry are most prominent sectors of the economy of the region.
Ganja-Gazakh region stays at the second place among the regions by its share in agriculture production of the
country. 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 agriculture
production are meat and dairy products, grains including wheat, grapes, and potatoes.
23. Economic Structure of Ganja-Gazakh Region, million Manat
18%
626
Industry
27% Agriculture
955 30%
1,062
Construction
Transportation and Storage

0.4%;
12
Information and Comunication
3.%;
107
22% Trade and Repair of Transport means
785
Construction takes 22% share of the economy in the region. About 6.3% share of total output in construction
industry is produced in Ganja-Gazakh and takes third place among the region by this indicator. There are metal-
concrete, brick-ceramic and marble factories operating construction industry of the region24.
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 rest 12.6% is redistributed among the regions. Ganja-Gazakh takes third place by its share
of total output in industrial production that is 1.6%. Main industrial products are electric tools, telecom equipment,
agricultural machinery, metallurgy, cotton, textile, ceramics, glass production and food industry.
24
“Economy of Azerbaijan: 25 Years of Independence”, Osman Nuri Aras, Elchin Suleymanov, Karim Mammadov, 2016
PMO | 55
Economy in the region is steadily growing since 2010 but the growth has been declined since 2014 that was mainly
caused by oil price shocks, but economy managed to recover faster and positive growth trend is present since 2016.
The Largest growth took place in Construction industry that grew by 31.3%, followed by agriculture with 10.8% and
transportation with 10% growth rate. The lowest growth was in trade that grew 1.5% and industrial production fell
by 18.7% in 2017.
24. Real Growth of Output of the Economy in Ganja Gazakh Region in 2017
-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%
Construction 31.3%
Agriculture, forestry 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 region area is divided into four zones, that differ
by landscape characteristics and climate: sloping plains, foothill zone, middle uplands (1000-2000 m above the sea
level) zone and alpine (more than 2000 m above the sea level). The variety of landscape, characteristics of nature,
the combination of forests, mountains and mineral waters create valuable potential for the development of tourism
industry within the region.
Baseline tourism infrastructure also supports the development of the potential of the region. Other factor
supporting the development is transport network as important highways, railways and air routes are passing
through the region. There are three airports operating in the region located in Ganja, Naftalan and Agstafa. Ganja
airport mainly hosts domestic flights and directions from and to CIS countries, but in case of demand the directions
could be extended to other countries. Being the cross border region also creates the additional potential to develop
links and networks to the neighboring country.
PMO | 56
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
PMO | 57
Agstafa
9. AGSTAFA
Demographic Statistics
Agstafa is located in the cross-border region and borders Georgia. The distance to Baku is 461 km. Population of
Agstafa accounts to 86.6 thousand people. The last census of population was held in 2009. The population of
Agstafa experience steady growth trend since 2010 and average annual growth rate of population amounts to 1.2%.
The most share of the population is living in rural areas, 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
Urbanization Rate Population structure by Gender

74.9%
49.3% 50.7%
25.1%
Urban Rural Male Female
Population is evenly distributed by gender. 99% of population is Azeri nationality, representatives of other
nationalities include Georgians, Russians, Turks, Kurds, but their share in total population of region is low. 89%
share of population is below the age 60, young populations (15 to 29 age groups) constitute 25.9% of total
population in the region.
27. Distribution of Population by Age, 2016
7% 3%
19% 0-14
23%
15-29
30-44
45-59
60-74
75 and more
22%
26%
PMO | 58
Agstafa
Overall level of literacy in Agstafa is quite low, only 9.5% of local population has received high education. The largest
share of population (64.8%) has received full secondary education, 1.2% of population does not have education.
The low rate of literacy of local population is partially explained by the fact that most of the youth receive high
education in Baku or abroad and majority of them stay there for job. It must be noted that among the illiterate
population number of women outstates the number of men. It must be noted that the difference between number
of women and men shrinks at higher level of education, moreover the share of women with high education is
slightly more than men with similar level of education.
Labor Market
According to The National Bureau of Statistics of Republic 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 employment 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 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 is low compared to country’s average. The average monthly nominal wage is 240.3 Manat in
Agstafa that is 17.5% lower than regional average and 52% less than average wage in the country. At the same
time, regardless growing trend of average salary in the country and in Ganja-Gazakh region, the average wage in
Agstafa slightly decreased since 2014. The low wage indicates low productivity of population and lack of
professional skills and knowledge to get jobs in high productive industry and generate income.
Overall 2804 persons are employed in civil service in 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 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 Service Employees Administrative posts according to 4-7 Supplementary posts in civil service
classifications
Women Men
PMO | 59
Agstafa
13.5%
25.3%
56.2%
49.5%
25.2% 30.3%
Administrative posts according to 4-7 classifications Supplementary posts in civil service
Under 35 35-54 55 and older
25.8% of employed in civil service are young people under the age of 35, most of them are holding administrative
positions. The largest share 75.8% of civil servants is between the ages of 35-54, so it can be considered that civil
service of Azerbaijan has young labor force. There is a large difference between women’s participation in civil
service employment, most of the women are holding low positions. The similar gap is presented in terms of
women’s entrepreneurship. The number of women entrepreneurs is 949 in Agstafa, that is 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’s employment they do not work and take care of their families.
29. Distribution of Population by Age, 2016
19,748 19,906
2,898 2,962 3,213 3,642 4,422

2,193
458 1,051 211 532
Higher Education Secondary Specialized Full Secondary Institution General Secondary Elementary Education Non-Education
institutions Education
Men Women
The amount of women with no education or only elementary education is more than two times larger than number
of men with similar level of education The large gender gap at lower education level indicates that girls are still
facing barriers to receive the education.
PMO | 60
Agstafa
Economy
The output generated in 2017 in Ganja-Gazakh Economic region amounts to 3.5 Billion Manat, that is 4.5% of total
output of the country. The largest share of the regional output is produced in Ganja, 27%, followed by Shemkir with
16.9% of share. Agstafa generates 5.9% share of total regional output, 5.7% of total output is generated in Gazakh.
Construction industry holds the largest share of the economy of Agstafa, followed by Agriculture and trade of
32% and 21% shares of the local economy, respectively Despite the fact, that regional economy has experienced
steady growth, except years of 2014-2015 that might be affected by oil price shocks and economic recession, there
is still a large gap between the regions and capital of the country. Production per capita in Agstafa is 2,415 Manat,
8 times lower than in Baku.
30. Economic Growth in Agstafa, 2010-2017
50.0% 45.1%
40.0%
30.0% 26.5%
19.4% 20.5%
20.0% 14.3%
10.0% 2.7%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 *
-10.0%
-0.2%
-20.0%
-17.2%
-30.0% Real Growth Rate of Output in Agstafa
There is a steady growth trend of production in Agstafa region, except the 2014-2015 years, when decrease of
production was caused by oil price shocks and economic downturn, but economy recovered soon and in 2016 there
was another positive trend. The fastest growing sectors in 2017 were construction with 133.9% growth in output,
followed by industry 25with 44.4% growth and agriculture with 14.8% growth. It is worthy to note that in 2017
industrial production has been decreased by 18% for Ganja-Gazakh region, but Agstafa experienced larges growth
in industrial production.
25
Under the term of industry is unified whole industrial sectors
PMO | 61
Agstafa
31. Output Growth by Type of Activity in Agstafa, 2017
Construction 133.9%
Industry 44.4%
Agriculture, forestry and fishing 14.8%
Information and communication 6.1%
Transportation and storage 4.0%
Trade; repair of transport means 1.6%

There were 22,430 small enterprises operating in Ganja-Gazakh region,93% of them were owned by individuals.
The largest share of small enterprises, 46.8% are operating in trade and repair services and are generating 56%
share of total production generated by small enterprises. In 2015, the total output generated by small enterprises
in Ganja-Gazakh region amounted to 417, 2 million Manat, that is11.7% share of regional output.
The number of small enterprises in Agstafa accounts 1534, out of which 95.6% is owned by individuals. Total output
of small enterprises is 23.3 mln Manat that is 11% share of total output of Agstafa. The largest number of small
enterprises is operating in retail trade, generating 74% share of total output produced by small enterprises in
Agstafa region.
32. Number enterprises by types of activity in Agstafa, 2015
18 25
19
1% 2%
1%
agriculture, forestry and fishing
290
19% industry
120 construction
8% 1,534 trade; repair of transport means
724, 47%
transportation and storage
338
22% accommodation and food service activities
other fields
PMO | 62
Agstafa
33. Share in output by types of Economic Activity, million Manat
5% trade; repair of transport means

3.4%
transportation and storage
6% 74%
23.3 accommodation and food service activities
11.8%
industry
other fields
Total number of employees in small enterprises for Ganja Gazakh region is 8,491, that is 9.7% of total employees
working in small enterprises in Azerbaijan. In Agstafa 164 and in Gazakh 97226 people are employed in small
enterprises.
26
The latest statistics is given for 2015
PMO | 63
Gazakh
10. GAZAKH
Demographic Statistics
Gazakh is located next to the Georgian border, neighboring Agstafa region. The distance to the capital is 470 km.
The total population of Gazakh is 95.8 thousand people that is 7.6% share of total population of Ganja (Gazakh
region) and is sixth city by amount of population within the Ganja-Gazakh region. Similarly, to Agstafa, urbanization
rate is low in Gazakh, 77.5% of population lives in rural areas in Gazakh. The gender structure of population is
almost equal, with slight domination of females, about 51.1% of population are women.
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
99.5% share of population are Azeri nationality, the share of minor ethnic groups in population is low. 88% of
population is below 60 years, young population takes 25% share of total population. The problem of aging of
population or young labor force is not present.
35. Population by Age Group in Gazakh, 2016
8% 4%
20% 22% 0-14

15-29
30-44
45-59
60-74
21% 75 and more
25%
PMO | 64
Gazakh
Overall education level of population is low, only 13% of population above age 15 have higher education, most
share of population have received fully secondary education 61.3%. women and men have almost equal share
among the people with secondary education, while at lower level of education the women’s share is higher. As an
example among the people with elementary education the women take 66.9% and the women’s share among the
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 early stage. Although it must be mentioned that women also take slightly
higher share among the people with higher education. Total 8968 people have received higher education out of
which 51.2% are women.
36. Level of Education in Gazakh; Gender distribution by level of education, 2016
9%
higher education
Secondary Specialized Education

13%
61% Fully secondary education
2%
General secondary education
3%
12% Elementary Ediucation
non-education
21379 20900
4375 4593 4143 3819 4544

2279
640 1294 302 667
higher education Secondary Specialized Fully secondary General secondary Elementary non-education
Education education education Ediucation
Men Women
Labor Market
According to the recent statistics almost 631 thousand people were employed in the economy of Ganja-Gazakh
region. The number of employed people in Gazakh are 49.4 thousand, that is 71% of adult population. Most of the
people are self-employed, only 23% (113,000) of all employed personnel are hired. In 2016 the number of
employment grew by 2.1% out of which 4.5% growth took place in the number of hired workers.
PMO | 65
Gazakh
It must be noted that number of new job places increased by 184% and accounted to 2,141 in 2016. 95% of new
work places were permanent jobs.
Legal entities registered in Gazakh amounts to 539 with 7,506 employees. The average monthly salary in Gazakh is
258.1 Manat, that is 13% lower than the regional average and 71.3% lower compared to country average.
37. Number of Newly Opened Jobs in Gazakh, 2010-2016
2141 2031
1064 957 877

889 907 867
753
467 376 493
2010 2012 2013 2014 2015 2016
Number of Opened Jobs, total Permanent jobs
Economy
The value of total output produced in Gazakh amounted to 200 mln Manat, that is 5.7% share in total value of the
output produced within the Ganja-Gazakh region. After 15% decrease in 2016 the real growth of production in
2017 accounted 23.4% in Gazakh. Agriculture takes the largest share of the economy of Gazakh with 39% followed
by trade with 30% and industry by 18% respectively.
38. Economic Structure of Gazakh, million Manat, 2016
18%
36
30%
59 Industry
Agriculture, forestry and fishing
200.6
Construction
1% million Manat
Transportation and storage
1.4
3% Information and communication
59
39% Trade; repair of transport means
9% 78
18
PMO | 66
Gazakh
39. Annual Growth of Output in Gazakh (Left), Growth by Types of Economic Activity in Gazakh (Right),
2017
Construction 132.8%
29.8%
23.4% Transportation and storage 17.7%
21.5%
Industry 17.6%
Information and
1.5% 2.0% communication
13.4%
0.2%
2010 2011 2012 2013 2014 2015 2016 2017 * Trade; repair of transport
means
1.2%
Agriculture, forestry and

fishing
0.9%
-13.0%
-15.0%
Since 2013 region experienced fluctuations in economic growth, also the high growth rate indicates regions
resistance to recover faster after recessions. Construction was the fastest growing sector of the economy, followed
by transportation and industry. Agriculture that takes largest share of the economy 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
latest statistics, number of people employed in small enterprises accounted to 972 in 2015. Total output generated
by small enterprises is 27.7 million Manat, that is 16% share in total output generated in Gazakh. The most of the
small enterprises are operating in trade, service, transportation and storage sectors.
40. Number of Small Enterprises by Types of Activity in Gazakh (2015)
48 35 26 10
3% 2% 1% 1%
trade; repair of transport means
134
8% transportation and storage
310 other fields

17%
accommodation and food service activities
840 agriculture, forestry and fishing

47% industry
370
construction
21%
other fields
PMO | 67
Gazakh
41. Annual Turnover of Small Enterprises by Types of Activity in Gazakh, 2015, Million Manat
7%; 2
9%; 2.5
trade; repair of transport means
27.7 transportation and storage

million Manat
accommodation and food service activities
21%; 5.8
other fields
63%; 17.3
construction
Construction holds 42% share in the economy of Agstafa. In addition to large stake, the growth of construction
sector in 2017 accounted 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
construction sector in Ganja-Gazakh region, out of which 9 operates in Gazakh and 7 in Agstafa. The value of work
executed by construction enterprises in Ganja - Gazakh region is 166 mln Manat. Although the share of construction
in Ganja-Gazakh economy is the largest it only takes 2% share in total output of construction sector of the country.
The employment in Construction accounts to 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 the Baku’s figure of 1,062 Manat. This gap indicates the low productivity of labor in the region.
Agriculture
Agriculture takes 30% share of total output in Ganja-Gazakh region. Agriculture is one of the key sector taking
38.3% share in total production of Agstafa and 38.8% share in Gazakh region. The largest part of agricultural
production of the Ganja-Gazakh region is produced in Shamkir (31.1%). Agstafa takes 6.1% and Gazakh takes 7.3%
share of total agricultural production of the Ganja-Gazakh region.
PMO | 68
Gazakh
42. Regions’ Share in agricultural output in Ganja-Gazakh region
7%
5% 7%
9% Ganja Aghstafa
Dashkasan Gadabay
13% Goranboy Goygol
31%
Gazakh Samukh
3%
Shamkir Tovuz
6%
0% Naftalan
19%
0%
Total area of agricultural land in Ganja-Gazakh region is 195 thousand hectares, holding 12% share of the total area
of agricultural land of the country. Out of 195 hectares Gazakh and Agstafa hold 14.9 thousand and 21.1 thousand
hectares respectively. The largest part of the land is used for the production of cereals, holding 42% of total
agricultural land used. Wheat is the mostly sown cereal holding 54 thousand hectares in Ganja-Gazakh region.
Potatoes are at the second place in terms of sown area, 31 thousand hectares (14.3%) is used for the potatoes.
Fruits and berries are standing at the third place with 7.3% share in total sown area of Ganja-Gazakh region. For
instance, grapes produced in Ganja-Gazakh region account to 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 for seed 58.50%

Potato 50.33% Poultry 73.56%
Grape 41.06%
Sugar Beet 24.49% Sheeps and Goats 19.91%
Vegetables 17.19% Bee families , (units) 14.99%
Fruit and berry 15.73%
Cereals and cereal legumes 9.07%
Large horne cattle 12.10%
including wheat 8.84% including cows and buffaloes 12.04%
Cotton 4.85%
Pigs 2.79%
Regions Share in Countries Total Agricultural Production,
Plants Series1
In terms of livestock the 73% share of poultries is produced in Ganja-Gazakh region. at the second place stands
sheep and goats with 20% share of country’s total livestock production.
PMO | 69
Gazakh
There are 211 agricultural enterprises in Ganja-Gazakh region, out of which 13 operates in Gazakh and 15 in Agstafa
district. All enterprises in Agstafa and Gazakh are profitable. Total 1,759 employees are working in Agriculture
enterprises in Ganja-Gazakh region, that is 12% share of total country employees in Agriculture enterprises. In
Ganja-Gazakh region, Agstafa is leading with the number of employees in agriculture enterprises with 28.3% share.
Goydol and Samukh districts are taking second and third place with 25% and 19.8% shares respectively.
44. Number and Share of Employees in Agricultural Enterprises by Regional Units ofGanja-Gazakh
Region
2% 0%
1% Ganja city
14%
Gazakh region
4% 20% Aghstafa region
Tovuz region
1759 Shamkir region
Gadabay region
28% Dashkasan region
25%, Samukh region
Goy Gol region
Goranboy region
3% 3%
Trade and repair of means of transportation

Retail trade is the third largest economic sector in Ganja-Gazakh region, taking 21% share of economy of Agstafa
and.29.6% share of total output of economy in Gazakh.
45. Share of Regional Units in Total Retail Trade Turnover of Ganjza-Gazakh Region, 2016
2% 1%
4%
5% Ganja Tovuz Shamkir
5% 32%
Goranboy Gadabay Gazakh
6%
Goygol Aghstafa Samukh
7%
Dashkasan Naftalan
8%
15%
15%

In terms of retail trade Ganja-Gazakh region takes 8.2% share in the total trade turnover of the country. The share
of districts in the trade turnover of the region is the following:
1. Ganja city - 31.5%
PMO | 70
Gazakh
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 Ganja-Gazakh region is 31%. Trend is similar for Gazakh and Agstafa with 22.1% and 29.7% share in total
trade turnover.
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% 9.7%
6.6% 9.5% 11.1%
6.9%
4.3% 2.7%
1.1% 5.2%
2011 2012 2013 2014 2015 2016
Ganja-Gazakh economic region Gazakh Aghstafa
SOURCE: National Bureau of Statistics of Republic of Azerbaijan PMO
It must be noted that share of imported goods in the retail trade has slightly increased for Ganja-Gazakh region
since 2013. On the other hand, share of imported goods for Agstafa decreased by 6% in 2016 while for Gazakh
district increased by 0.5%. Decrease in import volume in Agstafa might be attributed to overall growth decline in
total trade turnover.
PMO | 71
Key Findings of Gazakh and Agstafa Regions
11. KEY FINDINGS OF GAZAKH AND AGSTAFA

MUNICIPALITIES
In order to identify the key trends in Gazakh and Agstafa region 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. United focus group was organized from Gazakh and Agstafa municipalities with 15 participants
of public and private sector representatives. Four in-depth interviews and five informal interviews were also
conducted with the representatives of private sector and local population.
Economic development and potential of growth

 Agriculture is one of the leading sectors of the economy; the highest share of the income is generated from
the primary production of agriculture that is sold in local market.
 The main challenge is the low skills and lack of use of modern technologies in production process that
lowers productivity of the sector.
 Although people have high interest to export their production to the neighboring countries, they have
limited possibility for the export. Main problem is that people are not aware of the rules and regulations
imposed on the export goods in neighboring regions.
 The most prominent sector of agriculture are 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 local farmers and to use modern tools in
agriculture production
 Retail trade is another source of income for local population. Most of them lack entrepreneurial skills and
that limits the possibility to expand their business
 Tourism is considered as one of the preferential sector that has development potential within the region.
Although there is no cultural heritage and interesting sightseeing in Agstafa and Gazakh, the other districts
of Ganja-Gazakh region have the resources such as mineral water, forests, 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 visa for
international visitors directly at the border. The fee for visa issuance is about 20 Euro and visa is issued
in 5-10 minutes.
 Lack of awareness and information hinder sectorial development. Moreover, the local population does not
hold general skills to manage and promote their business and attract potential clients. Inability to use digital
marketing tools is also hindering development of tourism within the region.
 Armed forces at the borders can be considered as 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 at local as well as
international market.
PMO | 72
Gazakh
 Most of the hired people are employed in public sector in particular in schools, healthcare institutions and
other government agencies.
 Average salary is very low and not enough to meet the demands of local population. Low salary rates
encourage informal ways (tips, bribes) to get an extra income.
Business Environment
 Although legally every business entity has possibility to enter the Azerbaijani market, there are informal
barriers to entry hindering local and neighboring business entities to enter to the market
 After presidential election government of Azerbaijan started to carry out the reforms to improve business
environment. The reforms were carried out in the customs regulation to remove bribes and illegal
payments. The results of the reforms are not clearly visible and the feedbacks of the respondents are
contradictory.
 The access to finance is low because of the low skills of population to fill the application for the issuance
of credit, some groups of the local population is not aware how to use bank credit card to execute
transactions and payments even for the private use.
Gender Equality and Women’s Participation in Economic Activity

 Participation of women in the economic activity is low, moreover, most of the companies formally include
women in the workforce but do not actually include them in the working process. 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 of the employed women are working in healthcare and education system
 There is no organization working on the development of support mechanisms for women participation in
economic activities and decision making process
 The women themselves do not express initiatives and interest to be involved in economic activity. this is
mainly influenced by the social perception. Although it must be noted that women with higher education
are admired.
 Family plays crucial role to support women engagement in economic activities and access to education.
Mostly families decide whether girl is allowed to work and study or not. This attitude is more common in
the region. Situation is totally different in the capital city.
 Most of the women refuse to work because they have obligations towards family and childcare. According
to respondents, kindergartens do not provide sufficient amount of time to become a working mom.
 There is no statistics on early marriages but the problem is present especially in IDP communities.
 Sex selective abortions is common in the region, most of the 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.
PMO | 73
Gazakh
Youth
 Youth migration is issue of the region. Youth population can be divided into two groups, those who
continue studies in higher education institutions in Baku or abroad and those who stay in the region and
are involved in family business. Those who get higher education do not tend to come back and continue
work in Baku or abroad.
 Very few people get scholarship from abroad in Agstafa, moreover most of the young people do not apply
to the education institutions abroad because of the conservative attitude of 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 to actually get involved in the processes.
Besides that, girls 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 the gender.
 Language barrier is an important issue in the region. Most of the young people do not speak good English.
Russian speaking population are mainly older people.
Education
 Despite the fact that there are higher education institutions in Ganja-Gazakh region the quality of education
is very low. The Gazakh University does not provide enough qualification for their students to get the well-
paid jobs. Moreover, the bribes are common practice to enroll in the universities. The education sector
needs to be reformed but government is not rushing to carry out the reforms in this field
 Getting higher education diploma is considered as a must, however the knowledge and the quality are not
regarded as an important factor. The education at the school level is considered as good and satisfies the
local requirements.
 Vocational education is unpopular. People apply vocational education centers only in case of failure in 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 cooperation level with cross-border region is low, although people have will to
cooperate no real actions are taken for the progress.
 There are no cooperation mechanisms at local government level. Local government authorities from 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 a twin city of Lithuania, which supports the idea that such
connections are possible.
 Despite the advantage of being the bordering settlement Gazakh and Agstafa are still very poor. That
situation could be improved by enabling cross-border trade relationships. There was an unofficial market
in neutral zone between the borders where local people exchanged their products, it also supported the
development of informal relations among people, but market was closed due to the suspect of trade in
illegal goods.
 The imposition of legal requirements and customs procedures reduce incentives for cross-border trade.
PMO | 74
Comparative Analysis
12. COMPARATIVE ANALYSIS
GAZAKH-AGSTAFA COOPERATION AREAS GARDABANI-SAGAREJO
Strengths
Strengths EXPANSION OF TRADE
RELATIONSHIPS
Productive land Productive land
Natural Resources ESTABLISHMENT OF Touristic sites (not in Gardabani but near
Attractive Landscape VALUE CHAIN IN FOOD areas)
PROCESSING INDUSTRY Closeness to Tbilisi
Developed Infrastructure (Hotels,
Guesthouses) JOINT VOCATIONAL Existence of near marketplaces (Rustavi, Lilo)
Young Labor Force EDUCATION CENTERS Gasification and electrification of villages
Young Employees in Public Sector COOPERATION IN Favorable business environment
TOURISM No corruption
VALUE CHAIN IN Transparent customs system and regulation

CONSTRUCTION Weakness
Weakness INDUSTRY
unskilled of labor force JOINT EFFORT TO Underdeveloped infrastructure (irrigation,
Lack of entrepreneurial skills road)
THRIVE IN EU EXPORT
Lack of modern technologies MARKET Underdeveloped tourism infrastructure
(Guesthouses public infrastructure)
Low economic development compared to
capital city EXPERIENCE SHARING IN Small lands, inefficiency of production
PUBLIC SECTOR No processing factories
Weak education sector
REFORMS Low level of youth initiatives
Lack of computer literacy
Existence of corruption COOPERATION AT LOCAL Low participation of women in economic
GOVERNMENT LEVEL activity in ethnic minorities
Monopolized Industry
Lack of entrepreneurial skills
Lack of knowledge to engage in
DEVELOPMENT OF Unwillingness to meet international standards
international trade
TRANSPORTATION to access export markets
Absence of processing factories ROUTES Absence of cooperation mechanisms between
Low participation of women in economic
local government of cross border regions
activity JOINT MANAGEMENT
OF CULTURAL Lack of vocational education centers
Absence of cooperation mechanisms
between local government of cross HERITAGES LOCATED IN Lack of skills to adopt modern technologies in
border regions CROSS-BORDER AREAS business
Absence of vocational education centers (GAREJI, JANDARA LAKE) Low level of computer literacy
Lack of Youth Initiatives Lack of skill to develop business plans and
USAGE OF ONLINE proposals for accessing donor and government
Lack of skills to access financial support RESOURCES TO funding
and funding programs
ESTABLISH Low integration of ethnic minorities living in
Language barriers PARTNERSHIPS AND rural areas
DEVELOP BUSINESS Language barriers
PMO | 75
Opportunities
Opportunities
Governments focus in agriculture and in Development of manufacturing and food

tourism development in regions processing industries
Potential of export in construction Government’s focus to the regional
materials development (Agriculture and Tourism)
Increase in cross-border cooperation due Usage of transportation routes for the
to customs system reform development of cross border cooperation
Availability of transportation routes Strong background of economic and
(railroad, Ganja Airport, highways) diplomatic relations with Azerbaijan
Strong background of economic and Cooperation in Agriculture and Tourism
diplomatic relations with Georgia industry
Strengthening business sector by
implementing government and international
donor projects
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 Low involvement and interest of local
government initiatives population in government initiatives
High influence of government in private No will for cooperation from Azerbaijani side
and public organizations
Youth Migration
Inefficiency of Government Reforms
Deterioration of business environment
due to possible escalation of frozen
conflicts
Low interest in local government in
developing the cross border cooperation
Recommendations
Considering existing challenges and analyzing 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 build strong platform for the development of close ties and enhance cooperation
between cross-border regions of Azerbaijan and Georgia.
 National government should concentrate on expansion of cooperation area, with particular focus on
trade diversification and development of export oriented industries. Azerbaijan and Georgia shall join
their sources to absorb new export opportunities and increase the competitiveness of local production at
international market
 The measures applied by Anti-Corruption commission resulted in improvement of business environment

and reduction in corruption within the country. Despite the success Azerbaijan shall continue the
PMO | 76
reforms for improvement of business environment and elimination of corruption to sustain results over
long period of time.
 Both countries shall develop strong communication strategy with target groups, in particular with
population living in rural areas and regions to ensure on-time provision of information on-going reforms
and results achieved through the reforms to avoid misunderstandings and misperceptions among the
population
 National government shall continue to actively communicate with international organizations and
support them to implement the projects that have high importance for socio-economic development of
the regions
 Local government engagement and development of partnership between local government authorities
of cross-border regions in Azerbaijan and Georgia is crucial part for strengthening cross-border
cooperation between the countries. Local government authorities have more clear understanding on the
challenges and opportunities existing within the region and also have more efficient communication
tools with local population that will take valuable contribution to establish primary links with cross-
border regions of neighboring countries and develop strong partnership among the 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 neighboring regions of Azerbaijan and Georgia establish
primary links and develop strong partnership in the areas of their work.
 National government with active engagement of local government and international donor organizatons
shall promote development of food processing industry in target regions that will reduce the
dependence of countries on imported food, increase their food security and also promote local
production , increase economic activity in regions and result in growth of income among local population
 National government with active engagement of local government and international donor organizations
shall promote development of vocational education centers and vocational training programs with
particular focus on increase of entrepreneurial skills among 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
entities 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 shall develop mutual management mechanisms for shared cultural heritages and
natural sites that have large tourism potential.
PMO | 77
 National and local government, international donor organizations and NGO’s should apply measures for
encouragement of women’s participation in economic activity and girls’ participation in local youth
initiatives.
PMO | 78

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Young Entrepreneurship Synergy Network For Georgia-Azerbaijan Cross Border Cooperation - BASELINE STUDY

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Young Entrepreneurship Synergy (YES!

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

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

CONTACT INFORMATION ............................................................................................... 2

3. Review of Tax System in Azerbaijan and Georgia ...................................................... 19

4. Overview of Kakheti Region ........................................................................................ 31

5. Key findings of Sagarejo Municipality ......................................................................... 39

6. Overview of Kvemo Kartli Region ............................................................................... 44

7. Key Findings of Gardabani Municipality ..................................................................... 48

8. Overview of Ganja-Gazakh Region .............................................................................. 54

11. Key Findings of Gazakh and Agstafa Municipalities ................................................... 72

CPI-Corruption Perception Index

DTF-Distance to Frontier (Doing Business Index)

DTT – Double Taxation Treaties

EaPTC- Eastern Partnership Territorial Cooperation (EaPTC) Georgia – Azerbaijan program

ENP-European Neighborhood Policy

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

VAT – Value Added Tax

The key findings of the study are given below:

 There is almost no cooperation between local government authorities of cross-border regions of

Youth, Gender and Education

2. GEORGIA - AZERBAIJAN RELATIONS

National Policies on Regional Development and Cross-Border Cooperation in

Economic Relations and Trade

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

50% 43% 47%

256 241 272

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 PMO

Cooper Ores and Machinery and Transport

CUSTOMS CHECK POINT CUSTOMS CHECK POINT

All categories of cargo and 1st Category Automobile

All categories of cargo and 1st Category Automobile

All categories of cargo and 1st Category Railroad

All categories of cargo and 1st Category Automobile

All categories of cargo and 1st Category Automobile

SOURCE: Revenue Service Georgia www.rs.ge PMO

473 Import from Azerbaijan (mln GEL)

Red Bridge Gardabani Lagodekhi Mtkvari

100.0% 0.7% 0.8% 0.9%

Red Bridge Gardabani Lagodekhi

SOURCE: Revenue Service Georgia PMO

3. REVIEW OF TAX SYSTEM IN AZERBAIJAN AND

Georgian Tax System and Tax Rates

5. State Level Taxes in Georgia

1 Personal Income Tax 20%

3 Excise Tax Tax rate differs by commodity types

4 Value Added Tax 18%

SOURCE: Tax Code of Georgia PMO

The initial supply of primary agricultural production if the annual

The initial supply of agricultural production produced by agriculture