An agreement between Azerbaijan and Russia to create a joint venture capital initiative is expected to accelerate the development of information technology (IT) projects between the two countries, and transform the Caspian region’s sector into a global competitor.
On Wednesday Azerbaijan’s Director of the State Fund for Development of Information Technologies Elchin Zeynalov announced the initiative from Baku.
"We have negotiated the establishment of a joint venture capital with a Russian venture company and are currently working on the creation of its legal base. The joint project will also provide additional opportunities for startups from Azerbaijan and Russia to step into markets in both countries,” Zeynalov said.
IT specialists and engineers from Azerbaijan and Russia will have a hand in developing the initiative, as existing domestic laws get leveraged to facilitate progress in IT and allow startups to flourish.
The decision to create a joint venture was a result of a conference held Monday in Baku entitled “Open Innovations Startup Tour,” which saw representatives from Russia’s state-run Skolkovo Innovation Center, a technology innovation incubation center near Moscow, address Russian interests in Azerbaijan, which they called a “new country for IT collaboration.”
Azerbaijan and Russia, both Caspian littoral states, already benefit from a 2016 agreement on communications and IT that was signed in Baku during Bakutel, international telecommunications and IT exhibition and conference held last June in Azerbaijan. A month earlier, at a meeting of the Regional Commonwealth in the Field of Communications in Dushanbe, Tajikistan, the two sides agreed to expand collaboration in postal services and information security.
Mammad Karim, CEO of the Baku-based venture capital firm Khazar Ventures, said that while Caspian regional governments are taking notice of the benefits of startups, the overall ecosystem is still under development.
“Today the operations of government structures in the Caspian region are fragmented rather than coordinated. This leads to ineffective development of IT and startup projects,” Karim told Caspian News. “Facilitation and regulation of legislation for startups, venture foundations, and investments are all necessary in the region for the sake of a credible technology ecosystem,” Karim said, whose company funds some of the most successive startups in Azerbaijan, including WeTravel, Shrippy, and Cycl.ee. “In addition, the private sector can be reluctant towards innovative projects, as traditional companies and investors are not ready to put money into a project that has a turnaround of, say, seven or eight years,” he added.
The World Economic Forum’s Global Competitiveness Report 2016-2017 put Azerbaijan at 14th place among 138 countries for the rate of government procurement of advanced technological products. The country stands at number 53 in terms of the availability of the latest technologies, and at 44 in terms of innovation capacity. Foreign direct investment and technology transfer rates put it at number 38.
In the same report, Russia’s government procurement of advanced technologies ranks 68, while the availability of latest technologies ranking put Russia at 83. Innovation capacity stands at 78, while foreign direct investment and technology transfer rates are at 111.
Mammad Karim says Russia, a country of over 140 million people, is the most successful Caspian state when it comes to developing and selling startup-based IT projects, citing Nginx, V Kontakte, Telegram, and Ecwid as examples. He attributes Russia’s relatively large economy and comparatively robust business environment to its success. However he believes the country is still unable to promote innovative technology projects on a global scale, due to reluctance on the part of investors.
Jafar Najafov, a 27 year-old entrepreneur from Baku who co-founded Shrippy, a mobile app that allows users to share the brands they buy by tagging brand names and price tags, said some startup projects in Azerbaijan match people’s needs in order to make life easier, while others enhance experiences.
“We noticed a tendency amongst shoppers and consumers to share within their close circles what they bought, and talk about how much items cost. So, we launched Shrippy. In other words, we eased their life,” Najafov told Caspian News.
But launching a startup project in Azerbaijan has pros and cons, says Najafov, who also started Baku City Guide and Hara Gedək? (Where to go?), two tourism navigation apps available for download through Google Play.
“A prolific business environment in Azerbaijan and an increasing demand for innovative ideas among people provide good grounding for initiating a startup business. However, the absence of world-wide online payment systems in the country, including PayPal, for example, hinders the growth of some projects, like those that wants to sell to consumers abroad,” Najafov explained.
Kazakhstan has also been proactive in developing its IT sector. Astana is set to open a representational office in Silicon Valley, California, intended to provide a platform for Kazakhstani technology startup developments, facilitate access to the best technological ideas in the valley, and further the growth of business and science in Kazakhstan.
Last week the country’s Prime Minister Bakytzhan Sagintayev, during a trip to San Francisco, signed an agreement on behalf of Kazakhstan’s National Infocommunication Holding Zerde JSC and the Autonomous Cluster Fund Park of Innovative Technologies with GVA Capital, a US-based investment arm of the Global Venture Alliance global ecosystem, to launch the office, called the Innovative Representative Office.
“Kazakhstan understands that the Valley is the core center of innovation,” said Mammad Karim, CEO of the Baku-based venture capital firm Khazar Ventures. “With its office in Silicon Valley, Kazakhstan will have on-the-ground access to technological developments and a chance to access hi-tech laboratories at universities like Stanford and Berkeley. It will also have more regulated control over what’s been called ‘brain drain’, or the emigration of scientists and technologists, through the office,” Karim added.
Kazakhstan’s President Nursultan Nazarbayev has made technological advancement a priority for the country, a post-Soviet state along the eastern shore of the Caspian Sea considered Central Asia’s largest and strongest performing economy.
In January Nazarbayev delivered an address titled, "The Third Modernization of Kazakhstan: Global Competitiveness,” in which he stated, “Kazakhstan shall join the world’s top 30 developed countries by 2050.” Kazakhstan currently stands at 43 out of 230 countries in terms of its gross domestic product (GDP, purchasing power parity), according to US government statistics, and 74 with regards to GDP per capita.
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