Development of the production of leather products as one of the directions of diversification of Azerbaijan's economy - Policy paper

The graduates of the "Young Economists" training of the Institute of Democratic Initiatives (IDI) prepared a policy paper on the state of development of leather goods in Azerbaijan.

In the first section of the study, the current situation of leather goods production in Azerbaijan was investigated. From the disclosed indicators, it is known that the volume of value expression of the production of leather products in the country has started to increase since 2005. In 2012, it reached the highest level - 29.6 million manats. In the following periods, a downward trend was observed and in 2015 it fell to the lowest level after 2007 - 12.2 million manats. Starting from 2016, a growth trend was observed again and in 2018 it increased to 26.1 million manats. In the following periods, it showed an unstable trend. Currently, 32 enterprises and 186 individual entrepreneurs are engaged in the production of leather goods and shoes.

In the second section of the study, steps aimed at stimulating the production of leather goods in Azerbaijan were reviewed. As a result of the research, it was found that currently the import duty of 15% is applied to the import of various types of products made of leather. At the same time, a value-added tax of 18% is applied to these imported goods. In the tax code, it is also envisaged to apply excise rates in the amount of 10 percent of the customs value, which is not lower than the wholesale market price, to fur leather products imported into the country. From this point of view, it is clear that both customs and tax payments are levied on most of the leather goods imported into the country. This point can provide additional comparative advantages for local production.

In the third section of the study, the technological stages of leather production were investigated. A leather manufacturer needs mainly machinery and technology to be able to carry out these processes. Additionally, it's crucial to have personnel available for both the preliminary processes and qualified personnel for the finishing touches. These in themselves do not affect the production capacity. According to the statistical examination published by the State Statistics Committee, the level of utilization of the production capacity of leather and leather products, footwear production in Azerbaijan is 43.6 percent. The utilization rate of production capacity of sheep and lamb skins is 73 percent.

One of the reasons for the low production capacity is that the production capacity of the equipment is not fully utilized. Among the main problems are the old equipment (50%) and the lack of highly qualified (professional) personnel in the field of production of hides (by number) of cattle and horses. The effect of the lack of professional personnel in the field of sheep and lamb skins is 100 percent. As a result of the research, it was also revealed that only 31% of the equipment used in the field of leather goods in the country has a service life of less than 5 years. The distribution of these equipments according to their service life is as follows:

• Up to 5 years - 31.3%

• Between 5-9 years - 30.1%

• 10-19 years old - 36.9%

• 20 years and more - 1.7%.

At the end, the main results of the research and proposals for the development of the leather industry were presented.

It is advised that the following actions be taken to expand the leather goods industry:

• Strengthening the quality control of leather products imported into the country:

• Encouraging investment in this region, namely through organizing policy to attract the attention to foreign investors;

• Taking the required precautions to avoid skin diseases;

• Creating systems for accurate export and import accounting and tightening oversight of these systems;

• Wide use of modern production equipment in the sector and increasing state support for this purpose;

• Increasing the application of scientific research to the production process;