'To be successful, you need to see the Azeri point of view'
Garadagh Cement - Building Azerbaijan from the ground up

David W. Stone, is an Australian expatriate living in Azerbaijan. The chairman of the Management Board and General Director of “Garadagh” Cement, Stone is also a bit of a maverick when it comes to doing business in Azerbaijan.

In contrast to the chorus coming from many other businesspeople, Stone says Azerbaijan’s taxes are not too high. "The corporate tax rate is 28 percent," he says, "and the new tax code is clear about deductions." The value added tax (VAT) rate is 18 percent.

"But," Stone says, "that’s not horrendous - and the revenue is needed."

Stone says that for a foreign businessperson to be successful in Azerbaijan, her or she must try to imagine every issue from the Azeri point of view. "If the tax person arrives and needs to collect to meet his or her revenue responsibilities, we will pay taxes in advance," he says. "Instead of fighting the tax collectors, we invite them in to help us interpret the regulations correctly. It helps us avoid innocent mistakes, which are easy to make."

Whether Stone sees things differently or not, he must be doing something right. In only two years’ time, “Garadagh” (the name means "black mountain") cement has become one of Azerbaijan’s most successful private companies. In 1999, the government privatized the existing cement plant on the basis of share purchase vouchers. The tender was won by a local subsidiary of Holcim, the largest cement producer in the world. Today “Garadagh” is one of 140 cement plants owned by Holcim in 70 countries. But Stone emphasizes, "We are a locally registered, 100 percent Azeri company,"

Under the terms on the tender agreement, “Garadagh” was required to invest $23 million over five calendar years, i.e., by 2004. "We will complete that investment by the end of this year," Stone says.

The company started with about 1200 full-time equivalent positions, but reduced that to 560 through generous buyouts. Redundant workers were offered up to three years’ salary. Stone says, "Now, we have more skilled workers than when we started, and we have doubled their wages. As a result, our employees can now afford to buy their own apartments."

“Garadagh” added a human resources department that is responsible for training, safety, social commitments, providing lunches and health care, all provided to international standards. The company contributes heavily to the Azerbaijan National Ballet, and sponsors the woman’s handball team. It has donated tons of cement to local municipalities, to rebuild a hospital, schools, and an orphanage. With the higher salaries and better benefits “Garadagh” provides, Stone says, "Our employees are fiercely loyal - they weren’t dumped, and they are all well treated."

Production levels reflect both the high morale at “Garadagh” and its improved management. During its first year, the plant produced less than 200,000 tons of cement; last year that figure climbed to 254,000, and in 2001, Stone estimates the plant will produce 525,000 tons.

"We sell all our production domestically," Stone notes. About 70 percent of the cement is bagged, with the balance sold in bulk. Almost all of the cement is destined for construction use.

“Garadagh” has struggled against two separate issues that have held the company back from enjoying even greater success. “Garadagh” faces very high energy costs. "Making cement is not rocket science," Stone says. "You merely take specific materials and heat them to very high temperatures, which makes the gypsum sticky. But it takes an enormous amount of energy to do that.

"Of course, we use natural gas, but natural gas costs in Azerbaijan are higher than what Holcim pays in Switzerland. “Garadagh” pays four times what Holcim factories pay in Iran, and three times the cost in Russia."

“Garadagh” ’s bottom line has also been affected by wholesale smuggling of low grade cement into Azerbaijan from Iran. Not only is this cement smuggled in, much of lacks the proper ingredients, and thus can present great danger to people when used in construction.

"More than half the cement sold in this country is not legitimate," Stone says. He has warned the public through the Azerbaijan media about the very real dangers of using low-quality, cut-rate cement, which is only partially effective. "At least the false cement no longer appears in bags with the “Garadagh” name on them," Stone says.

Despite such difficulties, Stone remains optimistic about business in Azerbaijan, and encourages foreign investors. He says, “If you ask, are there opportunities here, my answer is an unequivocal Yes!”