Научная статья на тему 'STRATEGIC DIRECTIONS OF AZERBAIJAN ECONOMY IN THE CONTEXT OF DIGITALIZATION'

STRATEGIC DIRECTIONS OF AZERBAIJAN ECONOMY IN THE CONTEXT OF DIGITALIZATION Текст научной статьи по специальности «Социальная и экономическая география»

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Ключевые слова
FOOD SECURITY / DIGITALISM / AZERBAIJANI BRANDS / SMALL COUNTRIES ECONOMY / MODERN ENERGY INDUSTRY / CRITICAL INFRASTRUCTURE

Аннотация научной статьи по социальной и экономической географии, автор научной работы — Abasov Mir Faraj

Years of calm and abundance have been replaced overnight by years of protracted crises, pandemics and wars. At a time when economic and political risks have become difficult to predict, small countries simply must devote their resources to strengthening and developing critical infrastructure for the economy and statehood. By the definition of critical infrastructure the author means the synthesis of food, energy and engineering security. In the age of digitalism and digital economy, the management of this critical infrastructure rests on the shoulders of IT technologies and the Internet of Things, therefore the author notes the importance of cultivating and developing a wide range of specialists, ready to create, protect and develop national (local) critical infrastructure. The example of Azerbaijan shows the missing or omitted links in the doctrine of national food security. The problems and prospects of the food sector in general and the state of individual enterprises in particular are highlighted.

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Текст научной работы на тему «STRATEGIC DIRECTIONS OF AZERBAIJAN ECONOMY IN THE CONTEXT OF DIGITALIZATION»

6. Муаець Т. В. Регулювання дшльносп транс-нацюнальних банков в умовах глобально1 фшансо-boï нестабшьносп / Т. В. Мусieць, Я. О. Оглобля. -2017. - С. 256.

7. Retail banker. 2022. [Електронний ресурс] -Режим доступу до ре-

сурсу : https ://www. retailbankerinternational. com/anal ysis/these-were-the-biggest-major-banks-central-banks-and-non-bank-competitors-deals-in-the-three-months-to-april/

STRATEGIC DIRECTIONS OF AZERBAIJAN ECONOMY IN THE CONTEXT OF

DIGITALIZATION

Mir Faraj Abasov

Doctor of Philosophy in Political Science, Doctoral student at Azerbaijan University of Tourism and Management in economics, CEO of PRESTIGE Group of Companies, Baku, Azerbaijan https://orcid.org/0000-0002-7299-2315 https://doi.org/10.5281/zenodo.7326509

Abstract

Years of calm and abundance have been replaced overnight by years of protracted crises, pandemics and wars. At a time when economic and political risks have become difficult to predict, small countries simply must devote their resources to strengthening and developing critical infrastructure for the economy and statehood. By the definition of critical infrastructure the author means the synthesis of food, energy and engineering security. In the age of digitalism and digital economy, the management of this critical infrastructure rests on the shoulders of IT technologies and the Internet of Things, therefore the author notes the importance of cultivating and developing a wide range of specialists, ready to create, protect and develop national (local) critical infrastructure. The example of Azerbaijan shows the missing or omitted links in the doctrine of national food security. The problems and prospects of the food sector in general and the state of individual enterprises in particular are highlighted.

Keywords: food security, digitalism, Azerbaijani brands, small countries economy, modern energy industry, critical infrastructure.

The coronavirus pandemic that began in 2020 has shown the imperfection of the world's economic relations and social institutions. Almost all nations of the world had to close themselves off and apply quarantine measures within their own countries. Logistical chains for the delivery of goods, trade and the world economy as a whole were paralyzed and, to some extent, experienced collapse. Millions of people have died from coronavirus infection, even more from its effects and related disruptions in food and medical supplies. In the emergency, humanity, with all its scientific capacity and financial resources, was unable to solve the problem in the shortest possible time and save millions of lives. The economic crisis, according to IMF director Kristalina Georgieva, could have turned into a new Great Depression, and only "swift policy action around the world, including emergency monetary policy and the allocation of $16 trillion in budgetary support, helped prevent another Great Depression (1, p. 8). In parallel, we have witnessed incredible freight wars between China and the United States, Russia's military operations against Ukraine and the subsequent isolation of Russia through sanctions, effectively leading to the exclusion of a country with a leading role in many economic sectors in the world from global economic activity.

World, regional and local events related to Azerbaijan have also become rich in emergencies: The 40-day war returned 2/3 of the territories previously lost to Azerbaijan; high energy sources prices enabled Azerbaijan to make super profits; Azerbaijan's increased

role in Europe's energy security provided Baku with visible political dividends. All these factors combined to make Azerbaijan the undisputed leader of the South Caucasus.

However, all the events from pandemics to wars, isolations and financial crises simultaneously showed the paramount importance of the issue of Azerbaijan's food security, which requires an immediate solution through economic and partly political activities.

As Professor Gusmanov notes in his paper "Food Security Issues": "Throughout the history of mankind, providing people with food has been and remains the most important problem. Up to now, over 1 billion people on the globe each year suffer from constant hunger. Ensuring national security in most countries is recognized as the top priority of state policy" (2, p. 15). Azerbaijan, like other countries, needs to create the concept of critical infrastructure security in general and its food sector in particular, taking into account the new world realities. How and what issues should be addressed in the process of developing this concept?

1.1 Food security

Azerbaijan is the only country in the South Caucasus that was able to significantly increase its population after the collapse of the Soviet Union. Today the population of Azerbaijan exceeds twice the combined population of neighboring Georgia and Armenia. Undoubtedly, a large population means more economic activity and a free labor force, but in addition to positive aspects, a large population brings with it an additional burden on the health care system, the education system,

the pension fund and other social institutions of the state. For example, a large population with a small crop area implies a possible famine in the absence of the necessary amount of resources to purchase from outside. In the presence of such resources, the lion's share of foreign exchange earnings of the state will go to the importation of food products. Modern Azerbaijan, despite its leading position in the region, continues to be a country, which imports basic foodstuff, such as grain crops, cattle, chicken meat, sugar, oils and many other things.... The country consumes many times more staple foods than it is prepared to produce or grow today. Javahir Allahverdiyev describes the statistical situation in his dissertation based on data from the State Statistic of AR: "during the period 2003-2017, the growth of grain crops production in Azerbaijan increased by 42% and in 2017 amounted to 2855.3 thousand tons. As for the production of wheat, there is no special growth in the last 3 years, and in 2017 the volume of wheat production in the country was at 1765.3 thousand tons. These factors do not allow to form the necessary stock of grain in the fund of the country and, thus, determine the need to import this strategic product. Thus, for 2007-2017, the level of self-sufficiency of the country in wheat products ranged from 48% to 58.1%, that is, to fully meet the needs of the population in this product, Azerbaijan imported wheat from abroad during this period" (3, p.522).

Accessible areas of cultivated land with quality soil are increasingly used to grow the most valuable (in the price range) products for export (fruits, vegetables, nuts) and less relevant is the sowing of cereals.

Along with this problem, there are acute problems of lack of water resources for reclamation of cultivated areas, the problem of the highest population density in the region and the infinitely rising price of electricity. Now and in the foreseeable future, these and many other difficulties will become significant problems for Azerbaijan, significantly complicating the struggle for food security.

1.2 Modern enterprises of food sector in Azerbaijan:

In spite of the acute problems on hand, a large number of food segment enterprises have been established in Azerbaijan over the past 20 years. Dozens of plants and factories have been opened, some of which are unique in their size and technological solutions. For example, in Gabala district there was opened a unique for the snack industry - a factory of chips, which at its peak capacity can produce up to 20 tons of products daily. The necessary potatoes are harvested from their own huge cultivated areas (4).

In the Karabakh region, a joint venture between the Azerbaijani company Atena and the French food giant Danone has been established in Agjabedi - a dairy products factory. The plant has the potential to process up to 400 tons of milk daily (5).

On the Absheron Peninsula, two giant producers of bakery products were built - the First Bakery Plant in Baku and the Choryakchi Plant in Sumgayit, capable of jointly producing about 200 tons of bread and bakery products a day. There are also several large ice-cream factories in the territory of the Absheron Peninsula, the

leading ones exporting their products to hot African countries.

The local producers of drinks have achieved great success: lemonades, juices, nectars and concentrates with the label "made in Azerbaijan" have become not only a mark of quality in the region, but also actively conquer the neighboring and far-abroad countries. Canned products and juices of Azerbaijani production actively conquer the Arab hub - Dubai, and from there are successfully re-exported to many other countries of the Arab world and the African continent. Azerbaijani wines are exported to Western Europe, particularly to Belgium and Germany, and the quality of the wines has been awarded medals and diplomas. Producers of pomegranate juice do not lag behind. For example, the production of the Goychay plant is presented almost in all the countries of the former USSR and many European countries and even has its own branch in the USA in Oakland. The country's wine producers have also achieved notable results: "In 2017, Azerbaijan produced more than 1 million decaliters of wine products, of which 338 thousand decaliters were exported to Russia, and 27 thousand decaliters to China. In accordance with the state program of winemaking development for 2018-2025, the export of the local "drink of the gods" is planned to increase fivefold" (6, p.91).

Azerbaijani hazelnut producers have also distinguished themselves in matters of international export and cooperation, with some of them supplying hazelnuts to leading confectionary factories in Eastern and Western Europe. The world famous chocolate brands use hazelnuts from the Zakatala and Khachmaz regions of our country. The food industry giant producer Azer-sun stands apart. About 20 factories and enterprises, the largest turnover of goods and strategic orientation of production divided the Azerbaijani food market to Azersun and other enterprises. It's possible that all other enterprises in the country produce as much or a little more than Azersun holding. The products of the aforementioned food giant company can be found in dozens of countries around the world, including Asian countries. At the same time the majority of today's Azerbaijani factories and enterprises produce high quality products comparable with the level of the leading Eastern European countries. Thus, I would like to underline what high results have been achieved in the food industry in a short period of time. "Azerbaijani food industry has really learned how to create a competitive and worthy product. And the country's agricultural sector became the only economic sector to show growth under the conditions of the coronavirus pandemic" (7, p.180).

1.3 Problems of development of brands of Azerbaijan

However, it should be recognized that the success of these brands in particular and companies in general cannot be called permanent and strategic. Often Azerbaijani products manage to occupy only a temporary place on the shelf and get a small part of the market. The absence of a global brand of the level of, say, Georgian Borjomi or Turkish Ulkar, is associated with a number of problems in the Azerbaijani companies-manufacturers themselves. Weak marketing and promotion of goods in foreign markets, accompanied by

weak advertising support from local distributors makes Azerbaijani brands easily vulnerable and short-lived. As Oksana Shikhova has correctly mentioned in her paper "The tasks of branding are not only productive prolongation of brand life cycle, strengthening its market position in relation to increasing of competitiveness and attention of consumers, but also increase of marketing decisions efficiency, which will assist in attracting investments to brand support, providing and keeping potential and potential of its participants. A brand with potential can be called a "strong brand" (8, p.23). It is fair to say that Azersun Company is active in creating a "strong" Azerbaijani brand, but this is mainly in the direction of neighboring countries, in particular Russia, Ukraine, and Georgia. The affiliation of many food producers with the oligarchy and the state also contributes to the problem. Many food producers were created or somehow affiliated with the authorities and the oligarchy, and when the political course changes or this or that group of officials loses power, the enterprises, actively working at the local and foreign markets (using administrative resources as well), become victims of bankruptcy and redistribution of property. Huge plants and factories are forced to stand idle, and people are immersed in idleness until the enterprises are resold or permanently closed. Most of these factories, which have lost their powerful patrons but have not found new owners, are operating at best 10 percent of their former strength. Naturally, in such conditions there is no question of any foreign expansion and support of brand recognition abroad. Such enterprises have as a priority the task of surviving. The last but not the least in this list of problems are the problems of developing enterprises and plants in terms of technology, lack of raw material base and access to cheap money. It's no secret that many local businesses are struggling to supply the local food market, and access to cheap and long money is needed first and foremost to build up capacity and increase exports. These conditions, coupled with a strong raw material base (preferably local) can give a huge boost to Azerbaijani brands in the process of capturing foreign store shelves. Products with the Azerbaijani label in European, Russian and American networks will bring billions of dollars of foreign profit to our country, comparable to revenues from tourism. All the above-mentioned problems on the way of creation and promotion of world-known brands from Azerbaijan are quickly and easily realized. Competent teams of specialists, access to cheap credits, state support and rational administrative policy can bring results in a short period of time.

Another priority element of food security is the agricultural sector and agrarian industry as a whole. Azerbaijan's food industry is mainly focused on the production of profitable and expensive export items, small-scale farming is increasingly becoming a target for destruction, absorption and enslavement by large factories and enterprises. The state, aware of the plight of local farmers and their unwillingness to plant and grow staple crops that can feed primarily the country's population, should allocate more and more subsidies and create more state aid programs to raise this particular segment of agriculture and animal husbandry. So, for

example, in his time it was decided: "Since January 1, 2020 will apply the new size of subsidies for agricultural producers, approved by the Council of Agrarian Subsidies under the Ministry of Agriculture. According to the decision, the basic amount of subsidies will be 200 manat for each hectare of cultivated area. At the same time a separate coefficient will be applied to each type of agricultural products from which the final amount of subsidies will be formed" (9). Thus, the state shows its interest in the development of agriculture. Primarily within agriculture, control over the harvest of wheat and grain crops should be strengthened, this factor will help to provide flour not only to the population of the country, but also to raise livestock and poultry production in the country to a new qualitative level. The higher the amount of forage crops, the more food for livestock, and large and small farmers growing cereals are much more willing to keep poultry farms and nurseries, raising poultry, as it is easier to feed them. In other words, food security issues should give priority to controlling and assisting those farmers who grow strategically important crops for the domestic market rather than for export. In view of the ever-increasing population, the decreasing amount of arable land, these crops will help maintain affordable prices for strategic food inside the country, and in the short term exporters of grain, sugar and meat will be able to take their place next to the exporters of hydrocarbons at best, and at worst will keep their populations from starving. And we have already seen scenarios of starvation and food shortages when supply chains break down during the coronavirus pandemic. Food and food ingredient prices have skyrocketed precisely because of these problems. Taking into account these and many other factors, the President of Azerbaijan signed a decree on provision of activity of the State Reserves Agency of Azerbaijan (10) on February 10, 2022. According to the decree, the list of consumer goods of strategic importance, such as salt, sugar, oil, flour, etc. was approved. The issues of their storage and redistribution in case of food crises were thought through. Also the State Grain Fund was transferred to the list of this Agency. Thus, strategic reserves in their food hypostasis most likely will be presented in the form of big storages, which contain hundreds of names of products, purchased by the state in case of cataclysms, pandemics and natural disasters, ready to provide months of people of the country with products of prime necessity. Products whose shelf life is about to expire will be sold at a below-market price. These measures are adequate and timely against the backdrop of global food insecurity.

Something similar exists in many countries around the world, including the United States, Russia, China, and Europe. The creation of this storage can be considered an important first step towards the development of food security in the country. Thus, the developed agriculture, self-sufficient basic wheat crops and meat, competitive products exported to the world market and reserve storage facilities put the food security of Azerbaijan on a new level. However, in today's world of high technology and innovation, unfortunately, this level is not enough for the country to consider itself fully food secure.

1.4 Food Safety in the Age of High Technology and Digitalization

In this new technological revolution, with information and technology at the forefront of everything that is happening, our country will have to be alert and follow all possible trends so as not to be left behind. In the event of wars, pandemics and logistics failures, the primary ingredients from which almost all export brand products are created will stop coming to the country. This could be followed by a disruption in the production of everyday essential foods, the existence of which seems so simple and natural to us. The ingredients used by the food industry to create food products are strategic raw materials, just like oil and gas. Sweeteners, flavorings, stabilizers, fillings, sourdough, leavening agents - without all of these, many plants and factories would shut down and be unable to provide the quality, quantity, much less the taste, color and smell of their products. The shelf life of food devoid of the ingredient base will be shortened many times over. All of the above-mentioned elements are actively imported to Azerbaijan today from abroad and are of paramount importance in the process of ensuring food safety of the country. In other words, if the country still has to face any crisis and is cut off from the outside world for some reason, the stocks of strategic storages in Azerbaijan will be eaten or redistributed in a few weeks and the food industry, even using local raw materials (wheat, meat, milk), if by that time it will be brought to the level of self-sufficiency in the country, will not be able to create food products on an industrial scale. Thus, in this situation it will be possible to produce only the simplest elements of products, because all the other ingredients will simply be absent in the country. Russia, Iran and North Korea faced something similar in the process of falling under international sanctions. Despite their large size and available domestic food ingredient production capacity, Russia and Iran faced enormous problems in the food production process because they were cut off from ingredients and ingredient bases overnight. They were saved from starvation and catastrophic problems by local ingredient plants, some of which were launched on the eve of the sanctions, such as a malto-dextrin plant in Russia and the non-adherence to sanctions of China and India. For all that, economists predict big disruptions, raw material and ingredient failures in Russia's food industry. It is not difficult to guess that countries of smaller size and importance, deprived of large foreign exchange and gold reserves, will not find it difficult to plunge into hunger and disaster in such conditions. And the political risks and pressure points created by touching these topics can hardly be overestimated at all. Therefore, the establishment of enterprises producing ingredients for the food industry is the logical conclusion of the food security reform in the country and its primary task. These enterprises can provide with their production not only Azerbaijan but also all other countries of the region, neighboring and far-abroad countries. Taking into account trends in world commodity exchanges and the convenient location of the country, Azerbaijan can turn into a Euro-Asian hub - a kind of Dubai of the ingredients market. Favorable conditions for such transformation are the most positive

- it is a logistically convenient location and availability of cheap labor, large territory, and a qualitatively diverse climate for planting and growing of primary products for the ingredients market. By the way: "The world market of food ingredients and components to them (it is difficult to clearly divide substances into two classes, as components are often already ready-to-use ingredients) is 30-40 billion dollars a year. According to estimates by the Union of Food Ingredient Manufacturers (UFI), the Russian market in 2020 was more than $3 billion (or nearly 750,000 tons), of which more than $2.2 billion - more than 70% were imports. Fifteen years ago, imports were 95%" (11). In the age of high technology our country should focus not only on the production of ready-made simple food products (in the segment of which it is becoming more and more difficult to compete), but also on the production of hightech and high-quality ingredients and components to ensure a full cycle of food production primarily at home and at subsequent stages in export markets. By 2050, according to UN estimates, there will be more than 10 billion people in the world, all these people are potential customers of the future ingredient industry of Azerbaijan.

2.1 Machine tool industry

In view of the historical and geographical peculiarities, Azerbaijan has all the opportunities for the creation on its territory not only of the ingredients industry for the subsequent development of food safety, but also for the ingredients trade. Along with this, it seems possible to develop a modern center of heavy machine tools, metallurgy and the development of nanotechnol-ogy equipment. Sumgayit, a city of chemists created back in the Soviet era, is an excellent industrial and technological base for that. Today, Azerbaijani factories and enterprises have expensive production lines, unique pieces of equipment aimed at the production of food products. Huge filling, production, sorting and packing lines, unique machines are products of engineering thought of leading companies of the world such as Has, Coperion K-Tron, Kawasaki and many others. Today in Azerbaijan no one will be surprised by production lines worth more than a million dollars. Therefore, the primary task of Azerbaijani industry is to establish its own centers for certified repair and maintenance of all the above-listed lines, equipment, units and assemblies. Maintenance, adjustment, and replacement of key spare parts and units should be the main task of the newly established state or semi-state enterprise.

Highly qualified engineers, programmers, electronic and electricians should have certificates of the above companies. The country will have the ability in case of isolation and emergencies for a long time to maintain and control the basic equipment of the food industry of the country. Along with this, all conditions should be created to train the most talented engineers and transfer them into the category of designers. Creating our own bureau to improve or develop from scratch certain heavy industry machines is, along with the task of creating our own ingredient base, the number one goal. Thus, trained, certified, experienced engineers can become, design engineers, working for the benefit of the development of modern small or large production

machines and programs for food and not only industry. There, in the city of Sumgait, can be created a bureau for production and testing of industrial oils, lubricants and other liquid and flowing substances for quality, timely and autonomous maintenance of machines, lines and units of food and all other industries of the country. Bypassing the long and unnecessary research projects of this task, it seems possible to create joint ventures with a certain transfer of technology. Joint ventures in logistically convenient and comfortable access to raw materials and cheap labor in Azerbaijan may attract leading world and European manufacturers like SK Lubricants, Total and Chevron. The implementation of this theme will be quite enough to provide the country with necessary equipment, minimum machine tools, maintenance and repair of critical infrastructure. It also seems realistic to establish high regional competition and gain access to additional markets for its products and application of its technological knowledge in the shortest possible time. In the context of geopolitical realities, when two of your five neighbors are large countries that are in sanctions isolation, these prospects seem very tempting.

2.2 Programming and cultivating a national high-level IT community

In the age of modern computer technology, a plan for the realization of national food security seems unrealistic without the creation of a powerful computer base. Programmers and IT-engineers are the most important element in the chain of creation of modern means of production. We can even say that in modern realities the software written by them is the very subject of production, because without it the production machines simply do not work. Thus, if multi-ton units and machines are the body of modern industry, then software, cables and the Internet are its brain, heart, veins and blood. Unfortunately, despite rich heritage left by Soviet industry in the form of Institutes, research institutes, computer centers, the post-Soviet software and IT structures of the country have gone through not the best times. Only now the country has created the conditions to increase and overcome the digital divide and increase computer literacy. For example, "In 2015, the number of Internet users per 100 people was 77, and the share of households with Internet access was 76.7%" (12, p.82). However, Azerbaijan will have to go through several more stages of digital development before a cohort of the best experts in programming and computer engineering is formed. It seems possible to recruit and subsequently integrate IT specialists from all over the world (India, Ukraine, Russia, S. Korea), create a high standard of living for them in Azerbaijan, say, in some commune, or a free zone like Silicon Valley. Creation of such conditions will give an impetus to the development and grouping of national IT-pledges. Local specialists and talented students will have the opportunity to learn from the world's elite programmers and IT-specialists without leaving the country. It is especially worth paying attention to ethnic Azerbaijanis, citizens of other countries, who have successes in IT sector and are willing to return to their homeland in order to assist in development of Azerbaijani digital idea. Creating

conditions for the return and reintegration of these people is also seen as the number one task for the country's government. These people should be highly appreciated, receive decent wages and work for the benefit of their homeland and economy. Cultivating programmers, will not only spur the development of the food industry and machine tool industry in Azerbaijan, but can also create a workforce to serve the Azerbaijani satellite group, military industry, robotics and drone industry locally. After all, a country, which sooner or later will become the centers of unification of other small countries, should be able to create its own engineering technologies that do not depend on anyone else.

2.3 Modern Power Engeneering

Energy security is certainly important to the country's food security. These two points are linked like twin brothers. The lower the electricity prices, the easier the access and connection to the grid, the faster and better the development of technology in the country. The main leaders of mining in the world are the countries with cheap electricity. In view of the above, a separate item worth mentioning is the prospect of developing salt lakes, brines and caves. Progress is changing the face of the modern world. The world has entered the era of lithium-ion batteries, scientists are experimenting with carbon, graphene and hydrogen power sources. However, lithium-ion technologies remain the only available and rapidly developing ones today. Latin American countries lead in the number of stocks of these compounds. Given the growing number of electric cars, battery-powered gadgets and devices and the prospective transition of military, heavy construction and aviation equipment to electric motors, Azerbaijan can expect a second oil surge. The rich deposits of underground and above-ground salt lakes could serve as a source of lithium-ion batteries. Advanced brine manufactures and batteries can play a major role, in Azerbaijan's economic prospects and energy security in the second half of the XXI century. The world of the future is undoubtedly the world of information, and humanity still needs energy and batteries storing it to create the processing and transmission of information. This promising direction should be taken for development already now. Fast start can help our country to be among the first operators of modern energy industry. Azerbaijan has a large number of salt marshes. Agjabedi, Barda, Nakhchivan, Absheron in these and many other regions of our country hide a great potential for the development of new types of energy carriers.

Conclusion

Thus, the issue of critical infrastructure security consists of many points, of which we consider food security of the country to be the main one. The process of developing food safety reforms is not complete and incomplete without the development of agro-elements, ingredient base, machine tool engineering and quality IT engineering backed by our own energy system of the future. Consistent implementation of these basic points, will increase the chances of survival and competitiveness of small countries in conditions of hard-to-hedge risks.

In the modern world, when farmers are replaced by combines and machines, and agronomists by drones,

and the elements of food security are fully digitalized and highly technologized developed food security, self-sufficient engineering, machine building, programming and advanced positions in the field of production and sale of modern energy resources will allow our country to receive excellent dividends in the process of cooperation with other small countries and take leading positions in this or that modern geopolitical, economic formation. And this can serve as a guarantee of our security and survival in the future.

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