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Foreign investors eyeing Georgia

Foreign investors eyeing Georgia

Foreign investors eyeing Georgia

The country was ranked 16th out of 190 countries in the latest Doing Business 2017: Equal Opportunity for All report from the World Bank. Georgia is also among the top 10 countries in the world in terms of implementing reforms to their business regulations. Furthermore, economic data from the current year provides a clear signal that the country has started overcoming the external shocks that began in 2014.

As a bridge between Europe and Asia, Georgia’s economy is highly integrated into international markets. Through a number of free-trade agreements and the European Union’s Deep and Comprehensive Free Trade Area (DCFTA), Georgia provides duty-free access to markets with over 900 million inhabitants. Following Georgia’s accession to the DCFTA, the EU responded by providing visa-free access to Georgians for the first time ever.

According to preliminary data from the National Statistics Office of Georgia, foreign direct investments (FDI) in the country amounted to USD 1.645 billion in 2016, up 5 percent from 2015.

The three largest investors in terms of their share of FDI were Azerbaijan, 35 percent; Turkey, 17 percent; and the United Kingdom, 7 percent.

The largest share of FDI was invested in the transport and communications sector, totaling USD 645 million. Next was the energy sector, with USD 203 million, followed by the construction sector, with USD 163 million.

Burton and her husband are developing two small companies in Georgia: one, You Studio, is in the fitness industry, while the other, Mr. Traveller Ltd., is in tourism. In total, they have invested approximately EUR 50,000.

Why Georgia became an economic success

While Georgia declared its independence from the Soviet Union in 1991, the country’s economic success story only began in 2003. Its double-digit economic growth is the result of reforms. Today, Georgia is the least corrupt nation in the Black Sea region, outperforming all of its immediate neighbors, as well as nearby European Union states.

Much-needed customs reform was a crucial factor for economic development. In the past, laws were complicated, and underpaid officials often supplemented their meager salaries by taking bribes. Crossing Georgia, a country that is only 400 kilometers wide, could be a three-day ordeal. Things are different now. Simpler customs procedures make it faster and easier to move goods through the country.

And as the effects of this reform take hold, Georgia is improving its competitiveness and strengthening its economy, working to ensure a strong and sustained recovery.

The Georgian Government’s long-term strategy seeks sustained and inclusive growth that is based on macroeconomic stability. It aims to maintain a sound macroeconomic environment, backed by prudent fiscal, monetary and financial policies. Structural reforms to improve governance, encourage employment and reduce poverty are priorities. The authorities are striving to deliver reforms aimed at promoting the formation of a robust and free private sector assisted by an efficient and fully transparent government. Fostering a vibrant, competitive private sector, both internally and externally, is seen as a top priority. In this regard, Georgia established a two-pronged long-term growth strategy (Georgia 2020 and sectoral development policies) aimed at achieving a profound transformation of the country’s macroeconomic framework.

Georgia’s aim is to become a go-to trade and logistics hub. Although the country has done well in the Doing Business index, there are pending gaps that the government is committed to addressing.

In 2016, Georgia’s prime minister introduced a four-point reform program to address economic vulnerabilities and external shocks to the economy. This economic development plan includes new tax benefits, improved infrastructure, governance reforms and an overhaul of the education system. In other words, Georgia is to be run by the rules of private business: “know the competition and have your unique selling point.”

Below, we provide a brief overview of several fast-growing sectors in Georgia that are worth watching and that could potentially be a place for your investment dollars.

GeorgiaInvestment opportunities in Georgia’s energy sector

Growing domestic and international demand makes energy an excellent business sector for investing. One of the government’s priorities is to ensure maximum utilization of the country’s abundant hydro-resources. The main objective of Georgia’s long-term energy policy is to attract foreign investments for the construction of new power plants. One of the objectives of this policy is to fully meet the country’s electricity demands through its own resources. This is to be implemented in stages, first through imports and then by replacing imported energy through domestic thermal generation.

With an abundance of high mountains and fast-flowing rivers, Georgia has a competitive advantage over its neighbors in terms of the cost of power generation. Georgia’s most attractive export market is Turkey, which ranks first in Europe and second in the world after China in terms of its increase in demand for electricity. Turkey experiences electricity shortages during the summer months, while Georgia has a generation surplus. According to estimates by the Turkish Electricity Transmission Company, Turkey’s electricity consumption will grow by 5.5 percent on average annually in the coming years. Nearly 80 percent of Turkey’s electricity is generated by gas and coal-fired power plants. Thus, even with lower oil and gas prices, electricity prices in Turkey are expected to remain high.

In April 2017, the Dariali Hydroelectric Power Plant, the largest hydroelectric plant in the history of independent Georgia, officially opened. The total project cost was USD 123 million, 23 percent of which was contributed by the state, while the European Bank for Reconstruction and Development (EBRD) arranged a USD 80 million syndicated loan for JSC Dariali Energy for the development, construction and operation of the plant. This was the first-ever energy project financed by the EBRD, which highlights the energy sector’s potential.

Agriculture and food production

With 22 micro-climates varying from cool and dry to warm and humid, Georgia has traditionally been an agricultural country. These diversified micro-climates allow for a longer than normal harvesting season and a wide range of growing conditions. The country has a significant rural population. Georgia was renowned as a quality food supplier during the Soviet period, and Georgian food and beverage products are still recognized as healthy and high-quality brands in the CIS region. Considering the fact that Georgians are obsessed with food and drink, investing in agriculture and food production can guarantee huge returns. In addition to a micro-climate that is perfect for producing a wide range of grains, fruits and vegetables, investors will also benefit from low costs, as employees in agribusiness receive 30-40 percent less than the national average.

Projects for the construction of new processing plants for agricultural products can receive a grant from the government with a total value of up to USD 250,000 (to a maximum of 40 percent of the project value). In addition, investors can buy state-owned immovable nonagricultural property at a symbolic price of GEL 1 if their investment in a processing plant is at least four times its market value.

Fewer and lower import tariffs are making the country a better place to do business. And they are making imports cheaper, which means better prices for Georgians and better sales for Georgian businesses. The country is continuing to push forward with reforms to further simplify customs procedures.

Since 2013, Georgian officials have been treating the agricultural sector as one of the key priorities for development. The Agriculture Project Management Agency, a governmental body, made a number of changes aimed at facilitating growth in the sector, including the introduction of preferential loans for small, medium and large farms; agro leasing; and preferential loans for grape producers, as well as citrus producers and exporters. Georgian commercial banks welcomed the initiative and have been involved in issuing loans to businesses operating in the sector.

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