G E O R G I AG E O R G I A

Ministry Of Economic Development Of Georgia2005

GEORGIA

Georgian Trade 1994-2004 (ml USD)turnover export import balance

1994 420 150 270 -120

1995 540 150 390 -240

1996 880 200 680 - 480

1997 1180 240 940 - 700

1998 1070 190 880 - 690

1999 730 240 490 - 250

2000 1030 330 700 - 370

2001 1000 320 680 - 360

2002 1040 320 720 - 400

2003 1500 320 1180 - 860

2004 2500 650 1850 - 1200

FOREIGN TRADEFOREIGN TRADE($USD millions)($USD millions)

0200400

600800

10001200

14001600

18002000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

ExportImport

TOP TEN TRADING PARTNERSTOP TEN TRADING PARTNERS20020044

($US millions)($US millions)

0

50

100

150

200

250

300

350

400

Turnover Exports Imports

Trade turnover in 2004Trade turnover in 2004

39%32%

29%

CIS EU Others

FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT

050

100150200250

300350400

450500

1997 1998 1999 2000 2001 2002 2003 2004

FDI (USDmillions)

Peaks in 1997-98 and 2003-04 are connected to construction of pipelinesPeaks in 1997-98 and 2003-04 are connected to construction of pipelines

INCENTIVES INCENTIVES

• WTO membership – MFN trade regimes with 146 countries;

• CIS Free Trade Zone – Free access of CIS market;

• GSP – European Union, Switzerland, Turkey, Canada, USA and Japan

• Liberal tax regime - Lowest rates in the region

• Fiscal Support for Exporters – Quick VAT refund scheme for exporters. Duty and tax callback regime for goods imported for re-export

• Favorable transport location – Access to Europe, CIS and Asia markets. Rail, Road, Sea, Air connections

• Rapid reform process – Governments commitment to reforms Improving business and service environment, Governments support for FDI attraction

Guiding Principles of Economic Reforms

• Liberalization

• Deregulation

• Private sector as a driving force of economic development

• Broad based economic growth as a major instrument for fight against poverty

Reform of Licensing systemReform of Licensing system

• Reduced number of activities subject to licenses and Reduced number of activities subject to licenses and permitspermits

• Simplified licensing proceduresSimplified licensing procedures• Reduction number of required licenses and permits Reduction number of required licenses and permits

from 909 to 159from 909 to 159• Reduction number of controlling agenciesReduction number of controlling agencies• Possibility to transfer ownership of use licensesPossibility to transfer ownership of use licenses

Tax ReformTax Reform

New Tax Code from January 2005– 7 taxes instead of previous 21 (income, profit,

social, property, excise taxes, VAT, tax on gambling business)

– Reduced tax rates: VAT 18% instead of 20% (from July 1st

2005)Income tax 12% flat instead of 12-20%

proportionalSocial tax 20% instead of 33%

– the possibility of 100% amortization in the year if investment

– a quick mechanism of VAT refund for exporters within a month.

Trade Duties

• From January 2005 16 import tax rates instead of 22 before;

• Import tax rates fall in 0%-30% range• There are no quantitative restrictions on imports • A limited number of licenses and permits on

exports and imports (now only 8)• Export and re-export is free from custom duties • Export is free from VAT

New GSP+ Scheme of EU

• New GSP+ scheme works from July 1st 2005 until 2008

• New Scheme envisages additional preferences for sustainable development and good governance

• 7200 products will enter EU market with Duty free access

• Georgia is only a beneficiary country among CIS countries

Liberalization of Transportation

- reduction in number of licenses and permits in transportation sector from 15 to 5

- Air transport - liberalization of tariffs, flight frequency and capacity, number of carriers and destinations

- Road transport – elimination of transport duties, different transportation barriers

- Sea transport – extension of main Trans-European Transport Axis to Georgia

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