investment climate & opportunities in georgia · 2013. 9. 25. · doing business in georgia 1 4...

Investment Climate & Opportunities in Georgia

Georgian National Investment Agency (GNIA)

2013

Advantages of Investment Climate in Georgia

www.investingeorgia.org 2

Business friendly environment

Efficient, pro-business and corruption-free government

Enlargement of market size by FTAs

Entry gate in the region

Competitive cost of labor and energy

Solid sovereign balance sheet

Stable banking sector

Very low crime-rate

BB- Stable (Upgraded from B+ Positive

in November 2011)

BB- Stable (Upgraded from B+ Positive

in December 2011)

Ba3 Stable (Affirmed in August 2012)

Doing Business in Georgia

1

4

7

9

20

32

34

49

67

71

91

112

137

Singapore

United States

United Kingdom

GEORGIA

Germany

Armenia

France

Kazakhstan

Azerbaijan

Turkey

China

Russia

Ukraine


Ease of Doing Business Index Of Economic Freedom

Source: World Bank, 2013 (Rank out of 183

countries)

1

10

14

19

21

38

62

68

69

88

136

139

161

Hong Kong

United States

United…

Germany

GEORGIA

Armenia

France

Kazakhstan

Turkey

Azerbaijan

China

Russia

Source: The Heritage Foundation, 2013(Rank out of

183 countries)

Up from 112 in 2005 Up from 99 in 2005

Country's impressive progress in improving business climate has been well

documented in a number of international indices.

Corruption Free Country


Global Corruption Barometer

0%

1%

1%

2%

2%

2%

2%

3%

5%

7%

9%

9%

22%

26%

Denmark

Norway

UK

Switzerland

Netherlands

Korea (South)

Germany

GEORGIA

United States

France

Austria

Singapore

Armenia

Russia

Source: Transparency International’s Global Corruption Barometer , 2011 (Rank out of 176 countries)

Percentage of users paying a bribe in the past 12 months

Georgia today is essentially a corruption-free investment destination where rule of law have been given the right way

3%

26%

16%

35%

78%

77%

% of survyed whoclaim that the levelof corruption hasdecreased in thepast three years

% of survyed whoassess their current

government'saction as effectivein the fight against

corruption

Georgia Southeast Europe+Turkey EU

Favorable public debt situation

Economic Structure and Trends


Broad-based and diversified nominal GDP structure 2012

Source: Geostat, MOF, IMF

Source: Geostat

Source: Geostat, MOF

Rapidly growing GDP per capita GDP: strong rebound in 2010 after a relatively small contraction in 2009, robust growth potential

1 188 1 484

1 764

2 315

2 921

2 455 2 623

3 231 3519

3747

0

1 000

2 000

3 000

4 000

2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F

US$

GDP per capita

5,1 6,4

7,8

10,2

12,8

10,8 11,6

14,4 15,8 16,9

5,9%

9,6% 9,4%

12,3%

2,3%

-3,8%

6,3%

7,2% 6,1% 6,5%

-8%

-4%

0%

4%

8%

12%

16%

0

2

4

6

8

10

12

14

16

18

20

2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F

Nominal GDP (US$bln) Real GDP growth, y-o-y (%)

Agriculture, forestry and

fishing 8%

Industry 17%

Construction 7%

Trade 17% Hotels and

restaurants 2%

Transport and Communicatio

n 11%

Financial intermediation

3%

Public administration

11%

Education 5%

Health and social work

6%

Other sectors 13%

63,2%

50,5%

40,0%

32,0%

25,5% 31,2%

41,0% 42,4% 36,7% 35,8%

44,9% 34,5%

26,8% 21,1%

16,8% 23,5%

31,7% 33,6% 29,0% 28,6%

0%

20%

40%

60%

80%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%)

• Preferential Trade Regimes:

FTA with CIS countries: Ukraine, Belarus, Azerbaijan, Armenia, Russia, Moldova,

Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan

FTA with Turkey

DCFTA with EU will be signed next year

Negotiation on FTA with USA is in progress

GSP+ with EU - 7200 products to the EU market duty free or with lower tariffs

GSP with USA, Norway, Switzerland, Canada, Japan - lower tariffs are applied on 3400

goods exported from Georgia to these countries

Member of WTO

• Very simple and service oriented customs policy and administration

• ~90% of goods free from import tariffs

• No quantitative restrictions

Liberal Trade Regimes


Opportunity - Market Size


Population of Georgia - 4,5 million

Existing FTA +350 million

DCFTA + 0,5billion

Total ~ 0.9 billion

Georgia: 4,5 million population Access to the 0,9 billion market

‘04 ‘05 ‘06 ‘07 ’08 ‘09 ’10 ‘11 ‘12

Number of Taxes 21 7 7 7 6 6 6 6 6

VAT 20% 20% 18% 18% 18% 18% 18% 18% 18%

Income Tax 12-20% 12% flat 12% flat 12% flat

Social Tax + Income Tax

32% 25%

Social Tax + Income Tax

20%

20% 20% 20%

Social Tax 33% 20% 20% 20% - - - - -

Corporate Profit Tax

20% 20% 20% 20% 15% 15% 15% 15% 15%

Dividend & Interest

Income Tax

10% 10% 10% 10% 10% 5% 5% 5% 5%

No payroll tax or social insurance tax

No capital gains tax

No wealth tax and inheritance tax

Foreign-source income of individuals fully exempted

Accelerated depreciation on capital assets

Loss carry forward for corporate profit tax purposes (10 years)

No restrictions on currency convertibility or repatriation of capital & profit

Double taxation avoidance treaties with 40 countries

Taxation - simple, low, efficient and fair


According to the latest Tax Misery & Reform Index, released by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong

Leader in Forbes rating (Tax Misery & Reform Index)


Labor Availability

60,0

70,0

80,0

90,0

100,0

110,0

2005 2006 2007 2008 2009 2010 2011 2012

Georgia - one of the most liberal labor environments (3rd best globally), according to the Heritage Foundation, 2012

Frontier Markets avg

Georgia

Greater Labor Freedom

Source: MOF and Heritage Foundation, 2012

• Young labor – 50% of unemployed population are aged between 20-34

• Average monthly salary in 2012 – 450 USD

• Vocational Education Training Centers around Georgia provide professional courses in

different types of practical subjects and most of the course’s fees are financed by the

Government of Georgia.

Foreign Direct Investment

• Strong and Rising FDI Stimulates Economic Prosperity

• Key Industries Benefit from FDI

• Georgia has bilateral treaties on investment promotion and protection with the 32 countries

(negotiations launched with 24 countries)


Favorable FDI/GDP ratio FDI Breakdown by sectors 2012*

* Preliminary data

Manufacturing; 22%

Energy sector ; 20%

Financial sector; 18%

Transport and

Communication; 17%

Real Estate; 3%

Agriculture; 3%

Other sectors;

17%

340 499 450

1190

2015

1564

658 814

1117 864

8,5% 9,7%

7,0%

15,3%

19,8%

12,2%

6,1% 7,0%

7,8%

5,5%

0,0 %

5,0 %

10, 0%

15, 0%

20, 0%

25, 0%

0

500

100 0

150 0

200 0

250 0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

FDI FDI as % of Nominal GDP

Investment Opportunities in Georgia


Hydro Power Hub

Tourism

Manufacturing

Agriculture

Regional Logistics Corridor

Regional Services Hub

Significant Hydro Power Potential

Installed capacity of > 2,700 MW

Additional potential > 4,500 MW

• Generation cost (0.06 USD) among the lowest in the region,

~50% lower than target market Turkey

Export Capacity

• The only net electricity exporter in the region, with rapidly growing consumption rates

• Construction of 400 kV power transmission line from Georgia to Turkey to be completed in 2013

Opportunities

• Several large scale projects (> 100 MW)

• ~ 70 small/medium projects (< 100 MW)

13 www.investingeorgia.org

Hydro Power Hub

14

Importance of the

sector low in terms

of GDP and

employment

• Power generation accounts for 3% of GDP and ~ 1% of employment but is of high strategic importance to Georgia

• ~ 10% of power production are exported, but Georgia still needs to import power during winter

Power sector with

strong focus on

cost competitive

HPP

• Georgia boosts significant and economically viable HPP potential – already today 75% of power generated via HPP (2,700 MW) – 25% via thermal (mainly gas)

• All new HPPs operate in a liberalized market

• Cost of hydropower generation is very competitive in the region

Large projects

have been placed

and pipeline is

filled

• FDI inflows amounted to USD 200 million in 2011 and are growing

• 65% of economically viable potential not yet exploited

• Projects of up to USD 750 million have been concessioned to investors from e.g. India, Turkey, Czech Republic and other counties.

• Pipeline well filled with several large scale projects (100-702 MW) as well as ~70 smaller projects

• Domestic: Demand growth and increasing share of renewables requires an extension of hydropower generation by around 65% until 2020

• Export: Georgia is surrounded by countries with a projected structural power deficit (e.g. Turkey, Russia South) or expensive power generation, opening up attractive export opportunities

Strong demand

growth prospects


Hydro Power Sector Overview

Turkey

South Russia

Georgia

Armenia

Azerbaijan

Iran Iraq

Greece

Bulgaria

Romania

Kazakhstan

Ukraine

Israel

Lebanon

Uzbekistan

Turkmenistan

Structural deficit by 2020

Ad hoc deficits projected

No deficit, but current tariffs > Georgia's generation cost

No deficit, but subsidized tariffs

1 Assuming current consumption and supply pattern 2 This does not even include countries with heavily subsidized electricity

generation (e.g. Azerbaijan, Kazakhstan)

• Turkey expected to have

deficit of up to 80-120 TWh

by 2020, with seasonality of

its demand matching

Georgia's supply

• Russia’s Southern districts

will also experience a

structural deficit of up to 40

TWh by 20201

• In other markets, Georgia’s

hydropower is very cost-

competitive compared to

local tariffs2

2020


Georgia surrounded by countries with a structural power deficit or expensive power generation

Additional potential of about 70 small/medium projects (<100 MW capacity)

Potential Hydropower

Projects

Installed Capacity

(MW)

Forecast Invest. Volume

(USD millions)

Ready to

invest?

Namakhvani Cascade 450 926

Khaishi HPP 400 620

Oni Cascade 270 599

Nenskra HPP 210 491

Tobari HPP 200 310

Fari HPP 180 297

Lentekhi HPP 120 189

Hydropower pipeline boosts several new megaprojects above 100 MW capacity that are currently open for investment


Tourism


Fast growing sector • Tourism contributed 6.4% of GDP in 2012

• Number of visitors increased 38% in 2011 reaching 2.8 million and 56% in 2012 reaching 4.4 million.

• Majority of visitors come from: Turkey (34.9%), Azerbaijan (21.2%), Armenia (20.5%), Russia (11.6%), Europe (9.4%)

• Average duration of stay 9 nights, the median visitor stays – 2days/ Average spend of USD 330

• Overall capacity of < 15, 110 rooms

• Already operating hotels - Sheraton, Radisson, Marriot, Holliday Inn, (under construction - Cempinski, Hillton) etc.

Potential • Youth Olympics in 2015

• Free tourism zones – summer resorts

• Availability of gambling business – gaming is partially or completely banned in Russia, Ukraine, Azerbaijan, Kazakhstan, Turkey, Israel, Iran, Iraq

• 8 national parks

• 2400 springs of mineral waters

Georgia is expecting significant growth trajectory in tourist arrivals


International arrivals have seen ~40% year-on-year growth

0,6 1

1,1 1,3 1,5

2.0

2,8

4,4

5,5

2005 2006 2007 2008 2009 2010 2011 2012 2013F

+38% p.a.

+56% p.a.

+29% p.a.

Total international tourist arrivals # of arrivals into Georgia

More international luxury hotel chains are coming to the market…


Existing Hotels Hotelier’s assessment of performance

“We have seen 7-8% more guests in our hotels every year. Business and leisure travelers are our two biggest client group and they come from all over the world. Best occupancy period is summer from May to September”

– Alexander Kvaratskhelia Marketing Manager

“ We are very optimistic as demand has been increasing rapidly. Hotel occupancy hovers around 85%. Our guests come from all around the world representing various sectors including business, sportmen and tourists”

– Oto Berishvili Sales & Marketing Manager

“We have seen significant increases in occupancy rate and financials since 2010. This year [2012] high season has seen a very promising start. We have advance reservations booked for almost the whole summer”

– Omer Subasi General Manager

Upcoming international hotel brands before 2015

Batumi

Tbilisi

Batumi

Tbilisi Batumi

Tbilisi

Investment opportunities in tourism sector

Expansion of summer ”sun and beach” franchise focusing on high-end segment All inclusive summer

resorts New master resort

development

Description

Potential location

1 2

Batumi Anaklia Kobuleti Other Black Sea

locations

Mestia Gudauri Bakuriani Goderdzi

Master development of winter resorts with unique profile equivalent to the Alps Government is

fully committed to provision of basic infrastructure

Four season resort value preposition Majestic landscapes

allowing for a wide range of summer tourism activities such as trekking, horse riding, bird watching and river racing

• Mestia Gudauri Bakuriani Goderdzi Kazbegi Other locations

Development of Spa Resorts Include hotels,

Different types of Clinics, fitness, Outdoor activities

4

Tskhaltubo Akhtala Other locations

3


“Sun-beach” resorts

Winter ski resorts

Summer mountains resorts

Spa Resorts

Development of large-scale integrated casino complex to Serve regional markets. Include hotels, casino

entertainment, family Services and shopping

Fiscal invcentives available

Batumi Tbilisi Other locations

Regional Casino City

5

Manufacturing Sector

Overview:

• Manufacturing account for around 11% of GDP and ~ 5% of employment

• Largest industries: food and beverages (3% of GDP), metal products (2.5% of GDP)

• Advantage to process goods: competitive cost of power, labor and strategic location

• 2 Free Industrial Zones: businesses are exempted from all tax charges except Personal Income Tax

Opportunities:

• Large import overhang of good that are not usually traded extensively between the countries provides regional import substitution potential in food processing, construction materials, household gods etc

• Georgia’s current advantages in terms of handling large transshipment flows, business stability, low cost of power generation and existing raw materials/intermediate products provide opportunities for large industrial bets, like production of iron and steel products, aluminum etc

Poti

Batumi

Armenia

Azerbaijan

Russia

Turkey

Black

Sea Kutaisi

Main Road Network Railway

Kulevi

Tbilisi

Mestia


FIZ FIZ

Several highly attractive import substitution opportunities

Food

processing

Product group Products

• Glass & glassware • Windows

• Glassware

• Ceramic products • Tiles

• Sanitary ware

• Furniture • Doors

• Living furniture

• Dairy and eggs • Milk

• Cheese

• Butter

• Yogurt

• Fruit juices

• Jams

• Vegetable oils

• Beverages and spirits • Bottling

• Poultry/Beef/Pork/Lamb • Meat

Sector

Construction/Building materials

• Articles of wood • Plywood and laminated wood

• Prefabs • Articles of cement and steel • Ready-mix concrete

• Finished articles of steel

• Bricks

• Preparations of fruits and vegetables

Packaging

Construction/Finishing elements

• Plastic packaging

• Paper packaging


Several opportunities arising from Georgia’s trans-shipment flows and resources

Opportunity Current advantages to be leveraged Potential for Georgia

• Large transshipment flows of raw materials/input (Bauxite) and aluminium cross Georgia to/from Tajikistan (largest aluminium plant in Central Asia)

• A lot of water recourses and large hydropower plants in the pipeline

Aluminium industry

• Georgia mines Manganese ore

• Georgia produces ferro alloys, largely for export (USD ~260 mln)

• Large imports of iron and steel products to Georgia (USD ~320 mln) and neighboring countries

• Vertical integration of value chain by adding production of iron and steel and related end products

• Regional import substitution

Iron and steel production

• Georgia and Armenia export copper ores, copper waste and scrap

• Import overhang of copper products (alloys and final products e.g. wire, tubes, pipes) amounts to USD ~200 mln in the region

• Production of copper alloys and end products (regional import substitution)

Copper

• Plastics and petrochemicals production (regional import substitution for plastics/rubber)

• Import overhang of plastic products amounts to 250 mln in Georgia and 8 bln in the region

• Georgia transships large flows of petroleum products

– Production of aluminium

• Value chain integration

– Production of aluminium products (fabricated or end products)

Polymers & other plastics


Agriculture

• Over 21 micro-climates - a wide range of grain, vegetables, hard and soft fruits, meat and dairy could be farmed

• Agriculture accounts for 8.4% of GDP. It contributes ~53% of employment mostly in subsistence farming (average farm size of 1.55 ha)

• Traditionally Georgia has strengths in wine, nuts, fruits which account for more than 60% of agriculture exports

Opportunities:

• Import substitution opportunities - meat, dairy products, onions, potatoes etc

• Export opportunities - traditional strong sub-sectors, like wine, walnuts, hazelnuts, sheep meat, etc

• Productivity gain opportunities – tomatoes, apples, cucumbers, stone fruits, citrus etc


14 potential priorities crops/livestock to focus development efforts

Georgia’s competitiveness High potential projects

Exp

ort

-led

D

om

esti

c

Nuts (cultivation and processing)

• Top 5 global exporters of nuts, ideal growing conditions, commitment from Ferrero

Grapes (cultivation and winemaking)

• Distinctive varieties and growing conditions, traditional strong industry, access to CIS market, large base of experienced and low-cost labor in the sector

Lamb (husbandry and meat production)

• Well-reputed for lamb quality, significant export potentials to Middle Eastern markets

Citrus (cultivation and juices)

• Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor

Beef/dairy (milk and cattle meat production)

• Big import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing

Pork (meat production) • Import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing

Poultry (chicken meat and egg production)

• Big import overhang, sizeable and fast growing domestic demand, commercial farms with intensive operations already in place

Olive oil (cultivation and processing)

• Large demand for oil-related products, good growing condition, access to CIS markets

Stone fruits (cultivation and juices)


Tomato (cultivation and canned)

• Import overhang, low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements

Tobacco (plantation and processing)

• Sizable demand for tobacco and tobacco-related products, well-reputed for tobacco quality

Cucumber (cultivation and canned)

• Low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements

Apple (cultivation and canned)


Onion (cultivation) • Low investment needed, quicker to realize quality and yield improvements


http://images.google.fr/imgres?imgurl=http://blog.masdelarbre.com/public/Produits Frais/magnifique_abricot.jpg&imgrefurl=http://blog.masdelarbre.com/post/2007/06/01/Les-Fetes-et-l-Abricot&h=209&w=200&sz=9&hl=en&start=11&tbnid=Np3q8nfMatDAcM:&tbnh=106&tbnw=101&prev=/images?q=abricot&gbv=2&hl=en

http://images.google.co.uk/imgres?imgurl=http://www.verger-de-cire.com/upload/articles/poire.jpg&imgrefurl=http://www.verger-de-cire.com/catalogue.php?cat=21&rub=0&lang=nom&start=3&h=290&w=290&sz=50&tbnid=EyAegn6K-vmI0M:&tbnh=115&tbnw=115&hl=en&prev=/images?q=poire&gbv=1&svnum=10&hl=en

http://findicons.com/icon/126317/onion?id=320391

Regional competitiveness and potentials map

Based on regional specialization (natural endowments, cultivation history), productivity and seasonality

Crop potentials by region




http://www.desktop-icon.com/cart.php?add=desktop-buffet--cabbage


http://www.desktop-icon.com/cart.php?add=desktop-buffet--cabbage

Regional Logistics Corridor


Trans-Caucasian route

• Strategic location: It serves as an entry gate to the Caucasus and Central Asia as well as a stepping stone to the region

• Around 80% of port cargo and 60% of freight rail are transits

• Great potential of better integration and development of the Region

Transport Infrastructure

• Rapidly developing road infrastructure

• Ports are cost-competitive vs. alternative routes

• FDI inflows in the logistics sector have primarily targeted transport infrastructure

Opportunities

• Deep-sea port (PanaMax)

• Containerization and logistical centers

• Direct connection with European and Central Asian railway networks (BTK project)

Georgia’s transport infrastructure

Rail

▪ 1,500 km (90% electrified)

▪ ~7,000 rolling stock, 180 locos

Road

▪ 1,500 km international road

+ 20,000 km internal and local roads

Rail

▪ Baku-Tbilisi-Kars railway project

▪ Modernization

▪ Tbilisi bypass

▪ ~2500 new rolling stock

Road

▪ East-West highway construction/upgrade

Poti seaport

▪ 13 berths, 8-10m draft

▪ Container and bulk (210k TEU)

▪ Owned/operated by Maersk/RAKIA

Batumi seaport

▪ 5 berths, 1 offshore mooring, 11m draft

▪ 90% petroleum/oil, 10% containers (44k TEU)

▪ Operated by JSC KazTransOil

Kuhlevi seaport

▪ Crude oil, petroleum, and lubricants

▪ Owned/operated by State Oil Company Azerbaijan

Poti seaport

▪ New container berth (2014)

Deep-sea port

▪ Min. 2 berth of 20m draft (PanaMax)

▪ First phase: Dry bulk (10m tons) and containers (200k TEU)

▪ USD 200 mn investment volume

Tbilisi international airport

▪ ~1 million passengers

▪ capacity: 3 million passengers

▪ Serving 28 destinations

Batumi international airport

▪ 100,000 passengers

Kutaisi international airport

▪ Passenger, incl. low-cost airlines

Mode of transport Existing infrastructure and flows Upgrades

Ro

ad/R

ail

Mar

itim

e

Air



Cargo Turnover Transit flows through the Corridor (million tons per year)

Approximately 80% are transit flows (2012) Central Asia

Kazakhstan Uzbekistan Tajikistan Kirgizstan Turkmenistan Caucasus: Azerbaijan Armenia Central

Asia+Caucasus Sender - 9.6

Destination - 4.7 Total - 14.3

Europe+Turkey Sender - 2.6

Destination - 4.1 Total - 6.7

Georgia serves as the entry gate to a landlocked region boosting significant resource reserves


Iron ore 2% USD 4 bn

Other (bauxite, gold, nickel, PGMs)

Zinc 5% USD 1 bn

Copper 3% USD 3 bn

Oil 3% USD 100 bn

Coal 5% USD 28 bn

Gas 14% USD 9 bn

For comparison: region represents

only ~1.6% of global population

~126 million tons Addressable cargo

flows from landlocked countries

Regional Services Hub


• Service sector in Georgia achieves leading ranks among regional economies in terms of value added and trade

• Services have major share of FDI inflow of ~45% in 2012 with USD ~380 million:

Financial services have grown at 19% p.a. since 2009 and is the leading service sub-sector for FDI attraction with 18% of total inflows in 2012

Consultancy services attracted 4.3% of total FDI inflows in 2012

Wholesale/retail trade accounts for 15% of GDP in 2012,

FDI inflows in healthcare/social work have grown at 146% p.a. since 2007, and accounts 2.6% of FDI in 2012

• Opportunity to capitalize:

Financial services/headquarters

Retail hub as the destination-of-choice for shopping

Georgian National Investment Agency

• State agency

– Promoting Georgia internationally

– Supporting foreign investments and investors

before, during & after investment process

• “One-stop-shop” for investors

• Moderator between Investors,

Government and Local Companies


Local

Companies

Investors

Government

GNIA

Mission - Attracting Greenfield and M&A Investments

What you can get from GNIA


Information - General data/Statistics/Sector Researches

Communication - Access to Government at all levels/Local partners

Organization of site visits and accompanying investors

After care - Legal advising/Supporting services

34

GEORGIAN NATIONAL INVESTMENT AGENCY

8, Rustaveli avenue, 0118 Tbilisi, Georgia

Tel: (+995 32) 2 281 196

E-mail: [email protected]

www.investingeorgia.org

mailto:[email protected]?subject=Invest in Georgia Enquiry

mailto:[email protected]?subject=Invest in Georgia Enquiry

http://www.investingeorgia.org/

investment climate & opportunities in georgia · 2013. 9. 25. · doing business in georgia 1 4...

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