2KEY FINDINGS

COVID-19 spread dynamics and tourism expectations

The spread of the virus has accelerated in Georgia and number of countries. On the flip side, the vaccine is expected to become available in the coming months. Also, improved treatment methods lead tolower fatality ratios

A significant recovery in tourism is expected from the second quarter of 2021 and the return to pre-crises levels is projected from 2022. Incoming tourism structure will support the recovery of tourisminflows; “Remotely from Georgia” may become an important cushion for the economy in case of the deterioration of the scenario

Key macro parameters

GDP drop is expected in the range of 5.0-5.5% in 2020, however given increasing infection numbers, without an additional fiscal stimulus, the 2020 growth outlook is being tilted to the lower end of the range,though the economy is expected to recover in 2021; Fiscal stimulus will remain a major driver until the recovery of tourism

Inflation is expected to return to the 3% target by the end of 2020. Despite faster-than-expected reduction of inflation, sharp monetary policy rate cuts are unlikely, as the exchange rate remains significantrisk-factor for the growth of prices

The NBG continues to balance for the shortfall of FX inflows by supplying the additional government external borrowings to the market; Also, Given the priority to bring inflation to the target, a relativestability of the GEL real effective exchange rate and the USD/GEL is projected

The labor market is more resilient than expected. The number of employees went down by 2% YoY in Q2 2020. Among the more affected sectors are arts and entertainment, professional services andHORECA

Expected impact on business environment

The recovery in hospitality sector continued in August, with growth more visible in the regions. Large and medium size hotels display dynamics that are more positive. USD RevPAR is expected to decline bycirca -75% in 2020

YoY change in transactions in Residential real estate sector stood at -17.4% in August, up by circa 1pp compared to July. Prices in USD continue to decline for old apartments (-4.1% YoY), increasing for newproperties (+1.0% YoY), as the demand started to shift to new units. As of 8M 2020, sales decreased by -35% YoY. Over the year, circa -20%* YoY decrease is expected in new apartment transactions, and circa -5% in USD price

Among the surveyed companies in commercial real estate sector, the shopping malls face more declining revenues than street retailers. In the sector the overall rent income is expected to decrease by 20-25%in USD throughout the year

In construction sector, In Q2 2020, a sharp decline is observed in the construction turnover of residential and non-residential buildings (-34% YoY). Infrastructural construction remains more resilient (2020 6M+1%). Total construction turnover is expected to decrease by -15% YoY throughout the year

The FMCG sector is expected to sustain 2019 levels in 2020, with growing share of the organized market

COVID-19 spread dynamics and tourism expectations

Key macro parameters

Expected impact on the business environment

Note*: Updated 23rd Sep 2020

Dynamics of COVID-19 spread in selected countries after the first confirmed case (Daily new cases per 1,000,000 population, as of September 14, 7-day moving average)

While the spread of the virus has been increasing in number of countries, the epidemiological situation in the region is

relatively improving; In addition, the vaccine is expected to become available in the coming months

• The latest dynamics indicate some stabilization ofepidemiological situation in neighborhood countries.Although, signs of virus resurgence became more visiblein number of countries.

• However, a tangible progress has been made on thevaccine development. Currently, nine candidates are infinal stages, phase-III of human trials.

• The vaccine is expected to be widely available in late2020 or early 2021. The US CDC has notified localofficials in all states to prepare for vaccine distribution forhigh-priority groups by the November 1, 2020.

• As Georgia already registered an official statement for700,000 dozes to the Global Vaccine Alliance, once thevaccine is approved, it will become available to thepopulation of Georgia.

Source: Johns Hopkins University

0

100

200

Israel Spain Brazil France USA Armenia Sweden

0

50

100

Czechia Ukraine United Kingdom Russia Italy Turkey Germany

Kazakhstan

Azerbaijan

GreeceGeorgia Poland South KoreaBaltic States

0

20

40

Iran Uzbekistan

0

50

100

China Hubei (RH)

424

Countries with pronounced signs of the second wave Countries with moderate signs of the second wave Countries with the deacreasing number of new infections

3

• Treatment methods advanced significantly.The ICU mortality rate decreased from aconsensus 60% estimated in studies publishedin the spring to the level of around 40% for allincluded studies to the end of June 2020

• Even if there is another surge in infectioncases, some countries have pledged tocombat the virus without full lockdowns,emphasizing that the spread of the virus cannow be managed differently than whenCOVID-19 first emerged

0

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Israel

0

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02000400060008000

1000012000

22

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22

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22

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22

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Spain

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0

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Czech Republic

0102030405060

0500

10001500200025003000

22

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22

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22

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r

22

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22

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n

22

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22

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Ukraine

0

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0.3

0.4

0.5

020406080

100120

22

-Jan

22

-Feb

22

-Mar

22

-Ap

r

22

-May

22

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n

22

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l

22

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g

Georgia

0123456

050

100150200250300

22

-Jan

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22

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United KIngdom

051015202530

0

200

400

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800

22

-Jan

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22

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22

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22

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22

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g

Poland

Dynamics of COVID-19 cases and deaths in selected countries (As of September 14, 7-day MA)

Daily new cases Daily deaths (RHS)

The case fatality rate is lower compared to the spring, attributed to improving treatment methods as well as seasonal factors

and increased testing capacities4

Compared to the rate of virus spread, mobility restrictions have higher impact on the economic activity

Sweden (Q1)

Sweden (Q2)

USA (Q2)

Georgia (Q1)

Georgia (Q2)

y = -0.2745x + 2.7459R² = 0.7121

-25

-20

-15

-10

-5

0

5

- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

Qu

arte

rly

GD

P g

row

th

Stringency index

GDP growth and stringency index*

Sweden (Q2)

UK(Q2)

USA (Q2)

Georgia (Q1)

Georgia (Q2)

y = -0.1536x - 4.2627R² = 0.2395

-25

-20

-15

-10

-5

0

5

- 1 0 . 0 2 0 . 0 3 0 . 0 4 0 . 0 5 0 . 0 6 0 . 0 7 0 . 0 8 0 . 0 9 0 . 0

QU

AR

TER

LY G

DP

GR

OW

TH

DAILY NEW CASES OF COVID-19 (QUARTERLY AVERAGE)

SPREAD OF COVID-19 AND GDP GROWTH*

*The graph shows data from EU and other countries for the first and second quarters of 2020.Seasonally adjusted GDP data are used.

Source: Eurostat, Geostat, TBC Capital, Oxford University, OurWorldinData

5

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20

Monthly new cases of COVID-19

(per 1,000,000 people)

Croatia Montenegro Turkey Greece

Source: Johns Hopkins University

-100

-80

-60

-40

-20

0

20

40

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20

International tourism arrivals (%, YoY)

Croatia Montenegro Turkey Greece

Sources: National statistical offices, ceicdata

Opening-up has improved tourism dynamics in selected countries, however, the infection numbers have also increased 6

Equity prices of most affected industries are recovering – promising dynamics for Georgia

Source: Refinitiv

20

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1/1

7/20

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1/20

20

2/7

/202

0

2/1

4/20

20

2/2

1/20

20

2/2

8/20

20

3/6

/202

0

3/1

3/20

20

3/2

0/20

20

3/2

7/20

20

4/3

/202

0

4/1

0/20

20

4/1

7/20

20

4/2

4/20

20

5/1

/202

0

5/8

/202

0

5/1

5/20

20

5/2

2/20

20

5/2

9/20

20

6/5

/202

0

6/1

2/20

20

6/1

9/20

20

6/2

6/20

20

7/3

/202

0

7/1

0/20

20

7/1

7/20

20

7/2

4/20

20

7/3

1/20

20

8/7

/202

0

8/1

4/20

20

8/2

1/20

20

8/2

8/20

20

9/4

/202

0

9/1

1/20

20

Equity price performance of selected airline price indices (Dec-31-2019=100, in USD, as of 15th of Sept.)

MSCI world airline equity price index Delta Airlines American Airlines

Easyjet Wizz Air Lufthansa

Air France -KLM Ryanair Turkish airlines

20

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60

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120

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2/7

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4/20

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2/2

1/20

20

2/2

8/20

20

3/6

/202

0

3/1

3/20

20

3/2

0/20

20

3/2

7/20

20

4/3

/202

0

4/1

0/20

20

4/1

7/20

20

4/2

4/20

20

5/1

/202

0

5/8

/202

0

5/1

5/20

20

5/2

2/20

20

5/2

9/20

20

6/5

/202

0

6/1

2/20

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/202

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0/20

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0

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1/20

20

Performance of selected hospitality industry equity price indices(Dec-31-2019 =100, in USD, as of 15th of Sept.)

MARRIOTT INTL.'A' HILTON WORLDWIDE HDG.

HYATT HOTELS CL.A WYNDHAM HOTELS RESORTS

Refinitiv global hotels and entertainment price index Refinitiv global hotels, motels, cruise lines price index

7

• In the baseline scenario, we expect tourism inflows to drop by 83%YoY in 2020, meaning almost no tourism inflows though theremaining period of 2020.

• 2021 should be a year of recovery, however the inflows still beingdown by around 50% compared with the 2019 level. The inflowsare expected to exceed pre-crisis levels by 2022.

• The widespread use of an effective vaccine, assumed in the firsthalf of 2021, will lead to the gradual recovery of internationaltravel. At the same time, improved consumer sentiments andpent-up demand for leisure will contribute to relatively quickrecovery of tourism inflows.

• Corporate travel is expected to take longer to recover, ascompanies are reducing their travel budgets and regular videoconferencing has created a substitute for in-person meetings.*

• The region’s economies account for approximately half of inboundtourism inflows to Georgia, and repeated visits also comprise arelatively high share while corporate and long distance travel is notsignificant.

• Georgia’s tourism industry has demonstrated resilience and strongpotential of growth as evidenced by c. 20% growth in the monthsprior to COVID-19 breakout, despite the Russia’s flight ban insummer 2019.

*https://www.iata.org/en/pressroom/pr/2020-07-28-02/

A significant recovery in tourism is expected in the second quarter of 2021

Source: NBG, TBC Capital

-100

-80

-60

-40

-20

0

20

40

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

e-2

0

July

-20

Au

g-2

0

Sep

t-2

0

Oct

-20

No

v-2

0

Dec

-20

Jan

-21

Feb

-21

Mar

-21

Ap

r-2

1

May

-21

Jun

e-2

1

July

-21

Au

g-2

1

Sep

t-2

1

Oct

-21

No

v-2

1

Dec

-21

Forecast of tourism inflows(Compared to 2019,%)

August 17 forecast Current forecast

-83.3

-25.0

-83.3

-50.0

5.0

2020 2021 2022

Change in tourism inflows compared to 2019

August 17 forecast

Current forecast

8

“Remotely from Georgia” is an upside, however, likely with a limited immediate impact

8981

7965

5756

5048

4645

3736

3029

2215

9

RussiaUkraineGeorgia

AzerbaijanArmenia

LatviaPolandTurkey

PortugalRomaniaHungary

GreeceEstonia

Czech republicLithuania

CroatiaBulgaria

Mobile internet speed(Ranking as of July 2020)

Source: Speedtest

115104

1009695

8659

5754

4945

3330

2826

135

AzerbaijanGeorgiaTurkey

ArmeniaGreeceCroatia

UkraineBulgaria

Czech republicEstoniaRussia

PolandLatvia

LithuaniaPortugalHungaryRomania

Fixed broadband internet speed(Ranking as of July 2020)

Source: Speedtest

119116

9981

6059

575251

4536

342827

2214

12

TurkeyUkraine

RussiaBulgariaGreece

HungaryCroatiaPolandLatvia

RomaniaArmenia

LithuaniaCzech republic

GeorgiaAzerbaijan

PortugalEstonia

Security component in the Global Competitiveness Index(Ranking as of 2019)

Source: WEF

9089

8684

7571

6560

5640

3531

2821

2016

15

CroatiaPortugal

GreeceEstonia

Czech republicLatvia

LithuaniaPoland

HungaryBulgaria

RomaniaArmenia

RussiaAzerbaijan

GeorgiaTurkey

Ukraine

Cost of Living and Rent IndexRanking as of mid-year 2020

Source: Numbeo

9994

8986

84818079

7774

6964

6045

3128

26

EstoniaCzech republic

LithuaniaPolandLatvia

PortugalRomaniaHungaryBulgariaCroatiaGreeceTurkeyRussia

UkraineAzerbaijan

ArmeniaGeorgia

Local Purchasing Power IndexRanking as of mid-year 2020

Source: Numbeo

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017 2018 2019

Net migration of foreign citizens to GeorgiaNumber of persons

Source: Geostat

9

Except tourism and related industries the recovery is underway

-20

-15

-10

-5

0

5

10

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

GDP growth(%, YoY)

-40

-30

-20

-10

0

10

20

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Export of goods(%, YoY)

-50-40-30-20-10

0102030

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0Remittances

(%, YoY)

-50

-40

-30

-20

-10

0

10

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Import of goods(%, YoY)

-35

-15

5

25

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Number of hired employees, the total and average

wage received in hired employment (%, YoY) Number of hired employees

Total wage received by hired employees

Source: Geostat, NBG, MOF

-100

-80

-60

-40

-20

0

20

40

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Tourism inflows(%, YoY)

10

0.30

0.35

0.40

0.45

0.50

0.55

0.60

0.65

-60

-40

-20

0

20

40

60

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

Consumer and business sentiments and GEL/USD

Consumer Confidence Index Business Confidence Index GEL/USD exchange rate (RHS)

Source: ISET-PI, NBG, TBC Capital

Consumer and business confidence picked up from their lows amid the recovery and broadly stable USD/GEL 11

Amid increasing infection numbers, without an additional fiscal stimulus, the 2020 growth outlook is being tilted

to the lower end of the range, though the economy is expected to recover in 2021

*Growth in USD ** Ratio to GDP, TBC capital estimates, IMF methodology ***End of period, constant exchange rate, for GDP estimation the period average inflation

adjusted credit growth is used. Also, calculations are based on estimation of inflows in real GEL values rather than in USD. Regarding the impact of the key macro-

variables on the economic growth, different assumptions are employed.1 Adjusted for an estimated impact of lower cash remittances due to closed borders

Source: Geostat, NBG, MOF, TBC Capital

2020: Aug-17 projections

Exports*

Tourism*

Remittances*

Fiscal Deficit**

Bank Credit***

FDI*

-15.0

-4.5/-5.5%

-83.0

-55.0

+5.0

8.5

+5.7

Import of goods and services* -19.0

GDP growth

2020: updated projections

-15.0

-5.0/-5.5%

-83.0

-35.0

+5.01

8.5

+7.5

-19.0

Major macro variable projections for

2020 and 20212021

+10.0

+5.0/+5.5%

+200.0 YoY/-50% rel. to 2019

+20.0

+8.0

5.6

+11.5

+17.0

12

Private consumption spending will be relatively resilient supported by labor market recovery, strong

remittances and social transfers coupled with the broadly stable USD/GEL exchange rate

-15

-10

-5

0

5

10

15

20

25

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

Nominal GDP growth and contribution of expenditure components to the

growth(%, YoY)

Private consumption Public consumptionGross Capital Formation Net ExportsNominal GDP growth

Sources: Geostat, TBC Capital

38.1%

19.1%

18.5%

24.3%

Household disposable income by components(2019)

Wages

Money transfers and factor income

Social and other government transfer

Other mixed income

Source: Geostat, MOF, NBG, TBC Capital

13

Fiscal expenditure will remain high until the tourism inflows recover

-2,000

-1,500

-1,000

-500

0

500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Consolidated budget balance (GFSM 1986, mln GEL, cumulative)

2017 2018 2019 2020Source: MOF, TBC Capital

• According to the budget project, an additional (excl. repayments) increase in foreign debt by the equivalent of 5.2 billion GEL (1.7 billion USD; YoY increase of 1.55 billion USD) and an increase in domestic debt by 1.8 billion GEL is planned

• Additional funding is enough to finance the increased budget deficit, as well as to create an additional buffer of 2.7 billion GEL (5.4% of GDP), which will be available in case of additional deterioration of the macro scenario

-14

-12

-10

-8

-6

-4

-2

0

Q1 Q2 Q 3-4 2021

Fiscal Deficit, excluding the utilization of the buffer of around 5% of GDP(% of GDP)

2019 2020

Source: MOF, Geostat, TBC Capital

14

Credit growth stronger than expected recently with increasing GEL lending; The corporate segment will take

longer to recover

* Seasonal adjustment is carried out by two methods: 1. Using ARIMA x-12 method using e-views software and 2. manual adjustmentbased on historical data. Both approaches yielded broadly similar results. Figures given in the table represent the average of thesetwo methods.

Seasonally adjusted monthly annualized growth rates (%)

Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20Last 12 m

Retail 6.4 4.7 5.1 7.2 4.3 13.0 21.6 4.0 -2.1 9.4 9.6 25.6 7.2

Retail as sum of mortgage and non-mortgage 5.9 4.7 5.2 8.8 6.0 11.9 21.5 5.0 -0.6 8.4 9.5 24.8 7.4

Mortgage 5.4 4.8 12.8 18.6 12.6 11.2 24.6 3.4 3.4 9.9 5.8 31.6 10.1

GEL 99.8 82.2 59.0 40.7 8.6 26.5 35.1 2.7 26.4 3.2 20.8 67.4 41.2

FX -22.3 -21.1 -6.4 7.8 14.9 3.2 18.8 3.9 -7.0 13.7 -1.7 14.2 -2.8

Non-mortgage 6.5 4.5 -5.0 -4.8 -3.1 12.8 17.1 7.3 -6.2 6.3 14.7 15.3 3.6

GEL 11.5 7.5 -2.1 -9.5 -3.3 23.0 17.7 -2.2 -1.8 14.3 16.7 21.6 5.7

FX -18.7 -11.9 -21.3 29.7 -1.6 -34.9 13.5 96.6 -27.2 -30.2 3.3 -21.6 -7.8

-400

-200

0

200

400

600

800

1,000

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Growth of portfolio by currencies(MoM, mln GEL, excl. FX effect)

GEL FXSource: NBG, TBC Capital

0

5

10

15

20

25

30

2019 2020 2021 2022

Growth of loan portfolio by segments(YoY, excl. FX effect)

Corporate MSME Retail Total

-5

0

5

10

15

20

2019 2020 2021 2022

Growth of loan portfolio by segments(YoY, excl. FX effect)

Mortgage Non-Mortgage Retail

15

80

100

120

140

160

180

200

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0*

Liquidity Coverage Ratio of the banking sector (%)

Total LCR GEL LCR FX LCR

Source: NBG, TBC CapitalSource: NBG, TBC Capital

*Estimates for August 2020

8.0

7.5

0

2

4

6

8

10

12

14

16

18

20

22

24

26

Feb

-14

Ap

r-1

4Ju

n-1

4A

ug-

14

Oct

-14

Dec

-14

Feb

-15

Ap

r-1

5Ju

n-1

5A

ug-

15

Oct

-15

Dec

-15

Feb

-16

Ap

r-1

6Ju

n-1

6A

ug-

16

Oct

-16

Dec

-16

Feb

-17

Ap

r-1

7Ju

n-1

7A

ug-

17

Oct

-17

Dec

-17

Feb

-18

Ap

r-1

8Ju

n-1

8A

ug-

18

Oct

-18

Dec

-18

Feb

-19

Ap

r-1

9Ju

n-1

9A

ug-

19

Oct

-19

Dec

-19

Feb

-20

Ap

r-2

0Ju

n-2

0A

ug-

20

Oct

-20

Dec

-20

Interest rates on GEL loans and deposits and monetary policy rate(%)

Monetary policy rate

GEL deposit rate (flows)

GEL loan interest rate (flows)

Monetary policy rate projections

Aggressive rate cuts are not expected; The high GEL liquidity is a positive development, however, possible

impact on the exchange rate also needs to be considered16

Moreover, inflation is decreasing stronger than expected – an additional argument for more dovish NBG.

However, inflationary pressures will build up again quickly in case of a sizable GEL depreciation

-10

-5

0

5

10

15

20

Jun

-17

Au

g-1

7

Oct

-17

Dec

-17

Feb

-18

Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Dec

-18

Feb

-19

Ap

r-1

9

Jun

-19

Au

g-1

9

Oct

-19

Dec

-19

Feb

-20

Ap

r-2

0

Jun

-20

Au

g-2

0

Annual and seasonally adjusted monthly annualized Inflation(%)

MoM SA annualized inflation Annual Inflation Inflation target

6.8

4.8

3.0

-3

-2

-1

0

1

2

3

4

5

6

7

8

-25

-20

-15

-10

-5

0

5

10

15

20

Mar

-13

Jul-

13

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

No

v-1

7

Mar

-18

Jul-

18

No

v-1

8

Mar

-19

Jul-

19

No

v-1

9

Mar

-20

Jul-

20

No

v-2

0

The GEL REER and Inflation (YoY, %)

YoY change of REER w/o domestic inflation REER w/o domestic inflation projections

Inflation (RHS) Inflation projections (RHS)

Source: NBG, TBC Capital Source: NBG, TBC Capital

17

287.0

1.7

-129.8

-197.5

-72.2

80.0

40.060.0 69.7 80.0 80.0

60.0**

2015 2016 2017 2018 2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

NBG's FX interventions(increase denotes FX sales by the central bank, m USD)

Source: NBG

**As of September 13, 2020

c. 370 mln FX sales in 2020

The NBG will continue to supply the FX raised by the Government

• According to the existing framework, an external borrowing of the Government is converted to the GEL at the central bank (except government FX spending), rising the NBG’s netinternational reserves and fiscal spending in GEL. Thereafter, the FX is supplied to the market via the NBG’s FX interventions. Thus, in case FX interventions are equivalent to theGovernment’s net external financing, the net international reserves of the NBG will not deplete.

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Mar

-20

May

-20

Jul-

20

Gross and net international reserves*(mln USD)

Gross international reserves Net international reserves

Source: NBG, TBC Capital estimates

*Net international reserves exclude Government borrowings from the IMF

18

Given the sufficient financing of the shortfall in external inflows and the priority to bring inflation to the target,

a relative stability of the GEL real effective exchange rate and the USD/GEL is projected

Source: NBG

• By December 2020, given the relative stability of the currencies of Georgia's main economic partners against the USD, the USD/GEL exchange rate is expected to stand at around 3.15, unchanged from August 17 estimates (see August Macro Insights).

1.76

2.36

2.15

2.78

2.38

2.78

2.57

2.76

2.92

2.77

3.47

3.15

-20

-15

-10

-5

0

5

10

15

Ap

r-14

Jun

-14

Au

g-14

Oct

-14

Dec

-14

Feb

-15

Ap

r-15

Jun

-15

Au

g-15

Oct

-15

Dec

-15

Feb

-16

Ap

r-16

Jun

-16

Au

g-16

Oct

-16

Dec

-16

Feb

-17

Ap

r-17

Jun

-17

Au

g-17

Oct

-17

Dec

-17

Feb

-18

Ap

r-18

Jun

-18

Au

g-18

Oct

-18

Dec

-18

Feb

-19

Ap

r-19

Jun

-19

Au

g-19

Oct

-19

Dec

-19

Feb

-20

Ap

r-20

Jun

-20

Au

g-20

Daily estimates of the GEL REER; deviation from the period average(as of 15th of September, 2020; increase indicates appreciation of the GEL)

Source: NBG, TBC Capital

90

95

100

105

110

115

120

125

130

135

1-J

an-2

02

0

8-J

an-2

02

0

15-

Jan

-20

20

22-

Jan

-20

20

29-

Jan

-20

20

5-F

eb

-202

0

12-

Feb

-20

20

19-

Feb

-20

20

26-

Feb

-20

20

4-M

ar-2

020

11-

Mar

-202

0

18-

Mar

-202

0

25-

Mar

-202

0

1-A

pr-

202

0

8-A

pr-

202

0

15-

Ap

r-20

20

22-

Ap

r-20

20

29-

Ap

r-20

20

6-M

ay-2

02

0

13-

May

-20

20

20-

May

-20

20

27-

May

-20

20

3-J

un

-20

20

10-

Jun

-202

0

17-

Jun

-202

0

24-

Jun

-202

0

1-J

ul-

202

0

8-J

ul-

202

0

15-

Jul-

202

0

22-

Jul-

202

0

29-

Jul-

202

0

5-A

ug-

20

20

12-

Au

g-2

020

19-

Au

g-2

020

26-

Au

g-2

020

2-S

ep

-202

0

9-S

ep

-202

0

16-

Sep

-20

20

Exchange rated of Georgia’s key economics partners against the USD(1-Jan-2020 = 100; as of 15th of September, 2020; increase indicates depreciation against the USD)

USD/EUR

USD/GEL

USD/TRY

USD/RUB

USD/CNY

19

100

130

45

75

Dec-Aug period

INTERNATIONAL INDICES INDICATE IMPROVEMENTS, HOWEVER SECTORAL EXPECTATIONS DIFFER

20

30th June

PRICE DYNAMICS OF COMPANY SHARES IN SELECT INDUSTRIES* (DEC 2019 = 100)

• An improvement in international indices is observed throughout the past several weeks, however investor expectations still differ by sector

• The negative effect remains substantial in Aviation, Oil & Gas, HORECA, Distribution, Real Estate

• E-Commerce, IT Services, Healthcare sectors are displaying solid growth

Source: Bloomberg, TBC Capital; * GICS classification; Average data: S&P 500, STOXX Europe 500, MSCI China Jan-Aug

E-C

om

me

rce

So

ftwa

re

He

alth

care

Ho

use

ho

ld P

rod

uc

ts

FM

CG

Re

tail

Me

tals &

Min

ing

Ph

arm

a

Ele

ctro

nics

Au

tom

otiv

e

Du

rab

les

Ele

ctricity

Clo

the

s Re

tail

Tra

nsp

orta

tion

Ca

pita

l Go

od

s

Co

nstru

ction

Ma

teria

ls

Co

mm

ercia

l Re

al

Esta

te

HO

RE

CA

Distrib

uto

rs

Oil &

Ga

s

Airlin

es

SECTORAL GROWTH FORECASTS

Growth forecasts for selected sectors (GEL, 2019 = 100)

Source: TBC Capital; *Note: Updated 23rd Sep 2020

21

• *Compared to the August 17th forecasts, expectations have improved by 5% in GEL for hotels, automotive, commercial real estate, while it has worsened by 5% for FMCG

-

20

40

60

80

100

120

140H

ote

ls

Au

tom

oti

ve

Co

mm

erc

ial

rea

l e

sta

te

Co

nst

ruct

ion

De

ve

lop

me

nt

Clo

the

sp

rod

uct

ion

& s

ale

Tra

nsp

ort

ati

on

Du

rab

les

pro

du

ctio

n &

sa

le

Te

lec

om

Win

e

Ed

uca

tio

n

He

alt

hca

re

En

erg

y

FM

CG

Ph

arm

acy

2019 2020 2021 2022

Min

ing

Uti

liti

es

Fin

an

ce

s

He

alt

hca

re

En

erg

y

Tra

nsp

ort

Tra

de

Pu

bli

c

Co

nst

ruct

ion

Oth

er

serv

ice

s

Inte

rna

tio

na

l

Pro

du

ctio

n

Re

al

est

ate

Te

lec

om

Ag

ricu

ltu

re

HO

RE

CA

Pro

fess

ion

al a

cti

vit

y

En

tert

ain

me

nt/

art

s

-30%

-20%

-10%

0%

10%

EMPLOYMENT RATE FELL BY 2% YoY IN 2Q 2020 22

Sectoral change of hired employees (compared to Feb-Mar period, %)

Dynamics of people receiving salaries by income brackets (‘000)

Source: Revenue Services

Source: TBC Bank; *the size of spheres is proportional to the change in absolute terms; TBC Bank’s numbers differ from official statistical data and therefore is only

used to show sectoral dynamics

• According to GeoStat, the employment rate fell by 2% YoY in 2Q

2020, however it increased by 1% QoQ and amounted to 1,684

thousand employees

• Noticeable change was observed in employment composition: the

number of hired employees (817.5 thousand)) decreased by -5% YoY

and -4% QoQ, mainly on the back of hired employees in the urban

areas. The number of self-employed (864.6) increased by 1% YoY and

6% QoQ, mainly on the back of self-employed in rural areas

• Compared to Feb-Mar period, in percentage terms, the highest

decrease in salary recipients was observed in entertainment,

professional activity and HORECA sectors, however in absolute

terms the trade sector took the biggest hit

• According to the Revenue Services data, the number of employees

receiving a salary decreased by 2% in July compared to February,

mainly explained by a decrease in the low income segment (< GEL

1,200), while a positive growth dynamics is observed in the number of

employees in other income brackets

14 80 91 44 20

23 48 48 28 58

17 25 10

6 8 2 3 4 1 5 7 2

-

300

600

900

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

FE

B

MA

R

AP

R

MA

Y

JUN

JUL

TOTAL < GEL 1,200(59%)

GEL 1,200 - 2,400(26%)

GEL 2,400 - 3,600(8%)

GEL 3,600 - 4,800(3%)

> GEL 4,800(4%)

ათ

ას

ი დ

ას

აქ

მე

ბუ

ლი

23HOTELS: IN AUGUST RECOVERY CONTINUED IN THE REGIONS; BETTER DYNAMICS WAS OBSERVED IN THE MEDIUM AND LARGE SIZE HOTELS

• Tbilisi and the regions: Non-cash payments are stable recovering in hotels and average change in august was -69% YoY; Growth is more observed in the regions (-49%) and spending in Tbilisi is close to zero (-94%)

• Hotel size: Recovery is more observed in the formal sector, which was driven by offered discounts and seasonal tourism. Recovery is less observed in small hotels and guesthouses

• More “other” income: Wit the offered discounts on room price, people are spending more on other services (Food & drinks, restaurant, bar) which significantly improved dynamics in the mentioned category

Change in service revenue (YoY, %) in 2020: Tbilisi vs Regions

Change in service revenue in the regions (YoY, %) in2020: By size

Change in revenue (YoY, %) in 2020: By revenue type

-97%-95% -94%

-99% -99%

-76%

-59%

-49%

-88%

-77%

-69%

-100%

-80%

-60%

-40%

-20%

0%

APR MAY JUN JUL AUG

Tbilisi Regions Total

-84%

-73%

-61%

-99% -99%

-78%

-56%

-30%

-70%

-60%

-41%

-100%

-80%

-60%

-40%

-20%

0%

APR MAY JUN JUL AUG

Other hotels, hostels, guesthouses 50-120 Room hotels >120 Room hotels

Source: TBC Bank; Note: Hotel service includes any charge covered by the POS terminal located in the hotel reception

-99% -99%

-88%

-77%

-69%

-97% -97%

-69%

-60% -59%

-100%

-80%

-60%

-40%

-20%

0%

Apr May Jun Jul* Aug

Hotel service Hotel restaurant, bar, night club, other

24TURNOVER WAS SIGNIFICANTLY IMPROVED IN HOTELS LOCATED IN ADJARA DURING THE AUGUST

• Kakheti and Mtskheta-Mtianeti continue recovery on the back of domestic tourism, driven by the close distance from Tbilisi

• Adjara: Significant improvement was observed in the summer season with increasing domestic tourism

• Mtskheta-Mtianeti, Samtskhe-Javakheti and Imereti: Positive dynamics was observed in August

• Tbilisi, Imereti, Kvemo and Shida Kartli: Recovery is less visible

Annual change in non-cash turnover (%): July and August 2020

Source: TBC Bank; Sector growth is based on POS and E-commerce payments through TBC channels; Growth rates may differ from total turnover dynamics due to the changing share of non-cash transactions and TBC market share

-45%-41%

-54%

-42%

-73%

-45% -42%-48%

-62%-55%

-75%

-67%

-82%

-68%

-94% -92%-98% -98%

-91%-87%

-99% -97%

-100%

-80%

-60%

-40%

-20%

0%

JUL

AU

G

JUL

AU

G

JUL

AU

G

JUL

AU

G

JUL

AU

G

ივ

ლ

აგ

ვ

JUL

AU

G

JUL

AU

G

JUL

AU

G

JUL

AU

G

JUL

AU

G

>120 rooms

Small andmedium sized

hotels

Other hotels,hostels,

guesthouses 50-120 rooms >120 rooms

Kakheti (5%) Adjara (27%)

Racha,Lechkhumi,Samegrelo,

Guria,Svaneti(14%)

Mtskheta-Mtianeti (6%)

Samtskhe-Javakheti

(15%) Imereti (8%) Tbilisi (25%)

Kvemo &ShidaKartli(2%)

25FORECAST: USD REVPAR EXPECTED TO DECLINE BY CIRCA 75% IN 2020

• TBC Capital projections: Hotel Average Daily Rate (ADR) in USD, average occupancy and average Revenue Per Available Room (RevPAR) is expected to decrease by -30%, -70% and -75% respectively in 2020, compared to 2019.

RevPAR is expected to decline by C.-40% YoY in 2021. Occupancy is expected to recover in 2022 to 2019 levels, while prices are expected to remain C. 0-5% lower, compared to the same period

Source: TBC Capital

Change (%) in occupancy, ADR and RevPAR

-100%

-80%

-60%

-40%

-20%

0%

QI 2020(Estimate)

QII 2020(Estimate)

QIII 2020(Forecast)

QIV 2020(Forecast)

QI 2021(Forecast)

QII 2021(Forecast)

QIII 2021(Forecast)

QIV 2021(Forecast)

2022(Forecast)

Change in ADR (vs 2019) Change in occupancy (vs 2019) Change in RevPAR (vs 2019)

26HOTEL SURVEY: TOURISM SEASON COMING TO AN END

Source: survey of 25 branded and 20 small hotels; *excluding quarantine hotels; taking into account the quarantine hotels, the occupancy amounted to c. 30%

Occupancy by current bookings (%)

YoY change in prices by current bookings (%)

• According the historical seasonality, tourism potential

diminishes for the rest of the year; for comparison, 19% of

international visits, 16% of domestic tourism, and 25% of

outbound tourism took place in in 4Q 2019

• According to current bookings, occupancy in large hotels for

September amounts to 23% in Kakheti, 5% in seaside hotels,

7% in regions, and 7% in Tbilisi. A portion of the bookings

were made pre COVID-19

• Discounts: sizeable discounts in August ADRs were observed

in large hotels. However, as single categories, small and large

seaside hotels offered the largest discounts. The surveyed

small hotels in September have no bookings-51%

-48%-42%

-12%

-44%

-31%-26%

-43%

-33%

-19%

-36%

-18%

-10%

-29%

-16% -16%

-22% -23% -22%-18% -16% -14%

-100%

-80%

-60%

-40%

-20%

0%

Aug Sep Oct

Seaside - small Kakheti - large Seaside - large Tbilisi - large

Other regions - small Kakheti - small Other regions - large Tbilisi - small

4%8%

11%16%

19%24%

39%

64%*

7%4%

1% 0%4%

15%

23%

14%

3% 2%0% 0%

12%9%

6% 6%

0%

20%

40%

60%

80%

100%

Aug Sep Oct

Seaside - small Kakheti - large Seaside - large Tbilisi - large

Other regions - small Kakheti - small Other regions - large Tbilisi - small

RESIDENTIAL REAL ESTATE: YOY CHANGE IN SALES APPROACHING A POSITIVE GROWTH TERRITORY, PRICES DOWN FOR OLD APARTMENTS, INCREASING FOR NEW UNITS

Source: NAPR, TBC Capital; *New apartment means an apartment built with construction permits issued or last amended since 2010

27

Change in apartment sales transactions – new and old units (YoY, %)

• Transactions: YoY change in transactions stood at -17.4% in

August, up by circa 1pp compared to the previous month. New

apartment sales decreased by -12% YoY in August, a significant

improvement compared to -22% decline in July. Dynamics of old

apartment transactions worsened, with growth slowing down to -

26% YoY in August

• Prices (USD): Although down -2.7% since January, the prices of

new apartments were up 1.0% YoY and 3.6% MoM. The increase in

new apartment prices is attributable to the recovered demand in

this segment. The prices of old apartments saw a decrease in

August (-3.3% YoY, -4.1% MoM) as the demand started shifting

towards newer apartmentsAverage selling price – USD/Sqm

685

742 739

694 690

751

722 728 728

693 682

706

607 629

641 647

623 637 630 636

648

615 614 593

656

704 706

677 667

713

689 695 700

666 657 669

550

600

650

700

750

800

850

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

18

Q1

20

19

Q2

20

19

Q3

20

19

Q4

20

19

Q1

20

20

Q2

20

20

Jul 2

0

Au

g 2

0

New apartments USDOld apartments USDAll apartments USD

-16%

8%

-12%

-93%

-79%

-33%

-18% -17%-18%

11%

-9%

-92%

-79%

-34%

-22%-12%-12%

3%

-16%

-94%

-79%

-29%

-10%

-26%

-120%

-100%

-80%

-60%

-40%

-20%

0%

20%

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

TotalNew apartmentOld apartment

28

PROPORTION OF ISSUED MORTGAGES TO RESIDENTIAL REAL ESTATE TRANSACTION VALUE (%)

• The subsidy program: Of mortgages issued since 6th of July, 38%

are beneficiaries of the state subsidy program*. In July 2020, the

proportion of transactions financed with mortgage loans (51%)

was sharply up, compared to the average proportion in Q2

• In July, value of new mortgages issued declined by only 9% YoY,

approaching a positive growth territory. Annual change stood at -

19% for local currency loans and 21% (adjusted for FX effect) for

foreign currency loans. The higher growth in foreign currency

loans is due to the base effect

NEW MORTGAGES ISSUED (GEL 000’)

Source: NAPR, NBG, TBC Capital; *TBC Bank data

THE PROPOTION OF MORTGAGES TO TOTAL SALES INCREASING

36%

43%

37%

44%

38%

42%

47%43%

39%42%

48%50.8%

24%

39%

35%

46%

29%32%

51%

0%

10%

20%

30%

40%

50%

60%

-

200

400

600

800

1,000

1,200

1,400

Q1

20

16

Q2

20

16

Q3

20

16

Q4

20

16

Q1

20

17

Q2

20

17

Q3

20

17

Q4

20

17

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

18

Q1

20

19

Q2

20

19

Q3

20

19

Q4

20

19

Q1

20

20

Q2

20

20

Jul-

20

Value of apartment sales transactions

Value of new mortgages issued, net of refinancing

Proportion of value financed via mortgage

232191 191 174 147 160

94 11961

7 23

109

189

29

29 38 4453

96

3640

15

46

34

32

35

24 27 57 158

244

99

115

57

9 11

22

46

-150%

-100%

-50%

0%

50%

100%

150%

200%

0

100

200

300

400

500

600

Jul-

19

Au

g-1

9

Se

p-1

9

Oc

t-19

No

v-1

9

De

c-19

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

GELUSDEURGEL, growth YoY %Foreign currency, growth YoY %Total, growth, YoY %

29

DYNAMICS OF RENTAL YIELD, MORTGAGE AND CONSUMER DEPOSIT RATES (%)

• Average price of rental listings (USD) in Tbilisi is down by C.

16% as compared to January* (6.1 USD vs 5.1 USD)

• Rental yield (August 7.8%) stands lower compared to its long-

term trend (2005-2020 Avg. 8.3%), as well as 2019 average

(9.0%), but the decrease has stabilized, slightly up compared

to July (7.7%)

• Rental yield stands higher than USD mortgage (5.4%) and USD

deposit rates (3.6%)

Source: NBG; *Myhome.ge

THE DECREASING TREND OF RENTAL YIELD HAS STABILIZED

7.80%

5.4%

11.6%

10.6%

3.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

No

v-1

5

Jan

-16

Ma

r-16

Ma

y-1

6

Jul-

16

Se

p-1

6

No

v-1

6

Jan

-17

Ma

r-17

Ma

y-1

7

Jul-

17

Se

p-1

7

No

v-1

7

Jan

-18

Ma

r-18

Ma

y-1

8

Jul-

18

Se

p-1

8

No

v-1

8

Jan

-19

Ma

r-19

Ma

y-1

9

Jul-

19

Se

p-1

9

No

v-1

9

Jan

-20

Ma

r-2

0

Ma

y-2

0

Jul-

20

Rental yield

FX Mortgage rate

GEL Mortgage rate

GEL LT Deposit rate

FX LT Deposit rate

Monetary policy rate

RESIDENTIAL REAL ESTATE: C. 22% DECREASE EXPECTED IN TRANSACTIONS, C 5% IN PRICE (USD)*

Source: NAPR, TBC Capital

30

• TBC Capital expects the total sales of Tbilisi residential real estate market to decline by -22%: New apartments -20%, old apartments -25%*

• Decrease in prices (USD) of new apartments expected to range -5-0% YoY (+5-10% YoY in GEL), while old apartment prices expected to decline by C. -5% (+0-5% YoY growth in GEL)

• Demand is expected to recover in 2021, driven by the recovery of economy and employment, higher confidence and expected decrease in interest rates on credit

Number of apartments sold in Tbilisi*Forecast of new apartment transactions and USD price (2019=100)*

80

105

115

100

95

102 104

76

107

120

70

80

90

100

110

120

130

2019 2020E* 2021E 2022E

AppartmentPrice $Market2019=100

Note*: Updated as of 23trd Sep 2020

12,099 15,420

23,293 23,277

18,600

24,400 26,800

10,016

11,031

13,476 13,247

9,900

12,600

13,900

22,115

26,451

36,769 36,524

28,500

37,000

40,700

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2016 2017 2018 2019 2020E 2021E 2022E

New Old

TRADE DYNAMICS: RECOVERY IS OBSERVED IN MAIN TRADE CATEGORIES

Source: Geostat, TBC Capital; *Dynamics is adjusted by non-cash payments average growth rate;** Calculated based on surveyed large companies

31

Import dynamics in large categories of trade YoY (%): Apr-Jul

Non-cash payments dynamics in large categories of trade, adjusted*YoY (%): Apr-Jul

• Expenditures in main trade categories and import of goods

displays the dynamics of recovery

• Currently, the rental rate is mostly based on the revenues of

retailers, the main tenants of commercial real estate,

making the sector income more tied with trade recovery-64%

-58%-54%

-33%

24%

-52% -51%

-33%-39%

-28%-29%

-8%

-24%-28%

-13%

-26%

-16%

-4% -3%-9%

-70%

-50%

-30%

-10%

10%

30%

Furniture & Appliances Apparel & Textiles Electronics Construction Materials Pharmacy

-93%-97%

-49%

-67%

48%

-14%

-83%

19%

-12%

34%

14%

29%

6%

18%28%

17% 19%13% 10%

25%

9% 6%

-4%

16% 19%

-120%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Furniture & Appliances Apparel & Accessories Electronics Construction Materials Pharmacy

COMMERCIAL REAL ESTATE: DECLINE BY CIRCA 20-25% IN USD (BY CIRCA 15% IN GEL) IN RENT REVENUES, ON THE BACK OF DECREASING RENT PAYMENTS

• According to surveyed clients fixed rental model remains the same by now and the rent income Is mostly tied to the revenue-sharing rent model

• Commercial real estate turnover is highly correlated with the total turnover of the retail & wholesale trade and import of goods

• Among the surveyed companies, mostly shopping malls faced with the declining revenues rather than street retailers. Based on the surveyed market players, more decline is estimated in shopping malls in the future, driven by temporarily

closing of the cinemas and entertainment centers, less “footfall” and lower demand on shopping

• Average occupancy rate at shopping malls has changed slightly (approx. 5%-10%), on the back of revenue reduction

• Office centre turnover (USD) is expected to decrease by 20-25% YoY. In high-class segment decline in rental income is due to the occupancy rates, rather than rental prices

Source: GeoStat, TBC Capital

32

Real estate, import, trade changes (GEL YoY, %) Rent revenues of surveyed large companies (USD YoY,%)

Source: TBC Capital

-10%

-60%

-40%

-35%

-5%

-30%

-25%

-20%

-10%

-20%

-15% -15%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Q1 2020 Q2 2020 Q3 2020E Q4 2020E

Shopping Malls Retailers Offices

-15%

12%

16%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Q1

20

20

Q2

20

20

20

20

E

20

21E

20

22

E

Real estate operatiosn (GEL)

Import (GEL)

Retail and wholesale trade (GEL)

CONSTRUCTION: TOTAL TURNOVER IS EXPECTED TO DECREASE BY 15% YOY IN 202033

Construction activities YoY changes (%)

Source: GeoStat, * Construction of roads, railways, utility and civil engineering projects

• Turnover in construction sector fall down by 26% YoY in Q2 2020, after 15% YoY growth Q1 2020

• The decrease was mainly driven by the reduction in the construction of residential and non-residential buildings (-34% YoY), civil engineering projects (-68% YoY) and utility projects (-30%YoY). turnover of

construction of railways and roads increased slightly (+1%YoY) in Q2 2020, while it grew by 16.8% in 1H 2020

• 2020-2021 forecast of the construction industry (-15%YoY ) is based on the estimated expenditures on infrastructure, stated in the budget (2019-2022 Years: GEL 3.95, 3.51, 3,7 and 3.75 Bln, respectively, which

means -11% YoY decline in 2020) and revised expectations of the private sector

Construction and construction materials turnover (GEL Mln)

Source: TBC Capital, Geostat

-15%;-13%

24%

-13%

1%

15%

-34%

-14% -4%

-31%

-19%

15%

-26%

-9%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Q12020

Q22020

6M2020

Q12020

Q22020

6M2020

Q12020

Q22020

6M2020

Q12020

Q22020

6M2020

Infrastructure(36%)

Residential/non-residential buildings

(50%)

Other(13%)

Total(100%)

1.6 1.4 1.7 1.7

3.4

4.6

3.3

4.0

5.4

6.9 7.1 7.2

8.3

7.1

8.1

9.4

0

1

2

3

4

5

6

7

8

9

10

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

E

20

21E

20

22

E

Th

ou

san

ds

Construction Turnover (%)

Construction Materials Turnover (%)

FMCG: THE MARKET WILL SUSTAIN 2019 LEVEL, WITH GROWING SHARE OF THE ORGANIZED MARKET 34

FMCG Market Revenue (GEL, Mln) LFL Sales growth of the organized market (YoY, %)

• FMCG market revenue is expected to sustain broadly the same level in 2020, loss from the tourism (GEL -570 Mln) and the restaurants (GEL -180 Mln) is compensated by increased spending from population (GEL +750 Mln)

• LFL sale decreases in the April-July period, with the peak in June (-11%)

• But average growth of the organized market (>15%) is high on the back of the new store opennings

• Organized market share is expected to increase by 4 p.p. to 32%, while unorganized market is expected to decrease (-8%)

• Average check size is higher but consumer visits decreased

Source: GeoStat, TBC Capital Source: TBC Capital

8%

11%

10%

-2%

-6%

-11%

-9%

-15%

-10%

-5%

0%

5%

10%

15%

JAN FEB MARCH APRIL MAY JUN JUL

Monthly change, YoY Cumulative change, YoY

6,430 6,950

7,590 8,170

8,920 9,190 9,490 270

400

730

700130

350700

390

450

520

600 420

570

630

7,090

7,800

8,840

9,470 9,500

10,110

10,820

18%21%

23%

28%

32%34%

37%

-20%

-10%

0%

10%

20%

30%

40%

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

2016 2017 2018 2019 2020E 2021E 2022E

Restaurant expenditures Tourist expenditures

Population expenditures Organized market share

-30%;-80%;+9,3%

ELECTRICITY: CONSUMPTION IS EXPECTED TO DECREASE BY 6% AND GENERATION BY 5% 35

Source: ESCO, TBC Capital

Electricity consumption, generation, import and export growth in 2020 (%) Electricity Balance (TWH)

• Electricity consumption decreased by 6.6% YoY in 8m 2020 and is expected to decrease by circa. 6% in 2020, 2 p.p. more, compared to the previous estimate

• Generation was 8.1% lower YoY in 8m 2020: Generation from TPPs decreased by 10.0% and from HPPs by 7.8%, in the same period

• Export decreased by 37% YoY in 8m 2020, driven by the lower demand in the export markets

• Import is expected to shrank by 12% YoY in 2020.. Import increased in JAN-FEB period and then dropped sharply in the next periods. Overall, stood unchanged in 8m 2020

• Electricity wholesale price is higher by 25% on average in 8m 2020, compared to the same period in 2019. Dropped generation from the regulated HPPs increased wholesale price, which is opportunity for the other players

3.7%

8.4%

-7.6%-6.9%

-9.3%

-15.2%

-13.5%-12.8%

-6.6%

2.1%

-9.3%

-10.9%

-2.1%

-14.6%

-16.5%

-4.3%

-7.0%-8.1%

18%

119%

4%

-55%

0%

-99% -99%

-60%

0%

-150%

-100%

-50%

0%

50%

100%

150%

200%

-20%

-15%

-10%

-5%

0%

5%

10%

JAN FEB MARCH APR MAY JUN JULY AUG 8m 2020

Consumption (LHS) Generation (LHS)

Export (RHS) Import (RHS)

Source: ESCO, TBC Capital

6.9 7.2 7.6 7.1 7.4 7.9

2.6 2.62.5

2.52.6

2.6

2.0 1.92.1

2.32.4

2.50.30.9

0.60.1

0.10.1

0.5

0.5 0.5

0.50.5

0.5

0.7

0.6 0.2

0.2

0.5

0.5

11.512.1 11.9

11.311.9

12.6

1.5

1.5 1.6

1.4

1.6

1.6

4

6

8

10

12

14

2017 2018 2019 2020E 2021E 2022E

Household and commercial consumers Industrial consumers

Region of Abkhazeti Crypto large producers

Losses and other Export

Generation Import

MINING: ACCORDING TO 2021 CONSENSUS GOLD AND SILVER PRICES ARE EXPECTED TO BE STABLE AND OIL PRICE WILL GROW

36

Price dynamics and expectations on international commodity markets (DEC 2019=100)

Source: Bloomberg, *Bloomberg consensus

• In Q2-20 export of gold from Georgia increased by 54% YoY, while

export of steel and ferroalloys decreased considerably (-59% and -

29 YoY, respectively)

• The price of gold in global markets has been growing steadily and

has reached a maximum over the last year; The price of silver has

been on a declining trend in Feb-Mar 2020, from May its price has

been risen sharply. The price of gold and sliver is expected to be

relatively stable throughout 2021 year

• The price of oil decreased significantly in March-20 and has been

growing steadily since June onwards. In 2021 an average price is

estimated to grow by 8% compared to current price

• The price of silicomanganese has a declining trend in US market

Q4

20

20

Co

ns.

20

21C

on

s.

130

109

67

158

100

88

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170Gold

Copper

Brent Oil

Silver

Silicomanganese

-

31-

De

c-2

019

8-J

an

-20

20

16

-Ja

n-2

02

0

24

-Ja

n-2

02

0

1-F

eb

-20

20

9-F

eb

-20

20

17

-Fe

b-2

02

0

25

-Fe

b-2

02

0

4-M

ar-

20

20

12

-Ma

r-2

02

0

20

-Ma

r-2

02

0

28

-Ma

r-2

02

0

5-A

pr-

20

20

13

-Ap

r-2

02

0

21-

Ap

r-2

02

0

29

-Ap

r-2

02

0

7-M

ay

-20

20

15

-Ma

y-2

02

0

23

-Ma

y-2

02

0

31-

Ma

y-2

02

0

8-J

un

-20

20

16

-Ju

n-2

02

0

24

-Ju

n-2

02

0

2-J

ul-

20

20

10

-Ju

l-2

02

0

18

-Ju

l-2

02

0

26

-Ju

l-2

02

0

3-A

ug

-20

20

11-

Au

g-2

02

0

19

-Au

g-2

02

0

27

-Au

g-2

02

0

37

Cars & motorcycles trade growth (%, GEL)

Source: GeoStat, TBC Capital

Growth in transportation & storage turnover (GEL, YoY %)

• Our forecast for the transportation & storage sector has improved

on the back of renewed expectations for external trade in 2020 (Sep

vs Jun YoY change: export -15% vs -20%, import -19% vs -25%)

• For the automotive sector the demand on service has been

increasing, as a result of renewed periodic technical inspection. The

overall decrease in the export of cars in months after pandemic

currently stands at -69% YoY for Apr-Jul

SECTORAL FORECASTS: THE EXTERNAL TRADE IS A DRIVING FACTOR FOR TRANSPORTATION & STORAGE AND AUTOMOTIVE INDUSTRIES

-40%

-20%

0%

20%

40%

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct

-19

No

v-1

9

De

c-19

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

20

20

E

20

21E

External trade (GEL)Transportation & storage (GEL)

-80%

-40%

0%

40%

80%

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct

-19

No

v-1

9

De

c-19

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

20

20

E

20

20

E

External trade of cars

Retail & wholesale sale of cars

LEGAL NOTICEThis publication (the “Publication”) has been produced and distributed by the “TBC Capital” LLC (the “TBC Capital”). It is provided to our clients for information purposes only, and TBC Capital makes no expressed or implied warranties, and expressly disclaims all warrantiesof merchantability or fitness for a particular purpose or use with respect to any data included in this Publication. TBC Capital is operating and performing its professional services on the territory of Georgia and is duly authorized to produce and distribute this Publication onthe territory of Georgia. The Publication does not constitute an offer of, or an invitation by or on behalf of, any company indicated in Publication or TBC Capital to subscribe or purchase the investment and shall not form the basis of, nor may it accompany, nor form part of,any contract to acquire the investment in any jurisdiction. The distribution of the Publication and the offer or sale of the investment may be restricted by law in certain jurisdictions and the Publication does not constitute an offer of, or any invitation by or on behalf of anycompany or TBC Capital to offer or sell the investment in any jurisdiction in which such offer or invitation is not authorized or to any person to whom it is unlawful to make such an offer or invitation. Accordingly, the investment may not be offered or sold, directly orindirectly, and the Publication may not be distributed in any jurisdiction, except in accordance with the legal requirements applicable to such jurisdictions. Persons who come to possess the Publication are required by the TBC Capital to inform themselves about and toobserve any such restrictions. Neither TBC Capital nor its affiliates accept any liability to any person in relation to the distribution or possession of the Publication in or from any jurisdiction. The Publication is not investment research and has not been prepared inaccordance with legal requirements designed to promote the independence of investment research. The Publication is not intended to provide the basis of any investment decision, credit or any other evaluation and is not to be considered as a recommendation by TBCCapital to participate in the transaction/s described therein. All information contained in the Publication is subject to change without notice, and neither TBC Capital nor any of its affiliates is under any obligation to update or keep current the information contained in thePublication. The delivery of the Publication at any time does not imply that the information in it is correct as of any time after its preparation date or that there has been no change in the business, financial condition, prospects, creditworthiness, status or affairs of theIssuer or anyone else since that date. TBC Capital does not undertake to update the Publication or to correct any inaccuracies therein which may become apparent. Descriptions of the companies or the securities or other financial instruments of any company or securitiesunderlying or related to such instruments or the markets or developments mentioned in the Publication are not intended to be complete. The Publication may include forward-looking statements, but not limited to, statements as to future operating results. Any “forward-looking statements”, which include all statements other than statements of historical facts, involve known and unknown risks, uncertainties and other important factors beyond TBC Capital’s control that could cause the actual results, performance or achievements to bematerially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding present and future business strategies and the environmentoperating in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. No assurances can be given that the forward-looking statements in thisdocument will be realized. TBC Capital does not intend to update such forward-looking statements. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or the possible future performance of investmentsrepresent TBC Capital’s own assessment and interpretation of information available to them currently. The Publication may not be reproduced, redistributed or published, in whole or in part, without the written permission of TBC Capital, and neither TBC Capital nor any ofits affiliates accepts any liability whatsoever for the actions of third parties in this respect. Without limiting any of the foregoing and to the extent permitted by law, in no event shall TBC Capital, nor any affiliate, nor any of their respective officers, directors, partners, oremployees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any useof this Publication or its contents.

Mary Chachanidze, CFAManaging Director

Otar NadaraiaChief Economist, TBC Group

Tornike Kordzaia, CFAHead of Research

Aleqsandre BluashviliHead of Macro-Finance Department, TBC Bank

Givi AdeishviliSenior Research Associate

Anna MzhavanadzeAnalyst

Tamar ZakaidzeSenior Research Associate

Mikheil MghebrishviliIntern

Andro TvaliashviliResearch Associate

Juli AvlokhashviliIntern

Luka ChigilashviliResearch Associate

Tel: +995 32 2 272727 Email: research@tbccapital.ge

Web-page: www.tbccapital.ge; www.tbcresearch.ge