Georgia Invest - Guidebook Georgia at a glance Strategic Sectors & Business Opportunities
GEORGIA: Investment Guidebook Introduction Why invest in Georgia?
The EU and Georgia are planning to sign an Association Agreement, including a Deep and Comprehensive Free Trade Area (DCFTA), on 27 June 2014. Once in force, it will boost trade between Georgia and the EU, attract foreign investment and improve competition, the business environment and quality and safety standards in general. The present guidebook, prepared in the frame of the East Invest project, provides foreign enterprises interested in the Georgian market with a comprehensive overview of Georgia’s main competitive advantages, its business climate, and useful contacts and references. After a general insight into the country’s economic potential, a series of strategic sectors are presented: Agribusiness, Alternative Energy, ICT, Sustainable Construction, Textiles, Tourism and Transport and Logistics. They are grouped in two categories: industry and services. Two strategic maps – one for industry and one for services - offer the reader an immediate overview on the location of the corresponding strategic sectors in the country. They are followed by individual sector outlooks that include specific schemes and incentives available for foreign companies, a list of business opportunities and success stories.
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Table of Contents Georgia at a Glance .............................................................................................................................3 Why Invest in Georgia ...........................................................................................................................4 Economic Outline ..................................................................................................................................4 Business Environment ...........................................................................................................................5 Useful Organisations and References...................................................................................................7 Georgia’s Strategic Sectors ...............................................................................................................8 Strategic Map: Industries .....................................................................................................................10 Agribusiness ........................................................................................................................................11 Alternative Energy ...............................................................................................................................13 Sustainable Construction ....................................................................................................................15 Textiles ................................................................................................................................................17 Strategic Map: Services ......................................................................................................................20 Information & Communication Technologies ......................................................................................21 Tourism ................................................................................................................................................24 Transport & Logistics ...........................................................................................................................26 About East Invest ..............................................................................................................................28 References .........................................................................................................................................29
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GEORGIA AT A GLANCE Why invest in Georgia? Economic Outline Useful Organisations and References
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Georgia at a Glance Economic outline
Why invest in Georgia?
Strategic geographic location and developing infrastructure
Business friendly country with a growing and diversified economy
World’s leading reformer
Liberal trade regimes and immigration policies
Low taxes and simplified licensing and permitting procedures
Young talented workforce, available at competitive cost
GDP Growth 2010-2014 (IMF, Estimations starts 2013) 8% 7% 6% 5% 4% 3% 2% 1% 0%
Market access
Free Trade Agreements with CIS countries (11 countries, 275 million people) and Turkey;
General System of Preferences (GSP+) trade regime with the EU: export of 7,200 products free of duty;
Generalized System of Preferences (GSP) with the USA, Canada, Switzerland, Japan and Norway;
DCFTA with EU will be signed on 27th June ,2014;
Comprehensive FTA with USA is under negotiation;
Membership in the WTO (2000): MFN (Most-favoured-nation) regime with all WTO member countries.
2010
2011
2012
2013*
2014*
Key figures GDP: GEL 26.8 billion / USD 16.1 billion (2013 preliminary) Population: 4.5 million Area: 69,700 km² Georgia is a Presidential-Parliamentary Democratic Republic. The adoption of strong investment protection legislation and liberal tax and labour systems has contributed to a significant growth in local production and exports. Currently, The main sectors in the business registry are the following: 12.1% Trade, 3.3% Manufacturing, 2.7% community, social & personal service Activities, 2.7% Real estate, 2.6% Transport & communications, 1.9% Construction,1.5% Hotels & restaurants, 1.1% Agriculture and 1.0% Health & social work.
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Business Environment Foreign Investment
Ease of doing business
Open door policy for investors in any sector; 4,600 businesses established by foreign capital or with its participation; Top 5 sectors attracting FDI: Energy, Finances, Transports and Communications, Manufacturing, Construction, Other services; Top 5 investor countries: Netherlands, Luxembourg, China, Azerbaijan, Turkey, United States 2006 1190
2007 2015
2008 1560
2009 658
2010 2011 815 1117
2012 912
Doing business 2014 rank for Georgia: 8 / 189 Change
2013 914
2000 1500
Paying Taxes: enhancing the use of electronic systems and providing more services to taxpayers;
Trading Across Borders: reducing the time to export and import by creating customs clearance zones;
Enforcing Contracts: simplifying and speeding up the proceedings for commercial disputes;
Getting Credit: securing the transaction system through an amendment to the civil code allowing for a security interest to broaden the range of assets that can be used as collateral.
Getting Electricity: simplifying the process of connecting new customers to the distribution network and reducing connection fees;
1000 500 0 2006
2007
2008
2009
2010
2011
2012
Rank: 1
"World’s Number One Reformer 2005-2010”. Georgia is the first country with a developing economy which entered the list of top ten reformer countries of international ranking. According to Doing Business 2013, “Georgia is the top improver since 2005 both in Eastern Europe and Central Asia and globally”. With 35 institutional and regulatory reforms since 2005, Georgia has improved in all areas. Major latest improvements include:
FDI Flows (Geostat, USD milions)
2500
in
2013*
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Business Environment Investment climate
Funds
Georgia is one of the most open countries to foreign equity ownership:
“Public (JSC Partnership Fund) as well private (Georgian CoInvestment Fund) investment funds have been created in order to boost investments in Georgia’s main productive sectors, and the Prime Minister launched the “Produce in Georgia” initiative with the same objective in June 2014.”
Investing Across Borders (IAB) assessment for Georgia:
Investing Across Sectors: all sectors are fully open to foreign investment; Starting a Foreign Business: establishing a foreign-owned limited liability company (LLC) in Georgia is fast (only 2 days), efficient (only4 procedures) and inexpensive registration on the same day costs 200 GEL, within 2 days 100 GEL, no minimum capital requirement for foreign or domestic companies);
Accessing Industrial Land: both privately and publicly held land may be bought or leased (land surface is not restricted and contract duration can be unlimited);
Arbitrating Commercial Disputes: The Georgian International Arbitration Centre (GIAC) was established by the Georgian Chamber of Commerce and Industry in December 2013. It is the first and only independent non-profit arbitration institution in Georgia and the Caucasus region offering neutral, independent and reliable alternative dispute settlement mechanisms.
Three Tax-Free Regimes were launched with the aim to increase foreign investment and export, reinforce Georgia's tradetransit function internationally and attract new international financial institutions:
Tax system and incentives
Free Industrial Zone (FIZ): preferential tax treatment applies to companies operating in FIZ, including exemption from corporate income, property taxes (import of goods in FIZ and operations performed within FIZ are exempted from VAT, export of goods from FIZ to other territories of Georgia is exempted from import tax as well). There are currently 3 FIZs in Georgia: Kutaisi FIZ dedicated to trading & services, heavy industries, warehousing & storage and manufacturing activities, Poti FIZ - developing stateof-the-art business centres, industries and logistic parks and Kulevi, which was established in 2012;
Free Warehouse Enterprise: exemption from profit tax applied to income received from re-exporting goods and 0% VAT rate on the supply of goods to a VAT taxpayer;
International Finance Company: a tax exemption is applied to financial institutions (status granted by Georgian fiscal authorities) whose generated income in Georgia does not exceed 10% of their worldwide income (including exemption from Personal Income Tax and Property Tax).
Georgia offers one of the world’s friendliest tax regimes:
VAT 18%
Income tax
Corporate profit tax 15%
20%
.Customs/import tax 0%, 5% or . Property Tax up to 1% . Excise Tax Depends on goods
12%
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Useful Organisations and References Georgian Chamber of Commerce and Industry (GCCI) : The Corporation of Public Low , which is representing the interests of the business community in Georgia and offering a range of services such as certificates, arbitrage, partner search, business networking, SME assistance, etc. Website: www.gcci.ge / Email: info@gcci.ge Georgian National Investment Agency (GNIA): public agency responsible for assisting foreign investors before, during and after the implementation of their project and for promoting Georgian exports. Website: www.investingeorgia.org / Email: enquiry@investingeorgia.org Georgia.gov.ge: official web-site of Georgia, providing information about the business climate, investment opportunities, energy, agriculture, tourism, etc. Website: http://georgia.gov.ge Email: contact@geo.gov.ge In addition, a number of organizations representing the interest of businesses, such as Georgian Employers’ Association: member based association that provides a variety of management and human resources services designed to enhance companies’ competitiveness. Website: www.georgiaemployers.org and Georgian Small and Medium Enterprise Association (GSMEA) are operating in Georgia. Website : http://gsmea.ge / Email: info@gsmea.ge 7
GEORGIA’S STRATEGIC SECTORS
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Industries:
Agribusiness Alternative energy Sustainable construction Textiles
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Strategic Map: Industries This map targets Georgia’s most strategic and promising industries for foreign companies: Agribusiness, Alternative energy, Sustainable construction and Textiles. It provides an immediate view of the key sectors and facilities.
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Agribusiness The government agriculture strategy offers additional incentives: 100% depreciation allowance on investments; Registration of Georgian products of geographic indications; Action plan / export diversification & promotion (especially wine); 0% tax burden for primary agricultural processing.
Sector outlook Endowed with fertile soils, clean water and favourable climate, Georgia produces a broad range of agricultural products and provided up to 10% of food trade in post Soviet countries. In 2013, agriculture represented 9.3% of total GDP and in 2012 8.6% of total GDP. The main products include: wine, fruits, nuts, live cattle, tea, mineral water, dairy products, juices, sugar, grains, sea products, flour and poultry. The main export markets are: Ukraine, EU countries, Kazakhstan, Azerbaijan, Belarus, Turkey, USA, and more recently Middle Eastern countries.
Business opportunities Undergoing major transformation, the sector offers many opportunities: Wine (25% of total agricultural exports) and spirits, notably in kakheti, kartli, Imereti and Racha-Lechkhumi;
Strategic direction/ specific schemes and incentives Georgia, now a net importing country of agricultural products, has launched significant reforms since 2004. A land privatization law (2005) opened 40,000 ha of State-owned agricultural land for sale. The land registry was simplified and a new cadastre introduced. Support to the development of agriculture is among the priorities of the Government of Georgia. Adopted in 2012, the agriculture development strategy provides for: Equipments that aim to increase the sector’s productivity and competitiveness: training resources, mechanisation centres, irrigation systems, grain drying and storage infrastructure, vegetable greenhouse farming (Sweet pepper, tomato, cucumber), modern laboratories to support animal product exports (fish, honey) to the EU markets; An electronic governance system (Agro-clever) to improve processes and controls; Proper land management.
Mineral and table water; Nuts (5th largest exporter of in-shell hazelnuts and 3rd largest for shelled hazelnuts); Grains (wheat, barley, corn), flour products and animal feeds; Organic farming, tea, aromatic and medicinal plants; Green house growing of vegetables (tomatoes, onions, peppers); Fresh, dry and canned fruits (grapes, citrus, clementine, apple, pear, blueberry), juices, jams, honey; Fresh, frozen and canned fish, sea products (mussels, oysters); Pedigree poultry, hatching eggs, snail farming, meat, integrated dairy production.
“A “Preferential Agro-Credit” project, developed by the Ministry of Agriculture, is to be launched within shortly. It includes credit and leasing facilities for producers and exporters in the agricultural sector.” 11
Agribusiness Success stories and holds controlling interests in 15 companies engaged in primary and secondary tealeaf processing. GEOPLANT employs between 300 and 900 people, depending on the season.
Ferrero (Italy), a leading confectionary producer (Nutella, Raffaello, Ferrero Rocher), established AgriGeorgia as a local subsidiary in 2007. It acquired 1,215 ha of agricultural land in Samegrelo province to grow hazelnuts and launched a EUR 4 million investment plan to install drying facilities. AgriGeorgia employs about 550 people.
Useful links and contacts Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge
Hipp (Germany) is operating in Georgia since 2007. It purchased land in the Khashuri region and built a plant for processing wild apples into baby food and other products. It acquired and renovated a second fruit processing plant in Ajara. Both projects required a total USD 8 million investment. Hipp employs about 50 people. It is currently developing a bio farm to supply its existing plant with milk. Future plans include apple, red carrot, beetroot and strawberry production.
Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org Georgia.gov.ge Website: http://georgia.gov.ge Ministry of Agriculture of Georgia Website: http://www.maf.ge
Eco-Food (Georgia), founded in 2004, is a leading milk rocessing company, applying European quality standards. In 2011, Eco Food and an Austrian investment group established Cheeseco at the Lilo Industrial Zone and started the construction of a huge cheese factory, which will include modern packaging machines. The EUR 6 million-project will first produce Georgian national cheeses, and foreign cheese varieties in a second phase. Eco – Food employs about
ELKANA, Biological Farming Association Website: http://www.elkana.org.ge
450 people. GEOPLANT (Germany) started operating in Georgia in 1996 and invested about EUR 25 million in tea production since then. It has a lease on about 9 000 hectares of tea plantation .
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Alternative Energy Sector Outlook
Business Opportunities
It’s energy dependency on external sources, that can be reduced by the development of renewable energy sources, primarily hydro power and increased energy efficiency is a priority for Georgia. Hydro power is the renewable energy source that can cover Georgia's domestic needs. While there is substantial potential for other renewable sources such as wind, solar, biomass, and geothermal, they lag far behind in terms of cost-effectiveness.
Development of Greenfield HPPs under the BOO model: The Government of Georgia, in parallel with a number of wellknown donor organizations and engineering companies have identified up to 80 potential hydro power projects. Ranging from a few megawatts up to 700 MW. Bigger projects are subject to a government resolution;
Development of wind power projects with estimated achievable potential up to 5 TWh.
Development of Daily solar power projects. Radiation on average is
Net importer of electricity before 2003, Georgia became self sufficient and a net exporter of electricity to Turkey, Azerbaijan, Russia and Armenia after 2007. Strategic direction/ specific schemes and incentives
4.2 kWh/m². In some regions it reaches 12 kWh/m².
The government liberalised the energy sector and launched specific programmes for alternative energy:
In order to facilitate a sustainable development of Georgia’s rich renewable energy potential, the Government has adopted a resolution (no 214, August 2013) that regulates the procedures and rules of Expression of Interest (EOI) for construction, ownership and operation of power plants in Georgia. A Simplified taxation system frees investor from payroll tax, social insurance tax, capital gains tax, wealth tax and inheritance tax. The government constructs new electro-transmission lines to Turkey, which will complete connecting Georgia’s electric energy system to its all neighbouring countries. That will increase Georgia’s energy export opportunities. Green growth initiative focusing on renewable energy and clean energy-based manufacturing.
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Development of geothermal energy (estimated annual potential of 250 million m³).
Provision of modern technology and expertise on energy efficiency for the industrial and residential sectors.
Alternative Energy Success Stories
Useful Links and Contacts
Energo-Pro (Czech Republic), which established its Georgian subsidiary in 2007, now owns 10 HPPs and has 5,200 employees.
Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org
Georgian Urban Energy, the Georgian subsidiary of the Turkish Anadolu Group, will build and operate an 87 MW HPP in Paravani, with co-financing from EBRD and IFC. The company will also build a 32-kilometer transmission line connecting the HPP to the power distribution system at a new substation near Agara that will be constructed as part of another project.
Government of Georgia Website: government.gov.ge Ministry of Energy of Georgia Website: www.energy.gov.ge Georgian Energy Efficiency Center Website: www.eecgeo.org Hydro Power and Energy Planning Project (HPEP) Website: hydropower.ge Georgian Energy Development Fund Website: GEDF.com.ge
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Sustainable Construction Sector outlook
Business opportunities
Boosted by structural economic reforms and incoming foreign investments, the Georgian construction sector has enjoyed high rates of growth over the past decade and shows great resilience amid the global crisis. The high level of activity in the sector between 2003 and 2012 led to a 1 338% increase in turnover of the construction sector, for which the country has significant local raw materials (perlite, basalt, pumice, slate, tuff, etc.). The “green” segment remains underdeveloped and offers great potential.
In a country where 40% of total energy consumption is used for heating and lighting buildings, the use of energy-efficient materials would significantly reduce construction costs and energyrelated expenditures. Domestic demand for such materials has shown strong growth over the recent years. With its abundant raw materials, Georgia has moreover the potential to supply the region with some sustainable construction materials. Development of green building: Transfer of designs and methods following green building standards to local firms; Development of smart complexes, including housing, offices, shopping centres; Production and/ or distribution of sustainable construction systems and materials; Thermal insulation materials: perlite, polystyrene, glass wool, stone wool, sandwich panels; Light construction materials: pumice blocks, perlite blocks/ bricks, airocrete;
Strategic direction/ specific schemes and incentives The sustainable construction sector is supported by Georgian authorities and several international organisations: The Energy Efficiency Centre was established in 1998 under the EU-funded TACIS programme. It merged in 2005 with the Energy Efficiency and Cleaner Production Centre: offering energy audits, monitoring, training, preparation of business plans and investment projects; The Energy Saving Initiative in the Building sector (ESIB), under the EU-funded Inogate project: policy advice, technical assistance, capacity building, support to demonstration projects; The new Applied Technology Efficiency and Lighting Initiative (NATELI), funded by USAID and implemented by Winrock International: promotion of energy efficiency in residential and higher education facilities through energy audits, renovation of lighting and heating systems; The establishment of a Sustainable Architecture & Engineering Consulting Centre is under discussion.
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PVC panels; Efficient lighting: fluorescent bulbs, etc.; Solar water heating systems.
Sustainable Construction Success stories
Useful links and contacts
Wood Service, founded in 1999 in Tbilisi, is a Georgian distribution company specialising in sustainable construction technologies and products. The group was named Green Business of the year by Mercury Awards in 2011. The Georgian Reconstruction and Development Company is the developer of the Green Building project, which encompasses the construction, refurbishment and operation of 2 office buildings, a shopping centre and a train station in Tbilisi. In 2007, the company received an equity investment from EBRD to co-finance these projects. Knauf (Germany) is a multinational producer of building materi-
Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org Ministry of Economy and Sustainable Development Website: www.economy.ge Energy Efficiency and Cleaner Production Centre Website: www.eecgeo.org Sustainable Development and Policy Centre Website: http://sdap.ge
als based on gypsum, which is regarded as an environmentfriendly material. The group has a sales office in Tbilisi. In 2008, KNAUF purchased a cardboard pile manufacturing factory in Tbilisi and reconstructed it for a total investment of about EUR 20 million. Another EUR 9 million gypsum manufacturing factory is under construction.
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Textiles Sector outlook
Strategic direction/ specific schemes and incentives
While Georgia was well known for its high quality silk and wool blend fabrics under the Soviet Union, the textile industry faced a major crisis after 1991 and re-emerged in 2004. Attracted by its skilled and low-cost labour, cheap land, low energy costs and preferential access to the EU market, several European brands outsourced their production to Georgia and some Turkish companies established plants in the Adjara region, at the border with Turkey.
To facilitate textile production and export, the government offers the following investment incentives: Apparel: production through outsourcing to local manufacturers or through JVs (modernisation of the infrastructure and training of local staff); Accessible land: land offered to investors at a nominal price in various regions (mainly in Guria), provided they develop their business only on the proposed land for the next 7 years; Onsite training: labour training costs reimbursed at the end of the first year on a lump sum basis (USD 18,000 if the factory employs 150-350 people, USD 36,000 for 350-500 people and USD 60,000 USD for more than 500 people); JSC Partnership fund: co-financing of up to 75% of the total project cost, of which 25% will be preferred equity and 50% subordinated loans; Capital expenditure facility: assistance in negotiations with financial institutions for purchasing equipments via leasing and other financing schemes; Full depreciation of capital expenditure in the year of purchase; 10-year loss carry forward is available.
The apparel/textile industry is one of the fastest growing sectors of Georgian economy. Between 2003 and 2012, its average annual turnover increased 37.4%. In 2013, the textile sector encompassed about 213 companies, 87% of which are small-enterprises. In the period 2004-2013, the number of employed people in the apparel and textile sector increased by 150% and amounted to 5 167. Georgia has a high potential for apparel export. Annual apparel exports increased on average by 28.4% between 2006 and 2013, from US$ 11.6 million to US$ 59.9 million. The main export markets are: Turkey, CIS (including Russia) and the EU. The transition from the GSP+ status to the DCFTA status with the EU is expected to further stimulate the development of the industry. In order to fully unleash the potential of the textile industry in terms of value creation, Georgia aims to develop the manufacturing of inputs as well as higher value products.
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Textiles Business opportunities
Apparel: production through outsourcing to local manufacturers or through JVs (modernisation of the infrastructure and training of local staff); Fashion: development of Georgian brands for domestic and export markets;
Useful links and contacts Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org
Leather products; Inputs: production of buttons, thread, fabric; Technical textile: army uniforms, traditional uniforms for dance troops and other Government apparel.
Georgia.gov.ge Website: http://georgia.gov.ge
Success stories Adjara Textile was set up in 2008 through Turkish investments when an old tea factory was purchased and Adjara Textile established as a local subsidiary. In December of 2008, the company began producing three lines and rapidly increased that number to nine. In 2011 Adjara Textile opened a second factory and plans to expand its business in 2014. Adjara Textile produces apparel for internationally recognized brands such as Puma, Adidas and Nike. All products are labeled “Made in Georgia.” Currently, the factory employs more than 1200 people from neighboring villages and the number of employees is expected to rise to 2400 as a result of the future expansion of the company.
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Services: ICT Tourism Transport and Logistics
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Strategic Map: Services This map targets Georgia’s most strategic and promising services for foreign companies: ICT, Tourism, Transport and Logistics. It provides an immediate view of the key sectors and facilities.
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Information & Communication Technologies The World Economic Forum in its “Global Information Technology Report 2013” ranks Georgia 60/144 in terms of Network Readiness Index (↑28) and 73rd in International Innovations.
Sector outlook Georgia’s ICT sector is very promising. It recorded a 18,5% average annual growth over the 2005-2013 period and reached 3% of the national GDP, in 2013. Georgia envisions to become an ICT hub for the Caucasus-Caspian region: fuelled by the launch of major e-government projects, in cooperation with leading private companies such as Intel or Microsoft, the IT segment shows good growth potential. The country has also document substantial progress in access to and uptake of modern Information and Communication Technology (ICT). Mobile cellular subscription stands at 107.81% per 100 inhabitants in 2012 from as low as 10.90% in 2002. As of 2012, 45.5% out of 100 inhabitants have been internet users in Georgia, from less than 1.59% in 100 using internet in 2002. The introduction of wireless broadband technologies (4G), fast/ ultrafast internet and digital terrestrial broadcasting further boosts the development of the information society.
Strategic direction/ specific schemes and incentives Several support schemes have been launched to promote the sector: IT Virtual Zones: online registration with the LEPL Financial Analytical Service (Ministry of Finance), exemption from VAT, corporate income tax & export fees for export-oriented software development activities, additional incentives for foreign companies; IT Start-Up Days: consultancy & networking services; Computers for Everyone: cooperation with Intel and Microsoft to support individuals in purchasing computers at a favourable price; Deer leap: support to the IT equipment of educational institutions and the introduction of ICT-based learning methods .
Numerous “e-government” services allow for an easier interaction of citizens and enterprises with state institutions or organizations.
The Business Incubation Initiative was launched in 2002 with the support of the World Bank, through the info Dev Incubator Support Center, and the Eurasia Foundation. The first business incubator was established in Tbilisi (2008). It currently hosts 3 tenant companies and 2 virtually incubated external clients.
According to the International Telecommunication Union's research - Measuring the Information Society report 2013, Georgia is considered as “dynamically developing country” and scores as follows: ICT Development Index 2012: 71/157 (↑2) Tariff Affordability Index: 76/161
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Information & Communication Technologies .
Business opportunities The capital-intensive telecom industry is already well penetrated by international service providers:
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Fixed line telephony: privatised in 2006, dominated by Silknet (owned by Georgian-Kazakh consortium BST Holding), Akhtel & Akhali Kselebi (both privately-owned local companies). Mobile telephony: Magticom (owned by US MIG), Geocell (owned by Sweden’s TeliaSonera), and Beeline (owned by Russia’s VimpelCom) hold respectively 42,8%, 33,9% and 22,6% of the market share but the cross-selling of new services is expected; Internet services: there are 153 licensed providers but 4 of them provide 80% of internet connections, with insufficient bandwidth to meet the needs of their customers; Digital TV: ICT and Broadcasting companies are going to the TV digitalisation,which will be finished by 2015. Mobile services.
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Success stories UGT (Georgia) is a leading provider of IT products (Compaq, Microsoft, HP, RITTAL) and integrator of ERP and CRM systems. In 2010, UGT became the first Georgian company to enter the US market. It opened its first branch in Dallas in 2011. OpenRevolution (USA) was founded in Washington in 2008 and provides mobile transaction solutions. In 2009, US private equity firms Blue Heron Capital and V-Ten Capital Partners became shareholders of the group. The same year, the latter established Open Revolution Georgia in Tbilisi as the Eurasian base of .
Other opportunities are available in outsourced professional services:
E-government tenders: networking infrastructure, software development, web-content management, professionally managed solutions, data storage and management, cyber-security;
Software development: consolidation of small software developers, acquisition of leading players (UGT, GGS, ITex, Delta systems, Azry, IBS), specialised software for the tourism and textile industry;
Outsourced data centres and other digital services to banks, insurance companies, telecom operators and other ICT businesses (mobile operators, ISPs); Consulting and IT integration: Customer Relationship Management (CRM), Enterprise Resource Planning (ERP); Online services/ E-commerce.
MobiPay, the first multi-national payment network for mobile financial services.
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Information & Communication Technologies Microsoft (USA), a global IT leader opened its representative office in Tbilisi in 2006 and progressively increased its presence by introducing new products. Since 2010, the group has a local team dedicated to analysing the local market and broadening the portfolio of operations. It notably engaged cooperation projects with the government. Zooplus (Germany), a leading supplier of pet food and pet accessories with offices in Munich, Strasbourg, Krakow, Genoa and Oxford, opened a call centre in Tbilisi to offer 24/7 assistance to its customers. Geocell, launched in 1996 as a subsidiary of Sweden’s TeliaSonera is the biggest mobile operator in Georgia (46% of the market share). Since the very beginning of its operations, the company invested around USD 420 million and today covers 98% of Georgia’s populated territory.
Useful links and contacts Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org Ministry of Economy and Sustainable Development Website: www.economy.ge Georgia.gov.ge Website: http://georgia.gov.ge
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Tourism Sector outlook
With its natural beauty, seashore and mountains, Georgia offers tremendous potential for tourism development. In 2013, tourist arrivals exceeded 5.4 million, a 21% increase compared to the previous year and 14 times that of 2004. The Top 5 countries of origin are Turkey, Azerbaijan, Armenia, Russia and Ukraine 62% of these visitors come from CIS countries and 34% from European countries. Investment in the sector has grown substantially since 2004. These investments include airport renovations, major hotel and resort projects, mainly in Tbilisi and the seaside city of Batumi. Besides, the Bakuriani, Gudauri and Svaneti mountain resorts attract a new wave of tourists from Western and Southern Europe. The New York Times referred to Georgia as “A rustic ski wonderland on the verge of discovery” and ranked it 6th among 41 Places to go in 2011. The Guardian also promoted Georgia as a ski destination for the month of January in its calendar of countries best seen in 2012.
Infrastructure improvement and regional development; Education and vocational training: opening of the Tbilisi Vocational Training Centre “Icarus” in 2007.
Business opportunities
Strategic direction/ Specific schemes and incentives With the objective of increasing export earnings, reducing seasonality and creating new jobs, the National Tourism Administration launched several programmes to encourage the development of tourism: Long-term vision: statistics, surveys, improvement of the legislation; Promoting Georgia on the international markets: fairs, media campaigns;
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Hospitality: 2-3 star hotels for middle class tourists, guesthouses for backpackers, transformation of State buildings for sale into luxury hotels; Mountain & adventure tourism in Bakuriani, Gudauri, Mestia and Adjara: accommodation facilities, mountain sports (ski, heliski, trekking, hiking), supply of ski lifts and equipments; Sea tourism: development of hotels, resorts, casinos, shopping centres, water sport facilities in Kobuleti & Anaklia (near Batumi); Spa and wellness tourism: Tskaltubo balneal resort near Kutaisi, Akhtala mud resort in Kakheti, spas in Borjomi, Sulphur Bath Houses in Tbilisi; Wine and rural tourism: wine tours in Kakheti for both domestic and international tourists.
Tourism Other major business opportunities include: Cultural tours: 12,000 historical and cultural monuments, 3 World Heritage Sites; Eco-tourism: 30 protected areas, 9 national parks, birds watching in Poti; MICE: hosting of business events (Tbilisi, Kobuleti & Batumi); Catering, restaurants, cafes & clubs, souvenir shops & factories.
Useful links and contacts
Success stories
National Tourism Administration Website: www.gnta.ge
Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org Georgia.gov.ge Website: http://georgia.gov.ge
Marriott (USA) manages the Marriott Hotel and the Courtyard in Tbilisi. It will also manage the Ritz-Carlton Batumi, scheduled for 2015. The latter project is a USD 250 million investment by B&G Georgia, a Turkish-Georgian JV. It will employ 1,000 people, of which 90% will be Georgians. Silk Road Group (Kazakhstan) is the owner of Radisson Blu Iveria in Tbilisi and Radisson Blu Batumi. Shangri La (Hong-Kong), a hotel developer and casino franchiser, invested around GEL 16 million in Shangri La Tbilisi, a casino which includes a gaming and entertainment complex and a restaurant with a view over the River Mtkvari. Russia’s Storm International was assigned as gaming operator. Entrée is a 75-25 JV between Georgian and French investors. It opened its first bakery and coffee shop in Tbilisi in 2008. Four other locations were rapidly added to the network. All Entrée products are cooked under the direct supervision of a staff of highly trained French Chefs and Cooks. 25
Transport & Logistics Sector outlook
Strategic direction/ specific schemes and incentives
Formerly a strategic link on the original “Silk Road”, Georgia serves nowadays as a trade and transit hub for the Southern Caucasus and Black Sea Region. Being the only access to the Black Sea for the Caucasus, Georgia’s sea ports are booming since 2000 and were privatised in 2008. The port of Poti, which handles most container shipments and some bulk, was acquired by RAK Investment Authority (UAE), which resold 80% of its shares to APM Terminals (Netherlands) in 2011 to focus on the development of the 300-hectare free industrial zone adjacent to the port (49-year lease). Acquired by KazTransOil (Kazakhstan), Batumi Sea Port (BSP) handles bulk oil and cargo (95% second -hand cars, 5% sugar and construction materials). KaZtransa Oil Leased part of the Port territory to the Batumi International Terminals (daughter Company of the International Container Terminals LTD),which handles containers. The Kulevi Terminal was acquired by Socar (Azerbaijan) and Supsa Terminal by BP (UK). Air transport has also grown substantially since 2000, especially in passenger transportation. Managed by TAV (Turkey), Tbilisi and Batumi airports attracted new airlines such as Pegasus, Qatar Airlines, Ukraine International Airlines, Alitalia, etc. Recently two new reconstructed airports opened in Mestia and Kutaisi. Kutaisi airport attracts low cost airlines such as Wizzair. Road transport includes both freight (road transport accounts for approximately 60% of total cargo transportation) and passenger transport (road transport accounts for 99% of total passenger transportation and is crucial for tourism).
Georgia’s favourable location on the Caucasus Transit Corridor (CTC) has highlighted the importance of Georgia’s transport and logistics sector as a stimulating factor of growth for other sectors in the economy. Recognizing the opportunities, the Government of Georgia has also identified the sector as one of its priorities and explores ways to create a regional hub. Incentive schemes are offered to potential investors:
Free Industrial Zones (FIZ): exemption from most taxes for international operations registered within the FIZ of Kutaisi, Poti and Kulevi; Free Warehouse Enterprise: exemption from profit tax applied to income received from re-exporting goods and 0% VAT rate on the supply of goods to a VAT taxpayer.
Georgia participates in the EU-funded TRACECA programme, which aims to develop the Europe-Caucasus-Asia transport corridor. Implemented by Egis International and Dornier Consulting as part of TRACECA, the LOGMOS project conducted feasibility studies for investment opportunities in the logistics sector in Georgia. Business opportunities Development of logistics facilities and services: Warehousing and storage facilities at the Kutaisi, Poti and Tbilisi FIZ, for agricultural products especially (collection, cold and off-season storage); 26
Transport & Logistics
Clasquin (France) is an international forwarding group with a network of 41 wholly-owned offices in 17 countries, including Georgia. It arranges transportation of less than truckload (LTL), full truckload (FTL), less than container load (LCL), full container load (FCL) and airfreight to and from Europe, Asia, USA, CIS countries and all over the world.
International forwarding services and multimodal transportation.
Development of facilities and services for the various modes of transportation:
Rail: Railway modernization; Air: airport development and services, passenger flights and air freight (significant unused air cargo capacity); Maritime: oil and cargo shipments from the ports of Poti, Batumi, Kulevi and Supsa, expertise and monitoring systems; Road: construction of bridges, rehabilitation of secondary roads, passenger transport, domestic and international freight; Urban: feasibility studies and procurement contracts for new metro and light rail train lines in Tbilisi.
RAK Investment Authority (UAE) acquired the port of Poti, which handles most container shipments and some bulk, in 2008. It resold 80% of its shares to Netherlands’ APM Terminals in 2011 to focus on the development of the 300-hectare free industrial zone adjacent to the port (49-year lease). Polzug (Germany), a leading operator of container block trains owned by Germany’s Hamburg Port and Deutsche Bahn and Polish PKP. The group is active in the Caucasus since more than 10 years via its affiliate Silk Road Express Georgia in Poti and its Polzug Intermodal office in Baku. It launched the first container block train between the Georgian port of Poti and Baku, capital of Azerbaijan.
Success stories Wilhelmsen Maritime Services (Norway) Wilhelmsen Maritime Services is a global supplier in the maritime services industry with presence in over 2 200 ports and 116 countries worldwide, including Georgia, employing 133 people at the following locations: Poti (Representative office), Batumi (Representative office), Tbilisi (Main office).
Useful links and contacts Georgian Chamber of Commerce and Industry (GCCI) Website: www.gcci.ge
WSS Georgia services include Ships Agency,Maritime Logistics and Terminals (In Poti, WSS Georgia owns and operates its own 6.7 ha bonded, off-dock container and RoRo terminal with direct rail access). Its Ships Agent activities represent 20.3% of the total market.
Georgian National Investment Agency (GNIA) Website: www.investingeorgia.org Ministry of Economy and Sustainable Development Website: www.economy.ge Georgia.gov.ge Website: http://georgia.gov.ge 27
About East Invest Project outlook
The East Alliance
East Invest is a regional investment and trade facilitation project for the economic development of the Eastern Neighbourhood region, launched in the framework of the European Eastern Partnership initiative.
The East Alliance is the 84 partners strong network that manages and implements East Invest under the leadership of EUROCHAMBRES. Its members come from the EU, Turkey and the Eastern Partnership countries.
It targets Business support organisations and SMEs from the 6 Eastern Partnership countries (Armenia, Aze rbaijan, Belarus, Georgia, Republic of Moldova, Ukraine), who have potential for developing mutual cooperation and investment relations with the European Union.
The East Alliance members are not simply the „beneficiaries‟ of the project, but they are also the „actors‟ delivering an important part of the activities, based on capacity and interest. This network of experienced partners: guarantees a smooth and immediate implementation of the project, offers a balanced geographical coverage, and provides for a mix of Chambers of Commerce and other business support organisations.
Its main objectives are:
To promote and facilitate investment and economic cooperation at large between the EU and Eastern Partnership countries, and also between the 6 target countries.
To create the “East Alliance”, mobilising business organisations from both sides to engage in a sustainable partnership and dialogue both within the private sector and towards the public authorities.
To develop concrete activities that will generate immediate results for SMEs in the region.
Project partners in Georgia Georgian Chamber of Commerce & Industry 30 Dadiani str. Tbilisi, GE 0180 Tel: +99577514444 Website: www.gcci.ge
East Invest is a European Commission initiative, managed by EUROCHAMBRES, implemented by the East Alliance. This project is funded by the European Union. It runs from November 2010 till June 2014, and has a total budget of 8 750 000 €.
Georgian Employers Association 14 Gazapkhuli str. Tbilisi, GE 0177 Tel : +99577509890 Website: www.employer.ge
Website: www.eastinvest.eu 28
GEORGIA: Investment Guidebook References This guidebook was prepared in June 2013 by ANIMA and updated in May 2014 with the active contribution of the Georgian Chamber of Commerce and Industry, in the frame of the East Invest project. East Invest is a regional investment and trade facilitation project for the economic development of the Eastern Neighbourhood region, launched in the framework of the European Eastern Partnership initiative. It targets business support organisations and SMEs from the 6 Eastern Partnership countries (Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova, Ukraine), who have potential for developing mutual cooperation and investment relations with the European Union. www.eastinvest.eu The Georgian Chamber of Commerce and Industry is a Corporation of Public Law. It aims to assist the Georgian business community and protect the interests of business entities and individuals www.gcci.ge. ANIMA Investment Network is a multi-country platform supporting the economic development of the Mediterranean. The network brings together over 70 Investment Promotion Agencies (IPA), international networks and players involved in the territorial development of the Mediterranean region. The objective of ANIMA is to contribute to a better investment and business climate and to the growth of capital flows into the Mediterranean region. www.anima.coop
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GEORGIA: Investment Guidebook Authors
Guidebook prepared by ANIMA, the Georgian Chamber of Commerce and Industry and EUROCHAMBRES.
The Geographical Information System (GIS) enabling the production of the maps presented in this report has been developed in partnership with the company ICIA Technologies (www.iciatechnologies.com).
Photo credit
Author: Donovan Driver - under the Creative Commons Attribution 2.0 Generic license (p. 12)
Ministry of Agriculture of Georgia (p. 13)
The Regional Administration of Mingrelia-Upper Svaneti - under the Creative Commons Attribution-Share Alike 3.0 Unported license (p. 14)
Ministry of Energy and Natural Resources of Georgia (p. 15)
Georgian Reconstruction and Development Company website (p. 17)
Invest In Georgia (p. 18)
Author: Alsandro — work in the public domain (p. 24)
Author: Paata Liparteliani — under the Creative Commons Attribution 2.0 Generic license (p. 25)
Rakia Georgia FIZ (p. 27)
Disclaimer This publication has been produced with the financial assistance of the European Union. The contents of this document are the sole responsibility of the Georgian Chamber of Commerce and Industry and can under no circumstances be regarded as reflecting the position of the European Union.
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