Post on 17-Sep-2020
Investment Climate & Opportunities in Georgia
Georgian National Investment Agency (GNIA)
2013
Advantages of Investment Climate in Georgia
www.investingeorgia.org 2
Business friendly environment
Efficient, pro-business and corruption-free government
Enlargement of market size by FTAs
Entry gate in the region
Competitive cost of labor and energy
Solid sovereign balance sheet
Stable banking sector
Very low crime-rate
BB- Stable (Upgraded from B+ Positive
in November 2011)
BB- Stable (Upgraded from B+ Positive
in December 2011)
Ba3 Stable (Affirmed in August 2012)
Doing Business in Georgia
1
4
7
9
20
32
34
49
67
71
91
112
137
Singapore
United States
United Kingdom
GEORGIA
Germany
Armenia
France
Kazakhstan
Azerbaijan
Turkey
China
Russia
Ukraine
www.investingeorgia.org 3
Ease of Doing Business Index Of Economic Freedom
Source: World Bank, 2013 (Rank out of 183
countries)
1
10
14
19
21
38
62
68
69
88
136
139
161
Hong Kong
United States
United…
Germany
GEORGIA
Armenia
France
Kazakhstan
Turkey
Azerbaijan
China
Russia
Source: The Heritage Foundation, 2013(Rank out of
183 countries)
Up from 112 in 2005 Up from 99 in 2005
Country's impressive progress in improving business climate has been well
documented in a number of international indices.
Corruption Free Country
www.investingeorgia.org 4
Global Corruption Barometer
0%
1%
1%
2%
2%
2%
2%
3%
5%
7%
9%
9%
22%
26%
Denmark
Norway
UK
Switzerland
Netherlands
Korea (South)
Germany
GEORGIA
United States
France
Austria
Singapore
Armenia
Russia
Source: Transparency International’s Global Corruption Barometer , 2011 (Rank out of 176 countries)
Percentage of users paying a bribe in the past 12 months
Georgia today is essentially a corruption-free investment destination where rule of law have been given the right way
3%
26%
16%
35%
78%
77%
% of survyed whoclaim that the levelof corruption hasdecreased in thepast three years
% of survyed whoassess their current
government'saction as effectivein the fight against
corruption
Georgia Southeast Europe+Turkey EU
Favorable public debt situation
Economic Structure and Trends
www.investingeorgia.org 5
Broad-based and diversified nominal GDP structure 2012
Source: Geostat, MOF, IMF
Source: Geostat
Source: Geostat, MOF
Rapidly growing GDP per capita GDP: strong rebound in 2010 after a relatively small contraction in 2009, robust growth potential
1 188 1 484
1 764
2 315
2 921
2 455 2 623
3 231 3519
3747
0
1 000
2 000
3 000
4 000
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F
US$
GDP per capita
5,1 6,4
7,8
10,2
12,8
10,8 11,6
14,4 15,8 16,9
5,9%
9,6% 9,4%
12,3%
2,3%
-3,8%
6,3%
7,2% 6,1% 6,5%
-8%
-4%
0%
4%
8%
12%
16%
0
2
4
6
8
10
12
14
16
18
20
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F
Nominal GDP (US$bln) Real GDP growth, y-o-y (%)
Agriculture, forestry and
fishing 8%
Industry 17%
Construction 7%
Trade 17% Hotels and
restaurants 2%
Transport and Communicatio
n 11%
Financial intermediation
3%
Public administration
11%
Education 5%
Health and social work
6%
Other sectors 13%
63,2%
50,5%
40,0%
32,0%
25,5% 31,2%
41,0% 42,4% 36,7% 35,8%
44,9% 34,5%
26,8% 21,1%
16,8% 23,5%
31,7% 33,6% 29,0% 28,6%
0%
20%
40%
60%
80%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F
Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%)
• Preferential Trade Regimes:
FTA with CIS countries: Ukraine, Belarus, Azerbaijan, Armenia, Russia, Moldova,
Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan
FTA with Turkey
DCFTA with EU will be signed next year
Negotiation on FTA with USA is in progress
GSP+ with EU - 7200 products to the EU market duty free or with lower tariffs
GSP with USA, Norway, Switzerland, Canada, Japan - lower tariffs are applied on 3400
goods exported from Georgia to these countries
Member of WTO
• Very simple and service oriented customs policy and administration
• ~90% of goods free from import tariffs
• No quantitative restrictions
Liberal Trade Regimes
www.investingeorgia.org 6
Opportunity - Market Size
www.investingeorgia.org 7
Population of Georgia - 4,5 million
Existing FTA +350 million
DCFTA + 0,5billion
Total ~ 0.9 billion
Georgia: 4,5 million population Access to the 0,9 billion market
‘04 ‘05 ‘06 ‘07 ’08 ‘09 ’10 ‘11 ‘12
Number of Taxes 21 7 7 7 6 6 6 6 6
VAT 20% 20% 18% 18% 18% 18% 18% 18% 18%
Income Tax 12-20% 12% flat 12% flat 12% flat
Social Tax + Income Tax
32% 25%
Social Tax + Income Tax
20%
20% 20% 20%
Social Tax 33% 20% 20% 20% - - - - -
Corporate Profit Tax
20% 20% 20% 20% 15% 15% 15% 15% 15%
Dividend & Interest
Income Tax
10% 10% 10% 10% 10% 5% 5% 5% 5%
No payroll tax or social insurance tax
No capital gains tax
No wealth tax and inheritance tax
Foreign-source income of individuals fully exempted
Accelerated depreciation on capital assets
Loss carry forward for corporate profit tax purposes (10 years)
No restrictions on currency convertibility or repatriation of capital & profit
Double taxation avoidance treaties with 40 countries
Taxation - simple, low, efficient and fair
www.investingeorgia.org 8
According to the latest Tax Misery & Reform Index, released by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong
Leader in Forbes rating (Tax Misery & Reform Index)
www.investingeorgia.org 9
Labor Availability
60,0
70,0
80,0
90,0
100,0
110,0
2005 2006 2007 2008 2009 2010 2011 2012
Georgia - one of the most liberal labor environments (3rd best globally), according to the Heritage Foundation, 2012
Frontier Markets avg
Georgia
Greater Labor Freedom
Source: MOF and Heritage Foundation, 2012
• Young labor – 50% of unemployed population are aged between 20-34
• Average monthly salary in 2012 – 450 USD
• Vocational Education Training Centers around Georgia provide professional courses in
different types of practical subjects and most of the course’s fees are financed by the
Government of Georgia.
Foreign Direct Investment
• Strong and Rising FDI Stimulates Economic Prosperity
• Key Industries Benefit from FDI
• Georgia has bilateral treaties on investment promotion and protection with the 32 countries
(negotiations launched with 24 countries)
www.investingeorgia.org 11
Favorable FDI/GDP ratio FDI Breakdown by sectors 2012*
* Preliminary data
Manufacturing; 22%
Energy sector ; 20%
Financial sector; 18%
Transport and
Communication; 17%
Real Estate; 3%
Agriculture; 3%
Other sectors;
17%
340 499 450
1190
2015
1564
658 814
1117 864
8,5% 9,7%
7,0%
15,3%
19,8%
12,2%
6,1% 7,0%
7,8%
5,5%
0,0 %
5,0 %
10, 0%
15, 0%
20, 0%
25, 0%
0
500
100 0
150 0
200 0
250 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
FDI FDI as % of Nominal GDP
Investment Opportunities in Georgia
www.investingeorgia.org 12
Hydro Power Hub
Tourism
Manufacturing
Agriculture
Regional Logistics Corridor
Regional Services Hub
Significant Hydro Power Potential
Installed capacity of > 2,700 MW
Additional potential > 4,500 MW
• Generation cost (0.06 USD) among the lowest in the region,
~50% lower than target market Turkey
Export Capacity
• The only net electricity exporter in the region, with rapidly growing consumption rates
• Construction of 400 kV power transmission line from Georgia to Turkey to be completed in 2013
Opportunities
• Several large scale projects (> 100 MW)
• ~ 70 small/medium projects (< 100 MW)
13 www.investingeorgia.org
Hydro Power Hub
14
Importance of the
sector low in terms
of GDP and
employment
• Power generation accounts for 3% of GDP and ~ 1% of employment but is of high strategic importance to Georgia
• ~ 10% of power production are exported, but Georgia still needs to import power during winter
Power sector with
strong focus on
cost competitive
HPP
• Georgia boosts significant and economically viable HPP potential – already today 75% of power generated via HPP (2,700 MW) – 25% via thermal (mainly gas)
• All new HPPs operate in a liberalized market
• Cost of hydropower generation is very competitive in the region
Large projects
have been placed
and pipeline is
filled
• FDI inflows amounted to USD 200 million in 2011 and are growing
• 65% of economically viable potential not yet exploited
• Projects of up to USD 750 million have been concessioned to investors from e.g. India, Turkey, Czech Republic and other counties.
• Pipeline well filled with several large scale projects (100-702 MW) as well as ~70 smaller projects
• Domestic: Demand growth and increasing share of renewables requires an extension of hydropower generation by around 65% until 2020
• Export: Georgia is surrounded by countries with a projected structural power deficit (e.g. Turkey, Russia South) or expensive power generation, opening up attractive export opportunities
Strong demand
growth prospects
14 www.investingeorgia.org
Hydro Power Sector Overview
Turkey
South Russia
Georgia
Armenia
Azerbaijan
Iran Iraq
Greece
Bulgaria
Romania
Kazakhstan
Ukraine
Israel
Lebanon
Uzbekistan
Turkmenistan
Structural deficit by 2020
Ad hoc deficits projected
No deficit, but current tariffs > Georgia's generation cost
No deficit, but subsidized tariffs
1 Assuming current consumption and supply pattern 2 This does not even include countries with heavily subsidized electricity
generation (e.g. Azerbaijan, Kazakhstan)
• Turkey expected to have
deficit of up to 80-120 TWh
by 2020, with seasonality of
its demand matching
Georgia's supply
• Russia’s Southern districts
will also experience a
structural deficit of up to 40
TWh by 20201
• In other markets, Georgia’s
hydropower is very cost-
competitive compared to
local tariffs2
2020
15 www.investingeorgia.org
Georgia surrounded by countries with a structural power deficit or expensive power generation
Additional potential of about 70 small/medium projects (<100 MW capacity)
Potential Hydropower
Projects
Installed Capacity
(MW)
Forecast Invest. Volume
(USD millions)
Ready to
invest?
Namakhvani Cascade 450 926
Khaishi HPP 400 620
Oni Cascade 270 599
Nenskra HPP 210 491
Tobari HPP 200 310
Fari HPP 180 297
Lentekhi HPP 120 189
Hydropower pipeline boosts several new megaprojects above 100 MW capacity that are currently open for investment
www.investingeorgia.org 16
Tourism
www.investingeorgia.org 17
Fast growing sector • Tourism contributed 6.4% of GDP in 2012
• Number of visitors increased 38% in 2011 reaching 2.8 million and 56% in 2012 reaching 4.4 million.
• Majority of visitors come from: Turkey (34.9%), Azerbaijan (21.2%), Armenia (20.5%), Russia (11.6%), Europe (9.4%)
• Average duration of stay 9 nights, the median visitor stays – 2days/ Average spend of USD 330
• Overall capacity of < 15, 110 rooms
• Already operating hotels - Sheraton, Radisson, Marriot, Holliday Inn, (under construction - Cempinski, Hillton) etc.
Potential • Youth Olympics in 2015
• Free tourism zones – summer resorts
• Availability of gambling business – gaming is partially or completely banned in Russia, Ukraine, Azerbaijan, Kazakhstan, Turkey, Israel, Iran, Iraq
• 8 national parks
• 2400 springs of mineral waters
Georgia is expecting significant growth trajectory in tourist arrivals
www.investingeorgia.org 18
International arrivals have seen ~40% year-on-year growth
0,6 1
1,1 1,3 1,5
2.0
2,8
4,4
5,5
2005 2006 2007 2008 2009 2010 2011 2012 2013F
+38% p.a.
+56% p.a.
+29% p.a.
Total international tourist arrivals # of arrivals into Georgia
More international luxury hotel chains are coming to the market…
www.investingeorgia.org 19
Existing Hotels Hotelier’s assessment of performance
“We have seen 7-8% more guests in our hotels every year. Business and leisure travelers are our two biggest client group and they come from all over the world. Best occupancy period is summer from May to September”
– Alexander Kvaratskhelia Marketing Manager
“ We are very optimistic as demand has been increasing rapidly. Hotel occupancy hovers around 85%. Our guests come from all around the world representing various sectors including business, sportmen and tourists”
– Oto Berishvili Sales & Marketing Manager
“We have seen significant increases in occupancy rate and financials since 2010. This year [2012] high season has seen a very promising start. We have advance reservations booked for almost the whole summer”
– Omer Subasi General Manager
Upcoming international hotel brands before 2015
Batumi
Tbilisi
Batumi
Tbilisi Batumi
Tbilisi
Investment opportunities in tourism sector
Expansion of summer ”sun and beach” franchise focusing on high-end segment All inclusive summer
resorts New master resort
development
Description
Potential location
1 2
Batumi Anaklia Kobuleti Other Black Sea
locations
Mestia Gudauri Bakuriani Goderdzi
Master development of winter resorts with unique profile equivalent to the Alps Government is
fully committed to provision of basic infrastructure
Four season resort value preposition Majestic landscapes
allowing for a wide range of summer tourism activities such as trekking, horse riding, bird watching and river racing
• Mestia Gudauri Bakuriani Goderdzi Kazbegi Other locations
Development of Spa Resorts Include hotels,
Different types of Clinics, fitness, Outdoor activities
4
Tskhaltubo Akhtala Other locations
3
www.investingeorgia.org 20
“Sun-beach” resorts
Winter ski resorts
Summer mountains resorts
Spa Resorts
Development of large-scale integrated casino complex to Serve regional markets. Include hotels, casino
entertainment, family Services and shopping
Fiscal invcentives available
Batumi Tbilisi Other locations
Regional Casino City
5
Manufacturing Sector
Overview:
• Manufacturing account for around 11% of GDP and ~ 5% of employment
• Largest industries: food and beverages (3% of GDP), metal products (2.5% of GDP)
• Advantage to process goods: competitive cost of power, labor and strategic location
• 2 Free Industrial Zones: businesses are exempted from all tax charges except Personal Income Tax
Opportunities:
• Large import overhang of good that are not usually traded extensively between the countries provides regional import substitution potential in food processing, construction materials, household gods etc
• Georgia’s current advantages in terms of handling large transshipment flows, business stability, low cost of power generation and existing raw materials/intermediate products provide opportunities for large industrial bets, like production of iron and steel products, aluminum etc
Poti
Batumi
Armenia
Azerbaijan
Russia
Turkey
Black
Sea Kutaisi
Main Road Network Railway
Kulevi
Tbilisi
Mestia
www.investingeorgia.org 21
FIZ FIZ
Several highly attractive import substitution opportunities
Food
processing
Product group Products
• Glass & glassware • Windows
• Glassware
• Ceramic products • Tiles
• Sanitary ware
• Furniture • Doors
• Living furniture
• Dairy and eggs • Milk
• Cheese
• Butter
• Yogurt
• Fruit juices
• Jams
• Vegetable oils
• Beverages and spirits • Bottling
• Poultry/Beef/Pork/Lamb • Meat
Sector
Construction/Building materials
• Articles of wood • Plywood and laminated wood
• Prefabs • Articles of cement and steel • Ready-mix concrete
• Finished articles of steel
• Bricks
• Preparations of fruits and vegetables
Packaging
Construction/Finishing elements
• Plastic packaging
• Paper packaging
www.investingeorgia.org 22
Several opportunities arising from Georgia’s trans-shipment flows and resources
Opportunity Current advantages to be leveraged Potential for Georgia
• Large transshipment flows of raw materials/input (Bauxite) and aluminium cross Georgia to/from Tajikistan (largest aluminium plant in Central Asia)
• A lot of water recourses and large hydropower plants in the pipeline
Aluminium industry
• Georgia mines Manganese ore
• Georgia produces ferro alloys, largely for export (USD ~260 mln)
• Large imports of iron and steel products to Georgia (USD ~320 mln) and neighboring countries
• Vertical integration of value chain by adding production of iron and steel and related end products
• Regional import substitution
Iron and steel production
• Georgia and Armenia export copper ores, copper waste and scrap
• Import overhang of copper products (alloys and final products e.g. wire, tubes, pipes) amounts to USD ~200 mln in the region
• Production of copper alloys and end products (regional import substitution)
Copper
• Plastics and petrochemicals production (regional import substitution for plastics/rubber)
• Import overhang of plastic products amounts to 250 mln in Georgia and 8 bln in the region
• Georgia transships large flows of petroleum products
– Production of aluminium
• Value chain integration
– Production of aluminium products (fabricated or end products)
Polymers & other plastics
www.investingeorgia.org 23
Agriculture
• Over 21 micro-climates - a wide range of grain, vegetables, hard and soft fruits, meat and dairy could be farmed
• Agriculture accounts for 8.4% of GDP. It contributes ~53% of employment mostly in subsistence farming (average farm size of 1.55 ha)
• Traditionally Georgia has strengths in wine, nuts, fruits which account for more than 60% of agriculture exports
Opportunities:
• Import substitution opportunities - meat, dairy products, onions, potatoes etc
• Export opportunities - traditional strong sub-sectors, like wine, walnuts, hazelnuts, sheep meat, etc
• Productivity gain opportunities – tomatoes, apples, cucumbers, stone fruits, citrus etc
www.investingeorgia.org 24
14 potential priorities crops/livestock to focus development efforts
Georgia’s competitiveness High potential projects
Exp
ort
-led
D
om
esti
c
Nuts (cultivation and processing)
• Top 5 global exporters of nuts, ideal growing conditions, commitment from Ferrero
Grapes (cultivation and winemaking)
• Distinctive varieties and growing conditions, traditional strong industry, access to CIS market, large base of experienced and low-cost labor in the sector
Lamb (husbandry and meat production)
• Well-reputed for lamb quality, significant export potentials to Middle Eastern markets
Citrus (cultivation and juices)
• Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor
Beef/dairy (milk and cattle meat production)
• Big import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing
Pork (meat production) • Import overhang, sizeable and fast growing domestic demand, good natural conditions for rearing
Poultry (chicken meat and egg production)
• Big import overhang, sizeable and fast growing domestic demand, commercial farms with intensive operations already in place
Olive oil (cultivation and processing)
• Large demand for oil-related products, good growing condition, access to CIS markets
Stone fruits (cultivation and juices)
• Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor
Tomato (cultivation and canned)
• Import overhang, low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements
Tobacco (plantation and processing)
• Sizable demand for tobacco and tobacco-related products, well-reputed for tobacco quality
Cucumber (cultivation and canned)
• Low investment needed in greenhouse and irrigation, quicker to realize quality and yield improvements
Apple (cultivation and canned)
• Ideal growing conditions, multiple investors already establishing fruit, processing operation, large base of experienced and low-cost labor
Onion (cultivation) • Low investment needed, quicker to realize quality and yield improvements
www.investingeorgia.org 25
Regional competitiveness and potentials map
Based on regional specialization (natural endowments, cultivation history), productivity and seasonality
Crop potentials by region
www.investingeorgia.org 26
Regional Logistics Corridor
www.investingeorgia.org 27
Trans-Caucasian route
• Strategic location: It serves as an entry gate to the Caucasus and Central Asia as well as a stepping stone to the region
• Around 80% of port cargo and 60% of freight rail are transits
• Great potential of better integration and development of the Region
Transport Infrastructure
• Rapidly developing road infrastructure
• Ports are cost-competitive vs. alternative routes
• FDI inflows in the logistics sector have primarily targeted transport infrastructure
Opportunities
• Deep-sea port (PanaMax)
• Containerization and logistical centers
• Direct connection with European and Central Asian railway networks (BTK project)
Georgia’s transport infrastructure
Rail
▪ 1,500 km (90% electrified)
▪ ~7,000 rolling stock, 180 locos
Road
▪ 1,500 km international road
+ 20,000 km internal and local roads
Rail
▪ Baku-Tbilisi-Kars railway project
▪ Modernization
▪ Tbilisi bypass
▪ ~2500 new rolling stock
Road
▪ East-West highway construction/upgrade
Poti seaport
▪ 13 berths, 8-10m draft
▪ Container and bulk (210k TEU)
▪ Owned/operated by Maersk/RAKIA
Batumi seaport
▪ 5 berths, 1 offshore mooring, 11m draft
▪ 90% petroleum/oil, 10% containers (44k TEU)
▪ Operated by JSC KazTransOil
Kuhlevi seaport
▪ Crude oil, petroleum, and lubricants
▪ Owned/operated by State Oil Company Azerbaijan
Poti seaport
▪ New container berth (2014)
Deep-sea port
▪ Min. 2 berth of 20m draft (PanaMax)
▪ First phase: Dry bulk (10m tons) and containers (200k TEU)
▪ USD 200 mn investment volume
Tbilisi international airport
▪ ~1 million passengers
▪ capacity: 3 million passengers
▪ Serving 28 destinations
Batumi international airport
▪ 100,000 passengers
Kutaisi international airport
▪ Passenger, incl. low-cost airlines
Mode of transport Existing infrastructure and flows Upgrades
Ro
ad/R
ail
Mar
itim
e
Air
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Cargo Turnover Transit flows through the Corridor (million tons per year)
Approximately 80% are transit flows (2012) Central Asia
Kazakhstan Uzbekistan Tajikistan Kirgizstan Turkmenistan Caucasus: Azerbaijan Armenia Central
Asia+Caucasus Sender - 9.6
Destination - 4.7 Total - 14.3
Europe+Turkey Sender - 2.6
Destination - 4.1 Total - 6.7
Georgia serves as the entry gate to a landlocked region boosting significant resource reserves
www.investingeorgia.org 30
Iron ore 2% USD 4 bn
Other (bauxite, gold, nickel, PGMs)
Zinc 5% USD 1 bn
Copper 3% USD 3 bn
Oil 3% USD 100 bn
Coal 5% USD 28 bn
Gas 14% USD 9 bn
For comparison: region represents
only ~1.6% of global population
~126 million tons Addressable cargo
flows from landlocked countries
Regional Services Hub
www.investingeorgia.org 31
• Service sector in Georgia achieves leading ranks among regional economies in terms of value added and trade
• Services have major share of FDI inflow of ~45% in 2012 with USD ~380 million:
Financial services have grown at 19% p.a. since 2009 and is the leading service sub-sector for FDI attraction with 18% of total inflows in 2012
Consultancy services attracted 4.3% of total FDI inflows in 2012
Wholesale/retail trade accounts for 15% of GDP in 2012,
FDI inflows in healthcare/social work have grown at 146% p.a. since 2007, and accounts 2.6% of FDI in 2012
• Opportunity to capitalize:
Financial services/headquarters
Retail hub as the destination-of-choice for shopping
Georgian National Investment Agency
• State agency
– Promoting Georgia internationally
– Supporting foreign investments and investors
before, during & after investment process
• “One-stop-shop” for investors
• Moderator between Investors,
Government and Local Companies
www.investingeorgia.org 32
Local
Companies
Investors
Government
GNIA
Mission - Attracting Greenfield and M&A Investments
What you can get from GNIA
www.investingeorgia.org 33
Information - General data/Statistics/Sector Researches
Communication - Access to Government at all levels/Local partners
Organization of site visits and accompanying investors
After care - Legal advising/Supporting services
34
GEORGIAN NATIONAL INVESTMENT AGENCY
8, Rustaveli avenue, 0118 Tbilisi, Georgia
Tel: (+995 32) 2 281 196
E-mail: enquiry@investingeorgia.org
www.investingeorgia.org