Business Climate

Located between Europe and Asia on a historical “Silk Road”, the economy of Georgia is highly integrated with international markets

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Stable political environment, liberal and free market economy, competitively priced workforce, only 6 flat taxes, preferential trade regimes and developed transport infrastructure makes Georgia an attractive destination for foreign investments. Georgia has signed Bilateral Investment Treaties (BIT’s) with 32 countries and is member of ICSID Convention since 1992.

Georgia received a ranking of 16 among 190 economies in Doing Business 2017: Equal Opportunity for All, released by World Bank.

In the region, Georgia ranks third, with Former Yugoslav Republic of Macedonia being the region’s highest ranked economy, followed by Latvia. Georgia is also among the top 10 global improvers for implementing reforms to their business regulations.

Georgia’s liberal trade regimes provide investors with a favorable opportunity to not only access the country’s 3.7 m residents, but the wider region’s markets, as a direct result of the absence of customs and import tariffs. To date, Georgia has signed FTAs with CIS countries that include Ukraine, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan, as well as its neighbors, Turkey, Azerbaijan and Armenia.

The European Union and Georgia enjoy a very close and positive relationship. The EU-Georgia Association Agreement entered into force in July 2016 and strives for political association and economic integration between the EU and Georgia. The EU and Georgia have also entered into a Deep and Comprehensive Free Trade Area (DCFTA), while Georgian citizens have benefited from visa free travel to the Schengen area since 28 March 2017. The EU is Georgia’s largest trading partner and provides over €100 million to Georgia annually in technical and financial assistance.

In 2016, the EU was Georgia’s (GE) key trading partner, with a 31% share in its total trade (27% before the entry into force of the DCFTA), followed by Canada (15%), Turkey (around 13%), Russia (about 7%), China (6%) and Azerbaijan (over 5%). Trade with Georgia accounts for 0.1% of the EU’s total trade. The main EU importers from Georgia are Bulgaria, Italy and Germany.

Business Reforms in Georgia

  • Getting Electricity: Georgia improved the reliability of electricity supply by introducing penalties for the utility for having worse scores on the annual system average interruption duration index (SAIDI) and system average interruption frequency index (SAIFI) than the previous year. Georgia also mandated the notification of customers by the utility of planned electricity outages.
  • Registering Property: Georgia improved the quality of land administration by increasing coverage of all maps for privately held land plots in the main business city.
  •  Protecting Minority Investors: Georgia strengthened minority investor protections by increasing shareholder rights and role in major corporate decisions and by clarifying ownership and control structures.
  • Paying Taxes: Georgia made paying taxes easier by abolishing additional annex to corporate income tax returns and by improving the efficiency of the online system used for filing VAT returns.
  • Trading across Borders: Georgia made export and import documentary compliance faster by improving its electronic document processing system, as well as, introduced an advanced electronic document submission option.

Business Opportunities in Georgia

Energy

Georgia has one of the highest levels of hydro resources per capita in the world. There are more than 26,000 rivers in Georgia. It is estimated that the total hydropower potential of Georgia is 80 terawatt hours (TWh), with the economically viable potential estimated at 27 TWh. Presently, only about 11% of the technically feasible potential has been developed. Georgia’s installed power generating capacity is about 3,000 MW. Over 80% of Georgia’s electricity is generated by hydro plants and 19.7% by thermal ones. Due to rain and snowmelt patterns, Georgia’s summer power production capacity far exceeds winter, during which Georgia has a deficit of over 400 MW that it meets through thermal (natural gas) generation and imports. Georgia cannot reach its summer hydro production potential because it currently has no outlet for it. As a result, Georgian authorities estimate that over one terawatt hour (one billion kilowatt hours) – at a local retail value of approximately $85,000,000 – is lost in spilled water each year Small and medium size hydropower plants (“HPPs”) based on run-of-river diversion designs can quickly tap Georgia’s tremendous hydropower potential, offset winter imports of electricity and gas, contribute greatly to Georgia’s energy independence, and offset the adverse impacts of global climate change. The electricity sector in Georgia is mostly privately owned and nearly fully liberalized. Only transmission, dispatch, and the largest hydropower plant and thermal power plant (TPP) are owned by the state, whereas all the other generation and distribution assets are privately owned. Bundled ownership of generation and distribution assets is allowed. The Ministry of Energy and Natural Resources of Georgia (“Ministry of Energy”) expects that the electricity sector will be fully liberalized by 2017-2020.

Pharmaceuticals

Emerging markets are expected to drive growth in the global pharmaceutical market over the coming decade, Georgia and the surrounding region have significant room for growth. In this context, Georgia offers the key growth opportunities. Pharmaceutical exports from Georgia have grown at an annual rate of 47% for last 6 years. Georgia already exports pharmaceuticals to 16 countries; with $18.5 million in pharmaceutical exports in 2011. Recognizing Georgia`s future potential in the pharmaceutical sector, the Georgian Government is committed to continual enhancement of the regulatory environment, including plans to introduce a GMP certifying agency by 2016 which will enhance the ability of Georgian pharmaceutical producers to export to other countries. Also making Georgia an attractive strategic base for pharmaceutical production are its low costs of energy and labor (average wages approximately 30% less than in nearby Turkey) . In Georgia, there are a number of representatives of foreign manufacturers of pharmaceuticals, also several foreign companies are doing clinical trials, and a number of distributors/wholesalers that are foreign owned or with foreign investment. There are also a number of institutes and private companies that have had foreign support or cooperation for pharmaceutical research. Experts believe it is an ideal time to invest and enter the pharmaceutical market in Georgia. There are vast number of investment opportunities. Some of the most advantageous investable sectors include: Existing or start-up pharmaceutical manufacturers. Existing or start-up retail chains/distributors. Bacteriophages. Natural / herbal medicines. R&D / Clinical testing.

Manufacturing

Georgia`s natural advantage as a Regional Hub in the Black Sea and South Caucasus regions – and as a gateway between the Caucasus and Central Asia – provides many benefits to investors in manufacturing and processing. Specifically, Georgia has the best cost factors, logistics and transport chain and business environment for serving the Southern Caucasus region, as well as many key raw materials. Since 2004, Georgia has seen both domestic and international investment in manufacturing across all major sectors, including: apparel, textiles, pharmaceuticals, mining and excavation (e.g., gold, silver, coal and ores), building materials, natural resources processing, aircraft, shipbuilding, methane extraction and auto parts. In 2010, Georgia`s Total Output was GEL 13 billion. Major outputs include steel, aircraft, machine tools, electrical appliances, mining, chemicals, apparel, wood products and wine. Total export in 2009 were USD 1.6 Billion, of which natural ores, ferro-alloys, fertilizers, motor cars, wine, waters, fruits and nuts, electrical energy and vehicles were the major exports. With the establishment of Georgia`s Free Industrial Zones, there are new incentives and opportunities to process, produce and export goods with a minimal tax burden, because in FIZ, businesses are exempted from all tax charges except Personal Income Tax. Firms can export goods free of trade barriers to global markets of more than 500 million consumers.

Agriculture

Agriculture in Georgia has been subject to various reforms since 2004, particularly in the areas of land reform, ownership rights and tax reform. It has benefited from liberal Trade Regimes, such as the FTA & GSP+ agreements with Georgia’s major trading partners. Likewise, Georgia has been a member of the World Trade Organization (WTO) since 2000 and has access to nontraditional markets and protection from dumping. In 2010, the agriculture sector accounted to GEL 1.52 Billion, 8.4% of the total GDP. About 53% of the workforce of Georgia is employed in agriculture. Georgia’s major crops are wheat, maize, barley, sunflower, potato, citrus fruits, tea, fruit and vegetables. In order to stimulate growth and investment in agriculture, Georgia has implemented the following incentives structure: 0% of property tax on small plots of land (less than 5 ha). 0% of property tax on property transaction. 0% VAT on primary supply of agricultural products. 0% of import duty on agricultural and other equipment. Opportunity to privatize agricultural land – 75% of all agricultural land is State-owned.

 

 

Source: Government of Georgia, World Bank, European External Action Service