Issue 6, 2014. December-January

   

IF YOU BUILD IT, THEY WILL COME: NEW ROAD PROJECTS KEY TO INVESTMENT OUTSIDE OF THE CAPITAL

Georgia has its best investment climate to date. In November, Standard & Poor's Rating Services affirmed their BB- rating for Georgia and set their outlook to "stable." Georgia also ranks at BB- with Fitch Ratings, and stands slightly higher with Moody's Investment with a Ba3 Positive.

Cooperation with outside organizations, such as the big four and international businesses, are a great way to continue building Georgia's market brand. For its part, the government is working to break down trade barriers, make business laws more approachable, and - of course - pursue more programs. Pursed in dichotomy, outside exposure with internal reform make an excellent roadmap for investment success.


Cordelia Ponczek

By linking the central hub of Tbilisi to other booming sectors, Georgia vastly diversifies its options for investment prospects and makes itself a more tantalizing choice for potential business. Now the challenge is to provide the infrastructure to link its destinations together seamlessly. In the past, the ride between Tbilisi and Batumi - or Tbilisi and Telavi - was no joyride. It takes hours. It involves much nail biting, the occasional colorful metaphor, and perhaps a cow or two in the road.

But all that is changing.

Compare Georgia's ambition to its reality: in the past decade it has gone from one international airport to three (with the possibility of a fourth). These airports see high traffic - the number of passengers rose from 1.3 million in 2008 to 5.4 million in 2013. Tourists and businesses want to be in Georgia; the trick is getting them to their destination in a quick and stress-free way.

Infrastructure Is the Tie That Binds

In November, World Bank Vice President for Europe and Central Asia Laura Tuck embarked on a three-day journey through Georgia.

Tuck met with both Prime Minister Irakli Gharibashvili and President Giorgi Margvelashvili. Duringher visit, Tuck represented the World Bank as an agency willing and ready to collaborate with Georgia on its goals - like its ambition to become a regional hub.

"We continue working with Georgia to further develop our strong partnership in infrastructure and to assist the country in its efforts to become a logistics hub in the region," she said, according to a press release from the World Bank.

"Georgia has several comparative advantages, such as its geographic location, agriculture and tourism potential, and, most of all, its talented people. Developing and using these assets will create further opportunities for growth and make the country's economy more inclusive."

One such project that Tuck visited was the joint Georgia-World Bank Third East-West Highway Improvement Project.

Approved in 2009, its completion is anticipated in June 2015. The cost is projected at $184.12 million and is co-financed by the International Bank for Reconstruction and Development and the Georgian government.

The goal is to link one end of Georgia seamlessly to the other. This is a necessary project, and part of a larger theme as Georgia moves to spread the prosperity of success beyond its capital and into periphery regions.

Gharibashvili stressed the road's importance for development in western Georgia during a special address on November 19 to mark the 88 kilometers of new highway bridging the country's economic center in Tbilisi to the western regions.

The new road will help bolster economic growth and create new jobs, he said, adding that the EU is going to provide Georgia with 30 million euros for regional development.

There are plenty of projects geared to attracting business interest to cities and rural communities beyond the capital.

The Georgian National Investment Agency (GNIA), the government-run Partnership Fund and the World Bank itself, to name a few, have a long list of potential investment projects that stretch across the country, ranging from the ports, shipping and tourism centers on the Black Sea coastline to the country's rich hydroelectric potential.

But roads - highways, byways and the railway - are a crucial part of turning potentials into profits.

Paving the Way for Investment

Currently, the fastest growing regions in Georgia are hundreds of kilometers away from the capital: Georgia's western coast and eastern towns have become investment magnets.

Kutaisi, home to one of Georgia's two parliament buildings and a gateway to the country's ports and coastline, is already benefiting from the East-West highway. On November 19 Gharibashvili opened a new hotel, Bagrati Plaza, in the city.

More hotels, spas and other investments are opening across the country in areas that have been touched by new road and infrastructure projects. The government's Partnership Fund is developing new hotels in Imereti and Kakheti - both areas where new roads have been completed.

In the eastern Kakheti region, towns like Telavi are seeing an uptick in wine production projects, tourism, and manufacturing following significant infrastructural renovations and government- and privately sponsored public relations projects.

The World Bank estimates there has been $8 million in private sector investments in Kakheti alone that were "spurred by the [the World Bank's] development project's renovations."

The "Batumi miracle" and investments along the coastline - including the Partnership Fund's plan for a new deep sea port - are also a result of the same ambition: Georgia's steady efforts to modernize and promote its greatest assets. These assets include - as Tuck reinforced during her trip - Georgia's competitive geographic location, its strength in tourism and agriculture, and untapped human capital.

The Road to Growth

Georgia offers opportunities in the largest growing sectors of the country: tourism, manufacturing, agriculture and energy. Another perk: while the eastern regions represent Georgia's homegrown export potential, the western coast is an excellent opportunity for re-export via the Black Sea or Turkey.

In the west, an excellent example is Batumi, whose flourishing tourist trade has harnessed the energy of budding hospitality workers, café owners, and even local Batumi designers who are ready to cater to the summer crowds. Anaklia, further north on the Black Sea coast, is yet another. Recently built spa and wellness centers, along with charming boutique B&Bs, offer a unique experience for tourists in a spectacular location.

In the east, cities like Telavi have witnessed a rise in tourists after government projects contributed to its historic charm: tourists discover renovated cobblestone streets and refurbished heritage sites. Investors can find inspiring stories in local residents who transformed ruins into well-run shops and cafes - havens for tourists.

The rise of tourism has brought jobs and created a mini-ecosystem of markets, which in turn spur development of further sectors, like manufacturing (someone has to build those hotels).

In his public address to mark the new East-West Highway reaching Kutaisi, Gharibashvili urged businesses and investors to take advantage of the new opportunities the road offers.

"Soon we will present to the public the concept of regional development, which will be a long-term strategy tailored to a particular region," he said.

"I encourage businesspeople to be involved in this important project. Now it is necessary to unite the public and private sectors in order to implement projects for the regions."

Cordelia Ponczek is an analyst for a Warsaw-based think tank. She is conducting research with the Kościuszko Foundation for the 2014-15 academic year.

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