Issue 2, 2017. April-May

   

NEW INVESTMENTS STRENGTHEN GEORGIA'S PLACE ON THE NEW SILK ROAD

2017 will be remembered as a year that brought major developments to both Poti and Anaklia. With growing capacity in shipping and industrial production, Georgia's Black Sea coast looks poised to help the country fulfill its promise of becoming a key stretch on the "New Silk Road" between Asia and Europe.

Joseph Larsen


This January, CEFC China Energy Company Limited, a multinational company with headquarters in Shanghai, signaled it would enter the Georgian market for the first time by purchasing a 75 percent share in the Poti Free Industrial Zone (FIZ).

A memorandum of understanding (MOU) on the deal has been signed, but no concrete information about a timeline for the investment has been publicly released.

Investor.ge was told by the prime minister's office that there have not been any developments concerning the agreement since the MOU was signed.

CEFC launched in 2002 and specializes in the fields of oil and gas, financial operations, and industrial processing. The latter area will be the main focus at the Poti FIZ, a 300-hectare zone that has housed companies producing everything from wood products to steel to IT services. There, goods can be produced exempt from profit- and value-added taxes and then loaded onto container ships at the nearby port, from which they're bound for export markets in Europe and elsewhere.

"The Strengthening of Georgia as a Transport and Logistics Hub"

On January 16, CEFC signed a memorandum of understanding with the Ministry of Economy and Sustainable Development. Under the agreement, the company will develop the FIZ by sharing its practices and technologies, and will work to attract investments in processing, modern technology, warehouse management, and logistics. CEFC has offices in 11 countries and its total 2015 revenue topped RMB 263.1 billion ($38.1 billion).

"Given its experience, performance, and expertise, CEFC China Energy Company Limited can make a tremendous contribution not only to the development of the Poti Free Industrial Zone, but to the strengthening of Georgia as a transport and logistics hub," read a statement from the Ministry of Economy.

What's more, the government views the entrance of another major Chinese investor as an example of Georgia's importance on the "New Silk Road" linking Asia to Europe. According to the Ministry, the project's goal is to "encourage the realization of the potential of the New Silk Road through implementation of joint initiatives."

From 2009 to 2016, the FIZ was wholly owned and operated by RAKIA Georgia Free Industrial Zone LLC, a subsidiary of the United Arab Emirates-based RAK Investment Authority (RAKIA). RAKIA returned 85 percent of its shares to the government in October 2016 in exchange for being released from its investment obligations.

The FIZ is adjacent to the town of Poti, the site of a major seaport built during the 19th century. The port currently employs more than 1,000 employees and handles roughly 9 million tons of cargo each year.

Up the coast in Anaklia-a 70-minute drive from Poti-a much bigger project is in the works, one that promises to transform Georgia's logistics infrastructure.

"The Project of the Century"

Later this year, the Anaklia Development Consortium-a group that includes TBC Holding and Conti International, a U.S.-based company specializing in capital asset projects and construction management-will break ground on the Anaklia Black Sea Deep Water Port Project, which Georgian Prime Minister Giorgi Kvirikashvili called "the project of the century" in October 2016.

The port represents Georgia's largest infrastructure project and could involve a total investment of up to $2.5 billion. Once finished, Anaklia will be Georgia's largest port, dwarfing both Poti and the country's second port at Batumi. As the country's only deep water port, it will be able to handle ships much larger than the 1,500 Twenty-foot Equivalent Unit (TEU) ships that currently move in and out of Poti.

Anaklia's geography-both its depth and relative proximity to European markets-make it uniquely suited to serve large vessels. During an interview with Investor.ge, Levan Akhvlediani, CEO of Anaklia Development Consortium, said he expects the new port to seize a leading position in Georgia's container market:

"The ability to accept large vessels will enable shipping lines to take advantage of economies of scale and thus make transportation of containers more cost effective. Consequently, this would boost the competitive advantage of Georgia as a transit country and over time will surely attract larger volumes of transit cargo."

Akhvlediani expects the Anaklia port to eventually capture 60 percent of the Georgian container market. During the first phase of operation, which is scheduled to begin in 2020, the port will be able to handle 900,000 TEU annually, a 50 percent increase over Poti's capacity of 600,000 TEU annually. "The utilization of the port will encompass export, import and transit cargo," added Akhvlediani.

Anaklia will be more than the site of Georgia's largest port, however. The development includes its own 600-hectare FIZ-twice the size of the zone in Poti. Akhvlediani is confident that the Deep and Comprehensive Free Trade Agreement (DCFTA) signed between Georgian and EU in 2014 will help incentivize investment in the FIZ as well:

"The FIZ is very important. Its attractiveness saw a significant boost once the DCFTA with the EU was signed. We already have significant interest from neighboring countries to establish their operations, since it offers a double incentive for them: first, free trade and access to the EU market and, second, the near-zero taxes within the FIZ. Overall, we believe the FIZ will offer a significant added value to the port throughput and the economy in general."

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