Issue 2, 2017. April-May

   

CREATING A BRAND FOR INVESTMENT

Georgia attracted nearly five percent more investment in the first nine months of 2016 than the year before-a good start. An initiative at the state-run Georgian National Investment Agency to cultivate international Georgian brands may be the key to bringing in more foreign direct investment this year and in the future.

Sally White

For Prime Minister Giorgi Kvirikashvili, "eliminating any negative results for business and the private sector" is of paramount importance. Last year, one result was that Georgia pulled in nearly five percent more in foreign investment in the first nine months alone.

Photo by Wines of Georgia


A Blueprint for Investment

In 2017, the Georgian National Investment Agency (GNIA) is able to woo investors with financial incentives and initiatives, the country's increasing productivity and expanding markets, rising exports and escalating visitor numbers. Georgia is creating international brands to help launch its products across many of its consumer sectors-tourism, wine, food, film and fashion are attracting plaudits in Europe in the U.S. and Asia.

Most important, Georgia is building a spreading network of new "Silk Roads" in which it is the hub. GNIA blueprints for Georgia build on the expansion of sea, air, road and rail infrastructure to support Georgia as an East-West gateway. Now it is getting the trade agreements. Georgia's trade world is opening up rapidly.

GNIA's 2017 presentations show a most auspicious start. The year kicked off with the corporate tax rate being reduced to zero and a very full shop window of potential projects. Later this year will come another very important milestone for business in Georgia-a preliminary free trade agreement (FTA) with China is scheduled to take effect before the end of 2017. This adds to free trade agreements already in place with the EU, CIS countries and Turkey as well as preferential tariff systems with the U.S., Japan, Norway and Switzerland.

Showcased areas for 2017 include, according to the Ministry of Economy, the following on-going target areas for investment and business generation (although the list seems always to be growing, with aircraft-part manufacturing (Israel) the latest corporate arrival!):

● food processing
● textiles
● IT
● engineering
● hi-tech manufacturing
● energy (especially hydro)
● tourism
● film
● education
● logistics
● renewables

Nor is domestic business and investment being ignored. Kvirikashvili, in his closing 2016 report, said that all state programs, such as Produce in Georgia, Check-in Georgia, Host in Georgia, Film in Georgia and others will also continue in 2017. So, it seems, will the proliferation of social media messages and blogs that are propelling international publicity for Georgia's tourism (from skiing to wellness destinations), wine, cuisine and film.

Internationally, the Ministry of Economy and GNIA's efforts in 2017 are aimed at "Japanese and Chinese investors in terms of high-tech manufacturing as well as assembly operations to be relocated to Georgia," according to Kvirikashvili.

Turkey and Iran "represent our target markets to attract more investors in food processing, agri-business and other light-manufacturing directions," the Prime Minister indicated in his report.

For the development of "the tourism infrastructure and hospitality sector in Georgia, our target markets are the UAE (United Arab Emirates), Turkey and other European countries, as well as China and Iran," he stated.

For export-orientated manufacturing "we are targeting EU member states to attract investment ..."

Everyone is being invited to bid for the 94 hydropower plant projects for which the Ministry of Energy of Georgia has prepared pre-feasibility studies.

The GNIA will be "on the road" this year in Italy (at a business forum), the UAE (at a business forum), Japan (for road shows), Germany (for a wide variety of activities) and back home there will be a Silk Road Forum in Tbilisi in July.

While, for most sectors, it is too early to judge the profitability that foreign investors are seeing in Georgia, the view on those longer-established, leisure and retail developments is looking good. International real estate group Colliers International comments that Tbilisi business rentals top those in comparable cities, with yields in 2015 even reaching 12 percent versus 5.8 percent in Prague and 6 percent in Warsaw.

The rush of international hotel groups to open up in Georgia bears witness to the attraction of the Georgian market-Galt & Taggart estimated last year "that $1 billion will be spent in brand hotel development over 2016-2018."

Good, too, are the prospective profitability of logistics and other infrastructure sectors-"a category sector of increasing interest," IPE Real Estate magazine commented in its January/February issue, to yield-hungry mega investment funds, transnational banks, sovereign wealth funds and hedge funds. "Infrastructure is becoming a global institutional asset class," it says, naming ports, toll-roads and utilities infrastructure as prime targets.

Georgia is developing in all these categories: the government will implement infrastructure projects worth over $5.5 billion in 2017-2020, according to the Ministry of the Economy, of which 55 percent will go toward road infrastructure.

The Chinese Factor

This fits most auspiciously with China's strategy to reach Western markets via Georgia. The focus of the GNIA and other government ministries on China has resulted in that country's first substantive free trade agreement (FTA) negotiations in Eurasia.

Georgia's Ministry of Economy points out that the agreement with Georgia will remove "all tariffs for most of the two nations' commodity trade, as well as pledging to open many service-sector markets and improve bilateral trade laws while identifying key areas for enhancing cooperation."

As a Central Asian Caucasus Analyst briefing paper describes, "Georgia will come well and truly established as a key staging post in China's One-Belt-One-Road, as the FTA, which will coincide with the opening of the oft-delayed Baku-Tbilisi-Kars (BTK) railway, will make Georgia an integral component of China's 'One Belt, One Road' trading network."

It adds that "Georgia could, by positioning itself as an integral component in this economic network, provide additional shelter from Russian pressure."

Linking in with the collaboration agreed to between Georgian Railways and Germany's Deutsche Bahn transport company, this places Georgia in the middle of the trans-Caspian movement of goods between China and Europe. Also, it places Georgia in a second corridor providing for the movement of goods to and from Europe to Iran and Iraq via Georgia. Last, but very much not least in 2017, comes capital markets (including the stock market) development. The Ministry of Economy has said this is "one of the top priorities in the government of Georgia's reform agenda." Among other issues, there is awareness that investors need to know how they will be able to exit. As an old London stock market adage says, "a profit is not a profit until it is in the bank."

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