Issue 6, 2011. December-January

   

BRING MANUFACTURERS TO GEORGIA: A NEW PLAN

Georgia is becoming an increasingly attractive destination for light manufacturing companies. The country's location, business reforms and lower costs have already convinced several Turkish manufacturers to open factories here - and the Georgian government is hoping focused marketing will build on the trend.

Maia Edilashvili

Made in Georgia

Georgia's annual apparel and textile production has increased in value from about 8 million lari in 2004 to around 40 million lari in 2010. The sector, comprising 200 - mostly small - enterprises, employs approximately 5,000 people throughout Georgia.

The biggest employer is Turkey: the top four factories - BTA textile, Adjara Textile, Batumi Tex and Georgian textile - are Turkish investments based in the Adjara region, employing 4,200 people. And all four are growing. Adjara Textile, which currently employs 600 people and holds a 21% share of Adjara's exports, is due to open a new 300-man plant to produce clothing for Adidas. BTM Textile, with a 31% export share, will soon start a jeans line employing up to 100 people in addition to the current 632 employees. Recently, Koton and Karden, two leading Turkish producers, have placed orders for Georgian plants.

Low costs, better trade regimes

Georgia's attractive trade regimes with Turkey, CIS countries, EU, US, Canada, Japan, Norway and Switzerland, are driving the interest - and the Georgian government is eager to encourage the trend.

The Georgian National Investment Agency (GNIA) recently launched the website www.apparel.ge that promotes other incentives for companies to move their factory operations to Georgia, notably low operating costs.

While the average minimum wage in Turkey is approximately $605 per month, average apparel wage rates in Georgia are around $250 per month, according to the Value Chain Assessment report, prepared by USAID's Economic Prosperity Initiative (EPI) - a four-year, $40 million project aimed at increasing Georgia's competitiveness.

Other lower operating costs include the price of electricity, which is half that of Turkey, and the corporate income tax rate which is 5% lower.

Another advantage, noted the report, is the fact that Turkey has implemented a tariff on imported textiles and clothing. "To continue domestic production at current rates, Turkish apparel manufacturers have to either switch to local textiles or face higher expenses on imported ones. This is an important development and Turkish manufacturers can realize significant cost savings by either establishing operations in Georgia or by outsourcing production to Georgian manufacturers."

To capitalize on its competitive advantages, GNIA is bringing in delegations from leading Turkish manufacturing companies - introducing them to the country, educating them about Georgia's trade regimes and business reforms, and highlighting inexpensive investment opportunities in western Georgia. The chairman of the Turkish Clothing Manufacturers Association (TGSD) and representatives of Koton, Seleksiyon Tekstil, Negreti Tekstil, Ogretmen Corap (PENTI), and Istanbul - factories that produce clothing for major brands like Cavalli, Mango, GAP, H&M and Scervino - have already visited Georgia to meet with GNIA officials.

Keti Bochorishvili, director of GNIA, hosted the delegation and stressed that building relations with the clothing manufacturing association is key to bringing more investment into Georgia's clothing industry.

"For us cooperation with TGSD is crucial as it has approximately 400 members, all of which are leaders in the Turkish apparel industry," she said, "...if some of the companies are interested in starting businesses in Georgia it will create hundreds of additional jobs in our regions, combined with an inflow of new technologies and the opening of factories."

Free training to overcome low production

The EPI report pointed out four concerns regarding Georgia's potential to develop the apparel sector: lower productivity per employee, heavy dependence on imported inputs, poor market information and little evidence of horizontal collaboration.

However, the government has created a package of incentives to convince investors to take the risk; including offering land in western Georgia as well as full access to roads, electricity, water supply and natural gas.

Bochorishvili added that the government plans to reimburse onsite labor training costs after a factory has been operating for one year.

For BTM Textile and the Georgian subsidiary ATK Textile, a Turkish company that supplies Tommy Hilfiger, Mexx, Zara, Marks & Spencer, Puma, Lotto and others with clothing produced in Georgia, the move to Adjara has already proved a success.

The company opened its Georgian plant in Batumi in 2007 and since then has invested up to $10 million in this business.

Ladies and children's wear produced by BTA textile is among the 800,000 individual items of clothing - sportswear, shirts, blouses, coats and other ready-to-wear garments - that cross the Georgian-Turkish border on their way to European markets every month.

"Georgia has pretty nice conditions for the development of apparel manufacturing," noted Metin Yagli, general director of BTM Textile Ltd in an e-mail interview.

"Our [Turkish] investments in the construction and apparel sectors here have yielded quite good results."