Issue 5, 2012. October-November

   

CREATING A HUB

Georgia is a natural hub for the Caucasus and Central Asia region. After years of painful reforms, the country has the geography, open borders, streamlined legislation, and growing ports to carve out a niche as a hub for goods, ideas, and transit. Investor.ge spoke with business people, economists, and the acting head of the national investment agency about how Georgia can capitalize on its potential to be a regional hub.


For centuries Georgia has been a hub for trade and transit. Today, thanks to a synergy of reforms, promotion, and new possibilities, the country has the potential to become the regional center for even more: it can also become a hub for education, agriculture, energy, tourism, investment, and even reforms.

After years of reporting on Georgia's economic policies and investment climate, Investor.ge decided to dedicate an issue to exploring the country's potential to grow and adopt a regional role.

"There are a few obvious reasons that stand out [for Georgia to become a regional hub]," noted Sarah Williamson, the president of AmCham Georgia and the vice president of UGT.

At the core of its promise is simple geography – Georgia is the perfect bridge between the markets of Europe and Central Asia. But years of reforms, in addition to investor interest and large donor projects, are helping the country build on its natural borders.

Tradition also helps. Historically, Georgia has been on the crossroads of trade routes, a legacy that helped create the old Silk Road, and has made trade and transit a vital part of Georgia's economy for centuries, noted Eric Livny, the director of the International School of Economics at Tbilisi State University.

"Georgia is not a country that has been traditionally manufacturing or producing goods. This is a country that has been historically on the transit route, servicing the flows of caravans, passengers, goods. In fact, that may be the source of the wonderful Georgian hospitality," he added.

Williamson said that, in addition to geography and good relations with Azerbaijan, Armenia, and Turkey, the government's strong desire to make the country a regional player give it an added push.

That role can serve Georgia in the future, Livny emphasized. Georgia can grow by building on its traditional value as a transit route. One case in point is the country's new role as a regional hub for car sales.

In 2003, there were zero car exports from Georgia. As the state started to crack down on crime following the Rose Revolution, the reexport of cars grew to an $8 million business in 2004. By August of this year, it was worth $562 million – 24 percent of all exports, and creating a regional hub on par with Dubai, according to a report by Renaissance Capital.

Robin McCone, PricewaterhouseCooper's tax and legal practices leader in Georgia and Armenia, said the impact of the reforms is starting to trickle down to investors looking at the region.

"I am amazed at how many requests I am getting from major multinationals from all industry sectors to speak with them about doing business in Georgia. I am also increasingly seeing multinational companies who are already in the region, looking to change their business model to move many of their activities through Georgia," he said, noting that so far most interest comes from fast moving consumer goods companies that are attracted by the ease of doing business in Georgia.

But even more than that, McCone noted that the combination of services and reforms Georgia offers is unique – and is making the country uniquely attractive to investors.

"This convergence of factors is increasingly being noticed by companies looking to establish shared service centers or back offices in Georgia," he said.

The car reexport industry is one example of an industry that grew out of Georgia's strategic location and the potential created by the reforms on the ground. Renaissance Capital reported in October that the combination of simplified trade regimes and streamlined registration laws (it takes just 15 minutes to register a car) are helping Georgia usurp Dubai as a car reexport hub in the region.

If the government and private sector can work together, there is the potential for even more, Livny said.

Livny and his colleagues at ISET Policy Institute are working on a national competitiveness report on Georgia for the USAID G-PAC and EPI projects. The report includes a special chapter on Georgia's potential as a regional hub. Georgia could play that role in a variety of areas including trade and transport, but also education, tourism and even healthcare.

"Look there are all kinds of things that could be done. At the moment we are very far from being any one of these," he said.

McCone and other business consultants noted that even basic improvements in the labor force, such as more skilled workers and English-language speakers could make a difference for investors.

More investment in infrastructure, more investment in private businesses, and more coordination between public and private actions will be key to turning Georgia's potential into a reality, Livny stressed.

"Coordination is something that doesn't always require investment, it doesn't always require money. It is just the ability of government to bring all the stakeholders to the same table and coordinate their actions," he said.

"Internally, you need coordination between the government and the private sector, that is the key."