Georgia - Market of the Month
Sameba Church (Trinity Church)
Georgia at a Glance
Georgia is a regional center in the South Caucasus situated on the Black Sea and neighboring Turkey to the southwest, Armenia to the south, Azerbaijan to the southeast, and Russia to the north. A beautiful country at the crossroads between Asia and Europe, Georgia represents a key transit hub for energy resources and goods through the region. Following the November 2003 Rose Revolution and the January 2004 election of dynamic, U.S.-educated President Mikheil Saakashvili, Georgia is seeking to capitalize on its natural assets and favorable geo-political location to promote democracy and gain stability and prosperity.
In the short period since the Saakashvili government took power, Georgia has made great strides in improving its business and investment climate and increasing budget revenues. Georgia has been recognized by the World Bank as one of the fastest reforming countries in the world. Public surveys indicate that corruption has been reduced from the worrying levels experienced under the former regime. Georgia’s commitment to reform enabled it to become one of the first countries in the world to obtain a compact with the U.S. Government’s Millennium Challenge Corporation (MCC) for infrastructure development. However, much work still remains to be done to encourage the growth of small and medium-sized businesses, decrease unemployment, and attract foreign investors.
In recent years, Georgia has managed to achieve macroeconomic stability and steady growth. During 2002–2005, GDP grew an average of 7.3 percent annually, industrial production rose 13 percent, retail trade - 10 percent, and freight transport was up 7 percent. Key growth sectors in Georgia include food processing, construction, tourism, energy, transportation, and telecommunications.
The most significant economic development for Georgia in recent years is progress toward the development of an East-West energy and transportation corridor through the Caucasus, which involves two oil pipelines, a rail link to the port of Batumi, and a gas pipeline (due to be completed in Fall 2006) that bring oil and gas resources from Azerbaijan, and to some extent from Kazakhstan, through Georgia to Turkish and European markets. The investment from the construction of these pipelines (the bulk of which has come from BP), the privatization of major state assets, the planned implementation of several major infrastructure projects, and general economic development of the country are creating new opportunities for U.S. companies.
The uncertain status of breakaway regions of Georgia, Abkhazia and South Ossetia, remains a risk to the country’s stability. Russia supports the de facto governments in those regions, and opposes Georgia’s close relations with NATO and the United States and efforts to create alternative routes of energy supply to Europe. Although Russia is a traditional market for Georgian agricultural and manufactured goods, the Government of Russia has imposed significant restrictions on Georgian exports, including wine, fruits and vegetables, and mineral water.
U.S.-Georgia bilateral relations are excellent. The United States considers Georgia an important strategic ally and a close partner in the war on terrorism. Georgia has supplied troops to keep the peace in Kosovo and Iraq. Its relationship with the United States was bolstered by President Bush’s visit to Tbilisi in 2005, which marked the first visit of the U.S. President to independent Georgia.
Market Overview
Georgia is a small but growing market, with a population of about 4.7 million. Its strengths include a strategic location between Russia, Turkey, and Central Asia, proximity to markets of the Black Sea region, Caucasus and Central Asia, a government committed to democratic and economic reforms, and a reputation as a country with a rich culture, an exciting cuisine, and a friendly people.
Traditional Georgian Table (Supra) Scene by Pirosmani
The country’s trade turnover has been increasing steadily over the past few years, but it continues to maintain a large trade deficit. The overall level of exports and imports increased from $1.6 billion in 2003 to $2.5 billion in 2004 to $3.37 billion in 2005. The level of both imports and exports grew by approximately 35 percent in 2005. Georgia’s principal trading partners in 2005 were Russia, Turkey, the United Kingdom, Azerbaijan, Germany, Ukraine, Turkmenistan, and the United States.
Georgian imports totaled approximately $2.5 billion in 2005 and were $1.6 billion in the first half of 2006. The bulk of Georgia’s 2005 imports came from Russia (14.2% of total), Turkey (11%), United States (10%), Azerbaijan (8.1%), Ukraine (7.3%), Germany (6.6%), and Italy (4.3%). The main import commodities were fuels, machinery and parts, transport equipment, grain and other foods, and pharmaceuticals. Georgian exports in 2005 totaled approximately $1.4 billion, with the main export partners being the United States (16.1% of the total), Turkey (15.8%), Turkmenistan (11.8%), Russia (10%) and Armenia (5.6%). Main export commodities were scrap metal, machinery, chemicals, fuel re-exports, citrus fruits, tea, and wine.
Marriott in Central Tbilisi (photo courtesy of Marriott)
Foreign investment in Georgia in recent years has come mostly from Russia, Kazakhstan, Britain, the United States, and Turkey. Foreign direct investment in Georgia in 2005 totaled nearly $450 million, and it reached $133.8 million in the first quarter of 2006. This year, the government expects to complete privatizations of such assets as a major manganese plant, hydropower plants, and more, which will bring in additional foreign investment. U.S. companies have investments in Georgia that include two Marriott hotels in Tbilisi, Metromedia Group’s investment in cell phone operator Magticom, and a major stake in the leading Georgian dairy and juice producer Sante-Walsh Products. Attracting more foreign investment in Georgia will depend on the Government’s commitment to further improve the business climate and implementation of reforms.
Major Economic Sectors
Construction: New construction and renovation in Tbilisi and construction of the Baku-Supsa and Baku-Tbilisi-Ceyhan oil pipelines, as well as the South Caucasus gas pipeline, has led a revival of the construction industry in recent years. Other energy-related construction and rehabilitation projects are under active consideration, including road projects and pipeline rehabilitation funded by the Millennium Challenge Corporation. In addition, necessary upgrades of transportation and tourism infrastructure will continue to create demand for construction services and building materials for the near future. Currently, there is significant activity in building and upgrading housing, hotels, restaurants, offices and infrastructure, which is spurring demand for construction materials. The high level of home ownership in Georgia may present some opportunities for the DIY sector.
First Pumping Station of Baku-Tbilisi-Ceyhan oil pipeline in Georgia
Electrical Power: Throughout the 1990s, Georgia suffered from energy shortages and frequent power outages, but the situation has improved considerably, particularly in the cities. This is primarily a result of restructuring and reform of the electric power system over the last few years. The privatization of this sector is expected to increase efficiency and should create commercial opportunities. The government plans to expand the high voltage electricity transmission system, refurbish thermal plants, construct new thermal power generation facilities and attract investment for construction of new hydropower plants as well as for rehabilitation and upgrading of old plants.
Transportation: Georgia is rapidly rediscovering its “Silk Road” heritage as both Caspian basin oil and Western goods flow through its territory. Georgian infrastructure, developed during Soviet times, was not designed to handle large volumes of East-West transit. Years of low or no maintenance has allowed serious deterioration of these assets. Nevertheless the Georgian government has identified Georgia’s strategic geographic location as a competitive advantage to exploit. The government has proposed a “Eurasia Corridor” that will require substantial investment in refurbishment and expansion of transportation infrastructure including roads, rail, seaport, and civil aviation services. The MCC is developing a project to improve one of Georgia’s principal road networks. The World Bank, EBRD, EU and other donors are examining ways to improve the transport, water supply and wastewater treatment infrastructure.
Tourism Infrastructure: There is substantial potential for tourism in Georgia. Great natural beauty, varied topography, pleasant climate, and rich culture and history helped Georgia attract over 3.5 million tourists a year in Soviet times. This number has fallen precipitously since the collapse of the Soviet Union. The tourism infrastructure requires major rehabilitation. A lack of experience with modern tourism and market economy principles creates another set of challenges to developing the sector.
In 2004, the number of visitors increased by 17.5 percent over 2003 to 368,300 visitors. In 2005, nearly 500,000 tourists came to Georgia and an equal number or more are expected in 2006. The Georgian government has made the tourism sector a top priority for economic development. To facilitate tourism, the Government has abolished visa requirements for the United States, Turkey, and most EU countries, started rehabilitation of roads, begun privatization of infrastructure and hotels, improved safety, and established limited tax incentives for tour operators.
Recently, the government purchased TV ads to promote Georgia on CNN and EuroNews. Privatization has helped spur investment in the rehabilitation of several hotels in Tbilisi and Ajara. New international airports are currently being built in Tbilisi (to be operational in January 2007) and Batumi with Turkish investment and contractors. The Georgian city of Borjomi applied to host the 2014 Winter Olympics, but failed to make the short list. Tourism presents opportunities for U.S. exports of services and equipment.
The Black Sea Coast
Telecommunications: Georgia’s telecommunications sector requires modernization to comply with the growing market demands. Major international investors in this sector have been the U.S., Korea, Turkey, and Israel. There are also two international cellular phone companies: Magticom (U.S.) and Geocell (Turkey). Both use the GSM system. As of January 2005, the number of cellular phone users was 800,000 (almost every fifth Georgian had a cellular phone.) That is a 42 percent increase compared to January 1, 2004. Cellular penetration is highest in Tbilisi.
Expansion of telecommunications infrastructure at the national, regional and international levels is seen as an integral part of Georgia’s economic development and its successful integration into the global economy.
Georgian Wine Cellar (Marani)
Agribusiness: Georgia’s fertile soil and mild, diverse climate (nine climatic zones) are favorable for production of a wide variety of high-value agricultural products, including grapes and wine, nuts (hazelnuts, almonds, walnuts, chestnuts), citrus fruits, and apricots. Most Georgian exports of these products went to Russia until it imposed restrictions, but new European markets are slowly developing.
Until recently, the state held legal title to all agricultural land, which was leased out to farmers. This prevented farmers from using the land as collateral for credits to expand and improve their operations. With no market for agricultural land, it has been impossible to consolidate or expand holdings into more efficient units. However, the government has completed work on registration and titling of small farm holdings in order to confirm ownership transfer from the state.
As a result of land reform, the Georgian government has privatized 25 percent and leased about 30 percent of the country’s arable land. A new law on Privatization of State-owned Agricultural Land that was passed in July 2005 is expected to increase efficiency and output in the agricultural sector.
Food Processing and Packaging: Georgia is near to potential export markets and high quality raw materials, making it a good location for food processing. This sector is growing steadily, with a proliferation of Georgian-brand products—wine, beer, dairy, fruit juices and mineral waters—filling local stores. Several years ago, Georgia imported the majority of such products, but recent improvements in processing and packaging technology have made these products attractive for both domestic and export sales.
Georgian still and sparkling wines and spirits have long enjoyed an excellent reputation in the former Soviet Union, and improved bottling and packaging now allows Georgian firms to sell to a wider export market. There are opportunities for U.S. leasing companies and exporters of food processing and packaging equipment for fruits, nuts (particularly hazelnuts) vegetables, citrus, meat and dairy products.
Best Prospects for U.S. Exporters
 | Transportation Infrastructure and Services |
| Oil and Gas Exploration and Production |
|
| Electric Power Generation |
| Agricultural and Food Processing |
| Tourism and Hospitality |
| Construction and Real Estate |
For more information on these sectors, see the 2006 Country Commercial Guide for Georgia at http://bisnis.doc.gov/bisnis/bisdoc/0608geccg.pdf. For market reports and practical information on exporting to Georgia visit BISNIS online at http://bisnis.doc.gov/bisnis/country/Georgia.cfm.
For tender information and partner leads from Georgia, visit BISNIS online at http://bisnis.doc.gov/bisnis/leads1.cfm.
International financial institutions, including the World Bank and European Bank for Reconstruction and Development, are implementing infrastructure, power, banking, and other projects with consultancy and procurement opportunities available. See www.worldbank.org/georgia and http://www.ebrd.com/country/country/georgia/index.htm.
On September 12, 2005, Georgia signed a Compact with the U.S. government assistance agency Millennium Challenge Corporation (MCC) for a five-year $295 million assistance package. MCC is funding five activities in two areas:
(1) Regional Infrastructure Rehabilitation, which will fund rehabilitation and construction of approximately 245 kilometers of main road traversing the Samtskhe-Javakheti region, the rehabilitation of the North-South Gas Pipeline, and a $60 million Regional Infrastructure Development Facility for regional and municipal physical infrastructure in regions outside of Tbilisi; and
(2) Enterprise Development, which includes a $32.5 million Georgia Regional Development Fund to provide long-term risk capital for agribusiness and tourism development and technical assistance to SMEs, primarily in the regions outside of Tbilisi, and a $15 million Agribusiness Development Assistance fund for technical assistance and grants to farmers and agribusinesses. The projects are implemented through the Millennium Challenge Georgia, which has already begun procurement (www.mcg.ge).
Panorama of Georgia’s Capital Tbilisi
Doing Business in Georgia
Despite a number of positive developments in the business climate during the last few years, entering the Georgian market can be challenging.
Some of the difficulties to be aware of include:
| Georgia’s legal regime is generally favorable to economic growth and development, but implementation remains uneven, and incentives for small and medium enterprises are lacking. |
| Enforcement of intellectual and industrial property rights in Georgia is weak, although improving. |
| Despite the legal underpinnings for protection of commercial activity and of property rights, in practice, foreign investors have encountered problems protecting contracts and property rights in local courts. |
| Corruption, both official and otherwise, continues to be a problem. |
The banking system remains weak. However, it has been steadily improving in recent years in terms of technology and assets, and has attracted significant foreign investment in both large and small Georgian banks, including from IFC, EBRD, and Germany’s DEG, as well as private sources in Russia, Kazakhstan, and the United States.
Some positive recent developments include:
| Currently, the government is in the process of completing a new Customs code that will dramatically decrease customs tariffs currently charged, as well as lowering the overall number of tariffs. The Georgian Government plans to go even further and completely abolish import duties by 2008. If it does so, it will make Georgia one of the most liberal countries in this regard. |
| A new Tax Code passed in 2005 was a major achievement, reducing the number of taxes considerably and simplifying tax administration. Tax rates were reduced at the same time, including a reduction in the VAT from 20 to 18 percent, and a 12 percent flat income tax on individuals. The Government is committed to carrying out further reforms. |
| In late 2005, Georgia received a first-ever sovereign credit rating from Standard & Poor’s—B short-term, B+ long-term, and the Heritage Foundation raised Georgia’s Economic Freedom index from “mostly unfree” to “mostly free.” |
Personal contacts are important in Georgia, and finding a reliable, experienced partner continues to be the most successful way to enter the market. Another key to a successful venture is careful preparation, including researching the market, conducting due diligence on potential business partners and customers, and seeking good local legal advice.
Mount Kazbek, one of the highest peaks in the Caucasus
Market Resources
BISNIS Georgia page (http://bisnis.doc.gov/bisnis/country/Georgia.cfm)
Country Commercial Guide for Georgia (http://buyusainfo.net/docs/x_9706959.pdf)
American Chamber of Commerce in Georgia (www.amcham.ge)
Georgia Investment Guide (www.investmentguide.ge)
America Georgia Business Council (www.agbdc.com)
Georgian National Investment and Export Promotion Agency (www.investingeorgia.org/en)
Georgian Opinion Research Business International (www.gorbi.com)
Upcoming Events
International Conferences
Regional Conference on Tourism Communications (TOURCOM) for Eastern Europe and Central Asia
Tbilisi, Georgia
November 16-17, 2006
Organizer: UN World Tourism Organization
Web site: http://www.tourcom.ge/
Trans-Caucasus Tourism Business to Business Forum
Tbilisi, Georgia
November 18, 2006
Organizer: Competitive Armenian Private Sector Project (CAPS)
Web site: www.tourismb2b.org
America-Georgia Business Council 9th Annual Conference
“Destination: Georgia”
December 5, 2006
Seattle, Washington
Organizer: America-Georgia Business Council
Web site: www.agbdc.com
Erekle Street in Downtown Tbilisi
Selected Trade Shows in Tbilisi
ExpoGeorgia (www.expogeorgia.ge)
TransCommCaucasus, 19–21 October 2006
3nd International Transport and Logistics Exhibition
www.expogeorgia.ge/exhibition2006/trans/trans.html
ElcomCaucasus, 12–14 April 2007
7th International Power, Electrical Engineering and Control, Telecommunications, Information Technology and Office Equipment Exhibition
WineExpo Georgia, 1–3 June 2007
1st International Wine and Spirits Fair & International Wine Tasting in the Caucasus Region
www.expogeorgia.ge/exhibition2007/winexpo/2007.html
ITE Exhibitions Ltd. (www.caspianworld.com)
Interfood Georgia 2006, 16–18 November 2006
3rd Georgian International Exhibition Food, Drinks, Packaging and Food Technology
www.interfoodgeorgia.ge/en/2006/
3rd Georgian International Healthcare Exhibition, 15–17 March 2007
Contact Us Today
Kartlos Gviniashvili, BISNIS Representative in Georgia
U.S. Embassy in Tbilisi
Tbilisi, Georgia
Tel: (995 32) 277 000 ext. 7132
Email: gviniashvilik2@state.gov
Ellen S. House, BISNIS Trade Specialist for Georgia
U.S. Department of Commerce
Washington, DC
Tel: (202) 482-2284
Email: ellen_house@ita.doc.gov
References: Civil Georgia (www.civil.ge), U.S. Embassy Tbilisi, Georgian Department of Statistics, CIA World Factbook, The Messenger (www.messenger.com.ge ), Georgian Economic Development Ministry, Georgian Chamber of Commerce and Industry, America-Georgia Business Council, National Bank of Georgia.
All photos, except the ones of the Marriott and the pumping station, are courtesy of the Department of Tourism and Resorts under the Georgian Ministry of Economic Development.