Investment Climate & Opportunities in Georgia

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1 Investment Climate & Opportunities in Georgia 1

2 What is Georgia? Basic overview, 2010 Population: 4.4 million people Capital: Tbilisi (1.2 million people) Area: 69,700 sq km Currency: Lari (GEL) Growth: +6.4% real GDP Public external debt to GDP: 33.6% Average annual inflation rate: 7.1% Rating improvements (and positive outlook). E.g.: Fitch: B+, S&P: B+ Black Sea Turkey Russia GEORGIA Azerbaijan Armenia GDP, 2010 Foreign Direct Investments (FDI), 2010 Nominal GDP: USD 11.7 billion Net FDI: USD million GDP per capita (nominal): USD 2,629 Other net capital inflows: USD 997 million GDP per capita (PPP): USD 5,057 Net FDI as percentage of GDP: ~7% Components of nominal GDP, 2010 Net FDI by sector, 2010 Others Real estate Education 5 5 Construction 6 11 Healthcare 7 8 Agriculture 12 Transport & Comm. Industry Trade Public Admin. Agriculture Energy sector Others Other services Real estate 17 Financial sector Industry Transport & Comm. Key export products (% 1 over total), 2010 Key import products (% 1 over total), % = $ 1.6 Bln 100% = $ 5.1 Bln Electrical energy Wine of fresh grapes Other bars and roads Copper 2 2 Ferro-alloys waste/scrap Beverages 3 Other nuts 4 Copper ores Fertilizers 5 5 Gold 5 7 Ferrous waste/scrap 14 Motor cars Structures of iron/steel Manganese ores Petroleum coke & others Other bars and roads Cigarettes 2 2 Telephones 14 Fuel 2 Petroleum gases 3 Wheat & meslin 3 Medicaments 4 6 Motor cars 1 The exports/imports graph do not sum 100% as products with less than 1% weight over total exports/imports are not included in the graph SOURCE: GDP National Statistics Office of Georgia, Ministry of Finance of Georgia, International Monetary Fund; FDI, Exports & Imports National Statistics Office of Georgia 2

Georgia offers a wide set of opportunities to investors Russia Mestia Gudauri Black Sea Anaklia Poti Tskaltubo Kutaisi Nunisi Borjomi Bakuriani Tbilisi Telavi Batumi

3 Georgia offers a wide set of opportunities to investors Russia Mestia Gudauri Black Sea Anaklia Poti Tskaltubo Kutaisi Nunisi Borjomi Bakuriani Tbilisi Telavi Batumi GEORGIA Azerbaijan Turkey Armenia Combination of urban and rural environments Diverse geographies and climate zones Opened and liberal economy Wide set of opportunities 3

Developing infrastructure Support and incentives to investors 3.

4 It is the time to invest in Georgia. Discover why! Diverse opportunities with people and infrastructures to support them 12. Diverse investment sectors Growing liberal economy 1. Growing economy 11. Young and well-prepared people 2. World s leading reformer 10. Developing infrastructure Support and incentives to investors 3. Liberal trade regimes and immigration policies Strategically located lowcost country 9. Free Tourism Zones 4. Strategic geographic location 8. Free Industrial Zones 5. Low taxes 7. Georgia help and support 6. Low labor costs 4

5 1. Growing economy GDP xx GDP per capita (nominal) USD thousands 2003 Exports % 12.3% 9.6% 9.4% 5.9% 2.3% 6.4% 4.5% % Real GDP growth, y-o-y Percent E Nominal GDP USD billions 2011F USD millions -5 Foreign Direct Investments (FDI) 2,500 2,000 1,500 1, Imports Net FDI as % of GDP 15.3% 12.2% 9.7% 8.5% 7.0% 2, % 1,564 1, % Net FDI USD millions 09 7% E 8.7% 1, F USD millions % per year ~2,000 1,495 1,583 1, , % per year 6,302 ~6,000 5,212 5,095 4,366 3,675 2,488 1,844 1, E E SOURCE: GDP National Statistics Office of Georgia, Ministry of Finance of Georgia, International Monetary Fund; FDI, Exports & Imports National Statistics Office of Georgia 5

6 2. World s leading reformer (1/2) Georgia is one of the world s leading reformer. Country's impressive progress in improving business climate has been well recognized in a number of international indices Ease of doing business Description According to the World Bank Survey (2012), Georgia is Number 1 Country in Eastern Europe and Central Asia in terms of Ease of Doing Business 7th country where starting a business is easier 1st country in terms of Registering Property 17th country in terms of Protecting Investors 8th country in terms of Getting Credit 4th country in terms of Dealing with Construction Permits Illustrative key indicator Ease of doing business ranking, Singapore 4. United States 7. United Kingdom 16. Georgia Up from 112th in 19. Germany Estonia 29. France 33. United Arab Emirates 55. Armenia 66. Azerbaijan 71. Turkey 91. China 120. Russia 145. Ukraine Simplified licensing and permitting procedures Total number of licenses and permits has been reduced by 84% in the last years One-stop-shop concept Silence is consent (Permit/license granted if no government action taken within the statutory time limit) Reduced statutory time limits for government action 30 days for issuing licenses and 20 days for issuing permits Impact of progressive procedure simplification Georgian ease of doing business ranking evolution positions

7 2. World s leading reformer (2/2) Georgia is one of the world s leading reformer. Country's impressive progress in improving business climate has been well recognized in a number of international indices Labor freedom and labor force literacy Description 6th country with the best labor freedom index (Heritage Foundation, 2011) 1st country with the best labor code (Heritage Foundation, 2008) 1st country with the best Adult Literacy Rate indicator (Human Development Report by UNDP, 2006) Zero difficulty score of the hiring and firing indices (World Bank Survey, 2011) Illustrative key indicator Index of economic freedom, Hong Kong 9. United States 16. United Kingdom 20. Japan 23. Germany 29. Georgia 36. Armenia Up from 99th in United Arab Emirates 64. France 67. Turkey 92. Azerbaijan 135. China 143. Russia 164. Ukraine End of corruption 10th less corruptive country, with just 3% of users paying a bribe to receive attention from in the past 12 months (Transparency International, 2010) Global corruption barometer ranking 1, Denmark (0%) 9. Switzerland (2%) 2. Norway (1%) 10. Georgia (3%) 3. United Kingdom (1%) 19. United States (5%) 4. Australia (2%) 49. Armenia (22%) 5. South Korea (2%) 54. Russia (26%) 6. Finland (2%) 61. Turkey (33%) 7. Germany (2%) 63. Ukraine (34%) 8. Netherlands (2%) 70. Azerbaijan (47%) 1 Between brackets it is in indicated the % of users paying a bribe to receive attention from in the past 12 months 7

8 3. Liberal trade regimes and immigration policies Low tariffs, streamlined border clearance procedures and preferential trade regimes with major trade partners Opened immigration policy for investors and workers in Georgia Foreign trade relations WTO Members USA, Canad a, Switzerla nd, Japan, Norway European Union CIS countries, T urkey On negotiation WTO member (since 2000). MFN Tariffs with WTO Members Georgia benefits from a Generalized System of Preferences (GSP) when trading with the USA, Canada, Switzerland, Japan and Norway; accordingly lower tariffs are applied on goods exported from Georgia to those countries GSP+ status with the EU allows Georgia to Export 7,200 products to the EU market duty free Free Trade Regime with Commonwealth of Independent State countries 1 and Turkey (since 2008) Georgia is actively working with the EU and the USA to promote free trade negotiations Main features of Georgian trade policy Low import tariffs (90% of goods free from import tariff) Few export/import licenses and permits No quantitative restrictions on import and export No customs tariff on export and re-export No VAT on export Simplified export and import procedures Main features of Georgian immigration policy No visa restrictions Citizens from Georgian main trade partners do not need a visa to enter and stay in Georgia for 360 days Georgian citizenship may be granted for certain relevant investors 1 Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia (currently limited), Tajikistan, Turkmenistan, Uzbe kistan, Ukraine (nonmember, but participant country) 8

9 4. Strategic geographic location Located at the crossroads of Europe, Central Asia, Middle East and Africa Key link in the shortest transit route between Western Europe and Central Asia for transportation of oil and gas as well as dry cargo European Union (~0.5 Billion people) Middle East (~0.3 Bln people) Africa (~1 Billion people) Asia (~3 Billion people) 9

10 5. Low taxes Georgian evolution of key business taxes Neighbor countries key business countries (2010) 3 VAT Income tax Attractive taxes, even when compared to other neighboring countries Reduced number of taxes (from 21 in 2004 to 6 currently) Corporate profit tax Divid. & interest income tax F Armenia Azerbaijan Turkey No payroll tax or social insurance tax No capital gains tax No wealth tax, inheritance tax or stamp duty Property Tax: only 1% Foreign-source income of individuals fully exempted figures includes the already non-existing Social Tax 2 12% Dividends, 10% Interests 3 Provided by external information and reports (not responsible for any recent changes of their tax laws or misunderstanding of their tax laws) SOURCE: TMF, Deloitte Guide on taxation and investment in Azerbaijan; Diverse Government reports 10

11 6. Low labor costs Georgia offers a great labor cost opportunity to potential investors. Its low GDP per capita makes Georgia one of the most cost labor attractive countries of the world Georgian relatively high unemployment rates, though not desirable, ensures labor availability and low costs sustainability for investors Country comparison GDP 2006 per capita 2007 (nominal) 2008 Country 2009 unemployment 2010 rate F Luxembourg 2013F Luxembourg 4.5% Qatar Qatar 0.5% UAE UAE 12.7% USA USA 9.2% France France 9.5% Germany Germany 6.0% UK UK 7.6% Poland Poland 9.2% Russia Russia 7.6% Turkey Turkey 9.9% Azerbaijan Azerbaijan 6.0% Rep. China Rep. China 4.1% Ukraine Ukraine 9.2% Armenia Armenia 7.0% Georgia Georgia 16.9% SOURCE: GDP International Monetary Fund (2010); Unemployment rate - Division of International Labour Comparisons, Eurostat and OECD ( ) 11

12 7. Georgia Help and Support Georgian National Investment Agency support Public agency responsible for promoting and facilitating foreign direct investment in Georgia Free services to investors, e.g. Arrangement of forms/ conferences Specific studies on Georgia s investment climate Sector specific information (including particular projects) Awareness creation of Georgia s potential Moderate role between foreign investors and the government Bridge between investors, foreign companies and Georgian companies Our Success is Your Success Attractive government incentives Georgian legislation offer many incentives to investors in Georgia in many sectors, e.g. Industry: Free Industrial Zones (later detailed) Tourism: Free Tourism Zones (later detailed) ICT: Tax incentives Agriculture: Tax incentives Energy: Licenses simplification Others. Ask for any potential incentive on your sector or for further details on the your sector of interest 12

13 8. Free Industrial Zones What is a Free Industrial Zone? A FIZ is a special tax benefit for investors to promote the inflow of capital and technologies to Georgia Type of Tax Corporate Income Tax Value Added Tax Free Industrial Zone 0% (int. companies) Free Warehouse Company 0% (from re-exporting of foreign goods) 0% 0% Customs Tax 0% 0% Property Tax 0% up to 1% Personal Income Tax 20% 20% Who can benefit from a Free Industrial Zone and how? FIZ may be set up on any territory exceeding 10 hectares, except for the protected territories under the Georgian Law FIZ may be set up By initiative of the Government of Georgia Upon request of a physical person or legal entity (organizer) The FIZ creation requires that the organizer presents a guarantee 1 Big tax exemptions 1 The amount and conditions of which shall be determined by a resolution of the Government of Georgia on the rules for crea tion, arrangement and functioning of a Free Industrial Zone 13

14 9. Free Tourism Zones What is a Free Tourism Zone? A FTZ is a special free package for investors that includes Land Hotel design projects Full engineering utility networks (water, electricity, gas) Corporate profit tax exemption for 15 years Property tax exemption for 15 years Mineral water pipe supply for the new resort Casino license for hotel capacity over 80 rooms Georgian citizenship Free package Who can benefit from a Free Tourism Zone and how? FTZ already exist in coastal cities of Anaklia and Kobuleti FTZ may only be set up by Government 14

15 10. Developing Infrastructure Gantiadi Flight: 5 airports; 3 of which international, with passenger direct connections to more than a dozen countries Average number of weekly international flights Sea: 3 sea ports in the Black Sea Road: +20,000 km of existing road Railway: +100 stations connecting the main business and population centers Main Road Network Russia Railway Railway under construction International Airports Zugdidi Roki Larsi Inoperative Airports Sea ports Kulevi Senaki Kutaisi Black Sea Poti Samtredia Terjola Khashuri Gori Tbilisi Bypass Telavi Batumi Akhaltsikhe Tbilisi Lagodekhi Sarpi Turkey Vale Akhalkalaki Partskhisi Ninotsminda Red bridge Kartsakhi Zhdanovi Guguti Sadakhlo Azerbaijan Armenia 1 Austria, Azerbaijan, Belorussia, China, Germany, Greece, Iran, Kazakhstan, Latvia, Russia, Turkey, Ukraine, United Arab Emira tes, United Kingdom 15

16 11. Young and well-prepared people Young population Description 4.4 million population (53% female and 47% male), with a younger population than in most developed countries Only 18% of population is +60 years old (e.g.: vs. 22% in EU-25 1) People in the 0-19 range age - future workforce - is 8 times bigger than people +80 years old - past workforce (e.g.: vs. 5.5 times in EU-25 1 ) Illustrative key indicator Georgian population breakdown by age, 2010 xx 1.1 Population, Million Population, % % 3% 27% 30% 25% Total Know-how Accumulated expertise on diverse sectors over the last decades (e.g. agriculture, textile and apparel, wooden sector) Investing on developing non-traditional sectors and helping investors train the workforce (e.g. employee free training 2 for new investors) Some historical Georgian know-how # tourists evolution 10,000 4, , , F Focus on the education of the future workforce 100% literacy rate National plans to have a high class education, e.g. Native English speakers in every school. Plan to bring +5,000 English native speakers to junior education IT classroom in every school. Currently 70% of school already have it (up from 25% in 2005) Enhancement of high level education (e.g. +82% annual increase in the number of post-graduates from 2006 to 2009) figures 2 Under certain agreed terms and conditions SOURCE: National Statistics Office of Georgia, European Commission Statistics Office, Number of post-graduate students evolution +82% per year , ,986 16

17 12. Diverse investment sectors Tourism Light Manufacturing Agriculture and food & beverage 100% hotel occupation in most of 2011 Diverse climate and economic conditions enable wide opportunities either in Tbilisi, on the seaside, or on spa and ski resorts Attractive incentives (e.g. Free Tourism Zones) Georgia has a rich history in apparel production dating back to Soviet times Available skilled workforce Already producing for international brands Attractive incentives (e.g. Free Industrial Zones) Real Estate ICT and many more! Climate conditions and fertile land Consolidation opportunity Big food (e.g., pig and cow farms) and beverage export potential (e.g., wine, water, and lemonades), as well as on scarce cold storage, greenhouse production, or wool opportunities Georgia is opened to you! Privatization of several state-owned properties located in the center of Tbilisi Real estate scarcity in the center of Tbilisi provides unique investment opportunities Georgia had a solid ICT industry and ICT professional during the USSR times Available skilled workforce Attractive incentives (e.g. tax reductions) Tourism, apparel and textile, agriculture, food and beverage, real estate, wooden sector, ICT, energy, banking, film sector, warehousing, home facilities and many more investment opportunities!! 17

18 12. Diverse investment sectors - Illustrative examples Tourism Apparel and textile Agriculture and food & beverage Real Estate ICT and many more! Georgia is opened to you! 18

19 Contact information George Tsikolia Deputy Director Tel: Zurab Zedelashvili Investment Projects Coordinator Tel: Georgian National Investment Agency Ministry of Economy and Sustainable Development of Georgia 12 Chanturia str Tbilisi, Georgia Tel:

Investment Climate & Opportunities in Georgia

GEORGIAN NATIONAL INVESTMENT AGENCY Investment Climate & Opportunities in Georgia May, 2011 Georgian National Investment Agency Georgian National Investment Agency was established in 2002 under Ministry