Georgian Economy Overview.

Transcription

1 Georgian Economy Overview

2 Area: Population (21): Life expectancy: Official language: Country Overview 69,7 sq km 4.4 mln 76 years Georgian Literacy: 1% Capital: Currency (code): GDP 21 (E): Tbilisi Lari (GEL) GDP real growth rate 21 (E): 6.5% GDP CAGR 3-1 (E) 4.9% GDP per capita 21 (PPP): US$11.1 bln US$5,57 Inflation rate (e-o-p) 21: 11.2% External Public debt to GDP 21: 37.2% 23 21(E) Nominal GDP (mln GEL) 8,564 21, GDP per capita (GEL) 1,972 4,647 Total budget revenues (mln GEL) 1,368 5,778 1

3 FC Sovereign Ratings Chronology In 6 October 21 Moody's Investors Service has assigned first-time Ba3/Not-Prime foreign and local currency issuer ratings to the government of Georgia. The outlook is stable. 2

4 Reform Driven Economic Success GDP Nominal GDP (US$bln) Real GDP growth, y-o-y (%) 16% 11.1% 12.3% % 9.4% 12% % % 6.5% 8% % 6.5% 4% 4.5% % -3.8% % -8% E 211F 212F 213F Source: National Statistics Office of Georgia-GeoStat, Ministry of Finance of Georgia Components of Nominal GDP (29) US$ GDP Per Capita (PPP) 6, 4,68 4,97 5,324 5,57 5, 4,754 4,41 4, 3,644 3,242 2,966 3, 2, 1, E 211F Source: International Monetary Fund Nominal GDP Per Capita Other 3.5% Public Administration 13.7% Agriculture 8.1% Trade 13.% Source: National Statistics Office of Georgia-GeoStat Healthcare & Education 9.9% Industry 7.% Construction 5.6% Transportation & Communications 9.7% Financial Intermediation 2.5% US$ 3,5 3, 2,5 2, 1,5 1, 5 2,921 2,315 2,819 2,455 2,521 1,764 1,484 1, E 211F Source: National Statistics Office of Georgia-GeoStat, Central Bank of Georgia 3

5 Fiscal and Monetary Performance Source: Central Bank of Georgia Georgia s Eurobond Price Yield Conventional Deficit (Cash Basis) 14.5 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan Exchange Rate Evolution US$/GEL (period average) 2.15 US$/GEL (e-o-p) Source: Central Bank of Georgia Consumer Price Index (y-o-y) 1% -1% -3% -5% -7% -9% -11% Budget Cash Based Deficit as % of GDP (21E) Initially Projected (29E) E 211F 212F 213F -2.3%.% -2.6% -4.5% -3.4% -2.5% -3.4% -4.8% -4.8% -6.% -7.4% -6.5% -9.2% Fiscal Stimulus 12% 1% 8% 6% 4% 2% % CPI (e-o-p) CPI (period average) 11.% 1.1% 11.2% 9.2% 8.2% 7.% 7.5% 9.2% 8.8% 7.1% 5.5% 6.2% 5.7% 4.8% 3.% 1.7% Source: Ministry of Finance of Georgia Source: National Statistics Office of Georgia-GeoStat Georgian Economy Overview 4

6 Fiscal and Monetary Performance Budget Revenue Performance General Government Expenditures (GEL mln) Total Budget Receipts (LHS) Tax Revenues as % of GDP (RHS) Expenditures (Capital + Current) Expenditures (Capital + Current) as % of GDP 1, 8, 6, 4, 2, - 3% 24.9% 24.5% 23.6% 24.4% 24.% 21.6% 19.2% 15.6% 17.1% 2% 12.% 1,66 2,562 3,386 4,62 6,198 7,651 6,76 7,552 7,456 7,834 4% 3% 2% 1% 1% % % E 211F 212F E 211F 212F 213F Source: Ministry of Finance of Georgia Source: Ministry of Finance of Georgia Capital vs Current Expenditures 33.7% 36.3% 37.2% 34.6% 25.8% 28.6% 31.2% 29.9% 27.5% 2.1% 16.9% 1,446 1,977 2,993 3,947 5,719 6,92 6,67 7,84 7,126 7,635 7,94 1, 8, 6, 4, 2, - 1% 8% 86.9% Capital Expenditures 78.5% 77.9% 77.7% 74.4% Current Expenditures 78.% 78.% 76.4% 79.% 76.3% 76.5% 6% 4% 2% % 21.5% 22.1% 22.3% 25.6% 22.% 22.% 23.6% 21.% 23.7% 23.5% 13.1% E 211F 212F 213F Source: Ministry of Finance of Georgia Georgian Economy Overview 5

7 Fiscal Performance - Closer Look Composition of 21 Budget Receipts and Deficit Financing Sources Grants 7% Other Revenues 6% Financial Assets 1% Taxes 64% Deficit Financing 21% Longterm funds on favorable terms IFI Funded Budget Support 46% IFI Funded Investment Projects 3% Privatization 12% Treasury Securities 11% 6

8 Tax Administration Compliance Facilitation and Services Robust e-filing and e-payment systems Unified Cards for Customs and Tax Liabilities Princple of Good Faith Special Treatment of Micro and Small businesses Electronic VAT Invoices Electronic Administration System Risk Based Selection of Taxpayers for Control Electronic Assignments for Tax Officers Electronic Performance Monitoring Risk Based Tax Audit Advance Ruling Accelerated Services Personal Tax Agent e-filing: Number of Registered Users Monthly Declaration Statistics Number of e-filings Number of hard copy declarations 25, 2, 15, 1, 5, - e-filing vs. hard copy declarations 15, 1, Number of Registered Users 1.% 8.% 6.% Share of e-filing Share of hard copy declarations 5, 4.% 2.%.% 7

9 Current Account Deficit Export and Imports* US$ mln 8, 7, 6, 5, 4, 3, 2, 1, 4, , , , , , , ,551.6 Imports of goods & services Exports of goods & services Remittances CAGR ( 4-9): 16% CAGR ( 4-9): 14% 5, , E 211F 212F *Export & import of goods and services Source: Central Bank of Georgia Current Account Deficit 5, , , ,21.6 6,61.5 6,6.3 6, , ,49.8 4,271.5 US$ mln Donor Inflows (DI) Total private capital inflows (TPCI) CAD CAD as % of GDP CAD + TPCI+DI as % of GDP 4, 3, , % 2, % 6.4% 6.8% 1, % 9.5% 11.% 1, % , , % 2, , , , % , , , , , -1,42.3-2, % -2, , -9.6% -11.1% -11.3% -11.8% -1.7% -1.1% -15.1% -3, -19.7% -22.8% -4, E 211F 212F Source: Central Bank of Georgia, Minister of Finance of Georgia 3% 2% 1% % -1% -2% -3% Georgian Economy Overview 8

10 Major Diversified Investment Inflows Net Cumulative FDI Breakdown by Origin ( 4-9) Net Inflows Country US$ mln Share in total UAE % UK % Netherlands % Turkey % USA % British Virgin Islands % Kazakhstan % Czech Republic % Cyprus % Bahamas % Subtotal 4, % Other 1, % Total 6,36 1.% US$ mln 3,5 3, 2,5 2, 1,5 1, 5 Net FDI (US$ mln) Other Capital Inflows, Net Net FDI as % of GDP 3,149 4% 2,763 35% 3% 1, ,585 25% 1,777 1,668 1,498 2% % 15.3% 12.2% % 1, % ,15 6.8% 52 7.% 1, % 8.8% 1% ,19 1, % 45 % E 211F Source: National Statistics Office of Georgia-GeoStat Source: National Statistics Office of Georgia-GeoStat Cumulative Net FDI Net FDI Breakdown by Sectors (29) US$ mln 1, 8, 6, 4, 2, Cummulative Net FDI, '4-'1 Cummulative Net FDI from 24 as % of GDP 64.9% 62.8% 59.2% 44.5% 4.7% 27.3% 8,25 7, % 6,36 5,72 9.4% 4, , E 211F Source: Central Bank of Georgia, International Monetary Fund 7% 6% 5% 4% 3% 2% 1% % Source: National Statistics Office of Georgia-GeoStat Georgian Economy Overview 9

11 Favourable Public Debt Performance 1% 8% 6% 4% 2% % Debt Indicators: Below the Prudential Thresholds Public Debt Stock Total Public Debt to GDP (%) External Public Debt to GDP (%) External Debt to GDP (%) 8.6% 87.6% 82.% 76.2% 7.9% 56.8% 6.9% 48.9% 41.2% 46.3% 46.9% 44.8% 41.8% 32.% 25.5% 31.2% 31.8% 37.2% 38.5% 36.6% 34.% 21.1% 16.8% 23.5% E 211F 212F 213F Source: Ministry of Finance of Georgia 7, 6, 5, 4, 3, 2, 1, US$ bln Comments Public debt enjoys low 2.1% average annual interest rate including Eurobond Georgia s public debt was 46.3% of GDP in 21 down from 58% in 23 Paris Club rescheduling in 21 and 24 Georgia repaid all debt to China in 26 and pre-paid all debt to Austria The external debt is all multilateral or bilateral and significant share is highly concessional Eurobonds debut issuance of US$5 mln in April 28 This explains why the government debt service burden is low Flat Repayment Profile: Government External Debt Service 2% as % of Exports as % of Budget Revenues Eurobond 19.% 15% US$ mln 1% 5% % 9.1% 8.8% 8.3% 7.1% 7.3% 11.% 4.7% 5.% 5.3% 3.4% 3.9% 6.4% 6.% 2.1% 4.6% 5.1% 4.6% 4.1% 4.1% 4.1% 3.2% 2.3% 2.6% E 211F 212F 213F 214F Georgian Economy Overview 1

12 Favorable Public Debt Situation Affordable Public Debt Stock and Very Low Interest Rate on External Public Debt (in million USD) External Public Debt by Interest Type: Interest Rate Risk Brought to a Minimum Domestic 1,11 21% External 3,754 79% Multilateral 57% Bilateral 12% Eurobond 1% Portfolio Average Weighted Interest Rate as of end-october % Variable 3% Fixed 7% Government External Debt Amortization Profile: Flat Trajectory, Easily Affordable Annual Repayment Volumes US$ mln OTHER LOANS IMF EUROBOND Refinancing limited to 213, the bulk of Gov t external debt owed to official development creditors on concessional terms 11

13 Dynamics of 28 Brussels Donor Conference Pledge ($4.5 billion) Implementation Brussels Pledge Update Public & Estimated Private Sectors Private Sector 21% Commitments by Sectors Various 6% Direct Budget Support 21% DISBURSED ~$2. Billion COMMITTED PLEDGED ~$4. Billion $4.5 Billion Urban and Municipal Infrastructure 1% Energy Infrastructure 13% IDPs 8% Transport Infrastructure 21% Commitments (signed) so far by Donors, Public Sector Operations EBRD 9% Japan EIB 7% 5% Other 1% ADB 17% WB 18% Key Facts As of end November 21, Georgia had entered into contractual commitments for and/or received up to 9% of the total Brussels pledge By end of H1 211, the Brussels Pledge to Georgia will likely have been processed in its entirety, with possibility of further upward adjustment in the outer months of 211 and beyond USG & EC 35% Germany 8% Absorption of committed funds into the economy will continue through next few years, boosting economic activity and generating jobs 12

14 Diversified Trade Structure WTO member since 2 Simplified customs regime since August 26, new customs code became effective in 27 and was upgraded in 29 No quantitative restrictions on trade Zero tariff on the majority of goods One of the two beneficiaries of the EU GSP+ Scheme in the CIS since 26, granting local companies the right to export 7,2 categories of goods duty-free Share of EU in exports up to 19% from 17% in 23 Georgia Turkey FTA was signed in 28 Promising Deep & Comprehensive FTA with the EU Export Structure* by Country, 21 Import Structure* by Country, 21 Germany 2.% Russia 2.2% Kazakhstan 3.% Canada 5.5% Ukraine 6.5% Armenia 1.1% Source: National Statistics Office of Georgia-GeoStat Source: National Statistics Office of Georgia-GeoStat Export Structure* by Product, 21 Import Structure* by Product, 21 Other nuts, fresh or dried 4.% Romania 1.8% Spain 2.1% Bulgaria 3.9% Copper ores 4.5% Fertilizers 4.6% Gold 5.4% Other 28.6% Beverages 3.4% United Arab Emirates 1.8% Copper waste and scrap 2.6% Belgium 2.7% Wine of fresh grapes 2.5% Source: National Statistics Office of Georgia-GeoStat * Export & import of goods only Ferrous waste and scrap 6.9% EU - 19% CIS - 41% Azerbaijan 15.4% Turkey 13.6% United States 11.4% Electrical energy 2.3% Bars and rods of iron or steel 2.2% Pharmaceutic als 1.9% Ferro-alloys 16.7% Vehicles 14.4% Netherlands Bulgaria 2.6% 2.% Romania 2.7% United Arab Emirates 3.1% United States 3.4% Russia 5.5% Vehicles 6.1% Fuel 13.6% Italy 2.6% Germany 6.5% China 6.6% Other 59.3% Kazakhstan 1.8% Azerbaijan 9.1% Pharmaceutic als 3.7% Wheat 3.4% Petroleum gases 2.6% Source: National Statistics Office of Georgia-GeoStat Japan 25.8% Electrical machinery & equipment 2.2% Tobacco 1.6% Ukraine 11.% Motor vehicles for the transport of goods.9% Structures of iron or steel EU - 28% CIS - 3% Turkey 17.4% Bars and rods of iron 1.1% Sugars 1.5% Manganese ores 1.1% Petroleum coke 1.% 1.% Data processing machines 1.% Georgian Economy Overview 13

15 Bilateral Treaties Georgia has bilateral treaties on investment promotion and protection with the following 32 countries 1. Armenia 7. Czech Rep. 13. Greece 19. Kuwait 25. Sweden 31. Uzbekistan 2. Austria 8. Egypt 14. Iran 2. Latvia 26. Turkey 32. USA 3. Azerbaijan 9. Estonia 15. Israel 21. Lithuania 27. Turkmenistan 4. Belgium 1. Finland 16. Italy 22. Moldova 28. Luxemburg 5. Bulgaria 11. France 17. Kazakhstan 23. Netherlands 29. UK 6. China 12. Germany 18. Kyrgyzstan 24. Romania 3. Ukraine Negotiations launched to conclude bilateral treaties with the following 24 countries 1. Bangladesh 6. Denmark 11. Korea 16. Portugal 21. Switzerland 2. Belarus 7. Iceland 12. Lebanon 17. Saudis Arabia 22. Syria 3. Bosnia & Herz. 8. India 13. Malta 18. Slovakia 23. Tajikistan 4. Croatia 9. Indonesia 14. Norway 19. Slovenia 24. Qatar 5. Cyprus 1. Jordan 15. Philippines 2. Spain 14

16 Double Taxation Avoidance Treaties Effective Rates of Source Taxation N Country Dividends Interests Royalties 1 ARMENIA 5% 5% 5% 2 AUSTRIA % / 5% Exempt Exempt 3 AZERBAIJAN 5% 5% 1% 4 BELGIUM 5% 5% 5% / 1% 5 BULGARIA 5% 5% 1% 6 CHINA % / 5% 5% 5% 7 CZECH REPUBLIC 5% 5% % / 5% / 1% 8 DENMARK % / 5% Exempt Exempt 9 ESTONIA 5% 5% 1% 1 FINLAND % / 5% Exempt Exempt 11 FRANCE 5% % / 5% Exempt 12 GERMANY % / 5% Exempt Exempt 13 GREECE 5% 5% 5% 14 IRAN 5% 5% 5% 15 IRELAND % / 5% Exempt Exempt 16 ITALY 5% Exempt Exempt 17 JAPAN 5% 5% % / 1% 18 KAZAKHSTAN 5% 5% 1% 19 LATVIA 5% 5% 1% 2 LITHUANIA 5% 5% 1% 21 LUXEMBOURG % / 5% Exempt Exempt 22 MALTA Exempt Exempt Exempt 23 NETHERLANDS % / 5% Exempt Exempt 24 POLAND 5% 5% 1% 25 ROMANIA 5% 5% 5% 26 SINGAPORE Exempt Exempt Exempt 27 TURKEY 5% 5% 1% 28 TURKMENISTAN 5% 5% 1% 29 UKRAINE 5% 5% 1% 3 UNITED KINGDOM % / 5% Exempt Exempt 31 UZBEKISTAN 5% 5% 1% Ratified Treaties (effectiveness pending) 1. Kuwait 2. Spain 3. Israel 4. Switzerland 5. Egypt 6. UK (Protocol) 7. Estonia (Protocol) DTA treaties with 13 other states initiated. Negotations to be held in the coming months. Awaiting Signing or Ratification 1. Qatar 2. UAE 3. Cyprus 4. Bahrain 5. India 6. Slovenia 7. Slovakia 8. Latvia (Protocol) 15

17 Domestic Debt Market Performance 6 Months T-Bills Discount Rates 12 Months T-Bills Discount Rates 6 Months T-bills 12 Months T-bills Discount Rate 14% 12% 1% 8% 6% 4% 2% 4.1% 6.9% 4.5% 9.3% 11.4% Discount Rate 16% 14% 12% 1% 8% 6% 4% 2% 8.5% 5.2% 7.7% 6.% 12.% 14.6% % % T-Notes Coupon Rates Cumulative Issuance by Instrument Coupon Rate 17% 16% 15% 14% 13% 12% 11% 1% 9% 8% T-Notes 14.3% 14.8% 15.6% 1.2% 1.3% Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 GEL mln T-Notes 12M T-Notes 6M T-Bills Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 16

18 Resilient Economy Central Bank Gross Reserves US$ mln 3, 2,5 2, 1,5 1, , , , , , ,52.9 FX Reserves in 27 FX Reserves in 28 FX Reserves in 29 FX Reserves in 21 Gross FX reserves increased due to US$5 mln debut Eurobond issuance ,19. 1, , , ,54.3 1,98.2 1,476. 2, , ,347. 1,53.4 1, ,22.7 1,41. 1, , , , , , ,361. 1, , , , , ,1. 2,91.2 1,51.4 1, ,3.5 2,143.4 IMF Stand-by Facility 1, , ,52.6 2, , ,48.2 2,19.5 2,265.4 jan feb mar apr may jun jul aug sep oct nov dec Source: Central Bank of Georgia Fiscal Revenue Performance GEL mln * Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * With the exception of the unique customs transfer Source: Ministry of Finance of Georgia 17

19 Resilient Economy, cont d Central Bank Gross FX Reserves 3, 2,5 2, GIR 4 Months GNFS Imports Line US$ mln 1,5 1, Monthly TICEX Trading Volume Jul-7 Aug-7 Sep-7 Oct-7 Nov-7 Dec-7 Jan-8 Feb-8 Mar-8 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 US$ mln Source: Central Bank of Georgia Central Bank Involvement in FX Market Central Bank Monthly Net Interventions In 29 gross FX reserves increased by US$629 mln Source: Central Bank of Georgia 18

20 One Of The Best Low-Tax Jurisdictions 4A 5A 6A 7A 8A 9A 1A 11F 12F 13F 14F Number of Taxes VAT 2% 2% 18% 18% 18% 18% 18% 18% 18% 18% 18% Income Tax 12-2% 12% flat 12% flat 12% flat Social Tax + Income Tax 32% 25% Social Tax + Income Tax 2% 2% 2% 2% 18% 15% Social Tax 33% 2% 2% 2% Corporate Profit Tax Dividend & Interest Income Tax 2% 2% 2% 2% 15% 15% 15% 15% 15% 15% 15% 1% 1% 1% 1% 1% 5% 5% 5% 5% 3% % No payroll tax or social insurance tax No capital gains tax No wealth tax, inheritance tax or stamp duty Foreign-source income of individuals fully exempted Tax rates reduction timetable has been further accelerated in 28 19

21 Special Taxation Regimes Adopted Special taxation systems have been adopted for the different regimes aimed at establishing new international financial institutions in the country, encourage economic growth, support sustainable development and the trade-transit function of Georgia Type of Tax An International Financial Company Corporate Income Tax (from financial services) % Free Industrial Zone (for International Companies) % Free Warehouse Company (from re-exporting of foreign goods) % Value Added Tax % % % Customs Tax %, 5% or 12% % % Property Tax up to 1% % up to 1% Personal Income Tax 2% 2% 2% Georgian Economy Overview 2

22 Banking Sector Resilient Total Bank Deposits and Loans Capital Adequacy Ratio (CAR) GEL bln Total Bank Deposits Total Bank Loans % 2% % 1% 2 1 5% % Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-3 Jun-3 Sep-3 Dec-3 Mar-4 Jun-4 Sep-4 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Source: Central Bank of Georgia Source: Central Bank of Georgia Remittances NPLs as % ot Total Loans IMF GFSR 21 1, Remittances E 211F United States Georgia Hungary Bulgaria Croatia Ireland Romania Latvia Lithuania Ukraine 5.5% 7.% 7.8% 7.8% 8.8% 1.4% 17.5% 17.9% 19.2% 41.6% Source: National Statistics Office of Georgia-GeoStat % 5% 1% 15% 2% 25% 3% 35% 4% 45% Georgian Economy Overview 21

23 Resilient Banking Sector cont d Non-Deposit Funding Structure Domestic Borrowing 5% Borrowing from Non-Resident Parent Banks 8% Borrowing from IFI's 4% 15% 1% 5% Profitability has Recovered as Measured by ROE % -5% Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Equity Capital 4% Private External Sources 6% -1% -15% Bank Assets Are On The Rise Bank Deposits Have Grown Beyond Pre-Crises Levels Total Assets (eop) % change y-o-y Deposits (eop) % change y-o-y 1% 8% 6% 4% 2% % -2% 35.3% 8.3% 84.2% 75.% 58.4% -12.6% 25.9% 12, 1, 8, 6, 4, 2, GEL million 7% 5% 3% 1% -1% -3% 4.4% 35.4% 14.7% 57.2% 34.9% 72.4% -16.% 59.3% 6, 5, 4, 3, 2, 1, GEL million 22

24 Resilient Banking Sector cont d Dhabi Group Comments Georgia s banking sector represents only a moderate contingent liability of the sovereign Entirely privately owned since 1995 No restrictions on foreign ownership of banks Well capitalised with average BIS capital adequacy ratio of 24% (18% local standards) World s Top Ten Saving Nations: Household Savings as % of Disposable Income China Singapore Hong Kong Algeria Uruguay Ecuador Kuwait Georgia UAE Azerbaijan Source: Euromonitor International Georgian Economy Overview 23

25 Spinal Infrastructure Projects for Higher Connectivity and Better Networking Energy Infrastructure Black Sea 5 kv. Regional Power Transmission Line US$ 35 mln HPPs Khudoni, Namakhvani, Oni Underground Gas Storage Facility FIZ Trade and Logistics Infrastructure Poti FIZ Kutaisi FIZ Railway Infrastructure Tbilisi By-Pass Project US$ 27 mln High Speed Railway Project Kars Railway (Georgia-Turkey Connection) Roads Infrastructure East-West Highway Improvement Project upto US$1 bln Adjara Bypass Road US$ 24 mln Vaziani-Gombori-Telavi Road US$ 3 mln South Georgia Road US$ 2 mln Secondary and Local Roads US$ 7 mln Communal Infrastructure Rehabilitation of Communal Infrastructure Facilities in Major Cities Regional and Municipal Infrastructure Development Fund Projects US$ 5 mln Water and Sanitation Restructuring (Ltd. East Georgia & Ltd. West Georgia) and Rehabilitation US$ 6 mln Irrigation Social Infrastructure Secondary Schools Primary Healthcare Hospitals 24

26 Secured Energy Supply 1 year gas supply contract with Azerbaijan 2 year gas supply contract with Shah Deniz Transit role for oil & gas pipelines and railway On avg. 6-8 mln and 55 mln tons crude oil p.a. by railway and via pipelines, respectively Circa 1.6% of world oil production On avg. 8 bcm gas p.a. via pipelines White Stream (proposed) The only country in the region (which doesn t have its own gas resource) that was not effected by gas crises in January 29 NABUCCO/White Stream Project NABUCCO financing secured already by 5% through EU, EIB, EBRD, and IFC funding Georgia/Romania/Azerbaijan MoU for transportation from Caspian via Black Sea to Europe of LNG AGRI Project 25

27 Net Electricity Exporter with Significant Export Expansion Capacity tw/h Net Electricy Exports: Fast-growing Source of Export Revenues Net Exports Huge, rapidly growing consumption rate and high tariffs on the Turkish electricity market expandable to Iraq, Syria and EU countries Net electricity exporter in all four neighboring countries since 27 Net exports for 21 (1 TWH) 5 times higher compared to Year 27, aiming to double by 213 (2 TWH) New hydro projects awarded with installed capacity of 2 MW and potential export capacity of 6 TWH by 218 Construction of 5 and 154 KV power transmission line to Turkey Additional new 5 KV interconnection to Turkey is under negotiation 5 new HPP projects under construction with installed capacity of around 17 MW (7MW, 46 MW, 78 MW, 5 MW and 36 MW), additional 2 MW of installed capacity to be assembled until 218 (Namakhvani, Khudoni, Nenskra etc), boosting annual exports to $3 million by 218 Huge untapped hydro resources Only 18% of the country s hydro potential utilised so far Once all three electricity lines are operational, total transmission capacity to Turkey will reach more than 2 MW - 15 times more than current capacity 26

28 Diversification of Agriculture Export: New Markets for Traditional Export Products Geographical Distribution of Wine Export in 25: before Russian Embargo Ukraine USA Others Azerbaijan Litva Kazakhstan Geographical Distribution of Wine Export in 29: Substantial Diversification Benefits Achieved USA Others Azerbaijan DIVERSIFICATION Kazakhstan Litva Russia Geographical Distribution of Mineral Water Export in 25: before Russian Embargo USA Others Azerbaijan Belarus Ukraine Kazakhstan Latvia Ukraine Geographical Distribution of Mineral Water Export in 29: Substantial Diversification Benefits Achieved USA Others Azerbaijan Belarus DIVERSIFICATION Kazakhstan Russia Ukraine Poland Latvia 27

29 Shifting Towards Sustainable External Position Georgia s Competitive Edge According to the IFC Some of the Most Promising Sectors with Large Export Potential and Job Generation Capacity WINE, NUTS, FRUIT, VEGETABLES AND HERBS Ideal growing conditions for wide range of grapes, fruit and vegetables Georgia already ranks among top 5 global exproters of Nuts Competetive factor costs Proximity and duty-free access for serving EU and CIS markets Large base of people with experience in sector PHARMACEUPTICALS AND MEDICAL SERVICES Large and growing regional market in Caucasus and Central Asia, with virtually no local medical manufacturing capacity 3 Existing manufacturers Good location and skill base, low labor costs and strong business environment LOGISTICS / TRANSPORT SERVICES Natural entry/exit point between Caucasus, Central Asia and rest of world Logistics and transport services hub for the region: inbound/outbound shipping, rail and road services; aircargo hub; transshipment and intermodal hubs, etc APPAREL Very competitive factor costs: wages, real estate, transport, taxes and business environment Transport links and GSP+ access to EU, world s largest apparel market Educated workforce with experience in apparel industry CONSTRUCTION MATERIALS Low labor costs Raw material supply Large and growing regional market Excellent transport links with neighbouring countries PRIMARY PROCESS INDUSTRIES Oil and gas pipelines, energy supply, mineral deposits, existing metallurgy cluster Favorable business environment Position as gateway to/from Caucasus/Central Asia 28

30 Georgia, the Increasingly Global Tourism Destination 2,, 1,8, 1,6, 1,4, 1,2, 1,, 8, 6, 4, 2, - Rapidly Growing Tourist Arrivals Annualized Rebranding Georgia as tourism destination on international arena and transforming Georgia into regional tourism hub in the Caucasus Growth effects of the domestic road interconnectedness compounded by vertical approach to the revival of Georgia s traditional tourism hubs (Tbilisi, Mtskheta, Batumi, Bakuriani, Gudauri etc.) and (re)discovery of new promising destinations (Svaneti, Anaklia, Signaghi, Kvareli etc.) capable of providing tremendous lasting boost to sea and mountain tourism, to wine tours and green tourism. Domestic tourism development area with significant unexplored growth potential Kobuleti and Anaklia Free Tourism Zone (plot of land for symbolic GEL 1 price, customized profit and property tax exemptions) Cultural sites inscribed on the UNESCO World Heritage List 29

31 Top Reformer Over the Past 5 Years According to the World Bank IFC Doing Business Report Source: World Bank, Doing Business 211 3

32 One of Few Best Business Climates in the World Source: World Bank, Enterprise Surveys 31

33 One of the Best Performer by Forbes Tax Misery & Reform Index According to 29 Tax Misery & Reform Index, release by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong Source: Forbes Business & Financial News 32

34 Reforms Creation of Favourable Market Environment UK USA Norway GEORGIA Estonia Armenia Bulgaria Azerbaijan Romania Kazakhstan Turkey Montenegro Belarus Serbia Russia Ukraine Ease of Doing Business, 211 Economic Freedom Index, 21 USA UK Estonia (up from 112 in 25) GEORGIA 26 (up from 99 in 25) Source: World Bank, 211 (Rank out of 183 countries) Latvia Hungary Romania France Turkey Italy Bulgaria Kazakhstan Azerbaijan Russia Ukraine Source: The Heritage Foundation, 21 (Rank out of 183 countries) Global Corruption Barometer, 29 (EU, Selected Countries & Georgia) Bertelsmann Transformation Index, 21 Denmark Finland Netherlands Austria Switzerland Norway GEORGIA Spain United Kingdom Luxembourg Czech Republic Portugal Iceland Israel Poland 1 Estonia 3 2 Lithuania 1 3 Latvia 13 4 GEORGIA 42 5 Ukraine 66 6 Kazakhstan 72 7 Moldova 79 8 Armenia 85 9 Kyrgyzstan 1 91 Azerbaijan Russia Belarus Tajikistan Turkmenistan 119 Low Corruption High Uzbekistan 124 Source: Transparency International, 29 (Rank out of 69 countries) Source: Bertelsmann Stiftung, 21 (Rank out of 125 countries) 33

35 Fundamental Policies: What We Believe In The rule of law & property rights Minimal state fiscal footprint Few, low and flat taxes Minimal social security burden on businesses Sound money Inflation targeting, single-digit inflation Free trade, no customs tariffs or non-tariff barriers Flexible labour market, with minimal state interference in employer-employee relations Limited government Deep de-regulation Dramatically minimized and simplified licensing Aggressive privatisation Means-tested, focused state assistance to the poor Lean and efficient civil service sector providing value for taxpayers money Georgian Economy Overview 34

36 What We Believe In: Ensuring No Policy Drift The government submitted to Parliament the constitutional Law on Economic Liberty, Opportunity and Dignity (the Liberty Act) The Liberty Act will contain a coherent package of bold measures to constitutionally enshrine our basic policies, reassuring investors that no policy reversal or policy drift is possible Returning to citizens to the power to tax no new taxes or tax rate increases without a nationwide referendum Fiscal responsibility Government expenditure capped at 3% of GDP Budget deficit capped at 3% of GDP Government debt capped at 6% of GDP No budget earmarks No restrictions on currency convertibility or repatriation of capital & profit Has been the case in Georgia since 1995 Ban on state ownership of banks and on the imposition of price controls No state-owned banks since 1995 and no price controls since the early 199s Ban on an increase in the number of licenses and permits Ban on an increase in the number of state or independent regulators Currently, independent regulators exist only in financial services, communications and utilities Means-tested assistance rendered through vouchers and other ways that empower citizens and give them choice (in healthcare, education, etc), rather than by funding directly state-owned service providers 35

37 Contacts Nika Gilauri Prime Minister of Georgia Vakhtang Lejava Chief Advisor to the Prime Minister 36