More Market Opportunities: The Country of Georgia

by Elshan Baloghlanov

Thank you Georgia Ambassador to the U.S. David Bakradze (pictured), who recently spoke at Global Chamber®. We were inspired to write this backgrounder article on opportunities for companies in Georgia. While the entire Black and Caspian Sea region is thirsty for investments, technology, know-how, goods and services, Georgia has a special place in terms of transparency and ease of doing business, including: 

Competitiveness and economic reforms of Georgia are reflected in its rankings by reputable international organizations. Since 2003, the World Bank has recognized Georgia as one of the world’s fastest-reforming economies and as a leader in fighting corruption. Georgia ranks 9th in the 2017 World Bank’s Ease of Doing Business Index, 13th in the 2017 Economic Freedom Index, and 59th out of 128 global economies in the Global Competitiveness Report. Georgia has the lowest corruption rate in the region, according to Transparency International, and international credit rating agencies (Fitch, Moody’s Investors Service, and Standards and Poor’s) rated Georgia as a stable country.

Private-sector and export-oriented national economy and trade agreements concluded with EU, Turkey, CIS and select countries in the Middle East allow duty-free access to a wider marketplace of about 900 million. In addition, Georgia is a beneficiary of GSP program, a preferential tariff system with U.S., Canada, Japan, Norway and Switzerland. The Association Agreement signed between Georgia and the EU provides Georgian producers with access to the EU’s single market of 28 countries in Europe. To make full use of opportunities under the Deep and Comprehensive Free Trade Agreement (DCFTA), local businesses need to take steps to improve their competitiveness by, for instance, upgrading their production processes, technology and equipment.

Diverse export portfolio of Georgia — with its signature and natural products, including wine, hazelnuts, walnuts, citruses, fruits, beef and lamb — successfully being exported to worldwide markets. Traditionally, Georgia has strengths in producing and exporting wine and other alcoholic and non-alcoholic beverages. Georgia also serves as a transit country for exporting energy resources of its immediate neighbor Azerbaijan to Turkey, European Union and Israel. According to national trade statistics of 2017, Georgia’s main export markets are Russia (9.8 percent), Turkey (8.2 percent), China (8.0 percent), Bulgaria (7.9 percent) and Azerbaijan (7.3 percent), whereas Georgia’s main sources of imported goods are Canada (18.2 percent), Turkey (13.7 percent), Ireland (8.6 percent), Russia (6.9 percent) and China (5.6%). 

Georgia is currently producing apparel for renowned brands that include Moncler, Tommy Hilfiger, Zara, Marks & Spencer, Koton, Puma, Mexx, Next, Lotto, Per Una, Autograph, Lebek, Hawes & Curtis and Roberto Cavalli.

U.S.-Georgia Bilateral Trade

From the bilateral trade perspective, Georgian exports to U.S. in 2017 consisted primarily of metals, petroleum, apparel, and food and beverage products. U.S. exports to Georgia included transportation, construction and agricultural machinery and equipment, and computer and electronics, as well as agricultural products, and alcoholic and non-alcoholic beverages. There is ample room for U.S. and Georgian companies to grow trade turnover by investing in the logistics chain and offering innovative financing options.

Getting Goods In and Out

Georgia serves as a transit country, for the flow of both passengers and goods, connecting the Caspian and Central Asia region with Europe. You may wonder how to get goods in or out of Georgia. Here are the options:

Getting goods by air — Tbilisi International Airport (TBL) regularly receives passenger and cargo flights from major international airports. There are no direct flights connecting Tbilisi to any North American destinations at present. However, Lufthansa, Turkish Airlines and Qatar Airways conduct regular passenger and cargo flights to and from Tbilisi. On the other hand, Silkway Airlines — with direct flights to New York’s JFK and Chicago O’Hare airports, to Georgia’s Tbilisi, as well as to Central Asia, Europe and the Middle East — may be a compelling reason for U.S. businesses to consider the development of an airborne logistics chain together with business partners in Georgia, a very crucial linkage for the growth of global trade and for transportation of U.S. or Georgian origin high value goods and other just-in-time deliveries.

Getting goods by sea, rail and road — You can ship or receive your goods by sea from any major U.S. seaport and receive or dispatch them from Poti Port of Georgia, a major seaport and harbor off the eastern Black Sea coast. The capacities of the Poti Port have increased with the operation of road and railroad ferry terminals. The Baku-Tbilisi-Kars, the railway line launched in 2017, is a transport interconnection channel among the European Union, Azerbaijan, Georgia and Turkey and linking them with Central Asia and China by rail and sea. In late 2017, a goods train took only 18 days to travel from China via Kazakhstan, Azerbaijan and Georgia to Istanbul in Turkey — considerably less time than a journey by sea. According to the Transportation Minister of Turkey, the BTK railway route is the shortest way to deliver cargo from Russia to countries in Africa and the Middle East. Currently, Turkey exports construction materials, detergents, food and agricultural products via the BTK to Azerbaijan, Georgia, Uzbekistan, Turkmenistan, Kazakhstan, Kyrgyzstan and Russia, while importing mainly grain, iron and zinc.

Opportunity to ship goods in a timely and cost-effective fashion by air, sea, rail and road via interconnected regional seaports and rail networks between China and Europe and a transport corridor throughout Georgia, as well as four free-trade zones offers a viable option for U.S. investors looking at Georgia as a high-value destination.

Incentives by the Government of Georgia

The Government of Georgia offers different financing packages and incentive programs that might draw the interest of U.S. businesses. Enterprise Georgia encourages and promotes the concept of «Produced in Georgia» and provides information support, investment and export facilitation, as well as training services. It also provides access to low-interest rates in the range of 1 to 3 percent for business expansion, new production and long-term debt or leasing options with a collateralization requirement of less than 50 percent of property value.

Georgia’s state-owned Partnership Fund offers co-investment options from 25 to 75 percent of the investment project value and with required minimum of 17-percent IRR in projects related to energy, agribusiness, hospitality and tourism, manufacturing, and infrastructure and logistics. The Fund is always in search of experienced business partners and industry-specific management firms committed to participating in long-term, commercially viable projects. The Fund invests primarily in the form of equity and mezzanine, and less so in debt financing. On the other hand, the U.S. offers a great amount of knowledge, resources and expertise that can help Georgia in the development of joint business ventures on a public-private partnership (PPP) basis. Energy projects, Transportation and Logistics are very promising areas for PPPs with the Fund, which is a very essential instrument in attracting foreign direct investments into Georgia.

Incentives Available in the United States

Georgia needs U.S. investment, technology and know-how to increase business productivity, quality and safety of products and in developing new products to substitute imports and increase exports, especially since U.S. businesses offer a wide range of solutions for all sectors of economic activity in this regard. The U.S. business ecosystem, with its public and private participants, offers many opportunities for locals and foreigners doing business with Georgia; access to U.S. capital, export credit and insurance, cross-border lease and financing, as well as skills, knowledge and technology transfers are available for businesses in both countries.

The U.S. government’s Overseas Private Investment Corporation(OPIC), U.S. ExIm Bank, SBA’s International Trade Office and select private U.S. companies, as well as multilateral organizations with a presence in Washington, D.C. — like the World Bank’s MIGA, Europe’s EBRD and Asia’s ADB — offer innovative financial solutions to support private investors in emerging markets. Financial products include debt financing, insurance and support for private equity investment funds, and offer attractive financing and risk-management solutions against the loss of assets, income and property, and other headaches in global trade and cross-border investments.

Over the past two decades, OPIC has invested $579 million in 54 business projects in Georgia, including financial sector, microfinance, education, tourism and hotels, food services, healthcare, and agriculture. While, currently, OPIC’s investment portfolio in the country is about $145 million, another $277 million of U.S. funds is in the pipeline. OPIC is not only mandated to lend capital, but also authorized to provide skills, knowledge and technology transfers for businesses overseas. To increase this number, OPIC needs strong ties between U.S. and Georgian businesses.

Opportunities in Agriculture and Food production

Georgia is traditionally an agricultural country. It’s climatic diversity — 22 micro-climates varying from cool and dry to warm and humid — provides the perfect environment for cultivation of a wide range of crops. These diversified micro-climates allow for a longer than normal harvesting season and a wide range of growing conditions. Agricultural processing, including food and beverage, is increasing rapidly, with many food products intended for internal consumption and export to CIS and EU countries. There is great demand for food processing and packaging means in many market segments, especially for small and mid-sized companies dealing in meat, dairy, fruit and vegetables. There is also huge demand for modern and efficient farming techniques, agricultural machinery, mechanization (tractors and other implements), fertilizers and agricultural financial services such as crop insurance and agro-leasing services; all present opportunities for foreign investors.

Opportunities in Renewable Energy

Hydropower and solar technologies as well as hybrid mini-grids that the U.S. offers can improve energy access and provide energy continuity for small, medium and large energy needs of Georgia. Georgia is surrounded by countries with projected structural power deficit (e.g. Turkey, southern Russia) or expensive power generation, opening up attractive export opportunities for U.S. companies. Cost of hydropower energy production is very competitive in the region. Georgian government offers 15-year Power Purchasing Agreements for eight months annually (September through April) where the average cost is USD 5.5 cents per kilowatt-hour.

Georgia, with its 300 rivers suitable for energy production, is one of the top countries in water resources per capita, and second in Europe by volume of water reserves. At present, only 20 percent of total hydro potential is utilized by large- and small-scale power producing companies. Renewable projects of Georgia operate on the Build-Own-Operate (BOO) model.

Risks, Concerns and Challenges

Along with those opportunities for cross-border trade and investment come some challenges. Differences in laws and regulations, and cultural, language and trade barriers are the primary reasons U.S. companies may hesitate about expanding sales or investments into foreign markets.  The opportunities in Georgia and the region outweigh the challenges. We encourage you to contact us and the Global Chamber to reduce risk and increase success.

Elshan Baloghlanov is, managing director of WCC International.

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