Bsef2012 session1 investment_climate_pertaia

Georgian National Investment Agency(GNIA)

2012

www.investingeorgia.org 2

Content

• GNIA - Who we are

• Why to invest in Georgia

• Investment opportunities in Georgia

• What you can get from GNIA


GNIA – Who we are

• “One-stop-shop” for investors

• Moderator between Investors,

Government and Local Companies

• State agency

– Promoting Georgia internationally

– Supporting foreign investments and investors

before, during & after investment process

LocalCompanies

Investors

GovernmentGNIA

Mission - Attracting Greenfield and M&A Investments

Why Georgia is differentGeorgia’s transformation into the Rapidly Developing Economy implied several key sets of reforms

Business friendly environment with low levels of taxation, simple and fair tax administration Efficient, pro-business and corruption-free government No criminal Solid sovereign balance sheet Stable and conservatively managed banking sector Multi-modal maritime, land and air access infrastructure for trade, logistics and

manufacturing Stable and competitively priced energy supply Flexible labor legislation

Real Political Will - It took us 8 years – 2004-2011 to tick all boxes on the checklist. Reforms have been implemented and institutionalized to preclude policy drifts and to anchor Georgia’s liberal economic paradigm to the solid set of legal norms, values and principles.

Number 1 Reformer in the world over the past 5 years – World Bank


Georgia - Sovereign Credit Ratings

BB- Stable(Upgraded from B+

Positive in November 2011)

BB- Stable(Upgraded from B+

Positive in December 2011)

Ba3 Stable(Affirmed in August

2012)


Doing Business in Georgia

Ease of Doing Business Index Of Economic Freedom

Singapore

United Kingdom

Germany

France

Armenia

Turkey

Russia

147

1619

2429

3355

6671

91120

Source: World Bank, 2012 (Rank out of 183 countries)

Hong Kong

United Kingdom

Germany

Armenia

France

Azerbaijan

China

19

162023

2936

476467

92124

135143

Source: The Heritage Foundation, 2011(Rank out of 183 countries)

Up from 112 in 2005 Up from 99 in 2005


Country's impressive progress in improving business climate has been well

documented in a number of international indices.


Corruption Free CountryGlobal Corruption Barometer

Denmark

UK

Netherlands

Germany

United States

Austria

Armenia

0%1%1%

2%2%2%2%

3%5%

7%9%9%

22%26%

Source: Transparency International, 2011 (Rank out of 183 countries)

Percentage of users paying a bribe to receive attention from in the past 12 months

Georgia today is essentially a corruption-free investment destination where rule of law have been given the right way

% of survyed who claim that the level of corruption has decreased in the past three years

% of survyed who assess their current government's action as effective in the fight against corruption

3%

26%

16%

35%

78%

77%

Georgia Western Balkans+Turkey EU

2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012F 2013F0

1,0002,0003,0004,0005,0006,0007,000

2,966 3,242 3,644 4,0404,677 4,906 4,767 5,064 5,491 5,929 6,388

919 1,188 1,484 1,7642,315

2,921 2,455 2,6233,215 3,549 4,007

GDP per capita (PPP) Nominal GDP per capita (US$)

US$

2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012F 2013F0

4

8

12

16

-6%-3%0%3%6%9%12%

4.0 5.1 6.47.8

10.212.8

10.811.6 14.4

15.917.911.1%

5.9%

9.6%9.4%

12.3%

2.3%-3.8%

6.3% 7.0% 6.0% 6.5%

Nominal GDP (US$bln) Real GDP growth, y-o-y (%)

Steeper Than Expected Growth TrajectoryBroad-based and diversified nominal GDP structure 2011Source: Geostat, MOF, IMF

Source: Geostat

Source: Geostat, MOF

Economic Structure and TrendsRapidly growing GDP per capita – PPP and NominalGDP: strong rebound in 2010 after a relatively small contraction

in 2009, robust growth potential

Initially planned at 5.5%, Georgia’s real GDP growth for 2011 was 7%, driven by strong real and financial sector activity, robust tax intake, and reassuring proxy indicators to economic activity

2011 outcomes: Tax collection increased 26% y-o-y VAT turnover increased 26% y-o-y Commercial bank lending to the real sector increased 24% y-o-y Trade turnover increased 36% y-o-y

Manufacturing 17.3%

Trade 17.3%

Public Administration 11.7%Transport & Communications

10.6%

Agriculture 9.3%

Healthcare & Social Assistance 6.1%

Construction 6.2%

Education 4.5%

Other sectors 16.9%


• Highly diversified trade structure

• Preferential Trade Regimes: FTA with CIS countries: Ukraine, Belarus, Azerbaijan, Armenia, Russia, Moldova, Kazakhstan,

Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan FTA with Turkey DCFTA with EU will be signed next yearNegotiation on FTA with USA is in progressGSP+ with EU - 7200 products to the EU market duty freeGSP with USA, Norway, Switzerland, Canada, Japan - lower tariffs are applied on 3400 goods

exported from Georgia to these countries

• Very simple and service oriented customs policy and administration – Custom clearance in 15 min

• Almost no custom duty - 90 percent of goods free from import tariffs

• No quantitative restrictions

Trade: liberal regimes & diversified structure



Market Access

Population - Georgia 4,5 millionExisting FTA +350 millionDCFTA + 0,5billionTotal ~ 0.9 billion

‘04 ‘05 ‘06 ‘07 ’08 ‘09 ’10 ‘11 ‘12

Number of Taxes 21 7 7 7 6 6 6 6 6

VAT 20% 20% 18% 18% 18% 18% 18% 18% 18%

Income Tax 12-20% 12% flat 12% flat 12% flatSocial Tax + Income

Tax 32% 25%

Social Tax + Income Tax

20%20% 20% 20%

Social Tax 33% 20% 20% 20% - - - - -

Corporate Income Tax 20% 20% 20% 20% 15% 15% 15% 15% 15%

Dividend & InterestIncome Tax 10% 10% 10% 10% 10% 5% 5% 5% 5%

No payroll tax or social insurance taxNo capital gains taxNo wealth tax, inheritance tax or stamp dutyForeign-source income of individuals fully exemptedTax rates reduction timetable was further accelerated in 2008Very strong political commitment to low and simple taxation and improvement of servicesDouble taxation avoidance treaties with 40 countries

Taxation is simple, low, efficient and fair


According to 2009 Tax Misery & Reform Index, released by Forbes Business & Financial News, Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong

Since 1 January 2009,

income tax declined to 20% from

25%

Forbes Tax Misery & Reform Index


World's leader in labor freedom

2005 2006 2007 2008 2009 2010 2011 201260.0

70.0

80.0

90.0

100.0

110.0

Georgia - one of the most liberal labor environments (3rd best globally), according to the Heritage Foundation, 2012

Frontier Markets avg

GeorgiaGreater Labor Freedom

Source: MOF and Heritage Foundation, 2012

• No minimum wage regulations

• Young labor – 50% of unemployed population are aged between 20-34

• Average monthly salary – 410 USD



Foreign Direct Investment• Strong and Rising FDI Stimulates Economic Prosperity• Key Industries Benefit from FDI• Reinvestment 30% (2011)• Georgia has bilateral treaties on investment promotion and protection with the 32 countries (negotiations launched

with 24 countries)

Energy; 18%

Other sectors; 17%

Financial sector; 15%

Consultancy; 12%

Manufacturing; 11%

Transport and Communication;

11%

Real Estate; 8%

Construction; 4% Mining; 4%

2003 2004 2005 2006 2007 2008 2009 2010 20110

500

1000

1500

2000

2500

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

340 499 450

1190

20151564

658 8141117

8.5%9.7%

7.0%

15.3%

19.8%

12.2%

6.1% 7.0%

7.8%

FDI FDI as % of Nominal GDPFDI/GDP ratio compares favorably with peersFDI Breakdown by sectors 2011


Investment Opportunities in Georgia

Hydro Power Hub

Tourism

Industries

Regional Logistics Corridor

Agriculture and Agribusiness

Regional Services Hub


Industries• Largest industries are food and beverages (23%) and metal products (19%)• Advantage to process goods - competitive cost of power, labor and strategic location• 2 Free Industrial Zones - In FIZ, businesses are exempted from all tax charges except Personal

Income Tax

Poti

Batumi

ArmeniaAzerbaijan

Russia

Turkey

Black Sea

Kutaisi

MRNRailway

Kulevi

Tbilisi

FIZFIZ

2 Free Industrial Zones (FIZ)Opportunities:• Food processing

• Construction materials

• Wood and Furniture

• Household goods

• Etc.Success stories:

Knauf , Embawood, Fresh, Caparol, Effes, Heidelbercement, etc.

Mestia


2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

560983 1,051

1,2901,500

2,033

2,822

3,600

4,500

0.355333333333333

0.388096409247418

0.275690999291283

0.25

Tourism

Number of visitors are increasing rapidly and it will reach 3.6 mln in 2012


TourismFast growing sector▪ Georgia attracts visitors mainly from neighbors: Turkey (26%), Azerbaijan (25%), Armenia (25%), Russia (10%)▪ Average stay ~ 5 nights / Average spend of USD 1,500▪ Already operating hotels - Sheraton, Radisson, Marriot, Holliday Inn, (under construction - Cempinski, Hillton) etc.▪ Overall capacity of < 10,000 rooms

Potential▪ Youth Olympics in 2015▪ Free tourism zones – Free land, master plan and tax exemptions▪ Availability of gambling business – gaming is partially or completely banned in Russia, Ukraine, Azerbaijan, Kazakhstan,

Turkey, Israel, Iran, Iraq▪ 8 national parks▪ 2400 springs of mineral waters – Borjomi, Nabeghlavi, etc.

Summer Resorts Winter Resorts Casinos Eco Tourism


Regional Logistics Corridor

Trans-Caucasian route

• Latent gateway between Europe and Central Asia• Around 80% of port cargo and 60% of freight rail are transits

Transport Infrastructure• Rapidly developing road infrastructure

• Cargo airport in Poti

• Ports are cost-competitive vs. alternative routes

• FDI inflows in the logistics sector have primarily targeted transport infrastructure

Opportunities• Deep-sea port of Lazika with PanaMax vessel

• Baku-Tbilisi-Kars railway – direct connection between EU and Central Asia

• Logistical centers


Significant Hydro Power Potential Installed capacity of >2,500 MW Additional potential >4,500 MW

• 2/3 of HPPs are dams and reservoirs• 78% of power generated via HPP – 22% via thermal• Generation cost (6 USD Ct) among the lowest in the region,

~50% lower than target market Turkey

Export Capacity• The only net electricity exporter in the region, with rapidly growing consumption rates• Construction of 500/400 KV power transmission line from Georgia to Turkey to be completed in 2013

Opportunities• ~ 70 small/medium projects (< 100 MW)• large scale projects (> 200 MW) - Oni cascade, Khaishi HPP,

Nenskra HPP, Namakhvani HPP, Khudoni HPP

Hydro Power Hub


Agriculture and Agribusiness• Over 21 micro-climates - a wide range of grain, vegetables, hard and soft

fruits, meat and dairy could be farmed• Agriculture accounts for 9% of GDP. It contributes ~53% of employment

mostly in subsistence farming (average farm size of 1.22 ha)• Traditionally Georgia has strengths in wine, nuts, fruits which account for

more than 60% of agriculture exports

Opportunity:• Import substitution - USD 180 million of wheat and USD 140 million of

meat and dairy imports in 2011• State owned land is being privatized – simplified, transparently and at a good

price. • The average gross monthly salary in the agricultural sector in Georgia is

USD 206

Success stories: Ferrero, WimmBill Dann, HIPP, Schuchmann Wines, Chateau Mukhrani, GWS


Regional Services Hub• Georgia’s service sector achieves leading ranks among regional

economies in terms of value added and trade• Major share of FDI inflow of 45% in 2011 with USD 500

million: Financial services have grown at 19% p.a. since 2009 and

is the leading service sub-sector for FDI attraction with 15% of total inflows in 2011

Consultancy services attracted 12% of total FDI inflows in 2011

Wholesale/retail trade accounts for 40% of service GDP, and strong FDI inflows rebound at 48% p.a. since 2009

FDI inflows in healthcare/social work have grown at 146% p.a. since 2007

• Opportunity to capitalize: Financial services/headquarters Retail hub as the destination-of-choice for shopping


No Policy Drift

The Economic Liberty Act• The Liberty Act contains 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 30% of GDP

– Budget deficit capped at 3% of GDP

– Government debt capped at 60% of GDP

• No restrictions on currency convertibility or repatriation of capital & profit


What you can get from GNIA Information

• General data

• Statistics

• Sector Researches

Communication

• Access to Government of Georgia at all levels

• Local partners (Business Associations, private companies)

After care

• Legal advising

• Supporting services

25

GEORGIAN NATIONAL INVESTMENT AGENCY

8, Rustaveli avenue, 0118 Tbilisi, Georgia

Tel/Fax: (+995 32) 2 433 433

E-mail: [email protected]

Giorgi Pertaia

www.investingeorgia.org

mailto:[email protected]

mailto:[email protected]

http://www.investingeorgia.org/

Bsef2012 session1 investment_climate_pertaia

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