On 21 June, the Financial Times foreign direct investment magazine, fDi Intelligence, published a special report on the investment climate in Georgia titled “Georgia Pushes its Boundaries – the Country is Positioning Itself as the Next Global Trade Hub,” which overviews the investment potential of the economic sectors of Georgia and offers exclusive interviews with high officials from Georgia's economic team, reported agenda.ge.

The report reads that a growing number of investors are now “waking up to Georgia's charm,” which has implemented “ambitious economic and political reforms,” modernised the nation and “won plaudits” from international observers with its liberalised economy, strengthened institutions and eradicated corruption. “The government’s drive to make life as easy as possible for businesses pushed Georgia to seventh in the World Bank’s latest Ease of Doing Business rankings; within Europe, it trails only Denmark. It takes just one day to do hundreds of administrative processes, including registering a business or property. The 9.9% effective corporate tax rate is the third-lowest in the world and, in 2017, it introduced the so-called Estonian tax model, which exempts retained and reinvested profits from business tax,” read the report. 

However, the report said that while reforms have boosted Georgia’s attractiveness as a business destination, “they cannot fix one of the country’s major drawbacks: its population of just 3.7 million has limited appeal as a consumer market.” Having this challenge in mind, the report reads that the government is integrating the country into global value chains via an extensive and growing network of free trade agreements (FTAs) that give customs free access to a market of 2.3 billion people. Georgia has struck FTAs with China, the EU, the UK, Turkey, and the Commonwealth of Independent States. By enlarging the market, it hopes to lure companies wishing to capitalise on Georgia’s business climate and export its goods tariff-free. The report also read that despite the above-mentioned developments the improvements were needed in the political arena. 

It was further emphasised that Georgia averaged 5% economic growth between 2005 and 2019. Fitch forecasted a growth of 4.3% this year and 5.8% in 2022, which is “a faster recovery than other BB-rated countries.” However, Paul Gamble, its head of emerging Europe sovereign ratings, warns no amount of good policy making can eliminate Georgia’s economic risks from abroad. He also said that there were also internal shortcomings in the country. While low utility costs and an average monthly salary of $390 makes for a cost-competitive operating environment, there is a persistent skills gap. The unemployment rate is consistently in double digits and more than half of those looking for work are under 34,” the report said. 

While interest among foreign investors is growing, it has not yet translated into significant inflows. Data from the National Statistics Office of Georgia shows that annual fDi volumes fluctuated between $1bn and $2bn in the nine years to 2019. The biggest source market is Europe, led by the UK, Netherlands, and Germany. The EBRD is another key supporter, having invested €4.1bn since the early 1990s. Investment from Asia is also on the rise. Last year, Georgia sealed its biggest Japanese deal to date, when power utility Tepco bought a 31% stake in the 108MW Dariali hydropower plant. 

fDi Intelligence also released other featured articles on Georgia, covering the country’s tourism sector, emerging sectors and the start-up landscape. In terms of tourism, it was highlighted that  the EU, USAID, the UN Development Programme (UNDP) and others have been actively backing regional projects in Georgia’s tourism sector with funding in order to develop a sustainable tourism model. However, it was emphasized that the workforce poses an issue for Georgia’s tourism sector as 80% of Georgia’s visitors are from neighbouring countries who, for the most part, do not expect high-quality services. The “Adjara Group” was named with their Udabno Project as an example to overcome this obstacle.

When it comes to Georgia’s emerging sectors,  electronics, electronic engineering and aviation parts were highlighted as the major branches. “Buoyed by government support and incentives for these emerging sectors, investors point to skills availability, low costs and the country’s connectivity at the heart of Eurasia as drivers of the competitive supply chains that have encouraged them to take the plunge. Tariff-free access to a market of 2.3 billion, thanks to free-trade agreements with the likes of the EU and China, is another plus point,” fDi intelligence stressed. The Egyptian Fresh Electric Home Appliances, German AE Solar, French Group Atlantic and Israeli Elbit-Systems Cyclone were named as examples of foreign investment in these branches. In terms of start-ups, the work of Georgia’s Innovation and Technology Agency (GITA) was acknowledged, naming the example of the purchase of the Georgian Pulsar AI from the US-based Spincar.