Sectors & markets

Emerging Markets Economy: Prospects and Challenges Bia Forum

Forum to increase investments in the region

Emerging Markets Economy: Prospects and Challenges

19 June 2019

On June 19, the BIA forum was organised in order to attract investors in the region and in Georgia, to bring modern business practices and to increase the economic growth of Georgia.

Welcoming Speech

Mr. Cowgill mentioned that Georgia is a dynamic country to invest, where commercial ventures are successful. Potential sectors named are agriculture; tourism, which is growing rapidly, with the construction of many hotels (9 to 10 right now). He identified a growing need for management consulting service, with an objective to create a hub for accounting firm. He advised investors to go on the ground and see the true Georgia. He predicts a bright future for the country; he also added that it is a great place in a somewhat complicated region.

Regional perspective for doing business in FSU (Foreign Soviet Union) countries & regional industry hub

The founder and President at Tbilinomics Policy Advisors after some considerations on Georgia openness to do business, named the country "the world co-working hub" because of the variety of people from all over the world coming in Georgia to work. He nevertheless pointed that most of the airplanes were arriving or departing during the night, slowing down potential investors and businessmen.

The Georgian government has made of the development of transport and infrastructure a priority to turn the country toward a regional hub. First of all, by developing their 3 airports (Tbilisi, Batumi and Kutaisi). The main goal is to increase the frequency, to attract more people. To do so in 2019 new flights and schedules are planned, for example with the launch of the direct liaison Paris-Tbilisi made by the French company Air France. Also, the construction of the deep-water port in Anaklia.

Thanks to its strategic position, being a gateway to the European Union and on the Chinese initiative One Belt One Road, the government wants to position their country as a logistic hub.

European Institutions like the European Investment Bank are supporting Georgia in their development. EIB has 3 main objectives: develop social economic infrastructure, to promote small and medium business development and to mitigate the effects of climate change.

The bank is putting into place 3 main initiatives: Horizon 2020 program on innovation, the East Initiative on education, microfinance institution to support more SMEs.

Rule of good governance reforms in Economic Development and Investment Attraction

The government of Georgia defined ‘good governance’ as a way to obtain transparent and accountable institutions as there is a correlation between good governance and economic growth.

The main questions investors asked about a country raised during the panel were:

• “Who runs the country?”
• Freedom of expression
• Rule of law
• Continuity of reforms (predictability)
• Corruption index

The advantages of Georgia named are:

• a young reformed and successful country,
• a country open and friendly to business,
• Free Trade agreements with countries such as China or Hong Kong.

The major concern is the need for skilful workers.

Venture capital investments: opportunities and challenges

Venture capital investments is a completely new asset for Georgia; therefore, is not a well-known among the Georgian companies. Another tool that could be of interest for the local companies are seed investors (business angel) that plays a crucial part in the early years of a start up or a business by bringing fresh money and expertise.

There is a need in Georgia to support and develop start-ups. The chairman of GITA said that his objective is to work for those who have ideas but need advice to put them into place. In order to achieve this vision, GITA is giving small grants, about 1000 USD, only for global ideas because Georgia is a small market, and secondly by creating a start-up ecosystem.

The government announced that they are ready to put a legal framework to foster development of start-ups. They also would like for private companies to invest more.

Investment opportunites in hospitality and real estate

There are numerous famous hotel brands in Tbilisi. According to the speakers, the elite investments in upper class services are considered to be better than elsewhere in Europe, especially concerning services such as restaurants, cinemas, hotels, others.

Today, the touristic sector in Georgia is strongly growing and there is an important investment boom in hospitality. Georgia is ranked number 6 on “easy of doing business”, which is an important asset for investors.

According to Rusudan Mamatsashvili, the Deputy Head of Georgian National Tourism Agency, 8,7 million travelers visited Georgia in 2018 and half were tourists. Over the past couple of years, the number of tourists has been increasing strongly and tourism is currently the most promising economic sector of the country. Most tourists who come to Georgia are from neighboring countries, Azerbaijan, Turkey, Russia, etc. Tourism generated 3,2 million dollars of profit in 2018 and the government is looking to increase that number in 2019. The average spent by tourists during their trip is around 1200 GEL which is considered very low by the government. The tourists that spend the most are European tourists, that is why the government wants to target them and increase the duration of their stay. To achieve this goal, the priority is to increase international flights to Georgia. So far 2019, according to the Deputy Head, Georgia shows a good growth of European tourists and day trips are decreasing and touristic trips are increasing.

The goal of the government is to increase by 2021 the number of accommodations available.

Georgian government is aiming a high-quality service, with investments in infrastructures, education, marketing and diversification of markets focusing on quality and not quality as they do not wish for mass tourism to develop in Georgia.

The key products Georgia has to offer are nature and adventures, culture, wine and food, and they are also working on Health and Wellness and Sea and Sun.

The government set up a strategy in 2015 that 10 years from then, the goal was to reach 11 million visitors. Today Georgia is on the right road as 6 years from the final goal, it already reached 8,6 million visitors in 2018.

In the opinion of Michael Kerschbaumer, Vice President of Georgian Business Tourism Association, Managing Director at STS Hospitality Service Georgia, Georgia has a promising market for investments. The business claiming is very prosperous and it is one of the most secure and safe countries on the market with a 5% annual economic growth. The agency Michael Kerschbaumer represents, works on supporting investors, looking after investments and co-finance investments opportunities. He considers that there is a great opportunity on the market of branded hotels and there is a low risk revenue plan, so now is the time to invest. The government offers many facilities for foreign investors such as loans, low taxes.

Investment opportunities in Agriculture

The Agricultural Project Management Agency (APMA) was represented by Giorgi Jibladze. This Agency was established in 2012 by the Ministry of Agriculture to promote rural development in Georgia. The Agency implements various projects initiated by the Ministry of Environmental Protection and Agriculture of Georgia. The main mission of the agency is to promote rural development in Georgia, this translates into different objectives like managing subordinate agricultural enterprises and implementing and managing various projects initiated by the Ministry of Environmental Protection and agriculture of Georgia.

The agency collaborates with 22 partners (banks and insurance company), which allows to facilitate the financial support of the projects. The projects supported by APMA mainly concern the promotion of Georgian agriculture. They aim to develop national production through various rehabilitation or entrepreneurship programs.

The agency is therefore proposing numerous projects, such the rehabilitation of Georgian tea plantations on the territory, thus encouraging local and good quality tea production. Other projects are more global as a support program for young entrepreneurs in rural Georgia.

There are different forms of support and different levels of funding as well. For example, for the project "Agro-Processing and Storage Enterprises", the agency finances 40% of the total value of the project, the rest will be divided between a preferential credit and the participation of the beneficiary.

The agency can also support a project without necessarily monetary financing, by providing a follow-up, an insistence of the material or services.