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GEORGIAN NATIONAL INVESTMENT AGENCY

Investment Climate Overview June, 2009

www.investingeorgia.org 10 Reasons to Invest in

1. ’s Leading Reformer 2. Strategic Geographic Location 3. Stable Macroeconomic Environment 4. Liberal Trade Regimes 5. Low Taxes 6. Simplified Licensing and Permitting Procedures 7. Developing Infrastructure 8. Business Friendly Environment 9. World’s Leader in Labor Freedom and Labor Force 10.Diverse Investment Sectors

www.investingeorgia.org 1. World’s Leading Reformer

Georgia is the world’s leading reformer. Its meteoric progress in improving business climate has been well documented in a number of international indices.

• The hailed Georgia’s commitment to reforms over the past four years as unprecedented after the country rose from 112th to 15th place in the world in the World Bank’s Doing Business 2009 survey. • Doing Business Reformer Club awarded Georgia as Top Reformer in and Central Asia during last five years. • According to Heritage Foundation’s Index of Economic Freedom 2009, Georgia ranks 32nd out of 157 countries in the world, surpassing such highly developed European countries as , Czech , , Latvia, etc. • According to the inward FDI performance index of the Conference on Trade and Development 2005-2007, Georgia ranks 9th out of 141 economies surpassing the countries such as , UK, UAE, etc.

www.investingeorgia.org Radical Reforms for Favourable Market Environment

Ease of Doing Business, 2009 Economic Freedom Index, 2009

USA 3 USA 5 UK 6 UK 10 Norway 10 12 GEORGIA 15 (Up from 112 in 2005) GEORGIA 32 (Up from 93 in 2005) Estonia 22 Latvia 38 33 43 44 France 46 48 45 Bulgaria 59 59 Itanly 64 70 Romania 68 85 Turkey 74 90 Kazakhstan 76 94 Azerbaijan 107 120 133 Ukraine 145 Russia 134 Source: World Bank, 2009 (Rank out of 181 countries) Source: The Heritage Foundation Inward FDI Performance Index Corruption Perception Index, 2008 2005-2007

Turkey 58 Hong Kong, China 1 Bulgaria 2 GEORGIA 67 (Up from 130 in 2005) 67 3 FYR Macedonia 72 4 Serbia 85 Bahamas 5 Jordan 6 Montenegro 85 Singapore 7 85 Estonia 8 Georgia 9 (Up from 16 in 2005) Armenia 109 10 109 Guyana 11 Ukraine 134 Bahrain 12 13 Kazakhstan 145 Gambia 14 Russia 147 Panama 15 Mongolia 16 Belarus 151151 Tajikistan 17 Azerbaijan 158158 18 Moldova 19 20 Source: Transparency International; 180 countries ranked Source: UNCTAD

www.investingeorgia.org 2. Strategic Geographic Location

Located at the crossroads of Europe and Central Asia, Georgia is a bridge connecting several important economic regions with a total of 827 million people. It is a key link in the shortest transit route between and Central Asia for transportation of oil and gas as well as dry cargo.

www.investingeorgia.org 3. Stable Macroeconomic Environment

Consistent macroeconomic policies, burst of entrepreneurial activity, growth in domestic consumption, rehabilitation of infrastructure and export growth are producing strong economic growth.

• Real GDP growth in 2008 was 2.1% while in 2005 and 2006 it was nearly 10%, and over 12% in 2007. • Georgia has proved to be highly resilient to external shocks (for example, energy and commodity prices, Russian embargo, Russian-Georgian conflict, global financial & economic crisis).

www.investingeorgia.org Stable Macroeconomic Environment

GDP

Nominal GDP (US$bn) Real GDP growth, y-o-y (%) 14 12.4% 14% 11.1% 12 13.1 12% 9.6% 9.4% 12.8 10 8.5% 10% 10.2 8 5.9% 8% 6 7.8 6% 6.4 6.1 2,1% 4 5.1 4% 1% 2 4.0 2% 0 0% 2003 2004 2005 2006 2007 1H 2008 2008F2008 2009F Source: Department of Statistics of Georgia, Ministry of Finance of Georgia, IMF forecast Components of nominal GDP, 2008 Comments

Trade, 13.9  Boosted by non stop economic reforms and substantial FDI inflows, Georgia’s economy continues to show a moderate Agriculture, growth regardless of Russian – Georgian Conflict and 8.9 worldwide financial and economic crisis, showing another strong resilience against global challenges Manufacturing; Other, 53.0 8,2  Georgia’s economic performance in 2006 and 2007 is particularly impressive, taking into consideration the Transport, 6. consecutive external shocks (Russian embargo in 6 2006, rising commodity prices) and tight monetary policy Health Construction, care, 4.1 5.3

Source: Department of Statistics of Georgia

www.investingeorgia.org 4. Liberal Trade Regimes

Georgia has low tariffs, streamlined border clearance procedures, and preferential trade regimes with major partners including the , the CIS countries, Turkey, USA, and .

Foreign Trade Relations Features of Georgian Trade Policy

• WTO member since 2000. MFN Tariffs with • Low import tariffs (90% of goods free from WTO Members import tariff) • Georgia benefits from a Generalized System • Few export/import licenses and permits of Preferences (GSP) when trading with the • No quantitative restrictions on import and USA, Canada, , Japan and Norway; export accordingly lower tariffs are applied on goods • No customs tariff on export and re-export exported from Georgia to those countries. • No VAT on export • GSP+ status with the EU allows Georgia to • Simplified export and import procedures Export 7200 products to the EU market duty free • Free Trade Regime with CIS Countries and Turkey(since 1,2008) • Georgia is actively working with the EU and the USA to encourage free trade negotiations.

www.investingeorgia.org 5. Low Taxes

The taxation framework in Georgia is as follows: . 20% flat personal income tax decreasing to 15% by 2012 . 18%VAT . 15% corporate income tax . 5% interest income and dividend tax rates decreasing to 0% by 2012 . 1%(max) property tax on the self-assessed value of property . 0% dividend income tax on dividends from publicly-traded equities from 1 January 2009 . 0% tax on interest income from bank deposits and publicly-traded securities (from 1 January 2009) . 0% capital gains tax . 0% social insurance or similar taxes . 0% . 0% wealth tax . 0% stamp duty or other transaction-based taxes or levies Free Industrial Zone: . 0% VAT . 0% customs tax . 0% property tax www.investingeorgia.org Free Industrial Zones

LEGAL FRAMEWORK FOR CREATION OF FIZ CREATION OF FREE INDUSTRIAL ZONE

 Creation of FIZ is regulated by the Law of Georgia on Free Industrial Zones  Free Industrial Zone may be set up: By the initiative of the Government of  The aim of the this Law is to provide Georgia favorable environment for the economic Upon request of physical person or legal activity and to promote the inflow of capital entity(organizer) and technologies to Georgia  The creation of Free Industrial Zone  Free Industrial Zone may be set up on any necessitates that the Organizer presents a territory exceeding 10 hectares, except for guarantee (the amount and conditions of the protected territories under the Georgian which shall be determined by a resolution of Law the Government of Georgia on the rules for Free Industrial Free Warehouse Type of Tax creation, arrangement and functioning of Zone Company Free Industrial Zone) 0% Corporate Income 0% (from re-exporting of Tax (int.companies) foreign goods)  Decision on the creation of Free Industrial Zone is made by the Government Value Added Tax 0% 0% of Georgia Customs Tax 0% 0%

Property Tax 0% up to 1% Personal Income 20% 20% Tax

www.investingeorgia.org 6. Simplified Licensing and Permitting Procedures Georgia has dramatically simplified licensing and permitting requirements to ease constraints on business. . The total number of licenses and permits was reduced by 84%.

. Licenses and permits may be required only for: • Safety and health protection • Security of living conditions and cultural environment of individuals • Protection of state and public interests .Reduced statutory time limits for government action: 30 days for issuing licenses and 20 days for issuing permits.

.“Silence is consent” – a permit or license is automatically granted if no government action is taken within statutory time limits.

www.investingeorgia.org 7. Developing Infrastructure

The MIN at a Glance Georgian infrastructure, 2008 Number of Int. Airports 2

Russia Number of Sea Ports 3

Larsi Georgian Road, 2008

Zugdidi International 1495 KM Roki

Internal 3354 KM Kulevi Terjola Gori Local 15480 KM Black Sea Bypass Total 20329 KM

Batumi Tbilisi

Red bridge Sarpi Partskhisi Vale MRN Turkey Railway Guguti Railway – under construction Kartsakhi Zhdanovi Sadakhlo Azerbaijan International Airports Inoperative Airports Armenia

www.investingeorgia.org 8.Business Friendly Environment

Number of registered businesses Starting a business, 2008

Time (days) Procedures (number)

7 Estonia 5 11 GEORGIA 5 16 Latvia 5 USA 6 6 6 Turkey 6 10 Netherlan… 6 13 UK 6 14 Source: Ministry of Finance Romania 6 21 Kazakhstan 8 Number of registered businesses per 100 adults 29 Russia 8 13 Itanly 9 18 9 18 Armenia 9 32 Bulgaria 9 27 Ukraine 10 23 Hungary 11 30 Azerbaijan 12

Source: World Bank - Doing Business 2008 Source: World Bank report - Doing Business 2008 9.World’s Leader in Labor Freedom and Labor Force Literacy

Georgia is the world’s leader in labor freedom and offers a qualified labor force.

. Georgia has the most liberal Labor Code worldwide, according to the Heritage Foundation 2008.

. Labor Freedom Index for Georgia is 99.9 while the world average is about 60, according to the Heritage Foundation’s Index of Economic Freedom for 2008.

. Georgia leads the world on the Adult Literacy Rate indicator of the 2006 Human Development Report produced by UNDP.

. Georgia has a score of zero in difficulty of the hiring & firing indices, according to the World Bank Doing Business Survey 2008.

. No minimum wage regulations.

www.investingeorgia.org Education & Labor Force

Number of students In public institutions by Higher education institutions, 2008-2009 specialization, 2008-2009

Source: Department of Statistics of Georgia ; Source: Department of Statistics of Georgia ; Number of students in higher education institutions, 2008-2009

Source: Department of Statistics of Georgia ; www.investingeorgia.org 10. Diverse Investment Sectors

FDI by Sectors FDI Breakdown by Origin

2006 2007 2008 Agriculture; Banking; 0.5 UK 15.7% Netherlands 14.9% 19.6% 0.5 Industry; USA 15.3% Czech Rep. 11.3% USA 10.7% Other 13.3 Kazakhstan 12.8% Virgin 9.3% Turkey 10.5% services; 18.1 Turkey 10.9% 7.8% Virgin Islands 10.0% Azerbaijan 6.5% Cyprus 7.4% UK 9.5% Energy; 18.9 Norway 6.5% UK 7.2% Netherlands 8.7% Real estate; Virgin Islands 4.9% UAE 6.5% Switzerland 5.8% 17.8 4.0% Turkey 4.7% Kazakhstan 4.2% Denmark 3.6% Russia 4.4% 3.3% Cyprus 3.4% Kazakhstan 4.4% Germany 2.6% Subtotal 83.6% Subtotal 77.9% Subtotal 84.9% Transport and Construction; communications 3.6 Other 16.4% Other 22.1% Other 15.1% ; 27.0 Total 100% Total 100% Total 100%

Source: Department of Statistics of Georgia Source: Department of Statistics of Georgia Net FDI inflows Selected Strategic Investors

Source: Department of Statistics of Georgia ; * estimate Source: Department of Statistics of Georgia

www.investingeorgia.org Diverse Investment Sectors

• Up to 300 institutional investors invested in Georgian debt and equities in 2004-2008 EQUITY DEBT

LOCAL

EUROCLEAR etc ONLY

www.investingeorgia.org Contacts

GEORGIAN NATIONAL INVESTMENT AGENCY 12, Chanturia Street, 0108 Tbilisi, Georgia Tel/Fax: (+995 32) 433 433 (+995 32) 10 63 91 E-mail: [email protected]

www.investingeorgia.org

Published 18.06.2009