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Georgian Economic Outlook

Ministry of Economic Development of Country Overview

Area: 69 700 sq km Population 2008 E: 4 630 841 Life expectancy: 76.51 years : Georgian : 100% Capital: Currency (code): Lari (GEL) GDP 2008E: US$ 12.80 billion GDP - real growth rate 2008E: 2.1% GDP - Per Capita 2008 US$ 2 920.3 Inflation rate 2008 (average annual): 10.0% External to GDP 2008: 21.4%

Ministry of Economic Development of Georgia Liberal Reforms for Long Term Sustainable Growth

• Liberal Tax Code  Only 6 taxes left  Significant procedural and institutional reforms  Simplified system of tax disputes discussion

• Customs Reform  Simplified customs procedures  Simplified and sharply reduced the costs connected to the foreign trade  Number of import tariffs were abolished on approximetaly 90% of products  3 tariff rates (0%, 5%, 12%) remained  No quantitative restrictions (quotas) on imports and exports

• Modernized system of Licenses and Permits  Number of licenses and permits reduced by 84%  Licenses and permits are only used in the production of highly risky goods and services, usage of natural resources and other specific activities  Significantly simplified procedures of issuing licenses and permits  Introduced “one-stop shop” and “silence is consent” principles

Ministry of Economic Development of Georgia Liberal Reforms for Long Term Sustainable Growth

• The reform of Technical Regulation System

 National mandatory standards system was replaced by the voluntary standards, giving entrepreneurs the possibility: – To select the standard for his activities registered in the country – To use the standard of any country or any regional or international standard – To register standards in Georgian National Agency for Standards, Technical Regulations and Metrology and to use them for entrepreneurial activities – To elaborate own standard for new goods, register it in the national agency and use it in entrepreneurial activity – To obtain consultations for the selection and elaboration of standards

 Declined role of state in the system of technical regulation

• Liberal Labor Code – one of the most liberal in the

 Simplified relations between employers and employees  Significantly reduced hiring and firing expenses

Ministry of Economic Development of Georgia Economic Growth

Nominal and Real GDP Nominal GDP Per Capita 3500 31.3 35 29.2 26.2 3000 30 15.0 12.3 15 24.9 11.1 2500 25 9.6 9.4 18.2 18.9

10.0 10 2000 20 %

5.9 % 1500 2 920.3 15 USD 2 314.6 bln. USD bln. 5.0 5 1000 1 763.5 10 2.1 1 483.5 1 187.6 500 919 5 4.0 5.1 6.4 7.8 10.2 12.8 0.0 0 0 0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008

Nominal GDP real GDP Per Capita Growth % GDP growth Components of Nominal GDP 2008 Year 2008

Trade 13.9 Fastest growing sectors of Georgian Economy Agriculture 8.9 • Mining and Quarrying – 17.0% Other 53.0 Manufacturing 8.2 • Communications – 14.5% • Education – 13.7% Transport 6.6 • Trade and repair services – 10.4% Construction Health care 5.3 • Health care and social security – 5.9% 4.1

Ministry of Economic Development of Georgia Consumer Price Index

Consumer Price Index 2008

• End of period Inflation – 5.5% • Average annual Inflation – 10%

Consumer Price Index Trend

11.0 12 10.0 12 9.2 10 8.2 10 7.0 7.5 8 8

5.6 %

9.2 % 8.8 6 6 6.2 4 5.4 5.7 5.5 4 4.8 2 2

0 0 2002 2003 2004 2005 2006 2007 2008

Average Annual End of Period

Ministry of Economic Development of Georgia Labour Market

Unemployment Rate % • Challenge: structural /job mismatch

20 18 13.8 13.6 • Response: State Programs: 12.6 13.3 16  Vocational Training and Retraining, Development of 14 11.5 12 Professional Training Infrastructure “Professional

% 10 8 Education for Employment” (PPP format) 6  “Cheap ”, “100 new Agro Industry 4 2 Enterprises” 0

2003 2004 2005 2006 2007

Monthly Salary of Employed in State and Non-state Enterprises • Unemployment rate declined to 13.3% in 2007, down 0.3% y-o-y

500 • Employed population – 1 678.7 thousand, among 442 400 which: 307 306 300 265  Salaried employees – 625.4 thousand (+3.5% 212 194 200 165 141 138 158 07/’06) GEL 100

• Accelerated growth rate of the number of salaried 0 employed and decrease of the number of self- 2003 2004 2005 2006 2007 employed State Sector Private Sector

Ministry of Economic Development of Georgia Poverty Level

Subsistence Level 2004-2008 Subsistence Minimum

140 127.9 • Subsistence Level has increased by 118.6 120 106.5 95.8 51.7% 100 84.3 80

GEL 60 Poverty Level 2004-2008 40 20 0 • Poverty Level has declined by 2.5 2004 2005 2006 2007 2008 point

Poverty Level

• Poverty depth has declined by 1.1 30 24.6 24.1 23.3 point 25 21.3 22.1 20

• Poverty Severity has declined by 0.8 % 15 10 8.1 7.6 7.2 6.9 7.0 point 4.0 3.6 5 3.3 3.2 3.2 0 2004 2005 2006 2007 2008

Level Depth Severity

Ministry of Economic Development of Georgia Foreign Trade

Foreign Trade 2008 Foreign Trade Turnover 2003-2008

• Total trade turnover – 7 555.8 mln. USD 56.3 8 45.5 60 39.1 (17.2% increase) 6 36.0 35.3 40  Export – 1 497.7 mln. USD (21.5% increase) 7.5 4 % 6.4 20  Import – 6 058.1 mln. USD (16.2% increase) USD bln. 2 4.6 17.2 1.6 2.5 3.4 In 2004-2008 Georgian trade turnover 0 0 2003 2004 2005 2006 2007 2008 increased by 203.2% Foreign Trade Turnover Growth

Export, Import, Trade Deficit 10 Trade Partners 2008

8 45 1200 39.0 35.6 1050 35.7 6 5.21 900 6.06 25.5 3.70 30 750 4 23.5 2.50 600

1.85 USD mln. 12.9 17.4 1.49 450 2 1.14 0.93 1.24 0.79 0.46 0.87 300 0.35 0.65 15 %

0 150 bln. USD bln. 2002 2003 2004 2005 2006 2007 2008 0 -2 -0.44 -0.68 -1.20 -1.63 0 -2.77 -4 -3.97 -4.57 Turnover Export Import -6 -15 Export Import Trade Deficit Deficit/GDP (%) Source: Department of Statistics

Ministry of Economic Development of Georgia Foreign Trade

Foreign Trade With Country Groups 2008 • Foreign trade turnover with EU – • Foreign trade turnover with CIS – 2000.5 mln. USD (10.7% increase) 2542.9 mln. USD (9.9% increase)  Export – 335.2 mln. USD (24.8%  Export – 542.5 mln. USD increase) (17.4% increase)  Import – 1665.3 mln. USD (8.2%  Import – 2000.5 mln. USD (8% increase) increase)

3000

2 543 2500 2 314.3

2 000.5 2000 1 792.4 1 807.4

1500 1 404

mln. USD mln. 982.5 1 105.7 1000 792.6 715.8 594.9 491 500

0 2003 2004 2005 2006 2007 2008 CIS EU Source: Department of Statistics of Georgia

Ministry of Economic Development of Georgia Diversified Trade Structure

Export structure by country 2008 Import structure by country 2008

Other 19.5 17.6 Turkey 15.5

Other 30.8

France 2.7 10.9 UK 2.9 13.7 3.5 Turkmenistan 2.2 Azerbaijan USA 6.8 10.0 3.0 Ukraine 9.0 USA 4.0 7.2 7.2 UAE 4.5 China 4.9 7.0 8.3 8.8

Export structure by product 2008 Import structure by product 2008

Oil and oil Ferro-alloys products 12.6 17.8 Oil gases 3.4 Pharmaceuticals 3.1 Bars and roads Scrap metals 1.8 Other 44.2 8.6 Wheat 1.8 Flour 1.2

Manganese ores Ores 7.9 1.2

Other 74.9 Fertilizers 7

Wines 2.5 Gold 6.7 Cement 5.3 Source: Department of Statistics of Georgia

Ministry of Economic Development of Georgia Trade Policy

Competitive Trade Regimes

• Free Trade Regime – with CIS countries and Turkey (since 1, 2008) • Most Favored Nation Regime (MFN) – with (WTO) member countries • Preferential Regime (GSP) – with USA, Canada, , ,

• Preferential Regime (GSP+) – with EU (7200 items) since 2005

Possibility of FTA with EU in nearest future

Main Features of Georgian Trade Policy

• Low import tariffs (90% of goods free from import tariff) • Few export/import licenses and permits • No quantitative restrictions on import and export • No customs tariff on export and re-export • No VAT on export • Simplified export and import procedures Export Promotion Department was established for export facilitation

Ministry of Economic Development of Georgia Foreign Direct Investment

Year 2008 FDI inflows

2500 25 19.8 • FDI – 1 564 mln. USD 2000 20 15.3 1500 12.2 15 • Reduction – 22.4% 9.7

8.5 % 1000 7.0 2014.8 10 • Share of FDI in GDP – 12.2% 1564.0 mln.USD 500 1190.4 5 340.1 499.1 449.8 Growth in 2003-2008 – 360% 0 0 2003 2004 2005 2006 2007 2008 Growth in 2003-2007 – 492.4% FDI FDI to GDP

Pipeline and Non-Pipeline Investments FDI breakdown by origin

2006 2007 2008 UK 15.7% 14.9% 19.6% 1200 USA 15.3% Czech 11.3% USA 10.7% 973,9 12.8% Virgin 9.3% Turkey 10.5% 1000 884 Turkey 10.9% 7.8% Virgin Islands 10.0% 800 Azerbaijan 6.5% 7.4% UK 9.5% 600 Norway 6.5% UK 7.2% Netherlands 8.7% 360 306 Virgin Islands 4.9% UAE 6.5% Switzerland 5.8% 400 231 265 139 185 Italy 4.0% Turkey 4.7% Kazakhstan 4.2% 61 107 109 89,5

200 Denmark 3.6% Russia 4.4% 3.3% mln. USDmln. 0 Cyprus 3.4% Kazakhstan 4.4% Germany 2.6% 2002 2003 2004 2005 2006 2007 9 m. Subtotal 83.6% Subtotal 77.9% Subtotal 84.9% Other 16.4% Other 22.1% Other 15.1% BP investment other FDI Total 100% Total 100% Total 100%

Source: Department of Statistics of Georgia

Ministry of Economic Development of 13 Georgia Foreign Direct Investment

FDI by Sectors 2007 (%) FDI by Sectors 2008 (%)

Banking 0.5 Other 0.3 Other 4.9 Agriculture Agriculture 0.5 Banking 6.8 0.8 Industry 13.3 Industry 19.8 Services 18.1

Other services 19 Energy 18.9

Real estate Energy 18.0 Real estate 17.8 1.5 Construction 3.6 Transport and communicatio Construction Transport ns 20.7 8.5 and communications 27.0 FDI by Sources 2007 (%) FDI by Sources 2008 (%)

Banking 6.8 Banking 0.5 Privatization 17.8 17.2

Enterprises 81.6

Enterprises 76

Source: Department of Statistics of Georgia

Ministry of Economic Development of Georgia Robust Banking Sector

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Dhabi Group

• Georgia’s banking sector represents only a moderate contingent liability of the sovereign • Entirely private owned since 1996 • No restrictions on foreign ownership of banks • Well capitalised with average BIS capital adequacy ratio of 19%

Ministry of Economic Development of Georgia Foreign Direct Investment

FDI attraction – one of the main priorities of state FDI supportive policy • Georgian National Investment Agency • Simplified regulations • Reduced taxes • Legislative basis  Law on State Support of Investments  Law on Free Industrial Zones • Free Industrial Zones – preferences for investors  Tax incentives  Simplified procedures

Establishment of Free Industrial Zones – new possibility for investors

• Free Trade Agreements with US and EU in the future

Ministry of Economic Development of Georgia Free Industrial Zone

Free Industrial Zones – facilitation of regional economic development, employment generation and job creation

Free Industrial Zones – preferences for investors  Tax incentives  Simplified procedures

• FIZ - Rakia Georgia FIZ  then 105 mln USD in 2009-2013  More then 10 000 employed people  Development of industry, logistic parks, business centers

Possible future projects

• FIZ – Georgian International Holding  More then 3 bln USD during 3 years  More then 20 000 employed people  Development of industry

• Tbilisi iCity – Lilo 1  More then 7 hundred registered companies during 5 years  More then 8 hundred employed people  More then 700 bln capital inflow to Georgian banks

• Airport City

Ministry of Economic Development of Georgia Tax Policy

Reduced number of taxes from 21 to 6 (2004-2008) Reduced Tax rates (see below) • Personal Income Tax – 20%

• Corporate Income Tax -15%

• VAT -18%

• Excise Tax – Varies

• Customs Tax - 0%, 5% or 12%

• Property tax -1% on the self-assessed value of property

Ministry of Economic Development of Georgia Tax Reduction

Income Tax and Social Tax Corporate Profit Tax 30% 25% 25% 20% 20% 20% 25% 20% 20% 20% 20% 20% 18% 18% 20% 20% 15% 15% 15% 15% 10% 10% 12% 12% 12% 5% 5% 0% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 Income Tax Social Tax

Dividends and Interest Income Taxation Value Added Tax

21% 20% 12% 10% 10% 10% 10% 10% 20% 7,5% 20% 8% 19% 6% 5% 3% 19% 18% 18% 18% 18% 4% 5% 18% 2% 0% 0% 18% 0% 17% 2005 2006 2007 2008 2009 2010 2011 2012 2005 01.07.2005 2006 2007 2008 Dividends Interest

Ministry of Economic Development of Georgia Special Taxation Regimes

• Special taxation systems have been adopted for the different regimes aimed at establishing new international financial institutions in the country, encourage economic growth, support sustainable development and the trade-transit function of Georgia

An international financial Type of tax Free industrial zone Free warehouse company company (for International (from re-exporting of Corporate Income Tax (from financial services) 0% Companies) 0% foreign goods) 0% Value Added Tax 0% 0% 0%

Customs Tax 0%, 5% or 12% 0% 0%

Property Tax up to 1% 0% up to 1%

Personal Income Tax 20% 20% 20% Net Operating Losses (years): • Carry back 0 0 0 • Carry forward 0 0 0

Ministry of Economic Development of Georgia Fiscal and Monetary Performance

Tax Revenue Performance Exchange rate evolution (period average)

8000 40% GEL/US$ GEL/EUR GEL/GBP 29% 30% 1.4 27% 27% 6000 23% 24% 30% 1.49 1.9 1.67 1.91 1.81 1.78 4000 20% 2.4 2.15 2.26 2.23 2.29 2.19

GEL mln GEL 2.38 5 805 5 2000 791 5 10% 2.43

4 973 4 2.9

3 695 3 2 810 2 2 267 2 2.76 0 0% 3.4 3.30 3.27 3.34 2004 2005 2006 2007 2008 2009 F 3.51 3.50 3.9 Budget Revenue Budget revenue (% of GDP) 2003 2004 2005 2006 2007 2008

Source: Ministry of Finance of Georgia Source: National Bank of Georgia *Decrease in budget revenue as percent of GDP is caused by tax cuts effective from 1 January 2009 NBG’s Gross FX Reserves 2500

2000

1500

1000 mln. USD mln.

500

0

Ministry of Economic Development of Georgia Current Account Balance

Current Accoutn Balance

5,000.0 30 CAD Total Private capital inflows (TPCI) Donor Inflows (DI) CAD as % of GDP CAD+TPCI+DI as % of GDP 4,000.0 942.0 20 3,000.0 7.7% 276.2 7.8% 2,000.0 5.6% 5.4% 10 3.1% 261.7 850.0 1.7% 2 905.0 1,000.0 176.7 2 283.8 0.1% 98.3 160.3 1 506.8 734.8 1 300.0 0 0.0 351.0 479.6 -383.3 -353.6 % US$ US$ mln -709.5 -1,174.6 -1,000.0 -10 -6.9% -2,008.7 -2,134.0 -9.6% -2,850.5 -2,000.0 -11.1% -15.1% -16.3% -20 -3,000.0 -19.7% -22.3% -4,000.0 -30 2003 2004 2005 2006 2007 2008 2009F Note: Updated as of 10 April 2009 *Donor inflows include both public and private sectors. Donor inflows in 2009 is adjusted according to the banking sector foreign debt outflows Source: National Bank of Georgia , Minister of Finance of Georgia Exports and Imports Remittances 8000 Import of Goods and Services Export of Goods and Services 7497.0 1200 6000 955.2 1000 5916.9 755.4 730 5247.9 800 4000 4412.9 600 US$ US$ mln 420.5 3318.1 315.4 2000 2492.8 3691.3 mln. USD 400 212.7 1865.3 3182.4 165.8 2187.5 2551.6 2583.9 1288.5 1646.9 200 0 0 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009 F Source: National Bank of Georgia

Ministry of Economic Development of Georgia Global Financial Crisis • In 2008, Global Financial Crisis impact on Georgia’s macroeconomic outlook through decreasing export and other related indicators

Real GDP growth - 2008

6%

5% 4.7%

4%

3.3%

3.0% 3.0% 2.9%

3% 2.5%

2.0% 2.1%

1.9% 1.8%

2% 1.6%

1.4%

1.0% 1.0%

0.8% 0.7%

1% 0.7% 0.3% 0%

-1%

-2% 0.9%

-

1.5%

- 1.8%

-3% -

UK

USA

China

Japan

Latvia

Russia

France

Ireland

Austria

Iceland

Estonia

Canada

Belgium

Bulgaria

Hungary

Romania

Georgia*

Denmark

Germany

Source: Department of Statistics

Ministry of Economic Development of 23 Georgia

• In 2008 number of visitors to Georgia amounted to 1 290 107 thsd. persons

• Increased by 23% compared to 2007

• The largest share of visitors falls on CIS countries – 61%

Arrivals of non-resident visitors Country 2007 2008 % change

Total 23 1051769 1290107 23 1009666 1243783 1400 1 290 Europe without CIS 353924 459272 30 1200 1 059 20 983 CIS 1000 655742 784511 AMERICAS 4 800 16865 17489 561 EAST ASIA/PACIFIC 0.5 600 9415 9459 thsd. personsthsd. 387 368 400 302 296 313 MIDDLE EAST 30 2490 3245 200 24 0 SOUTH ASIA 10873 13457 2000 2001 2002 2003 2004 2005 2006 2007 2008 AFRICA 883 640 -28

Source: Department of Tourism of Georgia

Ministry of Economic Development of Georgia Privatization

• 2003-2008 - 3 494 items were privatized • Total amount - more then 2,27 bn. GEL

Privatization 2003-2008

900 776 800 761 700 644 654 595 600 565 551 500 419 441 400 300 267 200 73 100 24 0 2003 2004 2005 2006 2007 2008

Items Income mln.GEL

Ministry of Economic Development of Georgia Communications

• New Numbering System and Plan for E-Communications Network of Georgia has been elaborated by the MoED and currently takes procedures forced by law

• The Law of Georgia on E-signature and E-documents was adopted in April, 2008

• Georgian Government has launched new Georgian Government Network (GGN) project from November, 2006

 At the end of 2008, “Magticom” LTD 3 months ahead completed first phase building process of GGN  More than 400 Ministries and other entities are involved in the process  The project considers building the governmental network between state bodies

Ministry of Economic Development of Georgia Statistics

Reform of the National Statistics System (NSS)

• Main aim

 Set up independent statistics body  Ensure high quality and reliability of statistical data  Consider international best practices

• Preparation Process

 Creation of special task force by special decree of the Government (, 2008)  Elaboration of the concept for the reform and submit it to the public and Government for discussion  Task Force consists of independent experts, representatives of international organizations and non-governmental institutions

Ministry of Economic Development of Georgia Technical Regulations

Standardization

• Georgian National Agency for Standards, Technical Regulations and Metrology has become an affiliated member of European Committee for Standardization (CEN) from April 1, 2008

• Georgia has been an associate member of General Conference of Weights and Measures (GCPM) from 1st of April 2008

• A bilateral project with German National Metrology Institute PTB – “Promotion of Quality Infrastructure in Georgia with special regard to Legal Metrology” started in , 2008

• Implementation phase of EC TACIC project “Support to Implementation of Art. 51” (Quality Management System) has started

• Permanent analysis of Georgian legislation is carried out. 75 laws, applied in the field of technical regulation, are registered in the register of standards and technical regulations

• The New and Global Approach Directives and standards harmonized with them (Georgian version) are being gradually updated on the web page of the Agency

Ministry of Economic Development of Georgia Technical Regulations

Accreditation

• Signing of “Cooperation Agreement” between European Cooperation of Accreditation (EA) and Georgian Accreditation Center

• On April 26, 2008 was sighed an “Agreement between Turkish Accreditation Agency (TURKAK) and The Georgian National Body on Accreditation - Center of Accreditation (GAC) on Cooperation in the Field of Accreditation” • A list of international standards in the field of accreditation was translated and is officially registered by Accreditation Center

• National Accreditation Center and The State Standardization Committee of Byelorussia conducted inter laboratory testing for the accredited laboratories of Georgia and Byelorussia in 2008. Test was carried out in accordance with international standards and confirmed (wine, brandy) high quality of Georgian products and their conformity with international standards

Ministry of Economic Development of Georgia Georgian Transport Network

Total Cargo and Passenger Transportation

Cargo mln. tons (LHS) Passenger mln.(RHS) 50.2 310.0 49.8 49.8 49.7 305.6 305.0 49.4 300.0 49.0 298.1 Russia 48.6 49.0 295.0 48.2 290.0 47.8 290.1 285.0 47.4 47.0 280.0

I-XII'06 I-XII'07 I-XII'08 Rok Larsi i Kulevi Senak Kutais i i Poti Khashur Gori Black Tbilisi i Sea Bypass Akhaltsikh Tbilisi e Red bridge Sarpi Partskhisi Vale MRN Turkey Railway Guguti Railway – under construction Kartsakhi Zhdanovi Sadakhl International Airports Azerbaijan o Inoperative Airports Armenia

Ministry of Economic Development of 30 Georgia Transport Infrastructure Railway Transport

Transported Cargo and Passenger by Railway Cargo mln. tons (LHS) Passenger mln. (RHS) 27 5 4.8 25 • In 2008 the carried: 4.6 23 22.6 22.2 4.4  21.2 million tons of cargo 21.2 4.2 21 3.9 4  10.0 million tons of crude oil and oil products 3.8 19 3.8 3.6  3.4 million passengers 17 3.4 3.4 15 3.2 I-XII'06 I-XII'07 I-XII'08

• Infrastructure Projects:  Construction of New Railway Line - Baku-Tbilisi-Kars connecting Caucasus rolling stocks to Europe Railway  Rehabilitation of Bridges on the Main Line and Main Line sections  Renewal of wagons and vehicles

• Capacity Improvement Facilitation:  Organization of Direct International Rail- Connection between Poti/Batumi (Georgia) and Kerch (Ukraine) Sea ports

Ministry of Economic Development of Georgia Transport Infrastructure (cont.) Road Transport

Transported Cargo and Passenger by Road Cargo mln. tons (LHS) Passenger mln. (RHS)

• In 2008 Georgian road transport carried: 31.0 330.0 29.0 27.5 27.8 320.0 27.2 27.0 310.0  27.8 million tons of cargo 25.0 300.0 301.4  301.4 million passengers 23.0 285.7 293.5 290.0 21.0 280.0 19.0 270.0 17.0 260.0 15.0 250.0 • Infrastructure Projects: I-XII'06 I-XII'07 I-XII'08  Modernization of the East-West Highway of Georgia in line with international standards ensuring high safety level  Rehabilitation of more then 450 km of international and local roads (WB loan)  Rehabilitation of Samtskhe-Javakheti 300 km roads in MCG grant project frame

• Capacity Improvement Facilitation:  Signing of intergovernmental Agreement with the , , , , , Finland, and Tajikistan on International Road Transport  Road Safety Policy: • “Georgian National Road Safety Strategy” (adopted) • National Road Safety 4 year Action Plan

Ministry of Economic Development of Georgia Transport Infrastructure (cont.) Civil Aviation

Transported Cargo and Passenger by Civil Aviation Cargo thousand tons (LHS) Passenger mln. (RHS) • In 2008, international airports of 20.0 1.000 18.0 17,1 0.900 Georgia served: 16.0 14.0 12.1 0.804 0.800  0.804 million passengers. 12.0 10.0 8,1 0.700 8.0 0.671 0.600 6.0 0.586 4.0 0.500 I-XII'06 I-XII'07 I-XII'08 • Infrastructure Projects:  Two new International Airports - Tbilisi and Batumi (constructed) • new passenger terminals • modern equipments (ICAO standards)

• Capacity Improvement Facilitation:  International Agreement: • European Common Aviation Agreement - promoting free competition and liberalization air traffic, (negotiation started) • Agreements on Air Transport with - Republic of Armenia; Swiss Confederation; Azerbaijan (signed) • Air Services Agreements with - the United Arab Emirates, China, UK and Ukraine (planned to sign)  Integration in the European air navigation system - membership in

Ministry of Economic Development of Georgia Transport Infrastructure (cont.) Maritime Transport

• 18.5 million tons of cargo was processed at Poti sea port (LHS) Batumi sea port (LHS) the sea ports in 2008: Supsa sea port (LHS) Khulevi sea port (RHS) 14.0 1.4 13.2 11.2 1.3  Poti Sea Port – 8.0 million tones 12.0  Batumi Sea Port – 8.7 million tones 1.3 10.0 8.7  Kulevi Sea Port (constructed) – 1.3 million tons 1.2  Supsa Seaport – 0.6 million tones 8.0 7.7 8.0 6.0 6.6 1.1 4.0 1 • Infrastructure Projects: 2.0 0.6 0.0 0.9  Poti Seaport 2006 2007 2008 • totally private -“Ras al Khaiman Investment Authority” • new seaport capacity 20-25 mln tonnes  Batumi Seaport Handled Containers • Totally private – “Kazmunaigaz” TEU/Unit • container transportation (started) Poti Sea Port Batumi Sea Port  Kulevi Seaport 240,000 209,614 • Private management - SOCAR 210,000 184,792 • total capacity - 4 million tones (operating) 180,000

150,000 129,100

120,000

• Capacity Improvement Facilitation: 90,000  Developing existing and new maritime ferry 60,000 44 197 connections between the Black Sea ports of 30,000 Georgia and other countries 0 I-XII'06 I-XII'07 I-XII'08

Ministry of Economic Development of Georgia Georgia in International Ratings

First Reformer in 2005-2009 in ECA Doing Business

• “Easy of Doing Business” (Doing Business 1 2009) – 15-th place (up from 21-st in 2008) 2 3 UK 6 Improved positions in: 8 Georgia 15 22  Starting a Business – 6 steps up Germany 25 28 Latvia 29  Dealing with Construction Permits – 1 step up 31 Azerbaijan 33  Registering Property – 6 steps up 44 Turkey 59  Getting Credit – 33 steps up 120 Ukraine 145  Closing a Business – 16 steps up Index of Economic Freedom • “Index of Economic Freedom 2009” (Heritage Foundation) – 32-nd place (the USA 6 UK 10 same place in 2008, but improved score Estonia 13 from 69.2 to 69.8) – Moderately Free Lithuania 30 Georgia 32 Hungary 44 Improved scores in: Latvia 45 France 64 65 Turkey 75  Business Freedom –1.6 points up Poland 82 Azerbaijan 99  Trade Freedom – 9.6 points up 116 Russia 146  Freedom from Corruption – 6.0 points up Ukraine 152

Ministry of Economic Development of Georgia Georgia in International Ratings

• “Index of Economic Freedom 2008” (Fraser Index of Economic Freedom Institute) – 39-th place (up from 44-th in 2007) Estonia 11 Improved scores in: Germany 17 Hungary 28 Lithuania 31  Legal Structure and Security of Property Georgia 39 Rights – 0.25 points up Latvia 40 France 45  Access to Sound Money – 0.07 points up Armenia 67 Poland 69  Freedom to Trade Internationally – 0.74 points Turkey 90 up Russia 101 Azerbaijan 118  Regulation of Credit, Labor and Business – Ukraine 121 0.05 points up Inward FDI Performance Index Hong … 1 Bulgaria 2 “Inward FDI Performance Index 2007” 3 • 4 (UNCTAD World Investment Report) – 9-th Bahamas 5 Jordan 6 place (up from 15-th in 2006) Singapore 7 Estonia 8 Georgia 9 Improved positions because of: 10 Guyana 11 Bahrain 12  Positive reform 13 Gambia 14  Increased investors protection Panama 15 Mongolia 16 Tajikistan 17 Cyprus 18 Moldova 19 20

Ministry of Economic Development of Georgia Georgia in International Ratings

• “Corruption Perception Index 2008” Corruption Perception Index (Transparency International) – 67-th place

(up from 79-th in 2007) Turkey 58 Croatia 62 Improved positions because of: Georgia 67 Romania 70  Highly effective reforms in earning public FYR Macedonia 72 confidence 85 Armenia 109  Highly effective steps in improving country’s Moldova 109 international image Ukraine 134 Russia 147  Post-revolution fallen of petty corruption Azerbaijan 158

Ministry of Economic Development of Georgia Georgia in International Ratings

Status Index • “Bertelsmann Transformation 2008” (Bertelsmann Foundation): Estonia 3  Status Index – 38-th place (up from Poland 11 Latvia 13 61-th in 2006) Turkey 32 Ukraine 35  Management Index – 23-th place (up Georgia 38 from 35-th in 2006) Armenia 41 Russia 59 Moldova 60 Improved scores in: Azerbaijan 87

• Status index: Management Index

 Political transformation – 0.75 points Estonia 2 up Latvia 10  Economic transformation – 0.99 points Georgia 23 Turkey 24 up Poland 53 Ukraine 55 Armenia 56 • Management index: Moldova 87  Management performance – 0.55 Russia 98 points up Azerbaijan 99

Ministry of Economic Development of Georgia Contact Information

Lasha Zhvania (+99532) 99 10 11 [email protected] Minister of Economic Development of Georgia Irakli Gachechiladze (+99532) 99 10 80 [email protected] Minister of Economic Development of Georgia Lali Gogoberidze (+99532) 99 11 14 [email protected] Head, Economic Analysis and Policy Department Tea Loladze (+99532) 99 10 40 [email protected] Head of Division, Business activity regulatory impact assessment

Useful Links

Government of Georgia www.government.ge

Ministry of Economic Development of Georgia www.economy.ge

Georgian National Agency for Standards, Technical Regulation and Metrology www.gnims.caucasus.net

Georgian National Investment Agency www.investingeorgia.org

Department of Tourism and Resorts of Georgia www.dotr.gov.ge

Road Department of Georgia www.georoad.ge

Department of Privatization www.privatization.ge

Ministry of Economic Development of Georgia 2009