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Georgia Georg Ia

Georgia Georg Ia

COUNTRY REPORT

Georgia Georg ia

November 2013

pull back from most occupied Georgian territory, but in late August 2008 Russia unilaterally recognized the independence of and , and Russian military forces remain in those regions. Billionaire philanthropist Bidzina IVANISHVILI's unexpected entry into politics in October 2011 brought the divided opposition together under his coalition, which won a majority of seats in the parliamentary election in October 2012 and removed UNM from power. The new constitution, shifting many powers from the president to the prime minister and parliament, including the power to name the prime minister and government ministers, did not go into effect until a new president was elected in the fall of 2013. Conceding defeat, SAAKASHVILI named IVANISHVILI as prime minister and allowed Georgian Dream to create a new government. Tensions remain high as IVANISHVILI, SAAKASHVILI, and their supporters struggle to co-exist until the end of the president's term.

2. Basic Data

Official Name:

Size: 69. 700 km2 .

Limits: Located southwest of Asia, on the eastern coast of the and south of Caucasus mountains. Georgia has borders with Armenia (164 km), Azerbaijan (322 1. General km), Russia (723 km) and Turkey (252 kilometres). The coastline of Georgia (Black Sea) has an area of 310 km.

Population: 4,570,934 inhabitants (main ethnic groups: Georgian 83%, Azeri 6.5%, Armenian 5.7%, Russian 1.5%, other 2%). The region of present day Georgia contained the ancient kingdoms of and -. The area came under Roman influence in the first centuries A.D., and Capital: (1.115.000 inhabitants) Christianity became the state religion in the 330s. Domination by Persians, Arabs, More Cities: Kutaisi (267.000), Rustavi (160.000), (145.000) y Suhumi (capital of the region of Abkhazia 60.000 inhabitants). and Turks was followed by a Georgian (11th-13th centuries) that was cut Language: Georgian (official 71%). Other languages: Russian (9%), Armenian (7%), short by the Mongol invasion of 1236. Subsequently, the Ottoman and Persian Azeri (6%), others (7%). empires competed for influence in the region. Georgia was absorbed into the Russian Currency: Lari (GEL) Equivalence: 1 GEL = 1’7 $ USD, 1’4 € Empire in the 19th century. Independent for three years (1918-1921) following the Russian , it was forcibly incorporated into the USSR in 1921 and regained its independence when the dissolved in 1991. Mounting public 2.1. Social Indicators______discontent over rampant corruption and ineffective government services, followed by an attempt by the incumbent Georgian Government to manipulate national legislative elections in November 2003 touched off widespread that led to the Population density (inhabitants per km2): 64 resignation of , president since 1995. In the aftermath of Per capita income $ 3.210 that popular movement, which became known as the "," new GINI: 40'8 (data 2009). Since 58 worldwide. elections in early 2004 swept into power along with his Life expectancy: 77.3 years (73'9 men / 81 women). Position 65 worldwide. United National Movement (UNM) party. Progress on market reforms and HDI (numerical value / no world order): Position 75 democratization has been made in the years since independence, but this progress has Birth rate: 10.75 births per 1,000 inhabitants been complicated by Russian assistance and support to the separatist regions of Total fertility rate: 1'46 children per woman Abkhazia and South Ossetia. Periodic flare-ups in tension and violence culminated in a five-day conflict in August 2008 between Russia and Georgia, including the invasion of large portions of undisputed Georgian territory. Russian troops pledged to Demographics - Population :- 4,555,911 (July 2013 est.)

- Age Structure :- years through a combined system in which 77 members are elected by closed party o 0-14 years: 15.4% (male 373,539/female 327,139) lists and proportional systems in a single national district and the remaining 73 o 15-24 years: 14% (male 326,910/female 309,245) deputies are elected in equal number of districts single-member constituencies, by o 25-54 years: 42.2% (male 926,172/female 994,432) majority of votes. Until the recent elections of October 1st 2012, the main political o 55-64 years: 12.3% (male 255,905/female 305,652) party was the United National Movement of President Mikhail Saakashvili who had o 65 years and over: 16.2% (male 293,435/female 443,482) 119 of 150 seats. The remaining seats are allocated to United Opposition 17, (2013 est.) Christian Democratic Movement (CDM ) 6, the Labour Party 6 , Republican Party 2 .

The “Georgian Dream” Coalition, led by Binidza Ivanishvili , won a majority in the mentioned parliamentary elections of October 1st, with 54.85% of the votes, compared to 40.43 % of the United National Movement of President Saakashvili, according to preliminary results. The new parliament was constituted during the second half of October 2012, in the new parliament building in the city of Kutaisi. Georgian policy in recent years has been characterized by the implementation of a reform program, still unfinished, but tangible results have been achieved in areas such as the fight against corruption (in the International Corruption Index of Transparency rose from position 133 to 66 between 2004 and 2009), the reform of the security forces, the reduction of tax fraud and other, that have allowed Georgia to become one of the countries that has advanced the EU 's Eastern neighbourhood, in terms of democratic development. The economic policy, with liberalizing character, has managed to stabilize the economy, improve the investment climate and get positive growth rates. The 7% GDP growth in 2011 confirms the strong growth trend since 2010 following the negative impact of the 2008 war. In the first half of 2012 the - Median Age :- Georgian economy has grown by 6.8 %. On the other hand, Georgia is a remarkable Total: 39.6 years international financial aid recipient. The country is a member of the WTO since 2000. Male: 37.1 years Georgia has an important strategic position in the transportation routes of oil from Female: 42.1 years (2013 est.) Azerbaijan to the Mediterranean. - Population Growth Rate : -0.33% (2013 est.) - Birth Rate : 10.72 births/1,000 population (2013 est.) The conflict in South Ossetia and Abkhazia is a central issue in Georgian politics. The desire to reintegrate - Death Rate : 10.17 deaths/1,000 population (2013 est.) Georgian breakaway provinces of Abkhazia and South Ossetia, which enjoyed de facto independence - Net Migration Rate : -3.86 migrant(s)/1,000 population (2013 est.) - Urbanization : from armed conflict 91 and 93, led to an open confrontation with Russia in August 2008, which ended with an agreed ceasefire, obtained with the mediation of the EU. Then Russia recognized Abkhazia and o Urban population: 52.8% of total population (2011) South Ossetia as independent states, promoting the recognition by other countries. One consequence is that o Rate of urbanization: -0.37% annual rate of change (2010-15 about 20 % of Georgian territory is separated from the rest. The number of people displaced by the conflict est.) represents around 6% of the population, about 275,000 people. In November 2010, President Saakashvili made a statement before the European Parliament committing to non-use force to resolve the conflict. 2. POLITICAL SITUATION Executive branch:

- Chief of state: President (since 27 October 2.1 Internal Policy 2013); the president is the chief of state and serves as head of government for the power ministries of internal affairs, justice, and defence.

- Head of government: Prime Minister Bidzina IVANISHVILI (since 25 Recent Political Situation October 2012); the prime minister is head of government for all the ministries of government except the power ministries of internal affairs, Georgia gained independence from the USSR in April 1991, and its first President, justice, and defence. Zviad Gamsakhurdia, deposed in 1992. Between 1992 and 2003 the was former Foreign Minister of the USSR, Eduard Shevarnadze. The current - Cabinet: Cabinet of Ministers

President Mikhail Saakashvili came to power after the "Rose Revolution" of

November 2003. Winner of the January 2004 presidential election with 96% of the vote, he renewed his mandate in the 2008 presidential elections with 54 % of the votes. The next presidential elections are scheduled for 2013. Legislative branch:-

The Constitution of Georgia, currently in force, was adopted in October 1995 and - Unicameral Parliament or Parlamenti (150 seats; 77 members elected by amended in 2004 and set Georgia as a Presidential Republic. The President has proportional representation, 73 elected in single-member constituencies; broad powers and appoints the members of the Government, which must be members to serve four-year terms) individually approved by the Parliament. In 2010, was approved an amendment to the Constitution, that shall enter into force on the end of the current presidential Judicial branch:- term in 2013, which reduces the power of the President, increases the power of the - Highest court(s): Supreme Court (organized into several specialized Parliament and strengthens the powers of the Prime Minister. judicial chambers; number of judges determined by the president of Georgia); Constitutional Court (consists of 9 judges) Parliament is unicameral and has 150 seats. Deputies are directly elected every four Note - the Abkhazian and Ajarian Autonomous republics each have a supreme court and a hierarchy of lower courts

are part of a strategy to capitalize on Georgia's strategic location between and - judge selection and term of office: Supreme Court judges nominated by Asia and develop its role as a transit point for gas, oil, and other goods. the president and appointed by the Parliament; judges serve not less than 10-year terms; Constitutional Court judges appointed by the president Georgia's economy sustained GDP growth of more than 10% in 2006-07, based on following candidate selection by the Justice Council of Georgia, a 12- strong inflows of foreign investment and robust government spending. However, member consultative body of high-level judges, and presidential and GDP growth slowed following the August 2008 conflict with Russia, and sunk to parliamentary appointees; judges appointed for 10-year terms negative 4 percent in 2009 as foreign direct investment and workers' remittances declined in the wake of the global financial crisis. - Subordinate courts: Courts of Appeal; regional (town) and district courts The economy rebounded in 2010-12, with growth rates above 6% per year, but FDI 2.2. Foreign Policy inflows, the engine of Georgian economic growth prior to the 2008 conflict, have not recovered fully. Unemployment has also remained high at above 15%. Georgia has historically suffered from a chronic failure to collect tax revenues; however, the The Georgian President Saakashvili's policy has been characterized by its government, since coming to power in 2004, has simplified the tax code, improved nationalist and pro-Western orientation and its main objectives have been European tax administration, increased tax enforcement, and cracked down on petty corruption, leading to higher revenues. and Euro-Atlantic integration, reunification of the country (after the unilateral declaration of independence of the breakaway provinces of South Ossetia and The country is pinning its hopes for renewed growth on a determined effort to Abkhazia) and the assertion of its independence from Russia. The conflict in South continue to liberalize the economy by reducing regulation, taxes, and corruption in Ossetia and Abkhazia is at the base of the Georgian- Russian relations difficulty. order to attract foreign investment, with a focus on hydropower, agriculture, tourism, and textiles production. Since 2004, the government has taken a series of actions To seek support to its sovereignty and territorial integrity is one of the basic against endemic corruption, including reform of the traffic police and implementation objectives of the Georgian policy in external relations. In 2009, Georgia officially of a fair examination system for entering the university system. The government has left the Commonwealth of Independent States (CIS) formed by the former Soviet received high marks from the World Bank for its anti-corruption efforts. republics. Despite the difficulties, in November 9, 2009 Georgia signed with Russia an agreement on customs points of the international borders secessionist territories, 3.1 GDP STRUCTURRE giving way for the accession of Russia to the WTO. Georgia aspires to join NATO and the Organization cooperates increasingly under Commission NATO -Georgia DISTRIBUTION BY SECTORS % PIB TOTAL (NGC). Agriculture, Forestry and 9,3 Industry 40,9 Georgia is one of the largest contributors of military personnel per capita to ISAD Services 49,8 (about 1000, and with an expected increase in to 1645 in 2013) and has suffered painful casualties in Afghanistan. EU-Georgia relations have developed significantly in the last two years and Georgia is one of the more advanced 3.2. Economic situation members of the Eastern Partnership.

ECONÓMIC INDICATORS 2009 2010 2011 It is negotiating an Association Agreement including a Free Trade Area (DCFTA) and already has a Visa Facilitation Agreement and Readmission in force. It is a GDP thousand millions $ 10.767,1 11.636,5 14.370,4 medium-high receiver of financial assistance. Georgia maintains close relations GDP% real growth -3,8% 6,3% 7% with the U.S.A., as political and as for cooperation. Inflation rate 3,0 11,2 2,0 Unemployment rate 16,9 16,3 16,2* Their desire for rapprochement to the European structures has created a virtuous Balance c/c thousand millions $ -1.144 -1.197 -1.682 cycle in the Georgian reform process. Georgia is committed to the EU, the OSCE Public Deficit (% GDP) n.d. -6,6% -3,0% and the Council of Europe to make the necessary reforms to improve democratic standards, increasing respect for human rights and develop a market economy. 3.3. Foreign Trade These organizations and especially the EU are committed to the Georgian process. Georgia maintains good relations with its neighbours of the South Caucasus, STRUTURE OF FOREIGN TRADE Armenia and Azerbaijan and pragmatic and growing relations with Turkey. 2009 2010 2011 Import CIF 4.500,2 5.257,1 7.057,8 Export FOB 1.133,6 1.677,5 2.189,1 3. Foreign Trade Balance -3.366,6 -3.579,7 -4.868,6 Coverage % 25,19% 31,91% 31,02%

3.4. Distribution of trade by country Georgia's main economic activities include the cultivation of agricultural products such as grapes, citrus fruits, and hazelnuts; mining of manganese, copper, and gold; MAJOR COSTUMERS % TOTAL and output of a small industrial sector producing alcoholic and non-alcoholic Azerbaijan 19,5 beverages, metals, machinery, and chemicals. Turkey 10,4 Armenia 10,2 The country imports nearly all supplies of natural gas and oil products. It has sizeable Kazakhstan 7,2 hydropower capacity that now provides most of its energy needs. Georgia has United States 6,6 overcome the chronic energy shortages and gas supply interruptions of the past by renovating hydropower plants and by increasingly relying on natural gas imports Ukraine 6,5 from Azerbaijan instead of from Russia. Construction of the Baku-T'bilisi-Ceyhan oil Canada 5,2 pipeline, the Baku-T'bilisi-Erzerum gas pipeline, and the Kars-Akhalkalaki Railroad

- Expenditures: $4.905 billion (2012) PRINCIPAL SUPPLIERS % TOTAL Turkey 18 •Budget surplus (+) or deficit (-): -3% of GDP (2012) Ukraine 10 •Public debt: 36.3% of GDP (2012) Azerbaijan 8,7 China 7,4 •Inflation rate (consumer prices): -0.9% (2012) Germany 6,8 - 8.5% (2011 est.) Russia 5,5 • Exports: $3.305 billion (2012.)

3.5. Distribution of trade by product •Imports: $6.628 billion (2012)

MAIN EXPORT % DEL TOTAL •Imports - commodities: Cars 20,57 Ferroalloys 11,64 - Fuels, vehicles, machinery and parts, grain and other foods, Fertilizers (Mineral/chemicals) 6,58 pharmaceuticals Nuts 5,94 •Imports - partners: Ferrous waste and others 5,34 - Turkey 13.9%, China 8.2%, Ukraine 8.2%, Russia 7.4%, Azerbaijan MAIN IMPORT % DEL TOTAL 7.1%, US 6%, Germany 5.6%, Bulgaria 4% (2012) Oil 13,2 Cars 7,7 Medicines 3,7 4. A COUNTRY TO INVEST IN Wheat and mix with others 3,3

Petroleum gases and other gaseous hydrocarbons 3,1

Top reasons to do business in Georgia 3.6. Other Dates

1. Business friendly environment with low levels of taxation, simple and fair •GDP (purchasing power parity): 27.11 Billion USD (2012) tax administration 2. Efficient, pro-business and corruption-free government •GDP (official exchange rate): $15.93 billion (2012) 3. Enlargement of market size by Free Trade Agreement 4. Solid Sovereign balance sheet •GDP - real growth rate: 6.5% (2012) 5. Stable and conservatively managed banking sector 6. Multi-modal maritime, land and air access infrastructure for trade, •GDP - per capita (PPP): $6,000 (2012) logistics and manufacturing 7. Stable and competitively priced energy supply •Gross national saving: 11.9% of GDP (2012) 8. Flexible labour legislation 9. Very low crime rate •GDP - composition, by end use: 10. BB- and Stable ( Sovereign credit rating) th - household consumption: 77% 11. Ranked 9 in the world in the category of “ease of doing business” by the - government consumption: 19% world bank (2013) - investment in fixed capital: 22.8% 12. Ranked 21 st in the world in the category of “Economic freedom index” - investment in inventories: 1.3% Georgia is the fourth least tax burden country after Qatar, UAE and Hong Kong - exports of goods and services: 36.2% - imports of goods and services: -56.6% Skilled and Affordable Labour: •GDP - composition by sector, by sector of origin: - General Employment Situation - agriculture: 7.8% - industry: 23% - services: 69.2% (2012 est.) • Georgia is one of the most liberal labour environments (3 rd •Agriculture - products: citrus, grapes, tea, hazelnuts, vegetables; livestock Best Globally) •Industries: steel, machine tools, electrical appliances, mining (manganese, copper, • Young labour pool- 50% of unemployed population are aged and gold), chemicals, wood products, wine between 20-34 • Vocational Education Training Centres around Georgia •Industrial production growth rate: 4.5% (2012) provide professional courses in different types of practical subjects and most of the course’s fees are financed by the •Labour force : 1.959 million (2011) Government of Georgia.

•Labour force - by occupation - Wages - agriculture: 55.6% Public employment: The minimum wage in government institutions - industry: 8.9% 115 Lari ($68) per month. - services: 35.5% Private employment: The minimum wage in the private sector 90 Lari •Budget: ($54) per month. - Revenues: $4.421 billion

tax burden, because in FIZ businesses are exempted from all tax charges - Free Trade Treaties : except Personal Income Tax.

• FTA with CIS countries: Ukraine, Belarus, Azerbaijan, Agriculture Armenia, Russia, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan. • FTA with Turkey • • DCFTA with EU will be signed next year Agriculture and agribusiness accounts for 8.4% of GDP, 53% of • Negotiations on FTA with USA is in progress employment and 17% of trade volume. There are over 21 micro-climates in Georgia which allow a wide variety of products to be farmed. • - Trade Market : Georgia offers pure, rich and pesticide-free soils - ideal for organic production. Country has rich tradition in viticulture, fruits and nuts, tea, but • Access to the 0.9 Billion Trade market there are dozens of other products which can be produced and exported. • • GSP+ with EU ~7200 products to the EU market duty free or The average gross monthly salary in the agricultural sector is USD 220. with lower tariffs Wages can be expected to remain competitively low given the high level of • GSP with USA, Norway, Switzerland, Canada, Japan- Lower unemployment in Georgia • tariffs are applied on 3400 goods exported from Georgia to Georgian agriculture is in a period of transformation, which creates a vast these countries number of investment opportunities: • • Member of WTO Import substitution opportunities - meat, dairy products, onions, potatoes etc. • Export opportunities - traditional strong sub-sectors, like wine, walnuts, - Taxation: hazelnuts, sheep meat, etc.

• Productivity gain opportunities – tomatoes, apples, cucumbers, stone fruits, citrus etc. • VAT is set at 18% flat fee • Income Tax is set at 20% flat fee • Corporate Profit Tax Regional Logistics Corridor o is set at 15% flat fee o Loss carry forward for corporate profit tax purposes (10 • Georgia is in a highly strategic location: It serves as an entry gate to the Years) Caucasus and Central Asia as well as a stepping stone to the region • Leveraging its location, Georgia’s transport economy can benefit from • Dividend and interest income tax is set at 5% flat fee land-locked resources, large addressable transit flows, and growing • No payroll tax economies • No Capital Gains tax • Around 80% of port cargo and 60% of freight rail are transits • No wealth Tax and Inheritance tax • Foreign-sources income of individuals are fully exempted Regional Service Hub • Accelerated depreciation on capital assets • No restrictions on currency convertibility or repatriation of capital & profit • • Georgia’s service sector achieves leading ranks among regional economies Double Taxation avoidance treaties with 40 countries in terms of value added and trade • Services have major share of FDI inflow of 45% in 2011 with USD 500 million: 5. KEY SECTORS • Financial Services have grown at 19% p.a. since 2009 and is 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 5.1 Manufacturing 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 • Georgia`s natural advantage as a gateway between the Europe and Asia • Financial Services/headquarters provides many benefits to investors in manufacturing sector. Specifically, • Retail hub as the destination-of-choice for shopping Georgia offers competitive labour and energy costs, logistics network and business friendly environment for serving the region, as well as many raw materials. The monthly nominal salary average in the manufacturing sector Hydro-power hub is 400 USD. Furthermore, salaries can be expected to remain competitively low given the high level of unemployment in Georgia.

• • By entering Georgia, companies can benefit from the growing regional Georgia, favoured with water resources that are well suited for hydropower market and easy access to 350 million markets with Free Trade generation, it is the cheapest electricity supplier in the region. Agreements. Within 24 hours you can reach 84 million customers in six • Growing domestic demand and strong export capacity makes hydropower countries and in two days 260 million in 10 countries. projects most attractive to foreign Investors. • • Tremendous potential for renewable energy generation • Large import overhang of goods provides regional import substitution • Deregulated tariffs and license-free export opportunities potential in household goods, food processing, construction materials, • Modern transmission and cross-border infrastructure packaging, furniture, etc.. • Pipeline of boosts, several new megaprojects (Listed Below- See table), it also boosts ~ 70 small/medium projects (<100 MW capacity) that are all currently • With the establishment of Free Industrial Zones in Georgia, there are new open for investment. incentives and opportunities to produce and export goods with a minimal

Figure 1- List of mega hydropower projects

Project Capacity Forecast Investment volume (USD Mil.)

Namakhvani 450 MW 926 Cascade

Khaishi HPP 400 MW 620

Oni Cascade 270 MW 599

Nenskra HPP 210 MW 491

Tobari HPP 200 MW 310

Fari HPP 180 MW 297

Lentekhi HPP 120 MW 189

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