Investment Opportunities in Georgia (Part 2)

Situated between Europe and Asia on the historic Silk Road, Georgia allows companies to do business at a strategic crossroads of cultures and economies while maintaining a high degree of integration with international markets.

Why Georgia

Georgia is an ideal place for international investors. Key benefits include:

• Strategic location. Georgia is located at the crossroads of Europe and Asia, providing access to continental markets.

• Strong and growing economy. Georgia’s economy is stable and growing, and is expected to continue to do so in the future.

• Favorable investment environment. The Georgian government uses tax incentives and other forms of incentives to encourage foreign direct investment, making Georgia an attractive investment destination.

• Skilled and cost-effective workforce. Georgia’s workforce is highly educated and its relative cost is competitive, making it easy to build professional teams.

• Expanded infrastructure. Georgia has developed transport and communication systems that contribute to the country's economic development.

• Ease of Doing Business. The current government of Georgia is reducing and liberalizing the steps to start and run a business.

• Stable Political System. Political stability combined with the country's democratic rules make Georgia an attractive destination for foreign investors and contribute to the development of a stable business climate.

Sectors for Investment

Agricultural Sector

Georgia's fertile soil and favorable climate contribute to the production of a wide range of high-quality agricultural products. However, the country's rugged and mountainous terrain also limits the total area of arable land available, especially for field crops. Russia has traditionally received the bulk of Georgia’s exports, but the country has also focused on developing European markets.

Georgia grows an increasing number of crops for domestic consumption, including vegetables and corn. The country relies on imported milk powder, meat products, and wheat.

Agriculture remains an important sector for Georgia in terms of its contribution to GDP, accounting for 7-8% over the past decade. The sector also provides an important safety net for the rural population, with over 40% of the country’s population living in rural areas.
The World Bank estimates that about 64% of registered agricultural land that is pasture and hayfields is owned and managed by government agencies.

The share of commercial farms in agricultural production remains low. The vast majority of households own less than two hectares of agricultural land. Only 4.8% of households own two to five hectares of land, while 1.5 percent own more than five hectares. With this ownership structure, commercial agriculture remains underdeveloped.

In 2019, the parliament passed a law that allows foreigners to purchase land under an investment plan and other preconditions.

The Georgian government has identified agriculture as a priority for development and has significantly increased funding for the sector. It has also created an Agricultural Investment Fund to support the sector by providing loans to farmers. Government programs implemented through the Rural Development Agency, such as Plant the Future, Preferential Agro Loan, etc., can create additional demand among farmers for equipment and inputs supplied from abroad.

Food Processing and Packaging Subsector

Georgia’s strategic location makes it an ideal exporter of certain bulk commodities, such as citrus fruits and hazelnuts, to regional and European markets. The sector has suffered from the breakdown of traditional ties between post-Soviet states, outdated equipment, and a lack of investment and modern technical expertise.

Georgia imports 80% of its packaged food products and 70% of all food products, which has a significant negative impact on its trade balance. However, the food industry has been growing steadily, albeit at a slow pace, following the privatization of state-owned enterprises and growing demand for locally produced goods. In addition, a number of foreign aid programs target agriculture and provide financial or material support to individual farmers or large enterprises to help them meet the demands of international markets.

The growth potential in the sector offers the country the opportunity to increase food production for domestic consumption, as well as become an exporter of niche agricultural commodities to a wider region, including Europe, Asia and the Middle East. The sector has been growing steadily, with Georgian branded products – wine, beer, dairy, nuts, sausages, fruit juices and mineral waters – filling local stores and beginning to find new export markets. Georgian wines and spirits have long enjoyed an excellent reputation in Russia and other former Soviet countries, and improved bottling and packaging now allow Georgian firms to sell to a wider export market.

Opportunities

There are export opportunities for food processing and packaging equipment for fruits, nuts (especially hazelnuts and walnuts), vegetables, citrus, meat and dairy products. Currently, many of the existing processing plants are using old equipment that does not provide high productivity or technical safety. The existing alternatives mainly include Turkish technology or used lines from Europe. Based on information provided by local authorities and managers, the best sales prospects are for small and medium capacity bottling lines, wine and juice production units, and tea processing and packaging equipment. Additional prospects include seed crushing and oil refining equipment. There is also a demand for mini-bakeries and confectionery production equipment.

Architecture/Construction/Engineering Services (ACE)

New construction and reconstruction in Tbilisi and Batumi, as well as the construction of the Baku-Supsa and Shah Deniz pipelines, have led to a revival of this industry in recent years. Other energy-related construction and rehabilitation projects are also being considered. In addition, necessary upgrades to the transport and tourism infrastructure will continue to create demand for construction services and materials in the near future.

Numerous hotels have been built or are under construction in Tbilisi, Batumi, and Kobuleti along the Black Sea coast. Commercial banks with new mortgage lending and joint projects with construction companies play an important role in the development of the real estate market. Construction standards are undergoing reform. Marriott, Hilton, Hyatt, Biltmore, Sheraton, Radisson, Best Western, IBIS, Windham, and other brands operate in Georgia, most of them adding new hotels in the capital, and some are also building new tourist destinations in other parts of the country.

In recent years, reforms have been carried out to simplify the permitting system in the construction sector, and construction companies are now allowed to use technical regulations of OECD and EU member states for their construction projects. The government has also eliminated the need for construction licenses and simplified the process of issuing construction permits. The government and municipal authorities have further simplified and liberalized the paperwork for connecting new construction sites to public utilities.

In architectural design and technical solutions, local companies still rely heavily on foreign specialists. It is common practice to obtain certain services for large construction projects through an international tender.

To stimulate the construction sector, the Georgian government has initiated several projects to restore the Old Town of Tbilisi with the participation of several banks and developers.

The country relies heavily on imported construction materials. Local materials include cement, timber, reinforcement, and concrete. Resources such as tiling and roofing materials, as well as interior and exterior design personnel, are mainly imported from Europe and Turkey.

Opportunities

A modest growth of the middle class and easier access to credit have increased demand for quality housing, corporate/business infrastructure, and real estate in general.

Georgia is located in an active seismic zone, so companies with experience in building to earthquake-resistant standards are in demand. Tbilisi and other Georgian cities such as Batumi and Kutaisi have many old buildings that are in need of significant restoration and reconstruction.

Electric Power Systems (EPS)

Georgia has significant export potential for electricity, especially to Turkish and European markets. Georgia is also a transit country for electricity between Azerbaijan, Turkey, Russia, and Armenia.

With assistance from USAID, the European Bank for Reconstruction and Development, Kreditanstalt für Wiederaufbau (KfW), and the European Investment Bank, Georgia has completed construction of a power interconnector project that allows electricity exports to more lucrative, high-demand markets such as Turkey and potentially Europe, although the line has untapped capacity and room for increased flows.

With assistance from KfW, a new high-voltage transmission line between Georgia and Armenia is being considered. Georgia is also considering a subsea transmission line between Georgia and Romania that would connect their grids. If built, the interconnection would provide Georgia with a direct connection to Romania’s grid and access to European markets. The World Bank is conducting a feasibility study for the project. Georgia, Azerbaijan, Romania and Hungary also signed a memorandum on the establishment of a joint venture to develop a submarine power transmission line across the Black Sea.

Georgian politicians have taken significant steps to adopt a modern approach to the energy sector, including the unbundling and privatization of the state-owned vertically integrated electricity company, the creation of a strong regulatory commission, and others.

Hydroelectric Power Plants

There are more than 20,000 rivers in Georgia, and almost 300 of them provide excellent opportunities for hydroelectric power generation. Georgia is one of the leading countries in terms of water resources per capita, and it is logical that today about 70% of all electricity is generated by hydroelectric power plants. All new hydroelectric power plants are completely deregulated. The investor is free to choose the market and negotiate the price. Hydroelectric power plants with an installed capacity of 15 MW or less do not require a production license, and hydroelectric power plants with an installed capacity of 2 MW or less also do not require an environmental impact permit. They can sell the electricity they generate directly to consumers without the involvement of a third party. In addition, an export license is not required.

Thermal Power Plants

Thermal Power Plants are a source of guaranteed electricity supply. Thermal power plants are usually in standby mode, ready to supply the system when needed, usually during the winter period. They are vital for Georgia's electrical stability. Because of this, even when in standby mode, thermal power plants receive payments to cover maintenance costs and fixed costs. Tariffs are set by the regulator.

Wind Power

Georgia offers an attractive opportunity for investment in wind power plants. Georgia's wind potential is estimated at 4 TWh. Wind energy is an excellent complement to hydropower generation, as wind generation is higher in winter when hydropower generation is lower. Georgia's share of wind power is expected to reach 10% by 2030.

There are many opportunities for foreign companies in power generation, particularly hydropower, wind power, and solar power. There are opportunities in transmission and distribution projects, as well as in battery storage, but no feasibility studies have been conducted for these opportunities. There are also opportunities to export foreign equipment and services during construction and rehabilitation of facilities, as well as the management and modernization of existing energy infrastructure.

Georgia is also assembling solar panels (sourced from China) in a free industrial zone in Kutaisi, western Georgia, with exports to Mexico. Opportunities for foreign suppliers are also available in projects financed by multilateral financial institutions and bilateral aid: the World Bank, EBRD, Asian Development Bank, Japan Bank for International Cooperation and KfW.

Other opportunities exist in demand-side energy management for electricity distribution companies that serve end users of the electricity market. These opportunities include cybersecurity, smart grids, metering and intelligent energy management systems for distribution network operators, industrial and commercial users and, to a lesser extent, residential users as the country develops better incentives for energy efficiency.

Georgia currently does not manufacture electricity generation and transmission equipment, with the exception of some small-scale hydroelectric turbines, solar panels and electricity meters. Most of the modern equipment was manufactured during the Soviet era. All medium and large hydropower facilities, with the exception of the Enguri and Vardnili hydroelectric power plants, have been privatized.

Tourism

Georgia has significant potential for tourism development due to its natural beauty, diverse topography, pleasant climate, unique cuisine, rich culture and history. To promote tourism, the Georgian government has eased visa requirements, increased highway construction, privatized amusement parks and hotels, and established limited tax incentives for tour operators. New developments across the country, including in the seaside resort of Batumi, the ski resorts of Gudauri, Goderdzi, Bakuriani and Mestia, and the wine region of Kakheti, are strengthening Georgia’s position as an attractive tourist destination.

Development of tourism infrastructure will require significant ongoing investment and rehabilitation of assets such as hotels, restaurants, sports facilities and ski resorts. The Georgian Government Partnership Fund and the Georgian Private Co-Investment Fund (GCIF) are exploring investment opportunities in tourism infrastructure in the regions of Imereti, Adjara, Kakheti and elsewhere. These funds are interested in collaborating with interested investors.

The government prioritizes diversification of tourists from around the world by increasing the number of flights from the Middle East and aims to turn Georgia into a four-season tourist destination. The government also promotes medical, entertainment, sports, wine and eco-tourism. “Check In Georgia” is an example of a government project that supports Georgia's transformation into a regional cultural and entertainment hub.

Georgian tour operators report an increase in the number of tourists in both summer and winter, especially in the field of active and cultural tourism. Despite this interest in travel to Georgia, suitable accommodation outside the capital and the main resort areas remains scarce, with facilities either unmaintained or non-existent.

The seaside resorts of Batumi and Kobuleti are developing rapidly. Foreign investment has supported the construction of high-end hotels across the country, such as Sheraton, Radisson, Biltmore, Marriott, Hilton, Best Western, Windham, Millennium and Rixos, with more under construction. To develop new tourist destinations, the government is promoting the seaside areas and mountain towns of Svaneti and Racha, building the necessary infrastructure and offering preferential terms to potential investors.

Opportunities

Developing tourism will require additional investment in infrastructure such as hotels, restaurants, sports facilities and ski resorts. Several recently privatized hotels are being rehabilitated in Tbilisi and Adjara, while additional opportunities may be found in the ski resorts of Gudauri, Bakuriani, and Mestia. In addition, the sector requires skills development and training for hospitality workers to meet the standards of international tourists.

International donors are actively funding infrastructure projects in Georgia. World Bank road projects aim to boost tourism by reducing travel times, improving vehicle safety, and facilitating cargo transportation across the country. The World Bank continues to support Georgia’s aspirations to become a regional transit hub by financing the East-West Highway Corridor Improvement Project and the relatively new Kakheti Connectivity Improvement Project ($109 million). The World Bank is also playing a leading role in the policy dialogue on developing a regional electricity and digital connectivity corridor. It is implementing a long-term program aimed at protecting nature, preserving cultural heritage, and promoting sustainable tourism development.