Caspian Energy (CE): Mr. Kvirikashvili, which sectors of Georgian economy are the most investment intensive ones? How did the investment climate change in the country after signing the EU-Georgia Association Agreement?
George Kvirikashvili, Vice Prime Minister, Minister of Economy and Sustainable Development of Georgia: Georgia has a liberal business environment and open investment policy, supported by business friendly effective public services, tax and customs administration systems and fast developing infrastructure, which make Georgia attractive for investors in different sectors of economy.
Located at the juncture of Europe and Asia, Georgia has a potential of becoming a major hub for coordinating the regional business activities. One of the more attractive sectors, from that perspective, is the energy, wherein the country possesses huge hydro resources. Currently country utilizes only 18% of its vast hydro resources. Namely, from 2007 to 2013 year energy sector of Georgia has attracted almost USD 1,3 billion. In 2013 year the FDI to energy sector amounted to almost USD 200 million with a 10% growth on annual base. Among largest investors in this sector I can name Indian Conglomerate TATA Group, which in joint venture with the Norwegian company constructs the cascade of HPPs with the total volume of investments up to USD 600 million.
Georgian Ministry of Energy and International Organizations like USAID have conducted prefeasibility studies for about 70 sites (Several of these projects are already under way) and is developing our infrastructure so that the country is able to successfully compete with other surrounding countries which are faced with either a structural power deficit or expensive power generation.
Another sector of great potential is Tourism: In 2013 World Tourism Organization named Georgia, as a country with the most developing Tourism sector in the world and one of the top countries by the growth rate on international visitors. From 2003 to 2013 the number of international visitor arrivals to Georgia has grown at an average annual rate of 35% from 300,000 to 5,4 million.
During the last years, supply of the hospitality industry has increased at around a third of the demand growth rate, causing a widening supply-demand gap, strongly increasing occupancy rates and relatively high room rates. Thanks to strong demand growth, an increasing number of international hotel brands are expanding (like Radisson, Marriot, and Sheraton) or entering (such as Hilton, Rixos and Best Western). Outside the core markets Tbilisi and Batumi, modern supply hardly exists in Georgia, resulting in a variety of interesting regional opportunities.
Retail sector in Georgia being the important driver of the economic development offers highly attractive investment opportunities, which is among the most prospective in the country. With 17.3% of National GDP in 2013, trade is the largest economic sector in Georgia. Annual per capita retail expenditure has doubled over the past decade and tourism spending has become a substantial proportion of total retail expenditures. Currently, retail development is primarily driven by the expansion of modern supermarket formats and an increasing number of fast-food retailers. Still there are number of opportunities for retail business in Georgia focused on local population as well as on regional markets and fast growing number of international visitors.
As a result of its geographic, topographic, and climatic diversity, Georgia has a great variety of ecological and climatic zones that allow for the production of most types of temperate and even sub‐tropical food and agricultural products. Climate permits extension of the growing seasons which in turn allows serving markets with vegetables, potatoes, essential oils, flowers, medicinal herbs, grapes, etc. Some international brands like Ferrero Roche and Hipp have already benefited from country’s agriculture and are doing business in Georgia. There are business opportunities not only in farming but also in supplying equipment and services and creating the value chain (greenhouses, storage, deep-freeze facilities, processing, packaging and other). Georgian agriculture offers foreign businesses the opportunity to invest in areas of unmet market demand, significant cost efficiencies and strong profit potential.
In addition, Georgia offers investment opportunities in manufacturing sector, which already contributes up to 12% to the Gross Domestic Product of our country. Since 2007 year, manufacturing sector has attracted more than USD 1.2 billion investments.
Georgia offers competitive utilities and labor costs, business friendly tax system, developed infrastructure and attractive trade relations. Our government has recently started program “Produce in Georgia”, which is aimed to support new manufacturing facilities in our country through several financial schemes and technical assistance component. Moreover, for export oriented companies Georgia has special incentives like Free Industrial Zones.
This leads us into one of the major business opportunities – the Free Trade Agreement with EU. As catalyst to political, economic and social reforms AA, including DCFTA, which entered into force September 1, 2014, will contribute to economic growth, to integration with world markets and global supply chains, as well as to economic and political modernization. This agreement is a step which will make the process of political and economic integration of Georgia with the EU irreversible. It brings the EU-Georgia relations to the qualitatively new level of cooperation in all directions that should contribute to the transformation of the country into genuine European state.
Access to the EU, one of the world’s largest and richest markets, will be a powerful impetus for Georgian businesses, local production and export diversification and development. Besides, this agreement significantly increases the attractiveness of Georgia for foreign direct investment, which in turn will lead to the transfer of new technologies and “know-how”, stimulation of the emergence of competitive local production and creation of jobs.
CE: What are your expectations from the new leadership of the EU?
George Kvirikashvili: Georgia has successfully worked with the previous Commission and achieved to bring relations with the EU and its member states to the qualitatively new level. This level envisages legislative and institutional approximation with the EU. While opening new opportunities for political association and economic integration, AA includes commitments to introduce the European norms and standards, both in the economy and in the field of democracy, human rights, judiciary, the rule of law and the strengthening of democratic institutions. Georgia is committed to implement all the reforms effectively and we expect from the new leadership of the EU that our progress will be adequately evaluated. We believe that through joint efforts with the new leadership we will continue moving forward towards rapprochement of my country with the European Union.
CE: Which countries does Georgia plan to sign free trade agreements with?
George Kvirikashvili: One of the main priorities of Georgia’s trade policy is a diversification of export markets. Georgia already enjoys free trade with the markets of more than 800 million population, but we are continuing our active work on enhancement of trade regimes with other partners as well.
Signing of the Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA) between Georgia and the EU creates a favorable background for further enhancement of cooperation with the EFTA countries. Establishment of a free trade between the EFTA countries and Georgia, we consider as a next meaningful step towards further integration of Georgia in the European trade and economic area. We are analyzing possibilities of an FTA with other regional and non-regional trade partners as well.
CE: What will be the impact of rapprochement of the US and European markets within the Transatlantic Trade and Investment Partnership on the Georgian economy?
George Kvirikashvili: Rapprochement of the US and European markets will have positive impact on the global economy, and especially, the countries having established free trade areas with these largest economies will gain first. Today, we see that negotiations on multilateral arena, under WTO, are stalled, and special attention is given to regional integration processes. US and EU are not only the largest markets, but also the largest source of new standards. Convergence of those standards will create more trade and accordingly, more wealth. Georgian economy, being in the free trade area with the EU will gain from this process, as it will open new doors for the Georgian competitive exports.
CE: Which benefits did Georgia get after accession to the WTO through the prism of the recent several years? Was it helpful to protect the local business?
George Kvirikashvili: Georgia’s accession to the World Trade Organization in 2000 was a significant step towards Georgia’s integration into the global market. WTO membership ensured the irreversibility of economic reforms aimed at creation of competitive market economy. Georgia is a small market and it is inefficient to develop local manufacturing under the protectionist policy. In opposite, local business should be competitive on the world scale and the government has to ensure that locally produced goods have access to larger markets.
After joining the WTO Georgia’s gross domestic product in current prices increased by 350% and estimated 27 billion GEL up from 6 billion GEL. Foreign trade grew almost 11 times, from 1billion to 11 billion USD. Further, exports rose 800% and imports increased by 1000%.
CE: How successfully are regional infrastructure projects implemented? What is the level of readiness for commissioning of the Baku-Tbilisi-Kars railroad?
George Kvirikashvili: Baku-Tbilisi-Kars railroad is strategically important not only for the Government of Georgia but also for the Republic of Azerbaijan and the Republic of Turkey. The Baku-Tbilisi-Kars railway project is linking Europe and Asia, which will facilitate the transportation of cargos and passengers in both directions. The first phase is targeted for 5 mln tones freight, with the perspectives to further increase of capacity. The project will promote to attract additional transit traffic and increase the competitiveness of the TRACECA corridor, to create the new jobs and will contribute to the development of economic cooperation in the region.
In the framework of the project construction, rehabilitation and reconstruction processes on the section of the Marabda-Kartsakhi with the total length of 180-km is conducted. The first section of Marabda-Akhalkalaki (153 km) envisages rehabilitation and reconstruction while the second section of Akhalkalaki-Kartsakhi – (the border of Turkey, 27 km) foresees construction of new railway line including the railway tunnel.
At present the 60% of the works are finalized. The test train is planned to be launched at the end of 2014.
On the basis of the above mentioned, we can conclude that all operations are conducted in accordance with the existing timetable and we are making efforts to complete the construction work within the scheduled timeline (at the end of 2015).
Thank you for the interview
