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OVERVIEW OF TRANSPORTATION & LOGISTICS SECTOR IN GEORGIA
By Bea J. Celler, Investment Advisor to GNIA
August 10, 2007
NUMBER TITLE PAGE
1. Executive Summary 1
2. Segments 2
Pipelines 3
Rail 3
Ports & Shipping 4
Trade Facilitation
Aviation 6
Roads & Trucking 6
3. Skills Database & Local Key Players 7
4. Comparative Advantage 7
5. Sector Analysis & Opportunities 8
6. Infrastructure of Georgia 11
7. Legal & Regulatory Climate of Georgia 13
8. Stakeholders in Sector & Websites 15
SECTION 1. SECTOR EXECUTIVE SUMMARY
1. Executive Summary:
The shortest route from Europe to China, Asia - 400 km of motorway and 600 km of airway - goes through
Georgia. This is a revival of the Georgia-initiated historic “Silk Road”, which was connecting Europe with
Asian in ancient times. The corridor starts in Eastern Europe and ends at the borders of China and
Afghanistan. There are two routes: one through Black Sea ports of Georgia and the other, a land connection
through Turkey.
Georgia‟s Strategic Location or New Silk Road for Energy and Trade are some of the terms that have been
used to describe Georgia‟s Focal Point/Bridge/Hub between Europe & Asia. Georgia is the transportation
hub for the South Caucasus region, comprising of Georgia Armenia and Azerbaijan, as well as for the
landlocked Central Asia region, comprising Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and
Turkmenistan. Georgia‟s investment strategy is to attract technologically advanced and export oriented
efficiency seeking foreign direct investment.
The total output of the entire sector in 2006 is estimated to be over ONE BILLION GEL, employing over
41,000 Georgians. The growth in this sector is 19.6% over the previous year. Total volume of cargo today
is 11 million tons and according to many Georgian transportation experts, Georgia has the capacity to
support this volume. Transportation today in Georgia represents approximately 9.8% of the Georgian GDP.
However, if the volume would increase, per some projections, to 20-25 million tons, the entire system
would need to be modernized within Georgia and Azerbaijan, especially the Azeri rail system.
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Located at the crossroads of Europe, Central Asia, Russia, the Middle East and Asia, Georgia is a bridge
connecting several important global economic regions with a total of 827 million people, including:
REGION POPULATION
European Union 495 million
Russian Federation 145 million
5 Central Asian countries 50 million
3 Caucasus Countries 16 million
Balkans 55 million
Turkey 73 million
Iran 70 million
Arab Middle East 120 million
Over One Billion Potential Market
Georgia is the key link in the shortest transit route between Western Europe and Central Asia for
transportation of oil and gas as well as dry cargo. Georgia‟s oil and gas pipelines, Black Sea ports, well-
developed railway systems, airports with direct air services to 17 locations, are playing an increasingly
important role in linking East and West. By positioning itself in the central link, in a chain connecting
Europe and Asia, Middle East and Russia, Tbilisi has been trying to switch what was once a 4,000 year old
curse – its geographical sandwiching between Asian/Middle Eastern and European/Russian empires
resulting in many invasions – into a new source of strength, commerce and job creation.
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Georgia is quickly rediscovering its “Silk Road” heritage as both Caspian basin oil and western goods flow
through its territory. The Eurasia Corridor policy of the Government of Georgia will require substantial
investment.
Several investment opportunities are summarized on page 10 of this Overview. Opportunities are in cargo
infrastructure (TAM Project), railway links under construction, modern logistical systems in the ports,
further airport development, opportunities for management expertise in port structure, implementation and
monitoring system, development of the opportunities that will arise from the Special Economic Zones,
warehousing and storage facilities and transportation/logistic specific think tanks to provide the system
integration that will make Georgia strategy become reality.
SECTION 2. SECTOR SEGMENTS
According to the Georgian Customs Department, the volume of total transit in Georgia (excluding oil and
gas) rose from approximately ten million tons in 1999 to twenty-three million tons in 2006.
Pipelines
Georgia plays important role as a strategic crossroad in the Caspian region. British Petroleum (BP) and its
partners have invested over $5 billion over the last 10 years to develop the major oil and gas pipelines that
cross Georgia.
NAME OF CAPACITY/VOLUME ROUTE PAYMENTS
PIPELINE
Baku-Tbilisi- 1 million barrels oil perSangachal, Estimated profit tax
Ceyhan day, finished in 2005 Azerbaijan to payments to
Pipeline marine terminal in Georgia 2007 $25
Ceylan, Turkey million
South Caucasus Gas 800 million cubic meters Shah Deniz field in In kind gas in lieu of
Pipeline potential, finished in Caspian Sea to 3 tariff; energy
2006 Caucasus states security for Georgia
Western Route Finished in 1998 Baku - Supsa Transit fee revenues
Export Pipeline
Source: Ministry of Economic Development, Ernst & Young, “Invest in Georgia” 2007
Railways
Georgia‟s rail system served 3.9 million passengers and 22.6 million tons of cargo in 2006, with links to rail
systems of Armenia, Azerbaijan and Russia. The planned new railway serving Georgia, Turkey and
Azerbaijan will be completed by 2010. The advantageous double track rail system in Georgia allows trains
in opposite direction to easily pass each other. The road of the railways structure connects the major ports,
Batumi and Poti, the capital Tbilisi and east to Azerbaijan.
Once tariff structures, equipment shortages, facility limitations and better business processes are addressed,
the system will be able to take advantage of increased container traffic from the ports. The American
Chamber of Commerce (Am-Cham) in Georgia states on its website within the Transportation Sector Study:
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“Georgia’s favorable location between Europe and the rapidly developing economies of Central Asia, such
as Kazakhstan, is an asset to its future rail development, as it can provide a staging area for companies
providing products and services to the oil industry, as well as warehousing, distribution and final assembly
site for companies…….Also its advantageous double track system, allowing trains in opposite directions to
easily pass each other. The route structure of the railways is well suited to connect the major ports of
Batumi and Poti, the capital and east to Azerbaijan.”
Please see the Georgian Railways website: www.railway.ge/eng for details on legislation, lists of assets for
sale or privatization, tenders, etc.
Black Sea Ports & Shipping:
This type of transportation accounts for 41% of total cargo imported in Georgia. There are 2 ports on the
Black Sea, Poti and Batumi. Georgia‟s ports have rail ferry links with Ukraine, Romania, Russia and
Bulgaria. Both ports are key links in the TRACECA trade route.
Poti (depth 11 meters; established 1858; www.potiseaport.com) – Georgia is developing a free economic
zone on the territory of Poti and surrounding area to allow investors to leverage Georgia‟s strategic location.
Poti is estimated to carry 15.5 million tons by 2010 and 19 million tons by 2015. According to the 2007
Poti lst Quarter figures, published by the Poti Sea Port in their publication and from their website:
POTI PORT CATEGORY TIME PERIOD AMOUNT
Cargo Flow First quarter 2007 1.8 million tons; 54% cargo in transit,
16% import; 29% export
Number of Containers through port First quarter 2007 42,977 TEU (Twenty Foot Equivalent
Unit; 1TEU=20 foot container)
Handled Containers First quarter 2007 16,576 empty & 26,401 full
Total Turnover 2006 6 million tons
Cargo Flow 2006 3.7 million tons
Number of Vessels Calling at Port 2006 1,957 Ships
Total Throughput (TEU) 2006 126,905
Handled Containers Empty 2006 44,439
Handled Containers Full 2006 82,466
On July 16, 2007 Georgia invited foreign companies for expression of interest in a concession due
September 14, 2007 to run the Port of Poti and the right to develop and run an adjacent free industrial zone,
of 400 hectares, for 49 years. Poti, one of the largest Black Sea ports, transshipped 7 million tons of dry
cargo in 2006, 9.1% more than in 2005. Ministry of Economic Development of Georgia officials expect the
cargo transshipment in 2007 to grow by 12%. Poti has direct motorway ferry connections to the following
ports: Burgas (Bulgaria), Rize (Turkey) and Novorosiisk (Russia).
Kulevi -- This is a new oil terminal, a former military port in the Kolkheti National Park, near Poti which
is under construction, privately funded and supported by the World Bank, to be completed by the end of
2007. It will consist of 16 tanks with a capacity of 22,000 cubic meters, each serviced by a railway that
could support up to 10 million tons of oil in phase 1 and up to 35 million tons in phase 2.
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Batumi (depth 12 meters) Batumi carried 14.2 million tons in 2005. It is estimated to carry 17.5 million
tons by 2010 and 33.8 million tons by 2015. Batumi is both an oil terminal and seaport. The annual
capacity of Batumi Port is 18 million tons for oil and 2.3 million tons for dry cargo per year. Batumi Port is
managed by Green Oak Group of Denmark, who won bidding for a 49-year management contract of the
Port. Batumi‟s new airport, opened in 2007, has a runway of 2,420 meters.
Trade Facilitation/Logistics
Freight Forwarders
International Freight Forwarders in Georgia are represented by the Association of Freight Forwarders with
26 members, including many employees with FIATA diplomas and involved in the ISO certification
process. Also represented in Georgia is the Georgian International Road Carriers Association
(www.girca.org).
Storage Facilities/Warehousing
Most of the storage and warehousing facilities are located around the Poti, Batumi and Tbilisi ports and
airports. For air cargo, the storage handling market in 2005 was $1.5 million. The potential for
warehousing and storage is substantial, especially in areas of refrigerated storage.
Global Participation
The United States, via USAID, Millennium Challenge Corporation, Overseas Private (OPIC), EXIM Bank,
along with the World Bank, EBRD, EU, Japan Bank for International Cooperation (JBIC) and other donors
are looking at methods to improve the transport, water supply and wastewater treatment infrastructure. The
Millennium Challenge Georgia (MCG) has allocated US $102,2 million for construction and reconstruction
of roads in Georgia ( the Samtskhe-Javakheti Road Rehabilitation Project). The EU has helped to start the
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TRACECA (Transport Corridor for Europe, Caucasus and Asia) with 9 countries, signing bilateral
agreements on preferential trade & cargo regimes.
Civil Aviation/Airports
Tbilisi‟s new international terminal, opened in February of 2007, with a 3,000 meter runway, is hailed as
one of the world‟s most comfortable and efficient terminals. Four national and 14 foreign airlines serve
Georgia including Austrian Airlines, British Airways, Lufthansa, Air Baltic, and Turkish Airlines. See
below chart for direct flights from Tbilisi. Kutaisi has a 2,500 meter runway, Batumi a 2,420 meter runway,
Senaki a 2,400 meter runway and Poti a 1,500 meter runway.
London
Astana and
Amsterdam Almaty,
Kazakhstan
Paris
Frankfurt & Tel-Aviv,
Munich Israel
Tbilisi,
Vienna
Georgia
Athens
Istanbul,
Turkey
Kiev&Kharkiv
Minsk
Dubai, UAE
Riga Baku,
Azerbaijan
Air Cargo:
In 2005 air cargo in Europe-Caucasus-Asia corridor was 2.7 million tons. In 2005 out of the 20 fastest
growing airports in the world, 7 were in China. Estimates of 8 million ton air cargo market require more
logistical hubs, especially 3-modal, in addition to those in Baku, Almaty and Tashkent. These air cargo
sites require specific runway lengths, proper equipment control links and parking spaces for planes.
Georgia still has significant unused capacity in air cargo, if the proper infrastructure is built. Please see
specific investment opportunity in this area on page 10 of this Overview. Some major global players in this
air cargo market are Quantas, Lufthansa, KLM, Swissair and Lasare.
Road Transportation/Trucking
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Georgia has allocated 181 million GEL in 2006 and 459 million GEL in 2007 state budget to improve the
quality of its 20,229 km of public roads. The World Bank has financed roads rehabilitation and construction
on all major trunk roads in Georgia and is now rehabilitating the secondary roads in the regions.
Free Economic Zones
On July 3, 2007, to be effective September 1, 2007, the Parliament of Georgia adopted a bill regarding the
creation of free economic zones (FEZ). The bill titled “Free Industrialized Zones” envisages zones located
on at least 10 hectares. The zones may be established by government, a legal entity or private individual.
Companies in the multi-currency zones will be free from profit, property and VAT taxes.
SECTION 3. SKILLS DATABASE & LOCAL MAJOR PLAYERS
The loss of more highly qualified workers from 1991 through 2004, the degradation of the value of certain
formal education qualifications in the 1990‟s, a rapid expansion of imports with small corresponding job
creation, the large informal market in Georgia and other factors have had an adverse effect on the country‟s
skill mix. The Labor Code reform making Georgia one of the most flexible labor markets in the world,
along with the upgrading of the vocational, professional and university training have helped to stem the tide
of rising unemployment and emigration from Georgia. The total labor force is estimated at 2.1 million.
Although the Transportation/Logistics Sector is economically vibrant, it is undergoing intensive enterprise
restructuring requiring specialized skills in modern logistical and management techniques with multimodal
transportation standards. The challenge for the sector is to target current Georgian skills to the modern
requirements of the Black Sea competitors Georgia has for logistical hubs, air cargo centers and standards to
serve the specific demands of the global clients.
Finding qualified staff in such an emerging market is difficult, but considerable training is underway in both
the public and private sector. Organizations like FIATA have been very helpful in providing training with
local business association, such as Association of Freight Forwarders, to fill those needs. Some of the key
players in this sector in Georgia are:
Maersk, Georgia www.maerskline.com
Barwil Georgia www.barwilpi.com.ge
CTE Caucastransexpress www.cte.ge
Chanel Energy Poti Port www.channelenergy.ge
Batumi Oil Terminal, Ltd. www.greenoak-group.com
Bertling Caspian Ltd www.bertlingcaspian.com
Catoni & Co., Georgia www.catoni.com.ge
Globalink www.globalink-logistics.com
Nomad Georgia www.nomadexpress.ge
Solar Georgia www.solargeorgia.com
SECTION 4. COMPARATIVE ADVANTAGE
The American Chamber of Commerce in Georgia on its 2007 website under Transportation Sector states:
“…Georgia’s comparative advantage is to emerge as a transit country with the shortest route from
Azerbaijan and Central Asia to the west, and from Turkey to Russia. The Government of Georgia recognizes
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this potential and is undertaking broad reforms of the Customs Code and working to upgrade infrastructure,
including roads, tunnels and bridges.”
See chart next page (8) describing some of the Georgia specific inputs into the Comparative Advantage for
Georgia in this Sector:
8
Concept of Eurasian One billion GEL Improved & new Port Direct flights from
corridor & hub with sector, with 41,000 facilities in Batumi & Tbilisi to major
Georgia as the key jobs thus a critical Poti, plus new terminal European, Central
link between Asia mass for “new silk in Kulevi to improve Asian and Middle East
and Europe road” for energy & Black Sea outreach. countries.
trade starting
Marketing of Georgia New rail links being
strategic location developed, under
globally by Georgia’s tenders, to improve
public and private service for passengers
sectors and cargo with double
track system
Significant FDI by Special Economic
investors and donors STRENGTHENING THE Zones (SEZ)
in transportation and legislation approved
logistics sector by Parliament and
infrastructure TRANSPORTATION AND
tenders for private or
public owners started
LOGISTICS SECTOR IN
New Tbilisi and GEORGIA TO BECOME KEY Improved regulatory
Batumi airport climate – World Bank
passenger terminals LINK IN EURASIA HUB calls Georgia the # 1
were opened in 2007 Global Reformer –
Customs Code &
Tariffs reforms
Emerging model of Developing number of
systems for intermodal people in sector who
& multi-modal understand and are
networks with rail, sea, trained in up to date
air and road links modern logistical
systems
Flexible and educated Understanding of the Opportunities for Development of
labor force and Labor need for separate investors in logistical common system of
Code, per World cargo facilities for systems, storage and “electricity circle”
Bank’s & EBRD’s transportation network warehousing projects, with Turkey and
Doing Business systems cargo, ports, SEZ’s, Azerbaijan
Survey etc.
9
Comparative advantages, or corporate location decision factors, are analyzed by many different factors,
utilizing various benchmarks. Some are:
FACTORS FOR INVESTOR FACTORS FOR GEORGIA
Size and Access to Market Potential to strengthen Georgian value chains, add value
Availability of Raw Materials/Inputs Employment/job creation potential
Availability of land and private property Skills set match
Availability & Cost of Trainable Labor Technology and innovation transfer
Quality & Availability of Infrastructure Strength local firms ability to compete internationally
Intellectual Property Protection Contribute to the rehabilitation of Georgia‟s infrastructure
Export and re-export potential Export and re-export potential
SECTION 5. SECTOR ANALYSIS AND INVESTMENT OPPORTUNITIES
The transportation and logistics sector is labor intensive, knowledge based, export oriented, has high
investment levels, uses Georgia‟s intellectual strengths and allows Georgia to be one of the hubs in the
wheel of logistics services in the Black Sea region. It fits with Georgia‟s investment strategy which is to
“attract technologically-advanced and export-oriented efficiency-seeking foreign direct investments.”
Strengths: Weaknesses:
Location – Georgia is crucial link in Eurasian Dependence on other countries for
corridor system efficiencies (i.e. Azeri rail
High Educational level of Georgians system, etc.)
History of high quality trading route: Silk Road. Loss of Russian transportation &
Potential for regional distribution of all logistics links with political situation
Georgian to Caucasus, Black Sea area and Low per capita income.
global countries. Reforms, but widespread realization not
Most flexible labor market in the region due to completed.
regulatory policies in Labor Code. Image of political conflict zones
Investment opportunities in air freight, logistics instability among some global business
systems, etc. leaders.
New law on SEZ‟s to re-export Skill shortages in sector without
Training Plans and private organizations to educational skills training to needs of the
correct lack of qualified personnel in specific labor market.
sectors such as logistics, etc. Uncertainty about regulatory practices.
Room on Black Sea for another Logistics Electrical shortages & cost of electricity
Center on Georgian Coast. Infrastructure development in new SEZ‟s
Access to air, rail, sea, and road transportation will take time.
and logistics. Air cargo limitation at Tbilisi airport
Strong partnerships with Azerbaijan in several Need for modern navigation systems
Caucasus/pipeline/rail/electrical projects Competition on Black Sea from Bulgaria,
Georgia‟s NATO collaboration supports image Romania, Turkey for Logistical Center
of stability and security for investments Competition in Caucasus for Regional
MULTIMODALITY: AIR, ROAD, TRAIN, Hub with Baku, Azerbaijan
BLACK SEA
Some of the future global trends in air freight are:
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Use of sophisticated supply chain management, just-in-time shipments and modern quality control
and monitoring.
In the short term the average growth globally in air cargo will be 10-15% per year with volumes of
over 39 Billion Euros. This is particularly true in the transportation of both high tech and
pharmaceutical products, most of whom have distribution centers in Europe.
China will need various different routes to get their products to Europe and bring energy to China.
Preference for separate cargo airports with 3 modal capability and modern logistical equipment.
Investment Opportunities:
1. Joint Stock Company TAM (Tbilisi Aircraft Manufacturing; www.tam.ge) is a unique aerospace
industrial group in the Tbilisi region with 2,300 employees, located in the Veli Airfield. TAM is in
the process of project development of a world-class multi-modal cargo hub airport on its own ICAO
certified TAM Valley. This proposed project goal is to convert the area into a cargo hub for the
Europe-Caucasus-Asia air corridor, with an intermodal transportation network, air cargo distribution
center, to be integrated into the network of air freight, trucking, shipping and rail transportation. A
runway of 3,000 meters, park positions for 3 B-747‟s, modern visual and instrument landing
systems, fuel facility and direct access to Azeri, Pot-Batumi railway lines are anticipated, along with
an 8000 square mile air cargo logistics center with 20,000 metric tons per year.
2. According to the publication, Georgia Messenger, dated July 23, 2007 "The first session of the
coordination council for the Baku-Tbilisi-Kars railway was held in Baku July 18-19, 2007. The
Georgia section runs from Marabda to Katsakhi on Turkish border, which is estimated to cost $90
million and completed in two years. Georgia Railway director general, Irakli Ezugbaia, announced
that both Azerbaijan and U.S. will contribute to the financing. After completion, it is expected that
10 million tons of cargo will be running the rails from Baku to Kars, via Tbilisi."
3. Enhanced modern logistical systems in the Ports, Airports and other transportation nodes.
4. Further airport development in major cities.
5. Management expertise in port structure, implementation and monitoring systems
6. Development and implementation of the Special Economic Zones, legislation and construction of the
zones.
7. Significant increase in warehousing and storage facilities to meet current and future needs, especially
in the area of frozen foods and refrigeration to insure freshness when the products reach their
destinations.
8. Development of one or many organizations with a knowledge base, or think tank within Georgia
specializing in, or having a specific expertise in, the Transportation and Logistical needs for Georgia
today and in the future. This public private partnership should have established links with one or
more of the global leaders in this field.
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SECTION 6. INFRASTRUCTURE IN GEORGIA
In order to facilitate easy transport of goods through its territory and encourage foreign investment in the
sector, the government of Georgia, in cooperation with private enterprise, continues to develop transport
infrastructure including roads, railways, sea ports and airports, while simplifying customs and other
administrative procedures, such as customs and licensing reforms.
Foreign Investment in Georgia
In July of 2007 Prime Minister Zurab Nogaideli announced that foreign investment is anticipated to exceed
$2-2.5 Billion US dollars for 2007. The first quarter actual investments amounted to $575 million dollars.
Zurab Nogaideli announced that FDI in 2006 amounted to $1,147 billion dollars and in 2005 $539
million dollars. Largest recent investors were Turkey, Kazakhstan, Denmark and Netherlands and the
Czech Republic.
According to the July 9, 2007 Messenger Daily English Newspaper: the Czech Republic purchase by
Energo-Pro involved the purchase of six hydroelectric power plants and two electricity distribution
companies, infrastructure with total power generation capacity of more than 350 megawatts and an
electricity distribution network covering over 70% of the territory of Georgia for a total acquisition price of
132 million dollars in June, 2006. The company stated that it intends to invest over $300 million dollars
more in the sector. The market value of Energo-Pro assets is now approximately EUR 300 million.
According to the Georgian National Bank, the 20 largest foreign investors in Georgia during 2006 were out
of a total of 38 different countries were:
2000-2006
COUNTRY 2006 INVESTMENT TOTAL
INVESTMENT
United Kingdom $186,824,077 $476,073,671
Kazakhstan $152,310,539 $152,310,539
Turkey $129,727,804 $248,647,279
Azerbaijan $83,635,443 $249,352,652
Norway $77,894,816 $153,268,199
USA $62,406,505 $374,843,063
Virgin Islands, British $58,586,159 $76,605,569
Italy $47,219,073 $138,212,972
Denmark $42,477,808 $42,796,784
Cyprus $40,071,206 $133,810,270
Japan $34,433,075 $71,750,440
Russian Federation $34,209,974 $178,424,547
Germany $20,380,785 $55,513,131
Netherlands $18,530,193 $24,944,924
France $17,221,688 $94,847,536
Czech Republic $15,032,249 $16,838,150
Austria $10,749,325 $66,747,075
Canada $6,000,000 $6,000,000
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China $5,445,267 $40,084,340
Israel $4,084,208 $11,289,084
Note: The source of original data is National Bank of Georgia (NBG) and Department of Statistics of the
Ministry of Economic Development of Georgia included 50 countries.
In analyzing this data, the significant amount of investment from Cyprus and British Virgin Islands indicates
the possibility of off-shore Georgian money returning to Georgia to invest money and that sign, if correct, is
very positive for the mix of foreign and domestic investment.
Electricity
Electricity availability significantly improved throughout Georgia in 2006. Two years ago 85% of Georgian
population outside of Tbilisi were without power; today 98% of paying customers outside of Tbilisi have
24/7 power. In Tbilisi the electricity situation is relatively stable, except for interruptions caused by gas
imports, pipeline failures or water treatment stability.
In an article entitled “Georgia to Create Common Electric circle with neighboring Countries” in the July 31,
2007 issue, page 16, of Georgian Business News, a new “common electricity circle” is described. The
participants are Electricity System Commercial Operator (ESCO), the Georgian State Electricity System
(GDSE), Russia‟s RAO, YeES and TGR Energy from Russia, Azerbaijan and Turkey. The proposed
system would allow the four countries to import and export electricity on a seasonal basis, evening out
shortages and surpluses and ensuring the free exchange of electricity between the countries. This concept
would allow the system to become more stable and reliable.
Electricity tariffs
Tariff (tetri/kw/h)
Voltage levels Tbilisi Regions
220/380 volts 13.56 8.106
6-10 kv 11.698 7.28
35-110 kv 12.618 6.412
Note: Source: GNERC (Georgian National Regulation Commission www.gnerc.ge ) Prices are specified
excluding VAT, “Tetri” is the Georgian cent.
One of the major players in this market is Energy Invest, the leading industrial corporation for 3 years,
having invested over $100 million into Georgian energy infrastructure such as a unique air turbine power
station in Gardabani with a capacity of 110 megawatts, $20 million in the Rustavi-based Azoti factory.
They have also brought selected international standards from Western markets to their firm.
www.energyinvest.ge
Water
There is an abundant source of supply of water in Georgia. However, the infrastructure situation regarding
water treatment has impeded efficient distribution. Significant amount of foreign investment from Western
sources has recently been invested into the infrastructure of water in Georgia. In Tbilisi for legal entitles the
price per cubic meter for water supply is 4.40 GEL, according to Tblisis Tskhali, the major water company
in Georgia.
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Land – Property Rights
Foreign Investors can own commercial, but not agricultural land, in Georgia. Projects with a Georgian
partner can own agricultural land. Investors may initiate an expedited, competitive process to privatize land
assets needed for an investment project.
Telephones & Communications
The number of landline telephones in Tbilisi is 510,000. Outside of the major cities of Georgia, the
majority of phone communication is done via mobile phones. The major Mobile Phone Providers are:
MagtiCom and Geocell. They have 2,500,000 clients, as of July 2007.
Number of Internet Connections -- There are 3 major internet providers in Georgia (www.caucasus.net;
www.online.ge and www.sanet.ge. They provide approximately 87% of the Georgian market. (Data
obtained as of July, 2007). Estimates of the number of internet users in Georgia range from 120,000 –
130,000; the Government in its Telecommunications Strategy is committed to increasing this number in the
major cities and rural regions.
Free Economic Zones
On July 3, 2007, to be effective September 1, 2007, the Parliament of Georgia adopted a bill regarding the
creation of free economic zones (FEZ). The bill titled “Free Industrialized Zones” envisages zones located
on at least 10 hectares. The zones may be established by government, a legal entity or private individual.
Companies in the multi-currency zones will be free from profit, property and VAT taxes. Likely sites are
the ports of Poti and Batumi, among others. Future governmental regulations will determine the criteria for
the establishment of the zones. Enterprises set up in the zones will be free from profit and property taxes
and bureaucratic procedures will be minimal.
SECTION 7. LEGAL & REGULATORY ENVIRONMENT IN GEORGIA
Georgia‟s Economic Indicators for 2007, according to Fitch Ratings:
INDICATOR RESULT
Real Economic Growth 10% Growth Estimated ‟07; 9.5% 2006/2005
FDI percentage of GDP 18% Estimated „07
Percent Tax Revenues of GDP 26% in 2006; increased from 16% in 2003
Georgia’s Reforms:
(Sources: Invest in Georgia brochure, 2007 and IFC‟s 2006 Georgia‟s Business Environment, US
Embassy‟s Commercial Guide and World Bank‟s Doing Business)
Georgia was named the year‟s number one reformer in the World Bank‟s 2007 “Doing Business
Survey, improving its overall ranking from 112 to 37. Georgia also improved from 52nd to 37th place
on the Heritage Foundation‟s 2007 Economic Freedom Index
Total licenses and permits reduced by 84%, in reforms that eliminated 756 licenses and permits,
streamlined procedures, and introduced statutory time limits for government action on applications.
Licenses and permits were reduced from 909 to 145 with a 30-day deadline for licenses and 20-day
deadline for permits.
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Concept of “Silence is Golden” for a permit or license to be automatically granted if no government
action is undertaken within the stipulated timeframes. Also the “One Stop Shop” principle is
declared mandatory for all issuance procedures.
A new Georgian Labor Code, recognized on international indices as one of the world‟s best, reduces
labor costs and increases flexibility. The number of registered taxpayers almost tripled from 2005 to
2006 due to simplified registration procedures for legal entities and physical persons.
Decrease in corruption, according to the World Bank, corrupt and incompetent judges were
removed; complete reform of the police force was done. Many donor projects are underway to
reform and strengthen the judicial system and personnel.
Fewer Taxes: Effective January 1, 2005 Georgia introduced a new Tax Code that levies only 7 taxes
(income, profit, social, excise, value-added & 2 Local). Income tax reduced from 20% to 12% flat;
social tax has been reduced to 20% from 32% and VAT to 18%from 20%. A public tender is
currently underway to develop software that will allow taxpayers to file their VAT returns
electronically.
Import Tariffs: Rates of duty on imported goods fall into 3 bands 0%, 5% and 12%. Nearly 90
percent of goods benefit from a zero rate of duty. The Government of Georgia has announced its
intention to reduce tariff rates through 2007 and to completely eliminate tariff rates and duties on all
products imported to Georgia in 2008.
Business Registration and Tax Registration now occur simultaneously, taking only one day for a sole
proprietorship and three days for an LLC, with a charter capital reduction from 2000 GEL to 200
GEL for an LLC.
“What the World Thinks About Georgia”
These ratings are a global acknowledgement of the Georgian Government‟s resolve to transform the country
into a welcome place for business for local, regional and international investors alike.
NAME OF SURVEY ORGANIZATION DATE SURVEY MAJOR FINDING
Doing Business: How to World Bank/IFC 2007 World‟s Top Reformer #37
Reform Leap 75 points
Credit Rating Standard & Pours 2007 B+/B, with + outlook
Bus. Environment World Bank & EBRD 2002-2005 Georgia had largest
&Enterprise Survey reduction in corruption
(BEEPS)
Fitch Ratings, Ltd. Fitch‟s Survey 2007 BB-long term sovereign
rating
Corruption Perception Transparency 2006 2.8
Index International
Index Economic Heritage Foundation 2007 #35
Freedom
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Customs Regulations:
Customs clearance times have been reduced from 52 to 15 days for imports and from 54 to 13 days for
exports, in World Bank 2007 survey. Georgia has low tariffs and preferential trade regimes with major
partners, including the EU, CIS countries, Turkey and the US. Georgia has also been a WTO member since
2000.
In 2006 the Law on Customs Tariffs equalized the customs treatment of WTO member and non-member
states alike, introduced only 3 tariff rates (0%, 5% and 12%) instead of the previous 16 and provided that
majority of imports are effectively zero rated. In 2008 it is anticipated that all customs duties (tariff rates)
will be eliminated. In 2007 Georgia introduced a new Customs Code, harmonized with European
legislation and provides for simplified procedures. A one-stop shop will be in operation for most of the
customs clearance points
Tenders:
Georgia uses tenders to carry out product procurement contracts exceeding GEL 20,000 (approx US
$12,048) and service procurement contracts exceeding GEL 50,000 (approx. US $20,120). The Law on
State Procurement required an international tender announcement for contracts exceeding GEL 600, 000
(US $ $361,000) for products and GEL 8,000,000 (approx. US $ 4,819,277) for services. For government
purchasing decisions determining factors have proven to be credit terms, product/service quality and
supplier reputation. For future information, please contact: www.privatization.ge
Major Legislation
All major legislation that investors would need is described in detail on GNIA website
(www.investingeorgia.org) under Doing Business/Legislation Section. The following is just a summary of
the major legislation.
Law establishing the Georgia National Investment Agency Law
State Support of Investments Law
NAPR – National Agency for Property Registration Law
Law on Entrepreneurs/Corporate Law
Intellectual Property Law
Tax & Customs Code
Law on Permits & Licensing
Law on Business Registration
SECTION 8. SECTOR STAKEHOLDERS
Major Stakeholders:
1. The Georgian National Investment Agency
Ms. Tamuna Liluashvili, Director
12 Chanturia Street, Tbilisi, Georgia 0108
Telephone: 995-32-43-34-24 Fax: 995-32-92-11-22
E-Mail: tamunal@investingeorgia.org
Website: www.investingeorgia.org
2. The Georgian Ministry of Economic Development
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Mr. George Arveladze, Minister
12 Chanturia Street, Tbilisi, Georgia 0108
Telephone: 995-32-99-69-96; Fax: 995-32-92-18-45
Also includes information on Statistics www.statistics.ge
Also includes information on Privatization www.privatization.ge
Additional Key Organizations with Web Resources
US Embassy, Tbilisi http://georgia.usembassy.ge
United States Agency for Int‟l Development http://georgia.usaid.gov
American Chamber of Commerce in Georgia http://www.amcham.ge
Tbilisi Yellow Pages http://www.yellowpages.ge/index
World Bank, Georgia http://www.worldbank.org
International Monetary Fund http://www.imf.ge
Georgia State Procurement Agency http://www.spa.ge/en
Georgia Ministry of Economic Development http://www.privatization.ge
European Bank for Reconstruction/Development http://www.ebrd.org
European Union http://www.eu.org
Young Economists‟ Association http://www.economists.ge
Young Lawyers‟ Association http://www.gyla.ge
Agency for State Procurements http://www.spa.ge
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