The American Times Presents:

GEORGIA: THE ONLY CAUCASUS HUB

Georgia is unique in this region of the world for the following reasons: Governmental organization, business oriented legislation  - constructed in no small part by engagement with the business community, strong US ally, liberal travel regime (US citizens have 364 days of visa free access), all of which cements the requisite playing field for a successful investment environment. When you couple these mechanisms with the country’s strategic location, one that shares a border with Russia (140 million pop.), Turkey (75 million pop.), the EU and Central Asia you have a truly unique opportunity that does not present itself often; a truth the Georgian government as well as its business people are well aware.

Two valid notes must be made regarding this list. Firstly, Russia and Georgia have had a tumultuous past leading to an embargo on Georgian agriculture products as well as a strict travel regime for Georgians entering Russia. This should however not pose a large deterrent to FDI. Notably, it has always been a bear entering Russia as a US citizen (compared to general free flow of travel afforded by our little blue book in other nations) and more importantly Russia and Georgia have recently come to an agreement on foregoing the embargo for Georgian mineral waters and wines, keystones to Georgia’s agriculture and FDI offerings. Positively, it can of course act as a tremendous gateway for future collaborations between the two countries. Several reasons have most likely led to this new development, not the least of which is new Prime Minister, Bidzina Ivanishvili who made his billions in Russia and the resulting defeat of President Mikhail Saakashvili, a Putin foe. This could also be due to something as simple as In vino veritas (in wine there is truth) as former Minister of Agriculture, Davit Kirvalidze states. There is a long history of Russian consumption of Georgian wine as a premium product, not only from the masses but Russian royalty as well. It must be noted too, on a more personal level, that Georgian’s took the 2006 embargo and got creative. They didn’t fold due to these sanctions. They diversified their export markets and now, as the Head of the Georgian National Wine Agency exclaims, “Russia is now a strong [extra] market to our exporters. In this world of ever-changing diplomatic shifts of mindsets, you can never rely for too long on any one market.”

In regards to things that can never be “ever-changing” we look to the east in Central Asia. The region has the highest aggregation of landlocked countries in the world outside of Africa. This poses an unbelievable natural opportunity for Georgia as many nations look to bypass Russia as a transit route for their energy and natural resource materials to Europe and Turkey. Simply stated; it’s either Russia or Georgia. Beautifully, the situation is inversed when EU final goods are transported east to the resource rich but final-goods poor Central Asian nations.

When one looks at these available markets surrounding Georgia (not including the EU) totaling roughly  350 million people, and not only as a transit hub, but a market for goods and services, it almost makes the small domestic Georgian market of 4.5 million seem more like a mere bonus. This is best exemplified by McDonald’s signing a Memorandum of Cooperation to establish warehouse office space with TLC Property Management. (the USAID funded Economic Prosperity Initiative organized by TransCare and EPI).

Augmenting the strategic variations available to Georgia the following trade and tax regimes apply:

TRADE AGREEMENTS

TAXES *Only 5 in the entire tax system

HOTELS & TOURISM

Extrapolating further, we were able to determine strong availabilities in the tourism sector and the 3-4 star hotels within the 50-80 room range as well as manufacturing capacities. Aside from the usual suspects located in international markets; Holiday Inn, Raddison, Marriott, Sheraton, we also noticed a large gap in the hotel sector for the aforementioned category. It is a fact that in Tbilisi there are either mega hotel chains with several hundred rooms, or locally owned, 5-20 room boutique hotel options. As any city grows, businessmen of varying degrees, as well as alternative tourists (those that have seen W. Europe and are looking for something new) look for varying and at times, more affordable options. It is a wonder that there is not a Best Western (not Premier) of 80 rooms located in the marketplace. Not “Premier” because in this competitive regional environment, many 4-5 star hotels are lowering their rates to attract customers; thereby, pricing a Premier Best Western out of the market, to a degree. This means a visitor can stay at Raddison Blu for the same price as a Best Western Premier, the choice is clear to most, a 5 for the price of a 3 or 4 star.

With demand well beyond current capabilities, the economics of the hotel market will indeed correct when pending new entrants Intercontinental, Hyatt and Kempinski finalize construction. Eerily, the Intercontinental hotel construction was stalled during the American Times 3-month tenure in Tbilisi with only a gutted shell to show for itself. This could be for a myriad of reasons, most likely internal. There is, however, a Wendy’s opening adjacent to the construct; unfortunately the Spicy Chicken Fillet will have to wait until the team’s next visit. Regardless, the impending presence of these major players does not address the middle-market concern. There are several Georgian hotel proprietors possessing the required experience, market knowledge and more so, the business of making a profit.

Moving beyond opportunities in Tbilisi (no business trip to Georgia will be complete without a few days outside the capital in this gorgeous country), there are strong developments occurring in the wellness and natural spa niche, ripe for medium-large scale resorts. In fact, it’s a perfect place even for an American retiree (there is a strong US expat community in Georgia, so fret not) to open a quaint and profitable B&B in the countryside. One can have their pick of which ‘countryside’ location; deep into the North or 40 minutes outside of the capital, if you’re the type that needs a comforting foot-in-the-door of civilization.

MANUFACTURING

Manufacturing also represents a unique opportunity. OECD comparable custom duties on imports/exports:

In addition to developed-nation custom standards the viability of manufacturing investments is depicted by two (2) Free Industrial Zones (FIZ), strategically located on the sea coast Port of Poti and near the large inland region of Kutaisi’s airport. All firms located within the FIZ are Tax Exempt, except for Personal Income Tax.

There are obvious reasons why manufacturing is a core focus, primarily because like agriculture, it immediately tackles unemployment in a sector that provides 16% of GDP but employs a mere 5%. Such activities also contribute to a healthy trade-balance. But again, we must look at the investment opportunities, not just the available facilitating mechanisms. Of course the large regional market available for export and strategic location represent the largest benefit; maybe, the $400 monthly nominal wage for skilled and trainable workers is the greatest bet. In fact, due to the high unemployment level these rates are undoubtedly slated to be stagnant for several years to come.

According to USAID, Georgia possesses several opportunities within the apparel and construction materials value chains and is actively assisting in developing, facilitating and promoting these key sectors due to their socio-economic importance. In fact, USAID and the Unites States as a whole are very much engaged in economic developmental projects from the recent power transmission lines project and road infrastructure development to accommodate their ally’s desire to become the “go-to” destination for Eastern Europe and Central Asian business activities. This is important to recognize as an investor. Your taxpayer dollars as a US citizen are being deployed to help develop business infrastructure and the entrepreneurial acumen of the Georgian populace. Wouldn’t it make sense to capitalize on this fact? Maybe more so after we note that after 9 American Times reports throughout the globe, US donor organizations are by and far engaged the most in this tiny nation. Is this because of geo-political purposes more than anything else? Absolutely! But interestingly, it’s important to the US Government in the same way it should be important to a US investor – to use the old real estate adage, “It’s all about location, location, location!”

For more in-depth information regarding statistics, facts and figures please see this issues resource page or visit www.the-american-times.com/resources for downloadable documents of interest.