Panorama of Georgia’s Capital Tbilisi
On
September 12, 2005, Georgia signed a Compact with the U.S. government assistance
agency Millennium Challenge Corporation (MCC) for a five-year $295 million
assistance package. MCC is funding five activities in two areas:
(1) Regional Infrastructure Rehabilitation, which will fund rehabilitation and construction of approximately 245 kilometers of main road traversing the Samtskhe-Javakheti region, the rehabilitation of the North-South Gas Pipeline, and a $60 million Regional Infrastructure Development Facility for regional and municipal physical infrastructure in regions outside of Tbilisi; and
(2) Enterprise Development, which includes a $32.5 million Georgia Regional Development Fund to provide long-term risk capital for agribusiness and tourism development and technical assistance to SMEs, primarily in the regions outside of Tbilisi, and a $15 million Agribusiness Development Assistance fund for technical assistance and grants to farmers and agribusinesses. The projects are implemented through the Millennium Challenge Georgia, which has already begun procurement (www.mcg.ge).
Doing Business in Georgia
Despite a number of positive developments in the business climate during the last few years, entering the Georgian market can be challenging.
Some of the difficulties to be aware of include:
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Georgia’s legal regime is generally favorable to economic growth and development, but implementation remains uneven, and incentives for small and medium enterprises are lacking. |
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Enforcement of intellectual and industrial property rights in Georgia is weak, although improving. |
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Despite the legal underpinnings for protection of commercial activity and of property rights, in practice, foreign investors have encountered problems protecting contracts and property rights in local courts. |
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Corruption, both official and otherwise, continues to be a problem. |
The banking system remains weak. However, it has been steadily improving in recent years in terms of technology and assets, and has attracted significant foreign investment in both large and small Georgian banks, including from IFC, EBRD, and Germany’s DEG, as well as private sources in Russia, Kazakhstan, and the United States.
Some positive recent developments include:
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Currently, the government is in the process of completing a new Customs code that will dramatically decrease customs tariffs currently charged, as well as lowering the overall number of tariffs. The Georgian Government plans to go even further and completely abolish import duties by 2008. If it does so, it will make Georgia one of the most liberal countries in this regard. |
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A new Tax Code passed in 2005 was a major achievement, reducing the number of taxes considerably and simplifying tax administration. Tax rates were reduced at the same time, including a reduction in the VAT from 20 to 18 percent, and a 12 percent flat income tax on individuals. The Government is committed to carrying out further reforms. |
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In late 2005, Georgia received a first-ever sovereign credit rating from Standard & Poor’s—B short-term, B+ long-term, and the Heritage Foundation raised Georgia’s Economic Freedom index from “mostly unfree” to “mostly free.” |
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The World Bank in July 2006 released its “Anticorruption in Transition-3” (ACT3) report, which puts Georgia at the top of all transition countries for anticorruption efforts. The report looks at firm-level survey data from 2002-2005. It covers 26 former socialist countries and Turkey, as well as five Western European countries for comparison purposes. According to a World Bank press release, strong leadership in Georgia after the Rose Revolution was the driving force behind the reforms that significantly reduced corruption. “The leadership has taken bold actions to lessen the burden of the state in the economy, improve fiscal transparency, and strengthen oversight institutions, all of which has contributed to the decline in corruption. The Georgian government needs to continue to build transparent, accountable, and well-functioning institutions to ensure good governance over the long term,” according to the release. |
Personal contacts are important in Georgia, and finding a reliable, experienced partner continues to be the most successful way to enter the market. Another key to a successful venture is careful preparation, including researching the market, conducting due diligence on potential business partners and customers, and seeking good local legal advice.
Mount Kazbek, one of the highest peaks in the Caucasus
Market Resources
BISNIS Georgia page (http://bisnis.doc.gov/bisnis/country/Georgia.cfm)
Country Commercial Guide for Georgia (http://buyusainfo.net/docs/x_9706959.pdf)
American Chamber of Commerce in Georgia (www.amcham.ge)
Georgia Investment Guide (www.investmentguide.ge)
America Georgia Business Council (www.agbdc.com)
Georgian National Investment and Export Promotion Agency (www.investingeorgia.org/en)
Georgian Opinion Research Business International (www.gorbi.com)
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