Communist Tax Lawyer

A news, research and discussion platform for monitoring the evolution of Communist and ex-Communist countries to market economies

 

Georgia Wants to Double FDI to US$1 Billion

Georgia expects foreign investment to double to US$1 billion this year, with energy and tourism sectors leading the way, its economy minister Vera Kobalia said last Wednesday.

Foreign direct investment in Georgia fell 16 percent in 2010 year on year to US$553 million, official data shows, well below the US$1 billion target already set for last year. Nevertheless, FDI still accounted for 5 percent of gross domestic product in 2010.

The decline in FDI is officially attributed to the ongoing impact of the global recession; however, investors are also cautious due to the political climate and Russia’s military build-up in the breakaway provinces of Abkhazia and South Ossetia, which slashed foreign investment.

Kobalia said recent improvements in the country’s sovereign ratings outlook should help restore investors’ confidence. Ratings agencies Standard & Poor’s and Fitch both raised their outlook for Georgia to “positive” in March.

Georgia placed a US$500 million 10-year Eurobond last month with a coupon rate of 6.79 percent and tendered to buy back US$416.7 million worth of its outstanding US$500 million 2013 Eurobond via an “any and all” tender ahead of a new issue.

The International Monetary Fund, which forecasts economic growth of 5.5 percent in Georgia this year versus 6.4 percent in 2010, has said the Eurobond issue should help spur greater FDI.

Kobalia highlighted tourism and hydroelectric power among the most attractive sectors for foreign investors. She said Georgia was using only 18 percent of the hydropower that it generates and was exporting the rest to neighboring countries.

“Turkey, our neighbor, has a deficit already so it’s a great investment for companies to build hydropower plants and to transfer electricity to Turkey,” she said.

Georgia was also offering investors a 15-year tax break on investments in two tourism sites in the Black Sea, she said.

Earlier this March, American real estate mogul Donald Trump announced his plan to invest US$250 million in the construction of two 40-storey skyscrapers in the country — the Trump Tower in the capital Tbilisi and the residential Trump Riviera, in the resort town of Batumi.

Meanwhile, Georgian media reports that remittances from migrants back to Georgia now exceed FDI flows. This can be seeing as a troubling fact for the government and for President Mikhail Saakashvili’s high-profile campaign to attract outside investment, Menas Associates Blog speculates.

Annual inflation hit 13.7 percent in February, continuing a trend of rapidly rising prices: year-on-year inflation has climbed almost 1 percent every month since October, and has soared since June 2010 figure of 3.7 percent.

Most concerning for Georgian politicians are the fact that food and soft beverages is the biggest contributor to inflation, making up almost all of the 2.8 percent jump from January’s figures. Taken alone, inflation on these products is running at 28.4 percent. The social and political impact of such a sharp rise in food prices is potentially very serious indeed.

The government responded by distributing one-off food vouchers of around US$17 to poor households. Although these might be effective at alleviating immediate concerns, economists have warned that in the long term these could distort the economy and actually contribute to galloping inflation.

Some observers are skeptical of FDI flows doubling this year, saying that Donald Trump’s expansion into Georgia may not be enough to start a new wave of foreign investment.

Leave a Reply