01

Georgian Economic Outlook

November, 2015

MoESD

Country Overview

Area 69 700 sq km

Population 3,7 mln

Life expectancy 72.9 years

Official language Georgian

Literacy 100%

Currency Lari (GEL)

GDP: 2014* US$ 16.5 billion

GDP - real growth rate 2014 4.6%

GDP - Per Capita 2014 US$ 4,426.3*

Inflation rate 2014

(average annual; e-o-p)

3.1%; 2.0%

Public External debt to GDP 2014 26.8%

Resilient Economy

Proved by Sovereign Credit Ratings

BB- Stable

BB- Stable

Ba3 Positive

* Source: GeoStat & MoESD calculation (according to Census, 1st January 2015 )

MoESD

Georgia in International Ratings

46.9

49.8

52.1

57.5

61.0

63.2

67.1

69.7

73.0

74.7

76.8

82.1

89.4

89.6

Ukraine 162

Belarus 153

Russia 143

Moldova 111

Azerbaijan 85

Turkey 70

Armenia 52

Latvia 37

Georgia 22

Lithuania 15

Estonia 8

New Zealand 3

Singapure 2

Hong Kong 1free

(100-80)

mostly unfree

(59.9-50)

repressed

(49.9-0)

mostly free

(79.9-70)

moderately

free

(69.9-60)

Index of Economic Freedom, 2015 Heritage

128 118

103 99

82 71

35 22

19 12

3 2 1

UkraineAzerbaijan

MoldovaRussia

TurkeyLatviaLatvia

EstoniaLithuania

GeorgiaNew Zealand

SingaporeHong Kong

Up from

#62 in 2003

World Economic Freedom, 2015 Fraser

Up from

#99 in 2005

Doing Business, 2016

112

83

63

55

51

35

24

22

20

16

3

2

1

Georgia /2006

Ukraine

Azerbaijan

Turkey

Russia

Armenia

Georgia

Latvia

Lithuania

Estonia

Denmark

New Zealand

Singapure

Up from

#112 in 2005

“Globally, Georgia improved the most in the areas measured by Doing Business over the past 12 years”

“Georgia made improvements in all 10 areas included in the aggregate distance to

frontier score, through 39 regulatory reforms”

“Georgia stands out in Europe and Central Asia for having made

big strides toward better and more efficient business regulation”

Source: WB

Significantly improved position in Property Rights

MoESD

Free Industrial Zones “Produce in Georgia”

37%

32%

26%

26%

22%

21%

19%

18%

15%

8%

7%

7%

6%

5%

4%

3%

1%

Ukraine

Kazakhstan

Serbia

Lithuania

Greece

Turkey

Latvia

Armenia

Czech Rep

Bulgaria

USA

Romania

Estonia

UK

Georgia

Norway

Denmark

% admitting having paid a bribe

28.8

36.5

43.8

44.7

49.5

53.8

56.3

60.1

60.6

66.3

71.2

71.6

72.6

74.5

79.3

81.3

88.5

93.3

100.0

Ukraine

Russia

Azerbaijan

Kazakhstan

Bosnia & Herz.

Moldova

Serbia

Armenia

Albania

Turkey

Bulgaria

Romania

Italy

Hungary

Georgia

Czech Rep.

USA

Estonia

Singapore

Ahead of 10 EU

member countries

up 5.6p y/y

Global Corruption Barometer 2013 World Governance Indicators 2014

Georgia improved ranking in all 2014 WGI

Voice & accountability - up 1.2p y/y to 55.7

Political stability - up 3.7p y/y to 35.9

Government effectiveness - up 2.2p y/y to 71.6

Regulatory quality - up 5.6p y/y to 79.3

Rule of law - up 10.8p y/y to 64.4

Control of corruption - up 9.5p y/y to 75.5 Source: Transparency International

Corruption Free Government & Good Governance

Source: WB

70% of surveyed thinks that corruption has been

decreased

03

Tax Misery & Reform Index 2009, Forbes - 4th Least Tax Burden Country in the World

Dividend and Interest Tax 5%

Number of Taxes 6 Flat

decreased form 21

VAT 18%

Personal Income Tax 20%

Property Tax Up to 1%

Import 0%, 5%, 12%

Corporate Profit Tax 15%

Excise Varies

No • Payroll Tax

• Social insurance Tax

• Capital gains Tax

• Wealth Tax

• Foreign source income of individuals fully exempted

• Accelerated depreciation on capital assets

• Loss carry forward for corporate profit Tax purposes (10 years)

• No restrictions on currency convertibility or repatriation of capital &profit

• Double Taxation avoidance treaties with 47 countries

Double Taxation Avoidance Treaties with 49 countries

Simple, Low, Efficient and Fair Tax System

MoESD

MoESD

Growing & Diversified Economy

Nominal GDP and Real Growth Growing GDP Per Capita

Diversified Economy GDP 2014*

Source: GeoStat

7.8

10.2

12.8 10.8 11.6

14.4 15.8 16.1 16.5

9.4% 12.6%

2.6%

-3.7%

6.2% 7.2%

6.4%

3.3%

4.6%

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014*

US

$ b

illi

on

Nominal GDP GDP real growth

Trade, 17.5%

Industry, 16.9%

Transport &

Communication,

10.4%

Public

Administration, 9.9% Agriculture, 9.3%

Construction, 7.1%

Healthcare, 6.0%

other, 22.9%

1.3%

2.5% 2.6% 3.3% 3.6%

4.0% 4.1% 4.1% 4.8%

6.3%

0%

1%

2%

3%

4%

5%

6%

7%

0%

1%

2%

3%

4%

5%

6%

7%

Hun

gary

Ukra

ine

Cze

ch R

epub

lic

Est

on

ia

Lat

via

Po

lan

d

Lit

huan

ia

Russ

ia

Turk

ey

Geo

rgia

Average real GDP growth (2003-2014)

Top performer in the region Source: IMF, GeoStat

1,764

2,315

2,921 2,455 2,623

3,231 ,3523 3,600

4,426

0500

100015002000250030003500400045005000

2006 2007 2008 2009 2010 2011 2012 2013 2014*

US

$

MoESD

450 1,190 2,015 1,564 658 814 1,117 912 942 1,758

7.0

15.3

19.8

12.2

6.1 7.0 7.7 5.8 5.8

10.6

0

5

10

15

20

25

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

%

US

$ m

illi

on

FDI share in GDP (%)

FDI inflows

25%

18%

12% 11%

8%

7%

6%

2% 11%

Transport and Communication

Construction

Manufactuing

Energy sector

Real estate

Financial sector

Mining

Hotels and restaurants

Other sectors

FDI Breakdown by Sectors 2014

In 2014, FDI to Georgia amounted to 1,758.4 mln USD which is not

only 86,7% increase compared to 2013, but also the highest yearly

indicator over the last 6 years.

FDI Share in GDP – up from 6.1% to 10.6% in 2014

Georgia

has Bilateral Investment Treaties (BIT’s) with the 29 countries

• (negotiations launched with 2 countries)

is member of ICSID Convention (since 1992)

Largest Investor Countries 2014*

Netherlands 21%

Azerbaijan 19%

China 12%

USA 10%

Luxemburg 6%

United Kingdom 6%

Russian Federation 5%

Source: GeoStat

Foreign Direct Investment

56

Access to ~ 900 Million market without duty

Most Favored

Nation (MFN)

since 2000

EU

Duty Free access to 500 mln

market

Since September 2014

CIS

US, Canada,

Japan,

Norway,

Switzerland

DCFTA

FTA

GSP

Turkey FTA

Simple, transparent & business oriented customs

procedures

Efficient tax administration

No quantitative restrictions and tariff barriers

Average Customs Clearance ~ 15 minutes

0% of customs duties over 80% of imports

0% customs duty on export

0% of VAT on export

Maximum customs duty on imports – 5-12%

Liberal Trade Regimes

FTA with EFTA – ongoing negotiations Duty Free access to additional 14 mln market

FTA with China– negotiations will

start in nearest future Access to additional 1.5 bln market

MoESD

Road & Railway

Rail

• 2 344 km (100% electrified)

• 7,400 rolling stock, 144 locos

Road

• 1,500 km international road

• 20,000 km internal and local roads

• East-west highway project

Sea Ports

Poti Sea Port • Port has 15 berths

• Total Capacity - 10 million tones annually

• Capacity of the container terminal - 500 000 TEU cont. annually

• Owned/Operated by APM Terminals

Batumi Sea Port • Port has 11 berths

• Total Capacity 17 million tones annually

• Capacity of the container terminal -100 000 TEU annually

• Operated by JSC KazTransOil

Kulevi Sea Port • Port has 2 berths

• Annual capacity 5 mln tones annually

• Owned/operated by SOCAR (Azerbaijan )

Supsa Terminal Capacity: 5 mln tones annually Operated by BP

Poti Sea Port

• Poti Port has a potential to increase its

cargo- handling capacity up to 25 million

tons of cargo per annum.

Anaklia Deep Sea Port • Capable of accommodating Panamax size cargo vessels

• High capacity – up to 100 mln. tons turnover

annually

Rail

• Baku-Tbilisi-Kars new railroad line Modernization

• Tbilisi Railway Bypass

Road

• East-west highway

• Rehabilitation of existing infrastructure

16

Planned

Existing

International Airports

Tbilisi International Airport

• 1.5 mln. passengers (Capacity - ~ 3 mln.)

• Serving 32 destinations

Batumi International Airport

• 210,000 passengers (Capacity – 600 thsd.)

• Serving 11 destinations

Kutaisi International Airport

• 218,000 passengers (Capacity – 600 thsd.)

• Serving 9 destinations

Tbilisi International Airport • 2nd runaway to be constructed

• International Cargo terminal

Kutaisi International Airport

• Runaway extension

• Cargo Terminal

Well Developed Infrastructure

MoESD

MoESD

Energy Sustainability & Potential

One of the top countries in the world by the water resources per capita

Second in the Europe by the water reserves amount

300 rivers out of total 26,000 for electricity generation

Currently, only 20% of hydro potential is utilized

Hydro Potential for development - 40 TWh

Well developed electricity transmission infrastructure

Increasing demand on electricity in neighboring countries

Installed Capacity – 2,790 MW

Already Licensed

3,528 MW

10 years perspective – 6,318 MW

Up to USD 7 bln FDI in 10 years

Up to USD 700 mln FDI per year

Diversified energy supply sources Net electricity exporter since 2008 International Investors

12 000 historical and cultural monuments

2400 spring of mineral waters

103 resorts and 182 resort areas;

84 protected areas

UNESCO heritage cites

Youth Olympics in 2015

Tbilisi Silk Road Forum in 2015

UEFA Super Cup in 2015

The New York Times ranked Georgia 6-th among 52 best countries for the tourism destination

241 313 384 447 476 659

955

1,411

1,720 1,787

-

500

1,000

1,500

2,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

International Tourism Receipts mln.USD

2011 2012 2013 2014

2,82 mln

5,37 mln

5,50 mln

4,39 mln

Growing International Arrivals - 95 % increase in number of tourists since 2011

Tourism Growing

MoESD

MEDICAL & SPA RESORTS

Development of Spa Resorts

Include hotels, Different types of

Clinics, fitness, Outdoor activities

Tskaltubo, Akhtala, Borjomi,

Abastumani, Other locations

“SUN-BEACH” RESORTS

Expansion of summer “sun and

beach” franchise focusing on

high-end segment

New master resort

development

All inclusive summer resorts

Batumi, Anaklia, Kobuleti,

Other Black Sea locations

WINTER SKI RESORTS

Master development of winter

resorts with unique profile

equivalent to the Alps

Government is fully

committed to provision of

basic infrastructure

Main Locations: Mestia,

Gudauri, Bakuriani, Goderdzi

Majestic landscapes allowing for a wide range of summer tourism

activities such as trekking, horse riding, bird watching and river

racing

Mestia, Gudauri, Bakuriani, Goderdzi, Kazbegi and other

locations

FOUR SEASON RESORTS

60

Development of the Gaming

Industry to Serve regional markets.

Gambling Industry is prohibited in

neighboring countries.

Around 70% of international visitors

are nationals of gambling prohibited

countries.

Include hotels, casino entertainment,

family Services and shopping

GAMING INDUSTRY

Tourism Prospects

MoESD

MoESD

13.4% 13.7%

25.1% 25.3% 25.6% 26.5% 29.4%

34.8% 38.9% 41.2%

0%

10%

20%

30%

40%

50%

Euro

Arm

enia

Aze

rbai

jan

Mo

ldo

va

Turk

ey

Geo

riga

Russ

ia

Ukra

ine

Bel

arus

Kaz

akh

stan

Weakening against US$

0%

10%

20%

30%

40%

50%

60%

Geo

rgia

Turk

ey

Ukra

ine

Russ

ia

Bel

arus

Mo

ldo

va

Arm

enia

Aze

rbai

jan

Reserve loss, %

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Geo

rgia

Kyr

gyz

Rep

.

Kaz

akh

stan

Lat

via

Slo

vak

Rep

.

Ro

man

ia

Mac

edo

nia

Lit

huan

ia

Mo

ldo

va

Est

on

ia

Aze

rbai

jan

Arm

enia

Cze

ch R

ep.

Bulg

aria

Russ

ia

Bel

arus

2016F 2017F

Source: IMF, WEO October 2015

Source: IMF

Source: Bloomberg

Note: US$ per unit of national currency; 9 Nov 2014 - 9 Nov 2015

Influence of global & domestic factors on regional

currencies

Georgia used less reserves to support GEL

compared to peers

Georgia: Strong GDP growth forecast by IMF

Georgia – Resilient Economy

Support to development of free private sector driving economic growth trough

Transparent, efficient & optimal government

Free market economy, based on fair competition, absolute respect for property rights and

independent judiciary system

Optimal model of smart regulations

GoG’s Guiding

Principles

DCFTA Reforms For effective realization of DCFTA reforms are ongoing and GoG is committed to follow DCFTA

Reform Agenda

Transition from analogue to digital broadcasting in very short time. Licensing requirement for

broadcasters was abolished Digital Forecasting

Internetization of rural regions of Georgia is ongoing Internetization

Georgia – Government Vision & Reforms

Some of the Important Reforms & Projects

MoESD

Cadastre • Inventorizaion process of state owned property

• Land registration throughout Georgia For full inclusion of still inactive

property in economic activities

Large Scale Investment Projects

MoESD

Expansion of the South Caucasus Pipeline through Azerbaijan and Georgia

Additional USD 2 bln FDI in Georgia

16 billion cubic meters of new natural gas to Europe and Turkey.

Construction of civil airplanes composite parts’ manufacturing plant

Additional USD 85 mln FDI in Georgia

Supply of Boeing, Airbus, Bombardier and others

Construction HPP Nenskra

Investors: K-Water, EBRD, ADB

Additional USD 1 bln investment in Georgia

Additional 280 MW installed capacity

Strategic location

Capacity of accommodating Panamax type cargo vessels

All round year transportation

High capacity – up to 100 mln. tons turnover annually

Up to USD 1 bln for first phase (out of 9) in Georgia

Anaklia Deep

Sea Port

Shortest Root from China to

Georgia

Thank you for your attention

Ministry of Economy and Sustainable Development of Georgia