Investor.ge provides a brief update on investments and changes in government policy that could impact the business environment. Information in this issue was taken from agenda.ge and other sources.
Government announces 2 bln GEL stimulus package amid coronavirus outbreak
The Georgian government announced a series of measures to mitigate damage to the economy during the coronavirus crisis. The measures have particularly emphasised support for the tourism and hospitality industries, which have been hit the hardest. Taxes for tourism companies will be suspended for four months, and will affect a total of 18,000 companies and almost 50,000 employees. The government also announced that it intends to double the volume of VAT returns this year, from a predicted 600 million GEL to 1.2 billion [around $375 million]. For six months, the state will bear the costs of the interest rate on loans for 2,000 hotels which have between 4 – 50 rooms. Banks have agreed to help tourism companies restructure their debts, and have announced they will accept postponed payment on loans taken out by private individuals for three months.
EU allocates 183 million euros to Georgia to fight coronavirus
The European Union announced on April 9 it will provide 183 million euros in a relief package to help Georgia deal with the coronavirus crisis. The funds come as part of the EU’s commitment to redirect over 15 billion euros to help partner countries efforts in tackling the epidemic. EU Ambassador to Georgia said that “while Europe is in the midst of its own struggle to overcome the harsh consequences of the COVID-19 pandemic, it continues to stand by its partners…These funds will support economic and social recovery, and will be provided at the local level, and also strengthen state finances to help Georgia successfully get through this difficult economic period.” The funding will be provided as non-reimbursable grants.
World Bank predicts close to 0% economic growth in Georgia in 2020
The World Bank predicts the coronavirus pandemic will sharply slow GDP growth in Georgia to close to 0% over the course of the next year, noting this will be partly cushioned by a fiscal stimulus of around 2% of GDP. Several scenarios even suggest the economy will experience a recession in 2020, contracting by as much as -4.4%.
IFIs, international partners pledge financial support for Georgia amid pandemic
International financial institutions such as the IMF, the World Bank, the EBRD, ADB and other partners such as the EU published an open letter on April 9 pledging a financial relief package for Georgia to provide economic assistance and help with recovery amid the coronavirus outbreak. The EBRD itself has made an emergency ‘Solidarity Package’ of 1 billion euros available for 38 countries, including Georgia. EBRD Managing Director for Eastern Europe and the Caucasus Matteo Patrone commented “we are prepared to step up our efforts, together with the Georgian authorities, to support the economy.” The support will include measures such as emergency liquidity, working capital and trade financing, in addition to aid for SMEs.
Annual inflation remains above target rate
Annual inflation stood at 6.4% in February, with food and non-alcoholic beverages as a whole (12.7%) and hospitality (8.7%) accounting for the highest rise in inflation. Fruit and grapes were up 25%, followed by milk, cheese and eggs (19.2%), meat (15%) and vegetables (11%). The target inflation rate set by the National Bank of Georgia for 2019-2021 is 3%.
Heftier fines proposed for improper garbage disposal
A bill put forward in parliament proposes levying significantly heftier fines on companies and individuals that fail to properly deal with waste. Per the bill, setting fire to municipal waste, including leaves and other organic matter and domestic waste, in the open air or otherwise, will result in a fine of 500 GEL [$178]. The proposed fine for disposing of two kilograms of municipal waste from residential areas will be set at 200 GEL [$71] instead of the current 100 GEL [$35]. The fine for inappropriate disposal of batteries, light bulbs, electric devices, and sharp objects will quintuple, and will be set at 500 GEL.
Remittances from abroad continue to climb in Jan-Feb 2020
Remittances from abroad to Georgia continued to increase in January (+8%, $125 million) and February (+9.5%, $137 million). The largest suppliers of remittances in February 2020 remained Russia (21%), Italy (16%) and Greece (12%), followed by Israel (10.5%), the US (10%) and Turkey (5.5%). Remittances flowing out of Georgia continued to grow in February 2020, totaling $21.7 million, up almost 20% from the following year.
Fitch rates Georgia at BB with stable outlook
Fitch Ratings has left Georgia’s sovereign credit rating at ‘BB with a stable outlook’ in its last review in February. Fitch notes that Georgia’s sovereign credit rating is more stable than the median of the BB category countries with its high- quality governance, attractive investment, business environment and macroeconomic stability in the face of regional shocks. Georgia’s account deficit hit a historical minimum in 2019 at 4.5% of its GDP, and Fitch forecasts that the trend will continue in 2020 down to 4.1%.
FDIs amount to $1.26 billion in 2019
FDIs in Georgia amounted to $1.26 billion in 2019, with the UK (19.5%), Turkey (18.7%) and Ireland (10.5%) making for the three largest investors in Georgia last year. The three largest economic sectors in the country – finance ($261 million), energy ($193 million) and hospitality ($157 million) – accounted for 48% of investments in Georgia in 2019.
First large-scale investment for Georgian Pension Agency
The Georgian Pension Agency has made its first large-scale investment since its launch in January 2019, placing 560 million GEL ($200 million) in high-yield deposits, with annual interest rates of 14.9% for a five-year term, by which time the investment will have doubled. The accumulated pension system is mandatory for the employed under the age of 40.
National Bank of Georgia keeps refinancing rate at 9%
The Monetary Policy Committee of the National Bank of Georgia decided to keep the refinancing rate at 9% in mid-March to decrease the pressure of the exchange rate on inflation. An earlier forecast from the NBG had predicted that inflation would begin to decline in early March, and would move towards the target inflation rate of 3% by the end of 2020.
Central bank eases household lending regulations
The National Bank of Georgia approved changes to lending regulations for individuals that will come into force on April 15, 2020. The NBG said the purpose of the changes is to move from a “rule-based approach to a more principles-based approach.” Read more about the banking regulations on page 48.
Passenger traffic down 4% at airports in Jan-Feb 2020
Passenger traffic decreased to close to 597,000 passengers in January-February 2020 – a 4% decrease compared to the same period of 2019, United Airports reported in early March. While Kutaisi (+51%) and Batumi (+33%) airports experienced a growth in passenger numbers, Tbilisi International Airport experienced a 19% decrease, largely due to coronavirus travel fears.
Kutaisi airport comes in 2nd in Europe in uptick of passenger traffic amongst smaller airports
Kutaisi International Airport ranked second in Europe in 2019 in terms of experiencing the highest increase in passenger traffic amongst European airports with an annual passenger flow of less than 5 million, ACI Europe announced back in mid-February. Such airports which reported the highest increases in passenger flow in 2019 included Ohrid (Macedonia – 72%), Kutaisi (Georgia – 41%), Zadar (Croatia – 32%), Bucharest (Romania – 25%), Turku (Finland – 22%). In 2019, Kutaisi International Airport served just under 900,000 passengers.
2019 visitor arrivals up 7.8%
The total number of arrivals by international, non-resident travelers in Georgia increased by 7.8% in 2019 compared to the year before, reaching 9.4 million travelers, Geostat announced in mid-February. Of these visits, 5.1 million were tourist-type visits (as opposed to transit or transport), which is 6.8% more compared to 2018. Russia still made for about 20% with 1.2 million visitors entering the country, making for just a 1.6% increase compared to 2018. The top three reasons for visitors coming to Georgia were holiday, leisure and recreation (43.5%), visiting friends and relatives (19%) and transit to other countries (16%). Visitors spend the most amount of money on food and drink (27.5%), accommodation (23.7%) and shopping (21%).
Georgia ranks 12th in world, 6th in Europe in Economic Freedom Index – 2020
Georgia ranked 12th in the Heritage Foundation’s global 2020 Index of Economic Freedom, increasing its overall score by 1.2 points. Out of 45 countries in Europe, Georgia ranked 6th. The report notes that “the Georgian economy continues its spectacular, seven-year run up the ranks of the mostly free. GDP has also been expanding at a healthy rate for the past five years. Multi-year reforms to reduce corruption, cut regulation and simplify taxes have led to upward movement in all aspects of economic freedom.”
Injuries, deaths on the job significantly down in 2019
The number of injures at worksites in Georgia were down 16% in 2019, the Labour Conditions Inspection Department reports. Deaths were down by 25%. More than 1,500 inspections were carried out at construction worksites in 2019 – 9 times more than in 2019.
Average salaries came out to 1,319 GE in Q4 2019
Monthly earnings in Georgia were up by 117 GEL on average in Q4 2019 compared to the same period in 2018, and stood at 1,319 GEL [$426], the National Statistics Office of Georgia reported in March. Women [1,018 GEL / $338] earned significantly less than men [1,593 GEL / $529] on average in Q4.
Georgian economy posts 5.1% growth in 2019
Georgia’s real GDP amounted to 5.1% in 2019, Geostat reported in March. The largest contributors to GDP were: wholesale and retail trade, repair of motor vehicles (14.4%), real estate (11.5%), manufacturing (10.1%), construction (8.6%), agriculture (7.2%), public administration and defence (6.8%), transportation (6.5%) and financial and insurance activities (5.4%).
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