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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.

Georgia reinstates partial lockdown measures following steep spike in infection rates
The Georgian government announced a series of new coronavirus restrictions on November 26 following a jump in the number of daily cases. The new regulations will be in force for two months, between November 28 and January 31.
Curfew will be observed between 9:00 p.m. and 5:00 a.m., to be lifted temporarily on December 31 and January 6. Meanwhile, municipal and intercity transport has been suspended, including the Tbilisi metro, and classes and lectures in all schools and universities will be held remotely.
Cultural and sporting events have been suspended, while all restaurants, bars and cafés can only operate through delivery, takeaway and drive-thru services.
Many shops will be forced to close: all retail shops must transfer to online operations, except for shops selling food products and home essentials, veterinarian, agricultural or pharmaceutical products. Strategic entities providing electricity, water, gas, gasoline and diesel will remain open, as will press booths.
Gyms, swimming pools and spas will have to temporarily shutter, along with entertainment venues.
The private sector has also been strictly recommended by Prime Minister Gakharia to work remotely wherever possible.

New international flights will not resume until at least New Year’s in Georgia
Regular international flights will not resume in Georgia until December 31, 2020, the Georgian Civil Aviation Agency has announced. This restriction does not apply to direct international flights that are carried out or scheduled between Tbilisi International Airport and the following destinations: Munich, Paris, Riga, Doha, Warsaw, Athens, Amsterdam, Berlin, Vienna, and Milan. This restriction also does not apply to scheduled flights between Kutaisi International Airport and the following airports: Riga, Katowice, Vilnius, and Dortmund. Georgia completely shut down air traffic in the country on May 21 in order to slow the spread of the coronavirus.

Georgia expecting $6 billion in tourism revenue in 2024
Georgia expects 10.5 million international visitors in 2024 and $6 billion in earnings from the tourism sector in 2024, the Head of the Georgian Tourism Administration, Mariam Kvrivishvili, said in an early October press release. From 2012 to 2020, the number of visitors entering the country increased from 4.7 million to 9.4 million, while earnings were $3.3 billion in 2019. The share of tourism in the country’s economy exceeded 8% that year, in which more than 150,000 people were employed in the tourism industry.

Georgia shows improvement on World Bank survey in governance
Georgia has shown improvement in the World Bank’s Worldwide Governance Indicators (WGI) study released in early October in terms of government effectiveness and regulatory quality. Georgia received 77% from the total 100% scale for government effectiveness and 83% for regulatory quality, which assesses reforms carried out by the government for the development of the private sector. The Worldwide Governance Indicators project reports aggregate and individual governance indicators for over 200 countries and territories over the period 1996–2018, for six dimensions of governance, including voice and accountability (in which Georgia received 53%), political stability and absence of violence (29%), government efficiency (76%), regulatory quality (82%), rule of law (62%), control of corruption (74%).

Fruit exports reach new heights despite pandemic
Georgia exported 25,000 tonnes of peaches and nectarines for a total of $21.3 million between May 1 and October 4—a 100% year-over-year bump for the otherwise small industry in the country. Georgian peaches and nectarines were mainly exported to Russia, Armenia and Azerbaijan. Meanwhile, Georgia exported 2,149 tonnes of apples worth $947,000 between August 1 and October 11, announced the Georgian Ministry of Agriculture and Environmental Protection. The volume of apple exports is six times higher than it was in the same period of 2019, while the value of exports increased by $713,000, said the ministry.

World Bank to help Georgia purchase Covid-19 vaccines
The World Bank announced readiness to help Georgia purchase Covid-19 vaccines as soon as an effective one becomes available. The World Bank has already provided $80 million to Georgia under the Fast Track Covid-19 Facility to mitigate the health and social impacts of the Covid-19 pandemic in April 2020.

100,000 Georgian citizens lose source of income during pandemic
As of mid-October about 100,000 Georgians have lost their source of income during the pandemic, the Finance Ministry says. This estimate was based on the number of people receiving 1,200 GEL over the course of six months per the government’s social support plan, or individuals employed in the informal sector or the self-employed, who have received one-time assistance of 300 GEL.

Negative trade balance decreases slightly in January-October 2020 year-over-year
Georgia had a negative trade balance of $3.7 billion in January-October 2020, which constituted 40.7 percent of its share in external trade turnover. One year earlier, the trade deficit of Georgia amounted to $4.3 billion over the same time period, and amounted to 41.4 percent of total trade turnover. Turkey, China, and Russia remain Georgia’s largest trade partners.

International IT, maritime companies to enjoy tax benefits in Georgia
Companies that offer IT and maritime services will be able to enjoy favorable terms of taxation in Georgia if they obtain the status of an international company in the country. Announcing the benefits on October 8, the Georgian Finance Ministry said that in order to be granted the status of an international company in Georgia, it is necessary for a firm to be registered in Georgia and have at least two years of work experience in the country. After obtaining the status of an international company, a company will enjoy reduced property (but not land), profit, dividend (full exemption), and income taxes, with profit and income taxes reduced to 5%.

September 2020: money transfers to Georgia up 28%
Georgia received $192.7 million from abroad in September 2020, which is 28.7% more than the amount in September 2019, says the National Bank of Georgia (NBG). Russia, Italy, and the United States were the largest remittance senders to Georgia in September 2020. Georgia received $35 million from Russia, $29 million from Italy and $23 million from the United States.
After Russia, Italy, and the United States, other countries regularly sending money transfers to Georgia in September 2020 included: Greece ($21.4 million), Israel ($13.9 million), Turkey ($10.6 million), Germany ($7.5 million), Azerbaijan ($7.4 million), Ukraine ($13.2 million), Spain ($4.8 million), Poland ($2.6 million), France ($2.9 million) and the UK ($1.9 million).
In September 2020, remittances leaving Georgia totalled $25.1 million, which is a 22.4% increase year-on-year.

BAG Index: 50% of companies have low level of trust, or none at all, in the Georgian judicial system
About 41% of Georgian companies have a low level of trust in the Georgian judicial system, while 9% have none at all, shows the Business Association of Georgian (BAG) Index. Only 18% of those businesses surveyed indicated a high level of trust in Georgian courts.
Moreover, 33% of companies assess the Georgian judicial system as efficient or very efficient, while 39.2% think that the system is inefficient or very inefficient. Legal and administrative barriers were cited as one of the main factors hindering business activity, with the judicial system highlighted by many as a sub-factor within this category. Respondents saw a need for improvement with respect to tightening deadlines (76%) and increasing competence (57%).

Namakhavani HPP could provide a 12% boost to Georgian energy supply
The Namakhvani hydroelectric power plant (HPP), being built in the Tskaltubo municipality, will provide Georgia with 12% of its electric energy needs once completed, Economy Minister Natia Turnava said at a late-October press conference. The plant will have an installed capacity of 430 MW, and will bring in $800 million in foreign direct investments, Turnava noted, adding that up to 1,600 Georgian citizens may be employed by the project carried out by Turkish company Enka. By the end of 2020, nine HPPs with a total installed capacity of 31 MW will have been put into operation.

ADB approves $200 million policy loan to support Georgia’s economy recovery
The Asian Development Bank (ADB) approved a $200 million policy-based loan in late October to support Georgia’s recovery from the coronavirus disease pandemic by launching a fiscal resilience and social protection support program. This program is aimed at ensuring macroeconomic stability in the medium to long term while continuing to protect the livelihoods of those most affected by the crisis.
The ADB program also aims to strengthen the management of public exposure to fiscal risks and deepen domestic markets for government securities.
These measures seek to reduce the share of general government debt denominated in foreign currency and minimize public exposure to refinancing and currency risks that threaten macroeconomic stability.
The program will also help ensure the fiscal sustainability of social protection programs that were expanded during the crisis.
In May this year, the ADB approved a $100 million loan to support the government’s anti-crisis measures, including tax deferments for small and medium-sized businesses, temporary payments for pandemic-affected workers, and free access to Covid-19 diagnostic and treatment services.

State to cover utility fees for citizens based on consumption levels
The state will cover the utility fees of certain citizens starting in November for four months based on their levels of consumption of power and gas. Electricity fees will be covered for households which consume less than 200 kWh of electricity and 200 cubic meters of natural gas per month. Electricity will be covered for more than approximately 1.2 million households, while natural gas utilities bills will be covered for approximately 650,000 households.

New local airline company Air Georgia to start operations in 2021
The Georgian air market is expanding with a new local airline company; Air Georgia, which plans to start operations in the Georgian aviation market in 2021. Air Georgia plans to carry out flights to Europe and Central Asia. The airline company has already applied to the Georgian Civil Aviation Agency for a flight permit. There have previously been only two local airline companies in Georgia—Georgian Airways, which was established in September 1993, and Myway Airlines, which started operations in 2018.

National Bank of Georgia keeps refinancing rate unchanged at 8%
The National Bank of Georgia (NBG) has decided to keep the refinancing rate unchanged at 8% at its last Monetary Policy Committee meeting in late October.
“Annual inflation keeps decreasing and it amounted to 3.8% in September,” says the NBG, noting that based on its forecast the annual inflation rate will approach the targeted inflation rate by 2021. The bank says that the decrease in inflation is caused by a decrease of weak aggregate demand, noting that external demand is quite significant.
“Against the backdrop of increased coronavirus cases and the anticipated extension of the pandemic, the global economic recovery in 2021 is expected to be slower than previously forecasted, which will have downward impact on external demand,” the NBG said, noting that the Monetary Policy Committee also took into account the uncertainty associated with the acceleration of the virus spread and the increase in geopolitical risks.

Inflation for essential items increased at a fairly normal pace in Georgia in October
The prices of food and non-alcoholic beverages, clothing and footwear, transport, health, have increased in Georgia month-on-month, the latest inflation data from the National Statistics Office of Georgia (Geostat) show.
The prices of food and non-alcoholic beverages increased 0.9%, while it went up 5.4% for clothing, and 3.2% for footwear.
Transport prices increased by 0.8%. Health related costs also went up by 1.2%. The prices increased for medical products, appliances and equipment (2.9%).
Overall, in October 2020, the consumer price index increased by 0.8% compared to the previous month, while the annual inflation rate amounted to 3.8%.
With regard to annual core inflation, which is calculated by excluding the groups of food and non-alcoholic beverages, energy, regulated tariffs, and transport from the consumer basket, prices increased by 5.4%, while the annual core inflation without tobacco amounted to 5%, Geostat said.

New dry bulk terminal to be built in Poti port
A new dry bulk terminal will be built on the north side of the Black Sea Poti port per an agreement signed between APM Terminals Poti (APMT) and Poti New Terminals Corporation (PNTC).
APMT will invest in the construction of a new breakwater, 400 meters of quay wall and dredging of up to 13.5 meters of ship draft, while PNTC will invest in the construction of a new dry bulk terminal which will include a patio area and rail connection to Poti.
“It is an important milestone in reaching our ambition to develop the best-in-class logistics solution at Poti port, which involves a modern dry bulk facility capable of accommodating Panamax vessels and handling various types of cargo on 25 hectares of the custom area. This infrastructure will make the supply chain more efficient and effective for local and regional cargo owners,” said Managing Director of APM Terminals Poti Keld Mosgaard Christensen.
The new dry bulk terminal will be built during the first phase of the port construction project and will create an additional capacity of approximately 10 million tonnes for bulk cargo.

EBRD predicts 3.5% growth for 2021 in Georgia, IMF expects 4.3%
In its 2020-2021 transition report, the European Bank for Reconstruction and Development (EBRD) forecasts economic growth for Georgia at 3.5%, predicting a contraction of 5% in 2020.
The Covid-19 pandemic is particularly disruptive for the small and open Georgian economy, says the report.
“The impact of the external pandemic shock was wide-ranging, hitting export of goods, tourism and remittances, all very important pillars of the Georgian economy. Strict virus containment measures, imposed in March 2020, hit domestic demand and many small service providers,” the EBRD notes.
“The hospitality sector, the main driver of robust economic growth in recent years, has become a key source of vulnerability during the Covid-19 pandemic,” the EBRD says, ascribing much of the dip in GDP due to the collapse of the hospitality sector.
In turn, the International Monetary Fund still predicts 4.3% growth in 2021 “as the effects of the pandemic fade, but considerable downside risks remain.”

Georgia ranks 53rd of 167 on Legatum Prosperity Index 2020
Georgia ranks 53rd of 167 countries on the Legatum Prosperity Index 2020 which assesses countries’ political, social, economic and environmental standings. Since 2010, Georgia has moved up the rankings by 11 places, the index shows. Georgia’s rankings by category were: Safety and security (73), personal freedom (61), governance (51), social capital (111), investment environment (41), enterprise conditions (53), market access and infrastructure (56), economic quality (82), living conditions (89), health (82), education (55), and natural environment (115).
The biggest improvement in the index compared to a decade ago came in safety and security.

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