2023 June-July News

Investment News

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.

Georgian economy grows 7.2% in Q1 of 2023
The Georgian economy grew 7.2% in the first quarter of 2023, data released by Geostat on April 28 shows. In its release, the statistics body noted that growth compared to the same period of the previous year was observed in construction, financial and insurance activities, transportation and storage, and trade. Conversely, manufacturing, energy, and real estate all registered a decline.
Deputy Economy Minister Vakhtang Tsintsadze commented on the statistics, expressing optimism that the “positive economic growth rate” would persist throughout the remainder of the year. Tsintsadze added that the country is expected to achieve a higher economic growth rate than initially predicted at the beginning of the year, even surpassing estimates made by international financial institutions.
For reference, the World Bank’s economic update in April estimated Georgia’s growth will be 4.4% in 2023, reaching 5% in 2024 and 2025. The Asian Development Bank estimated in its April report that the country’s economy would grow by 4.5% in 2023 before reaching 5% in 2024, and the World Economic Situation and Prospects Report, released by the United Nations in January, forecasted 5.2% growth in 2023 and 4.6% growth in 2024.

National Bank reduces refinancing rate to 10.5%
The National Bank of Georgia (NBG) on May 10 announced a “gradual exit” from its tight monetary policy, as it decreased the refinancing rate by 0.5% to 10.50%, following a reduction in the domestic inflation rate. The bank said inflation in the country was on a “downward trajectory” predominantly driven by reduced prices on international commodity markets and decreased international shipping costs.
“After a prolonged period of high inflation, inflation being below the target in the short run will help further normalization of long-term inflation expectations. The latter, in turn, is a prerequisite for price stability”, the NBG’s press release said. It cautioned, however, that while inflationary pressures coming from international markets had been neutralized, domestic inflation was declining “at a relatively slow speed.”
It also noted that economic uncertainty related to increased labor costs and “geopolitical tensions” was still high in the country despite the trends, adding it would only “continue to reduce the monetary policy rate at a slow pace”. The next meeting of the NBG’s Monetary Policy Committee will be held on June 21.

Officials meet in Tbilisi to discuss Black Sea submarine cable project
Officials from Georgia, Azerbaijan, Romania, and Hungary met on April 6 in Tbilisi to discuss the implementation of the Black Sea submarine electricity cable project, a new transmission route to deliver green energy from Azerbaijan to Europe.
At the meeting, Georgian officials shared the results of the first feasibility study of the project and discussed the next stages of its implementation with their counterparts. Economy Minister Levan Davitashvili said additional studies were required this year to have a “complete picture” of how the project should be implemented. “It is very important to coordinate at a high level between the countries in order for the project to be effectively implemented,” Davitashvili said after the meeting.
Hungarian Minister of Trade and Foreign Affairs Peter Szijjártó said his country was interested in energy diversification to ensure the security and supply of green, environmentally friendly solutions. “We really appreciate Georgia’s ambitious approach to the implementation of this project [and] we are ready to participate in the feasibility study. We hope that our Georgian friends will be able to fulfill the plan of providing a record-breaking, almost 1,200-kilometer-long submarine cable,” he said.
The four countries signed the project in December, with the projected infrastructure enabling the countries of the South Caucasus and Romania to take advantage of “broadened export opportunities” and trade in electricity at hourly market prices. The next meeting between the sides is scheduled to be held in Bucharest, Romania.

International arrivals up 110% in Q1 of 2023
More than 1.2 million international travelers arrived in Georgia in the first quarter of 2023, announced Geostat on May 15, noting that the figures marked a 110% YoY increase. In the reporting period, 845,000 tourist visits were made to Georgia, up 84% compared to the same quarter of 2022.
The figures showed that the largest number of visitors came from Russia (25%), followed by Turkey (18%) and Armenia (15%). Recreation was the main purpose for the majority of visits (46%), with most visitors arriving in the capital city of Tbilisi and the western Adjara region. Geostat also noted that 79% of the travels were repeat visits.
This increase in visitor numbers also provided a boost to Georgia’s three international airports, which recorded a 33% increase in passenger traffic. Georgia’s airports served more than 1 million passengers between January and March, according to data released by the Georgian Civil Aviation Agency on April 13. Tbilisi International Airport served 713,660 passengers (41% YoY increase); Kutaisi International Airport served 253,073 passengers (108% YoY increase); and Batumi International Airport served 77,077 passengers (a 13% YoY increase).

Tax treaty with Poland comes into force
A deal between Georgia and Poland has come into force that will allow individuals and businesses operating in either country to avoid double taxation, the Georgian Ministry of Finance announced on April 3. Tax subjects will pay income and capital taxes in only one of the two countries under the Treaty of the Avoidance of Double Taxation in an effort to “promote economic cooperation between the countries and encourage foreign investments,” said the ministry in a statement.
Finance Minister Lasha Khutsishvili and Polish Ambassador Mariusz Maszkiewicz signed the updated agreement in 2021, replacing an earlier deal signed between the countries in 2006. The Ministry said withholding tax rates on dividends, interest, and royalties had been reduced from 10% to 5% under the new deal. For reference, Georgia currently has double taxation agreements with 57 countries.

Georgian trade up 24% in January-April 2023
Georgian external trade turnover amounted to $6.49 billion from January to April 2023, posting a 21% YoY increase, Geostat revealed on May 15. The value of exports rose by 24% and equaled $1.96 billion, while imports grew by 21%, amounting to $4.53 billion in the first four months of 2023. The trade deficit, a measure of the negative balance of trade in which imports exceed exports, reached $2.57 billion, and the share of trade turnover hit 40%.

Georgia, South Korea launch free trade talks
Georgia and South Korea will launch negotiations for signing a partnership agreement deepening trade and economic ties between the countries this year, the Ministry of Economy of Georgia announced on May 2. While visiting South Korea, Deputy Economy Minister Genadi Arveladze met the country’s Acting Director of the Free Trade Policy Department of the Ministry of Trade, Industry, and Energy to discuss the deal.
The agreement will cover liberalization of trade in both goods and services, sanitary and phytosanitary measures, technical barriers to trade, intellectual property rights, government procurement, and more. Georgia’s Ministry of Economy said it envisions the deal also resulting in deeper economic cooperation in the areas of energy, transport, information technology, and tourism. A high-level delegation from Korea will visit Georgia in the second half of this year to finalize the agreement and sign a document on the terms of negotiations, the ministry said.

PM announces $398 million infrastructure program
Georgian Prime Minister Irakli Garibashvili on April 18 announced the launch of a ₾1 billion ($398 million) five-year program for renovation and development of infrastructure across the country.
At the weekly meeting of the government, Garibashvili said the initiative would renovate cultural and historical monuments and facilities in large cities, resort locations, and highland areas, as well as recreational zones throughout the country. Venues and monuments in Borjomi, Bakuriani, Kutaisi, Tskaltubo, Telavi, Zugdidi, Batumi, Mtskheta, Stepantsminda, and Mestia will undergo renovation as part of the effort.
“We have already allocated ₾200 million ($79.7 million) for this purpose this year […] Concepts will be developed, the Municipal Development Fund will start working actively on the implementation of this program, [and] we will select the best architects [and] builders. Our main task should be to gradually transform our country into a truly European-type state. It should be a well-maintained, developed, beautiful state [with such] cities, districts [and] villages,” Garibashvili said.

Tbilisi residential real estate prices continue to rise
Buying a flat or a house in Tbilisi became more expensive in the first quarter of 2023, the latest Residential Property Price Index by the National Statistics Office of Georgia shows. Released at the end of April, the index pointed to a 9.3% increase in prices for flats and 11.6% increase for houses compared to 2022.
The cost of flats in Mtatsminda district were the highest on average at nearly ₾5,000 (then $1,960) per square meter, with the figure standing at ₾3,600 ($1,400) for houses. Vake and Sabartulo came in second and third place, respectively.

EU imports of Georgian agricultural products up 21% in Q1
Export of Georgian agricultural products to countries of the European Union is on the rise, with data released by the Ministry of Agriculture in April showing a 21% YoY increase in the figure for the first quarter of 2023.
Figures released also show a 129% increase in Georgian wine exports since the signing of the free trade agreement with the EU in 2014, with fruit juice and vegetable exports rising by 103%, alcoholic beverages by 26%, and fruit exports up fivefold. Overall, Georgian produce worth $1.3 billion was exported to 96 countries in 2022, a 34% increase compared to the previous year.

Program launched to promote Georgian films abroad
Enterprise Georgia, an export promotion agency for the country, on April 11 announced the launch of a commercialization program for Georgian feature films. In a bid to promote and increase the sales of films produced in the country in the international market, screenings of Georgian films will be hosted at “leading international film festivals” to which “influential sales agents and distributors” will be invited, the agency said. Production studios who are beneficiaries of the Film in Georgia state program as well as film producers that receive financing support from the Georgian National Film Center are eligible to apply for the program.

World Bank to allocate €46.2 million for Georgian agriculture, irrigation
The International Bank for Reconstruction and Development (IBRD) will allocate €46.2 million for enabling the development of sustainable agriculture, irrigation, and the land market in Georgia, the Ministry of Finance of Georgia announced on April 3. The agreement was signed by Finance Minister Lasha Khutsishvili and World Bank Regional Director for the South Caucasus Sebastian Molineus.
Under the Green and Sustainable Development Policy of Georgia, €46.2 million will be allocated to the country, the ministry said. The ministry also noted that the program involved commitments by Georgia towards climate change including sustainable forest management, industrial emission management, and generation of renewable energy. It will also include procedures for the financial oversight of state-owned enterprises and their forms of governance, and improved access to land, water, and financial resources.

Georgian Railway launches freight services to Central Asia for car manufacturers
Georgian Railway announced in April that it was launching freight services offering car manufacturers to transport their products to Central Asian states. The company said manufacturers like Toyota, BMW, and Audi would be able to deliver their vehicles via Georgia and Azerbaijan to Kazakhstan, Uzbekistan, and other countries in the region using the rail service. Previously, car manufacturers had transported their cars via road transport to Central Asia. “As a result of the ongoing talks, rail freight of cars may [also] become regular,” a spokesperson for the rail company said.