Georgia targets Mideast money

By bne IntelliNews December 4, 2009

Samantha Shields in Tbilisi -

Georgia is hoping its strategic location between Europe and Asia and a raft of government incentives will help it brush off the global financial crisis and attract billions of dollars in investment from the Middle East over the next five years.

Middle Eastern investors already have a strong toehold in Georgia, with United Arab Emirates (UAE) investment companies RAKIA (Ras Al Khaimah Investment Authority) and Dhabi Group having been active since 2006, and Egypt's Fresh Home Appliances launching operations this year.

Now the government is hoping that the development of free industrial zones offering tax and customs breaks to investors, a new fiscal austerity bill, and the easing of the world financial crisis will unfreeze stalled projects and attract fresh capital. "With several of the Arab Gulf States heavily investing worldwide, the government of Georgia thought it was a good opportunity to target them to attract their capital. Georgia is located not far from the Arabian Peninsula and has certain competitive advantages," says Irakli Matkava, director of the government agency Invest in Georgia.

The government has already presented its case to potential Kuwaiti and Qatari investors, and Prime Minister Nika Gilauri will lobby in Abu Dhabi in December as part of a Georgian investment road show that will also go to London and New York.

The so-called Liberty Act, which President Mikheil Saakashvili presented to parliament in October and still needs to be passed, would give investors a guarantee that current liberal economic policies won't change. It lays out constitutional amendments to limit state spending to a maximum 30% of GDP, the budget deficit to no more than 3% and foreign debt to no more than 60%.

Liberty to invest

Investments from the UAE totaled $124m in the first half of 2009, down from $202m during the same period of the previous year. In 2008 as a whole, the UAE was the biggest foreign investor in Georgia, accounting for $306m out of a total $1.56bn.

While Dhabi Group froze its investments in telecommunications and a five-star Kempinski Hotel to be built in the centre of Tbilisi after the August 2008 war with Russia, money from RAKIA's two Georgian subsidiaries, RAKIA Georgia and Rakeen, is still trickling in. RAKIA Georgia bought 51% of the Black Sea port of Poti in the west of the country for $155m last year and has invested a further $10m in the free industrial zone in the town and $67.5m in the Sheraton hotel in Tbilisi.

The company's Georgian construction arm, Rakeen, has started work on a $200m shopping mall called Tbilisi Uptown on the outskirts of the city. The 200,000 square metre complex will be completed in a year and a residential phase costing a further $100m will begin construction in two years time, says Rakeen's general director, Zaza Mikadze. Rakeen has six other projects on the table including a development of luxury villas in the hills overlooking central Tbilisi, three Black Sea resorts and a golf course in the capital. The total investment could come to $600m. "This is our five-year plan, but of course a lot depends on recovery and demand," Mikadze says. "Georgia has a unique location as a bridge between Europe and Asia and the government is loyal to investors."

Fresh Home Appliances bucked the worldwide trend of companies holding back expansion plans in May when it announced it would invest in the free economic zone in Kutaisi in the west of the country, potentially bringing Georgia an enormous $1.2bn.

So far Fresh's plans are on track, says Misha Tigishvili, CEO of Fresh's local partner Georgian International Holdings. The company has invested $115m this year and signed up 11 other Egyptian manufacturers to the free economic zone, including automakers, textile and furniture producers and electrical appliances makers all keen to assemble goods in Georgia then export them. "The investment will be $450m by the end of 2010 and the plan is for the full project to be finished by the end of 2011," Tigishvili says.

Georgia's government, while admitting that the economy could shrink by as much as 4% this year, is still confidently predicting a return to growth of 2% in 2010, and hopes Arab countries will continue to be major contributors. "We continue to work hard to attract more foreign investment from the UAE and other Arab countries. The priority spheres for Georgia in the nearest future are energy and agriculture, but flows into other fields are more than welcome," Matkava says.

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