Georgia

Bureau of Economic and Business Affairs
June 29, 2017

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Executive SummaryShare    

Georgia is located at the crossroads of Western Asia and Eastern Europe. Since the Rose Revolution, Georgia has made sweeping economic reforms, moving from a near-failed state in 2003 to a relatively well-functioning market economy in 2016. Through dramatic police and institutional reforms, the government has mostly eradicated low-level corruption. According to a 2016 International Republican Institute (IRI) poll, 95 percent of respondents said they have not been asked to pay a bribe in the past year to receive a service or decision. Georgia ranks 16th in the 2016 World Bank’s Ease of Doing Business index, 13th in the 2017 Economic Freedom Index, and 59th out of 128 global economies in the Global Competitiveness Report. Fiscal and monetary policy are focused on low deficits, low inflation, and a floating real exchange rate, although the latter has been affected by regional developments, including sanctions on Russia and other external factors such as a stronger dollar and weaker regional economies. Public debt and budget deficits remain under control.

In early 2014, the government published its medium-term economic strategy, Georgia 2020, which outlines Georgia’s economic policy priorities. It stresses the government’s commitment to business-friendly policies such as low taxes, but also pledges to invest in human capital and to strive for inclusive growth across the country, not just in Tbilisi. The strategy also emphasizes Georgia’s geographic potential as a trade and logistics hub along the New Silk Road linking Asia and Europe via the Caucasus. In 2016, Prime Minister Giorgi Kvirkashvili’s four-point plan for economic reform continued many of those themes, focusing reforms and government spending on judicial and education reform, infrastructure development, and tax reform.

Companies have reported occasional problems arising from a lack of judicial independence, inefficient decision making processes at the municipal level, occasional shortcomings in the enforcement of intellectual property rights, lack of effective anti-trust policies, selective enforcement of economic laws, and difficulties resolving disputes over property rights. Georgia’s government continues to work to address these issues and, despite these remaining challenges, Georgia stands far ahead of its post-Soviet peers as a good place to do business.

In June 2014, Georgia signed an Association Agreement (AA) and Deep and Comprehensive Free Trade Area (DCFTA) with the European Union. In 2012, the United States and Georgia established a High-Level Dialogue on Trade and Investment to identify ways of increasing bilateral trade and investment. The United States and Georgia also discussed economic cooperation within the bilateral Strategic Partnership Commission’s Economic Working Group. Both countries signed a Bilateral Investment Treaty in 1994, and Georgia is eligible to export many products duty-free to the United States under the Generalized System of Preferences (GSP) program.

Georgia suffered considerable instability in the immediate post-Soviet period. After independence in 1991, civil war and separatist conflicts flared up along the Russian border in the areas of Abkhazia and South Ossetia. The status of each region remains contested, and the central government does not have effective control over these areas. The United States supports the territorial integrity of Georgia within its internationally-recognized borders. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded undisputed Georgian territory and continues to occupy South Ossetia and Abkhazia. Tensions still exist both inside the occupied regions and near the administrative boundary lines, but other parts of Georgia, including Tbilisi, are not directly affected.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2016

44 of 175

http://www.transparency.org/
research/cpi/overview

World Bank’s Doing Business Report “Ease of Doing Business”

2016

16 of 190

doingbusiness.org/rankings

Global Innovation Index

2016

64 of 128

https://www.globalinnovationindex.org/
analysis-indicator

U.S. FDI in Partner Country ($B USD, stock positions)

2015

1.0

18.5

http://www.bea.gov/
international/factsheet/

http://www.geostat.ge/?action=page&p_id=2230&lang=geo

World Bank GNI Per Capita

2015

4,160

http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Policies Towards Foreign Direct Investment

Georgia is open to foreign investment, and the Georgia National Investment Agency (www.investingeorgia.org) is implementing an aggressive marketing campaign to encourage more foreign investors to come to Georgia. Legislation establishes favorable conditions for foreign investment, but not preferential treatment for foreign investors. The Law on Promotion and Guarantee of Investment Activity protects foreign investors from subsequent legislation that alters the condition of their investments for a period of ten years.

Limits on Foreign Control and Right to Private Ownership and Establishment

Georgia does not formally screen foreign investment in the country, other than imposing a registration requirement and certain licensing requirements as outlined below. Foreign investors have participated in most major privatizations of state-owned property. Transparency of privatization has at times been an issue. No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict foreign partners' investment activity or limit foreign partners' ability to gain control over domestic enterprises.

There are no specific licensing requirements for foreign investment other than those that apply to all companies. By law, the Government has 30 days to make a decision on licenses, and if the licensing authority does not state a reasonable ground for rejection within that time, the license or permit is deemed to be issued. The government only requires licenses for activities that affect public health, national security, and the financial sector. The government currently requires licenses in the following areas: weapons and explosives production, narcotics, poisonous and pharmaceutical substances, exploration and exploitation of renewable or non-renewable substances, exploitation of natural resource deposits, establishment of casinos and gambling houses and the organization of games and lotteries, banking, insurance, securities trading, wireless communication services, and the establishment of radio and television channels. The law requires the state to retain a controlling interest in air traffic control, shipping traffic control, railroad control systems, defense and weapons industries, and nuclear energy. Only the state may issue currency, banknotes, and certificates for goods made from precious metals, import narcotics for medical purposes, and produce control systems for the energy sector.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) conducted an abbreviated Investment Policy Review in 2014, based on its Policy Framework for Investment.

In January 2016, the World Trade Organization (WTO) concluded its second Trade Policy Review of Georgia. In this review, WTO members reiterated their approval of Georgia’s broadly open, transparent and predictable trade and investment regimes. During the review period, Members noted that Georgia had undertaken an impressive range of reform initiatives aimed at streamlining, liberalizing, and simplifying trade regulations and their implementation. The review lauded Georgia's trade openness and its commitment to the multilateral system through its responsible contribution to the work of the WTO.

WTO Members commended Georgia for the ratification of the Trade Facilitation Agreement, which would benefit Georgia's role as a trade transit corridor in the region, and the related notification to the WTO of Category A, B and C commitments. Members also noted that Georgia was an observer to the Government Procurement Agreement and was currently assessing the prospects for joining the Agreement. Members welcomed the announcement that Georgia was considering joining the expanded Information Technology Agreement, which would constitute a significant step forward for attracting further investment. See more at https://www.wto.org/english/tratop_e/tpr_e/tp428_crc_e.htm

Business Facilitation

The Georgian National Investment Agency is a governmental institution accountable to the Prime Minister of Georgia. It plays the role of moderator between foreign investors and the Government of Georgia, ensuring that the investor receives different types of updated information and has means of effective communication with Government bodies. The Agency’s web page offers useful information (http://www.investingeorgia.org/en/), and any investor is eligible to use the Agency’s services free of charge.

In general, the process of registering a business in Georgia is quick and streamlined, and Georgia tops the list of countries in the World Bank’s Doing Business Report with regard to this particular component. The registration process takes only one day to complete. Registration of companies is carried out by the National Agency of Public Registry (NAPR) (www.napr.gov.ge is in Georgian only), located in the Public Service Halls (PSH) under the Ministry of Justice of Georgia. The web page of the PSH (http://www.psh.gov.ge/main/page/2/85) outlines procedures and requirements for business registration in English. For registration purposes, the law does not require a document verifying the amount or existence of charter capital. A company is not required to complete a separate tax registration. The initial registration includes both the state and tax registration together.

The following information is required to register a business in Georgia: personal information of the founder and principal officers, articles of incorporation, and the company’s area of business activity. Other required documents depend on the type of entity to be established. Registration fees are minimal.

To register a business, you must first pay the registration fee, register the company with the Entrepreneurial Register and obtain an identification number and certificate of state and tax registration. Registration fees are: GEL 100 (around USD 45) for regular registration, GEL 200 (USD 90) for expedited registration, plus GEL 1 (bank charges). Second, you must open a bank account (free of charge).

Outward Investment

The Georgian government does not have any specific policy on promoting or restricting domestic investors from investing abroad, and Georgia’s outward investment is insignificant.

2. Bilateral Investment Agreements and Taxation TreatiesShare    

Georgia has bilateral agreements on investment promotion and mutual protection with 32 countries, including: the United States, Armenia, Austria, Azerbaijan, Belgium, Bulgaria, China, the Czech Republic, Estonia, Egypt, Finland, France, Germany, Greece, Iran, Israel, Italy, Kazakhstan, Kyrgyzstan, Kuwait, Latvia, Lithuania, Luxemburg, Moldova, the Netherlands, Romania, Sweden, Turkey, Turkmenistan, Uzbekistan, the United Kingdom, and Ukraine. Negotiations are under way with the governments of 24 countries: Bangladesh, Belarus, Bosnia and Herzegovina, Croatia, Cyprus, Denmark, Iceland, India, Indonesia, Jordan, Korea, Lebanon, Malta, Norway, the Philippines, Portugal, Saudi Arabia, Slovakia, Slovenia, Spain, Switzerland, Syria, Tajikistan, and Qatar. Additionally, in 2007, Georgia signed a Trade and Investment Framework Agreement (TIFA) with the United States.

On June 27, 2014, Georgia signed an Association Agreement (AA) and Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union. In 2016, the government signed a free trade agreement with the European Free Trade Association (EFTA) countries of Iceland, Liechtenstein, Norway, and Switzerland. The government has completed negotiations for a free trade agreement with China that is expected to enter in to force in the summer of 2017. A free trade agreement is in force with the Commonwealth of Independent States and others exist bilaterally with Ukraine, Russia (though trade is restricted by the Russian Government), Kazakhstan, Azerbaijan, Armenia, Moldova, Turkmenistan, and Turkey. An agreement is signed, but not yet ratified, with Uzbekistan. Georgia has ongoing free trade agreement consultations with Belarus, Kyrgyzstan, the Cooperation Council of Gulf Arab States, and Tajikistan.

The United States and Georgia established a High-Level Dialogue on Trade and Investment in 2012, a bilateral dialogue aimed toward identifying measures to increase bilateral trade and investment. The United States and Georgia have shared a Bilateral Investment Treaty since 1997, and Georgia can export many of its products duty-free to the United States under the Generalized System of Preferences (GSP) program.

Bilateral Taxation Treaties

The United States and Georgia are beneficiaries of the U.S.-Georgia Bilateral Taxation Treaty as Georgia is one of the former Soviet Republics which is covered under the U.S. treaty with the former Union of Soviet Socialist Republics (USSR). Double taxation issues are covered under the Convention with the Union of Soviet Socialist Republics on Matters of Taxation of 1973 (http://www.irs.gov/pub/irs-trty/ussr.pdf).

Georgia has concluded agreements for avoidance of double taxation with 46 countries: Armenia, Austria, Azerbaijan, Bahrain, Belgium, Bulgaria, China, the Czech Republic, Croatia, Denmark, Estonia, Egypt, Finland, France, Germany, Greece, Hungary, India, Iran, Ireland, Italy, Israel, Kazakhstan, Kuwait, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Norway, Poland, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, Spain, Switzerland, Turkey, Turkmenistan, UAE, Ukraine, the UK, and Uzbekistan. A double taxation avoidance treaty has been ratified, but has not yet entered into force with Portugal. Treaties have been negotiated but are waiting to be ratified with Cyprus, Lebanon, Sweden, Oman, Liechtenstein, and Iceland. Treaty negotiations have started with Belarus, South Korea, Jordan, Montenegro, Saudi Arabia, Vietnam, Iraq, Argentina, Indonesia, Malaysia, Mexico, Albania, Colombia, Moldova, Mongolia, Morocco, New Zealand, Peru, the Philippines, Tajikistan, Uruguay, Brazil, Cuba, Ecuador, Canada, and South Africa. Georgia and Russia signed a double taxation avoidance treaty in 1999, which the Georgian Parliament ratified in 2000; although it has not been ratified by the Russian Duma, Russia regards it as an active agreement.

3. Legal RegimeShare    

Transparency of the Regulatory System

The Georgian government has committed to greater transparency and simplicity of regulation. The government publishes laws and regulations in Georgian in the official gazette, the Legislative Messenger, ‘Matsne’ (www.matsne.gov.ge). Another online tool to research Georgian legislation is www.codex.ge.

Draft bills or regulations are available for public comment. NGOs, professional associations and business chambers take active part in public hearings of the laws that concern their respective areas of operations.

Georgia has six types of tax: corporate profit, value added tax (VAT), property, income, excise, and dividend. The tax on corporate profits is 15 percent. However, in January 2017, the government adopted a corporate profit tax scheme that exempts from income taxation undistributed, reinvested, or retained corporate profits. The VAT is 18 percent. The tax on personal income is 20 percent. The dividend income tax rate is 5 percent. There are no dividend and capital gains taxes for publicly traded equities (a free float in excess of 25 percent). There are excise taxes on cigarettes, alcohol, fuel, and mobile telecommunication. Most goods, except for some agricultural products, have no import tariffs. For goods with tariffs, the rates are five or 12 percent unless excluded by an FTA.

The Georgian National Investment and Export Promotion Agency has Business Information Centers in Tbilisi and other cities intended to provide domestic and foreign businesses with a standard package of information about doing business in Georgia. They also provide specific information for individual businesses. Business Information Centers also facilitate a public-private dialogue to improve communication between regulators and businesses. The Government has, additionally, institutionalized engagement with the private sector through an independent Investors Council, which discusses legislative reforms, the government’s economic development plan, and actions that would help grow the economy.

International accounting standards are binding for joint stock companies, banks, insurance companies and other companies operating in the insurance field, limited liability companies, limited partnerships, joint liability companies, and cooperatives. Private companies are required to perform accounting and financial reporting in accordance with international accounting standards. Sole entrepreneurs, small businesses, and non-commercial legal entities perform accounting and financial reporting according to simplified interim standards approved by the Parliamentary Accounting Commission. Shortcomings in the use of international accounting standards persist, and qualified accounting personnel are in short supply.

On March 21, 2014 the Parliament of Georgia adopted the amendments to the Law of Georgia on Free Trade and Competition. These amendments were developed as part of the anti-monopoly reform and aim to promote a free, competitive marketplace. The law provided for the establishment of an independent structure, named the Competition Agency, to exercise effective state supervision over a free, fair, and competitive market environment. Nonetheless, certain companies have dominant positions in pharmaceutical, petroleum, and other sectors.

International Regulatory Considerations

Georgia’s Association Agreement with the European Union includes provisions for the establishment of a Deep and Comprehensive Free Trade Area (DCFTA). The agreement is designed to gradually introduce European standards in all spheres of Georgia's economy and sectoral policy: infrastructure, energy, the environment, agriculture, tourism, technological development, employment and social policy, health protection, education, culture, civil society, regional development, etc. It also provides for the approximation of Georgian laws with nearly 300 items of European legislation.

The DCFTA should promote a gradual approximation with European standards for food safety; the establishment of a transparent and stable business environment; an increase in Georgia's potential to attract investment; the introduction of innovative approaches and new technologies; the stimulation of economic growth; and support for the country's economic development.

Georgia is a World Trade Organization (WTO) member, and since WTO accession, has not introduced any Technical Barriers to Trade.

Legal System and Judicial Independence

Georgia's legal system is based on civil law. The Ministry of Justice's Public Service Halls provide property registration.

Georgia does not have an integrated commercial code. There are, however, a number of different laws and codes (Tax Code, Law on Entrepreneurs, and Law on Insolvency) that constitute the legislative body for regulating commercial activity in Georgia.

According to Freedom House’s 2016 Freedom in the World Report, “executive and legislative interference in the judiciary remains a substantial problem, although judicial transparency and accountability have improved in recent years, in part due to increased media access to courtrooms.” In 2016-17, several commercial disputes raised questions about the ability of the courts to hear commercial cases independently and competently within a reasonable time frame.

Regulations and enforcement actions are appealable, and they are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

The U.S.-Georgia Bilateral Investment Treaty (BIT) guarantees U.S. investors national treatment and most favored nation treatment. Exceptions to national treatment have been carved out for Georgia in certain sectors such as maritime fisheries, air and maritime transport and related activities, ownership of broadcast, common carrier, or aeronautical radio stations, communications satellites, government-supported loans, guarantees, and insurance, and landing of submarine cables.

Georgia's legal system is based on civil law. Legislation governing foreign investment includes the Constitution, the Civil Code, the Tax Code, and the Customs Code. Other relevant legislation includes the Law on Entrepreneurs, the Law on Promotion and Guarantee of Investment Activity, the Bankruptcy Law, the Law on Courts and General Jurisdiction, the Law on Limitation of Monopolistic Activity, the Accounting Law, and the Securities Market Law.

Ownership and privatization of property is governed by the following acts: the Civil Code, the Law on Ownership of Agricultural Land, the Law on Private Ownership of Non-Agricultural Land, the Law on Management of State-Owned Non-Agricultural Land, and the Law on Privatization of State Property. Property rights in extractive industries are governed by the Law on Concessions, the Law on Deposits, and the Law on Oil and Gas. Intellectual property rights are protected under the Civil Code and the Law on Patents and Trademarks. Financial sector legislation includes the Law on Commercial Banks, the Law on National Banks, and the Law on Insurance Activities.

Competition and Anti-Trust Laws

The agency in charge of reviewing transactions for competition-related concerns is the Competition Agency, an independent legal entity of public law, subordinated to the Prime Minister of Georgia. The agency aims to promote market liberalization, free trade, and competition (see www.competition.ge). Georgia has also signed a number of international agreements containing competition provisions including the EU-Georgia Association Agreement, which was ratified by the Georgian Parliament in July 2014. The Deep and Comprehensive Free Trade Area (DCFTA) within the AA goes further than most FTAs, with elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.

Expropriation and Compensation

The Georgian Constitution protects property ownership rights, including ownership, acquisition, disposal, and inheritance of property. Foreign citizens living in Georgia possess rights and obligations equal to those of the citizens of Georgia. The Constitution allows restriction or revocation of property rights only in cases of extreme public necessity, and then only as allowed by law.

The Law on Procedures for Forfeiture of Property for Public Needs establishes the rules for expropriation in Georgia. The law allows expropriation for certain enumerated public needs and provides a mechanism for valuation and payment of compensation, and for court review of the valuation at the option of any party. The Georgian Law on Investment allows expropriation of foreign investments only with appropriate compensation. Amendments made to the Law on Procedures for Forfeiture of Property for Public Needs allow payment of compensation with property of equal value as well as money. Compensation includes all expenses associated with the valuation and delivery of expropriated property. Compensation must be paid without delay and must include both the value of the expropriated property as well as the loss suffered by the foreign investor as a result of expropriation. The foreign investor has a right to review an expropriation in a Georgian court. In 2007, Parliament passed a law generally prohibiting the government from contesting the privatization of real estate sold by the government before August 2007. The law is not applicable, however, to certain enumerated properties.

The U.S.-Georgia Bilateral Investment Treaty permits expropriation of covered investments only for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and general principles of fair treatment.

Expropriation disputes are not common in Georgia, although under the previous government (before 2012) reputable NGOs raised cases of illegal revocation of historic ownership rights in Svaneti, Anaklia, Gonio, and Black Sea-adjacent territories. There were also reports that the government improperly used eminent domain to seize property in Tbilisi at unfairly low prices, particularly associated with the Tbilisi Railway Bypass Project and other infrastructure expansion/improvement projects.

Dispute Settlement

ICSID Convention and New York Convention

Since 1992, Georgia has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention), and a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

As a result of these international obligations, Georgia is bound to accept international arbitration and recognize arbitral awards. The Ministry of Justice oversees the government’s interests in arbitrations between the state and private investors.

Investor-State Dispute Settlement

Georgia has signed bilateral investments treaties (BITs) with over 30 countries including the United States. Georgian investment law allows disputes between a foreign investor and a government body to be resolved in Georgian courts or at ICSID, unless a different method of dispute settlement is agreed upon between the parties. If the dispute cannot be heard at ICSID, the foreign investor can also submit the dispute to ad-hoc international arbitration under United Nations Commission for International Trade Law (UNCITRAL model law) rules. The right to use ICSID or UNCITRAL model law is guaranteed under the U.S.–Georgia Bilateral Investment Treaty.

Disputes over property rights have at times undermined confidence in the impartiality of the Georgian judicial system and rule of law, and by extension, Georgia’s investment climate. The government identified judicial reform as one of its top priorities and Parliament has passed reforms aimed at strengthening judicial independence. In May 2013, parliament reorganized the High Council of Justice, the institution charged with overseeing the administration of the judiciary, to make it more independent and free from political considerations.

Over the past 10 years, there have been five investment disputes involving U.S. citizens, and all of them have been resolved through arbitral awards or out-of-court settlements.

Local Courts recognize and enforce foreign arbitral awards issued against the government.

There is no substantial history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Georgia's arbitration law went into force on January 1, 2010. Georgia has enacted legislation based on the UNCITRAL Model Law. Domestic private arbitration firms, such as the International Arbitration Center (www.giec.ge), operate in dispute resolution between two private parties.

Bankruptcy Regulations

In the ‘Resolving Insolvency’ category of the World Bank 2016 Doing Business report, Georgia slipped from 101 to 106 out of 189 economies, although the report stated that Georgia expedited the process of resolving insolvency by establishing or tightening time limits for all insolvency-related procedures, including auctions. The bankruptcy process remains clumsy.

At the Ministry of Justice’s request, USAID conducted a diagnostic assessment of the Insolvency System of Georgia using interviews from local stakeholders, reports and analyses by international organizations (e.g. EBRD, the World Bank and GIZ) to identify deficiencies. The assessment supported the Ministry’s findings that the insolvency law is not utilized as a tool to resolve financial distress in Georgia. The assessment also found that the lack of use of the law was due to the stigma attached to insolvency and a lack of understanding of the law by debtors and creditors in the current economy. The Law adversely affects the rights of senior secured creditors, and largely ignores the rights of unsecured creditors, by not providing a flexible enough framework for “rehabilitation” to be a useful strategy for either debtors or creditors. The assessment also found that the insolvency system possesses significant legal and economic weaknesses and that stronger policies are needed to create a more effective environment for the resolution of financial failure in Georgia.

In response to the above assessment, the Ministry of Justice has established a government and private working group to develop a revised draft insolvency law and to make the bankruptcy process more efficient.

4. Industrial PoliciesShare    

Investment Incentives

In 2013, the Georgian Co-Investment Fund (GCF) was launched to promote foreign and domestic investments. GCF was announced as a reported USD six billion private investment fund, with the mandate of providing investors with unique access, through a private equity structure, to opportunities in Georgia’s fastest growing industries and sectors. The GCF, which was initiated by ex-PM Ivanishvili, includes international and domestic investment communities as Limited Partnerships (LPs). Ivanishvili’s personal contribution to the fund is reportedly USD 1 billion. The remaining 85 percent is held by the Abu Dhabi Group, the Ras Al Khaimah Investment Authority (both located in the United Arab Emirates), Milestone International Holding from China, Mr. Alexander Moshkevich from Kazakhstan, capital from the estate of the late Badri Patarkatsishvili, Batumi Industrial Holdings (a subsidiary of KazTransOil), Çalik Holdings from Turkey, and the State Oil Fund of Azerbaijan (not SOCAR but SOFAR).

Approximately 80 percent of the fund will be invested in Georgia over a period of five years (2013-2018). The remaining 20 percent will be invested internationally. Priority areas with estimated expenditures announced at the launch of the fund are:

  • Energy – up to USD 3 billion
  • Hospitality and Real Estate – up to USD 1 billion
  • Agriculture and Logistics – up to USD 0.5 billion
  • Manufacturing – up to USD 1.5 billion
  • Other – up to USD 0.5 billion

GCF's minimum internal rate of return (IRR) threshold for investment in projects is 17 percent and it intends to invest 25 to 75 percent of the total equity investment, with a minimum investment of USD 5 million. GCF is expected to retain its ownership interest in the Portfolio Companies for up to seven years, extendable to a maximum of nine. During that period the Fund will exit from its investments by selling its ownership interest through:

  • Sale to existing co-owners or partners of the project;
  • Sale to external third parties;
  • IPO on local and international stock exchanges.

The government’s Produce in Georgia program aims to develop and support entrepreneurship, encourage creation of new enterprises, and increase export potential and investment in the country. Coordinated by the Ministry of Economy and Sustainable Development of Georgia through its Entrepreneurship Development Agency, National Agency of State Property, and Technology and Innovation Agency of Georgia, the project provides the following support:

  • Access to finance
  • Access to real property
  • Technical assistance

For more information please visit the website: http://qartuli.ge

Within the framework of this program the National Agency of State Property is in charge of the Physical Infrastructure Transfer Component, i.e., free-of-charge transfer of government-owned real property to an entrepreneur under certain investment obligations.

Low labor costs contribute to the attractiveness of Georgia as a foreign investment destination. It is also increasingly recognized as a regional transportation hub that provides access to the New Silk Road trade corridor linking Asia and Europe.

Georgia’s free trade regimes with a number of regional countries, as well as the recently signed Association Agreement with the EU and related Deep and Comprehensive Free Trade Agreement, provide easy access for goods produced in Georgia to foreign markets. Foreign investors can benefit from these agreements if their investments are targeted at the production of goods to be exported to these markets.

Foreign Trade Zones/Free Ports/Trade Facilitation

In June 2007, the Parliament of Georgia adopted the Law on Free Industrial Zones, which defined the form and function of free industrial/economic zones. Financial operations in such zones may be performed in any currency. Foreign companies operating in free industrial zones are exempt from taxes on profit, property, and VAT. UAE-based RAK Investment Authority (Rakia) purchased LLC Poti Sea Port in 2008 and began development of a free industrial zone on 300 hectares of land adjacent to the port. In 2011, Rakia sold 80 percent of the Port to APM Terminals, based in the Netherlands and part of the Danish A.P. Moller-Maersk group, but maintains 100 percent ownership of the Poti Free Industrial Zone, the first of its kind in Georgia and the whole Caucasus region. As of January 2017, CEFC China Energy Company Limited expressed its readiness to purchase 75 percent of shares of the Poti Free Industrial Zone from Rakia.

Georgia’s second free industrial zone is a 27-hectare plot in Kutaisi, where the Egyptian company Fresh Electric constructed a kitchen appliances factory in 2009. The company has committed to building about one dozen textile, ceramics, and home appliances factories in the zone, and announced its intention to invest over USD 2 billion.

The third Free Industrial Zone, established in 2015 in the western city of Kutaisi, is being developed by the Chinese private corporation “Hualing Group,” based in Urumqi, China. The Hualing Group launched its investment in Georgia in 2007 and has realized eight large projects in infrastructure, hospitality and other areas, totaling USD 500 million. (http://hualing.ge/language/en/hualing-georgia/)

Georgia has been a member of the World Trade Organization (WTO) since 2000 and consistently meets the Agreement on Trade Related Investment Measures (TRIMs) requirements and obligations. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).

Performance and Data Localization Requirements

Performance requirements are not a condition of establishing, maintaining, or expanding an investment, but have been imposed on a case-by-case basis in some privatizations, such as commitments to maintain employment levels or to make additional investments within a specified period of time. The scope and time limit on licenses to extract natural resources have been a topic of dispute, and the Ministry of Energy has rescinded several mining licenses, then re-auctioned them. In other instances, there have been disputes between the government and concessioners regarding production-sharing agreements. While many privatizations have proceeded smoothly and regularly, there are allegations that the previous government used non-fulfillment of performance requirements to justify rescinding privatizations and re-selling enterprises, usually for higher prices, sometimes to the benefit of other interested parties. Most types of performance requirements are prohibited by the U.S.-Georgia Bilateral Investment Treaty.

The government does not follow a forced localization policy; foreign investors have no obligation to use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source codes and/or provide access to surveillance.

The Data Exchange Agency (DEA) is a principle entity of the Ministry of Justice, which aims to coordinate e-governance development, data exchange infrastructure, unified governmental networks, informational and communication standards, and cybersecurity policy. The DEA requires any company managing critical data to implement a number of security protocols to protect that information. (See www.dea.gov.ge)

5. Protection of Property RightsShare    

Real Property

Secured interests in both real and personal property are recognized and recorded. However, deficiencies in the operation of the court system can hamper investors from realizing their rights in property offered as security. It is recommended that contracts between private parties include a provision for international arbitration of disputes. Mortgages and liens do exists and they are recorded in the National Electronic Registry System.

Foreign individuals and companies may buy non-agricultural land in Georgia. However, Parliament has amended legislation to place some new restrictions for non-Georgian citizens (including Georgian entities with foreign minority shareholders) from purchasing or inheriting agricultural land. According to the new bill, foreigners may own agricultural land if they: inherit the land; co-own the land through marriage to a Georgian citizen or by being a member of a Georgian citizen household; or hold a residence permit. If foreign agricultural land owners can no longer meet the requirements for agricultural land ownership, the alien must sell the agricultural land within six months or the government could seize the land. Also, agricultural plots owned by foreigners must be no larger than 20 hectares. For entities founded by foreigners, the land plot is limited to 200 hectares. Restrictions on land plot size do not apply to international financial institutions, commercial banks, or microfinance organizations. Lastly, the bill stipulates that all agricultural land sales to foreigners require a notarized contract. The notary must check if the alien or the entity registered by an alien under Georgian jurisdiction meets all the legal requirements for agricultural land ownership.

The U.S. government (together with the vast majority of the international community) does not recognize the jurisdiction of the de facto authorities in either the breakaway Abkhazia or South Ossetia regions, and warns American citizens against undertaking business ventures in those Russian-occupied regions. Furthermore, due to the volatility of the political situation, reported high levels of crime, and the limited ability of U.S. Embassy personnel to travel to the Abkhazia or South Ossetia regions to assist American citizens in distress, the Embassy also strongly discourages travel to these areas for any purpose. Land for sale in those regions may rightfully belong to internally displaced persons forced to leave the breakaway regions in the early 1990s and may have been placed improperly on the market. In such cases, the government of Georgia considers the sale of property in Abkhazia and South Ossetia illegal and the property could be reclaimed by original owners at a future date.

The government has developed an electronic registry system for recording land titles and is cooperating with international donors to improve the land cadaster in order to promote the development of Georgia’s land market. Only 25 percent of privatized land in Georgia has a clear title, and the government has suggested a set of measures to simplify land registration and title clarification processes. Although the process for registering land has been simplified, it does not completely mitigate the potential for future land title disputes.

Property ownership cannot revert to other owners when legally purchased property stays unoccupied.

Intellectual Property Rights

Georgia acceded to the World Trade Organization (WTO) and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement in 2000. The Ministry of Economy and Sustainable Development is responsible for WTO compliance.

The legal framework for protection of intellectual property in Georgia is highly harmonized with international standards. Six laws regulate intellectual property rights (IPR) in Georgia: the Law on Patents, the Law on Trademarks, the Law on Copyrights and Neighboring Rights, the Law on Appellation of Origin and Geographic Indication of Goods, the Law on Topographies of Integrated Circuits, and the Law on IP-Related Border Measures. Georgian law now provides protection for works of literature, art, science, and sound recordings for 50 years.

The National Intellectual Property Center of Georgia (Sakpatenti) provides legal protection of intellectual property objects in Georgia: it issues protective documents on invention, utility model, trademark, design, geographical indication and appellation of origin, new animal breeds and plant varieties, and ensures the deposit of copyrighted work. The Revenue Service, which is part of the Ministry of Finance, is responsible for enforcing the protection of intellectual property rights holders that are listed in the Register of Intellectual Property Subject-Matters of the relevant service. The Revenue Service is responsible for border control and can halt import or export of items based on the register data. After the registration procedure is completed, the Revenue Service is liable to suspend counterfeit goods. According to the Law, the goods may be suspended for no longer than 10 working days, which may be extended by the Revenue Service for another 10 working days. The Law of Georgia on Border Measures Related to Intellectual Property provides for the possibility of destruction of counterfeit goods on the basis of a court decision.

IPR infringement of industrial property rights, copyrights, rights of performers, rights of makers of databases, trademarks or other illegal use of commercial indications can incur civil, criminal, and administrative penalties. Depending on the type and extent of the violation, penalties include fines, corrective labor, social work, or imprisonment.

Sakpatenti is an active and engaged partner of the United States in training to educate the public on IPR issues. Sakpatenti coordinates the government’s approach to IPR enforcement under the Interagency Coordination Council (Council) for IPR Enforcement. The Council is an efficient platform for government institutions to exchange their views on IPR enforcement issues. According to a 2015 BSA Global Software survey, pirated software penetration decreased from 94 percent to 84 percent in 2015, and the downward trend continued in 2016. Georgia is improving in IPR enforcement but some problems persist. Many judges and lawyers lack sufficient knowledge of IPR laws and issues; pirated video and audio recordings, electronic games, and computer software are sometimes available; and unlicensed content free for users to download or stream is available on some websites.

In 2016, in line with Georgia’s commitments under the DCFTA under the EU Association Agreement, Sakpatenti drafted and submitted draft amendments to IPR legislation, aimed at improving enforcement. The amendments authorize the rights holder to demand removal from circulation of infringing objects and their destruction, destruction of any images related to them and deletion of the material published on the Internet infringing upon exclusive rights, and the destruction of any technical devices which are used to make these objects. The new amendments also stipulate procedural provisional measures to preserve relevant evidence and provisional restraining measures related to protection of intellectual property. The draft is awaiting approval by the parliament.

From 2018, Georgia’s customs officers will be authorized to carry out ex officio IPR enforcement action at the borders, which is expected to result in a further increase in the number of counterfeit goods seized.

The number of seizures of counterfeit goods by customs is increasing: 76 cases were reported in 2016 (compared to 14 cases in 2011), resulting in 14 court cases and 47 cases of destruction of goods. Since 2014, the Investigation Service of the Revenue Service of Georgia initiated 26 criminal cases related to infringement of IPR, which is almost twice the total number of criminal cases investigated in the previous decade. In 2016, the Investigative Service initiated 12 investigations. In 2016, the Georgian Copyright Association (GCA) license fee revenue increased 30 percent over 2015.

Georgia is not listed in USTR’s Special 301 report. Similarly, Georgia is not listed in the notorious market report. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO's country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Charles F. Seten
Economic Officer
(995) 32 227 7629
SetenCF@state.gov

For a list of lawyers in Georgia, please visit http://georgia.usembassy.gov/list_of_attorneys.html.

American Chamber of Commerce in Georgia
36a Lado Asatiani St., 0105, Tbilisi, Georgia
Tel: (995) 32 222 6907
E-mail: amcham@amcham.ge

6. Financial SectorShare    

Capital Markets and Portfolio Investment

The National Bank of Georgia regulates the securities market. All market participants submit their reports in line with international standards. All listed companies must make public filings, which are then uploaded on the National Bank’s website, allowing users to evaluate a company’s financial standing. The Georgian securities market includes the following licensed participants: a Stock Exchange, a Central Securities Depository, nine brokerage companies, and six registrars.

The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia. Designed and established with the help of USAID and operating under a legal framework drafted with the assistance of American experts, the GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors. The GSE's automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices.

No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict the investment activity of foreign partners or to limit the ability of foreign partners to gain control over domestic enterprises.

The government and Central Bank (National Bank of Georgia) respect IMF Article VIII and impose no restrictions on payments and transfers in current international transactions.

Credit from commercial banks is available to foreign investors as well as domestic clients, although interest rates are high. Banks continue offering business, consumer, and mortgage loans.

Money and Banking System

Banking is one of the fastest growing sectors in the Georgian economy. The banking sector is well-regulated and capitalized despite regional and global challenges faced in many neighboring countries. As of January 1, 2017, 16 commercial banks, including 14 foreign-controlled banks made up the banking sector in Georgia. In January 2017, the total assets of Georgian commercial banks totaled Georgian lari (GEL) 30.1 billion (around USD 13 billion). In the beginning of 2017, there were up to 69 microfinance organizations operating in Georgia, with total assets of around USD 870 million, making small credit available to businesses.

In June 2014, Georgia’s TBC Bank debuted on the London Stock Exchange -- the first Georgian company to go public since the Bank of Georgia did so in 2006.

The National Bank of Georgia (NBG) is the central bank of Georgia, as defined by the Constitution. The rights and obligations of the NBG as the central bank, the principles of its activity, and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia. The National Bank supervises the financial sector in order to facilitate the financial stability and transparency of the financial system, as well as to protect the rights of the sector’s consumers and investors. Through the Financial Monitoring Service of Georgia, a separate legal entity, the NBG undertakes measures against illicit income legalization and the financing of terrorism. In addition, the NBG is the banker and fiscal agent of the government. (www.nbg.gov.ge)

The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the U.S. Overseas Private Investment Corporation (OPIC), the Millennium Challenge Corporation (MCC), the Asian Development Bank (ABD) and other international development agencies have a variety of lending programs that make credit available to large and small businesses in Georgia. Georgia’s two largest banks – TBC and Bank of Georgia have correspondent banking relationships with the United States through Citibank, N.A.

Foreign Exchange and Remittances

Foreign Exchange

A Georgian law guarantees the right of an investor to convert and repatriate income after payment of all required taxes. The investor is also entitled to convert and repatriate any compensation received for expropriated property. Georgia has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, effective as of December 20, 1996, undertaking to refrain from imposing restrictions on payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Parliament’s 2011 adoption of the Act of Economic Freedom further reinforced this provision.

Under the U.S.-Georgia Bilateral Investment Treaty, the Georgian government guarantees that all money transfers relating to a covered investment by a U.S. investor can be made freely and without delay into and out of Georgia.

Foreign investors have the right to hold foreign currency accounts with authorized local banks. The sole legal tender in Georgia is the lari (GEL), which is traded on the Tbilisi Interbank Currency Exchange and in the foreign exchange bureau market.

The official exchange rate of the GEL is calculated based on transactions secured on the Interbank Foreign Exchange Market. Interbank trading with foreign currencies is organized in an international trading system (Bloomberg). Taking into consideration secured transactions, the weighted average exchange rate of the GEL against the USD is calculated and announced as the official exchange rate for the next day. The official exchange rate of the Georgian GEL against other foreign currencies is determined according to the rate on international markets or the issuer country’s domestic interbank currency market on the basis of cross-currency exchange rates. The cross-currency rates are acquired from the Reuters and Bloomberg information systems and the corresponding web pages of central banks. The information is automatically received, calculated, and disseminated from these systems.

Georgia has a floating exchange rate. The Central Bank (National Bank of Georgia) has said it does not intend to fix the exchange rate regime and does not generally intervene in the foreign exchange market, except under certain circumstances when the fluctuation has a high magnitude.

Remittances

There is no difficulty in obtaining foreign currency, nor are there significant delays in remitting funds overseas through normal channels. Several Georgian banks participate in the SWIFT and Western Union interbank communication networks. Businesses report that it takes a maximum of three days for money transferred abroad from Georgia to reach a beneficiary’s account, unless otherwise provided by a customer’s order. There are no known plans to change remittance policies. Travelers must declare at the border currency and securities in their possession valued at more than GEL 30,000 (around USD 13,000).

Sovereign Wealth Funds

Georgia does not have a Sovereign Wealth Fund.

7. State-Owned EnterprisesShare    

After the fall of the Soviet Union, the new Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, the major remaining SOEs were Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant. Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, 100 percent of the assets of Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem, and Electricity System Commercial Operator LLC, were placed into the Partnership Fund, a state-run fund to facilitate foreign investment into new projects. In addition, the fund controls 25 percent of shares in TELASI Electricity Distribution Company, but has stated its intention to sell those shares.

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. Major procedures and policies are described in the charters of respective SOEs. Georgia particularly encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards where such exist (GRW, GOGC); in other cases they report to the line ministries. Governmental officials can be on the supervisory board of the SOEs and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, regular outside audits are conducted and annual reports are published. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tenders. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs and sovereign wealth funds to publish an annual report or to submit their books for independent audit, but this is still practiced. In addition, GRW and GOGC are Eurobonds issuer companies and therefore required to publish reports.

SOEs are subject to the same domestic accounting standards and rules and these standards are comparable to international financial reporting standards. There are no SOEs that exercise delegated governmental powers.

Privatization Program

Georgia's government has privatized most large SOEs. Successful privatization projects include major deals in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate assets. A list of entities available to be privatized can be found on the following website: www.privatization.ge. Foreign investors are welcome to participate in privatization programs. Information on investment conditions and opportunities can be obtained from the Georgia National Investment and Export Promotion Agency. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia, www.amcham.ge.

8. Responsible Business ConductShare    

While the concept of Corporate Social Responsibility (CSR) is not highly developed in Georgia, it is growing. Most large companies engage in charity projects and public outreach as part of their marketing strategy. The American Chamber of Commerce in Georgia has a Corporate CSR committee that works with member companies on CSR issues. The Global Compact, a worldwide group of UN agencies, private businesses, and civil society groups promoting responsible corporate citizenship, is active in Georgia. The Eurasia Partnership Foundation launched a program on corporate social investment, promoting greater engagement of private companies in addressing Georgia’s development needs.

The Government of Georgia undertook an OECD CSR policy review in 2016, based on the OECD Policy Framework for Investment. (http://www.oecd.org/countries/georgia/). The report states that Georgia engages regularly with the OECD. It participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to help unleash their economic and employment potential through boosting country and regional competitiveness, capturing more and better investment, and developing SMEs. It participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information, elaboration of best practices and donor coordination. It is a member of the Task Force for the Implementation of the Environmental Action Program (EAP Task Force), which aims to address the heavy environmental legacy of the Soviet model of development. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has provided assistance to Georgia since 2008 to strengthen public governance systems and public administration capacities. Georgia participates in the OECD Committee on Fiscal Affairs’ Base Erosion and Profit Sharing (BEPS) Project.

9. CorruptionShare    

Articles 332-342 of the Criminal Code criminalize bribery. Senior public officials must file financial disclosure forms which are posted online, and Georgian legislation provides for civil forfeiture of the undocumented assets of public officials who are charged with corruption offenses. Penalties for accepting a bribe start at six years in prison and can extend up to 15 years depending on the case's circumstances. Penalties for giving a bribe can include a fine, a minimum prison sentence of two years, or both. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty can be from four to seven years. Abuse of authority and exceeding authority by public servants are criminal acts under Articles 332 and 333 of the criminal code and carry a maximum penalty of 8 years imprisonment. The definition of a public official includes foreign public officials and employees of international organizations and courts. White collar crimes such as bribery fall under the investigative jurisdiction of the Prosecutor's Office.

Georgia is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Georgia has, however, ratified the UN Convention against Corruption. Georgia cooperates with the Group of States against Corruption (GRECO) and the OECD’s Anti-Corruption Network for Transition Economies (ACN).

Following its assessment of Georgia in June 2016, the OECD released a report in September 2016 that concluded Georgia had achieved remarkable progress in eliminating petty corruption in public administration and should now focus on combating high-level and complex corruption. The report commends Georgia's mechanism for monitoring and evaluating the implementation of its Anti-Corruption Strategy and Action Plan as well as the important role given to civil society in this process. It also welcomes the adoption of a new Law on Civil Service and recommends that the remaining legislation necessary for the implementation of civil service reforms is adopted without delay. The Civil Service Bureau and Human Resources units in state bodies should be strengthened in order to ensure the implementation of the required reforms. The report highlights Georgia's good track record in prosecuting corruption crimes and in using modern methods to confiscate criminal proceeds. It recommends that Georgia step up enforcement of corporate liability and the prosecution of foreign bribery in order to address the perception of alleged corruption among local government officials as well as at the political level. The full report is available at http://www.oecd.org/corruption/anti-bribery/Georgia-Round-4-Monitoring-Report-ENG.pdf.

Since 2003, Georgia has significantly improved its ranking in Transparency International’s Corruption Perceptions Index (CPI) report. In 2016, Georgia’s CPI score was 57 and it ranked 44th out of 168 countries surveyed in the Corruption Perception Index, up from 48 and 52, respectively. Georgia is ahead of its regional and Eastern European peers in this regard, as it outscores the Czech Republic, Malta, Croatia, Slovakia, Greece, Romania, Italy, Turkey, Russia, Armenia, and Azerbaijan.

While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what Transparency International calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although evidence is mostly anecdotal, this form of corruption, or the perception of its existence, has the potential to erode public and investor confidence in Georgia’s institutions and the investment environment. Institutions most vulnerable to corruption in Georgia include government at the federal and local level, parliament, the judiciary, political parties, law enforcement, media, and private business. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.

Resources to Report Corruption

Government agency responsible for combating corruption:

Mr. Zurab Sanikidze
Head of Analytical Department
Ministry of Justice of Georgia
24 A Gorgasali Street, Tbilisi, Georgia
zsanikidze@justice.gov.ge

Non-governmental organization:

Ms. Eka Gigauri
Director
Transparency International
26, Rustaveli Ave, 0108, Tbilisi, Georgia
+995-32-292-14-03
ekag@transparency.ge

10. Political and Security EnvironmentShare    

Georgia suffered considerable instability in the immediate post-Soviet period. After independence in 1991, civil war and separatist conflicts flared up along the Russian border in the areas of Abkhazia and South Ossetia. The status of each region remains contested, and the central government does not have effective control over these areas. The United States supports the territorial integrity of Georgia within its internationally-recognized borders. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded and occupied areas of undisputed Georgian territory. While the separatist regions of South Ossetia and Abkhazia – where Russian troops and border guards have established a long-term presence – have declared independence, only Russia, Venezuela, Nicaragua, and Nauru recognize them. Tensions still exist both inside the breakaway regions and near the administrative boundary lines, but other parts of Georgia, including Tbilisi, are not directly affected.

Violent street protests in Georgia are rare, though some smaller political skirmishes have occurred. In recent years, police have fulfilled their duty to maintain order even in cases of unannounced protests.

11. Labor Policies and PracticesShare    

Georgia offers skilled and unskilled labor at attractive costs compared not only to Western European and American standards, but also to Eastern European standards. Skilled labor availability in the engineering fields remains underdeveloped. The official unemployment rate was over 12 percent in 2015, but actual unemployment is considerably higher given significant underemployment in the working population, especially in rural regions where subsistence farmers are considered employed for statistical purposes and job creation has remained a particular challenge. Recently, some investment agreements between the Georgian government and private parties have included mandates for the contracting of local labor for positions below the management or executive level.

Georgia’s Labor Code defines the minimum age for employment (16), standard work hours (41 per week), and annual leave (24 calendar days). Other wage and hour issues are to be agreed between the employer and employee. Amendments to the Labor Code in July 2013 defined grounds for termination; the code defines severance pay for an employee at the time of termination of a labor relation, including the payment term. An employer is obliged to give compensation of not less than a month’s salary to an employee within thirty (30) days. According to the amendments, an employer is obliged to give to the dismissed employee a written description of the grounds for termination within seven days after an employee requests it. The labor code also prescribes rules for paying overtime labor (over 41 hours), which must be paid at an increased hourly rate.

The amended Labor Code specified essential terms for labor contracts, including: the starting date and the duration of labor relations, working hours and holiday time, location of workplace, position and type of work, amount of salary and its payment, overtime work and its payment, the duration of paid and unpaid vacation and leave, and rules for granting leave. The code states that the duration of a business day for an underage person (ages 16 to 18) should not exceed 36 hours per week. Regulations prohibit interference in union activities and discrimination of an employee due to union membership. The amendments also mandated that the government reestablish a labor inspectorate to ensure adherence to labor safety standards. The government established a labor inspection program under the Ministry of Labor, Health, and Social Affairs, hired a chief labor inspector and 25 labor inspectors. However, inspections remain voluntary. Companies are given five days’ notice prior to the inspection, and inspectors do not have the legal authority to issue fines, and can only enter workplaces unannounced if they suspect trafficking or forced labor. International donors, including the U.S. government, encourage the adoption of Occupational Health and Safety laws so there is a clear baseline for inspection.

Employees are entitled to up to 183 days (six months) of paid maternity leave which can be up to 24 months when combined with unpaid leave. Leave taken for pregnancy, childbirth, childcare, and adoption of a newborn is subsidized by the state. An employer and employee may agree on additional compensation. Under the Labor Code, non-competition clauses are permitted and sometimes used in contracts. This provision may remain in force even after the termination of labor relations.

Employers are not required to pay social security contributions for employees. Employees pay a flat 20 percent income tax. The state social security system provides modest pension and maternity benefits. The minimum monthly pension is GEL 160 (USD 70). The average monthly salary across the economy in Georgia in the fourth quarter of 2015 was GEL 1163 (USD 506). The minimum wage requirement for state sector employees is GEL 115 (USD 70) per month. Legislation on the official minimum wage in the private sector has not changed since the early 1990s and stands at GEL 20 (USD 8) per month, but is not applied in practice and is not being used for reference.

Georgia has ratified some ILO conventions, including the Forced Labor Convention of 1930; the Paid Holiday Convention of 1936; the Anti-Discrimination (Employment and Occupation) Convention of 1951; the Human Resources Development Convention of 1975; the Right to Organize and Collective Bargaining Convention of 1949; the Equal Remuneration Convention of 1951; the Abolition of Forced Labor Convention of 1957; the Employment Policy Convention of 1964; and the Minimum Age Convention of 1973.

Information on labor related issues is also available in the State Department’s annual reports:

Human Right Report: http://georgia.usembassy.gov/officialreports/hrr.html
Child Labor Report: http://www.dol.gov/ilab/reports/child-labor/georgia.htm

12. OPIC and Other Investment Insurance ProgramsShare    

The Overseas Private Investment Corporation (OPIC) is the U.S. Government’s development finance institution. OPIC finance and political risk insurance programs assist U.S. companies with investing overseas. Since 1993, OPIC has committed over USD 500 million in financing and political risk insurance for more than 50 projects in Georgia. OPIC investment in Georgia has focused on the following sectors: credit for small and medium-sized enterprises, and projects in the franchising, education, manufacturing, tourism, agriculture, and health care sectors. Some recent examples are OPIC’s USD 18 million loan commitment to finance a Marriott branded hotel in Tbilisi, a USD 10 million loan commitment to finance a Radisson branded hotel in Kakheti, and an USD 18 million loan commitment to finance a hospital in Tbilisi.

13. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical Source*

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2016

14,332

2015

13,965.39

http://data.worldbank.org/
indicator/NY.GDP.MKTP.CD

Foreign Direct Investment

Host Country Statistical Source*

USG or International Statistical Source

USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2016

45

2015

1

http://bea.gov/international/
factsheet/factsheet.cfm?Area=337

Host country’s FDI in the United States ($M USD, Position, UBO)

N/A

N/A

2015

0

http://bea.gov/international/
factsheet/factsheet.cfm?Area=337

Total inbound stock of FDI as % host GDP

2016

11.5

2015

11.2

http://data.worldbank.org/indicator/
BX.KLT.DINV.WD.GD.ZS

* GeoStat (Georgia National Statistics Office)


Table 3: Sources and Destination of FDI

The IMF’s calculations of foreign direct investment (FDI) in Georgia differ from the Georgian government’s official calculations. The most recent IMF statistics available regarding Georgia’s FDI are from 2015.

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

14,827

100%

Total Outward

N/A

100%

UK

1,656

11.2%

N/A

N/A

N/A

Azerbaijan

1,592

10.7%

N/A

N/A

N/A

Netherlands

1,526

10.3%

N/A

N/A

N/A

United States

1,427

9.6%

N/A

N/A

N/A

Turkey

1,072

7.2%

N/A

N/A

N/A

"0" reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey


Table 4: Sources of Portfolio Investment

IMF Coordinated Portfolio Investment Survey data is not available for Georgia.

14. Contact for More InformationShare    

Charlie Seten
Economic Officer
U.S. Embassy Tbilisi
Georgia
Telephone: +995-32-227-7629
Email: setenCF@state.gov