Georgia, located at the crossroads of Western Asia and Eastern Europe, is a small but open market that derives benefits from international trade, tourism, and transportation. While it is susceptible to global and regional shocks, the country has made sweeping economic reforms since 1991 that have produced a relatively well-functioning and stable market economy. Average growth rate was over five percent from 2005 through 2019, and its rankings improved impressively in global business, governance, corruption, and other indexes. Georgia ranked twenty sixth in the Heritage Foundations’ 2022 Economic Freedom Index, and 45th in Transparency International’s Corruption Perception Index. Fiscal and monetary policy are focused on low deficits, low inflation, and a floating real exchange rate, although the latter was affected by regional developments, including sanctions on Russia and other external factors, such as a stronger U.S. Dollar. The COVID-19 pandemic reversed some of the past gains and placed significant pressure on the domestic currency and local economy. Georgia’s economy contracted six percent in 2020 with particularly steep losses in the tourism sector. Although Georgia successfully managed the first wave of COVID-19 pandemic, the infection rate surged in the second part of 2021, compelling the government to adopt a series of restrictions and shut-downs that negatively impacted economic activity. Despite this, Georgia’ economy picked up in 2021, demonstrating strong growth, 10.4 percent higher than 2020. While government and international financial partners forecasted an optimistic outlook for 2022, the economic impacts of the Russia-Ukraine war and sanctions on Russia have damaged growth prospects and led to lower growth expectations.
Overall, business and investment conditions are sound, and Georgia favorably compares to the regional peers. However, there is an increasing lack of confidence in the judicial sector’s ability to adjudicate commercial cases independently or in a timely, competent manner, with some business dispute cases languishing in the court system for years. Other companies complain of inefficient decision-making processes at the municipal level, shortcomings in the enforcement of intellectual property rights, lack of effective anti-trust policies, accusations of political meddling, selective enforcement of laws and regulations, including commercial laws, and difficulties resolving disputes over property rights. The Georgian government continues to work to address these issues, and despite these remaining challenges, Georgia ranks high in the region as a good place to do business.
The United States and Georgia work to increase bilateral trade and investment through a High-Level Dialogue on Trade and Investment and through the U.S.-Georgia Strategic Partnership Commission’s Economic, Energy, and Trade 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 program.
Georgia suffered considerable instability in the immediate post-Soviet period. After regaining independence in 1991, civil war and separatist conflicts flared up along the Russian border in the Georgian territories of Abkhazia and South Ossetia. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Russia and Georgia. Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. Russia continues to occupy these Georgian regions, and the central government in Tbilisi does not have effective control over these areas. The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent. Tensions still exist both inside the occupied territories and near the administrative boundary lines, but other parts of Georgia, including Tbilisi, are not directly affected.
Transit and logistics are priority sectors as Georgia seeks to benefit from increased East/West trade through the country. The Baku-Tbilisi-Kars railroad has boosted Georgia’s transit prospects and the government has looked for ways to enhance trade. In 2016, the government awarded the contract to build a new port in Anaklia to a group of international investors, including a U.S. company. However, in 2020 the government terminated its contract with the group, resulting in a legal dispute with the investor. While the government has stated its commitment to the construction of the Anaklia Deep Sea Port Project, a tender has not yet been announced.
Separately, logistics and port management companies in Poti and Batumi have started to develop and expand the Batumi and Poti Ports. In 2020, the owner of Georgia’s largest port, Poti Port on the Black Sea, announced its plans to create a deep-water port. In 2021, logistics companies completed two new terminal projects in Batumi and Poti ports.
|TI Corruption Perceptions Index||2021||45 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||63 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||N/A||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$4,270||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
After the fall of the Soviet Union, the Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, Georgian Railways (GRW), Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant were the major remaining SOEs. 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, Georgian Railways, GOGC, GSE, and ESCO’s assets were placed under the Partnership Fund ( ), a state-run fund to facilitate foreign investment into new projects. The fund also controlled 25 percent of shares in the TELASI Electricity Distribution Company, which it sold to private investors in 2020.
Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railways and GOGC have supervisory boards, while GSE and ESCO do not. The SOEs’ individual charters describe their procedures and policies. Georgia 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 they exist (e.g., GRW, GOGC); in other cases, they report to 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, SOEs have regular outside audits and publish annual reports. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tender. The Partnership Fund, GRW, and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish annual report or to submit their books for independent audit, but this is done in practice. In addition, GRW and GOGC are Eurobond issuer companies and therefore are required to publish reports. SOEs are subject to the same domestic accounting standards and rules. These standards are comparable to international financial reporting standards. No SOEs exercise delegated governmental powers.
In early 2021, the government announced it would start reforming state-owned enterprises and create a new council to develop a strategy to be implemented in 2021-2024. The goal of the reform is to bring the management of SOEs closer to higher standards of corporate governance. The first state-owned enterprise to undergo reforms will be the Georgian State Electrosystem (GSE), an electricity transmission system operator.
According to a December 20, 2021 on Georgia ( ), auditing, reporting, and disclosure practice in Georgia is largely consistent with international good practice. The IMF report contains concrete recommendations for further improving the financial accountability system of SOEs.
8. Responsible Business Conduct
While the concept of Corporate Social Responsibility (CSR) is a relatively new phenomenon 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 to promote greater private company engagement in addressing Georgia’s development needs.
The Georgian government undertook an OECD CSR policy review in 2016 based on the OECD Policy Framework for Investment. The OECD completed a follow-up Investment Policy Review assessment in 2020 and noted Georgia’s significant strides ( ).
Georgia participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to unleash their economic and employment potential. Georgia 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 on best practices, and donor coordination. Georgia 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 development model. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has assisted 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.
Georgia’s civil society and workers associations are active in responding to human rights, labor rights, consumer protection, environmental protection, and other concerns, as well as new laws and regulations that intend to protect or have potential adverse effects on citizens.
Georgia is not a party to the Extractive Industries Transparency Initiative and/or Voluntary Principles on Security and Human Rights despite extractive manganese, gold, and copper ore industries operating in Georgia. Among the local tools promoting CSR principles and policies in such industries are commercial chambers, the Public Defender’s office, the Business Ombudsman under the Prime Minister’s Office, sectoral trade unions, and Georgia’s Trade Union Confederation.
Georgia has ratified The Montreux Document on Private Military and Security Companies.
Georgia has laws, regulations, and penalties to combat corruption. Georgia criminalizes bribery under the Criminal Code of Georgia. Chapter XXXIX of the Criminal Code, titled as Official Misconduct, among other crime, covers many corruption-related offenses committed by public servants including bribery, abuse of official powers, accepting a prohibited gift, forgery of official documentation, etc. Senior public officials must file financial disclosure forms, which are publicly available online, and Georgian legislation provides for the civil forfeiture of undocumented assets of public officials who are charged with corruption-related offenses.
Penalties for accepting a bribe start at six years in prison and can extend to 15 years, depending on the circumstances. Penalties for giving a bribe can include a fine, correctional labor, house arrest, or prison sentence up to three years. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty is from four to seven years. When bribe-giving is committed by the organized group, the sentence is imprisonment for 5 to 8 years. Abuse of authority by public servants are criminal acts under Articles 332 of the criminal code and carry a maximum penalty of eight 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. The laws extend to family members of officials.
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.
Following its assessment of Georgia in June 2016, the OECD released a report concluding that 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 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 to implement civil service reforms is adopted without delay. The report notes that the Civil Service Bureau and Human Resources units in state entities should be strengthened 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 increase enforcement of corporate liability and the prosecution of foreign bribery to address the perception of corruption among local government officials. The full report is available at: .
In April 2021, GRECO released its Second Compliance Report of Fourth Evaluation Round on Georgia, which deals with corruption prevention with regards to members of parliament (MPs), judges, and prosecutors. According to the report, since Georgia implemented two additional recommendations – totaling seven of 16 recommendations – for preventing corruption among MPs, judges, and prosecutors. The Compliance Report said Georgia satisfactorily implemented measures to enforce objective criteria for the recruitment and promotion of prosecutors, ensured further updates of the “Code of Ethics for Employees of the Prosecution Service of Georgia,” and introduced measures for enforcing the rules. Out of the nine outstanding recommendations, two remain unaddressed while seven have been partly implemented. The sixteen recommendations were adopted in 2016, in the Fourth Round Evaluation Report on Georgia, by the Council of Europe’s anti-corruption monitoring body.
Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report. TI ranked Georgia 45th out of 180 countries in the of its CPI.
While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what TI calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although the 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. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.
10. Political and Security Environment
The United States established diplomatic relations with Georgia in 1992, following Georgia’s independence from the Soviet Union in 1991. Since independence, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions.
In August 2008, tensions in the Georgian region of South Ossetia culminated in a brief war between Russia and Georgia. Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. Russia continues to occupy these regions – nearly 20 percent of Georgia’s territory – and the central government in Tbilisi does not have effective control over these areas. The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent. Only Russia, Nauru, Nicaragua, Syria, and Venezuela recognize them as independent states. Tensions still exist both inside the occupied territories and near the administrative boundary lines (ABLs). A Russian military build-up along the South Ossetia ABL dramatically escalated tensions in August 2019. In addition, Russian “border” guards regularly patrol the ABLs and have increasingly detained people trying to cross the ABLs. Several attacks, criminal incidents, and kidnappings have occurred near the ABLs as well. While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place, at the wrong time, situation. In addition, unexploded ordnance from previous conflicts poses a danger near the South Ossetia ABL. However, other parts of Georgia, including Tbilisi, are not directly affected.
Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia.
While violent street protests are generally uncommon, there have been some recent episodes of politically motivated violence and civil disturbance. In July 2021 far-right groups violently rioted throughout Tbilisi against a planned Tbilisi Pride parade, destroying the offices of two NGOs and attacking over 50 journalists and individuals thought to be members of the LGBTQI+ community. In June 2019, when protesters attempted to enter Parliament during an anti-Russian and anti-government protest, some people were injured with some suffering severe eye injuries due to police use of rubber bullets. Generally, police have fulfilled their duty to maintain order even in cases of unannounced protests. However, in some instances the police have allowed a permissive environment for far-right violence.
In 2021, Turkish company ENKA cancelled its $800 million Namakhvani hydropower plant (HPP), citing violation of the terms of the contract by the Georgian government and force majeure. The decision was preceded by months-long protests – including blocking access to the construction area – by local activists claiming the project was launched without sufficient research and thorough consideration of the risks. Following a series of protests, Georgian authorities started renegotiating with ENKA to improve the terms of the contract and involved protestors in these conversations. However, the protesting groups withdrew from the process, finally leading to the Namakhvani HPP cancelation.
11. Labor Policies and Practices
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 field remains underdeveloped. The official unemployment rate was 19 percent by the end of 2021. Georgia’s National Statistics Agency changed its methodology of calculating unemployment in 2020, and subsistence farmers are no longer categorized as employed. The change considerably increased the official unemployment rate. 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 (40 per week), and annual leave (24 calendar days). The law allows for other wage and hour issues to be agreed between the employer and employee. The law defines the grounds for termination and severance pay for an employee at the time of termination, including the payment term. An employer is obliged to give compensation of not less than one month’s salary to an employee within thirty (30) days. Additionally, an employer is obliged to give the dismissed employee a written description of the grounds for termination within seven days after an employee’s request.
The Labor Code also prescribes rules for paying overtime labor (over 40 hours), which must be paid at an increased hourly rate.
The Labor Code specifies essential terms for labor contracts, including the start 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 Labor Code amendments mandate the government to reestablish a labor inspectorate to ensure adherence to labor safety standards. In 2018, Parliament passed the Occupational Safety, and Health Law, giving the government power to make unannounced inspections, in some circumstances, at companies operating among “hard, harmful, hazardous, and increased danger” occupations. Subsequent amendments that passed in September 2020 and came into force January 1, 2021, allowed unannounced inspections across all sectors of the economy.
Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.
The government adopted a new law in 2018 establishing an accumulative pension scheme, which came into effect as of January 1, 2019. The pension is mandatory for legally employed persons under 40, while for the self-employed and those above the age of 40 enrollment in the program is voluntary. Each employee, employer, and the government must each contribute two percent of the employee’s gross income to an individual retirement account. As for the self-employed, they will make a deposit of four percent of their income, and the state will match another two per cent. Employees pay a flat 20 percent income tax. The state social security system provides a modest pension and maternity benefits. The minimum monthly pension is GEL 250 ($80). The average monthly salary across the economy by the end of 2021 was GEL 1,464 (around $470).
The law generally provides for the right of most workers, including government employees, to form and join independent unions, to legally strike, and to bargain collectively. Employers are not obliged, however, to engage in collective bargaining, even if a trade union or a group of employees wishes to do so. While strikes are not limited in length, the law limits lockouts to 90 days. A court may determine the legality of a strike, and violators of strike rules can face up to two years in prison. Although the law prohibits employers from discriminating against union members or union-organizing activities in general terms, it does not explicitly require reinstatement of workers dismissed for union activity. Certain categories of workers related to “human life and health,” as defined by the government, were not allowed to strike. The International Labor Organization noted the government’s list of such services included some it did not believe constituted essential services directly related to human life and health. Workers generally exercised their right to strike in accordance with the law.
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.
14. Contact for More Information
United States Embassy, Political/Economic Section
29 Georgian-American Friendship Avenue, Tbilisi
Jean Foster, Economic Unit Chief