Executive Summary

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 2017. 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 9th in the 2017 World Bank’s Ease of Doing Business index, 16th in the 2017 Economic Freedom Index, and 67th 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 Kvirikashvili’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. Both strategies continue to guide fiscal and policy decisions.

Overall, business and investment conditions are sound. However, some companies have expressed an increasing lack of confidence in the judicial sector’s ability to adjudicate commercial cases independently or in a timely, competent manner. Other companies complain of 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.

The United States (U.S.) and Georgia work to increase bilateral trade and investment through a High-Level Dialogue on Trade and Investment and through the 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 has prioritized free trade agreements (FTAs) as a means of growing its economy and elevating its global economic presence. In June 2014, Georgia signed an Association Agreement (AA) and Deep and Comprehensive Free Trade Area (DCFTA) with the European Union, in 2017 completed an FTA with the European Free Trade Association (EFTA) countries of Iceland, Liechtenstein, Norway, and Switzerland, and in 2018, completed an FTA with China. 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.

Transit and logistics are a priority sector as Georgia seeks to benefit from increased East/West trade through the country. This has been boosted by the Baku-Tbilisi-Kars railroad as well as the Anaklia Deep Sea Port project that involves two U.S. companies, the Conti Group and SSA Marine. Agriculture and tourism are also attractive areas for investment to respond to the increased inflow of international visitors and demands of local food processing industry.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 46 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2017 9 of 190 http;//www.doingbusiness.org/rankings/
Global Innovation Index 2017 68 of 128 https://www.globalinnovation
index.org/analysis-indicator
U.S. FDI in partner country (M USD , stock positions) 2016 -2.0 http://www.bea.gov/
international/factsheet/
World Bank GNI per capita 2016 3,830 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

Policies Towards Foreign Direct Investment

Georgia is open to foreign investment, and the Georgia National Investment Agency (GNIA) (www.investingeorgia.org ) has an aggressive marketing campaign to encourage more foreign investors to come to Georgia. GNIA is under the Ministry of Economic and Social Development. 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 frame, 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 most recently 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 GNIA is a governmental institution within the Ministry of Economy and Economic Development. Previously an independent entity under the Prime Minister, GNIA aims to streamline processes for foreign investors and at times play the role of moderator between foreign investors and the government to ensure the investors receive updated information and access to relevant government bodies. GNIA’s services are free of charge. More information can be found at http://www.investingeorgia.org/en/ .

Registering a business in Georgia is relatively quick and streamlined, and Georgia tops the list of countries in the World Bank’s Doing Business Report in this regard. Registration takes one day to complete and Georgia has a single window registration process. 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.

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.

To register a business, the potential owner 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 fees). Second, the owner must open a bank account (free).

Georgia’s business facilitation mechanism provides equitable treatment of women and men. There are a variety of state-run and donor-supported projects that aim to promote women entrepreneurs through specific training or other programs, including access to financing and business training.

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.

Georgia has bilateral agreements on investment promotion and mutual protection enforced with 31 countries, including: the United States, Armenia, Austria, Azerbaijan, Belgium, Belarus, Bulgaria, China, the Czech Republic, Estonia, Finland, France, Germany, Greece, Iran, Israel, Kazakhstan, Kuwait, Latvia, Lithuania, Luxemburg, Moldova, the Netherlands, Romania, Spain, Sweden, Switzerland, Turkmenistan, Uzbekistan, the United Kingdom, and Ukraine. Agreements are concluded, but awaiting signing with Egypt, Kyrgyzstan, Turkey, and the United Arab Emirates (UAE). Negotiations are underway with the governments of Canada, Hungary, Iceland, Italy, Japan, Qatar, and Slovenia. 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 a Deep and Comprehensive Free Trade Area (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. Georgia’s free trade agreement with China entered into force in January 2018. 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, Uzbekistan, Turkmenistan, and Turkey. 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 (BIT) 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 54 countries: Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bulgaria, China, Cyprus, the Czech Republic, Croatia, Denmark, Estonia, Egypt, Finland, France, Germany, Greece, Hungary, Iceland, India, Iran, Ireland, Italy, Israel, Japan, Kazakhstan, Kuwait, Latvia, Liechtenstein, Lithuania, Luxemburg, Malta, the Netherlands, Norway, Poland, Portugal, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Turkmenistan, UAE, Ukraine, the United Kingdom (UK), and Uzbekistan. Treaties have been negotiated but are waiting to be ratified with Lebanon, and Oman, and treaty negotiations have started with 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.

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 actively participate in public hearings on legislation.

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.

The Law of Georgia on Free Trade and Competition provides 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 AA with the European Union includes provisions for the establishment of the 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, and regional development. 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 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. Since WTO accession, has not introduced any Technical Barriers to Trade. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).

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 2017 Freedom in the World Report, “judicial independence continues to be stymied by executive and legislative interests,” 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 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. The 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 BIT 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 cases of transfer of property under the previous government, which lacked transparency and allegedly were implemented under cohesion, and two U.S. companies have recently alleged their assets are being expropriated through government actions.

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 BIT.

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 ten 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

The Law of Georgia on Insolvency Proceedings regulates rehabilitation and bankruptcy. The law defines two types of creditors: secured and non-secured. Creditors can file a court claim for opening an insolvency proceeding, given certain conditions are satisfied (conditions vary, depending on the outstanding debt amount and the delayed days of repayment).

Creditor meetings are held in court and chaired by a judge. The creditor meeting can decide several issues, including the appointment of a supervisor of the bankruptcy or rehabilitation proceedings, and the appointment of a member of the facilitation council.

Secured creditors

Secured creditors must make unanimous decisions on approving a debtor’s new debts, the encumbrance of the debtor’s property, and suretyship. If there are no secured creditors, the creditor’s meeting is authorized to make the same decisions. The secured creditors may suspend enforcement of the following resolutions made in the creditor’s meeting on the material conditions of the agreement with the bankruptcy or rehabilitation supervisor or on the definition of the term of the rehabilitation. After the debtor’s property is sold on auction, secured creditors have first priority for being repaid. All secured creditors must approve the rehabilitation plan and plan amendments. New equity investment in the debtor’s company is only possible if there are prior consents from all secured creditors and the rehabilitation supervisor.

Non secured creditors

Non-secured creditors are satisfied only after all secured creditors are satisfied (unless otherwise agreed by all creditors unanimously). Non-secured creditors do not have voting rights for the rehabilitation plan approval.

The priority system shall not apply to creditors whose claim is secured by financial collateral.

Foreign creditors

The law provides additional time for foreign creditors to file claims. Creditors may file claims to the court and request to declare the agreements made by the insolvent debtor voidable and/or request reimbursement of damages, if such agreements inflicted damages to the creditor.

The Law of Georgia on Insolvency Proceedings only incurs criminal liabilities in case the debtor does not provide, or provides but with intentional delay, or provides falsified information about its obligations, assets, financial situation and activities, or ongoing disputes in which the debtor is involved.

The Debt Registry of the National Agency of the Public Register is Georgia’s credit monitoring authority.

According to the “Resolving Insolvency” section of the World Bank’s 2018 Doing Business Report, the Law of Georgia on Insolvency Proceedings made insolvency proceedings more accessible for debtors and creditors, improved provisions on treatment of contracts during insolvency, and granted creditors greater participation in important decisions during the proceedings.

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.

Approximately 80 percent of the GCF 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:

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. However, legislation in 2018 will begin to enforce internationally-recognized labor standards for hard and hazardous industries, which may cause labor costs to increase.

Georgia’s free trade regimes provide easy access for goods produced in Georgia to foreign markets. In some cases, foreign investors can benefit from these agreements by producing goods targeting 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. Currently, there are four free industrial zones (FIZ) in Georgia:

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. CEFC China Energy Company Limited has reportedly purchased 75 percent of shares of the Poti Free Industrial Zone from Rakia and was in negotiations in November 2017.

A 27-hectare plot in Kutaisi is home to the Egyptian company Fresh Electric, which 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 2billion.

Another FIZ in 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 invested around USD 500 million in eight large infrastructure and hospitality projects. (http://hualing.ge/language/en/hualing-georgia/ ).

The Tbilisi Free Zone (TBZ) is in Tbilisi and occupies 17 hectares divided in 28 plots. TFZ has access to the main cargo transportation highway, Tbilisi International Airport (30 kms) and the Tbilisi city center (17 km). For more information, visit http://www/tfz.ge .

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. Performance requirements such as the scope and time limit on licenses to extract natural resources or production sharing agreements have triggered complaints from some companies that transactions lacked transparency. Most types of performance requirements are prohibited by the U.S.-Georgia BIT.

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 ).

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 approximated to 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 IPR 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, performers’ rights, 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 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.

Legislative Changes

In line with Georgia’s commitments under the DCFTA, to prevent and suppress infringements of IPR and to ensure the implementation of appropriate sanctions, the National Intellectual Property Center of Georgia (SAKPATENTI) drafted a package of amendments to the IP legislation, which was adopted by the Parliament of Georgia on December 23, 2017 and entered into force on 11th of January, 2018. The amendments were made to the following legislative acts regulating intellectual property: the Patent Law of Georgia, the Law of Georgia on Copyright and Related Rights, the Law of Georgia on Design, the Trademark Law of Georgia, the Code of Civil Procedure of Georgia, the Law of Georgia on Pesticides and Agrochemicals, and the Law of Georgia on Drugs and Pharmaceutical Activity.

According to the new amendments, in case of intellectual property rights infringement, the holder is endowed with authority to demand removal from circulation of infringing objects, their destruction, destruction of any images related to them and deletion of the material published online that infringes on exclusive rights, and the destruction of any technical devices, which is used to make these objects. According to the amendments, the holder of exclusive rights is entitled to define, at their discretion, the caused damage and received benefit, and can demand lump sum compensation payment. The new amendments also stipulate provisional measures to preserve relevant evidence and restrain measures related to protection of intellectual property subject-matters, which is especially important in terms of effective enforcement of rights.

Georgia is also approximating laws on “border measures related to IPR” with the EU regulation N608/2013. Amendments were introduced in 2017, which included additional intellectual property objects to be protected at the border, including: design, patent, utility model, topographies of integrated circuits, new breeds of animals, and varieties of plants. Under the new amendments, customs authorities are entitled to take Ex-officio actions at the border and detain suspected IP rights infringing goods.

Development of an effective system of Internet Service Providers (ISP) Liability is also one of the obligations under the DCFTA. In order to implement an ISP Liability in Georgian legislation, in 2017, Sakpatenti drafted the amendments to the Law of Georgia “On Copyright and Related Rights” providing introduction of ISP related provisions. The amendments were drafted on the basis of the draft Law of Georgia “On Electronic Commerce,” prepared by the Ministry of Economy and Sustainable Development of Georgia.

In 2017, Investigation Service of the Ministry of Finance of Georgia initiated 21 cases under Article 189 of the Criminal Code of Georgia (infringement of rights of owners of copyright, related rights or database makers) and Article 196 (unlawful use of trademark (service marks) or other commercial designations). As a result, 42,876 items of counterfeit goods were seized, with the total value of GEL 148,323 (USD 60,000).

The Customs Department issued 120 orders on suspension of goods during the same period. Of these, in 53 cases the rights holder and the owner of the goods agreed on destruction of the goods. In 13 cases, the rights holder filed a lawsuit, and in 49 cases, the goods were released, because the goods were not proven to be counterfeit. In five cases, the goods are currently suspended as of the time of this report’s publication. The total value of the counterfeit goods destroyed on the basis of agreement between the rights holder and the owner of the goods (53 cases) is GEL 120,940.

The Tax Monitoring Department of the Revenue Service opened 14 cases related to infringements of rights on intellectual property subject-matters. As a result, 7,851 items of counterfeit goods were seized, with the total value of GEL 24,465 (USD 62,000).

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 https://ge.usembassy.gov/u-s-citizen-services/attorneys/.

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

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, 2018, 16 commercial banks, including 15 foreign-controlled banks made up the banking sector in Georgia. In January 2018, the total assets of Georgian commercial banks were GEL 33.7 billion (around USD 13.5 billion). In the beginning of 2017, there were 73 microfinance organizations operating in Georgia, with total assets of USD 1.5 billion.

Two Georgian banks are listed on the London Stock Exchange: TBC Bank (listed in 2014) and the Bank of Georgia (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

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 BIT, 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 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 webpages 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 15,000).

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, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem, and Electricity System Commercial Operator LLC assets were placed under 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 at: www.amcham.ge .

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.

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 2017, Georgia’s CPI score was 56 and it ranked 46th out of 180 countries surveyed in the Corruption Perception Index. 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

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.

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 11.8 percent in 2016 according to State Department of Statistics, 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 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 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, created a chief labor inspector position, and hired 25 labor inspectors. On March 7, 2018, Parliament passed the Occupational Safety, and Health (OSH) Law that gives the government power to make unannounced inspections in some circumstances in companies operating among “hard, harmful, hazardous, and increased danger” occupations. The list of hazardous industries has not yet been enumerated, but will likely include construction, mining, metallurgy, energy, oil, gas, and others.

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 180 (USD 70). The average monthly salary across the economy in Georgia in 2016 was GEL 950 (around USD 380). The minimum wage requirement for state sector employees is GEL 115 (USD 46) 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:

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 hotel in Tbilisi, a USD 10 million loan commitment to finance a Radisson hotel in Kakheti, and an USD 18 million loan commitment to finance a hospital in Tbilisi.

American companies in Georgia face severe competition from Chinese companies; those companies are often state owned, or could be private, and in both cases are supported by Chinese ExIm bank or other trade/investment tools.

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 14,377.9 2016 14,378.02 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) 2017 74.4 2016 -2 http://bea.gov/international/
factsheet/factsheet.cfm?Area=337
 
Host country’s FDI in the United States (M USD , Position, UBO) N/A 2016 0 http://bea.gov/international/
factsheet/factsheet.cfm?Area=337
 
Total inbound stock of FDI as % host GDP 2016 11.1 2016 11 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 2016.

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 16,393 100% Total Outward N/A 100%
Azerbaijan 2,150 13.1% N/A
UK 1,774 10.8%
Netherlands 1,623 9.9%
United States 1,481 9.0%
Turkey 1,275 7.8%
“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.

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

2018 Investment Climate Statements: Georgia
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