Transcript Georgian Economy Overview

Georgian Economy Overview
February, 2011
Batumi
Reform Driven Economic Success
GDP
Nominal GDP (US$bln)
17
15
13
11
9
7
5
3
1
-1
Real GDP growth, y-o-y (%)
15%
12.3%
11.1%
16.0
9.6%
12.8
9.4%
2003
2004
2.3%
2005
2006
2007
40%
33.7%
2008
30%
10,000
31.2% 29.9%
25.8%
27.5%
20.1%
8,000
-3%
2010E
7,940
7,635
7,126
7,084
6,670
6,920
5,719
3,947
1,977
1,446
10%
2005
2006
2007
2008
2012F
-6%
2013F
2005
2006
2007
2008
2009
Initially Planned (2009E)
2010F
2011F
-6%
-8%
-10%
2012F
2013F
0.0%
-2.3%
-2%
4,000
-
2004
0%
-4%
2,000
0%
2003
2011F
Fiscal Deficit as % of GDP - Current Path
6,000
16.9%
2,993
20%
3%
Conventional Fiscal Deficit
34.6%
28.6%
5.5%
0%
2009
Expenditures (Capital + Current) as % of GDP
36.3% 37.2%
4.5%
6.5%
-3.9%
General Budget Outlays
Expenditures (Capital + Current)
9%
6%
5.5%
7.8
6.4
5.1
4.0
10.7
10.2
5.9%
12.7
11.4
12%
14.2
-2.6%
-2.9%
-4.3%
-3.4%
-4.8%
-4.8%
-4.0%
-6.3%
-7.3%
-6.5%
-9.2%
2009 2010F 2011F 2012F 2013F
Georgian Economy Overview
2
Strategic Infrastructure Projects with Significant Positive
Externalities and Strong Spillovers into the Rest of the Economy
•
•
•
•
Energy Infrastructure
 Black Sea 500 kv. Regional Power Transmission Line →US$ 350 million
 HPPs – Khudoni, Namakhvani, Nenskra Cascade etc. (additional installed capacity of 2000 MW, to be
implmented till 2018)
 Underground Gas Storage Facility
FIZ – Trade and Logistics Infrastructure
 Poti FIZ
 Kutaisi FIZ
Railway Infrastructure
 Tbilisi By-Pass Project → US$ 270 million
Roads Infrastructure
 East-West Highway Improvement Project → upto US$1 billion
 Adjara Bypass Road → US$ 240 million
 Vaziani-Gombori-Telavi Road → US$ 30 million
 South Georgia Road → US$ 200 million

•
Secondary and Local Roads → US$ 70 million
Communal Infrastructure
 Regional Municipal and Urban Infrastructure Development Projects → US$ 500 million
 Water and Sanitation Restructuring and Rehabilitation → US$ 600 million
Georgian Economy Overview
3
Major Diversified Investment Inflows
FDI
Breakdown of Remittances ‘09
US$ million
Russia
417.9
54.5%
USA
65.4
8.5%
Greece
58.9
7.7%
Ukraine
52.6
6.9%
Turkey
20.6
2.7%
20.4
2.7%
Germany
8.1
1.1%
Israel
8.1
1.1%
Spain
Other Countries
114.5
766.5
Total
14.9%
100.0%
Net Cumulative FDI Breakdown by Origin (‘04-’09)
Country
UAE
UK
Netherlands
Turkey
USA
British Virgin Islands
Kazakhstan
Czech Republic
Cyprus
Bahamas
Subtotal
Other
Total
Cummulative Net FDI, '04-'10
Share in Total
US$ million
696
678
597
581
445
414
310
294
259
214
4,488
1,872
6,360
Georgian Economy Overview
Share in total
10.9%
10.7%
9.4%
9.1%
7.0%
6.5%
4.9%
4.6%
4.1%
3.4%
70.6%
29.4%
100.0%
10,000
Net FDI as % of GDP
19%
16.5%
15.3%
17%
8,000
15%
11.7%
US$ mln
Country
6,000
9.4%
13%
8.5%
6.1%
4,000
5,379
2,000
6,038
7.0%
6,808
11%
8.1%
9%
7%
7,808
5%
3%
3,885
483
1,025
2004
2005
2,211
1%
0
-1%
2006
2007
2008
2009
2010E
2011F
FDI Breakdown by Sectors (2009)
Other 7%
Agriculture 3%
Transport &
Communicatio
ns 15%
Financial
Sector 8%
Construction
16%
Industry incl.
Energy 21%
Real Estate
22%
Services 8%
4
Dynamics of Brussels Pledge ($4.5 billion)
Implementation
Brussels Pledge Update – Public & Estimated Private Sectors
Commitments by Sectors
Various
6%
Direct Budget
Support
21%
Private Sector
21%
DISBURSED
~$2.0 Billion
COMMITTED PLEDGED
~$4.0 Billion $4.5 Billion
Commitments (signed) so far by Donors, Public Sector Operations
Japan Other
EIB 7%
1%
5%
WB
18%
Germany
8%
EC
9%
Georgian Economy Overview
Transport
Infrastructure
21%
Key Facts
As of end November 2010, Georgia had entered into
contractual commitments for and/or received up to 90% of the
total Brussels pledge
ADB
17%
EBRD
9%
USG
26%
Urban and
Municipal
Infrastructure
10%
Energy
Infrastructure
13%
IDPs
8%
By end of H1 2011, the Brussels Pledge to Georgia will likely
have been processed in its entirety, with possibility of further
upward adjustment in the outer months of 2011 and beyond
Absorption of committed funds into the economy will
continue through several years, boosting economic activity
and generating jobs
5
Favorable Public Debt Situation
Debt Indicators: Below the Prudential Threshholds
Public Debt Stock
Total Public Debt to GDP (%)
External Public Debt to GDP (%)
External Debt to GDP (%)
87.6%
80.6%
82.0%
80%
48.9%
32.0%
46.9%
44.8%
4,000
41.8%
3,000
31.8%
20%
21.1%
46.3%
31.2%
25.5%
6,000
37.2%
38.5%
36.6%
34.0%
60
0
0
2006
2007
2008
2009
2010F
2011F
2012F
105.7
63.8
19.1
20 10.1
2,000
16.8%
0%
Yield
40
1,000
23.5%
Price
96.0
80
5,000
41.2%
40%
70.9%
100
US$ bln
60%
76.2%
60.9%
56.8%
120
7,000
2013F
5.04
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
100%
Eurobond Performance: Incremental and Sustained Improvement
Flat Repayment Profile: Government External Debt Service
as % of Exports
20%
as % of Budget Revenues
19.0%
Eurobond
US$ mln
15%
10%
9.1%
8.8%
7.1%
5%
6.4%
4.6%
3.4%
5.1%
6.0%
2004
2005
2006
Georgian Economy Overview
2007
7.5%
7.8%
4.1%
3.9%
4.0%
2014F
2015F
2016F
11.0%
4.7%
5.0%
5.3%
2.3% 4.6%
4.1%
4.1%
2.6%
2009
2010F
2011F
2012F
3.9%
2.1%
3.2%
0%
2003
8.3%
7.3%
2008
2013F
6
Favorable Public Debt Situation
External Public Debt by Interest Type: Interest Rate Risk
Brought to a Minimum
Affordable Public Debt Stock and Very Low Interest Rate on
External Public Debt (in million USD)
Multilateral
57%
External
3,754
79%
Domestic,
1,011 , 21%
Portfolio
Average
Weighted
Interest Rate as
of end-October
2010
Bilateral
12%
Eurobond
10%
Variable
30%
Fixed
70%
2.1%
Government External Debt Amortization Profile: Flat Trajectory, Easily Affordable Annual Repayment Volumes
IMF
EUROBOND
Georgian Economy Overview
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Refinancing limited to 2013,
the bulk of Gov’t external debt
owed to official development
creditors on concessional terms
2010
US$ mln
OTHER LOANS
800
700
600
500
400
300
200
100
0
7
Domestic Debt Market Performance
12 Months T-Bills Discount Rates
6 Months T-Bills Discount Rates
6 Months T-bills
12 Months T-bills
14%
16%
14%
9.3%
10%
11.4%
6.9%
8%
6%
4%
4.5%
4.1%
2%
Discount Rate
12.0%
8.5%
10%
6%
4%
0%
Cumulative Issuance by Instrument
T-Notes
T-Notes
400
14.8%
15.6%
350
Aug-10
Sep-10
280
220
85
130
80
0
Sep-09
Georgian Economy Overview
25
Jul-10
10
Jun-10
0
May-10
10
Apr-10
0
50
Mar-10
275
150
342
200
377
250
100
Feb-10
6M T-Bills
300
10.3%
10.2%
12M T-Notes
190
14.3%
GEL mln
Coupon Rate
6.0%
5.2%
T-Notes Coupon Rates
17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
7.7%
8%
2%
0%
14.6%
12%
70
Discount Rate
12%
Dec-09
Mar-10
Jun-10
Sep-10
8
FC Sovereign Ratings Chronology
Georgian Economy Overview
9
Current Account
Current Account Deficit
Trade Balance
(GEL mln)
-5,000
-4,000
-9.6%
-6.9%
-30%
-22.8%
-19.8%
-15.1%
-11.1%
CAD as % of GDP
-11.8%
-11.3%
-10.2%
-20%
-10.0%
-8.9%
-10%
-3,000
0%
-2,000
-3,812
10%
-2,735
-1,000
-2,066
-1,862
-2,403
-2,339
-2,214
20%
-1,130
-846
-577
-2,240
0
30%
2003
2004
2005
2006
2007
2008
2009
2010F
2011F
2012F
2013F
Offsetting Inflows
Portfolio Investments and Other Capital Inflows
2,500
Remitances
FDI
2,062
984
599
1,533
937
563
1,120
892
548
591
859
728
658
1,119
766
2008
1,564
918
1,750
755
2007
748
1,170
420
493
453
315
252
492
213
38
335
500
166
1,000
1,585
1,500
40
US$ mln
2,000
0
2003
2004
2005
Georgian Economy Overview
2006
2009
2010F
2011F
2012F
2013F
10
Regional Energy Hub
 Reliable transit country and regional energy
hub
– Baku-Tbilisi-Ceyhan (BTC) oil pipeline
– Baku-Supsa oil pipeline
– South-Caucasus gas pipeline (SCP) from
Shah-Deniz
– North-South Gas pipeline
– Georgia-Azerbaijan Southern Gas (GASP)
AGRI
 Gas supply contracts with Azerbaijan for 10
years and with Shah Deniz for 20 years
 Transit role for oil & gas – pipelines and
railway
– Circa 1.6% of world oil production
 LNG across Black Sea – Azerbaijan-Georgia-Romania Interconnection (AGRI) project initiated by three states together with
NABUCCO/White Stream – huge potential to transport gas from the Caspian to Europe
 The only country in the region (which doesn’t have its own gas resource) that was not effected by gas crises in January 2009
 Georgia/Romania MoU for transportation of carbon resourses from Caspian via Black Sea
Georgian Economy Overview
11
Net Electricity Exporter with Significant Export
Expansion Capacity
Net Electricy Exports: Fast-growing Source of Export
Revenues
• Huge, rapidly growing consumption rate and high tariffs on
the Turkish electricity market expandable to Iraq, Syria and
EU countries
Net Exports
1.5
1
tw/h
0.5
0
-0.5
2004
2005
2006
2007
2008
2009
2010
• Net electricity exporter in all four neighboring countries since
2007
• Net exports for 2010 (1 TWH) 5 times higher compared to
Year 2007, aiming to double by 2013 (2 TWH)
• New hydro projects awarded with installed capacity of 2000
MW and potential export capacity of 6 TWH by 2018
-1
• Construction of 500 and 154 KV power transmission line to
Turkey
-1.5
• Additional new 500 KV interconnection to Turkey is under
negotiation
• 5 new HPP projects under construction with installed capacity
of around 170 MW (7MW, 46 MW, 78 MW, 5 MW and 36
MW), additional 2000 MW of installed capacity to be
assembled until 2018 (Namakhvani, Khudoni, Nenskra etc),
boosting annual exports to $300 million by 2018
• Huge untapped hydro resources
• Only 18% of the country’s hydro potential utilised so far
Georgian Economy Overview
• Once all three electricity lines are operational, total
transmission capacity to Turkey will reach more than 2000
MW - 15 times more than current capacity
12
Export Driven Agriculture Development
Agriculture Export: Expanding to Large New Export Markets
Sheep Export: Highly Demanded in the Middle East
300,000,000
300,000
285,621,244
275,171,981
280,000,000
250,000
200,000
Units
USD
260,000,000
240,000,000
267,144
237,494,100
227,841,855
150,000
100,000
220,000,000
50,000
0
200,000,000
2006
2007
2008
2006
2009
Hazelnut Export: Stronger Than Ever
20,000
2008
2009
3,747
3,000
MT
11,700
MT
2007
21,000
4,000
16,000
12,000
10,805
Culinary Herbs Export: Steadily Fast-growing
17,650
12,800
85
7,900
1,841
2,000
1,349
8,000
1,000
4,000
279
0
0
2006
2007
2008
Georgian Economy Overview
2009
2006
2007
2008
2009
13
Diversification of Agriculture Export: New Markets for
Traditional Export Products
Geographical Distribution of Wine Export in 2005: before Russian
Embargo
Ukraine
USA
Others
Geographical Distribution of Wine Export in 2009: Substantial
Diversification Benefits Achieved
Azerbaijan
Kazakhstan
Others
USA
Litva
Azerbaijan
Kazakhstan
DIVERSIFICATION
Litva
Russia
Ukraine
Geographical Distribution of Mineral Water Export in 2005: before
Russian Embargo
USA
Ukraine
Others
Azerbaijan
Geographical Distribution of Mineral Water Export in 2009:
Substantial Diversification Benefits Achieved
Belarus
Kazakhstan
Others
USA
Latvia
Azerbaijan
Belarus
Kazakhstan
DIVERSIFICATION
Russia
Georgian Economy Overview
Ukraine
Poland
Latvia
14
Georgia, the Increasingly Global Tourism Destination
Rapidly Growing Tourist Arrivals
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
2000
2001
2002
2003
2004
2005
Rebranding Georgia as tourism destination on international arena
2006
2007
2008
2009
2010
Annualized
and transforming Georgia into regional
tourism hub in the Caucasus
 Growth effects of the domestic road interconnectedness compounded by“vertical” approach to the revival
of Georgia’s traditional tourism hubs (Tbilisi, Mtskheta, Batumi, Bakuriani, Gudauri etc.) and (re)discovery of
new promising destinations (Svaneti, Anaklia, Signaghi, Kvareli etc.) capable of providing tremendous lasting
boost to sea and mountain tourism, to ‘wine tours’ and green tourism.
 Domestic tourism development – area with significant unexplored growth potential
 Kobuleti and Anaklia Free Tourism Zone (plot of land for symbolic GEL 1 price, customized profit and
property tax exemptions)
Cultural sites inscribed on the UNESCO World Heritage List
Georgian Economy Overview
15
ShiftingTowards Sustainable External Position
Georgia’s Competitive Edge According to the IFC – Most Promising Sectors
with Large Export Potential and Job Generation Capacity
WINE, NUTS, FRUIT, VEGETABLES
AND HERBS
PHARMACEUPTICALS AND MEDICAL
SERVICES
Ideal growing conditions for wide
range of grapes, fruit and vegetables
 Georgia already ranks among top 5
global exproters of Nuts
 Competetive factor costs
Proximity and duty-free access for
serving EU and CIS markets
Large base of people with experience
in sector
Large and growing regional market in
Caucasus and Central Asia, with virtually
no local medical manufacturing capacity
 3 Existing manufacturers
 Good location and skill base, low labor
costs and strong business environment
 Natural entry/exit point between
Caucasus, Central Asia and rest of world
Logistics and transport services hub for
the region: inbound/outbound
shipping, rail and road services; aircargo hub; transshipment and
intermodal hubs, etc
CONSTRUCTION MATERIALS
PRIMARY PROCESS INDUSTRIES
APPAREL
 Very competetive factor costs: wages,
real estate, transport, taxes and
business environment
 Transport links and GSP+ access to EU,
world’s largest apparel market
 Educated workforce with experience
in apparel industry
Georgian Economy Overview
Low labor costs
 Raw material supply
 Large and growing regional market
 Excellent transport links with
neighbouring countries
LOGISTICS / TRANSPORT SERVICES
 Oil and gas pipelines, energy supply,
mineral deposits, existing metallurgy
cluster
 Favorable business environment
 Position as gateway to/from
Caucasus/Central Asia
16
One of the Best Low-Tax Jurisdictions
‘04A
‘05A
‘06A
‘07A
’08A
‘09A
’10A
‘11F
‘12F
‘13F
21
7
7
7
6
6
6
6
6
6
VAT
20%
20%
18%
18%
18%
18%
18%
18%
18%
18%
Income Tax
1220%
12%
flat
12%
flat
12%
flat
Social Tax +
Income Tax
32%
25%
Social Tax +
Income Tax
20%
Social Tax
33%
20%
20%
20%
-
Corporate
Profit Tax
20%
20%
20%
20%
Dividend
& Interest
Income Tax
10%
10%
10%
10%
Number of
Taxes
20%
20%
18%
15%
-
-
-
-
-
15%
15%
15%
15%
15%
15%
10%
5%
5%
5%
3%
0%
 No payroll tax or social insurance tax
 No capital gains tax
 No wealth tax, inheritance tax or stamp duty
 Foreign-source income of individuals fully exempted
 Tax rates reduction timetable has been further accelerated in 2008
Georgian Economy Overview
17
Tax Administration
Monthly Declaration Statistics
Compliance Facilitation and Services










Robust e-filing and e-payment systems
Unified Cards for Customs and Tax Liabilities
Princple of “Good Faith”
Special Treatment of Micro and Small businesses
Electronic VAT Invoices
Electronic Administration System
• Risk Based Selection of Taxpayers for Control
• Electronic Assignments for Tax Officers
• Electronic Performance Monitoring
Risk Based Tax Audit
Advance Ruling
Accelerated Services
Personal Tax Agent
Number of e-filings
Number of hard copy declarations
250,000
200,000
150,000
100,000
50,000
-
e-filing: Number of Registered Users
e-filing vs. hard copy declarations
Number of Registered Users
Share of e-filing
Share of hard copy declarations
100.0%
150,000
130,000
110,000
90,000
70,000
50,000
30,000
10,000
-10,000
80.0%
60.0%
40.0%
20.0%
0.0%
Georgian Economy Overview
18
Special Taxation Regimes Adopted
• Special taxation systems have been adopted for the different regimes aimed at establishing new
international financial institutions in the country, encourage economic growth, support
sustainable development and the trade-transit function of Georgia
Type of Tax
An International Financial
Company
Free Industrial Zone
Free Warehouse Company
Corporate Income Tax
(from financial services) 0%
(for International
Companies) 0%
(from re-exporting of
foreign goods) 0%
0%
0%
0%
Customs Tax
0%, 5% or 12%
0%
0%
Property Tax
up to 1%
0%
up to 1%
20%
20%
20%
Value Added Tax
Personal Income Tax
Georgian Economy Overview
19
One of the Best Performer by Forbes Tax Misery &
Reform Index
 According to 2009 Tax Misery & Reform Index, release by Forbes Business & Financial News, Georgia is
the fourth least tax burden country after Qatar, UAE and Hong Kong
Since 1
January 2009,
income tax
declined to
20% from 25%
Georgian Economy Overview
20
Top Reformer Over the Past 5 Years According to the
World Bank – IFC Doing Business Report
Georgian Economy Overview
21
Reforms - Creation of Favourable Market Environment
Ease of Doing Business, 2011 (WB-IFC Doing Business Report)
Economic Freedom Index, 2010 (Heritage Foundation)
8
4
USA
UK
Up from
5
11
USA
UK
8
Norway
16
Estonia
112 in 2005
12
GEORGIA
26
GEORGIA
17
Estonia
50
Latvia
54
Azerbaijan
51
Hungary
48
Armenia
63
Romania
51
Bulgaria
64
France
56
Romania
67
Turkey
65
Turkey
74
Italy
59
Kazakhstan
75
Bulgaria
66
Montenegro
82
Kazakhstan
68
Belarus
96
Azerbaijan
89
Serbia
143
Russia
123
Russia
162
Ukraine
145
Ukraine
TI 2010 Global Corruption Barometer: % addmitting having paid a
TI 2010 Global Corruption Barometer: % of the surveyed claiming
bribe within the last 12 month
the corruption level has decreased
GEORGIA
78%
1%
United Kingdom
26%
Poland
3%
GEORGIA
26%
Turkey
4%
Canada
14%
Japan
5%
United States
14%
Czech Republic
5%
Spain
9%
Austria
5%
EU+
Georgia ranks 1st in the
9%
7%
Latvia
France
8%
9%
world in terms of the
Lithuania
Austria
9%
7%
Japan
France
(public perception of the)
13%
6%
Italy
United States
decrease of the level of
14%
Czech Republic
5%
Italy
15%
Poland
4%
Canada
corruption
15%
Latvia
3%
United Kingdom
28%
Romania
3%
Spain
33%
Turkey
3%
EU+
34%
Lithuania
2%
Romania
Georgian Economy Overview
22
Investing Across Borders - Indicators of Foreign Direct
Investment Regulation According to the World Bank
Sector
GEORGIA Score
Regional Average
Global Average
Mining, oil & gas
100
96.2
92
Agriculture & forestry
100
97.5
95.9
Light manufacturing
100
98.5
96.6
Telecom
100
96.2
88
Electricity
100
96.4
87.6
Banking
100
100
91
Insurance
100
94.9
91.2
Transport
100
84
78.5
Media
100
73.1
68
Construction, tourism & retail
100
100
98.1
Health care & waste management
100
100
96
“Georgia is one of the most open countries to foreign equity ownership as measured by the
Investing Across Sectors indicators. All of the 33 sectors covered by the indicators are fully
open to foreign investment. There are neither sectors with monopolistic or oligopolistic
market structures nor any perceived difficulties in obtaining any required operating
licenses” – Summary by the World Bank
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Fundamental Policies: What We Believe In
• The rule of law & property rights
• Minimal state fiscal footprint
• Few, low and flat taxes
• Minimal social security burden on businesses
• Sound money
• Inflation targeting, single-digit inflation
• Free trade
• Flexible labour market, with minimal state interference in employer-employee
relations
• Limited government
• Deep de-regulation
• Dramatically minimized and simplified licensing
• Aggressive privatisation
• Means-tested, focused state assistance to the poor
• Lean and efficient civil service sector – providing value for taxpayers’ money
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Fundamental Policies: Ensuring No Policy Drift
• Fiscal responsibility
–
–
–
–
Government expenditure capped at 30% of GDP
Budget deficit capped at 3% of GDP
Government debt capped at 60% of GDP
No budget earmarks
Deviation from these threshholds would be possible under
the negative GDP growth conditions, but the Government
would be required to develop a plan aimed at reverting
these ratios within three years from the breach
• Since 1995, no restrictions on currency convertibility or repatriation of capital
& profit
• Ban on state ownership of banks and on the imposition of price controls
– No state-owned banks since 1995 and no price controls since the early 1990s
• Ban on an increase in the number of licenses and permits
• Ban on an increase in the number of state or independent regulators
– Currently, independent regulators exist only in financial services, communications and utilities
• Means-tested assistance rendered through vouchers and other ways that
empower citizens and give them choice (in healthcare, education, etc), rather
than by funding directly state-owned service providers
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Contacts
Kakha Baindurashvili
Minister of Finance of Georgia
+995 32 261 444
[email protected]
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