Tweet
WB IDENTIFIES PROMISING SECTORS TO BOLSTER GEORGIAN ECONOMY
Tamar Khurtsia
Georgian Business Week
July 6, 2009
Business & Economics
A research arm of the World Bank has listed the four strongest
manufacturing sectors for investors in Georgia. Fruit and vegetable
cultivation - which includes wine making - is on the list, as are
textiles, construction materials and clinical drugs and medical
devices.
The Investment Climate Advisory Services Unit of the World Bank
Group (ICAS) identified these sectors as having strong competitive
advantage. The report, Georgia's Manufacturing Sector Competitive
Assessment, was released June 29 and is aimed at advising policy
makers as well as donors.
The report also highlights significant potential for exports and job
generation in non-manufacturing sectors, including logistics, tourism,
utilities, and primary processing industries.
The reports' authors also note that domestic demand for construction
materials, food and consumer goods in Georgia has boomed in response
to investment into infrastructure, construction and retail as domestic
production in these sectors has lagged.
"There have been very little investment in export-oriented agribusiness
and manufacturing," the report says. "As a result, imports have soared,
while exports have grown much more slowly and trade gap has widened."
Georgia's official statistics confirm that only 0.8 percent of total
Foreign Direct Investment was put in agriculture and 16.8 percent
in manufacturing in 2008. In the reported period goods and services
imported in Georgia were worth 7,497m USD, while exports equaled
3,691b USD.
>From 2004 to 2008, the compound annual growth rate (CAGR) of exports
was 22 percent while the CAGR of imports stood at a higher 32 percent.
"Persuading investors to set up production operations in Georgia,
either to serve the local market or to export is more challenging,"
said Simon Bell of the World Bank Group. "Investors need to be
convinced not just that Georgia is a good place to do business,
but also that production in Georgia will be more competitive than
producing elsewhere."
While discussing the priority sectors for further development such
as wine, fruit and vegetables, it was mentioned that while Russia -
a traditional market that is currently embargoing Georgian wine, the
country's leading export commodity - alternative markets are larger
and suggest higher income potential.
The report highlights the fact that despite a strong fruit and
vegetable sector, Georgia has become an importer in recent years
despite opportunities to produce more for local markets, and even
export.
According to the survey, Georgia has production basics like orchards
and vineyards and strong institutional knowledge. But it also
underlines the weaknesses of inconsistent quality and standards,
and says that attracting large-scale investors is a key to reform.
The research also highlights the importance of the government-sponsored
Cheap Credit Programme. This scheme is designed to provide access to
capital for businesses in a financial climate where commercial banks
are reluctant to lend to start-ups. ICAS recommends that government
and donors continue programs like this that facilitate investors to
get access to finance for agroprocessing and manufacturing enterprises.
Georgia's construction materials sector have some of the best cost
factors, logistics position and business environment for serving
Georgian, Azerbaijan and Armenian markets, and some key raw materials,
the report notes.
Several investors in Georgia are already targeting opportunity
in producing cement, gypsum, metal components, and electrical
parts. Recently, Pioneer Cement Industries Georgia, a subsidiary of
an Indian conglomerate, acquired a large limestone mine through a
government auction. The officials of the company said that "obtaining
the license for building a new cement factory demonstrates that
industrial sector of Georgia is rapidly growing."
Ferrous metals constituted the number one Georgian export product in
2008 holding 31.2 percent while mechanical equipment and electrical
machinery top the list of imports.
Like construction materials, there is a significant market for imported
pharmaceuticals in the Caucasus and Central Asia, with growing demand
for low-cost generics, the report said. It confirms that there is a
tough competition from India and China, but existing Georgia-based
producers appear to compete in a combination of cost, quality/image
and market relationship.
Bell also noted the significant potential for export and job generation
in non-manufacturing sectors.
"As the natural entry/exit point between the Caucasus, Central Asia
and the rest of the world, Georgia is the natural logistics and
transport services nub for the region," Bell said. The development
of Poti's port, the Tbilisi Aviation Park, and upgrading rail and
road corridors reflect this, he added.
Based on the report's findings, the World Bank Group detailed
six issues that must be addressed in order to enhance Georgia's
competitiveness. These cross-cutting issues include improving human
capital through the education, internal and external promotion,
progress toward meeting internationally organized production standards,
increasing collaboration between producers, improving access to
finance, and tax administration.
"Because of the critical link to long-term competitiveness, governments
all over the world tend to invest in education," said Karin Millet,
Head FIAS Investment Generation, Vienna, World Bank Group. "Unless
Georgia does the same, it will be unable to retain industries like
heavy engineering, and it will get limited value from sectors like
agribusiness, apparel and pharmaceutical."
In the sector analysis, World Bank experts suggest that the Government
of Georgia refrain from being too aggressive in levying taxes.
While there was widespread recognition of the improvement in the
business environment in recent years, in terms of taxes, red tape,
and corruption, one area where investors continue to find fault with
the government is in tax administration, the survey noted.
"Tax authorities are overly aggressive in levying taxes and penalties
on those companies that are doing their best to comply; that are
overly slow in processing appeals reimbursing VAT," Bell said.
Kakha Baindurashvili of the Finance Ministry of Georgia responded by
saying the government is committed to working with investors.
"The survey and its recommendations will greatly assist the Georgian
government, especially the ministry of finance, in working effectively
to improve the business and legislative environment in its support
of these sectors," he said.
ICAS conducted the research based on three primary sources of
information: stakeholder interviews, existing reports and studies
and data analysis provided by the governmental bodies
Tamar Khurtsia
Georgian Business Week
July 6, 2009
Business & Economics
A research arm of the World Bank has listed the four strongest
manufacturing sectors for investors in Georgia. Fruit and vegetable
cultivation - which includes wine making - is on the list, as are
textiles, construction materials and clinical drugs and medical
devices.
The Investment Climate Advisory Services Unit of the World Bank
Group (ICAS) identified these sectors as having strong competitive
advantage. The report, Georgia's Manufacturing Sector Competitive
Assessment, was released June 29 and is aimed at advising policy
makers as well as donors.
The report also highlights significant potential for exports and job
generation in non-manufacturing sectors, including logistics, tourism,
utilities, and primary processing industries.
The reports' authors also note that domestic demand for construction
materials, food and consumer goods in Georgia has boomed in response
to investment into infrastructure, construction and retail as domestic
production in these sectors has lagged.
"There have been very little investment in export-oriented agribusiness
and manufacturing," the report says. "As a result, imports have soared,
while exports have grown much more slowly and trade gap has widened."
Georgia's official statistics confirm that only 0.8 percent of total
Foreign Direct Investment was put in agriculture and 16.8 percent
in manufacturing in 2008. In the reported period goods and services
imported in Georgia were worth 7,497m USD, while exports equaled
3,691b USD.
>From 2004 to 2008, the compound annual growth rate (CAGR) of exports
was 22 percent while the CAGR of imports stood at a higher 32 percent.
"Persuading investors to set up production operations in Georgia,
either to serve the local market or to export is more challenging,"
said Simon Bell of the World Bank Group. "Investors need to be
convinced not just that Georgia is a good place to do business,
but also that production in Georgia will be more competitive than
producing elsewhere."
While discussing the priority sectors for further development such
as wine, fruit and vegetables, it was mentioned that while Russia -
a traditional market that is currently embargoing Georgian wine, the
country's leading export commodity - alternative markets are larger
and suggest higher income potential.
The report highlights the fact that despite a strong fruit and
vegetable sector, Georgia has become an importer in recent years
despite opportunities to produce more for local markets, and even
export.
According to the survey, Georgia has production basics like orchards
and vineyards and strong institutional knowledge. But it also
underlines the weaknesses of inconsistent quality and standards,
and says that attracting large-scale investors is a key to reform.
The research also highlights the importance of the government-sponsored
Cheap Credit Programme. This scheme is designed to provide access to
capital for businesses in a financial climate where commercial banks
are reluctant to lend to start-ups. ICAS recommends that government
and donors continue programs like this that facilitate investors to
get access to finance for agroprocessing and manufacturing enterprises.
Georgia's construction materials sector have some of the best cost
factors, logistics position and business environment for serving
Georgian, Azerbaijan and Armenian markets, and some key raw materials,
the report notes.
Several investors in Georgia are already targeting opportunity
in producing cement, gypsum, metal components, and electrical
parts. Recently, Pioneer Cement Industries Georgia, a subsidiary of
an Indian conglomerate, acquired a large limestone mine through a
government auction. The officials of the company said that "obtaining
the license for building a new cement factory demonstrates that
industrial sector of Georgia is rapidly growing."
Ferrous metals constituted the number one Georgian export product in
2008 holding 31.2 percent while mechanical equipment and electrical
machinery top the list of imports.
Like construction materials, there is a significant market for imported
pharmaceuticals in the Caucasus and Central Asia, with growing demand
for low-cost generics, the report said. It confirms that there is a
tough competition from India and China, but existing Georgia-based
producers appear to compete in a combination of cost, quality/image
and market relationship.
Bell also noted the significant potential for export and job generation
in non-manufacturing sectors.
"As the natural entry/exit point between the Caucasus, Central Asia
and the rest of the world, Georgia is the natural logistics and
transport services nub for the region," Bell said. The development
of Poti's port, the Tbilisi Aviation Park, and upgrading rail and
road corridors reflect this, he added.
Based on the report's findings, the World Bank Group detailed
six issues that must be addressed in order to enhance Georgia's
competitiveness. These cross-cutting issues include improving human
capital through the education, internal and external promotion,
progress toward meeting internationally organized production standards,
increasing collaboration between producers, improving access to
finance, and tax administration.
"Because of the critical link to long-term competitiveness, governments
all over the world tend to invest in education," said Karin Millet,
Head FIAS Investment Generation, Vienna, World Bank Group. "Unless
Georgia does the same, it will be unable to retain industries like
heavy engineering, and it will get limited value from sectors like
agribusiness, apparel and pharmaceutical."
In the sector analysis, World Bank experts suggest that the Government
of Georgia refrain from being too aggressive in levying taxes.
While there was widespread recognition of the improvement in the
business environment in recent years, in terms of taxes, red tape,
and corruption, one area where investors continue to find fault with
the government is in tax administration, the survey noted.
"Tax authorities are overly aggressive in levying taxes and penalties
on those companies that are doing their best to comply; that are
overly slow in processing appeals reimbursing VAT," Bell said.
Kakha Baindurashvili of the Finance Ministry of Georgia responded by
saying the government is committed to working with investors.
"The survey and its recommendations will greatly assist the Georgian
government, especially the ministry of finance, in working effectively
to improve the business and legislative environment in its support
of these sectors," he said.
ICAS conducted the research based on three primary sources of
information: stakeholder interviews, existing reports and studies
and data analysis provided by the governmental bodies