A Win-Win Situation: Economic Prospects of Georgia-Iran Relations

A Win-Win Situation: Economic Prospects of Georgia-Iran Relations

The FINANCIAL -- At Experto Consulting we support our clients in developing their business in the Caucasus markets - Georgia, Armenia, and Azerbaijan - by providing advice on strategies for penetrating the market and helping them find suitable partners through external networks. This year we have gradually expanded the markets we cover and took pilot projects for Turkish and Iranian markets. Let’s take an up-close look at the Georgian-Iranian economic relations.

The relations of Iran and Georgia have known its story of fluctuations before coming to the point of improved cooperation. Iran was among the states to acknowledge the independence of Georgia in 1992. Since this historical date more than 47 bilateral documents have been signed between the two countries. These agreements concern elimination of double taxation and encourage investment in sea, air and surface transport as well as customs and trade cooperation. In this way, the favorable environment has been created for attracting new businesses in both countries.

It should be noted that Georgia excels Iran in the Ease of Doing Business rank where Georgia takes the 24th place while Iran lags behind getting to the 118th place according to the most recent Flagship Report of the World Bank Group. This information unveils that Georgia can become a guide country to Iran for further reforms and advances. One of the fields can be the banking sector as the performance of the Georgian banks have proved its resilience and efficiency during the crisis of 2008 when Georgia was hit by both economic crisis and the war. 

These aspirations towards reforming the country have been explicitly shown from the Iranian part since 2015 when the Iranian authorities conceived a sixth five-year development plan aiming at establishment of a resistant economy, promotion of cultural excellence and progress in science and technology. In these regards, Georgia can support Iran and become for the country the gateway to Europe, one of the world’s biggest concentrated hubs of innovation. The Georgian strategy of European Union integration is advantageous for its southern partner as well as the recently signed Deep and Comprehensive Trade Agreement between the European Union and Georgia. Thus, the Iranian investors will become able to boost the exports to the European countries by establishing their businesses in Georgia.

Currently, the number of Iranian companies in Georgia is not considerable. According to Mr. Rahim Abachi, Director of Georgia-Iran Chamber of Commerce and Industry, the Iranian companies have been active in Georgia for about 20-25 years and their number amounts to 500 enterprises. However, only 10% of these companies are big-scale enterprises. These data can be also revealed by observing the Iranian FDI inflows to Georgia. The share of Iranian FDI in total investment in 2006-2015 was less than 0.1% (about USD 9.2 million in value) as it was remarked by Economic Policy Research Centre in its report of 2016. The Georgian think-tank informs that during the last two years Iran mainly invested in three sectors: processing industry (USD 2.039 million) and real estate (USD 1.900 million), with investment flowing in agriculture and fishing (USD 3.104 million). “There is one business center being constructed owing to the Iranian investments, - elaborates Mr. Abachi – another ongoing project is the construction of a hotel on Pekini St.”

Along with aforementioned fields, tourism also represents an attractive niche for the Iranian investors. For instance, the Iranian tourist company Aria Trading is already present on the Georgian market offering direct flights to its customers. Further prospects in this field are to be explored taking into consideration the growing number of the Iranian visitors after the official restoration of a visa-free regime for Iran for up to 45 days. Georgian National Tourism Agency informs in the report of 2016 that in the first 5 months the number of Iranian tourists has increased up to 361% with 25,552 arrivals.

As far as trade is concerned, Economic Policy Research Centre mentions that in 2015 Iran was the twelfth largest export destination, making up 1.62% of Georgian exports, and twelfth largest importer in Georgia as well representing 1.19% of Georgian imports. In the beginning, Georgia imported mainly food products from Iran but in the course of time trade has become more versatile: presently, Georgia also imports petrochemical and pharmaceutical products from its commercial partner. On the other hand, Iran tries to develop its petrochemical production and, consequently, diversify its economy dominated by crude oil and gas production. Even though the share of Iranian imports is not significant, the Iranian market is the major source of some import products such as bitumen (80%), petroleum coke (57.8%), float glass (57%), grapes (51%) as well as sacks and bags (33%). 

Iran, with over 80 million population, represents attractive export opportunities for Georgia. Georgian exports to Iran have increased since 2009. According to Geostat, in 2015 Georgia exported production of the value of 35 782 thousand dollars to Iran. The main export goods are mineral water, manganese, sawn wood (46.8%), motor cars and vehicles (5.5%), steel bars and rods, sheep and goats and new rubber tires (8.16%). Mr. Abachi informs that such big mineral water companies as Borjomi and Nabeghlavi are members of GICCI and currently try to expand their activities on the Iranian market.

Cooperation between the countries also covers such a key segment as the energy market. This partnership is mutually advantageous. Iran has the 4th largest crude oil reserves in the world as well as vast gas reserves. An increased gas supply from Iran will decrease Georgia’s dependence on the Russia’s Gazprom, a big monopolist in the region. The gas and oil supply from Iran also forms part of the Energy Union Strategy, project of the European Commission to coordinate the transformation of European energy supply and promote its diversification. Taking into consideration that Georgia has a direct access to the Black Sea and the well-developed infrastructure (three major pipelines), the country becomes the right destination for energy transportation to Europe and represents an option to the transportation corridors passing from Iran through Turkey. In its report, Economic Policy Research Centre states that this energy transportation agenda could stimulate favorably the pipe production in Rustavi Metallurgical factory. 

Electricity issue is another considerable aspect in the cooperation agenda of the two countries. Georgia sells its electricity surplus in spring and summer to Iran. That is why, the Iranian businessmen invest actively in building transmission lines in Georgia and Armenia.

Last but not least, investing in agriculture should as well be mentioned as having attractive opportunities for the Iranian businessmen. Mr. Abachi develops this idea mentioning such factors as favorable Georgian climate and fertile soils in contrast to the arid climate of Iran. 

Both Georgia and Iran can benefit from expanding cooperation - the two countries have solid economic reasons to maintain and further promote a long-term partnership. The establishment of Iranian companies in Georgia and vice versa will have a positive trans-sectorial impact developing other adjacent industries such as logistics – building of warehouses, packaging centers, etc. Not surprisingly, only win-win arrangements and mutually beneficial partnerships shall represent the surest way for a prospective and long-term cooperation anything less in the modern economy would be considered a waste of energy and efforts.