German Investors Shifting to Georgia from Ukraine, Russia and Turkey

German Investors Shifting to Georgia from Ukraine, Russia and Turkey

German Investors Shifting to Georgia from Ukraine, Russia and Turkey

The FINANCIAL -- The Georgian market is becoming more attractive to the German business sector, investors visiting Georgia say. Up to 100 new German companies are entering the market this year. Investors are also calling on Georgian officials to sign the EU Association Agreement as soon as possible and warning them not to follow the example of Ukraine.

“In many other countries surrounding Georgia and all the way to India and China, German companies are increasingly dissatisfied with doing business,” Uta Beyer, Executive Director of the German Business Association, told The FINANCIAL. “Russia, Ukraine and also Turkey are countries where it is almost impossible to do business anymore. German companies have huge experience in dealing with foreign markets over the last 15-20 years and more. The level of dissatisfaction on other markets has been increasing significantly over the last couple of years. This is the reason why they are looking for a new niche, a new market where it is favourable and easy to do business, as opposed to headache-inducing. German companies are finding this ease here, in Georgia. Corruption is the main problem in other countries, where companies simply cannot make a profit anymore. Besides corruption, the other problems there are include the bureaucracy, there is a mix of non-understandable administrative rules and barriers that exist, as well as completely unprofessional administrators. In the region, Ukraine and Russia are the most complicated countries to do business in. Many companies are going to be pulling out of those markets because of the excessive amounts of problems they’re encountering there,” she added.

“The struggle in Ukraine is taking place because Europe and Russia cannot understand each other and if Georgia really manages to handle both Russia and Europe, it will be an advantage for Georgia,” Beyer said.

“We now expect an early signing of the Agreement,” H.E. Mr. Ortwin Henning, Ambassador of the Federal Republic of Germany to Georgia, told The FINANCIAL. He said that an early signing of the Agreement would be useful for the country, but people should not expect miracles from it.

“We now expect an early signing of the Agreement. Georgians need to be aware that the signing is not something that is going to magically change Georgia’s position in the international arena,” said Henning. “Foreign direct investment is the most important driver of economic growth and at the same time it is a signal of trust in an economically successful, politically stable and independent future of any country including Georgia. Economically, Georgia enjoys a good business climate and satisfactory legal framework of economic activities compared to other countries in the region and that is why German companies are becoming so interested in this country. The German business community’s presence in Georgia is a clear signal and I am convinced that Georgia deserves more trust,” he said.

Prof. Dr. Rainer Linder, Managing Director of the German Committee of Eastern European Economic Relations has already met the Minister of Economy, Minister of Regional Development and Infrastructure and also the Deputy Minister of Energy to be informed about the prospects of German business in Georgia. As he says, the German business community found a lot of opportunities in the agriculture sector of Georgia. “German business welcomes the Deep and Comprehensive Free Trade Agreement, which is a very promising prospect for Georgia to speed up the signing process. The example of Ukraine shows that we shouldn’t wait too long before singing the AA,” he said.

The fact that Ukraine has suspended its plans to sign far-reaching political and trade agreements with the European Union should result in Georgia’s faster integration with the EU, experts say. Georgia initiated an Association Agreement at the Vilnius Summit on 28-29 November, 2013, and will be signing the Agreement finally in 2014. Given recent developments, however, the processes may be sped up and Georgia may be integrated with the EU earlier than previously expected.

Ukraine’s decision not to sign the agreements at a major conference in Vilnius, Lithuania, is considered a victory for President Vladimir V. Putin of Russia. He had manoeuvred forcefully to derail the plans, which he regarded a serious threat, an economic version of the West’s effort to build military power by expanding NATO eastward. In September 2013, similar pressure by Russia forced Armenia to abandon its talks with the Europeans.

“I hope that the EU will make the adequate conclusions, that Ukraine’s case will help Georgia to move quickly to the signing phase and that Georgia will sign the Association Agreement earlier than was projected,” said Davit Zalkaliani, Georgia’s First Deputy Foreign Minister.

Awareness that Georgia as a country is here and is a wonderful business location in the whole region is already in the minds of German businessmen, says Uta Beyer. “In 2013 the FDI from Germany was lower than in previous years, as overall investment went down. In 2011 and 2012 Germany was the biggest investor country and we hope it will regain its old position again,” she said.

Eight business delegations will come to Georgia from Germany in 2014 while Georgia hosted 4 delegations in 2013, the year before there were also 4 business delegations, and in 2011 - zero business delegations. “This also shows that the interest of German companies in the Georgian market has been rapidly increasing, especially since 2010. The current situation displays very positive dynamics, evident since the elections, and we are hoping to have economic growth of 5-6 percent,” said Beyer.

The German Business Association Georgia (DWVG), a member organization for companies actively involved in German-Georgian economic relations, which, as of 2013, also covers the Armenian market, counts more than 300 German companies and 100 members that are active in Georgia. The Association is the second largest foreign business association in Georgia after AMCHAM which has been on the market for 15 years already.

The advantages of the investment climate in Georgia are the efficient, pro-business and corruption-free government, enlargement of market size by FTAs, entry gate position in the region, competitive cost of labour and energy, solid sovereign balance sheet, stable banking sector and very low crime-rate.

“When we invite investors to come and invest in our country, many investors are asking one very logical question: ‘Why should we invest in a country where the population is just 4.5 million? It is a small market, there is no way to invest and it is much better to import in such a small country’,” said Giorgi Pertaia, Director of the Georgian National Investment Agency. “My answer is that, by investing in Georgia, after the Deep and Comprehensive Free Trade Agreement you will have access to a market of 0.9 billion. Right now,  by investing in Georgia you have access to Russia, Ukraine, Kazakhstan and all the CIS countries plus Turkey and that allows you to import products without any customs duty to those country but the goods must originate from Georgia,” he said.

HeidelbergCement is one of the biggest German investors in Georgia. It has invested USD 274 million from 2006 to the present day in its plants’ modernization, expansion and capacity increase. In 2010 the company invested USD 12 million, in 2012 - USD 12 million again, and in 2013 - USD 10 million. The estimated amount of investments in 2013-2014 is up to USD 20 million.

“A high level of technical, social and management competence is the goal of HeidelbergCement,” said Andreas Kern, member of the managing board at HeidelbergCement. “My personal opinion is that Georgia is a very reliable country where it is easy to do business and make a profit. I appreciate that HeidelbergCement has never faced any corruption challenges since the start of its existence in Georgia. The company’s investment plan for 2015-2018 is to make USD 100 million worth of investments in Georgia,” he said.