The FINANCIAL -- Just days before Georgia signs the Association Agreement and the Deep and Comprehensive Free Trade Area (DCFTA) with the European Union, the EBRD is set to support Georgia in the implementation of the DCFTA, and facilitate others in investing in Georgia.
“On that basis we hope to double our transaction volume in just one year,” Andras Simor, Vice President of Policy at the EBRD, told The FINANCIAL.
EBRD invested EUR 2 billion in 170 projects over the last 20 years in Georgia.
“The signing of the Association Agreement with the EU provides a lot of new opportunities for the Georgian economy, which clearly are not going to be utilized overnight, but step-by-step these are going to be beneficial for Georgian companies and the Georgian population. It is also creating opportunities for the bankers, like ourselves, to work with Georgian companies. There will be new export opportunities that might need new investments. New investments need funding. There will possibly be opportunities for Georgian companies to open businesses in the EU. EBRD can support Georgian companies with those investments,” said Simor.
“Vice versa, we believe that the companies established in Georgia will be able to freely export to the largest market of the world. There might be investors who will think that Georgia is a good base to set up a company and export to some EU markets from. Those projects might also need financing. With the Association Agreement, and more importantly with the Deep and Comprehensive Free Trade Agreement, the technical and quality standards of Georgian products need to be improved to meet the rules and regulations applicable within the EU. We would like to provide technical assistance, grants and financing to Georgian companies to meet those standards and especially small and medium sized companies,” he added.
Today, the EBRD remains the largest institutional investor in Georgia, having invested over EUR 2 billion in some 170 projects over the last 20 years. “Since we first started our activities in 1994, Georgia has made remarkable progress in implementing political and structural reforms, tackling corruption and improving transparency. It has also shown to the world and to the region that it is possible to have free and democratic elections and see a peaceful change in power through the ballot box. By signing the Association Agreement and DCFTA with the European Union, Georgia is about to turn another important page in its development,” Simor said.
Q. EBRD has been financing different sectors in Georgia, now its additional field of financing is helping Georgia to adjust to EU regulations. How much will be allocated for Georgia for this specific direction?
A. The good thing is that we do not just make monetary allocations, we try to respond to market demand. EBRD is a very strongly capitalized bank and we have a great opportunity to do business here. Just to give you an example, last year we did over EUR 100 million worth of transactions in Georgia. This year we are only at the beginning of June and yet the volume has already reached EUR 100 million. On that basis we hope to double our transaction volume in just one year. And we can do more! We are not only here to do lending and investment, but we are here in order to achieve a transition of the Georgian economy to a fully-fledged sustainable market economy. When we decide what investments we are going to do we look at the transition impact that is leading the Georgian economy more towards the most developed economies of the world.
Until now if we look at the Georgian economy there are two sectors where we have been the strongest - the financial institutions and energy sectors. Whether it stays the same in the future depends on our future clients. Where we see need is to develop the export potential of the Georgian economy. There was a deficit of around 6 percent last year in the Georgian economy, which is not too high and has been coming down compared to 2012. It would be important to develop the export capacity of the Georgian economy, which would clearly improve the traditional Georgian export products like wine, which is obviously a wonderful produce of the Georgian economy. However, other areas should be developed, like the machinery industry, the manufacturing industry.
Q. You see lots of opportunities in Georgia and EBRD is going to finance Georgian companies within the framework of the AA. So what is the benefit for Georgian companies from EBRD’s financing as well as from the AA?
A. The new agreements with the EU offer a unique opportunity, but the full benefits, and indeed the full potential of the economy, can only be realized if there is also an effort by the Government to accelerate the pace of reforms, strengthen institutions and further improve the investment climate. By capitalizing on the significant achievements of the past and by implementing further forward-looking reforms, Georgia can ensure that economic growth is sustained through the coming years for the benefit of Georgian citizens.
Georgia is in an excellent position to enjoy the advantage of having a robust locally-owned banking sector as well as a committed local business community. We believe, therefore, that there are significant opportunities to seize, both for you and for us.
Depending on what tariffs and customs there are and what non-tariff barriers there are at the moment, the benefit might be larger for some, and smaller for others. If you have a product which has high tariffs and those are going to be abolished, that will be a benefit for the exporter. If you have another product which has small tariffs and hardly any non-tariff barriers, then it is a smaller benefit.
The EBRD is set to do even more in Georgia, building on its strong track record of investing, and facilitating others to invest in Georgia.
Q. Could you please tell us in greater detail how EBRD is going to do “even more” in Georgia?
A. We have recently approved a new strategy for Georgia for the next few years. It is based on three pillars, the development of the private sector, with a specific focus on MSMEs and with the support of the local banking system; the development of energy generation, particularly from renewable sources and hydropower, which will ensure energy independence and generate additional exports; the promotion of regional integration, taking advantage of Georgia’s strategic location between the west and the east, and increasingly between the north and the south.
These are important priorities, which are in line with the Government’s own strategy for 2020.
In implementing these strategic priorities, EBRD will continue working both with the public and private sectors, across all economic sectors, and with foreign and local private companies.
In terms of investment opportunities, we now have a strong pipeline of potential new opportunities in various sectors of the economy, in particular in hydropower, food processing, hotel infrastructure and services. We hope to see more opportunities to invest in the development of light industry.
Over the last couple of weeks, we have subscribed important commitments to support the development of two new hydro power plants in Georgia and to roll out a new network of CNG (Compressed Natural Gas) stations through the country to offer more efficient and environmentally-friendly fuel alternatives to motorists.
Q. What will be the biggest challenge for SMEs while adjusting to EU regulations and how ready is Georgia to sign the AA in the coming days?
A. The EU is saying that Georgia is ready. That means that Georgia is ready!
EU technical and quality standards, for instance in the food industry, are extremely strict. I am not saying it will be at all easy to meet those standards for those who have not done it. For new companies, new exporters, this is going to be a struggle. But it is an investment and effort that I believe will be very worthwhile.