German FDI Possibly to Exceed USD 100 Million in Georgia

German FDI Possibly to Exceed USD 100 Million in Georgia

German FDI Possibly to Exceed USD 100 Million in Georgia

The FINANCIAL -- German FDI in Georgia might exceed USD 100 million if current plans are realized. The most attractive sectors for German investors are: construction goods, agriculture, logistics and renewable energies. Russia remains the main external risk for Georgia. For western investors though, this is mainly a secondary issue since most investments are not linked to Russia.

The total volume of German FDI amounted to USD 18 million in 2013, down from the USD 138 million of 2012. “Annual German FDI to Georgia is usually not very high. The better numbers of 2012 may be down to the single effects of one company, which can change statistics rapidly. However, 2013 was not a good year for investments on the whole. Georgia held elections that year and the new government’s politics had to be implemented. As a result, some public investments, mainly infrastructure projects, were frozen for a while. For many economic observers it was not clear where the country’s politics would lead. This caused some damage to economic growth and the investment climate in the country, and companies became generally more hesitant,” Tobias Baumann, Director of the International Department at the German Chambers Union, told The FINANCIAL.

The Association of German Chambers of Industry and Commerce (DIHK) maintains the German Foreign Chambers Network (AHK). The worldwide AHK network consists of 130 offices in 90 countries. The cooperating partner of the AHK network in Georgia is the German Business Association in Georgia DWV. The Association in Georgia is directed by Ms Uta Beyer.

Q. How many German companies were established in Georgia in 2013 and what are the spheres of their business?

A. The German Business Association in Georgia (DWV) welcomed 25 new members last year. Overall we observed approximately 50 new companies which did their first business with Georgia in 2013. The numbers may seem small, but there is continuous interest in the Georgian market. The main fields of business were agriculture, construction, construction goods and machinery.

Q. In 2013 Georgia banned land acquisition for foreigners. Last week we heard that officials have reversed their decision, so foreigners can now acquire land again. In your view, will Georgia manage to restore investor confidence by doing this?

A. This is a good decision, good for investment safety. I think that Georgia will manage to restore investor confidence as a result. And it is not only a Georgian issue. Land acquisition in all former socialist countries is a point of discussion.

Q. It has been almost two years since the new government came into power in Georgia. What are the main positive and negative steps that have been taken in terms of economic development?

A. The positive outcomes of the new government have been some structural reforms that were needed, e.g. labour market rules according to international standards, judiciary reforms and more competition in the construction business. A good thing from our perspective is of course the signing of the European association and free trade agreement, also the commitment of the Government to normalize relations with Russia. One negative was - as mentioned above - the halting of several projects, mainly in infrastructure, which led to decline in growth and investment.

Q. According to preliminary data of the statistics centre, German FDI in the first quarter of 2014 amounted to (minus) -344,000 USD. Will this downgrading trend continue in 2014?

A. We think that 2014 will see higher numbers by the end of the year. We know at least about some plans in the construction goods sector and we do hope that they will materialize.

2014’s numbers could exceed USD 100 million, if current plans are realized.

The most attractive sectors are construction goods, agriculture, logistics and renewable energies.

Q. Since the unrest in Ukraine foreign investors have become cautious towards the whole region. What is the position of German investors in regard to this?

A. German companies and investors see foreign investments strategically. They are prepared to last through crisis situations and keep their business going as long as it has a longer term perspective. This still counts for Ukraine too. Undoubtedly it is an advantage for Georgia that it has remained stable and quiet since 2008.

Q. What are the main internal and external risks that Georgia currently faces?

A. The main external risks come from Russian foreign and trade politics, although Georgia managed to counter the Russian blockade after 2008 with consequent liberal economic reforms and new business partners worldwide. Internally it is still important to integrate Georgian society after the political change and to avoid continuous confrontation with opposition forces.

Q. Georgia signed the AA and DCFTA recently. What will be the results of this on the Georgian economy in both the short and long term?

A. The AA should serve as a basis for political and democratic stability and accountability. The DCFTA is important for Georgia to become a more attractive and easier destination for foreign investors. Georgia is already a liberal market economy which will have better access to the single EU market with over 500 mio consumers. However, even more important is that the DCFTA also foresees the adoption of European standards, norms and certification rules. This is good not only for European, but also for world market competitiveness.

Q. Russian officials have openly expressed their reluctance to the signing of the AA. Do you consider it to be a potential risk that might deepen the concerns of investors?

A. We observe how Russia threatens all its neighbouring countries with consequences on whatsoever trade issues as they sign the AA. For western investors this is a secondary issue however, since most investments are not linked to Russia.