1. Black Sea Conference Athens, Greece February, 2009
Economic Reforms and Financing Infrastructure to Enhance Growth Case of Georgia
Black Sea Conference
Athens, Greece
February, 2009

2. Georgia in International Ratings
Georgia is among the top 10 reformers in the world in 2006 and 2007 by Doing Business Report
Georgia started with 110 rating in 2004 and achieved 15th in 2008
Corruption fell down in Georgia and Transparency International's Corruption Perception index raised from 1.8 in 2003 to 3.4 in 2007.
No sovereign rating in in 2007: BB-/Stable - assigned by Fitch; B+/Positive – S&P’s
Budget arrears reached 70% of the state budget in 2003 and External debt stood at 42% of GDP in 2003
No arrears in 2007 and external debt reduced at 16% of GDP

3. Country Overview
Georgia is a transcontinental country in the Caucasus region, located at the dividing line between Europe and Asia.
Georgia covers a territory of 69,700 km²;
Population million
In 2007 nominal GDP was million USD and GDP per capita USD
Estimated GDP for million USD and GDP per capita USD
Adult Literacy Rate (UNDP) – 99.9%

4. Macroeconomics
GDP growth rate totaled 12.4 percent in 2007, while GDP per capita constituted USD 2315
Increasing Labor Productivity, as well as high inflows of FDI were the major driving forces of growth
FDI sharply increased from 2004 and reached record high level of more then $1,7 billion in 2007, 17.2 percent of GDP.
Average annual CPI inflation was 7.7% during the last six years
Except for short episodes of sudden outbursts inflation in Georgia has been in single digits and stable for nearly a decade

5. Structural and Economic Reforms
Tax Policy
Customs
Liberal Fiscal and Trade Regimes
Improved Budget Policy
Licensing and Permits
Labor Code
Privatization
New Customs was adopted
New Tax Code
MTEF and BDD
No Export Duties
No Protectionism
Large scale of privatization in all fields
New Labor Code High Labor Freedom Index
Reduced by 84%
Licensing/Permits
Crossing Border
Starting Business
Paying Taxes
Employing Labor

6. Economic Reforms Licensing and Permits
number of licenses and permits reduced by 84%, eliminated 756 licenses and permits and streamlined procedures;
30 days are necessary for issuing licenses and 20 days for issuing permits;
Licenses and permits may be required only in limited cases.
New Labor Code
High Labor Freedom index
4th place in the world - Employing Workers indicator (Doing Business 2008 Survey)
Civil service and Police Reform
Reduced corruption and improved efficiency
Budget Policy - Introduction of the Medium Term Expenditure Framework (MTEF) and Basic Data and Directions (BDD)
Better macroeconomic analysis and allocation of resources according to priorities
Defines the balance between current and capital expenditures in the medium term in order to ensure sustainable growth and defines the size of government and allocations to government (25% range)

7. Tax Regime
Enacted in 2005 new Tax Code reduced the number of taxes from 22 to 7 and in 2007 to 6
VAT – 18 percent
Customs Duty – 0, 5 and 12 percent
Personal Income Tax – 12%
Social Tax – 20%
Profit Tax – 20 percent
Excise Tax – varies depending on type of goods
Property Tax – defined by local governments
25%
2007
20%
2008
Personal Income Tax

8. Taxation
In spite of easing the tax burden, the ratio of tax revenues to GDP increased from 14% in 2003 to 25% in 2007.
The share of shadow economy sharply declined
Efficiency of tax collection vastly improved since 2003

9. Trade Regime Export takes 5 days and 3 documents
One of the most liberal import duty systems in the world, with an average weighted import duty of 1.5%
90% of all imports have 0% duty
Equal VAT on imported and local goods
Equal excise tax on most imported and local goods
No export duties
Streamlined customs clearance:
Export takes 5 days and 3 documents
Import takes 4 days and 6 documents

10. Fiscal Policy/ Budget
Based on stated policy, Size of Government should not exceed 30% of GDP and will be reduced to 25% for next years.
Government Investment volume in government spending will be kept more then 5% of GDP (in a range of 6-8%)

11. Infrastructure
Government of Georgia was widely investing money in energy infrastructure and as a result got guaranteed access to the energy.
Road construction and rehabilitation takes a significant share in Government spending and it is expanding over time. It is planned to spend 521 million GEL in 2009, on approximately 618 km road rehabilitation.
Municipal budget was rising during these years as the projects for regional infrastructure were widely financed.

12. Regional (international) Infrastructure
Georgia plays an important role as a strategic crossroad for hydrocarbon transit from the Caspian Basin to West
British Petroleum and its partners invested USD 5 billion to develop the three major oil and gas pipelines that cross Georgia
Oil pipelines
“East-west” The Baku-Tbilisi-Ceyhan (BTC)
Length km(249km through Georgia);
Capacity – ml barrels of oil per day;
Total cost - USD 3.9 billion;
Completed in 2005;
Transported 212,163,359.5 barrels of oil in 2007.
The Western Route Export Pipeline (WREP) or Baku-Supsa
Length – 830 km;
Capacity – up to barrels per day;
Cost – 556 ml USD (including terminal)
Completed in 1998
Supsa
Tbilisi
Ceyhan
Baku

13. Regional (international) Infrastructure
Gas pipelines
“North-south”
Rehabilitation by Millennium Challenge Corporation (MCC);
Total cost of USD 44.5 million;
Connecting Russia and Armenia.
The South Caucasus Gas Pipeline (SCP)
Capacity – 8.8 billion cubic meter per year (20 bcm for future);
Length 692km;
Total Cost – 1.02 billion USD
Completed in 2006;
Tbilisi
Baku
Erzurum

14. Regional (international) Infrastructure
Road and Transport
Poti – Red Bridge Highway
Part of important East-West corridor for transit transportation from the Black Sea to Central Asia
Length – 397km
Constructed – 80 km
Samtske-Javakheti road rehabilitation
Total Budget – million USD;
Length – km.
Financed by Millennium Challenge Georgia.
Poti
Red Bridge

15. Baku – Tbilisi – Kars Railway Project
The Baku-Tbilisi-Kars railway is a regional rail link project to directly connect Turkey, Georgia and Azerbaijan
Traffic is expected to total 3 million tones of freight and 1·5 million passengers in 2010, rising to 16·5 million tones of freight and 3·5 million passengers in 2034.
In total 98 kilometers of new line will be built between Kars and Akhalkalaki. The existing line from Akhalkalaki on to Tbilisi and Baku will be modernized
Cost–US$ 500 mln (Georgia only)
The project is due to be completed by 2010
Kars
Baku
Tbilisi

16. Management of Infrastructure
All three ports are under private management
Poti Sea Port
UAE’s Ras Al Khaimah (RAK);
Turnover of 7.7 million tones in 2007
New port construction
Free Economic Zone (FEZ)
Batumi sea port
KazMunaiGas (Kazakhstan);
Capacity – 18 million tons oil per year
2.3 million tons dry cargo
Kulevi oil port terminal
State Oil Company of Azerbaijan (SOCAR);
Capacity – 10 million tons of oil;
Poti
Batumi
Kulevi

17. Management of Infrastructure
Two international airports are managed via BOT agreement.
Tbilisi and Batumi airports – TAV (Turkey);
Total investment – 90.5 Million USD;
Joint capacity – 3.4 million per year.
Legislation:
Open Sky Policy
New liberal agreements

18. Perspectives Black Sea Energy Transmission System
Estimated Cost – EUR 220 million, (KFW, EBRD and EIB);
Length km
“Back-to-back" substation at the Turkish border.
Energy Sectors
Hydro resources rivers out of ones on the territory of the country are significant in terms of energy production. Approximately 15% of hydro potential is used.
Wind energy - potential of approximately 4 billion KWh per year.
Solar energy - annual potential of 108 MW, which equals to tons of fuel.
The country also has a serious potential for usage of hydrothermal waters