Georgia

Georgia EBRD country factsheet As at 1 January 2007, the European Bank for Reconstruction and Development (EBRD) had signed 57 projects in Georgia, totalling almost €298 million. This has helped to generate an additional €342 million from other sources. A total of 78 per cent of investments are in the private sector.

Highlights In 2006, the EBRD signed 22 projects, including an additional US$ 10 million loan to Georgia State Electro System for the Enguri, a US$ 21.2 million loan to TAV Georgia for construction of new passenger terminals in Tbilisi and Batumi, a mortgage loan of US$ 8 million to Bank Republic and a US$ 3 million credit line for on-lending to small businesses, and loans to the cities of Kutaisi and Poti of €3 million and €2.5 million respectively to improve the water supply. The EBRD’s portfolio ratio should continue to exceed the Bank’s target of 60 per cent. The EBRD will focus primarily on private sector financing, but may also consider selected public sector projects. The Bank will give preference to nonsovereign projects although, where sovereign guarantees are required, donor co-funding on a grant basis will be sought.

EBRD commitments by year € million

120 100 80 60 40 20 0

02

03

04

05

06

Latest news EBRD finance to modernise Georgia’s power sector Rehabilitation of Enguris hydro power plant The EBRD is stepping up its support for Georgia’s efforts to improve the country’s energy security. The Bank is increasing a US$ 38.5 million loan for the rehabilitation and modernisation of Georgia’s state-owned Enguri hydro power plant by US$ 10 million. Once completed, the overhaul of the facility will increase the output of the plant by at least 15 per cent. The Enguri hydro power plant was built in the 1970s and is located at the border with Abkhazia. Its arch dam is the tallest of this type in the world. With an installed capacity of 1,300 MW, generated in five units, the plant would be able to supply about half of Georgia’s present electricity demand. As the country is a net-importer of electricity, the full rehabilitation of the plant will lessen its dependence from external suppliers. The first phase of the rehabilitation was started in 1998 when the EBRD’s original loan was approved and work is now nearing completion - estimated mid-2007. In addition to urgent repair work it includes the reconstruction >>last page

Once completed, the overhaul of the facility will increase the output of the plant by at least 15 per cent.

Growth was strong in the communications sector at 16 per cent, and the services sector (especially financial services) grew by more than 20 per cent. Background information Basic facts Population (in millions)

4.6

Area (‘000 sq. km)

70

Official language

Georgian

Economic focus

GDP per capita in 2006 at current international US$

3,078

Performance and prospects

Private sector share in GDP (2006)

70 per cent

Strong economic growth is supported by ongoing privatisation and enterprise restructuring, major projects in the natural resources sector and a prudent policy framework.

National currency

Georgia – Average, transition countries 110 100 90 80 70 60 50 40 30 20 10

Outlook and risks GDP growth is expected to remain in the range of 6-7 per cent a year in the short term, driven mainly by industrial output, construction and investment activities related to the South Caucasus gas pipeline, despite the expected negative effect of the Russian trade embargo and increase in gas prices.

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

Georgia – Maximum, transition countries – Minimum, transition countries 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Infrastructure reform

Non-bank financial institutions

Banking reform

Competition policy

Trade and forex system

Price liberalisation

Enterprise restructuring

0.0 Small-scale privatisation

Export growth was also negatively affected by a Russian trade embargo on Georgian wine and mineral water, which took effect in March 2006. Wine was Georgia’s second most important export in 2005, accounting for 9.2 per cent of total exports. This decreased to 4.2 per cent at the end of November 2006. The external debt position has improved significantly, supported by debt relief agreements with all bilateral creditors. The ratio of public external debt to GDP fell to 22 per cent in 2006 from 27 per cent in 2005.

Transition indicators, 2006

Large-scale privatisation

The trade deficit widened dramatically by 68 per cent in the first 11 months of 2006 compared with the same period in 2005. While exports grew by a mere 10.3 per cent, imports (mainly of investment goods related to pipeline construction) grew by about 47.5 per cent during this period.

1992

External sector

1991

0 1990

The economy grew by an estimated 9 per cent in 2006, down slightly from the 9.3 per cent in 2005. Growth was particularly strong in industry and construction, where output in the first half of the year rose by about 14 per cent and 20 per cent respectively. Growth was also strong in the communications sector at 16 per cent, and the services sector (especially financial services) grew by more than 20 per cent. However, agricultural production fell by 14.4 per cent in the same period, partly because of unfavourable weather conditions.

Real GDP (1989 = 100)

1989

Real economy

Lari

2006

Georgia continues to pursue a well-established pro-Western policy oriented towards joining NATO and establishing closer links with the EU. Together with Azerbaijan and Armenia, Georgia has signed an Action Plan within the EU’s European Neighbourhood Policy (ENP). Unresolved territorial conflicts, involving Abkhazia and South Ossetia, remain a source of tension with Russia.

The transition indicators range from 1 to 4+, with 1 representing little or no change from a rigid centrally planned economy and 4+ representing the standards of an industrialised market economy.

For more information Visit the EBRD at: www.ebrd.com/economics

The EBRD will play a stronger role in policy dialogue, legislative and institutional reform, and donor coordination.

EBRD strategy Operational priorities

Key dates

The country strategy, approved in December 2006, provides the following strategic priorities for the EBRD in Georgia, reflecting the aims of the Bank’s Early Transition Countries (ETC) Initiative:

Latest strategy

December 2006

Next strategy

November 2008

Joined EBRD

September 1992

Improving the investment climate The EBRD will continue to enhance policy dialogue with the authorities, focusing on the development of small and medium enterprises. Under the ETC Initiative, a new programme has been launched by the Bank - policy dialogue on the investment climate with the main objective of promoting public-private sector dialogue. The Bank will play a stronger role in policy dialogue, legislative and institutional reform, and donor coordination.

EBRD commitments by sector As at end of 2006

Energy

Natural resources, Power and energy

Financial sector

Banking sector, Equity funds, Trade finance, Non-bank FI

Corporate sector

Agribusiness, Manufacturing, Property/Tourism, Telecoms

Infrastructure

Infrastructure

Municipal and environmental infrastructure, Transport

The EBRD will focus on the power and energy sectors, especially investments in energy security and efficiency. It will also help to strengthen regional transport infrastructure and communications, working closely with other IFIs, donors and the authorities for sustainable support in these critical sectors.

Micro and small business financing

Enterprise sector The EBRD aims to expand funding of local enterprises, particularly small, medium and micro-enterprises. It will provide support through credit lines with local partner banks as well as through the ETC Initiative. The Bank will support the agribusiness sector, including regional and rural development, which is a priority given its importance to the Georgian economy. Providing financing for leasing operations in support of agriculture and construction activities will receive particular attention. The TurnAround Management (TAM) and Business Advisory Service (BAS) programmes will also play a crucial role in strengthening small businesses.

Financial sector Under the Trade Facilitation Programme and using micro and small business credit lines and mortgage loans, the EBRD will extend its support to existing and additional partner banks in Georgia. The Bank will also seek suitable equity investments in local banks, implement the redesigned Medium-sized Co-Financing Facility (MCFF) with selected local banks and support the development of the non-bank financial sector with a focus on leasing, insurance and private pension schemes.

Russia

Scale (km)

0

Gudaut'a Sokhumi

60

Zugdidi Black Sea

K'ut'aisi P'ot'i

Khashuri

Bat'umi

Tbilisi

Turkey

Armenia

EBRD office

For more information Visit the EBRD at: www.ebrd.com/georgia

Rustavi

Azerbaijan

cont.>> of unit 3 and the rehabilitation of the two oldest units at the plant. The second phase includes the rehabilitation of the two remaining units and some additional civil works on the dam.

Contacts Caucasus Regional Office

Anthony Marsh, EBRD Director for Power and Energy, said the modernisation programme will make Enguri a secure, reliable and comparatively cheap source of energy which will benefit the whole country. In addition, the project will also support the reform of the local power sector by supporting a law on renewables and energy efficiency by end-2007, the adoption of which is a key element of the agreement.

38 Nino Chkheidze Str 380002 Tbilisi Georgia Tel: +995 32 920 512 Fax: +995 32 923 845 Country Director: Michael Davey

The original loan in 1998 had been co-financed by a US$ 10 million grant from the European Commission (EC) who have now provided an additional grant in excess of USD 2 million for the second phase of the project.

Headquarters

Selected projects signed by the EBRD in 2006

Business Group Director

Project name

Description

Tbilisi International Airport

Construction of new facilities and Transport upgrade of existing equipment to support increasing usage.

Georgian state electrosystem

Improvements to hydroelectric dam to increase power generation and promote renewable energy production.

Regional Trade Facilitation Programme

Support for foreign trade through Bank of Bank lending Georgia, Bank Republic, Cartu Bank, TBC Bank and United Georgian Bank.

Kutaisi water project Upgrading of facilities to improve water supply.

Sector

Power and energy

Municipal infrastructure

Portfolio class

Private

State

Private

Total Project EBRD value finance (€000) (€000) 20.5

58.1

7.6

27.1

Tel: +44 20 7338 7168 Fax: +44 20 7338 7380 Email: [email protected]

3.0

11.9

Early transition countries

11.4

11.4

State

2.5

10.5

Tel: +44 20 7338 6035 Fax: +44 20 7338 6599 Director: George Krivicky

State

Poti water supply project

Upgrading of facilities to improve water supply.

VTB Bank Georgia

Equity investment to improve Bank equity/ competitiveness and promote on-lending Small business to local businesses. Credit line for finance on-lending to small and medium-sized businesses.

Private

9.4

16.0

Bank Republic

Equity investment to increase the bank’s Bank equity lending capacity and promote growth.

Private

6.2

6.2

BTM TEKSTIL (DLF)

Finance provided for establishment of garment manufacturing facility.

Private

1.7

3.6

Bank Republic mortgage loan

Credit facility for on-lending as long-term Bank lending loans.

Private

3.0

3.0

Georgian Hazelnut Production (DLF)

Investment in new start-up company to finance the purchase of raw materials.

Private

3.1

5.4

ETC Non-bank Microfinance Institution Framework II

Credit line provided to Constanta to Small business increase financing available to the finance smallest enterprises through on-lending.

Private

2.3

2.7

Agribusiness

Project proposals

25.4

Credit facility for on-lending as long-term Bank lending mortgage loans.

Manufacturing

Olivier Descamps South-eastern Europe, Central Asia and the Caucasus Tel: +44 207 338 7164 Fax: +44 207 338 6599

23.1

TBC Bank

Municipal infrastructure

EBRD One Exchange Square London EC2A 2JN Tel: +44 20 7338 6000 Fax: +44 20 7338 6100

Private

Iberia Refreshments Sub-loan to a Pepsi franchise through (MCFF) Bank of Georgia.

Agribusiness

Private

2.5

2.5

Bank Republic MSE Credit line for on-lending to local micro loan and small-sized businesses.

Small business finance

Private

2.3

2.3

Iberia Refreshments Investment in Pepsi franchise. (DIF)

Agribusiness

Private

0.3

1.7

Lomisi (DLF)

Finance provided to local brewery.

Agribusiness

Private

1.5

1.5

Imedi L (DIF)

Investment in one of Georgia’s largest insurance providers.

Non-bank financial institutions

Private

1.1

1.1

TurnAround Manangement and Business Advisory Services Tel: +44 20 7338 7356 Fax: +44 20 7338 7742 Email: [email protected] Director: Charlotte Salford

Publications Tel: +44 20 7338 7553 Fax: +44 20 7338 6102 Email: [email protected]

www.ebrd.com