Transcaucasian countries

The Caucasus region, subdivided into the North Caucasus and Transcaucasus, is situated between the Sea of Azov and the Black Sea on the one hand, and the Caspian Sea on the other, possesses geostrategic significance as it does not only serve as a meeting place between East and West, namely Central Asia and Europe, but, what is more important, between Northern and Southern regions.
The North Caucasus, marks the southern boundary of the Russian Federation and the Transcaucasus sanitary-guarding zone, containing the independent Republics of Armenia, Georgia and Azerbaijan.
Transcaucasian region consists of two countries that have boundaries with Russia – Azerbaijan and Georgia, and Armenia. These three republics during the Soviet period made one Transcaucasian economic region. Azerbaijan is the largest republic by the area and population, Armenia is the smallest. Economic and geographical situation of the Transcaucasian republics is worse now. Several points of hostilities in the region have caused irreparable damage to the entire economic complex. There is no direct rail communication from Georgia to Russia via Abkhazia; the complexity of relations between Azerbaijan and Nakhichevan Republic (a part of Azerbaijan) is the result of Armenian-Azerbaijan conflict because of Nagorny Karabakh.

Industry

Now, as elsewhere in the CIS, industries that have their own resource provision are highlighted in the republics of the Transcaucasus. Azerbaijan is increasing production of oil and gas involving substantial foreign investment.

Georgia now stands as the largest exporter of manganese ore, as well as trying to renew connection with Russia in terms of wine and citrus sales.
Armenia is experiencing the most serious energy problem, it was forced to start up again nuclear power plant that was closed after the Spitak earthquake (1988). This allowed in some measure to restore the smelting of copper and molybdenum.

Agriculture

In Georgia, where the majority of plains are located in a humid subtropical climate, the growing of tea, citrus, tobacco is developing; the Kura and Alazani valleys are occupied by vinelands. Such field crops as wheat, barley and maize are cultivated. Sheep raising is popular in mountainous areas.
The climate in Azerbaijan is much drier which leads to the use of supplemental irrigation in agriculture for the cultivation of cotton, vegetables and cereals. Grapes are cultivated in the northern and western regions as well as in Georgia. Significant areas of semi-desert grassland are used for grazing of Karakul and fine-wool sheep.
Armenia differs from the rest two republics by more severe climatic conditions. The grapes have to be covered in winter from the severe cold, but, due to the dry climate in summer grapes are gaining a lot of sugar, which allows producing cognac. In the Ararat valley vegetables and grains are cultivated, on the slopes there are a lot of peach and apricot gardens on the slopes.

Mineral resources are represented by coal, oil, gas, and alum stone and salt. From metamorphic and igneous rocks it’s possible to single out ores of iron, manganese, copper, molybdenum, polymetallic, as well as reserves of marble, tuff, pumice, arsenic and barite ores.

It is considered that Armenia is an economic outsider, “poor cousin” in Transcaucasia, especially in comparison with more successful and enterprising neighbors:

Azerbaijan – investors are always interested in its oil volume that provides more or less acceptable standards of living of its population;

Georgia – “economic miracle” which is kept mainly due to the external “infusion” and other reforms.

In 2009 Azerbaijan lost to Georgia and Armenia by volumes of Foreign Direct Investment (FDI) for the second time in recent history, although it was the only one of these three countries, where FDI increased.
According to the report of Asian Development Outlook (ADO) 2010 prepared by the Asian Development Bank (ADB), last year FDI in Azerbaijan’s economy grew from $ 15 Mio to $ 472 Mio, but the second year in a row the country was the third by FDI volume in the South Caucasus. In Georgia, which has remained the leader, FDI fell from $ 1,523 Mio to $ 765 Mio, and in Armenia – from $ 925 Mio to $ 700 Mio. At the same time population of Armenia and Georgia is inferior to population of Azerbaijan in 3 times.

Azerbaijan GDP per capita does not exceed or even is slightly inferior to Armenia. By the nature of economic development, “the Armenian model” is more preferable, as traditional industries there develop simultaneously. Armenia is in many ways similar to Azerbaijan by the structure of   heavy industries block. However, the same industries that have been developed in Armenia were either liquidated or disoriented and are in decline in Azerbaijan (organic synthesis, aluminium, electrical industry). In the essence the light industry was minimized in Azerbaijan, whereas in Armenia this industry is developing faster  and is mainly export-oriented. For the past two years, Armenia has taken the lead of Azerbaijan by development of economy and industry. After oil boom, the real foreign investment in Azerbaijan was yielding to investment in Armenia. Georgia’s GDP per capita in accordance with PPP in 2009 ($ 4,500) was at 149th position out of 228; only Kyrgyzstan, Moldova and Uzbekistan were behind it from the post-Soviet states. According to economic indicators, today Georgia does not reach even half of its achievements in 1990, in Azerbaijan and Armenia this rate is much higher.

Armenia

The factors of the modern negative impact on Armenia’s economy according to experts of Trading Academy Masterforex-V include:
1) The foreign policy factor – the hostile external environment.

• The border with Azerbaijan has been closed for a long time because of the Nagorno-Karabakh conflict;
• Corridor with Turkey practically doesn’t work due to discrepancies in the assessment of the Armenian Genocide;
• entering the outside world was only through a small part of the Armenian-Iranian border, but here everything is not easy, as Iran was imposed with international sanctions which limits the bilateral relations.

However, the main foreign policy issue of Armenia is unsettled relations with Azerbaijan.

• Arising from the hostile external environment Armenian dependence on Russia which uses the Armenian-Azerbaijan conflict for personal benefit;
• Conflicts between Armenia and Georgia because of the Armenian populated Javakheti Georgia as a potential small “Karabakh”.

2) The negative social and economic factors of further development of Armenia:

• It’s the smallest of the republics of the former Soviet Union, even smaller than the Moscow region, moreover, without access to the sea;
• it is poor in natural resources. There are small reserves of copper, zinc, molybdenum, gold, lead and bauxite. Hence, significant dependence on imported oil, gas, high technologies with their market of low competitiveness and on the export of metals with high competitiveness;
• Lack of transit capacity and the revenue from this source;
• Soviet collapse practically killed the industry of the country, 90% of which were integrated into the all-union economy. The Soviet Union dissolution had disastrous consequences for Armenia:
  – in USSR Armenia had the wooden spoon by «openness of republic economy», in other words, it worked for military-industrial complex of the USSR,
  – internal trade prevailed over external,
  – processing industry dominated, considering that it was provided with its own raw material only for 20%, it worked on imported raw materials,
  – practically all needs in energy carriers were covered by external supplies.

It means that today enterprises (those which survived) lack not only raw materials but also sales markets.

• numerous disasters suffered by Armenia, first of all, earthquake with the intensity scale 7 in 1988, which embraced almost 40% republic’s territory and carried away at least 25 thousand lives. This led to production output reducing for a quarter;
• military conflict because of Nagorny Karabakh with Azerbaijan ended by blockade which led to Armenians losing their jobs and the houses remained without electricity and heating.
• mass emigration of able-bodied population from Armenia;
• high concentration and monopolization of production and capitals. In opinion of the former prime minister of Armenia, Doctor of Science, Economics Grant Bagratyan, in 2008 55% GDP were concentrated in the hands of 10 clans with all ensuing negative consequences for such a small country as Armenia;
• impossibility of getting investments from privatization of state property, as the industry is either destroyed or sold in private hands. All the big enterprises of the country are sold: favorite Erevan cognac distillery was bought by French concern Pernod Ricard, Zangezur copper-molibdenum plant – by German Cronimet, аnd the biggest in Armenia lapidary plant “Crystal” was bought by an Israel entrepreneur;
• comparatively low rate of small and medium-sized enterprises in GDP, among which there are no manufacturing enterprises. Armenia stops being the country manufacturing products;
• big trading disbalance, import significantly exceeds export, disproportions between them have increased from 2,9 times in 2000 to 4,7 times in 2009;
• in experts’ opinion, shadow economy in Armenia makes 35-40%, and according to opposition’s data, their rate is 70%. For example, we can remember interview of the president of Russian company “Euroset” Aleksandr Malis speaking that his company is not going to come back to Armenia: “There you can just give bribe without paying taxes”;

3) Politic factor – instability of political system.

Corruption. Armenia by Transparency International index of corruption took the120th place out of 180 countries.

Crisis in Armenia: peculiarities of downfall and growth.

Though, the government did not sit folded hands, as specify analytics of Trading Academy Masterforex-V specify:

• state investments in infrastructure, water supply system and irrigation systems were increased;
• small and medium-sized businesses were exonerated from VAT and checks;
• main exporters were given interest-free loans.

Due to the taken measures  the country’s economy has slowly entered the stage of recovery. According to the data of Statistic committee of CIS, the leader by rate of growth of industrial production in the first half of2010 has become Kirgizia – 41,8%, Armenia took the second place – 12,3%, and in Azerbaijan only 3,5% of growth. Armenia is on the forth place by GDP growth among the CIS countries – 6,7%, Azerbaijan – 3,7%. GDP is expected to make 4% this year. The volume of external turnover in January-September 2010 has grown by 23,6% from the same period of 2009. Obviously, the lower fell, the higher grew.

Potential of Armenia for future investors

Undoubtedly Armenia has potential for development. In this connection we can remember that from 2000 tо 2009 the country’s GDP has risen approximately thrice, industrial production – in 2,2 times. During several years before crisis Armenia demonstrated two-digit economic growth (in 2007 record-breaking – 13,8%). It is no coincidence that in the world rating of failed states, which was published by American magazine Foreign Policy, Armenia took the 101st place, whereas Georgia – the 33rd, and Azerbaijan – the 56th place (the lower the country’s rating, the more stable it is).
Advantages and potential of Armenia:

• peculiar relationship with Russia. In the country 1400 enterprises work with Russian capital, in such strategic branches as energetic, transport and communication.
• expat or, as Armenians say, “national cohesion of Armenian people in the world”.
• geostrategic situation. Armenia is situated on the crossroad connecting countries of East and West, trade routes between Near East and Middle East and Europe, that is why it is considered as transcontinental state;
• Armenia is the only one of 5 countries of the region which has Atomic Power Station;
• tourism. The country attracts many people by its primeval beauty, for example, Sevan Lake with its famous trout, ancient monastery Echmiadzin or ski resort Tsakhkadzor.
• highly qualified staff.

The most attractive branches of economy for investment
In opinion of experts of Trading Academy Masterforex-V, the most promising are:

• gold ore projects,
• diamond processing,
• tourism,
• IT branches,
• projects of constructing big metallurgic plants.

The country is going to develop transport infrastructure, to build railways and autobahns for connecting Iran with Georgian harbors. In general, Armenia, with its big investing potential, can become a trading-economic bridge connecting neighbor countries, moreover, a regional finance centre.

But making decisions investors should consider a row of risks:

• dependence of Armenia on world-wide processes,
• the country is vulnerable from the point of view of domestic policy stability, radical opposition after the long break in 2010 again asserted oneself,
  lack of banks’ liquidity,
• infant stage of Armenian fund and currency market,
• «oligarch structure» of economy. Oligarchs control import, monopolized the most important branches of economy,
• tax system of Armenia, according to analytic Albert Khachatryan, is not so difficult, as complicated. In tax income of Armenia the key role plays VAT (in January-May 2010 – 50,6% in total volume of taxes which came to budget), this tax is undifferentiated;
• in tax and customs branches there are problems with transparency and equal conditions for entrepreneurs. The government’s attempts to hold a soft tax reform for redirecting a part of shadow capital to state budget, are blocked for the moment,
• social directionality of the country’s economy. Expenses for social sphere in state budget 2011 are planned to be unprecedented – increasing of social privileges for 15%, pensions – for 10% etc. Social expenses will make over 27%.
• Still Armenia is quite a liberal state, whose government in every possible way encourages foreign investors:
  more or less favorable investment climate,
• restrictions for capital flow are absent,
• sufficient stability of banking system,
• the institute of property law is noted for strength.

According to the data of World Bank, by index of informality of business dealing, Armenia takes the 43thplace (7 items higher than in 2009):

• in the sphere of property registration (5th place),
• founding of new business (21st place),
• in the sphere of obtaining credits (43rd place), though in index «Protection of investors» – from the 5thplace it moved to the 93rd,
• in the sphere of paying taxes (153rd place).

In yearly rating of economy freedom, prepared by the specialists of analytical centre Heritage Foundation, Armenia, though came down from 31st to 38th place, but stands significantly higher than neighboring Azerbaijan (96th place).
And, finally, for post Soviet investors geographical proximity of Armenia, absence of visas, post Soviet mental closeness, and knowledge of the Russian language plays an important role.

Azerbaijan

Economic review
During the Soviet period, Azerbaijan had always been more developed industrially than Armenia and Georgia, two neighboring Transcaucasia countries – but also less diversified, as a result of slow investment in non-oil sector. Since then months we hear that economy of Azerbaijan is getting better and better every day.
Economics of Azerbaijan developed as a part of USSR economy during almost 70 years, orienting mostly on Russian market. The main branches of industry were oil-producing and oil-processing industry and agriculture. In 1960-1980th engineering, chemical, textile, food industry and others developed in the republic. The war in Karabakh and political instability led to significant drop in production in 1988-1994. After concluding of Armenain-Azerbaijan agreement on cease-fire in conflict zone in May 1994 and stabilization of political situation economic slump was stopped.

For more than a century the backbone of the Azerbaijan economy has been petroleum, which represented 10 percent of Azerbaijan’s GDP in 2005, and doubled to almost 20 percent of GDP in 2007. Now that Western oil companies are able to tap deepwater oilfields untouched by the Soviets because of poor technology, Azerbaijan is considered one of the most important areas in the world for oil exploration and development. Proven oil reserves in the Caspian Basin, which Azerbaijan shares with Russia, Kazakhstan, Iran, and Turkmenistan, are comparable in size to the North Sea, although exploration is still in the early stages. Azerbaijan has concluded 28 production-sharing agreements with various oil companies. New pipeline and delivery route systems for natural gas through the southern corridor to Europe are currently being considered and negotiated.
During the late 1990s, in cooperation with the International Monetary Fund (IMF), Azerbaijan pursued a successful economic stabilization program, with annual growth exceeding 10% since 2000. In 2009 Azerbaijan’s gross domestic product increased by 9.3%, with growth in 2010 estimated at 9.8%.

Azerbaijan and international organizations

At the moment Azerbaijan has trade relations with 140 countries of the world, is a member of a range of international economic organizations. Also the process of entering WTO (World Trade Organization) is taking place.
On December 21, 1991 Azerbaijan entered CIS. On March 2, 1992 the country became a member of UN, and later it joined other international organizations. Azerbaijan has a status of invited member in EU and is a member of European Bank for Reconstruction and Development (EBRD), International Bank for Reconstruction and Development (IBRD), “Organization of Islamic Conference» (OIC), OSCE, programs of NАТО «Partnership for the sake of peace», WTO with the status of observer etc.

Main branches of industry

Azerbaijan is an industrial-agrarian country with highly developed industry and multi-sector agriculture. Metallurgic, chemical, consumer goods industry develop fast. At the beginning of the 21st cent. the economy of Azerbaijan develops mainly in raw direction. It concerns not only industry, but also agriculture, where the volumes of crop areas of industrial crops have reduced significantly (e.g., tobacco, cotton). The leading place in Azerbaijan’s economy is taken by:
– oil and gas production industry,
– oil processing industry,
– chemical industry (mineral fertilizers, synthetic gum, auto tires etc.),
– engineering,
– mining industry (mining of iron ore or alunite) and non-ferrous metal industry,
– food industry (cannery, tea, tobacco, winemaking),
– consumer goods industry (ginnery, cotton, silk, wool, carpet weaving)
Oil and gas resources of Azerbaijan attract foreign oil companies.
The second most important sector is agriculture. From the total area of the country 46% falls to agricultural areas (ca. 4 Mio ha), half of which is taken by pastures. They grow grain, technical crops (cotton, tobacco), subtropical (pomegranate, tea, citrus, persimmon) croppers, grape. Produce natural silk.

Business environment

Azerbaijan has made efforts to modernize and reform its economy. The World Bank named Azerbaijan “Top Reformer” in its “Doing Business 2009” report, reflecting its significant efforts to simplify its domestic regulatory requirements. The government has undertaken regulatory reforms in some areas, including substantial opening of trade policy, but inefficient public administration, in which commercial and regulatory interests are co-mingled, limits the impact of these reforms. The government has largely completed privatization of agricultural lands and small and medium-sized enterprises. Azerbaijan is still plagued by an arbitrary tax and customs administration, a court system lacking independence, monopolistic regulation of the market, and systemic corruption. Business registrations increased by 40% in the first 6 months. Azerbaijan also eliminated the minimum loan cutoff of $1,100, more than doubling the number of borrowers covered at the credit registry. Also, taxpayers can now file and pay their taxes online. Azerbaijan’s extensive reforms moved it far up the ranks, from 97 to 33 in the overall ease of doing business.

Investments
Certain stability in the country and a long ceasefire in zone of Karabakh conflict allow Azerbaijan to attract foreign investments for oil mining and transporting development.

Azerbaijan takes the leading place among CIS countries on rates of growth of foreign investments (10 to 50% per year). Beginning from the second half 1990ies the growth of capital investments in different branches of economy was marked, first of all on account of extrabudgetary funds. During the period from 1996 till 2000 the amount of foreign investments was equal to $ 5 billion. Up to 50% of foreign investments comes for development of engineering, means of communication, food industry, sector of service etc.
Main foreign investors. Government of Azerbaijan signed several important agreements on development of oil and gas deposits.
The most important factor of interest for investors are natural resources of Azerbaijan, major part of which was badly investigated because of the lack of material resources and outdated manufacturing equipment.
Procurement of foreign capital is determined to some extent by the interest from Azerbaijan side in realization of big investment projects; hence it is reasonable to mention participation of big transnational corporations in the investment process.

In the whole, during the recent years portfolio investments in Azerbaijan economy have increased greatly, at present over 20 big investment institutions have settled here.
Main branches for investment:

Investments in oil sector 51,5%

Investments in industry equal to 194,8 Mio. manat (-25,1%).

Investments in energetic, gas and water sector (50,8 Mio. manat, +5,6 times),

Agriculture (11,4 Mio manat, increase thrice),

House building (24,7 Mio. manat).

Investment in transport, warehousing and communication sector (25,8 Mio. manat).

In the country stable political and economical conditions are created. The most important relative advantages of Azerbaijan economy are the following:
• The country is rich in natural resources, especially hydrocarbon material;
• The level of population’s education is quite high, almost half a population of corresponding age has technical or higher education, the rest of population has mainly secondary education. The level of doctors’, engineers’, scientists’, teachers’ qualification is high;
• Azerbaijan has a well-developed infrastructure, including road network, basic irrigation systems, good network of railway, significant capacities on electric generation, cable telecommunications.

Legal basis

Continuous work for creating favorable investment climate is performed in the country. The set of measures on improving of legal basis is assumed. The draft laws “On investment activity” and “Оn special economic zones” are prepared.

The legal basis of tax system in the country is The Tax Code of Azerbaijan Republic which came into force on January 1, 2001. Recently in the tax system the following changes have taken place:
• Tax on income of enterprises and organizations is reduced from 35% tо 25%:
• VAT is reduced from 28% tо 18%;
• Maximum level of taxes collected from individuals is reduced from 55% tо 35%;
• Payments on social insurance are reduced from 40% до 27%;
• The total tax number is reduced from 15 tо 9;
• Beginning from 2001 entrepreneurs dealing with agriculture are exonerated from all kinds of taxes, except for land tax, for 3 years;
• Beginning from 2003 with the aim of further stimulation of entrepreneurship in country’s regions differentiated tax rates on income are imposed.
With the aim of elimination of double tax, mutual encouragement and investment protection
Azerbaijan signed a number of agreements with foreign countries, including France, Austria, Great Britain, Norway, Turkey, Kazakhstan, Moldova, Russia, Ukraine, Georgia, Uzbekistan, Belarus.
Until recently foreign investments were attracted successfully mainly in oil sector. In oil sector foreign investments were realized most actively in development of industrial and social infrastructure, municipal service. Big investments in building were realized by Turkish companies.

At present time strategic priorities for investing in Azerbaijan are:
• Investments in processing of growing volumes of agricultural products;
• Investments in creation of highly effective infrastructure, in particular, in energetics, telecommunication services, in systems of water and gas supply;
• Investments in expansion and renewal of branches of industry maintaining oil sector;
• Taking into account colossal resources of Azerbaijan for gas production, development of branches basing on gas is perspective.
Oil incomes of the country are considered as the source of long-time and stable development of economic potential. That is why incomes of Azerbaijan from oil export are saved in Oil Fund. The government underlines the development of oil sector attracting foreign capital. Foreign investments are considered as the means of import of modern technologies, competitive recovery of Azerbaijan’s economy.

Georgia

Within recent years Georgia has turned into dynamically developing country with one of the largest in the world rate of growth (in the best year 2007, according to IMF, growth rate of GDP was over 12%, with the starting point practically equal to zero). If in 2003 in state budget of Georgia there were only $400 Mio, in 2009 – $4 billion. American Agency of international development has determined these reorganizations as «the widest, deepest and quickest reforms, held by any country in the world during the last 50 years».

Among the most important constituents of Georgian changes are the following:

1) sharp liberalization of its economy – the state regulation in all spheres of life was really minimized in the country. In terms of this policy:

* during the short period of time 84% of licenses and permissions regulating doing business by the state were invalidated, and this process goes on. Only licenses for important kinds of activity, for example, concerning people’s health, were remained.
* now the property and business are registered by “one contact” principle.
Georgia’s success in creating favorable regulating climate this year was honored by the World Bank, which determined the 11th place in the world rate of easiness of business dealing (several years ago the country placed 59th rate). In this rate Georgia is in advance of Switzerland, France, Germany and Japan;
* Georgia liquidated: Sanitary-Epidemiological Station, fire inspection and dozens of regulating bodies parasitizing on business;
* The number of taxes was abolished and the rest were lowered (from 21 kinds of taxes to 6 – income tax – 20%, VAT, excise tax, real estate tax and customs duty). By the way, the number of custom tariffs was reduced to 2 rates (0% and 12%), before that there were 16 of them and they reached 30%. For import of 90% goods there was established 0% customs tariff. The customs does not deal with knocking out of taxes, but controls sales volume, supporting local manufacturers by moderate protectionism.
* Customs procedures are simplified radically, data bases are open, there are strict standards of response to citizens’ appeals.
Fiscal load on business in Georgia makes 26. In general, it is no coincidence that last year Forbes called Georgia the most liberal regime of Europe and the 4th in the world after Qatar, UAE and Hong Kong on easiness of taxpaying.
As a result, the favorable business-climate was created in the country. Today it is possible to register foreign company there quickly and easily – only four procedures taking four days. Conditions of company registration are equal for residents and non-residents. Foreigners can work without permission, restrictions for the right of repatriation of capital. There are no restrictions for foreigners on property for city real estate or land;
* simultaneously and parallely the regime of tax collection was hardened;
* radical and large-scale privatization was held. Beginning from 2003 in the small country there was privatized about 4 thousand objects for the total amount $1,38 billion (among investors there are Arabians, Turks, Ukrainians and, of course, Russians dealing, for example, with manufacture and distributing of electric energy).
* strict social policy. In the country there were almost liquidated free medicine, accommodation and other social programs.
2) fight against corruption
– the total combing and reduction of state machine (for 20%), which allowed simultaneously significantly to raise salaries, for example, minister’s salary, 15—20 times;
– the rights and power authorization of officials of state machines are narrowed significantly and liquidated;
– hundreds of officials (mayors, governors, ministers, judges) were arrested for corruption, which was done publically, on-camera. Presumption of innocence was not considered, and they were allowed to buy off the punishment;
* reformation of traffic police;
* reform of Ministry of Internal Affairs held on analogy with reformation of traffic police.
The country became the least criminalized and corrupted in the region. Moreover, according to Transparency International, Georgia is the leading country of the former Soviet Union (except for Baltic countries).
3) authoritarian political system
Now the president has almost unlimited power:
– constitutional majority in Parliament is controlled by a pro-presidential party “United national movement”;
– the power fully controls the court system of the country;
– opposition, hopelessly split into the number of small parties, struggling and hating each other, does not represent anything serious;
– witch-hunt. Opposition states that Georgian prisons are full with political prisoners;
– power control over TV and Mass Media;
– severe criminal law;
– 11% of state budget go for the needs of Ministry of Internal Affairs;
– finally, amendments to constitution are already prepared, according to which president’s authority in 2013 must come partially to parliament, and partially to President.

Georgia’s privileges for investors

Though by the quality of investment climate Georgia has drawn out in comparison with many post-Soviet countries, now investors beware to invest serious money in the country. Meanwhile, the World Bank calls Georgia one of the most open countries for foreign investors. According to Index of Economic Freedom, Georgia takes the 26th place among 183 countries. Georgian economists are sure that in 2010 VAT will be over 6%. These facts are an important motivation for potential investors. For their more active participation in Georgian economy the government promises:
* to introduce privileged taxes for IT companies: foreign companies will pay taxes in minimal size;
* to develop forgotten but potentially profitable source of income – tourism. Ambitious plans are declared – to attract in some years five million tourists. Now ramshackle, blasted tourist bases and health resorts need serious investments;
* attract attention to advantageous geographic position of the country as an important economic assets. In fact, arteries connecting East and West, Asia and Europe go through Georgia, it is an important link of numerous transit projects – NABUCCO, transportation of liquid and pressure gas;
* considering significant hydro-resources of Georgia, the country can turn into producer of cheap electric energy.
According to preliminary data of Statistic Service of Georgia (Sakstati), published on December, 14, the inflow of direct foreign investments in Georgia in the third quarter 2010 has reduced by 7,3% in comparison with analogue period of the last year and was equal to $ 160,4 Mio.
As a result, the volume of investments for January-September 2010 was equal to $ 443 Mio, that is 6,6% less than rate of analogue period for the last year.
In the third quarter 2010 most of direct investments in Georgia came from Netherlands – $ 27,9 Mio; USA – $ 21,6 Mio; Russia – $ 18,6 Mio, Azerbaijan – $ 16,2 Mio and UAE – $ 13,5 Mio.
The biggest part of direct foreign investments – $ 49,7 Mio. (31%) in the third quarter was attracted to financial sector; followed by transport and communication branches – $ 40,5 Mio. (25%); real estate – $ 33,6 Mio. (21%) and energy sector – $16 Mio. (10%).

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