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Investors Allocate $705 million in Georgia

In the first half of 2016 investors put 834 million USD net foreign direct investments (FDI) in Georgia. A major part of the sum was directed to the transport and communications sector. Azerbaijan is reported to be the biggest donor. Despite elections, specialists expect the country to have attracted 1.5 billion USD investments by the end of 2016.

Investment inflows in the first half  exceeded the previous year’s analogical indicators by 11%. The second quarter’s net foreign investments (445 million USD) are down 4% compared to the second quarter of 2015. The statistics service has provided a bit strange explanation regarding the fact. The press release reads that the second quarter’s investment inflows have declined as compared to the final specified indicators, but the figure exceeds preliminary forecasts by 20%. Statisticians stress that inaccuracy in statistical information may be 3%, but it would be not be surprise if the Georgian statistics service publishes 10-15% inaccurate indicators.

As to the previous quarter, Georgia attracted 56 million USD more investments. Specialists suppose that the investment inflows growth tendency will be maintained in the next quarters too if the elections are held in peaceful environment and political tensions are prevented in the country.

Out of net foreign investments attracted in the second quarter, 256 million USD is stock capital. It should be also stressed that, as compared to previous quarters, reinvestments indicators have considerably increased – 146 million USD, while 42 million USD is debt.

“If the investor likes business environment, is not afraid of corruption burden, is sure of economic development perspectives in the country, then, instead of speculative debt operations, they create stock capital and make reinvestments. Under the previous Authorities, in the business racketeering period, we received economic system based  mainly on speculative investments, that is the fragile economy based on debts”, economist Mikheil Dundua said.

Economist Giorgi Ghaghanidze noted that investments are calculated in the wrong way in Georgia. Investment indicators should not be compared on quarter basis, like foreign trade indicators, he said.

“This is a wrong approach to investments. This is erroneous comparison. As a rule, we should be based on annual indicators. In countries like ours, in the election year, investments inflows are not high. This is axiom. For the first time, in 2012 the power was shifted peacefully by elections. Therefore, it is difficult that investors show much confidence in the Georgian economy”, Giorgi Ghaghanidze noted and added that Georgia has to hold at least three elections to deserve the confidence of mega investors.

The second quarter has not recorded significant outflow of capital from the country (about 260 million USD). At the same time, in the first quarter skeptics recorded an outflow of 953 million USD for reduction of liabilities before investors. As a result, more than 1.2 billion USD capital was taken out of the country in the first half. The Banks and Finances newspaper has recently covered this issue.

It should be noted that the volume of investments taken out of the country grows year by year. Profits repatriation is carried out mainly in companies founded by foreign investments, or these investments go out after a certain while. Consequently, the difference between  attracted and lost investments narrows gradually. According to the 2015 indicators, over the 5 past years, 4.5 billion USD capital was taken out of Georgia , while in the same period, the country drew only 6 billion USD. This signifies, in practice, investors take back all investments that they put in our country. Seemingly, they find reinvestments in Georgia  not very attractive.

Soso Archvadze,  doctor of economics, says that if we compare attracted investments to total indicator of investment profits and the capital taken by residents out of the country, we will receive more alarming picture. We will see that more capital goes out of the country, than comes. Namely, over the past 5 years, the country attracted 6 billion USD investments, but the capital outflow marked 6.5 billion USD.

Economic experts noted that when discussing economic condition and volume of resources of the country, we should take into account not only investments attracted from abroad, but their further fate too. Namely, at the next stage of production, profits raised from these investments remain in Georgia or they go abroad.

Academician Avto Silagadze noted that removal of profits tax  on reinvestments will be a good signal for investors. “Every year considerable funds go out abroad – hundreds of millions of USD. Introduction of certain tax preferences on turnover of this capital is very important so as the country maintain this capital”, Avto Silagadze noted.

As to sectoral investments, traditionally, investors have made major investments in the transport and communications sector (175 million USD). This is 39% of total investments. The finance sector ranks second with 60 million USD. The power sector is third with 46 million USD. The development sector is fourth with 19 million USD and the processing industry is fifth with 17 million USD.

Major volume of investments (146 million USD) was attracted from Azerbaijan and Britain (64 million USD). These investments are mainly composed of SOCAR and BP injections for the power sector development. Turkish investors put 28 million USD and 64 million USD was transferred from offshore zones – Panama, Netherlands, Cyprus.