A New Concept of Industry for the Region

With more and more countries announcing the establishment of special economic zones, in an effort to catch-up or replicate the inspiring successes of the Shenzhen (China) or Jebel Ali Free Zone (UAE), the key question is: what is it that truly makes them “special” and what is their recipe for success?

IN MID-2017, THE US-GEORGIAN CONSORTIUM in charge of the development of the Anaklia Deep Sea Port announced the commencement of a spin-off project that seeks to transform the hinterland of the future port into the first Special Economic Zone (SEZ) in Georgia. The Georgian government extended its support for the initiative by amending the constitution and thus defining Anaklia as territory with special legal/regime status.

Anaklia Deep Sea Port, the construction of which, was commenced last year, is expected to be operational by the end of 2020 and is being promoted as one of the country’s major strategic infrastructure projects that will be utilized to help revitalize Georgia’s role as a major transportation and transit corridor for the region.

The port is positioned to become the primary transportation corridor used to accommodate cargo flows between the addressable markets of the Caucasus, Central Asia and the northwest of Iran. In total, the area represents the primary and secondary consumer markets of over 140 million people with a net economy worth nearly USD $1 trillion. In addition, the area is projected to have a high pace of economic growth with a longterm outlook. Moreover, with the ongoing and planned development of infrastructure along the Caucasus and Central Asia regions, the project has ambitions to serve the cargo flows between the largest consumer markets of Europe and Asia, becoming a vital part of the New Silk Road corridor.

During the groundbreaking ceremony held in December of 2017, it was announced that the kickoff of the Anaklia port project represents a new step towards Georgia’s transformation from a transit country into a country of production, logistics and industrial development, while the Anaklia SEZ is set to become the flagship and driver of this ambition.

Although, the overall concept for the Anaklia SEZ is larger and more holistic, encompassing the development of various industries and a brand new urban agglomeration on the Georgian Black Sea coast, the logistics and industrial section of the zone is envisaged as the initial economic engine and supplement to the Anaklia Deep Sea Port.

The project aims to utilize the unique mix of competitive advantages and opportunities that will grow along with the commencement of the new state-ofthe- art port and road and railway infrastructure to be arranged by the state. Anaklia port’s ability to handle larger vessels coupled with extensive investment on behalf of the government in upgrading the infrastructure through the country will significantly enhance the competitiveness and capacity of Georgia as a transit corridor. This will eventually lead to the growth in demand for transportation and logistics services to accommodate the new cargo flows for the immediate and wider region. Beyond that, this new infrastructure will accelerate the opportunities for local, regional and international companies, helping them to capitalize on Georgia’s free trade access to markets comprised of over 2.3 billion consumers (EU28, EFTA countries, Turkey, CIS region and China) and upgraded quality infrastructure approximated to European standards. Currently, Georgia is the only country is the region that offers such a comprehensive and diverse mix of free trade   deals, which could one day become a trade and business bridge between the European Union, China and CIS markets.

To expedite this process, the Anaklia SEZ intends to introduce to Georgia anew concept and value proposition of modern industrial and logistics parks fully integrated with the deep-sea port, powered by the attractive regulatory framework/incentives, the use of cutting-edge technological solutions and managed by the leading international operator. The model is to create the kind of platform that will attract new, existing and emerging industries, currently not represented in Georgia and to ensure the future expansion and evaluation of these industries.

Currently, it’s almost impossible to find modern industrial real estate areas and facilities in Georgia, as the vast majority of the existing supply is old-Soviet properties, part of which have undergone renovation. Meanwhile, 2017 marked the record high for the Central and Eastern European region where up to 3.7 million square meters of newly-built in industrial and logistics space was supplied to the market. At the same time, the vacancy rates of such properties have decreased to a historic low of 5%, which reflects the significant demand for such facilities.

To address this gap, the first step was undertaken by procuring the leading professional consultancy consortium– the UK-based BuroHappold Engineering and Moffatt & Nichol – to study the demand and masterplan, as well as the industrial and logistics parks incorporating their experience from other countries and current trends of the industry. The masterplan and phased strategy will cater to the long-term development and growth of the zone. In addition, the Anaklia SEZ is undergoing active negotiations with leading industrial real estate development partners to become the co-developer of the parks, ensuring that the future facilities and infrastructure will meet the demands of local and international companies.

In addition, in order to foster and invigorate the development of logistics and industrial parks, the Anaklia SEZ will offer a regulatory framework based on the best working practices from the most successful SEZs in the world. The planned regulatory, fiscal and legislative framework will cover the full scope of the successful startup phase and, more importantly, the future development of the zone with diversified industries and services clusters. It aims to stimulate a secured business environment and provide incentives for the companies seeking to expand their business in the region. The first layer of regulations will focus on the streamlining of trade, wholesale, manufacturing, transport and logistics activities and providing the framework for transit, re-export, distribution, bonded storage, custom free processing and supply chains traffics for the clients. The zone will be eventually export oriented and driven, capitalizing on the numerous opportunities of the neighboring markets, as well as tariff free access to the markets of the European Union and China. At the same time, the second layer of regulations will introduce the international framework in terms of business environment, the protection of investments and dispute resolutions in accordance with the rule of law and many other attractive incentives for local and international business communities. The legal part for the Anaklia SEZ will be drafted by the consortium of the leading Georgian and international law firms, recently enacted as special Organic Law.

To ensure smooth development and operations, the team in Anaklia is in the process of securing a leading international operator for the zone to manage the parks and provide “one-stop-shop” services for all future clients and tenants. There are thousands of different zones in the world, but time has proved that an experienced operator plays a vital role in the success of the project, providing significant added value to the development process.

The above-mentioned pillars of establishment the zone and particularly the industrial & logistics parks were identified through the comprehensive negotiations with the multinational companies and study visits to the existing Special Economic Zones throughout the world. One of the key drivers currently missing in Georgia is a pool of adequately trained and skilled labor force to match the demand of the industry. For this purpose, the Anaklia team has already initiated cooperation with the Government of Georgia and international donor organizations to launch the projects to develop modern professional training facilities to prepare the local population for future employment opportunities. The zone will be designed to be attractive to both the international companies, as well as the Georgian business seeking to scale-up their activities to the wider region, become supply partners to the international companies residing in the zone and those who seek to internationalize their business. The goal is to establish an ecosystem where companies can focus on the expansion and internationalization of their core business, while all enabling services and infrastructure is being provided by the zone.

The Anaklia port project and the SEZ are envisaged to become a game changer in the transport and logistics sector, not only for Georgia, but for the regional corridor crossing the South Caucasus and Central Asian countries. However the agility of the process significantly depends on the stakeholders involved. To fully utilize the opportunities of the corridor, each country along it should play a more active role in the facilitation of the corridor’s competitiveness and attractiveness. The demanded measures to be undertaken towards integrated trade and transport facilitation are deepened through the improvement of border crossing points, harmonized transport tariff policies and customs simplification. The development of the route could serve as a catalyst for trade expansion and economic diversification in the entire region and shift the landscape of regional trade paradigms and dependencies.

ARTICLE IN GEORGIAN.

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