US Involvement Across Georgia’s Economy
THE UNITED STATES and US Companies are widely involved in the Georgia marketplace running businesses, investing, supporting infrastructure upgrade and, through US Government programs, working with the Georgian Government and the private sector to improve the entire economy. At the American Chamber of Commerce, we work through personal networks and public advocacy to support these developments, to build business connections between Georgia and the US, and to expand the network of US companies who know about and engage with the country.
US involvement can be seen across the whole economy, from extraction and export, oil and gas, transport and logistics, energy, tourism and retail. To run through a few examples, manganese has been Georgia’ a biggest export category for 5 of the last 10 years, responsible for $2.1 billion in exports from 2006-2015. Most of that has been done by Georgian American Alloys, a Florida based company.
In oil and gas, BP, which has its biggest group of investors in the USA, in addition to managing gas and oil pipelines, is currently engaged in an upgrade of its Southern Corridor gas pipeline; an investment worth $2 billion in Georgia alone. This will triple the throughput capacity of the pipeline and increase Georgia’s transit revenue. Meanwhile, Canargo and Frontera have been in Georgia for years engaging in gas and oil investigation and extraction.
In big infrastructure projects, Conti Group are partners with the TBC-led consortium to build Anaklia Port and Schultz Global Investment have committed to invest $100 million into small hydro-electric power plants and expect to start their fund early in 2017. AECOM and General Electric are also providing resource and consultancy in a range of infrastructure projects.
Beyond that, the American GMT Group, owners of the Marriott Hotels, are also responsible for the Funicular Complex of Investments and are currently building a newly branded hotel, and no-one can miss the recent explosion of American Brands in Georgia, from retail like Old Navy and Banana Republic, service provision, like Precision Auto Care, International Hotels including the Marriott, Radisson, Sheraton, Holiday Inn, Biltmore and Hilton and food, including McDonald’s, Wendy’s, Dunkin Donuts, Burger King, KFC, Subway, Domino’s Pizza and many others.
What challenges do these companies face? The most obvious challenge of the Georgian market is size. With a population of around 4 million, and a relatively low GDP per capita, Georgia’s domestic market is modest. Therefore, big investments are generally connected to industries like tourism, energy and transport and logistics as these are not constrained by growth in the domestic market.
But geography is also one of the country’s greatest assets.Clearly, the growth in tourism is connected to the country’s fantastic physical beauty and agriculture and hydropower rely on plentiful water resources.
Location is also key. Georgia has already demonstrated its value as a hub by the gas and oil pipelines that transit the country. However, the broader logic of the East-West Silk Road has huge potential. Trade between Europe and Asia was $1.8 trillion in 2014, and between China and Europe alone, was $589 billion. The Eurasia land-mass that the Silk Road travails represents 70% of the world’s population and around 60% of the global economy. Therefore, improving connections between the West and the East of Eurasia has the huge potential for improving inclusive economic growth in the region and the world. Similar reasoning can also be applied to North-South connections, particularly if the Iran deal holds.
The geographic benefits do not end with transit. While transiting the goods and services will be a great business opportunity for transport and logistics companies, and will provide transit fees to the government, the truly transformative opportunity offered by Georgia’s location, is in value-added activity. The combination of the EU market access provided by the EU Association Agreement, and good transit links to Asia and the Middle East, make Georgia a great place to produce goods that have inputs from the East but which are destined for the EU market. Value-added activity will be important as products will need to be stamped as ‘made in Georgia’ to get duty free access to the EU. This could lead expansion in local production.
But why is this relevant for the United States and US businesses? There are three main reasons. First, the recently announced plans for infrastructure upgrades on ports, rail and road which are essential for this trajectory of development will probably depend on US development firms, like Conti Group and consulting firms like AECOM and General Electric. This will further embed US capital in the region.
Second, the financing for these capital improvements will occur with American backing. Chief amongst the financiers of Georgia’s domestic infrastructure upgrades will be the World Bank, Asian Development Bank and possibly European Bank of Reconstruction and Development (EBRD). Each of these organizations has been lending huge sums to the Georgian Government and Georgian private sector for years. But don’t let the names fool you, the largest contributor and shareholder in World Bank, Asian Development Bank and EBRD is the US Government.
Third, US Government programs are also helping to facilitate reforms that can make economic growth more likely in Georgia. Two programs stand out. The US financed Millennium Challenge Corporation, following from discussions with Georgian businesses and the Georgian Government, is spending $140 million to upgrade school infrastructure, invest in vocational training and support and improve the education of Science Technology, Engineering and Maths. This is intended to help Georgia fill its skill gap, by generating a core group of highly trained engineers and technologists, and improve the prospects of value-added activity in the country.
The second program is USAIDs Governing for Growth (G4G) project. This project is working with organisations, including AmCham Georgia, to support public-private dialogue on issues of business climate reform. Using support from this project, Am- Cham is working with the Government of Georgia to engage on tax reform. This should help ensure that Georgia maintains its long track record of business oriented reforms, and maintains its place as by far the easiest place to do business in the region.
But in the final analysis, the biggest challenge that we face in attracting US businesses to Georgia is that the country continues to be off-the-beaten-track of US businesspeople. Whenever we have guests, whether businessmen or Congressmen, they are always surprised by the country; its beauty, its people and the amazing progress it represents. Therefore, as much as anything, at AmCham we see that our responsibility is to invite, encourage and cajole colleagues, government officials and business people to come and see Georgia for themselves, because when they do many, like us, find it hard to leave.