Georgia posted record FDI growth of 99% y/y to US$ 507mn in 3Q14 as its business-friendly environment continued to attract foreign investors. The strong FDI and stable economic framework eased depreciation pressures and the lari has recovered somewhat against the dollar last week, strengthening by 6.2%. While the external environment remains weak, the Georgian economy’s flexibility and lower oil prices mean the outlook for the economy is healthy. The government has taken some prudent decisions: discussions about elimination of the tax-free threshold for personal income tax have been initiated and the 2015 state budget, which contains prudent fiscal parameters, has been approved. The fiscal deficit is planned at 3.0% of GDP, public debt to GDP at 37.2%, current expenditures are almost flat in real terms, and growth-enhancing capital spending increases by 19% y/y. These developments, along with the EU DCFTA (free trade agreement), support Georgia’s sustainable economic growth outlook.
FDI increased 99% y/y in 3Q14 (237% q/q) to US$ 507mn, or 11.8% of GDP, a six-year high, driven by the construction sector (36% of total), the transport and communication (21%) and real estate (12%) sectors.
China topped the list of investors with US$ 149mn (29% of total), with Azerbaijan coming second at US$ 95mn (19%). FDI from Russia remained limited, amounting to US$ 16mn or just 3.2% of the total.
Georgia’s business-friendly environment coupled with its sustainable growth prospects continues to attract foreign investment. Along with planned investment programs of cross-country significance: oil and gas pipelines, railway networks, the Anaklia deep sea port and hydro energy projects, Georgia’s business-supportive environment and the EU DCFTA being in place are attracting new investment and will lead to further strong FDI inflows to Georgia in the medium term.
