In a large grassy field a few kilometers from Georgia’s Black Sea port of Poti lies a Free Industrial Zone that Georgian President Mikheil Saakashvili in 2008 predicted would help transform Georgia into the “Dubai or Singapore” of the Caucasus. Now, more than two years later, the Poti zone is under pressure to meet those expectations.
Run by the United Arab Emirates’ RAK Investment Authority (RAKIA), Poti’s Free Industrial Zone (FIZ) is a $27-million investment that offers exemptions from profit tax and value added tax on imports and exports, and low-priced leases ($6 to $12 per square meter).
Over the past 18 months, 22 companies, ranging from a Georgian wood processing plant to an Indian consulting company, have committed to setting up operations within the 300-hectare zone. The number is less than half of the 50 investors RAKIA had hoped to attract in time for the zone’s launch.
The official opening has been delayed several times, the latest delay coming in July, when President Saakashvili and Prime Minister Nika Gilauri cancelled their appearance two days before the ribbon-cutting ceremony. The unveiling is now tentatively planned for September.
A recent visit to the zone by a EurasiaNet.org correspondent found few signs of activity by investor companies. Only a customs office, truck-weighing station and large fence had been erected. The zone’s general director, Dr. Satya Kumar Chatterji, asserted that construction will get underway by the end of 2010.
A United Arab Emirates-based firm, Emirate Express Consultancy, which helps companies move into FIZs worldwide, was the first company to pay the $3,300 registration fee and obtain a license to set up shop in Poti’s FIZ. Past experience working with RAKIA in Middle East FIZs prompted the decision to come to Poti, said Emirate Express Managing Director Harshan Nair. “[W]e were confident that it would have the same qualities and business potential,” Nair said of the Poti FIZ.
RAKIA hopes that other investors will follow suit, but Chatterji concedes that Georgia’s 2008 war with Russia, along with the global financial crisis later that year, put a “dent” in investors’ response to the zone. “We were struck two times: one was this conflict, the other was this economic slow-down,” said Chatterji. “Now, we can only go up.”
Next month, the company plans to start a major marketing campaign in India and China. Road shows in Germany and France are also planned for this year. In addition, the company has taken out some ads in major business publications in India and the United Kingdom. Recent Georgian government commercials on CNN and the BBC, which prominently feature other RAKIA investments in Georgia, also were designed to lure investors, according to Chatterji.
The marketing campaign could potentially have an “important” influence in boosting the Poti FIZ’s prospects, said Tbilisi-based investment consultant Stephanie Komsa.
Alice Mummery, an economic analyst for the region at the Economist Intelligence Unit in London, said the zone’s low lease costs and lack of taxes on profits could be a “useful mechanism” for attracting investment to Georgia. The trick could lie in making Poti stand out from regional competitors – particularly in Turkey, which is home to nearly a dozen FIZs. “Normally, the people who look at this area would like to be based in Turkey. So, we are saying if you want to go to Turkey, you might as well come to Georgia,” Chatterji elaborated.
Bringing in American investors – a frequent target for Georgian investment because of the warm ties between Tbilisi and Washington – is proving to be a challenge. “To attract US businesses in Georgia, it is, to be honest, not an easy thing to do because … there should be some link for them with the region,” commented Giorgi Gvalia, a senior investment officer at Velstand & Erfolg, a Tbilisi-based financial services company. Security risks remain a big obstacle to US investment, Gvalia continued.
Gvalia noted that he is working on a “few” possible American investments -- including a multimillion-dollar IT company investment -- but cautioned that it is too soon to guarantee a deal.
RAKIA’s Chatterji concedes that the firm is under some “pressure” from the government to bring in more investors, but believes that the FIZ’s success is a matter of momentum. “When you have 15-30 factories actually coming up, operating, all these doubts will go away,” he said.
Molly Corso is a freelance reporter based in Tbilisi.