Investment Opportunities in Apparel

and Textile industry of Georgia

Georgian National Investment Agency

(GNIA)

2016

Area: 69,700 sq km

Population: 3.7 mln

Life expectancy: 75 years

Official language: Georgian

Literacy: 100%

Capital: Tbilisi

Currency (code): Lari (GEL)

GEORGIA - COUNTRY OVERVIEW

GDP 2015 (E): USD 14 billions

GDP real growth rate 2015 (E): 2.8%

GDP CAGR 2010-2015 (GEL) (E): 5.6%

GDP per capita 2015 : US$ 3743

Inflation rate 2015 : 4%

Total Public Debt to Nominal GDP (%) 2014 :

35.5%

2

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3GEORGIA OFFERS INVESTORS:

A politically stable investment destination

Efficient, pro-business and corruption-free government

Enlargement of market size by Free Trade Agreements

Competitive cost of labor and energy

Entry gate in the region

Solid sovereign balance sheet

Stable banking sector

16th most secured country in the world

BB- Stable

BB- Stable

Ba3 Positive

*

*

*

*

*

*

*

*(Global Competitiveness Index -2015/2016)

4ECONOMIC STRUCTURE AND TRENDS

GDP: Strong rebound after a relatively small contraction in 2009

Source: Geostat, MOF

Growing GDP per capita (USD)

Source: Geostat, MOF

11881484

1764

2315

2921

24552623

32313523 3600 3676 3743

0

500

1000

1500

2000

2500

3000

3500

4000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Diversified nominal GDP structure in 2015

Source: Geostat, MOF

Favorable public debt situation

Source: Geostat, MOF

Agriculture, forestry and

fishing9.2%

Industry16.5%

Construction8.0%

Trade; Repair of goods16.6%Hotels and

restaurants2.5%

Transport and Communication

10.7%

Real estate, renting and

business activities

6.6%

Public administration9.3%

Education4.9%

Health and social work

6.0%

Other sectors10.0%

40.0%32.2%

25.5%31.2%

41.0% 42.4%36.5% 34.9% 34.7% 35.5%

26.8%21.1%

16.8%23.5%

31.7% 33.6%28.8% 27.6% 27.2% 26.8%

0%

20%

40%

60%

80%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Public Debt to Nominal GDP (%) External Public Debt to Nominal GDP (%)

5.8%

9.6% 9.4%

12.6%

2.4%

-3.7%

6.2%

7.2%6.4%

3.4%4.6%

2.8%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Real GDP growth, y-o-y (%)

5

Free Trade Agreements with

~ 900 million market

and access without Customs Duty

GEORGIA

LIBERAL TRADE REGIMES

* Very simple and service oriented customs policy and administration – customs clearance in 15 minutes

* ~80% of goods free from import tariffs

* No quantitative restrictions

PREFERENTIAL TRADE REGIMES:

* FTA with Turkey and CIS countries (Russia,

Ukraine, Kazakhstan etc.)

* DCFTA (Deep and Comprehensive Free

Trade Agreement) with EU was singed on

June 27, 2014

* GSP agreement with USA, Norway,

Switzerland, Canada, Japan

* Member of WTO

6TAXATION - SIMPLE, LOW, EFFICIENT AND FAIR

* No payroll tax or social security tax

* No capital gains tax

* No wealth tax and inheritance tax

* Personal income tax for interest, dividend, royalty – 5%

* Foreign-source income of individuals fully exempted

* Accelerated depreciation on capital assets

* Loss carry forward for corporate profit tax purposes (10 years)

* No restrictions on currency convertibility or repatriation of capital & profit

* Double taxation avoidance treaties with 52 countries

Number of Taxes 6

Corporate Profit Tax 15%

Personal Income Tax 20%

VAT 18%

Customs/Import Tax 0%, 5% or 12%

Excise Tax Depends on goods

Property Tax Up to 1%

* Competitive Labor Cost

* Availability of Skilled Workforce and Customized Trainings

* Free Trade Agreement with Turkey and CIS countries

* Deep and Comprehensive Free Trade Agreement (DCFTA) with EU

* Low Production Costs

* Good Transportation Links to CIS Countries, Europe and Asia

* Rich History in the Apparel and Textile Sectors

APPAREL PRODUCTION FACTORIES IN GEORGIA

7WHY GEORGIA

* Georgia has a rich history in the apparel and textile sectors, dating back to Soviet times

* Georgia produced high quality silk and wool blend fabrics

* After the collapse of the Soviet Union, Georgia’s textile and apparel sectors fell on difficult economic times

* The sector emerged in 2004. Turkish investors, interested in the skilled and competitive labor cost, cheap land, low

energy costs, good transportation links, attractive business environment found in Georgia, began investing in

apparel sector

8SECTOR OVERVIEW

Historical Background

Industry Size

* Seven large Turkish manufacturers

* Ten large Georgian manufacturers

* More than 200 micro enterprises

Key Markets

Served

Turkey, CIS and the EU

Georgia is currently producing apparel for international

brands including Tommy Hilfiger, Zara, Moncler, Marks &

Spencer, Koton, Puma, Mexx, Next, George, Miss Etam,

Lotto, Per Una, Autograph, Lebek, Hawes & Curtis,

Dainese, Primark etc

Key ProcessesCut, Make, Trim (CMT), made to order, boutique and

high-end fashion

9APPAREL SECTOR OVERVIEW

* Very simple and service oriented

customs policy and administration

– customs clearance in 15 minutes

* No quantitative restrictions on import

and export

* No customs tariff on export and

re-export

* No VAT on export

* Preferential trade regimes with major

trade partners

MAIN FEATURES OF TRADE

67.1

88.5

133.7

76.9

120.5

158.3 164.8 165.2179.4

145.9

11.6 14.9 19.8 24.0 28.0 26.142.2

60.2

89.277.5

0

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Import of apparel, USD millions Export of apparel, USD millions

18.522.6

38.6

54.460.6

86.6 79.990.2

1115.2

23.130.5

35.9

52.4 48.151.1

0

20

40

60

80

100

2007 2008 2009 2010 2011 2012 2013 2014

Production of apparel, GEL millions Production of apparel, USD millions

10TRADE AND PRODUCTION OF APPAREL IN GEORGIA

11LABOR AVAILABILITY

* Average monthly salary in apparel industry for blue-collar workers - 265 USD/month

* Unemployment rate – 12.4%

* Young labor – 50% of unemployed population are aged between 20-34

* Flexible Labor Code

* According to Heritage Foundation, Georgia ranks 26th on Labor Freedom Index

* All ILO core conventions are ratified by Georgia

* There are five state owned Vocational Education Training Centers around Georgia

(Tbilisi, Kutaisi, Poti, Ozurgeti and Batumi) providing professional courses in cutting,

sewing, constructing cloth, technical fashion design and other practical subjects used

in the apparel/textile Industry. Most of the course’s fees is financed by the

Government of Georgia. In case of investor’s request, customized training is available

for new companies/factories

Higher Education System of Georgia

12UTILITY COSTS

CategoryGEL kwh including

VAT (18%)USD kwh including

VAT (18%)

Tbilisi:

220/380 volt (average) 0.198 0.087

6–10 kv 0.153 0.067

35 – 110 kv 0.140 0.062

Kakheti region

220/380 volt (average) 0.175 0.077

6–10 kv 0.165 0.073

35 – 110 kv 0.130 0.057

Other parts of Georgia:

220/380 volt (average) 0.199 0.088

6–10 kv 0.142 0.063

35 – 110 kv 0.136 0.060

Upper marginal rates of power

CategoryGEL/m3

including VATUSD/m3

including VAT

Tbilisi: 4.400 1.938

Drinkable water 3.555 1.566

Sewerage system water 0.845 0.372

Other parts of Georgia (there are few exemptions):

4.307 1.897

Drinkable water 3.375 1.487

Sewerage system water 0.932 0.411

Maximum rates of water

Electricity:

* Government of Georgia has determined maximum rates of electricity in

Georgian Lari (GEL). The rates are different according to regions of Georgia and

voltages

* Factories consuming more than 1 million kwh per year (1 kwh per year from

2017) can be registered as direct consumers. They can purchase electricity

directly from energy producers and negotiate on any price

* Connection fee is abolished, if the company needs 35-110 kv voltage level

Gas:

* Gas rates (for industrial use) are deregulated by Government, which means

private company can choose the supplier of gas (currently there are 37 gas

supplier companies) and negotiate tariffs with them. Approximate average gas

costs are 0.37 – 0.42 USD/m3 (including VAT).

Water:

* Maximum rates of drinkable water and water for sewerage system are also

determined by GovernmentExchange rate in 2015: 1 USD = 2.2702 GEL

BTM Textile

* Production range: women's coats, skirts, trousers,

shirts, short coats, knitted shirts and children's

clothes

* End buyers: Tommy Hilfiger, Marks & Spencer, Zara,

George

* Number of employees: 750

* Parent Company: ATK Textile

Batumi Tex Georgian Textile

* Production range: sweaters , shorts, underwear, t-

shirts

* End buyers: Marks & Spencer, Howes & Curtis

* Number of employees: 700

* Parent Company: Low Profile & Greenoak Group

* Production range: sports & leisure wear

* End buyers: Kik, Libra, Primark

* Number of employees: 500

Adjara Textile

* Production range: sports & leisure wear,

sweaters, shorts, underwear, t-shirts

* End buyers: Puma, Lotto, Erima, Adidas, Nike

* Number of employees: 2000

* Parent Company: Milteks Group

13LARGE TURKISH INVESTORS IN APPAREL SECTOR OF GEORGIA

14INCENTIVES AND ACCESS TO FINANCE

PARTNERSHIP FUND

– 100% state owned fund

– Operating fields: Energy; Hospitality & Real Estate, Manufacturing, Agribusiness

– Finances up to 49% of equity in new investment projects

GEORGIAN CO-INVESTMENT FUND

– USD 6 billion private equity fund

– Investment sectors: Energy & Infrastructure, Hospitality & Real Estate, Manufacturing, Agriculture, Logistics

– Minimum Project Size: USD 5 M

– GCF equity stake in projects: 25%-75%

PRODUCE IN GEORGIA

Mission: supporting of manufacture and agriculture industries

Government offers:

– Subsidies for loan interest payment

– Free lands/buildings for factory construction

FREE INDUSTRIAL ZONES

Four Free Industrial Zones (FIZs) operate in Poti (sea port), Kutaisi(second largest city) and Tbilisi (capital city)

If a company produces goods for export in FIZ, it is exemptedfrom all taxes except Personal Income Tax (20%), which is paidfrom employees’ salaries

Successful Cooperation with International Financial Institutions

STATE AGENCY

* Promoting Georgia internationally

* Supporting foreign investments and investors

before, during & after investment process

“One-stop-shop” for investors

Moderator between Investors, Government and Local

Companies

GEORGIAN NATIONAL INVESTMENT AGENCY15

01.

0 2.

0 3.

Government

Local

Companies

Mission - Attracting Greenfield and M&A Investments

Investors

GNIA

16WHAT YOU CAN GET FROM GNIA

COMMUNICATION - Access to Government at all levels/Local partners

INFORMATION - General data, statistics, sector researchesi

ORGANIZATION - Organization of site visits & Accompanying investors

AFTTERCARE - Legal advising & Supporting services

THANK YOU !

gpertaia@investingeorgia.org

Giorgi Pertaia, Director GEORGIAN NATIONAL INVESTMENT AGENCY

www.investingeorgia.org

7 Bambis Rigi, Business Center Mantashevi, II floor 0105, Tbilisi, Georgia

Tel: (+995 32) 2 473 696

E-mail: enquiry@investingeorgia.org