Georgian National Investment Agency 2013

MANUFACTURINGMANUFACTURING

IN IN GEO

MANUFACTURING SECTOR

OVERVIEW:OVERVIEW:

• Manufacturing and industries account for around 14% of GDP and ~ 5% of employment

• Largest industries are food and beverages (3% of total GDP) and metal products (2.5%)

• Advantage to process goods - competi ti ve cost of power, labor and strategic locati on

• 2 Free Industrial Zones - In FIZ, businesses are exempted from all tax charges except Personal Income Tax

OPPORTUNITIES:OPPORTUNITIES:

• Large import overhang in goods that are usually not traded extensively provides regional import substi tuti on potenti al in food processing, constructi on materials, household gods etc

• Georgia’s current advantages in terms of handling large transshipment fl ows, business stability, low cost of power generati on and existi ng raw materials/intermediate products provide opportuniti es for large industrial bets, like producti on of iron and steel products, aluminum etc

Poti

Batumi

Armenia Azerbaijan

Russia

Turkey

Black Sea

Kutaisi

MRN Railway

Kulevi

Tbilisi

FIZ FIZ

Mestia

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VESTORGIA

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MANUFACTURING SECTOR

INDUSTRYINDUSTRY PRODUCTION VALUE PRODUCTION VALUE AND VALUE ADDAND VALUE ADD

TOP 3 PRODUCTS TOP 3 PRODUCTS (VALUE ADD)(VALUE ADD)

TOP 3TOP 3 EXPORTS EXPORTS

TOP 3 TOP 3 COMPANIESCOMPANIES

Producti on value

VESTRGIA

297

260

90

47

170

47

43

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Value addUSD milions, 2011

IN IN GEO

N IN GEOIN GEO

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MANUFACTURING SECTOR

GROWTH OF SECTOR VALUE ADDCAGR,2006 - 10

CURRENT INDUSTRIAL BASE

Food and metals industry provide the largest industrial base for Georgia, while textile industry, Food and metals industry provide the largest industrial base for Georgia, while textile industry, transport equipment and metals growing strongesttransport equipment and metals growing strongest

1,000

SIZE OF SECTOR VALUE ADD USD mn

10010N G

Textile & Leather

Transport equipment

Wood products

Mineral products

Chemicals

Machinery & equipment

Plastics

Paper & pulp

Food & beverages

Metals

VESTORGIA

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TRADE BALANCE IN GEORGIA AND IN THE REGION

IMPORT OVERHANG, USD IMPORT OVERHANG, USD mlnmln, 2011 , 2011 TRANSPORTATION TRANSPORTATION COSTCOST

VESTRGIA

IN IN GEO

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SEVERAL HIGHLY ATTRACTIVE IMPORT SUBSTITUTION OPPORTUNITIES

Constructi on - Building materials

Constructi on - Finishing elements

Food processing

Packaging

SECTOR PRODUCT GROUP PRODUCTS SECTOR PRODUCT GROUP PRODUCTS

• Arti cles of cement and steel

• Arti cles of wood

• Ceramic products

• Glass & glassware

• Furniture

• Beverages and spirits

• Preparati ons of fruits and vegetables

• Dairy and eggs

• Meat

• Plasti c packaging• Paper packaging

• Prefabs

• Ready-mix concrete

• Bricks

• Finished arti cles of steel

• Plywood and laminated wood

• Tiles • Sanitary ware

• Windows • Glassware

• Doors • Living furniture

• Bott ling

• Fruit juices • Jams• Vegetable oils

• Milk • Cheese • Butt er • Yogurt• Poultry/Beef/Pork/Lamb

VESTORGIA

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SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES

OPPORTUNITY CURRENT ADVANTAGES TO BE LEVERAGED POTENTIAL FOR GEORGIAOPPORTUNITY CURRENT ADVANTAGES TO BE LEVERAGED POTENTIAL FOR GEORGIA

ALUMINIUMALUMINIUMINDUSTRYINDUSTRY

IRON AND STEEL IRON AND STEEL PRODUCTIONPRODUCTION

COPPERCOPPER

POLYMERS & POLYMERS & OTHER PLASTICSOTHER PLASTICS

• Large transshipment fl ows of raw materials/input (Bauxite) and aluminium cross Georgia to/from Tajikistan (largest aluminium plant in Central Asia)• A lot of water recourses and large hydropower plants in the pipeline

• Georgia mines Manganese ore• Georgia produces ferro alloys, largely for export (USD ~250 mn)• Large imports of iron and steel products to Georgia (USD ~300 mn) and neighboring countries

• Georgia and Armenia export copper ores, copper waste and scrap• Import overhang of copper products (alloys and fi nal products e.g. wire, tubes, pipes) amounts to USD ~200 mn in the region

• Import overhang of plasti c products amounts to 230 mn in Georgia and 8 bln in the region• Georgia transships large fl ows of petroleum products

• Value chain integrati on- Producti on of aluminium- Producti on of aluminium products (fabricated or end products)

• Verti cal integrati on of value chain by adding producti on of iron and steel and related end products• Regional import substi tuti on

• Producti on of copper alloys and end products (regional import substi tuti on)

• Plasti cs and petrochemicals producti on (regional import substi tuti on for plasti cs/rubber)

IN IN GEO

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OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES - ALUMINUM EXAMPLE

LEVERAGING TRANSSHIPMENT FLOWS, GEORGIA CAN INTEGRATE INTO A LEVERAGING TRANSSHIPMENT FLOWS, GEORGIA CAN INTEGRATE INTO A GLOBAL VALUE CHAIN OF ALUMINUM PRODUCTION.GLOBAL VALUE CHAIN OF ALUMINUM PRODUCTION.

• Tajikistan Aluminium Company (TALCO) is l argest aluminium manufacturer in Central Asia- Total producti on 300-400 k tons, ~1% of global producti on- Using ~40% of Tajikistan’s power generati on (largely hydropower)• No domesti c bauxite/alumina, all imported (mostly from Ukraine, Azerbaijan, Kazakhstan)• Export of raw aluminium to Europe, Turkey, CIS, China, accounti ng for ~40% of all exports of Tajikistan

+use/create+use/createcomplementariti escomplementariti eswith transport & with transport &

power sectorspower sectors

Current value chains in aluminium production use Georgia as transit country … … offering opportunity for integration upstream

… or downstream

VESTORGIA

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OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES - ALUMINUM EXAMPLE

• Producti on of - Foundred and fabricated aluminium - End-user products for import substi tuti on (e.g. constructi on material, packaging) - End-user products with complementariti es to other sectors (e.g. containers for transportati on)• Producti on capacity and investment size depending on selected products

• Producti on capacity: ~300 k tons aluminium• Investment size: USD 250-500 million• Power consumpti on: 4-5 TWh (~15,000 kWh/t), current generati on in Georgia ~11 TWh• Market assessment - Globally growing demand mainly from emerging economies - Current surplus capacity uti lized by 2016 - Target market with cost advantage: Europe/Turkey

Upstream integration (aluminium production)

Downstream integration (production of aluminium products)

OPPORTUNITY EVALUATION AND SIZING OPPORTUNITY EVALUATION AND SIZING

IN IN GEO

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Despite hosti ng some of the crucial resources, Georgia currently only integrates the fi rst step of the iron & steel value chain …

Existi ng producti on off ers opportunity for further value chain integrati on

SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENTFLOWS AND RESOURCES – EXAMPLE OF IRON AND STEEL PRODUCTION

Current value chain Verti cal integrati on of value chain

Chiatura Manganese ore mines• Mining 1.18 mn tons of manganese ore• Extracti ng 400 k tons of concentrate

Zestafoni Ferroalloy plant• Producing ~180 k tons of Ferrosilicomanganese (FeSiMn) and Ferromanganese (MC FeMn)• Own power supply from Vartzikha HPP (55 MW)

Export of ferro alloys, amounti ng to USD ~250 mn

Imports of iron and steel products to Georgia, amounti ng to USD ~300 mn, but also to neighboring countries

Producti on of iron and steel and related end products

Internal consumpti on/regional import substi tuti on

Export of iron & steel products4b

1

2

3

4

3

4a

Mining Ferro alloy producti on

Iron and steel

producti on

Iron and steel end product producti on

MiningFerro alloy producti on

Iron and steel

producti on

Iron and steel end product producti on

IN IN GEO

INVESTIN GEORGIA

GEORGIAN NATIONALGEORGIAN NATIONALINVESTMENT AGENCYINVESTMENT AGENCY

www.investingeorgia.orgwww.investingeorgia.org

E-mail: enquiry@investi ngeorgia.orgPortf olio Manager: Kristi ne MeparishviliE-mail: kristi nem@investi ngeorgia.org