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Investing in Georgia: An Emerging Economy?

Dawn over Tbilisi, Georgia

Sunrise over Tbilisi, Georgia

At the age of 12 my father bought my sister and me some shares in an investment trust called Aberdeen New Dawn. I remember the excitement of being given the prospectus and reading how the trust was investing in growth companies throughout Asia. The investment did well and fuelled my interest in overseas investing. Later, I read James Clavell’s novels Noble House and Taipan, tracing the fortunes of companies trading in the Far East. For me, the idea of investing in Emerging Markets has always appealed.

georgia map

I’ve recently returned from my second trip to the Republic of Georgia. This is the country where according to Greek legend Jason and the Argonauts found the golden fleece. Sitting in a strategic location, Georgia forms the bridging point between Europe and Asia – in fact it was on the ancient silk route. Still today, it is a major transit point for goods to the neighbouring countries of Azerbaijan, Armenia, Iran, Turkey, Russia and beyond across the Caspian Sea to Turkmenistan.

Georgia has natural resources of oil, gas, gold and valuable minerals such as manganese. Since independence from the USSR in 1989, the economy has taken a while to rebalance and the two wars with Russia over South Ossetia and Abkhazia did not help. However, despite these conflicts, the country has enjoyed high levels of GDP growth (see below). The economy has bounced back from the recession of  2009 -2.75%. Moreover, foreign investment is consistently on the rise (see below).

FDI Georgia. Source: National Bank of Georgia Inflation Report Q2, 2012

FDI Georgia. Source: National Bank of Georgia Inflation Report Q2, 2012

Georgia GDP Growth (OSCE, 2012)

Georgia GDP Growth (OSCE, 2012)

I’ve previously invested in Georgian oil. However, oil investments require large capex and more wells tend to be dusters than winners. On my latest visit I was asked to consider investing in tight oil plays USD1m for each well and if successful payback in 6 months. Horizontal wells, if successful, should yield 3.5 months payback. Unfortunately, with my limited means and with oil already in my portfolio, I declined the offer. However, please get in touch if you would like to know more.

Currently my risk appetite is lower so I asked my Georgia hosts where they saw other interesting investment opportunities. Two areas of investment were suggested (1) fixed term USD 12 month deposits of USD300,000 to 10,000,000 with Georgian banks attract interest rates of between 7%-8%. (2) Investing in infrastructure with an estimated return of 20% per annum.

I’m looking into both of these investments at the moment. Fascinatingly an ROI of 20% doesn’t attract local investors as the local real lending interest rates are in the region of 18% – 20%. If it is possible to borrow money internationally at low interest rates, we may just have a winner!

Real Lending Interest Rates average 2000-2011 (Source World Bank taken from http://www.iset.ge/blog/?p=1100)

Real Lending Interest Rates average 2000-2011 (Source World Bank taken from http://www.iset.ge/blog/?p=1100)

Best wishes to you all for a Happy and Prosperous 2013.

Further Reading:

The ISET Policy Institute:
http://www.iset.ge

National Bank of Georgia inflation report: http://www.nbg.ge/uploads/publications/inflationreport/2012/inflacia_2012_q2_eng_9_nov.pdf

European Bank for Reconstruction and Development (Georgia page):
http://www.ebrd.com/pages/country/georgia.shtml
 

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