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20 August, 2021updated 12 Oct 2021 05:55

Tourism and tech drive Tbilisi’s FDI rise

As the world recovers from Covid-19, Tbilisi’s fast-growing tourism and tech sectors are areas for investors to watch.

By Sebastian Shehadi

tbilisi-investment-georgia

Attractions such as its sulphur baths have helped to make Tbilisi in Georgia a rising tourism hub. (Photo by Vano Shlamov/AFP via Getty Images)

Tbilisi, the capital of Georgia, has witnessed a remarkable transformation over the past two decades. In 2004, the small country – located between the Black Sea and the Caucasus mountains – elected a revolutionary government that implemented far-reaching reforms.

For the former Soviet nation, this transition involved widespread economic liberalisation, simplified bureaucratic procedures, improved infrastructure and big efforts at eradicating corruption and organised crime. 

The success of these changes is evidenced by Georgia’s significant (and marked) GDP growth since 2004, as well as its newfound popularity for tourism and foreign direct investment (FDI) over the past 15 years, as per the below charts. In short, Georgia has become a country that people want to live and invest in – and it is extremely easy to do the latter. 

Indeed, the country now ranks seventh in the World Bank’s latest Doing Business ranking, and within Europe is second only to Denmark. This is an astonishing achievement for a country that was little known to investors (or consumers, for that matter) just over a decade ago. 

Among many other incentives, Georgia now boasts a 9.9% effective corporate tax rate (the third-lowest in the world) and a regime in which retained and reinvested profits are exempt from business tax.

That Georgia has made such concerted efforts to attract foreign investment is a reflection of the country's demographic and financial limitations. With just 3.7 million people, located in a somewhat undiversified economy, Georgia needs foreign capital and expertise. 

That said, cross-border investment in the country remains modest in size in terms of capital and has been trending downwards in recent years. Moreover, investors have tended to coalesce around the country's traditional sectors, with more than 30% of annual flows relating to the extractive industries.

Georgia’s limitations also make it very vulnerable to external shocks, such as Covid-19, which has devastated the country’s tourism sector. Meanwhile, data from the National Statistics Office of Georgia shows that FDI has fallen by 53% since 2019, which is more than the global average (which dropped by 42% in 2020). This has been particularly hard for Tbilisi, where Georgia’s investment and economy is concentrated. 

Tbilisi’s tourism industry has an exciting future

Before the Covid-19 pandemic hit, Tbilisi was making waves as one of Europe’s hottest ‘new’ destinations for tourism. Georgia, the birthplace of wine, boasts rich cuisine, history and countryside, while also ranking highly for traveller safety

The number of visitors to the country jumped from 1.5 million to 4.4 million between 2009 and 2012 (one of the world’s fastest growth rates for tourism). Those figures rose to 9.3 million in 2019, making up 7.5% of GDP and bringing in more than $3bn to the Georgian economy. 

Tbilisi is home to most of Georgia's largest foreign hotel chains, laden by all usual suspects such as Marriott and Radisson Blu. With hotel occupancy at very healthy levels (in 2019), and tourist arrivals likely to jump back in 2022, Tbilisi will no doubt be of continued interest to hotel and resort investment. The average number of days for tourists to stay in the country has been rising, going beyond weekend escapes to average trips in the five to seven-day range. 

Tbilisi boasts a wide range of attractions, such as a thriving techno-music scene and a Unesco World Heritage site in its ‘historic district’. However, it is also the key base from which to witness Georgia’s other beauties, such as the Black Sea coast, the Caucasus mountains, and an 8,000-year-old wine-making tradition. 

The Georgian government has prioritised the growth of higher-value tourism in an effort to move away from mass travel, and better engage in more sustainable and luxurious forms of hospitality and entertainment. 

How tech could drive diversification and investment in Tbilisi

Georgia’s tech scene made international headlines in 2021 – and for good reason. Local start-up Pulsar AI, a leading conversational artificial intelligence tool for auto dealers, was acquired by New York’s Spincar for tens of millions of dollars. 

While such sums are small by global standards, the acquisition marked a first for Tbilisi’s tech community and was a huge vote of confidence. 

Also of note is the city’s mezze of homegrown fintechs such as eLoan, an online platform for personal loans, and Lightspeed, a cloud-based structure for small business lending. Companies such as these are forming an ecosystem that may make a regional fintech hub out of Tbilisi. The city has already seen some foreign businesses move in, such as Creamfinance, an online lending platform. Such companies are attracted by Georgia’s low operating and labour costs, while its small size makes it an ideal place to pilot new tech.

Tbilisi is also renowned for its cryptocurrency scene, in part because its cheap energy prices are conducive to the highly energy-intensive activity of crypto mining. This is why Bitfury, one of the world’s largest bitcoin miners, set up shop in Georgia seven years ago. 

The city’s rising status as a tech hub is owed to Tbilisi’s well-educated, multilingual and digital-savvy workforce. Indeed, Georgia is among the top three countries worldwide for contactless payments, while Tbilisi’s internet infrastructure is also highly regarded. 

The country's government has also spent much of the past decade pushing forth a tech scene, with Georgia’s Innovation and Technology Agency at the helm. The agency has established partnerships with major US accelerators and, as of 2020, launched the country’s first international accelerator programme. 

Tbilisi’s tech and start-up scene are arguably the most exciting in the Caucasus region. It has already helped put the city on the investment map beyond its traditional sectors, and it will be key in Georgia’s all-important efforts to diversify its economy and safeguard itself from future external shocks.

This is the second in Investment Monitor's 'Future of Eurasian Cities' series. Click here to read about Baku. In the coming weeks, we will cover Nur-Sultan, Almaty, Tashkent and Yerevan.

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