Envisaged by the Tax Code of Georgia, a Free Industrial Zone (FIZ) is a business-friendly economic zone where favourable regulations and taxes apply. Among other benefits, these zones attract foreign investment, help local firms present themselves on the global market, all the while reviving the country’s export potential and creating new jobs. So, it comes as no surprise that Free Industrial Zones play a key role in the socioeconomic development of a country. Georgia is no exception. Poti Free Industrial Zone (Poti FIZ), a pioneer of the five functioning Free Industrial Zones in the country, has recently become a representative of Georgia in the World Free Zone Organization. In an interview with GEORGIA TODAY, Poti FIZ CEO, David Ebralidze discusses the importance of this international membership and its benefits, the role of business communities in strengthening the regional integration of the Caucasus and Caspian countries, some of Poti FIZ’s current projects, being in the COVID “Green Zone”, and more.
Georgia has five industrial zones. What makes the Poti Free Industrial Zone particularly attractive to investors?
The Poti Free Industrial Zone is one of the most strategic and successful companies within Smart Capital Group, the latter being one of Georgia’s leading private investment holdings, employing over 1000 people and operating across different sectors: energy and petroleum, real estate development, hospitality, technology, manufacturing and logistics. Currently, the group coalesces successful companies and development-oriented professionals, who create diverse business opportunities and significant investments for the country.
Poti FIZ is the first free industrial zone in Georgia. We were the pioneers who introduced the concept of free industrial zones in Georgia, developed and participated in the preparation and adoption of the main legislative bases related to free industrial zones. We introduced the advantages of free zones to Georgian society and the Caucasus region, and created an important platform for further development of other free zones in Georgia.
It is a well-known fact that various types of free zones are ideally created adjacent to sea ports. One of the main goals for industrial zones is rapid receipt delivery of goods and active participation in supply chain. Initially when thinking about location of new FIZ, the most significant location was chosen strategically, not only in Georgia but in the Black Sea and Caucasus Region. Poti FIZ is located in the centre of the Silk Road and international transport and logistics corridors. Its location is one of the distinctive advantages over other free industrial zones in the country.
We offer numberless logistics and supply chain advantages to companies looking for rapid growth. Remote management operations notably increased the importance of such services during the pandemic, when company representatives were able to run their businesses smoothly on a remote basis.
Another huge factor which distinguishes Poti FIZ from other FIZs in Georgia is the direct access to the international railway line, which makes it possible to receive/send cargo by rail. With convenient transportation infrastructure, including rail and road, sea and air international ports, we aim to become an important industrial and trade centre. Rapidity and diversity are our main assets. We offer a range of options to business start-ups with simplified registration in any legal ownership form, with minimum capital requirements. By rapidity we mean company registration and license issuance finalization within one working day. Another distinguishing advantage is our two custom points, which are available 24/7 for road and rail cargo. There are several international freight forwarding and transportation companies in the city successfully utilizing the easiest and shortest access to international airports of Tbilisi and Batumi. Our professional team offers investors assistance at each stage of project development, from obtaining a certificate of origin and preparation of respective sector research, to consultations related to various environmental and construction permits, which is an additional incentive for investors to obtain full information in the first place and simplifies project implementation for investors.
What does it mean for Poti Free Industrial Zone to be able to represent Georgia internationally through the World Free Zones Organization, and why did the organization choose Poti FIZ?
The World Free Zone Organization (WFZO) is the largest and most influential international association of 1,700 entities globally, representing the interests of free zones around the world. According to Dr Samir Hamrun, Executive Director of WFZO, “By appointing representatives in different countries, the organization expands its service space, provides problem-solving in the regional context, and shares experiences to address the challenges facing free economic zones.”
It is a great honour for Poti FIZ to be named as its official representative in Georgia by such an prominent international organization. Strengthening cooperation with the WFZO is an important lever to expand relations with investors and increase our position in the world market.
We have been cooperating with them for several years, being their member and participating in various events. We have jointly conducted workshops and B2B meetings in the Emirates, collaborating in different directions, which mainly involved sharing experiences of different free industrial zones. During the cooperation period, Poti FIZ showed itself as a successful and reliable partner of irreversible development, and the decision was made accordingly. Being able to represent Georgia internationally means that we gather and share knowledge from different zones, receive and give diverse education, as well as valuable operational, administrative, educational and networking services. We are ready to meet best-in-class standards that enhance the economic ecosystem, as well as guidelines for establishment and administration.
Are there any benefits to being a part of the World Free Zones Organization for Poti FIZ itself, for your investors, or employees?
WFZO Membership will primarily enable us to share the experience and recommendations of other more developed free zones, to bring their success story into our reality, which in turn implies legislative changes that make Georgian free industrial zones even more flexible and attractive for investors.
Within the framework of our cooperation we plan to organize informative seminars at various universities and with private sector to share information on the importance and potential of FIZs in the development of the economy of the country and the region. We are considering organizing a business forum, which will be attended by FIZ officials who are part of the said organization.
Being a part of the WFZO means countless opportunities for the internal group. To be more precise, it implies receiving a range of operational and administrative support services, high-level training, networking services, workshops and online webinars throughout the year. Members will also benefit from educational tools for the zone through a range of online portals where the latest studies on free zones around the world are readily available, as well as monthly newsletters, and a regular bulletin tackling key industry opportunities and challenges. Our strategy has always been to look ahead, therefore our main objective is constant expansion and improvement of our organization. As a result, we create transparent, superior, clear, risk-free environment for the investor
Would you say legislative changes, especially regarding free industrial zones, would help make Georgia even more attractive to investors?
Currently, a lot of countries compete to attract foreign investment by offering a beneficial business environment. Political stability, low taxes and regulations, a cheap and qualified workforce, a stable microeconomic environment, economic openness, natural resources, a strategic location, free trade and corruption-free rule, are all factors that encourage investment inflow. Georgia is outstanding in all the indices mentioned above.
Georgia has also become the regional hub for companies looking to expand in the Black Sea, Caucasus, and Caspian region. Strategically located on the “Silk Road”, Georgia is a transit corridor with strategic access to the sea, and a door to Europe, connecting China to the European Continent.
Business and investor friendly regulations play a crucial role in attracting new and expanding businesses to Georgia. A stable economic environment and competitive operating costs contribute significantly to Georgia’s manufacturing and trading development.
As for the legislative changes, the FIZ legislation was created in 2008 and there is a necessity for amendments. With this regard, together with other FIZs of Georgia, we are in constant communication with relevant government authorities whereby proposing implementation of specific legislative changes. However, making appropriate amendments require detailed justification and consideration, which itself is linked to due timing. The said improvements and amendments will increase the flow of investment from different countries in different sectors.
What role does the business community play in strengthening the regional integration of Caucasus and Caspian countries? Are there any regional projects at Poti FIZ at this time?
We have the opportunity to be a regional centre for development of industrial sector, as well as the creation of a trade/logistics hub. Indeed, all infrastructural development, refinement of the transport corridor and establishment of a unified system, which is underway throughout the region, will further contribute to the integration of Poti FIZ into the regional supply chain.
All FIZ projects are of a regional-scale since the Georgian market is not large. Therefore, the projects are designed for the region, especially the CIS countries, for which there is a higher chance of obtaining a preferential certificate of origin. At the same time, some companies export their products to European and US markets. Particularly noteworthy is an example of one of Poti FIZ’s new projects, “SDT Georgia” LLC, an enterprise with manufacturing plants located in Europe and China. “SDT Georgia” LLC is a part of an international supply chain and plans to produce automotive components from imported aluminium and zinc bars for world-leading automotive industry.
Tell us about your current big projects.
I will highlight the following projects which are already operating in Poti FIZ:
Serchem Industrial lubricants LLC – a company producing high-quality lubricants and industrial chemicals in Poti FIZ, which was established in 2017 with Turkish investment. Its wide range of industrial products is used in 14 different industrial sectors. The main export markets are Russia and the CIS countries. The company currently employs up to 10 people and plans to expand production in the future.
K & Georgian Spirits LLC – is the first large-scale project in Poti FIZ, which will produce high quality branded alcohol and export it to various countries around the world. The foundation for the construction of the factory was laid in 2014. The first stage of construction, installation of equipment and reservoirs has been completed so far. From the start of production, it will become one of the largest brands and producer and exporter of cognac spirits in the Caucasus region. The company currently employs 20 people; At this stage, it imports and exports products to Russia and France.
Intermetal Georgia LLC – a factory which is producing the metal rooftop tiles, was incorporated with Azerbaijan investment in 2015. From the beginning of production, it became one of the largest suppliers of construction products in the Azerbaijan market. The company is still active and has 15 employees.
In terms of new projects:
Davr International Trading LLC – a nut processing factory with the production area of 1000 sq.m., has been drying, roasting and packing different types of nuts (cashew, almonds, pistachio) in test mode from February 2020. Roasted nuts are exported mainly to CIS countries. The factory will process 125 tons of nuts every month in the first stage. The enterprise already employed about 20 local workers and further plans to expand its workforce.
Georgian Technology FIZ LLC – a company established in 2018 and engaged in electronic circuits , integrated systems and other electronic products trading. In 2019 company decided to set up the production unit inside Poti FIZ. To date, the interior renovation works of the leased building and the installation of high-tech equipment have been completed. Basic raw materials (electrical circuits, electrical components, cables and electrodes) will be imported from Turkey, China, Japan, Hong Kong and South Korea, while the final products (electrical circuits, programmable chips, sensors, electronic devices) will be exported to the USA the Netherlands and Saudi Arabia.
SDT Georgia LLC – automotive component production factory which will supply a large scape automotive industry of EU countries as well as China, USA and Mexico. In the first year of production, it is planned to export components worth up to 5 million USD, the volume of which will increase every year. In the first phase, the plant will employ up to 60 local employees, the said number will increase to 100 employees by the end of 2021. The workers employed in the factory will undergo special training in China at a similar plant in Suzhou. The company has already sent the first batch of group for training. The company secured all the necessary construction and environmental permits to start construction work.
How has the pandemic impacted Poti FIZ?
I would like to emphasize our role as FIZ Administrator in terms of flexible and operational management both during and post-pandemic. Even during this hard period, cargo movement was never delayed and the statistics of our turnover is evidence to that, not dropping below the 2019 data.
A well-planned information campaign gave our investors all proper instructions to run their businesses non-stop. Drivers of international cargo carriers who were at high risk were also instructed. With proper management, no cases of COVID-19 have been reported on the territory of Poti FIZ.
Not a single enterprise or trading company has stopped its operations in Poti FIZ, and, consequently, Poti FIZ still maintains the status of a ”Green Zone“.
What post-COVID plans for Poti FIZ can you share with us?
In March 2020, we developed a post-pandemic strategy tailored to specific sectors and specific regions. We prepared sector studies that reflect our commercial offerings and justify the benefits of Poti FIZ for said sectors, especially pharmaceuticals and FMCG products, which became significantly in demand during this period, along with sectors most affected by the supply problem caused by the isolation of China. Consequently, it became necessary to find alternative locations in order to reduce delivery time and which would be less sensitive to such global problems.
We mainly position on medium and small business projects, with an investment volume of up to 30 million GEL, though this does not exclude attraction of large projects to Poti FIZ. Our team is intellectually and professionally ready to take on all the challenges that today’s world offers us and to successfully manage the planned strategy to attract as much investment as possible in the country.
Since the movement between countries is limited, we participate in various webinars or online forums. We also plan meetings with embassies and chambers in an online format to preserve contact to the extent possible, to prevent an information vacuum, and to disseminate as much information about the ongoing processes as possible.