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Ministry of Economy and Sustainable Development of Georgia
GEORGIAN NATIONAL INVESTMENT AGENCY
Apparel Sector Overview
April 2011
Ministry of Economy and Sustainable Development of Georgia
Contents
Country Overview
Apparel Sector Overview
Availability of Labor
Access to Georgia
Ministry of Economy and Sustainable Development of Georgia
Area: 69,700 sq km
Population (2009E): 4.4 mln
Life expectancy: 74 years
Official language: Georgian
Literacy: 100%
Capital: Tbilisi
Currency (code): Lari (GEL)
GDP 2010: US$11.0 bln
GDP real growth rate 2010: 6.5%
GDP CAGR ‘03-’10 4.9%
GDP per capita 2010(PPP): US$ 2629
Inflation rate (e-o-p) 2009: 11.2%
External Public debt to GDP 2009: 37.2%
2003 2010
Nominal GDP (mln GEL) 8,564 20,791.3
GDP per capita (GEL) 1,972 4,646
Total budget revenues (mln GEL) 1,368 5,778
Country Overview
Ministry of Economy and Sustainable Development of Georgia
Sovereign Ratings – GeorgiaA
pri
l 12
, 20
10
Foreign Currency
• Long Term: B+
• Short Term: B
Local Currency
• Long Term: B+
• Short Term: B
Outlook: StableM
arch
3, 2
01
1
Foreign Currency
• Long Term: B+
• Short Term: B
Local Currency
• Long Term: B+
• Country Ceiling: BB-
Outlook: Positive
Oct
ob
er
6, 2
01
0
Foreign Currency
• Long Term: Ba3
• Short Term: Not-Prime
Local Currency
• Long Term: Ba3
• Short Term: Not-Prime
Outlook: Stable
Major Rating Strengths:
Government’s political commitment to market oriented policies and structural reforms
Relatively strong economic structure and growth prospects
Low tax regime and business friendly environment
High potential growth rate
Moderate levels of government debt
Major Rating Strengths:
Strong economic recovery with strong GDP growth prospects
Reduction in both budget and current account deficits
Long track record of low and stable inflation
Strong banking sector due to improvement in asset quality, growth in deposits and rising profitability
Favorable business climate, low corruption, sound governance and easing of political risk
High level of human development
Strong support from the international community
Other Rating Indicators:Bond (Country) Ceiling
• Foreign currency: Ba1• Local Currency: Baa3
Bank Deposits Ceiling• Foreign Currency: B1• Local currency: Baa3
Major Rating Strengths:
Marked progress in building social, political and economic institutions
Healthy operating business environment that is unique in the region
Credible fiscal and monetary framework
Government debt at affordable levels on very favorable terms
Ministry of Economy and Sustainable Development of Georgia
Ease of Doing Business 2011 Index Of Economic Freedom 2011
Global Corruption Barometer (EU) 2011
Singap…
United …
United …
GEORG…
Estonia
Germa…
France
United …
Armenia
Azerba…
Turkey
China
Russia…
India
Ukraine
145
1217
2226
4048
5465
79123
134145
Source: World Bank, 2010 (Rank out of 183 countries)
Hong Kong
United States
United Kingdom
Japan
Germany
GEORGIA
Armenia
UAE
France
Turkey
Azerbaijan
India
China
Russian Federation
Ukraine
19
16
2023
29
3647
6467
92124
135
143164
Denmark
UK
Norway
Finland
Netherlan…
Switzerland
Germany
GEORGIA
Iceland
Spain
Austria
Czech …
Poland
Latvia
Luxemburg
1
23
45
67
89
1011
1213
14
15
Source: Transparency International, 2009 (Rank out of 69 countries)
Source: The Heritage Foundation, 2010 (Rank out of 183 countries)
Forbes Tax Misery & Reform Index 2011
Qatar
UAE
Hong Kong
GEORGIA
Macedonia
Russian …
Singapore
USA
Azerbaijan
UK
Switzerland
Ukraine
Turkey
France
1218
41.552
70.97778.5
85.3
100106.8
111.2113.6
118167.9
Source: Forbes Business & Financial News
Up from 112 in 2005
Up from 99 in 2005
Business Friendly EnvironmentDoing Business Reformer Club awarded Georgia as Number 1 Reformer in the world during last five years
Ministry of Economy and Sustainable Development of Georgia
Georgian Economic Overview
Source: Department of Statistics of Georgia
4.05.1
6.47.8
10.2
12.8
10.8
11.7 12.4
13.8
15.611.1%
5.9%
9.6% 9.4%12.3%
2.3%
-3.8%
6.4%4.5%
5.5%6.5%
-8%
-4%
0%
4%
8%
12%
16%
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010E 2011F 2012F 2013F
Nominal GDP (US$bln) Real GDP growth, y-o-y (%)
Industry (Inc Apparel), 16.0%
Real Estate, 15.0%
Energy Sector, 4.0%
Transport & Communications,
35.0%
Financial Services, 16.0%
Hotels and Restaurants, 1.0%
Agriculture, 2.0%
Other Services, 11.0%
GDP FDI Breakdown by Sectors, 2010
World known brands in Georgia
Source: Department of Statistics of Georgia
Ministry of Economy and Sustainable Development of Georgia
Strategic Geographic LocationGeorgia is located between Europe and Central Asia and is considered to be a bridge connecting several
important economic regions with a total population of more than 827 million people. It is bounded to the west
by the Black Sea, to the north by Russia, to the southwest by Turkey, to the south by Armenia, and to the
southeast by Azerbaijan.
Western Europe Central Asia Russia
RoadGeorgia-Turkey-Bulgaria-Romania-Hungary-Austria-Germany
Georgia-Azerbaijan–Kazakhstan Georgia-Azerbaijan–Russia
Georgia(Poti by Ferry)–Bulgaria-Romania-Hungary-Austria-Germany
Georgia-Azerbaijan–Kazakhstan-Central Asia
Georgia (Batumi by Ferry)-Ukraine- Poland-Germany
Georgia-Turkey-Middle East
Sea Georgia(Poti)–Turkey–Nederland or Germany Georgia (Poti/Batumi)–Turkey–Russia
Georgia (Batumi)–Turkey–Nederland or Germany Georgia (Poti)–Egypt–Germany–Russia
Georgia (Poti)–Egypt-Nederland or Germany
Air Tbilisi–Frankfurt Georgia–Azerbaijan–Kazakhstan Georgia–Russia
Tbilisi-London Georgia–Azerbaijan–Russia
Tbilisi - Moscow
Tbilisi-Vienna
Rail Georgia-Turkey-Europe (under construction) Georgia- Azerbaijan–Kazakhstan Georgia-Azerbaijan–Russia
Georgia (Poti)–Ukraine–Russia
Georgia (Poti/Batumi)–Russia
Transportation Routes
Ministry of Economy and Sustainable Development of Georgia
Diversified Trade Structure WTO member since
2000
Simplified customs regime since August 2006, new customs code became effective in 2007 and was upgraded in 2009
No quantitative restrictions on trade
Zero tariff on the majority of goods
One of the two beneficiaries of the EU GSP+ Scheme in the CIS since 2006, granting local companies the right to export 7,200 categories of goods duty-free
Share of EU in exports up to 19% from 17% in 2003
Georgia Turkey FTA was signed in 2008
Promising Deep & Comprehensive FTA with the EU
Export Structure* by Country, 2010 Import Structure* by Country, 2010
Export Structure* by Product, 2010 Import Structure* by Product, 2010
Source: National Statistics Office of Georgia-GeoStat Source: National Statistics Office of Georgia-GeoStat
Source: National Statistics Office of Georgia-GeoStat* Export & import of goods only
Source: National Statistics Office of Georgia-GeoStat
EU - 19%CIS - 41%
EU - 28%CIS - 30%
Other59.3%
Fuel13.6%
Vehicles6.1%
Pharmaceuticals
3.7% Wheat3.4%
Petroleum gases2.6%
Electrical machinery & equipment
2.2%
Tobacco1.6%
Sugars1.5%
Bars and rods of iron1.1%
Manganese ores1.1%
Petroleum coke1.0%
Structures of iron or steel
1.0% Data processing machines
1.0%
Motor vehicles for
the transport of goods
0.9%
Ferro-alloys 16.7%
Vehicles 14.4%
Ferrous waste and scrap
6.9%
Other 28.6%
Gold 5.4%
Fertilizers 4.6%
Copper ores 4.5%
Other nuts, fresh
or dried 4.0%
Beverages 3.4%
Copper waste and scrap
2.6%
Wine of fresh grapes 2.5%
Electrical energy 2.3%
Bars and rods of iron or steel 2.2%
Pharmaceuticals 1.9%
Azerbaijan 15.4%
Turkey 13.6%
United States 11.4%
Armenia 10.1%
Ukraine 6.5%
Canada 5.5%
Bulgaria 3.9%
Kazakhstan 3.0%
Russia 2.2%
Spain 2.1%
Germany 2.0%
Romania 1.8%United Arab
Emirates 1.8%
Other 20.7%
Turkey 17.4%
Ukraine 11.0%Azerbaijan
9.1%
China 6.6%
Germany 6.5%
Russia 5.5%
United States 3.4%
United Arab Emirates 3.1%
Romania 2.7%
Italy 2.6%
Bulgaria 2.6%
Netherlands 2.0%
Kazakhstan 1.8%
Other 25.8%
Ministry of Economy and Sustainable Development of Georgia
Developed Infrastructure & Communication Georgia has good sea, air, rail and road connections to the main apparel market EU, Russia and
Turkey.
Georgia has 3 million mobile (69% of total population) subscribers and total mobile network
coverage is above 97% of the populated territory of Georgia.
Number of Int. Airports 2
Number of Sea Ports 3
International 1,495 KM
Internal 3,354 KM
Local 15,480 KM
Total 20,329 KM
Georgian Infrastructure
Poti
Larsi
Vale
Sadakhlo
Red bridge
Batumi
Samtredia
Kartsakhi
Zugdidi
Gantiadi
Gori
Roki
Armenia
Azerbaijan
Russia
Turkey
Black Sea
Kutaisi
Telavi
Kulevi
Tbilisi
Zhdanovi
Sarpi
Khashuri
Lagodekhi
MRN
Railway
Railway – under construction
Airports
Airports Underdevelopment
Akhaltsikhe
MestiaSukhumi Georgian Road
Ministry of Economy and Sustainable Development of Georgia
Preferential Trade Regimes
Foreign Trade Relations
MFN Tariffs with WTO Members
Georgia benefits from a Generalized System of Preferences (GSP) when trading with the USA, Canada,
Switzerland, Japan and Norway; accordingly lower tariffs are applied on goods exported from Georgia tothose countries.
GSP+ status with the EU allows Georgia to Export apparel and textile products to the EU market duty free
Free Trade Regime with CIS (Including Russia) Countries and Turkey
Georgia is actively working with the EU and the USA to promote free trade negotiations.
Main Features of Georgian Trade Policy
Low import tariffs (90% of goods free from import tariff)
Georgia does not have import tariffs on machinery
and equipment
Few export/import licenses and permits
No quantitative restrictions on import and export
No customs tariff on export and re-export
No VAT on export
Simplified export and import procedures
Ministry of Economy and Sustainable Development of Georgia
One of the Best Low-Tax Jurisdictions
‘04A ‘05A ‘06A ‘07A ’08A ‘09A ’10A ‘11F ‘12F ‘13F
Number of Taxes
21 7 7 7 6 6 6 6 6 6
VAT 20% 20% 18% 18% 18% 18% 18% 18% 18% 18%
Income Tax12-20%
12% flat
12% flat
12% flat
Social Tax + Income Tax
32% 25%
Social Tax + Income Tax
20%
20% 20% 20% 18%
Social Tax 33% 20% 20% 20% - - - - - -
Corporate Profit Tax
20% 20% 20% 20% 15% 15% 15% 15% 15% 15%
Dividend & Interest
Income Tax
10% 10% 10% 10% 10% 5% 5% 5% 5% 3%
No payroll tax or social insurance tax
No capital gains tax
No wealth tax, inheritance tax or stamp duty
Foreign-source income of individuals fully exempted
Tax rates reduction timetable has been further accelerated in 2008
Ministry of Economy and Sustainable Development of Georgia
Type of Tax Free Industrial Zone Free Warehouse Company
Corporate Income Tax0%
(int.companies)0%
(from re-exporting of foreign goods)
Value Added Tax 0% 0%
Customs Tax 0% 0%
Property Tax 0% up to 1%
Personal Income Tax 20% 20%
Special Tax-Free Regimes in Georgia
Free Industrial Zone may be set up:
By the initiative of the Government of Georgia Upon request of physical person or legal
entity(organizer)
On any territory exceeding 10 hectares, except for the protected territories under the Georgian
Law
Decision on the creation of Free Industrial Zones is made by the Government of Georgia
Currently two FIZ operated in Georgia – Poti FIZ and Kutaisi FIZ
Ministry of Economy and Sustainable Development of Georgia
Country Overview
Apparel Sector Overview
Availability of Labor
Access to Georgia
Ministry of Economy and Sustainable Development of Georgia
Apparel Sector OverviewHistorical Background
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.
During those times, textile and apparel manufacturing was relatively developed compared to other Soviet Republics.
Approximately a third of Georgia’s state budget was generated from textile and apparel manufacturing.
Georgia provided up to 60 percent of USSR’s apparel.
After the collapse of the Soviet Union, Georgia’s textile and apparel sectors fell on difficult economic times.
The sector has 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 CMTapparel manufacturing in the Adjara region of Georgia.
Industry Size
200 companies, about 95 percent of which are micro-enterprises;
Four Turkish investments based in Adjara and one is a significant Georgian investment in
Kutaisi.
Main Products T-shirts, pants, shirts, jackets, trousers, coats, sweaters, sport clothes, socks, textiles
Key Markets Served
Major end markets: Turkey, CIS (incl. Russia) and the EU
Georgia is currently producing apparel for the world famous brands like Puma, Marks
& Spencer, Lotto, Zara, Lebek and etc
Employment Approximately 5,800 employees
Key Processes Cut, Make, Trim (CMT), made to order, boutique high-end fashion
Current Situation
Ministry of Economy and Sustainable Development of Georgia
Apparel Producers
Georgia’s apparel value chain is geographically concentrated in three regions
of the country:
1. Georgian-owned/-operated apparel manufacturers based in or near
Tbilisi
These mostly serve the domestic government and private sector custom order
market;
Their main products are uniforms: military clothes, police clothes, state security
clothes, trousers, jackets, shirts, and sweaters.
2. One Georgian-owned/-operated manufacturer “Imeri,” in Kutaisi It manufactures and exports 85 percent of production to its partner, “Lebek”, in
Germany.
Their main products are women’s coats, dresses, trousers, and shirts and children’s
clothes.
3. Turkish owned apparel manufacturers in the Adjara region of Georgia,
which export their products to European Markets. About 95 percent of their production is exported to their parent companies in Turkey,
and then from Turkey to the EU markets.
The end buyers are Marks & Spencer, Puma, Lotto, Zara and others.
Approximately 800,000 pieces of apparel produced by the four factories in Adjara per
month.
The production consists of T-shirts, sportswear, pants, skirt, sweaters, trousers, shirts,
shorts, short coats and children’s clothes.
Ministry of Economy and Sustainable Development of Georgia
Export & Import of Apparel in Georgia
10,48712,065
14,99317,052
14,371
0
3,000
6,000
9,000
12,000
15,000
18,000
2006 2007 2008 2009 2010
33,759
51,419
92,26786,585
73,467
0
20,000
40,000
60,000
80,000
100,000
2006 2007 2008 2009 2010
Apparel Exports from Georgia (US$’000)
Apparel Imports to Georgia (US$’000)
Source: Department of Statistics of Georgia
Source: Department of Statistics of Georgia
Ministry of Economy and Sustainable Development of Georgia
Apparel Production Costs & Taxes
Labor Costs
Minimum gross wage - 100 USD/month
Average gross wage - 200 USD/month
Maximum gross wage - 350 USD/month
Electricity - 0.065 USD/kwh (incl. taxes)
Natural Gas - 0.43 USD/m3 (incl. taxes)
Water - 0.118 USD/ 1m3
Number of Taxes - 6
Taxes
Corporate Income Tax - 15%
Personal Income Tax - 20% (decreasing to 15% by 2014)
Withholding Tax - Dividends distributed to individuals and non-residents are subject to 5% (decreasing to 0% by 2014)
VAT - 18
Property Tax - up to 1%
Import/Customs Tax – 0%, 5%, 12%
By the initiative of the Government of Georgia, decision regarding the increase of taxes can only be made after countrywide referendum.
Ministry of Economy and Sustainable Development of Georgia
Country Overview
Apparel Sector Overview
Availability of Labor
Access to Georgia
Ministry of Economy and Sustainable Development of Georgia
0
10
20
30
40
50
60
70
<20 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+
2007 2008 2009
Availability of Labor While Georgia’s total population is 4.44 million in 2010, the active population is around 2
million with 16.9% (335 600people) unemployment in 2009.
In Georgia, 50.4% of the unemployed population (92 290 people) is aged between 20 – 34. There is high percentage of young labor availability especially in the Guria region of Georgia.
Labor Freedom Index for Georgia is 92.1 (6th place) according to the Heritage Foundation’s Index of Economic Freedom for 2011.
Georgia has a score of zero in difficulty of the hiring & firing indices, according to the World Bank Doing Business Survey 2011.
No minimum wage regulations.
Source: Geostat
Unemployment by Age Group (‘000 persons)
Ministry of Economy and Sustainable Development of Georgia
Labor skill development
Georgia has an educated, under-employed workforce with basic
skills which are required in the apparel industry, who have some
experience from old Soviet factories
Skill development – There are continuous skill-development
professional teaching centers around Georgia that provide
professional courses in cutting, sewing, constructing cloth, technical
fashion design and other subjects used in apparel Industry.
IOM (International Organization for Migration) provides technical
assistance to Vocational Education Training Centers.
Economic Prosperity Initiative (USAID funded project implemented
by Deloitte Consulting LLP) works to assists apparel sector in
workforce skills development based on the increasing industry
needs.
Ministry of Economy and Sustainable Development of Georgia
Country Overview
Apparel Sector Overview
Availability of Labor
Access to Georgia
Ministry of Economy and Sustainable Development of Georgia
Access to GeorgiaTbilisi International Airport and Batumi International
Airport, with direct connections to more than 32
international cities, offers easy access to Georgia’s capital:
57 flights to Europe weekly
55 flights to CIS weekly
Visas are not required for the Citizens of the
following countries for 360 days:
European Union - AllKingdom of
BahrainSaudi Arabia
Antigua and Barbuda Lichtenstein Seychelles
Argentina Malaysia Singapore
Australia Mauritius South Africa
Barbados Mexico South Korea
Belize Monaco State of Kuwait
Botswana New Zealand State of Qatar
Brazil Norway Switzerland
Brunei Oman Thailand
Canada Monaco The Bahamas
Chile Panama The Holy See
Costa RicaPrincipality of
AndorraTrinidad and
Tobago
Croatia Republic of IcelandUnited Arab
Emirates
IsraelSaint Kitts and
NevisUnited States of
America
Japan San-Marino Uruguay
Airlines flying to Georgia
Ministry of Economy and Sustainable Development of Georgia
GEORGIAN NATIONAL INVESTMENT AGENCY
12, Chanturia Street, 0108 Tbilisi, Georgia
Tel/Fax: (+995 32) 433 433
(+995 32) 10 63 92
E-mail: [email protected]
www.investingeorgia.org
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