Economy, Business And Markets

Prospects Improving for Ties to Georgia

Prospects Improving for Ties to GeorgiaProspects Improving for Ties to Georgia

Iran and Georgia have had their share of ups and downs before coming to the point of improved cooperation. Iran was among the states to acknowledge the independence of Georgia in 1992. Since that historical year more than 47 bilateral documents have been signed between the two countries. The agreements are related to the elimination of double taxation and investment in sea, air and surface transport as well as customs and trade cooperation.

In this context, a favorable environment has been created for attracting new businesses in both countries, says an article published in the Georgian daily newspaper The Financial. Below are excerpts:

Georgia can support Iran and become for the country the gateway to Europe, one of the world’s biggest concentrated hubs of innovation. The Georgian strategy of European Union integration is advantageous for its southern neighbor as well as the recently signed Deep and Comprehensive Trade Agreement between the European Union and Georgia. Thus, Iranian investors will be able to boost exports to the European countries by establishing their businesses in Georgia.

Currently, the number of Iranian companies in Georgia is not big. According to Rahim Abachi, director of Georgia-Iran Chamber of Commerce and Industries, Mines and Agriculture, Iranian companies have been active in Georgia for about 20-25 years and number about 500. However, only 10% of these companies are big-scale enterprises.

This can be also seen by observing Iranian FDI inflows into Georgia. The share of Iranian FDI in total investment in 2006-2015 was less than 0.1% (about $9.2 million) according to the Economic Policy Research Centre 2016 report. The Georgian think-tank says during the past two years Iran mainly invested in three sectors: processing industry ($2.03 million) and real estate ($1.9 million), with investment in agriculture and fishing ($3.1 million). “There is one business center being constructed with Iranian investments. Another ongoing project is the construction of a hotel,” Abachi noted.

Beside the aforementioned fields, tourism also represents an attractive niche for the Iranian investors. For instance, the Iranian tourist company Aria Trading is already present in the Georgian market offering direct flights. Further prospects in this field are to be explored taking into consideration the growing number of Iranian visitors after the official restoration of a visa-free regime for Iran for up to 45 days. According to the Georgian National Tourism Agency, in the first 5 months of 2016, the number of Iranian tourists has increased by 361% with 25,552 arrivals.

  Becoming Versatile

As far as trade is concerned, the Economic Policy Research Centre says in 2015 Iran was Georgia’s twelfth largest export destination, making up 1.62% of Georgian exports, and twelfth largest exporter to Georgia as well representing 1.19% of Georgian imports. Once Georgia’s imports from Iran were limited to food products but in the course of time trade has become more versatile. Presently Georgia also imports petrochemical and pharmaceutical products from its commercial partner. On the other hand, Iran is trying to develop its petrochemical production and diversify its economy dominated by crude oil and gas production.

According to the Islamic Republic of Iran Customs Administration, Iran exported 80,600 tons of non-oil goods valued at $28.1 million to Georgia during the first four months of the current Iranian year (March 20-July 21, 2016), which indicates a 6% decline compared to the similar period a year before. Petrochemicals, tiles, marble and raisin were among the main exports. In return, Iran imported more than 9,600 tons of goods worth $9.3 million, including wood, vehicles and pharmaceuticals, which shows a 147% rise compared to last year’s corresponding period.

  Energy Cooperation

The two countries also cooperate in the energy market. This partnership is mutually advantageous. Iran has the 4th largest crude oil reserves in the world as well as vast gas reserves. Increase in gas supply from Iran will decrease Georgia’s dependence on the Russia’s Gazprom, a big monopolist in the region. The gas and oil supply from Iran also forms part of the so-called Energy Union Strategy – a project of the European Commission to coordinate the transformation of European energy supply and promote its diversification.

Taking into consideration that Georgia has direct access to the Black Sea and has well-developed infrastructure (three major pipelines), the country becomes the right destination for energy supply to Europe and represents an option to the transportation corridors passing from Iran through Turkey. The Economic Policy Research Centre says this energy transportation agenda could bode well for pipe production in the Rustavi Metallurgical factory.

Electricity is another key aspect on the cooperation agenda of the two countries. Georgia sells its electricity surplus in spring and summer to Iran. That is why, the Iranian businesses are investing in building transmission lines in Georgia and Armenia.