Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Regional economic hub Georgia is well positioned to become a regional economic Nenskra, Khudoni and Tskhenistskali cascade. Currently, hub with its business-friendly environment, developed 43 power plants (1.5GW) are in various stages of infrastructure, stable energy supply, flexible labour construction or development, with 102 more (3.7GW) legislation, sound banking sector, strategic geography in feasibility study stage. Georgia’s transmission capacity and a Government committed to making structural is poised to increase and accommodate an additional improvements in the economy. installed capacity of 3.5GW by 2027 to meet the growth in export and domestic demand. Georgia is foreseen to Georgia is a natural transport and logistics hub, be an electricity transit hub for neighbouring economies. connecting important regions and a market of 2.8 billion In 2016-2017, already 1,104GWh was transited through customers without customs duties. Georgia is located Georgia to neighbouring countries. between land-locked energy-rich countries in the East and European markets in the West. The Anaklia deep Attractive place for foreign investors. Foreign Direct sea project is seen as a major scheme to enhance the Investment (FDI) is an important source of financing regional transit hub potential. The Port of Anaklia sits on growth in Georgia, as well as a reliable source of Georgia’s the shortest route from China to Europe, the route that persistently high current account deficit funding. Georgia’s has become a major focal point for Chinese investments business-friendly environment coupled with its sustainable in infrastructure. Once completed, it will be the first growth prospects attracted substantial FDI, averaging Georgian port capable of accommodating Panamax size 8.8% of GDP over the last decade. Major beneficiaries cargo vessels. The Government’s ongoing infrastructure are transport, tourism, construction, financial and energy investments and increased spending on roads, energy, sectors. The EU remains a top-investor. tourism and municipal infrastructure will also reinforce the potential. Georgia is a regional energy corridor that Georgia has not yet tapped into international markets. accounts for approximately 1.6% of the world’s oil and Despite growing free trade deals, Georgia’s exports are gas supply transit volumes. Georgia’s existing free trade still dominated by used car re-exports and resource- deals (with the EU, CIS, EFTA, Turkey, China, Hong Kong, based metals and minerals. Meanwhile, export is well and ongoing negotiations with India), enable it to access diversified by destination markets with top export a market of 2.8 billion customers. These are expected to market (Azerbaijan) having only 15% share in total. One further strengthen Georgia’s positioning as a platform to of the biggest changes in destination markets has been trade with, produce for and service regional markets. a reorientation from the Russian market after the 2005 embargo, as it forced Georgian producers to redirect Georgia is already an established popular tourism exports to other Commonwealth of Independent States destination. Travel inflows are a significant source of (CIS), the EU and the Middle East. Access to new large foreign currency for Georgia. The number of international markets (the EU and China) could increase market visitors to Georgia is growing robustly, with tourist penetration and there is also scope for diversifying numbers already exceeding the local population of agricultural exports, once the quality and standards 3.7 million. In 2018, tourist arrivals reached 4.8 million, improve under EU DCFTA. generating US$ 3.2 billion or 19.9% of GDP. The Government enhances Georgia’s positioning as a four- season tourism location through improved connectivity of different regions with an aim to tap into their potential. Stable energy supply and electricity transit hub potential. Georgia has a developed, stable and competitively priced energy sector. The country has overcome the chronic energy shortages of electricity and gas supply interruptions of a decade ago by renovating and building new hydropower plants (HPPs), improving transmission infrastructure and diversifying its natural gas import partners. Energy needs of the country grew on average by 5.4% for electricity and by 3.5% for natural gas during 2004-2018. The needs are being addressed by constructing HPPs, renovating and rehabilitating internal and external electricity grid and natural gas pipelines. Currently, only an estimated 20-25% of Georgia’s hydro potential is utilised. Government policy over the last decade has encouraged the investment in the hydropower sector, resulting in 28 new HPPs, with a total capacity of 509.9MW, being added to the system over 2012-2017. The pipeline of investment projects in the energy sector is estimated at about US$ 4.4 billion in the next five to seven years, including US$ 2.5 billion for three large HPP projects: Annual Report 2018Bank of Georgia Group PLC 17