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INVESTMENT OPPORTUNITIES IN MANUFACTURING OF APPAREL,
FOOTWEAR AND BAGS IN GEORGIA 2019
INVESTMENT CLIMATE & OPPORTUNITIES IN GEORGIA
2
COUNTRY OVERVIEWGEORGIA
Area: 69,700 sq. km
Population: 3.7 mlnLife expectancy at birth 2018: 74 years
Georgian
Literacy: 99.8 %
Capital: Tbilisi
Currency (code): Lari (GEL)
GDP 2018: USD 16.2 billionsGDP real growth rate 2018: 4.7 %GDP CAGR 2013-2018 (GEL): 4 %GDP per capita 2018: USD 4346Inflation rate (December) 2018 (Y-o-Y): 1.5%Total Public Debt to Nominal GDP (%) 2018: 42.2%
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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OVERVIEW OF MANUFACTURING SECTOR
APPAREL BRANDS CURRENTLY PRODUCED IN GEORGIA
Source: Geostat; KPMGNote: *-preliminary data
Georgia has a rich history of manufacturing apparel, textile and footwear, dating back to Soviet times
Contract manufacturing of apparel is well developed in Georgia and existing factories produce apparel for famous international brands, such as Moncler, Tommy Hilfiger, Nike, Adidas, Mexx, Zara, Puma, Autograph, Lebek, Hawes & Curtis, M&S, HM, etc.
Footwear and bags manufacturing sector has emerged recently and local manufacturers have started to export their products to different international markets
In addition, leather production is also developing in Georgia and Georgian leather is already being exported to Italy and Turkey
RUSSIA
ARMENIA AZERBAIJAN
TURKEY
BLACK SEA
Anaklia
Existing clusters
Thriving locations
Main Roads
Poti
Batumi
Samtredia
Ozurgeti
Zugdidi
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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Georgia
Deep and Comprehensive Free Trade Agreement (DCFTA) with EU
Free Trade Agreement with People’s Republic of China (including Hong-Kong)
Free Trade Agreements (FTA) with EFTA Countries ( Iceland, Norway, Switzerland, and Liechtenstein), Turkey, Ukraine and CIS countries
GSP agreement with USA, Canada, Japan
Member of WTO
LIBERAL TRADE REGIMES
Very simple and service oriented customs policy and administration – customs clearance in 5-6 minutes
80% of goods free from import tariffs
No quantitative restrictions
PREFERENTIAL TRADE REGIMES
Free Trade Agreements with 2.3 billion marketand access without Customs Duty
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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Category GEL kWh including VAT (18%)
USD kWh including VAT (18%)
Tbilisi220/380 volt
(average) 0.213 0.079
6–10 kv
6–10 kv
0.169 0.06235 – 110 kV 0.161 0.060
Rest of Georgia:
220/380 volt (average) 0.211 0.078
0.163 0.06035 – 110 kV 0.149 0.055
Category GEL/m3 including VAT
USD/m3 includingVAT
Tbilisi: 4.4 1.63Drinkable water
Drinkable water
3.33 1.23
4.307
1.35
0.66
3.65
0.24
Sewerage system water
Sewerage system water
(average official GEL exchange rate in 1H of 2019: 1 USD - 2.7034 GEL)
1.07 0.40
Batumi 4 1.48
Drinkable water 2.50 1.92Sewerage system
Other parts of Georgia (there are few exemptions):
water 1.50 0.55
1.59
UTILITY COSTS NON-RESIDENTIAL ELECTRICITY POWER RATES:
MAXIMUM RATES OF WATER
ELECTRICITY
Starting from 2017, deregulation of electricity consumer market has begun and by 2025 all non-residential custom-ers will be trading on electricity market through the direct agreement and they can negotiate on any price.Below are prices of balancing electricity as well as current tariffs for residential and non-residential customers, varying depending on the region and voltage.
WATER
Maximum rates of drinkable water and water for sewerage system are deter-mined by Government decree and are as follows:
GAS
Natural gas rates are deregulated for industrial use and companies can negotiate the price with supplier. Average cost of gas per cubic meter amounts to around USD 0.25-0.35
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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COMPETITIVE LABOR COSTS
YOUNG LABOR FORCE
LOW TAX BURDEN
FAVORABLE LABOR CODE
FLEXIBLE REGULATIONS
TAX
Average monthly salary in manufacturing industry amounts to USD 360 (2018)
According to Heritage Foundation, Georgia ranks 20th globally on Labor Freedom Index
The tax payable based on the salary is personal Income tax, which is flat 20% Insurance isn’t mandatory in Georgia
Pension Contribution - 2% paid by Employer, 2% paid by Employee, 2% by Government
The country doesn’t have minimum wage regulations and compensation for labor depends on the agreement between employee and employer
All core ILO conventions are ratified by Georgia
No working permits are required
Citizens of 98 countries can stay in Georgia without visa during whole 1 year, which helps attracting professional employees from other countries in the wider region
56% of the unemployed population is in the 20-40 age category
Unemployment rate is 12.7% (2018)
YOUNG, SKILLED AND COMPETITIVELY PRICED LABOR FORCE
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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TRADE FLOWS, PRODUCTION AND CONSUMPTION APPAREL, FOOTWEAR AND BAGS MANUFACTURING
Note: Footwear and bags manufactured by Georgian companies
155 181 195 198
86 80 86 82 55 51 71
123 152
180
50 100 150 200 250
2015 2016 2017 2018
Apparel, mln USD
Import Export Production Consumption
67 73 83 82
2.1 2.1 1.4 2.2 2.6 2.7 3.0
67 74 85
50
100
2015 2016 2017 2018
Footwear, mln USD
Import Export Production Consumption
14 15 19 20
1.3 0.6 0.8 0.6
7 4.8 5.1
20 20 23
5
10
15
20
25
2015 2016 2017 2018
Bags and accessories, mln USD
Import Export Production Consumption
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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Access to 2.3 billion market
— Strategic location –Georgia offers direct access to European, Gulf Cooperation Countries and CIS markets.
— Possibility to save up to 20-30% duty -With existing free trade agreements, products which are originated in Georgia, can have zero import tax to EU, Turkey and CIS countries for footwear and bags, which otherwise amount up to 17% for EU and Turkey and up to 30% for CIS countries.
Competitive costs
— Labor cost - average salary in apparel manufacturing is USD 300, in footwear manufacturing USD 290 and in bags manufacturing – up to USD 450.
— Low electricity cost - Electricity costs for industrial consumers range between between USD 0.055 to USD 0.079 per kWh
GEORGIA’S COMPETITIVE ADVANTAGES
Low taxes
— Free Industrial Zones - there are 4 free industrial zones in Georgia, which are exempt from all taxes, except personal income tax;
— Tax payable on salaries is personal income s tax-20%, plus 2% pension contributio
—
Government incentives
— Free land - Government of Georgia can transfer
Liberal taxation system - 0% profit tax on reinvested profit;
state owned property for manufacturing project for free of charge, with investment obligation.
— Financial support mechanisms - Program “produce in Georgia” provides interest
local banks; State investment fund-JSC
equity in investment projects.
— Education - State owned vocational educational institutions provide courses in shoemaking and sewing;
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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BENCHMARK ANALYSIS OF GEORGIA WITH COMPETITOR COUNTRIES
Sources: KPMG; PWC, World Bank
0.11
41.7
37.840.9
9.9
40
Total Tax & Contribution Rate (%) ), 2018
0.1
0.06 0.06
Moldova
Average gross salary in the sub-sector of garment and footwear, 2017
Construction costs per square meter, 2017
Electricity tariffs, 2018
6
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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* Financial calculations are based on KPMG study. For full report, please contact us
Project details*
Investment cost USD 33 743 000
Capacity, units 8 446 000
Construction timeline 1
Annual maintenance CAPEX USD 1 687 000
Export sales, % 100
Project NPV USD 8 135 000
IRR 15.2%
Payback period 9
Georgia has a potential to produce different type of leather footwear for international brands;
Products can be exported to EU, CIS and middle east.
It is possible to source part of raw materials locally as well as import it easily from Europe or Asia. There are 5 leather manufacturing companies in Georgia.
KPMG has done high level calculations and according to the study, leather footwear manufacturing plant with annual capacity of 8.4 million pairs is feasible.
INVESTMENT PROPOSAL OF MANUFACTURING LEATHER FOOTWEAR
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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INVESTMENT PROPOSAL OF MANUFACTURING SPORTS FOOTWEAR AND FOOTWEAR WITH UPPERS OF TEXTILE
Georgia has a potential to produce sports footwear for international brands;
Products can be exported to EU, CIS and middle east.
Raw materials can be easily imported from Europe or Asia.
KPMG has done high level calculations and according to the study, sports footwear manufacturing plant with annual capacity of 8.6 million pairs is feasible.
Project details*
Investment cost USD 34 618 000
Capacity, units 8 665 000
Construction timeline 1
Annual maintenance CAPEX USD 1 154 000
Export sales, % 100
Project NPV USD 8 107 000
IRR 15.9%
Payback period 8.8
* Financial calculations are based on KPMG study. For full report, please contact us.
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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Project details*
Investment cost USD 23 9018 000
Capacity, units 5 987 000
Construction timeline 1
Annual maintenance CAPEX USD 1 196 000
Export sales, % 100
Project NPV USD 9 063 000
IRR 17.1%
Payback period 8.5
Georgia has a potential to produce travelling bags for international brands.
Products can be exported to EU and CIS countries.
Raw material can be easily imported from Europe or Asia.
KPMG has done high level calculations and according to the study, travelling bags manufacturing plant with annual capacity of around 6 million units is feasible.
* Financial calculations are based on KPMG study. For full report, please contact us
INVESTMENT PROPOSAL OF MANUFACTURING BAGS (SUITCASES AND TRAVELLING BAGS)
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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Mission: supporting of manufacture and agriculture industries Government offers:
— Subsidies for loan interest payment
— Free lands/buildings for factory construction
Four Free Industrial Zones (FIZs) operate in Poti (sea port), Kutaisi (second largest city) and Tbilisi (capital city)
If a company produces goods for export in FIZ, it is exempted from all taxes except Personal Income Tax (20%), which is paid from employees’ salaries
PARTNERSHIP FUND
— 100% state owned fund
— Estate, Manufacturing, Agribusiness
— Finances up to 49% of equity in new investment projects
PRIVATE FUNDS AND INTERNATIONAL FINANCIAL ORGANIZATIONS— Georgian Co-Investment Fund— European Bank of Reconstruction and
Development (EBRD)— International Finance Corporation (IFC)— Asian Development Bank (ADB)— European Investment Bank (EIB)
INCENTIVES AND ACCESS TO FINANCE
PRODUCE IN GEORGIA FREE INDUSTRIAL ZONES
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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LEPL “Enterprise Georgia” operates under the Ministry of Economy and Sustainable Development
“One-stop-shop” for investors to support companies before, during & after investment process
Moderator between investors, government and local companies
Information
General data, statistics, sector researches
Communication
Access to Government at all levels & connection to local partners
Organization
Organization of site visits and accompanying of investors
Aftercare
Legal advising & Supporting services
CONTACT INFORMATION:18 Uznadze str. 0102 Tbilisi, GeorgiaTel: (+995 32) 2 960 010E-mail: info@enterprise.gov.gewww.enterprise.gov.ge
ENTERPRISEGEORGIA
LOCAL COMPANIES
INVESTORS
GOVERNMENT
ENTERPRISE GEORGIA
OUR SERVICES
ENTERPRISE GEORGIA
INVESTMENT OPPORTUNITY OF MANUFACTURING FOOTWEAR AND BAGS IN GEORGIA
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FOR NOTES
2019ENTERPRISE GEORGIA
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