Georgia’s nascent electronics, electronic engineering and aviation parts industries are experiencing steady levels of growth and are emerging from the Covid-19 pandemic in good health. 

Several market factors are supporting their development, and encouraging a mix of homegrown firms and major international investors to set up shop to produce semiconductors, home appliances and machinery in Georgia, as well as more advanced products, such as photovoltaic solar panels and aircraft components.

Buoyed by government support and incentives for these emerging sectors, investors point to skills availability, low costs and the country’s connectivity at the heart of Eurasia as drivers of the competitive supply chains that have encouraged them to take the plunge. Tariff-free access to a market of 2.3 billion, thanks to free-trade agreements with the likes of the EU and China, is another plus point. 

Who has taken the leap

In the electronics space, one of the first foreign firms to set up in Georgia was Egypt’s Fresh Electric Home Appliances. A leading domestic appliances brand in its home market, Fresh set up a subsidiary and manufacturing plant in the country in 2009. The French company Groupe Atlantic is a more recent example: in February 2017 it founded Atlantic Georgia as a fully-owned subsidiary. The firm, which is one of the biggest employers in Georgia’s western region of Imereti, manufactures electric water heaters. According to Invest in Georgia, it produced an estimated 207,000 units in 2019, all of which were exported to Spain, Russia, France, Poland and Ukraine.

Shota Gogia is executive director of AE Solar, a German firm that produces high-efficiency photovoltaic solar modules which expanded into Georgia in 2019. “Costs are very good here,” he says. “Water and electricity are extremely low-cost and labour costs are also competitive,” he says. “We did have a factory in Italy, but we closed that because Georgia met our criteria for producing our product in Europe at 30% of our previous costs.”

David Vidan, general manager of Israel-based Elbit-Systems Cyclone, the parent company of ATC — a joint venture between Elbit and the Georgian state-owned Partnership Fund which produces composite parts for aircrafts — agrees. “Georgia’s competitive operating costs and high-quality human resources were positive factors for us,” he says. “We identified ambitious, educated young people and this has been one of the success factors of our project so far. There are good relations between Georgia and Israel, and connectivity between the two countries is easy and convenient, with multiple flights taking just two hours each day.”

Free industrial zones

Georgia operates four free industrial zones (FIZs) where businesses can benefit from a range of tax exemptions. For example, if a company produces goods for export in a FIZ, it is exempt from all taxes except personal income tax, which is paid from employees’ salaries.

AE Solar’s factory in the Kutaisi FIZ in the west of the country benefits from these arrangements. “Our Georgia factory works for the US market, enabling us to take advantage of these tax savings. Being in the FIZ, we also don’t pay value-added tax, unless we sell in Georgia,” Mr Gogia says.

Speed and incentives

Mr Vidan has been impressed by the speed at which the company’s investment has taken off. “We established a joint venture for the production of aircraft parts in Georgia in 2015; three years later, the site was qualified to manufacture those parts and we’re now manufacturing for the most advanced planes on the market from here,” he says.

Georgia offers incentives and co-investment opportunities to investors interested in developing manufacturing facilities in the country through its Produce in Georgia scheme, which offers financial and technical support for industrial manufacturing, including co-financing interest rates on commercial loans, collateral guarantee co-financing and the transfer of state property into private ownership for a symbolic price of La1 ($0.32). In addition, training grants are available for companies that create at least 50 new jobs in the country.

The government has also launched a new grant programme targeted at foreign investment projects in emerging industries, including the manufacture of aircraft parts, and electrical and electronic engineering production. This offers cashback of up to La1m, and is designed for companies registered in Georgia which are subsidiaries of foreign businesses that invest in the country. It provides assistance with the cost of workforce training, infrastructure and communications.

Natela Turnava, Georgia’s minister of economy and sustainable development, says the foreign investment cashback programme addresses investors’ biggest challenges, such as the lack of a highly qualified workforce. “Of course, our workforce is relatively competitive, and very affordable, but it’s not enough. Among our new priorities is placing an emphasis on education," she told fDi.

Workforce

On the whole, investors are happy with the availability and cost of Georgia’s 1.5 million-strong workforce. According to Invest in Georgia, 55% of the workforce is aged 44 or younger, and the average monthly salary in the electronics sector is the equivalent of $422.

“What we’re doing with small solar panels is very new for Georgia,” Mr Gogia told fDi. “Initially we hired people from China because it was hard to find local people who could work with the new production lines. This was a challenge for us for about three or four months, but now we don’t have any issues. People have been trained and we’re training more people — although our plans have been on hold because of coronavirus, we’re planning to train people from all over the world and to certify them here in Georgia.”

However, in addition to the initial challenges recruiting the right staff, Mr Gogia says that local availability of materials was a problem. “We had to import most materials from other countries. However, the investment rules state that no more than 70% of materials could be imported. We worked with Invest in Georgia to ensure that we met the criteria so they could award Made in Georgia certification,” he explains.

Despite the pandemic, Mr Gogia is upbeat about the future. “We are committed to expanding our current capacity in Kutaisi. We currently have 150 people on our books, but this should increase to 300 by the end of this year or early 2022.” Mr Vidan is also positive: “Trust the local people: they are smart, eager to succeed, curious and have good work ethics.”

In association with Invest in Georgia. Writing and editing were carried out independently by fDi Intelligence.