Wide-scale privatization has started in Georgia

In the end of November 2019, the Georgian government announced the start of mass privatization of the state property. Initially it was planned that “sellout” of the property will begin in January 2020; therefore, many investors were not ready for such rampant development of situation. Privatization is a great opportunity for most businessmen to open a company in Georgia or expand their business by purchasing assets under beneficial terms.

Business in Georgia: briefly on the privatization project 

The project of privatization of the state property received the name “100 investment offers for business”. It assumes selling of different objects, which when used correctly may significantly increase the effectiveness of business in Georgia, using e-auctions. At an auction you may purchase:

• non-agricultural land areas, as with structures, so as without;
• farms and fisheries;
• industrial plants;
• medical institutions;
• other buildings.

Objects shown at an auction are located in Tbilisi, Kutaisi, Rustavi, Poti, and other regions of Georgia. Therefore, they can be easily re-profiled for using as a hotel, a medical institution, or to arrange a residential complex or a warehouse on a land area. All these trends are currently are very economically viable in Georgia. A special interest is aroused by warehousing premises; because of their shortage, the government even permitted companies registered in free industrial zones of Georgia to use warehouses outside zones with beneficial taxation. A demanded trend, therefore, is building warehouses in such cities as Kutaisi, Poti, and Tbilisi. These particular cities have Free industrial zones.

Expectations of the Georgian government from privatization

the head of the Georgian government expects that with the help of the auction it will be possible to receive at least 200 million lari (approx. 67 mln. USD) and create 2 500 job opportunities. Gakhariya also promised that the government will actively support potential investors.

As of today, 100 objects (with starting price around 150 million lari), are presented at the auction; in replacement of already sold-out new objects with similar characteristics will be offered.

Requirements to participants of privatization auction in Georgia

According to the Georgian laws, participants of an auction may only be:

• citizens of Georgia;
• natural persons who are noon-residents;
• Georgian companies where the share of the state of the municipality does not exceed 25%;
• Georgian companies established by foreign legal entities or natural persons.
• legal entities that are jointly owned (Georgian and foreign ownership).

Benefits for participants of the privatization auction in Georgia

To promote interest in objects of property, the Georgian government, apart from advertising the auction, helps with all the legal issues.

Participants of the auction obtain the following benefits:

• possibility to purchase property in Georgia at a fair price;
• becoming an owner of property under a simplified procedure;
• buyer will not have to deal with legal issues; evaluation of property in the register, identification of servitudes and boundaries. The state undertakes all these obligations;
• possibility to develop the project with account of the city master-plan.

The available real opportunities to purchase the state property under beneficial terms had attracted much attention to the privatization auction. In the very first days of the auction the number of visitors on the site exceeded 15 000, and in 2 weeks of the auction there were sold 26 objects, among which are the residence of the President of Georgia in Mestia. It was purchased for 7,5 mln. lari by the private company “Aigvinis sahli”.

Basic terms of participation in the privatization auction in Georgia

Realization of property in Georgia is made under the law “On state property” and the Decree “On approval of Rules for holding the e-auction in alienation and transfer of the state property” dated 10.02.2011.

The basic rules for participation in the auction are:

• provided guarantee in amount not less than 10% and not more than 80% of the starting price of the property;
• minimum term of validity of the irrevocable bank guarantee 45 calendar days; meanwhile, it should be 15 calendar days longer than the term of final payment under the lot;
• if the final payment for the lot is not made within 30 calendar days, then results of the auction are announced invalid. Therefore, to make all payments in time it is recommended to fully pay the price of the property within 25 calendar days;
• buyer must sign an agreement of purchase in one of Houses of Justice within 45 calendar days; otherwise the result of the auction will also be cancelled.

Methods of paying a guarantee deposit

To participate in the auction, buyers must make a deposit the following way:

1. In cash in a branch of Liberty Bank. A payment should always state the name of natural person/full name of legal entity, personal number/ID, and lot number.
2. With a payment card on the lot page. Currently, banks-partners are: TBC, Liberty, Bank of Georgia and Cartu, but customers may also use a plastic card of any other bank.
3. Using the service
4. By sending an electronic bank transfer (preferably not later than 28 hours prior to the ending of the auction).
5. By activating an electronic bank guarantee.

Investments in Georgia: statistics

Until recently nobody could imagine that a small Caucasian country would become one of the leaders in Doing Business, as well as several other international ratings. Nevertheless, due to successful reformations today it is quite easy to register a company in Georgia; the tax system was much simplified together with the process of property registration. Besides, a company in Georgia provides investors the following benefits of this jurisdiction:

• duty-free access to global markets with more than 1 billion customers (countries of EU, CIS, EFTA, Turkey, China, Hong Kong);
• cheap workforce and low cost of bank services;
• high level of confidentiality – Georgia does not exchange information on financial flows with tax departments of other countries within CRS;
• optimized taxation for companies-exporters in Free industrial zones (FIZ) and IT companies in Georgia.

Obtain the detailed information on benefits of business using a company registered in FIZ Georgia or IT company in Georgia.

Who invests in Georgia more: results of 3 quarter 2019

Because of attractiveness of the Georgian jurisdiction investors show continuous interest in it. For three quarters of 2019, the amount of foreign investments made 908,9 mln. USD, including for 3 quarter of 2019 года – 417,3 mln. USD.

Most of all, from July to September 2019 in the economy of Georgia there had been invested by companies from:

• Great Britain – 78,4 mln. USD;
• Netherlands – 68,3 mln. USD;
• Turkey – 43,1 млн. USD.

These three countries account for 45,5% of all investments for the third quarter 2019. Also, a big portion of capital was forwarded to Georgia from: China (30 mln. USD), USA (25,1 mln. USD), Japan (16,2 mln. USD), Panama (15,7 mln. USD), Russia (15,1 mln. USD), Denmark (14,7 mln. USD) and Czech republic (13,1 mln. USD).

The most popular sectors in Georgia among investors:

• energetic (hydro power plants and wind stations) – 152,4 mln. USD;
• hotel and restaurant business (hotels, hostels, restaurants, cafes, etc.) – 140,7 mln. USD;
• financial sector (micro-financial organizations and banks; by the way, there are no banks with the state capital in Georgia) – 117,6 mln.

These particular sectors account for almost half of all investments. Also, big interest in investors is aroused by construction sector, real estate, mining industry, and transport.

If you want to participate in the privatization auction in Georgia, please contact us at: [email protected]. We provide full legal assistance and may act as an intermediate between you and the Georgian government. We can arrange a meeting with a representative of the privatization committee.