The FINANCIAL — Georgia’s best asset is Georgia and the story it has, believes Erika Olson, Deputy Chief of Political and Economic Affairs at the US Embassy in Georgia. In her interview with The FINANCIAL, Olson spoke about the prospective of Georgian businesses in the US as well as the investment climate of Georgia, and American businesses in Georgia.
Erika Olson is an ex-officio member in the board of directors of the American Chamber in Georgia. She has also served at the US Embassy in Bishkek (Kyrgyzstan), Tashkent (Uzbekistan) and at the State Department in Washington DC.
The big key for Georgia will be getting people in the door, showing them Georgia, that it is unique and a good place to invest, believes Olson.
“The biggest advantage for Georgia are the reforms changing the business climate to being much more friendly, making it an interesting place for US companies to arrive and take a look at the opportunities,” she said.
“Georgia is its best advertisement and if you get people to come here that goes a long way because I have seen people take away really good memories of Georgia,” she said.
“There are some particular industries that US companies have expressed more interest in or believe there is more potential in. Energy is an interesting area, agriculture has huge potential, and the emphasis here is put on increase of export agriculture. We have had US companies here looking at hazelnuts and other areas within agriculture. We have investments in dairy and other agro processing,” Olson said.
“The big key for Georgia will be getting people in the door, showing them that Georgia is a good place to invest and what the opportunities are. Even in the US market companies have been very conservative about making investments in their own country, until they see what happens with their turnovers and with consumer markets. Hopefully the worst part of the financial crisis is behind us although the reverberations still exist when it comes to investment decisions.”
Q. What kind of obstacles do American businesses face in Georgia?
“The biggest obstacle is transparency right now. Sometimes it’s very difficult to find all the information and put it together. For businesses doing due diligence is quite important, so they have the feeling they have all the information and understand the project they are getting into.
I believe an important area for Georgia to continue with their reforms is increase in transparency, as for businesses when looking to new markets especially, the number one priorities are transparency and predictability. They have a business plan for the next 5-10 years and need to know that the plan is guaranteed and they will be able to work on it, especially when they are making a huge investment. That’s probably the biggest challenge.
The other challenge for Georgia is the fact it’s a small market. If you are looking to attract foreign investors especially American investors who are far away, Georgia is competing with many other places in the world for that investment money, consequently when you look for commercial goods Georgia is a very small market. This makes Georgia more a transport and transitional country which is very important. So if you can show that there is market in Georgia, Azerbaijan, Armenia as well as Central Asia that changes the calculus a little bit. But I think that’s also a challenge for Georgia.
Q. How have the strategies of US businesses changed in the post-war and post-crisis period in Georgia?
A. The strategies of US business have globally changed since the world financial crisis. In terms of Georgia, the country had a double hit with the war in 2008 and then the global financial crisis in 2009. US businesses definitely became much more cautious, especially during the six months right after the conflict as they did not know where things would go.
However, after that period it became more an issue of global financial reality and less the issue of war in terms of having an impact on decisions. Companies did not even have much to invest and were holding back to see what was going to happen. The other thing was that opportunities got cheaper in some of the more developed markets. Whereas in the past investments in Georgia would not necessarily compete with investments in California, due to dropped property prices and everything globally, there is much more competition for the USD.
I have not seen decrease in interest towards Georgia, to the contrary, there is a lot of interest especially from an American perspective, medium size businesses that have been active globally in Turkey, Ukraine and in Eastern European markets.
“The Georgian market is small and some of the investments that might be looking for consumer bases are probably not going to come here, especially the big companies as it does not fit their strategic plans. If you look back over the last five years when FDI before the war was very high it was directly led by Georgia performing well in reforming the economy and business, reflected in different rankings.
I think now that Georgia, like every country, especially for developing countries looking for investment, has to think about the global competition for investment, what is it that makes Georgia unique to help drive investment money into Georgia.
I think Georgia’s reform model is something that makes you unique. This is important that the country continued to move forward with these economic reforms and take some of the challenges. That will continue to keep businesses interested in Georgia and make decisions to invest here in the future compared to other places.
Q. How often are issues related to political stability and security raised in negotiations with US investors and businesses interested in dealing with Georgian companies?
A. For companies doing due diligence all the way around before making serious investment is very important. Any US company coming to the country does not ask this question. In late 2008 and 2009 this was the number one question on people’s minds and now it’s not. So if you ask – does the security situation scare people who are deciding whether to make an investment or not – I would say no.
Political stability is very important for businesses as is predictability, transparency and stability which are all key in terms of their plans. As businesses that come with plans looking to invest lots of money they need to know what the ROI is going to be. I believe continuing reforms and increasing transparency will always help businesses to be able to feel more secure in investing in Georgia.
Q. What should Americans that are thinking of investing in Georgia know beforehand?
A. Any company looking to invest in the country should make sure they have done research. The company should make sure it is getting into the industry which makes sense for the country they are investing in, the companies know that and this is what they do.
It’s important for companies investing in Georgia to understand that the reform process is still ongoing and a lot has been done in recent history, during the last five years in particular. Moreover, transparency and predictability are important. There is a lot of potential in the country. However the developing economy is still trying to find its way.
Q. What potential do you see in the Georgian market? Which is the most prospective industry in Georgia?
A. Several sectors have huge potential such as agriculture, energy and ICT (information communication technology), a new industry that has a lot of potential, is going to require some continuing work of processes that could have a big impact on Georgia economically. However I think there is still work to be done in some areas such as IPR protection, strengthening enforcement in it. We had some big American ICT companies who have expressed interest in Georgia. There is real grass root potential in that area and I would definitely encourage local ICT companies, scientists and software developers.
Q. Which fields are the most attractive for US businesses currently? How has the tendency changed?
A. There is definitely potential in the Georgian real estate market. I think people are watching Batumi to see what happens as there is always the danger of over development. Especially with what happened in the US and Europe with the global real estate market.
I think real estate investors are much more cautious there and do not have the money they used to. I believe they are more cautious when they are looking at deals. As you know there are several well known American hotel brands that are already here in Georgia. Some have been here for a long time and some have only recently opened. That seems to be something we will continue to see in the next couple of years. I believe there is definitely potential especially in the west of Georgia.
Georgia as a tourism destination is a very attractive place. Especially as the industry and services continue to develop, the area has big growth potential. The biggest challenge with American tourists is the distance as this is a very long trip to make. So attracting Americans to come will take lots of promotion.
The European market is much closer so that may be a more natural client base. However there are many Americans who are interested in going to new places. Wine and food tourism will attract lots of Americans.
Q. How does the US benefit from investing in Georgia?
A. The US definitely benefits from having a private sector in Georgia, helping strengthen our relations, ties between people, as well as culturally which is a fundamental aspect of businesses. There is a private sector making their decisions on profit margins and returns. The US companies are very important partners in cultural ties and in cultural connections. Moreover, US entities help Georgian businesses grow and become bigger players in international markets.
Q. How prospective is Georgian companies exporting to the US market? And which is the most niche market for Georgian goods to be exported?
Q. As the Georgian economy grows more companies are trying to export, making that leap between the company that produces domestically and the company that wants to export a big one. There are lots of things companies should have in their minds which are one of the challenges the Georgian companies in the industries are facing with building exports. There are standard issues companies have to meet based on whatever market it exports to. However, there is the question of supply. If you have export channel and exporting, whoever buys the goods should understand that every time they will be able to receive the same needed amount and that’s specifically what SMEs are still working on.
The US Embassy did a series of workshops throughout the country including Tbilisi, Kutaisi, and Batumi focusing on this question of exporting to the US in July 2010. It was a very useful exercise seminar for businesses. There are many regulations in the US when it comes to importing from foreign countries and the goal of the workshop was to help Georgian businesses understand it. There should be lots of education local businesses have to go through in understanding the process of export especially to western markets.
Q. In your opinion why are Georgian products not widely presented in the US market?
A. I think the biggest challenge for Georgian products in the US market is distance. Georgia and the US are very far away therefore Europe is a more natural market for Georgia.
However I think that there are more Georgian products now than a couple of years ago. You can buy Georgian wine in some of the US’s big cities, in NY, Washington DC, Seattle, Los Angeles, even in some of the smaller boutique brands.
The challenge that some Georgian companies have is how to make the jump to become an export ready company and that’s something a lot of Georgian companies strive to be. As they move forwards and develop their strategic plans they will manage to place themselves in the US market.
We have worked with food companies, with wineries to try to help them be able to get into US markets, we have taken groups from Georgia to the US, introduced them to major importers and taken them round the state, to understand regulations and standards which is a very important side when you are looking to export.
Q. Which Georgian products can be successful in the US market?
A. Georgian food products have a lot of potential, wine and lots of Georgia’s unique foodstuffs that could do well in the markets of the US, what’s more some of the fundamental exports and raw materials. I think there is potential with mineral waters. But the price of mineral water goes way up when you have to export it across the ocean. One can find Borjomi in fewer markets in the US even now.
Q. In your opinion, which American franchises might be successful in Georgia? Why have global brands like Starbucks, BurgerKing or others not expanded their market to Georgia?
A. We have a successful American franchise in Georgia which has been here for a long time – McDonald’s, and we are happy to see another opening in Kutaisi. Last year Texas Chicken, another US brand, was opened. There is lot of potential for US franchises coming here not just on the food side. Curves, the fitness centre, is also a US franchise.
Franchising in general is an area that can really be expanded in Georgia whether it’s global franchising or American brands, or even franchising Georgian brands from Tbilisi to other places in the country.
Discussion about this post