The FINANCIAL — Having a liberal economic policy is essential for Georgia, representatives of foreign financial companies believe. Potential investors consider political stability, consistency and predictability, as well as over-regulation of the institutionalization and internationalization of the financial sector, to be the main internal risks. They believe that Georgia may profit from its good geographical location. However, open markets and the establishment of a positive investment climate for investors are essential.
The FINANCIAL met with representatives of foreign companies that visited Georgia forthe Georgian Financial Innovation Forum (GFIF) 2015. During the Forum participants got a first impression of the financial sector in Georgia and made initial contact with industry professionals and opinion leaders. The Forum was organized by HansaFincon and co-organized by Georgian Society of Investment Professionals (GSIP).
“Georgia offers great opportunities through its unique geographical position which attracts investors to the private sector and real estate. Investors need professional guidance in Georgia as well as effective structures to access capital, manage assets and comply with the reporting requirements at international standards. HFFT can assist with the structuring, help with the implementation and administration, as well as perform the required reporting functions,” JakobHirschbaeck, HFFT Group, told The FINANCIAL.
A unique geographical position always poses a political risk, Hirschbaeck believes. He named political stability, consistency and predictability as the key challenges for Georgia internally. In his words, over-regulation is another risk at this stage of the institutionalization and internationalization of the financial sector. “The external risks are: geopolitical tensions in the region and the general stability of the financial sector,” he added.
HFFT is an integrated platform of our two service providers – Helvetic and Fidux – offering comprehensive support for investment vehicles in terms of financial accounting reporting and corporate services.
The platform is Gibraltar-based, but draws on the resource of a group with offices in 5 countries and over 50 professionals.
Hirschbaeck delivered several important messages at the forum: “HFFT appreciates the opportunity to assist Georgian investment professionals with the structuring and implementation of their investments and raising assets for these structures in Europe; Gibraltar is a gateway to the European investment market; The Experienced Investor Fund in Gibraltar is the fastest route into the European market; The Gibraltar stock exchange creates visibility for funds and their managers and has an AIFM solution allowing the promoter to passport the fund throughout the EU.”
“Private banking services and wealth management are not yet well-developed in Georgia. It is important to improve the legal base and infrastructure for the development of the financial sector,” said Georg Nigg, Senior Partner at GN Group Liechtenstein.
According to Nigg, it is essential for Georgia to have a liberal economic policy and political stability to develop the economy. “The country may profit from its good geographical location, however, open markets and the establishment of a positive investment climate for investors are essential.”
GN Group is one of the leading companies in Liechtenstein providing services in the sphere of the formation and management of companies, in particular, foundations, trusts and companies in various jurisdictions. The main office of the company is located in the capital of the Principality of Liechtenstein, Vaduz, and our branches are in Zurich and Hong Kong.
The company offers the following services: Estate planning and asset protection;Providing of “family office” services; Investment and finance consultancy; Tax and legal advice.
Due to the Ukraine crisis and stated sanctions over Russia, the economic situation in the region has become quite hard right now. Nigg believes that Switzerland and Liechtenstein will better manage to avoid external risks.
“Those countries are small by both size and population. However, due to political stability over decades, high standard of regulations, attractive tax regime and development of the financial infrastructure, those countries were able to enter the elite of the best economically-developed countries of the world,” said Nigg.
To develop its economy, Hirschbaeck, HFFT Group, advised Georgia to attract capital and investment through a more liquid capital market. “The financial market will play a key role in the development of the Georgian economy,” he believes.
“Georgians will become richer as a result of the sustained improvement of Georgia’s macroeconomic performance through the strengthening of the country’s monetary and budget policies and the development of a more complete and stable domestic financial market,” said Hirschbaeck.
Georgia has a very good geographical location between Europe and Asia, said Nigg, GN Group. Besides that, he said that the country may profit from having access to the sea. “This can help the country to become an important hub for international trade, transport and logistics.”
“Georgia has both amazing nature and is also a country with historical heritage, which can help the nation to develop its tourism industry. Highly-qualified human resources are an important asset to every country’s economic situation, therefore it is essential to invest in the education of the local population,” Niggsaid.
Gocha Nikolaishvili, Chairman and CEO at GSIP, said that the financial service industry is highly developed in Georgia but limited to corporate and retail banking. “Investment banking is not encouraged in the country and no active steps are taken to develop it, despite its high importance. As for now, only several large-sized private equity funds are major investment opportunities for foreigners. And as for priorities, it is necessary for the country to have a local stock exchange with significant liquidity; joint stock company establishment to be encouraged in the country; and in addition, pension funds are very much necessary to provide long-term sustainable resources inside the country,” Nikolaishvili said.
The Georgian Society of Investment Professionals provides valuable resources to the Georgian community by conducting educational opportunities relevant to the investment profession, promoting the value of the CFA designation, sharing industry information with key constituents, connecting members through meaningful activities, and expanding awareness among interested parties. GSIP is a member of International Chamber of Commerce of Georgia.
Nikolaishvili mentionedthat the “country’s promotion is a weak part of the local government”.
According to Nikolaishvili, Georgia should focus on becoming a financial services centre for the region. “As for now, only commercial banking is highly developed in the country, while considering its low liquidity, the local stock exchange is not playing its role in helping international financial resource inflow to the country. Private equity leverage buyout occupation is a little bit early for the country considering its country risk, arising merely from political risk due to local regions of conflict.”
The Georgian Government was advised to create some tax advantages for foreign investors. “Creating tax free zones and promoting them is crucial. Poti Free Industrial Zone is one such advantageous opportunity for foreign investors. It is highly important to work towards creating a competitive tax environment in the region and encouraging micro and small businesses with advantageous tax rates,” Nikolaishvili told The FINANCIAL.
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