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Why invest in tourism in Georgia

pict_Why invest in tourism in Georgia

One of the best investment strategies is to look for rough diamonds. In terms of international investment, this means turning to less well-known markets with relatively inexpensive assets but impressive growth potential.

An emerging economy, to which an entrepreneur's keen eye should sustain its full attention, is Georgia. This small country, if any, has a dynamic services sector and a government policy that has resolutely embarked on a pro-business agenda over the past 15 years, with no sign of reversing this trend.

Georgia is an excellent place to invest largely because of its combination of very low taxes and high growth rates. Gross domestic product grew on average by 6.1% per year between 2003 and 2017 and the growth forecast for 2018 is 5%, 2019 will be even stronger. Growth driven by an ultra-favorable tax environment. For example, non-Georgian source income is not taxed, dividend and interest income is taxed at 5% and corporate income is taxed at 15% (0% if profits are reinvested).

Georgia has several sectors of its rapidly growing economy that deserve to be monitored. Among these, tourism is particularly interesting. In 2018 more than 8 million people will visit the country. That is 1 million more than in 2017 and 2018 will beat all records. Why is that?

A little known country with many assets

First of all, hospitality and gastronomy in Georgia are fantastic. Then, it is a Caucasian country with a history spanning several thousand years, the situation of this small isthmus, at the confluence of three great empires, has shaped a very original identity and an atypical culture. There are thousands of historic sites where you can admire some of the oldest architectures in the world, the base of an amazing mix of Eastern and Western influences. Then the landscapes of the Caucasus are breathtaking. This country hardly larger than Belgium concentrates an incredible natural wealth, so much so that you can ski in the mountains in the morning and swim in the Black Sea in the evening.

And then the Georgian wine! Georgia is one of the oldest wine-growing regions in the world. Vines and winemaking are deeply integrated into the culture of the country. To put it bluntly, you have grapes everywhere in Georgia, even in the heart of Tbilisi there are many vineyards and all you have to do is reach out and pick the grapes. Not a single Georgian will tell you that he does not cultivate his vineyard somewhere and make his own wine. 

Ecotourism in Georgia also offers the most adventurous routes and each season is unique to discover the country. 41% of Georgia's territory is covered with forests, and 25% of Georgia's territory is in protected national parks! These areas offer a preserved nature in which hiking, cycling, horse riding, safari and sport fishing are within reach of all.

The tourist hotspots, the capital Tbilisi, the Black Sea coast and the north of the Greater Caucasus are developing very rapidly to better accommodate all these international travelers. The roads comply with European standards, the customer service is certainly the best in Eastern Europe and the hotel infrastructure is in full renewal and tends, year after year, towards a quality of service worthy of our European standards.

By 2017, Georgia had a capacity of approximately 60,000 beds. Many renowned hotels such as Marriot, Hilton, Sheraton, Radisson, Gardens, etc. have made their home here. And the occupancy rate is almost 80%. Currently about 50% of the hotel stock is concentrated in Tbilisi and Batoumi with 18,000 and 12,000 beds respectively (figures 2017 Ministry of Tourism), and this is far from enough. 

Batoumi, the great port of Adajarie, on the Black Sea, is (perhaps) the most impressive tourist destination in Georgia. It is a superb seaside resort, very popular since the Soviet period (Georgia was considered as the Riviera of the USSR), and remains a very popular destination for Georgian holidaymakers as well as tourists from Russia, Iran, Turkey, Armenia, Azerbaijan, Ukraine and elsewhere.

Adjaria's subtropical climate is a destination for travellers more oriented towards nightlife, partying and clubbing and enjoy its large number of cheap bars and clubs, as well as its high-level music festivals. International pop stars and DJs perform at popular summer festivals in the city and or in Anaklia. Batoumi and Tbilisi are also important playgrounds in the region, as many neighbouring countries face serious bans and this industry plays a major role in the country's tourism strategy.

Moreover, it is quite easy to get to Batumi, both from Tbilisi and from abroad. There is a rail connection between the two cities, and the east coast is only a few hours drive from Kutaisi, Georgia's second largest city with a new international airport. 

Located in the north of the country, among the winter sports resorts, Bakuriani, Gudauri and Mestia are the most popular. Bakuriani is a ski resort about two and a half hours drive from Tbilisi and at an altitude of 1700 meters. Mestia is further away from Tbilisi and famous because located in the region of Upper-Svanetia, magical region on the roof of Europe. Gudauri, more fancy, is another ski resort about two hours from Tbilisi.

Due to infrastructure and capacity constraints, Tbilisi and the Black Sea coast have good potential for future growth. But the other regions of Georgia are starting to develop hotel infrastructure in regions that until recently were difficult to access. 

Growth potential in the tourism industry

The tourism market in Georgia has exploded over the last fifteen years, the number of visitors increased by nearly 1 000% between 2005 and 2017. According to figures from Georgia's Ministry of Economy, 2017 was the record year. The number of registered tourists was 7,555,936, 1,194,433 more than in 2016. This sector is growing at +15% per year. In 2018, according to the last figures of March (+33%), this record will be beaten: Georgia expects more than 8 000 000 visitors this year.

The largest number of visitors are currently from neighbouring countries such as Russia, Turkey, Armenia and Azerbaijan. However, Georgia has been building its brand in Europe for two years and there are already very notable increases in visitors from Poland, Germany, Austria or Holland. They are European tourists who have a strong purchasing power. New airlines to Western Europe have just opened in March 2018 to Paris, Brussels, Berlin, Barcelona...New airlines are in preparation.

Barriers...almost non-existent 

Georgia has become one of the most open countries in the world and has liberalised its visa regime. Nationals of many countries can come to Georgia without a visa and travel within the country without any restrictions. Georgia has no restrictions on the purchase of real estate by foreigners, and taxes are minimal. There are excellent opportunities for those looking to invest in hotels or rental apartments (short term Airbnb type) in Tbilisi and Batoumi.

In addition, the authorities have recently set up "tourist areas" to promote investment in the hotel sector. Seven areas are located on the Black Sea coast and offer entrepreneurs financial advantages in terms of infrastructure development support and tax benefits. These incentives to invest in the hotel sector range from building land sold for a symbolic price in order to build a hotel, for example.

The government provides the necessary infrastructure (gas, water, electricity, connection to the sewerage network,) ensures the construction of access roads, building permits are granted by simplified procedures and without application fees, the value of the land is exempt from property tax, the profits generated by these hotel services are exempt from income tax until 1 January 2026.

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