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R 091231Z JUL 09
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 1886
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TBILISI 001283 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EIND EINV ETRD PREL GG
SUBJECT: GEORGIA: IFC EVALUATES GEORGIA'S SECTOR 
COMPETITIVENESS 
 
¶1.  (SBU)  Summary/Comment:  On June 29, the International 
Finance Committee (IFC) released the results of its Sector 
Competitiveness Overview of Georgia.  The Georgian Government 
requested the IFC conduct the competitiveness survey to help 
them identify strategic areas to focus investment in hopes of 
boosting Georgian exports and creating jobs.  The report 
identifies Georgia's most promising manufacturing sectors and 
notes a few non-manufacturing sectors with substantial 
economic potential.  The IFC identified six sectors in which 
it believes Georgia can compete locally and globally: Wine, 
Fruit, Vegetables, Construction Materials, Apparel, and 
Pharmaceuticals and Medical Devices.  The IFC identified 
these sectors as aving strong potential for export to the EU 
and within the Caucasus, as well as import replacement for 
local markets.  The IFC also believes development in these 
sectors could create a significant number of jobs.  According 
to the IFC study, the disconnect between the education system 
and labor market remains a significant obstacle to economic 
growth.  The study also stressed Georgia's liberal business 
climate and strategic position on the Black Sea and as a 
gateway to the Caucasus and Central Asia as decided 
competitive advantages.  However, the shortage of quality 
graduates in vocational fields where employment demand and 
growth potential are greatest will remain a challenge for the 
foreseeable future.  End Summary/Comment. 
 
Overarching Findings 
 
¶2.  (SBU)  The IFC urged Georgia to promote education, 
training and skills development in all sectors if it wants to 
better use its competitive advantages.  The study notes, 
"that the quality of technical graduates has decreased."  The 
IFC recommends that local and international investors be made 
aware of opportunities in specific key sectors and that 
sector strategies be developed.  Certain industries need to 
be brought up to international standards, especially the 
fruit, vegetable, wine and pharmaceutical sectors. Other 
recommendations are to improve collaborations within the 
sectors (e.g. joint marketing, training, certification, 
etc.), continue government programs like the "cheap credit" 
program for business, and ease up on the aggressive levying 
of taxes and fines.  Though outside of the original scope of 
the report, the IFC also stressed the potential of certain 
non-manufacturing sectors, such as Exportable Services 
(Internet Technology and Business Process Outsourcing), 
Logistics and Transport Services, Tourism, and Utilities. 
 
Wine 
 
¶3.  (SBU)  Georgia's strong, unique history of wine making 
placed viniculture at the top of the report.  The Georgian 
wine industry has made significant strides in the last five 
years, especially in terms of quality and developing markets 
in Europe and the U.S.  Despite this growth, many challenges 
remain.  The IFC noted that while Georgian wines have brand 
recognition within the former Soviet Republics, Georgia needs 
to do more to develop a following in European, U.S. and Asian 
markets.  Georgia enjoys a unique logistics location for 
export to EU and CIS markets, a large number of experts in 
the field and enjoys low costs in the areas of wages and 
grapes.  Nevertheless, the current Russian embargo, poor 
technology, high packing costs (including imported bottles 
and corks), small scale of producers, lack of collaboration 
between producers, and lack of certification to international 
standards hamper growth.  The IFC recommends that wine 
industry producers collaborate on marketing, Research and 
Development, materials sourcing and standards in order to 
QDevelopment, materials sourcing and standards in order to 
facilitate growth.  The report further states wine producers 
need to strengthen educational programs and bring in more 
international expertise via investors and partnerships with 
international companies to improve competitiveness. 
 
Fruits and Vegetables 
 
¶4.  (SBU)  The IFC identified agriculture, in particular 
fruit and vegetables, as Georgia's strongest sector. 
Georgia's main strength are its climate and topography which 
is able to support a wide range of fruits, such as apples, 
berries, citrus and grapes.  Georgia's favorable climate 
requires less investment in greenhouses and irrigation. 
Georgia has local knowledge and donor interest in investing 
in agriculture.  As with wine production, the current Russian 
embargo, numerous small scale producers, lack of investment, 
lack of modern facilities/latest technologies, packaging and 
transport costs, marketing, certification and R and D are all 
factors that stifle growth in the fruit sector.  The IFC 
recommends that Georgia further promote opportunities in this 
sector to both local and international investors, provide 
more assistance to producers, encourage collaboration among 
producers and modernize production facilities.  Again, 
similarly to the wine sector the IFC documents the need to 
 
TBILISI 00001283  002 OF 002 
 
 
strengthen educational programs and to bring in more 
international expertise via investors and partnerships with 
international companies. 
 
Construction Materials 
 
¶5.  (SBU)  This sector covers all materials needed for 
construction from cement and gypsum to plastic, glass and 
wooden fittings.  Georgia has significant reserves of raw 
materials, low labor costs and is situated in a growing 
market in the Caucasus (the predominant consumers being 
Azerbaijan and Armenia); and a business environment 
identified as attractive.  Unfortunately, Georgia has higher 
energy costs than Azerbaijan and Armenia as well as stiff 
competition from both countries.  Inconsistency and a lack of 
transparency in awarding licenses is a problem.  The IFC 
recommends that a full analysis of this sector be completed, 
increase promotion to local and foreign investors, and review 
the whole process for acquiring raw material licenses as well 
as expanding the skills base through education. 
 
Apparel 
 
¶6.  (SBU)  Georgia's competitive cost factors (e.g. wages, 
real estate, logistics, utilities, etc.) are lower than its 
main competitor in the region, Turkey.  Its proximity to the 
EU puts it in a more favorable position vis-a-vis its Asian 
competitors.  The local work force in this sector has the 
necessary skill set the market requires, but is 
underemployed.  The main weakness is that textile 
manufacturing is mainly located in the Batumi area which 
tends to restrict the labor supply.  Georgia also suffers 
from a limited local supply base meaning many raw materials 
need to be imported.  The IFC recommends identifying and 
developing more locations across Georgia for textile 
production, attracting more Tukish firms to relocate to 
Georgia to take advantage of lower labor costs, and pursuing 
duty-free access to the U.S. market. 
 
Pharmaceuticals 
 
¶7.  (SBU)  Imports of pharmaceuticals to the Caucasus and 
Central Asia have been growing steadily over the past few 
years as there is virtually no local manufacturing 
capability.  Georgia, with three existing manufacturers, a 
strategic location to export to these markets, low cost 
factors, a good business environment and a good skill base 
has many natural economic advantages to successfully develop 
this sector.  Unfortunately, the skill base is shrinking. 
Georgia's products suffer from inconsistent quality and poor 
standards, uneven enforcement of IP regulations and strong 
competition from a "shadow market" of smuggled and/or 
falsified and expired medicines.  The IFC,s recommendations 
are that Georgia deepen and expand its skill-base through 
education, establish a clear timeline and targets for meeting 
minimum industry standards and to launch a campaign to 
promote Georgia,s medical manufacturing assets to local 
entrepreneurs and foreign investors. 
TEFFT