Even the organizers of the "Invest in Georgia" business forum held last week in Tel Aviv, were surprised by the huge Israeli turn-out - the conference hall at the David Intercontinental Hotel was so full at the opening that extra chairs had to be brought in.
The Israelis listened attentively to a wide ranging address by Georgia's eloquent and charismatic Minister of Economic Development George Arveladze, who had brought a 37-member delegation with him. Coincidentally, Arveladze spoke at length about how Georgia had succeeded in less than three years in stamping out rampant corruption on a day in which a report was released with findings that half of Israel believes that the fight against corruption here is doomed.
Arveladze presented an overview of the rapid progress that Georgia has made in various economic fields, attributing this success to the dramatic reforms introduced by the dynamic, new young government in the aftermath of the Rose Revolution.
These included the introduction of a new tax code whereby the number of taxes were reduced from 22 to seven with social taxes reduced from 36 percent to 20%, income tax from 30% to 12% and taxes on corporate profits from 20% to 15%.
Because the acquisition of a license or a permit had for years depended on bribing clerks, most licenses were cancelled, thereby simplifying and speeding up the bureaucratic process and downsizing the bureaucracy. Public sector employment was reduced by 50%. Customs taxes were abolished with the exception of those imposed on a limited number of agricultural goods, and labor laws were changed to allow employers to hire and fire freely with no impositions such as minimum salaries or the number of working hours. This avoids getting bogged down in labor laws and conflicts with trade unions, Arveladze explained. There's also a one-stop shop for all licenses and permits, and foreign investors are entitled to exactly the same rights as local investors.
The Israelis found all this very interesting and leaned forward in their chairs to listen.
Although addresses about banking, transportation, infrastructure and Internet communications weren't as well attended, when the sessions on real estate and tourism began, the hall was jam-packed.
A significant factor relating to the new Georgia that cropped up in every session is that the Georgians do not and will not rely solely on their own abilities. Most of those in high positions, regardless of their field, have been educated abroad and in some cases spent many years outside the country before returning home and applying concepts learned in other countries to the new realities of Georgia. Moreover, foreign executives from a number of countries have been brought in to help run their various enterprises and to contribute ideas and experiences gained in another part of the globe.
This was particularly obvious with the glib and highly professional presentation by Lado Gurgenidze, chairman of the Supervisory Board of the Bank of Georgia, who spoke fluent American-accented English with a southern drawl. Gurgenidze, who represents the top bank in Georgia, said he had been away from home for 14 years, having left Georgia in 1990. A career banker who was educated in the US, holds British citizenship and has worked in executive capacities in different countries for major European and Canadian investment banks, Gurgenidze, became CEO of the Bank of Georgia in 2004, and persuaded 25 other Georgians with western backgrounds to return home to help him manage the bank.
"We're running out of Georgians," he admitted, "so now executives being hired are Lithuanian, Ukrainian and Israeli."
Israelis are also employed in other fields of Georgia's economy. Jonathan Cohen, an Israeli who "works, practices and lives in Tbilisi" is an executive with GRDC (Georgian Reconstruction and Development Company), which was established in 2004 by local and foreign investors and has an international executive team that includes people from Israel, The Netherlands, UK and Turkey.
One of GRDC's specialties is transforming historic buildings by preserving the outer facades while modernizing and expanding the interiors. Cohen's power-point presentation showed how this can be done aesthetically and effectively. In the three years it has been in business, GRDC has acquired 15 office, residential, resort, medical and warehouse projects for a total development area of 1.4 million sq.m. The company has raised $25 million through private placements and is now raising an additional $75m. through institutional investors. It has secured debt financing of $60m. and is planning to raise an additional $100m.
Like certain parts of Jerusalem, however, certain parts of Tbilisi may become ghost towns as many Georgians living abroad buy apartments in Tbilisi, said the city's mayor Gigi Ugulava, indicating that they don't really live in them.
Up until now, he added, Tbilisi did not have an office building culture, and many offices are located in residential buildings. But with all the rapid changes that are taking place, there is a big demand for office and retail buildings and a great potential in these categories in the future. The city has already issued permits for six large-scale office and retail projects, he said.
In this context, Cohen noted that western style shopping malls were virtually unknown in Tbilisi and most people shopped at run-down stores in the area of the railway station "where today you can buy second-hand underwear."
His company is building a two-floor shopping mall within the railway station that will not only transform the facility, which he said was improperly built and not completed in 1980, but will also turn the railway station into a passageway that will enable pedestrians on either side to pass through with ease. The two-way access was previously impossible, and pedestrians crossed from one side to the other side of the station with great difficulty.
Residential real estate also is booming in Tbilisi, Ugulava said, noting that whereas the average price for residential property today is $650 per sq.m., there are indications that in the near future the price will rise to $750 or $800 per sq.m.
Ugulava was proud of the fact that most of the leading international hotel chains are represented in Tbilisi with existing hotels or hotels under construction. Though pleased to have these five-star facilities, he said there was still a lot of room for the construction of three-star hotels, which he suggested would be a good area for investment because of the demand for such accommodation.
The tourism and hospitality sector is Georgia's number one priority said Otar Bubashvili, head of Georgia's Department of Tourism and Resorts.
It's the fastest-growing and largest industry, both in the sense of preserving tourist traditions and in the potential for expansion.
Unlike Israel, which for years has been predicting incoming tourism figures in the range of three million but has attracted less than two million tourists per annum, Georgia, even in Soviet times, enjoyed high tourism statistics because of the diversity of its landscape. Organized tourism today, said Bubashivili, accounts for five million tourists. which is in excess of the 4.5 million resident population. Georgia expects to double its incoming tourists within the next year or two. International air carriers flying directly to Georgia include Lufthansa, Austrian Airlines, British Airways, Turkish Airlines and Arkia.
Israelis do not require visas for Georgia , and those with gambling instincts travel there on weekends to play at the casino in Tbilisi.
According to Itsik Moshe, the Tbilisi-based president of the Israel-Georgia Chamber of Commerce, on weekends the five-star hotels are chock-a-block with Israelis "and the language you hear most in the public areas is Hebrew. All that's missing is a mezuza."
Moshe who originally came to Georgia as a Jewish Agency emissary in 1989, some years later became president of the IGCC, through which he has been instrumental in introducing Georgia to Israelis and Israel to Georgians. More than one 100 Israeli companies, with business interests in Georgia are IGCC members, he said, but warned upcoming investors that if they wanted to succeed it was important for them to become familiar with the way things are done in Georgia, and to follow the rules.
Other than real estate and tourism, another area in which there is great potential for Israeli investment and joint projects in Georgia is in transit and transport.
Arveladze and other speakers made numerous references to the fact that Georgia, because of its unique geographic position is the gateway between Europe and Asia and through its international railway and Poti Sea Port projects, would be the pipeline for millions of tons of finished goods transported from Asia to Europe.