Jun 01, 2016

Georgia on My Mind

By James Woods

Georgia on My Mind

Georgia has distinguished itself from many of its peers across the universe of frontier and emerging markets through its relentless focus on structural reform as well as diplomatic and economic cooperation with the West. This commitment to self-improvement has helped Georgia to overcome at times daunting challenges since the dissolution of the Soviet Union to become a well-diversified, resilient economy with strong civil institutions and an increasingly prominent role as a hub for trade and investment within the region.

Over the past 10 years, Georgia’s economy has grown and diversified admirably, achieving a per capita GDP averaging 5% per annum, led by expansion across services (banking and tourism), manufacturing and construction. Though growth has slowed over the past year as oil price headwinds have weighed on the economies of neighboring states, the International Monetary Fund is forecasting a reacceleration of growth through 2018 (Exhibit 1) on the back of service sector strength and investments in infrastructure.

Exhibit 1: Georgia's GDP per Capita (2010-2018F)

Source: Geostat

Georgia’s healthy rate of productivity growth has coalesced with a conservative fiscal balance sheet and increasingly credible monetary policy to make Georgia an attractive investment destination within the frontier market universe. Debt-to-GDP has held relatively steady at roughly 40%, and average interest rates on public debt are well below peers at 1.9%—achieved by leveraging bilateral or multilateral financing to receive below market interest rates (Exhibit 2). Inflation, which has at times been a problem for the country, looks to have stabilized, and its central bank is sufficiently confident in its ability to tighten monetary conditions that it has announced plans to lower its inflation target to 3% by 2018 from 6% in 2015.

Exhibit 2: Debt-to-GDP Ratio (left, bars) and Average Interest Rate

Source: Government of Georgia

Though listed equity investment options in Georgia are limited, we have found attractive opportunities in the banking and health care industries. We believe equities in both of these areas are attractively valued with growth prospects and returns often superior to global EM peers.

Furthermore, the agenda of reform and economic cooperation being carried forward by the present governing coalition should continue to drive productivity growth, increasing economic sophistication and support healthy investment flows for the visible future. We look forward to seeing additional investment opportunities emerge within the Georgian market.

This information is not intended to provide investment advice. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, market sectors, other investments or to adopt any investment strategy or strategies. You should assess your own investment needs based on your individual financial circumstances and investment objectives. This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC (“Driehaus”) as of June 2016 and are subject to change at any time due to changes in market or economic conditions. The information has not been updated since June 2016 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this informa­tion. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

About James Woods

James Woods is a senior analyst on the Emerging Markets Team with a focus on the materials, energy and industrials sectors in addition to frontier markets.

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