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)
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.
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