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14.Oct .2020 20:00

Hualing FIZ: Four New International Companies to Establish Free Zone Businesses in Georgia

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Hualing FIZ is finalizing negotiations with 4 new international companies planning to establish their businesses in Georgia.

Investors are from Ukraine, Azerbaijan, and the UAE. Each of them plans to invest up to GEL 1-2 million at the first stage. 

“From the very beginning of pandemic and a worldwide lockdown, our team started to re-think its strategy to continue the steady growth of revenues that was kept from the establishment of Hualing Free Industrial Zone (FIZ). Of course, it took us some time to adapt, but at the moment we have already incorporated up to 25 companies (mostly from the trading sector). On the other hand, there were ongoing negotiations with manufacturers as well, but it should be underlined that establishing a processing factory always requires a physical presence by the investor to check the conditions of infrastructure, hire employees, get various permits, etc. As soon as Georgia opened its borders to potential investors, we have already brought our negotiations to the next level and in the nearest future we hope to finalize the deal with 4 new companies,” Vakhtang Chkareuli, Head of Finance & Analytics at Hualing FIZ, told BM.GE. 

In Chkareuli’s words, the four new companies come from Ukraine, Azerbaijan, and the UAE. “Their profile is producing of cosmetic goods, textile, lubricants, medical machinery, and medical goods. Each of them is supposed to invest up to 1-2 million GEL at the start-up with the perspective to expand in the future”. 

Currently, there are slightly more than 120 active companies registered in Hualing Free Industrial Zone. Mostly, they are specified in trading (including international trading), manufacturing, and processing of various goods. Those companies are spread over five continents and 45 countries all around the world.

Chkareuli named fiscal incentives, infrastructure, logistics, and services as the main advantages of Hualing FIZ. “In 2020, working remotely is one of the challenging issues for most companies around the world. However, our team managed to turn this challenge into a new opportunity, and we launched totally remote incorporation process of new companies. So, our investors could establish a free zone company without a physical presence in Georgia. To summarize, our extensive experience in the industry, simple and fast business start-up, easier and cheaper operations, and our add-on services create an invaluable asset to our existing and potential partners,” he said. 

COVID Impact over FIZ

According to Chkareuli, the impact of a pandemic pushed economies into the state of so-called “Forced Inactivity”. “Manufacturing and services were halted or slowed, consumption is still weakened, thus imports and exports are substantially reduced. The pandemic breakdown is being transmitted to Free Zones through various channels and I’d like to mention two most important ones: 1. government restrictions on economic activities. This is especially felt in more industrial zones since they are often engaged in sectors and activities where working from home is not an option and 2.high level of uncertainty. The most common formula of long-term, sustainable business development is to have the ability to anticipate the short, mid, and long-term future”.

“Generally, slightly more, than 75 percent of the companies in Free Zones are SMEs, which means that they have less flexibility to attract additional funding for liquidity or to modify their expenses so that they can stay tuned. Because of the reasons mentioned above, existing companies in Free Zones were unable to receive raw materials from their suppliers, and even those who had kept some stocks were unable to sell their goods and services due to negative aggregate supply and demand shocks. Thus, they could not generate revenues. It is clear, that this was directly reflected in the downfall of revenues of the free zones around the globe. As for us, our actual results lagged behind the budgeted figures by 28% for the first half of 2020, but at the moment the process of recovery is being boosted and we hope to get back on track soon,” he added.  

Main obstacles for foreign investors in Georgia

“Georgia is a small open economy, which means that whoever enters our country is more oriented on producing and exporting, rather than focusing on the local market. So, in many cases, investors prefer to set up at the places, where the consumer market is large enough. Consequently, we have no other way but to keep lowering operational costs for businesses through taxation and reducing regulations. On the other hand, political instability throughout the region is another obstacle,” said Chkareuli.  

In his words, though, the labor force is available, still, there are problems with their qualification. In this regard, a very beneficial and fruitful tool is provided by the Government of Georgia, meaning various funding opportunities for the companies to retrain employees and upgrade their qualifications.

Finally, Chkareuli believes that Georgia has to keep its institutional development in the direction of judicial effectiveness, property rights, and government integrity. “There is a large room for improvement left over there,” Chkareuli told BM.GE.