Caucaz reports that Foreign Direct Investment (FDI) into the neighbouring Republic of Georgia is set to skyrocket this year thanks to what the online publication considers to be liberal reforms made after the 2005 Rose Revolution. FDI in Georgia in 2005 stood at $539 million, but is expected to exceed $1 billion this year.

Indeed, the Georgian Prime Minister believes that foreign investment will amount to $2 — 2.5 billion. Given Georgia’s past economic record, such figures are highly impressive, although concerns still remain.

Among new investors that have entered the Georgian market in 2007 are the Gulf emirate of Ras-al-Khaimah in the north of the United Arab Emirates (UAE) and the Czech Republic. During a February visit by Georgian President Mikhail Saakashvili to Ras-al-Khaimah, Georgia and Ras-al-Khaimah established a business partnership worth USD 3 billion aimed at tourism, real estate and shopping. Part of the business partnership is the “Tbilisi Heights” real estate development plan that envisages the construction of a spa-like resort, business and residential area covering 200,000 square meters in Tabakhmela, near Tbilisi. A similar real estate project is “Uptown Tbilisi”, which will cover an eight hectare plot of land in Tbilisi’s Digomi District. The partnership also plans investment in Tbilisi’s tourism facilities in Tbilisi. During his visit to Ras-al-Khaimah, President Saakashvili declared his interest in attracting Arab tourists to Georgia.

Rakeen Development, a real-estate company owned by the Gulf emirate of Ras-al-Khaimah (RAK), RAK Airways and RAK Properties, plans to invest up to USD 1.5 billion in Georgia. The company purchased the Sheraton Metechi Palace hotel in Tbilisi in June 2007. That same month the Deputy ruler of the Gulf emirate Sheikh Saud bin Saqr Al-Qassimi visited Georgia and toured Georgia’s Black Sea port of Batumi on June 16. The Rakeen company also expressed interest in the development of the Georgian Black Sea port of Poti where the Georgian Parliament recently adopted a law establishing the port of a free economic zone.

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Structural reforms after the Rose Revolution have been aimed at creating a favourable investment climate. Reduction in the number of licenses, reduction in taxes, the introduction of the one-stop shop principle and liberal labour regulations are some of the measures introduced by the government to help boost business. As a result, the World Bank named Georgia the world’s top reformer in its 2006 Doing Business Survey.

Nonetheless, several factors continue to impede foreign investment in Georgia. Recent privatizations have been criticized for their lack of transparency. A weak judicial system and concerns on property rights are also perceived as obstacles to the protection of foreign investment. Local businesses are more affected by this lack of predictability than foreign businesses and for this reason, local businesses often seek to form a joint venture with foreign companies to protect themselves against possible pressures from the government.

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The privatization process initiated after the Rose Revolution has also been criticized for its rapid pace. A recent draft law presented to the Georgian parliament aims at redefining the list of assets that qualify for privatization, including strategic assets such as the railway system. Some opposition politicians see in this measure the risk that Georgia might lose its strategic potential as a transit country.

Meanwhile, Huliq says that foreign investment in Armenia amounted to just $136.6 million in the first quarter of 2007. Related to that, Caucaz also has an article on the economic challenges now faced by the new Armenian government after the recent parliamentary election. One guesses that being landlocked and having two of your four borders closed can’t help matters on top of everything else, but anyway.