Caspian Energy (CE): Are you satisfied with the current format of regional economic cooperation between Azerbaijan-Georgia-Turkey? Which new opportunities do you see in this cooperation?
Giorgi Kvirikashvili, Prime Minister of Georgia: The development of mutually beneficial relationships with all of its neighbors is a significant priority of Georgia. Turkey and Azerbaijan are strategic partners of Georgia, and since the establishment of diplomatic relations with both countries, we have developed result-oriented cooperation and excellent relations in bilateral and multilateral formats.
We have a multidimensional strategic partnership that covers the political, economic, transit, cultural, and humanitarian fields. Customs, transportation, and energy remain crucially important elements in our trilateral cooperation. Important regional and international energy projects, such as Baku-Tbilisi-Ceyhan, Baku-Tbilisi-Erzurum, and the transit project Baku-Tbilisi-Kars, are good examples of this successful cooperation. These projects represent the opportunity for all stakeholders in the region to reduce poverty and enhance economic growth and prosperity. It is also notable that the Government of Georgia, together with Azerbaijan and Turkey, is an active member of multiple international transport corridors, such as TRACECA, LAPIS LAZURI, Baltic-Sea-Black Sea International, and more.
Currently, Georgia and Turkey have a high-level strategic cooperation council, which is giving the two sides an opportunity to work closely on bilateral issues. Georgia, Turkey, and Azerbaijan also enjoy a trilateral system of regional cooperation, initiated by the Ministers of Foreign Affairs. This system strengthens stability and peace in the region, develops sectoral cooperation, and enhances the creation of energy and transport projects. The trilateral mechanism also includes cooperation from the Ministers of Economy for each country. There is a practice of conducting the annual trilateral business forums, and these forums significantly facilitate development of ties among businesses and raise awareness on investment opportunities in their respective states.
One of the biggest aims for the Government of Georgia is to strengthen our transit function. Therefore, it is of utmost importance to attract and transport any additional cargo flows from China to Europe through Georgia, Azerbaijan, and Turkey - without any obstacle. As of today, the trade turnover between China and the EU amounts to 1 billion USD per day, and there is a huge potential to direct significant trade flows through our territory. The current situation in the region - various Silk Road initiatives aiming to promote trade, economic cooperation, development, and exploration of new opportunities - is very promising.
CE: How do you assess the energy security of Georgia? What could you tell about the present energy balance and what will this balance be in 10 years?
Giorgi Kvirikashvili: One of the most formidable economic assets of Georgia is its highly favorable geographical location. Georgia is located at the crossroads between the East and the West - Asia and Europe. In recent years, the Government of Georgia has successfully implemented the key objectives of its energy policy, with a focus on increasing the degree of energy security. Diversification of energy sources and transit routes has been a priority of the Government.
The current complex geopolitical environment poses a threat to the economic and energy security of all countries in the region, and the EU as a whole. Georgia is a member country of the Energy Charter, and since October 2016, a member of the EU Energy Community, which determines the agenda for the future development of Georgia’s energy sector. Increased coordination of national energy policies is necessary to respond credibly to the challenges of energy security.
CE: How is the Southern Gas Corridor project progressing in Georgia? Are you satisfied with the rate of its implementation?
Giorgi Kvirikashvili: We have made significant progress toward making the Southern Gas Corridor a reality. This project will encourage greater economic cooperation, improve energy security, and create jobs in all countries along the Corridor.
It will have a major effect on the stability and economic development of the region. We hope to have the entire infrastructure project along the corridor operational soon. The Stage 2 development of the Shah Deniz field required expansion of the South Caucasus Pipeline on Georgian territory, bringing significant investments to Georgia. This expansion involves the laying of new, parallel pipeline section and construction of two new compressor stations in Georgia. It will triple the gas volumes exported through the pipeline to more than 20 billion cubic meters per year. For further realization of this project, around 2 billion USD will be invested in Georgia. Given this context, Georgia welcomes the progress in the development of the TANAP and TAP projects and continues to provide support in implementation of the SCPX project. As of today, almost half of the work under the SCPX project has been completed, and the project will come on stream in 2019.
CE: Which stage has the AGRI project reached?
Giorgi Kvirikashvili: Transit projects add great value to Georgia’s economic development as well as energy security of the region. Georgia continues to actively support the development of various projects enabling an expansion of the energy transportation corridor for Western markets, such as AGRI and other projects within the frame of Southern Gas Corridor.
Georgia is a participant in the AGRI project. JSC Georgian Oil and Gas Corporation is assigned as a shareholder of AGRI LNG Project Company, which is a special-purpose vehicle incorporated by the project participants. In April 2015, shareholders of AGRI LNG Project Company approved the AGRI project feasibility study, prepared by UK-based “Penspen LTD”. Georgia continues its support of the project. Currently, the shareholders of the AGRI LNG Project Company are negotiating issues related to further development of the AGRI project.
CE: Azerbaijan and Turkey are working on the agreement about a preferential trade. Does Georgia plan to join it? What advantages and disadvantages do you see?
Giorgi Kvirikashvili: Georgia enjoys a bilateral free trade regime with Azerbaijan as well as with Turkey. In the case of Azerbaijan, the entire commodity spectrum is subject to full liberalization. In the case of Turkey, there are some exceptions regarding agricultural products, but currently, there are ongoing negotiations with Turkey regarding additional tariff liberalization, as well as expansion of the agreement with the inclusion of the services chapter. At this stage, Georgia’s priority is to successfully conclude the negotiations and obtain additional preferences.
CE: Georgia has recently signed a Free Trade Agreement with China. Which preferences will the Georgian economy get? Are not you concerned about the absorption of your market by such an influential partner? How will it impact the competitiveness of the Georgian economy?
Giorgi Kvirikashvili: It is especially notable that trade liberalization and integration into the world’s leading markets have become Georgia’s top foreign policy priority. Georgia already has free trade agreements with its main trade partners – Turkey, the EU, CIS countries, EFTA (not in force yet). At the same time, Georgia has one of the most liberal trade regimes in the world with 80 percent of tariff lines free from customs duties. The main portion of imported goods from China is already taxed with zero customs duty. Only 12 percent and 5 percent customs duties are imposed on a small number of imported goods.
I am proud to say that Georgia will be the first country in the region which will have the FTA with China. It is worth mentioning that thanks to this agreement, Georgia will get duty-free access to Chinese markets for most of its export products. Because of negotiations with China, Georgia has been granted tariff liberalization on 94 percent of its total tariff lines. Accordingly, this will increase Georgia’s exports and the competitiveness of Georgian products in one of the world’s largest consumer markets.
CE: Which countries are the most active investors into the Georgian economy? Which sectors of economy are the most attractive?
Giorgi Kvirikashvili: Georgia is an attractive investment destination for foreign investors. We have observed strong positive tendencies in foreign direct investment inflows in the past three years. The share of FDI in GDP remains stable. In 2016, foreign direct investments amounted to USD 1.566 billion (11 percent of GDP). Since, 2013 the largest share of FDI comes in the transport and communication sectors. In 2016, 42.9 percent of FDI was from these two sectors (USD 671.9 million.), followed by construction (8.3 percent of total FDI, USD 129.5 million.), the financial sector (8.2 percent, USD 129.0 million.) and the manufacturing sector (7.9 percent, USD 124.5 million.).
Georgia’s favorable investment climate attracts investors from all over the globe. The top investor countries remain rather stable - Azerbaijan, Turkey, and the United Kingdom, although our foreign investment is diversifying. The largest share of FDI from Azerbaijan comes from the transport and communications sectors (USD 546 million in 2016). Turkish investors are actively investing in transport (USD 76.3 million in 2016), construction (USD 75.2 million), and energy (USD 15.7 million). The financial sector remains the most attractive for investors from the United Kingdom (USD 122.8 million in 2016).
CE: How do you assess the relations with the EU after the cancellation of the visas for the Georgian citizens? What has been the impact of this step on the attractiveness of the tourism sphere of Georgia?
Giorgi Kvirikashvili: Visa free travel with the EU is an important gain for the entire population of Georgia and an additional incentive for the Georgian government to continue the pace of reforms.
Visa liberalization has a tremendous symbolic, political, and practical importance for us. Increased tourism, enhanced people-to-people contacts, academic exchanges, and civil partnerships are those direct and concrete benefits that bring increased openness to the values the EU was founded on.
At the same time, visa liberalization will further contribute to facilitating closer business links with the aim of enhancing EU-Georgia trade and drawing maximum benefits from the DCFTA. Tangible results of economic integration with the EU are already visible - trade with the EU has significantly increased, and the EU became Georgia‘s most important trade partner with a 30 percent share in its total export in 2016.
Establishment of visa-free travel made easier and more frequent travel to the Schengen countries possible and significantly influenced the growing interest of Georgian citizens to travel to the EU. Since the implementation of visa-free travel, approximately 25,000 Georgian citizens have visited the Schengen countries.
The visa liberalization process was an important driving force for advancing far-reaching reforms. The reforms have introduced unprecedented and innovative changes in Georgia, which made our country a regional leader in democratic transformation and one of the most advanced EaP partners.
The reform process will not end even with visa-liberalization achieved – we will continue intensive and targeted reforms to further ensure sustained results in all VLAP-related areas.
Thank you for the interview
