There are five free industrial zones (FIZ) in Georgia, where businesses can have certain benefits. Such places are FIZs of Poti, Kulevi, Kutaisi, Hualing, and Tbilisi Technology Park.
Such zones exist in Georgia since 2007. They are being created by the decision of the government, and then the company-organizer of this FIZ is selected. FIZ Enterprise can be any enterprise with organizational-legal form and ownership form, registered in a free industrial zone.
FIZ is a place where registered companies do not pay profit, property, import, and VAT taxes. The products produced here enter the EU and CIS countries with zero customs tariffs.
Two FIZs operate in Kutaisi, one named after Hualing. It was created on the territory of the former Auto Factory in 2015, when Giorgi Kvirikashvili was the minister. Then the Prime Minister was saying that the given agreement directly responded to the aim of Georgian-Chinese relations to expand trade relations.
Kutaisi Hualing FIZ was opened on 36 hectares for a period of 30 years, in which Hualing was instructed to attract $ 40 million worth of investment. 5 years have passed since the creation of FIZ. “There are 150 companies that are actually functioning, i.e. those who renew their relationship with us. These numbers vary every month. It is a difficult period now and mainly, we have decreasing trend, unfortunately, ”said Giorgi Rogava, Commercial Manager of the Hualing Zone.
According to the document sent from the Public Registry to “iFact”, 177 organizations were registered in Kutaisi Hualing FIZ, by the beginning of 2020. Today, two of these organizations have been liquidated and five have started the liquidation process. According to the FIZ administration, they do not know the exact number of employees on this territory.
Giorgi Rogava told us that he has to call all the companies one by one, for which he needs more than a month. In total, he said, around 1,500 people are employed regarding FIZ: “This includes our employees, FIZ employees and the contractors who serve FIZ companies.”
Ramaz Gerliani, head of the Center for Economic Transformation, believes that given the infrastructural capacities of Hualing FIZ, this employment rate is insignificant. “It’s very small. If we take all five FIZs in terms of employment today, not only Kutaisi Hualing FIZ, it has a tiny role, insignificant, we can say. Probably one medium-sized enterprise has more employees than all businesses in these industrial zones.”
At the moment, the following large enterprises are operating in FIZ: German solar panel manufacturer “A Solar”, two furniture factories, an alcohol processing plant (Spanish), plastic granules and polyethylene processing plant, a hotel, two pharmaceutical packaging plants (Azerbaijani and Indian).
17 Chinese companies are registered in Kutaisi Hualing Free Industrial Zone. Some of them are relatively large enterprises.
Shunsiang Timber Processing Company was registered in the Hualing FIZ in 2015. Its activities include wood processing, production, and import-export. The company was also among the top ten exporter companies to Iran in 2019.
“Georgian Shuni Furniture Company Kutaisi FIZ” Ltd was registered in the Hualing Industrial Zone in 2015. It is owned by the Hualing Group. It manufactures furniture for restaurants and hotels.
“Georgian Ferroalloy Resources Company” Ltd started the construction of the enterprise in Kutaisi FIZ in 2016. The Chinese company was about to invest $ 3 million and employ 80 locals. In 2016, KutaisiPost wrote that the enterprise would produce export products in 2017. The company planned to process silicium, quartz, coal, Bituminous coal, and petrokok in Kutaisi. The plant has not yet been put into operation. FIZ Director Soso Nibladze says that it will start functioning in 2021. The reason for the delay is the pandemic and organizational issues.
According to Nibladze, from 2021 a sewing enterprise with a Polish investment will be launched in FIZ. “We are waiting for them in 2021, they are going to come. We have to select 50 local workers together and it should start operating. ”
The “greenhouse environment” created for doing business turned out not to be as ideal as Giorgi Kvirikashvili or Mikheil Saakashvili wanted earlier before. According to Soso Nibladze, the director of the Hualing Zone, FIZ is not such a liberal paradise as it seems at first glance.
“Generally, the development of FIZ in countries with relatively liberal tax legislation and low taxes is by all means difficult. To some extent, the jurisdiction of the country itself competes with low taxes. “
He said that when the first free zones were established in 2007-2008, the tax conditions in the country were relatively different. Since then, tax legislation in the country has become more liberal. “Competition with FIZ accelerated. These reforms have been carried out in Georgia, but nothing has changed in FIZ. In fact, we see that in many cases it often takes years to bring in investors.”
Ramaz Gerliani, head of the Center for Economic Transformation, said in an interview with iFact that the success of the FIZ was doubtful from the very beginning. “Five FIZs are too much in a small country such as Georgia. You should not be striving to FIZ at all, you should have the whole space free and not that someone has created a paradise, especially a closed space like Kutaisi. It is more possible by the sea.”
Gerliani thinks that free industrial zones are needed in countries where there is an authoritarian regime and paradises must be created. “If they were still creating it, then it should have been a free economic zone and not a free industrial zone. In a given area, all types of activities should have been exempted from tax. There could have been a banking sector as well, and the two would have developed each other. Or it could be used as a warehouse, for example, by Amazon. Once we get into this trap, we can no longer abolish the FIZs. This is an obligation, therefore we must move to the part of their refinement.” According to Ramaz Gerliani, if we have free economic zones instead of free industrial zones, where all kinds of economic activities will be exempt from taxes, then businesses in a difficult economic situation due to the pandemic will definitely decide to enter it and this will help increase employment index.