Georgia - Foreign investment

Georgia was one of the first former Soviet republics to adopt market reforms on foreign investment. However, political instability has hampered efforts to attract capital from abroad. Oil and gas pipeline projects and expanded privatization sales promised to reverse this trend. By the mid-1990s both GDP and total foreign investment began to grow steadily. In September 1998 the decision was made to make all future economic regulations in full conformity with the norms of the European Community. Legislation in 2000 extended the scope of the privatization program, created a capital market, and provided for the registration of enterprise and agricultural land, all conducive to improving Georgia's investment climate. Also in 2000, the currency appeared to have stabilized. The main hindrances to foreign investment flows are not the legal framework but pervasive corruption and arbitrary and biased administration.

Annual foreign direct investment (FDI) inflow swelled to $242 million in 1997 and $265.3 million in 1998 mainly due to work on the Baku-Supsa pipeline and on the Supsa terminal. FDI flows fell to an annual average of $124.3 million 1999 to 2001. Total FDI stock from 1990 to 2000 was an estimated $672 million. Work on the Baku-Tibilisi-Ceyhan pipeline and the Shah Deniz gas pipeline should increase FDI inflows in the near future. The United States has been the leading source of foreign investment, accounting for about 22%.

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