Page 26 - GEORptMar20

5.2​ FDI
Georgia - FDI 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 2019 2019 2019
FDI ($ mn)
1,022.9 1,039.2 1,813.7 1,729.1 1,650.3 1,962.6 1,265.2 287.5 204.1 417.3
FDI (% of GDP)
5.25 5.93 10.84 11.89 11.27 11.88 7.5 7.4 4.9 9.1
Source: Geostat, CEIC
FDI inflow to Georgia increases 13.7% y/y in Q3
Foreign direct investment (FDI) in Georgia increased by 13.7% y/y to $417mn in the third quarter of this year amid a trend that was generally downward. ​There was a 16.9% y/y decline to $909mn in the first three quarters, according to national statistics bureau Geostat.
Profits clocked up by the country's two major banks, which were recorded in Q3 as re-invested earnings since both lenders are owned by foreign investment vehicles, explain the dynamics of divergence.
FDI in Georgia contracted in 2018 by 35% y/y but remained strong at 7.5% of GDP. The decline continued in the first two quarters of this year. The main reasons included the completion of a pipeline project, the transferring of the ownership in some companies from non-resident to resident units and a reduction in liabilities to non-resident direct investors, Geostat said.
The profits of the foreign-registered banks operating in Georgia and intra-group lending as a substitute for equity investments specifically explain the unexpected rise in FDI during the third quarter.
The reinvested earnings, meaning profits derived by FDI companies in Georgia and counted as FDI until they are repatriated (although they may never be), increased by 107% y/y in Q3 and accounted for an outstanding share of 62% of the total, or $259mn in absolute terms. The figure stands for the profits posted by the banks, Geostat head Gogita Todradze explained, as quoted by Business Media. Georgia’s two dominant banks, TBC and Bank of Georgia, are owned by investment vehicles registered abroad and listed on the LSE.
TBC and Bank of Georgia boasted robust profitability in January to September, according to data released by Georgia’s central bank, the National Bank of Georgia (NBG). Their annualised return on assets (ROA) exceeded 2%, based on the data released on November 7. The lenders account for more than two-thirds of total banking sector assets in the small country, and hold similar shares when it comes to income and net profit.
On the downside, the same amount of “reinvested earnings” will be visible in the current account data to be released by the central bank at a later date. They will be recorded as outflows adding to the already chronic goods trade deficit. The external balance figures will be particularly monitored by investors given tense sentiment on the foreign exchange market.
In the whole Jan-Sept period, the volume of reinvested earnings in Georgia increased by only 5.5% y/y to $436mn.
26​ GEORGIA Country Report​ March 2020 ​​www.intellinews.com