FDI inflows down by 53.7% in Georgia

Baku, Azerbaijan, September 11

By Tamilla Mammadova – Trend:

Foreign Direct Investment (FDI) inflows were down by 53.7 percent year-on-year in Georgia in the second quarter 2019 and came in at 4.6 percent of GDP as compared to 9.7 percent a year ago, Trend reports referring the TBC research.

In terms of the sectors, over the last four quarters, the drop was mostly on the account of the financials (-283 million or -1.8 percent of GDP), construction (-220 million or -1.4 percent of GDP) and transport and communication (-$185 million or -1.2 percent of GDP). Over the same period, FDI inflows also weakened in real estate and energy sectors, while remained relatively stable in manufacturing and mining and went up in hotels and restaurants.

Lower FDIs in financial, especially in non-bank, and real estate sectors are likely caused by the tighter retail lending as well as construction permits’ regulations, the report said.

While the decline of FDIs in the construction is assessed as negative development, FDI outflows related to the subprime lending primarily in non-bank financial institutions should be seen as a necessary by-product of the stronger responsible lending rules, including the 50 percent ceiling on interest rates, being a positive development, according to the report.

At the same time, FDIs in the construction will likely recover reflecting strong fundamentals of the housing market. This view is also supported by the recently increased construction permits and recovering growth dynamics in residential construction in July as well as by possible strengthening of slower mortgage financing together with some contribution of internal installments.

The finalization of BP’s South Caucasus Pipeline Extension project still affects the annual growth rates negatively as reflected in lower FDIs in transport sector, however, its impact is waning, said the report.

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