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MANUFACTURING
M A NUFACTU RING
Georgian National Investment Agency 2013
MANUFACTURING SECTOR

OVERVIEW:                                                     OPPORTUNITIES:




                                     IN
• Manufacturing and industries account for around 14%         • Large import overhang in goods that are usually
  of GDP and ~ 5% of employment                                 not traded extensively provides regional import
• Largest industries are food and beverages (3% of total        substitution potential in food processing, construction
  GDP) and metal products (2.5%)                                materials, household gods etc
• Advantage to process goods - competitive cost of            • Georgia’s current advantages in terms of handling
  power, labor and strategic location                           large transshipment flows, business stability, low
• 2 Free Industrial Zones - In FIZ, businesses are              cost of power generation and existing raw materials/
  exempted from all tax charges except Personal                 intermediate products provide opportunities for
  Income Tax                                                    large industrial bets, like production of iron and steel
                                                                products, aluminum etc




                                 IN GEO
                                                                            Russia

                                                   Mestia



                              Kulevi         FIZ            FIZ
                   Black
                    Sea          Poti
                                                        Kutaisi                          Tbilisi
                                Batumi



                                         Turkey
                           MRN
                                                                                                         Azerbaijan
                           Railway
                                                                           Armenia


  www.investingeorgia.org 1
www.investingeorgia.org 2



 MANUFACTURING SECTOR

                                       USD milions, 2011        Value add           Production value




 VEST
 INDUSTRY   PRODUCTION VALUE            TOP 3 PRODUCTS            TOP 3               TOP 3
              AND VALUE ADD               (VALUE ADD)            EXPORTS            COMPANIES


                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                                                           ▪                   ▪ 
                                  ▪ 

                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                            297                                                ▪ 




ORGIA
 RGIA
                                  ▪                        ▪ 
                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                            260   ▪                        ▪                   ▪ 

                                  ▪                        ▪                   ▪ 
                                                           ▪                   ▪ 
                 90               ▪                        ▪                   ▪ 
                                  ▪ 

                                                                               ▪ 
                                                                               ▪ 
            47                    ▪                        ▪                   ▪ 

                                  ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 
                      170         ▪                        ▪                   ▪ 


                                  ▪                        ▪                   ▪ 
            47                    ▪                        ▪                   ▪ 
                                  ▪                        ▪                   ▪ 

                                  ▪                        ▪                   ▪ 
            43                    ▪                        ▪                   ▪ 
                                                                               ▪ 
                                  ▪                        ▪ 
MANUFACTURING SECTOR

GROWTH OF SECTOR VALUE ADD                                                CURRENT INDUSTRIAL BASE
CAGR,2006 - 10




         Textile &
         Leather                  IN
                                   N     Transport
                                         equipment


                                                              Paper &
                                                              pulp
                                                                           Metals




                                                                                       Food &




                             IN G
                              N GEO
                              Wood
                  Machinery &                                                          beverages
                              products
                  equipment


                  Plastics                             Chemicals
                                Mineral products

   10                                              100                                             1,000
                                                                 SIZE OF SECTOR VALUE ADD USD mn


   Food and metals industry provide the largest industrial base for Georgia, while textile industry,
   transport equipment and metals growing strongest




www.investingeorgia.org 3
www.investingeorgia.org 4



   TRADE BALANCE IN GEORGIA AND IN THE REGION


 IMPORT OVERHANG, USD mln, 2011
                      mln,                          TRANSPORTATION




 VEST
                                                         COST




ORGIA
 RGIA
SEVERAL HIGHLY ATTRACTIVE IMPORT
SUBSTITUTION OPPORTUNITIES
SECTOR               PRODUCT GROUP                        PRODUCTS




                                IN
                • Articles of cement and steel            • Prefabs
Construction                                              • Ready-mix concrete
- Building                                                • Bricks
materials
                                                          • Finished articles of steel
                • Articles of wood                        • Plywood and laminated wood

                                                          • Tiles
                                                          • Sanitary ware
Construction    • Ceramic products
                                                          • Windows




                            IN GEO
- Finishing
elements        • Glass & glassware                       • Glassware

                                                          • Doors
                • Furniture                               • Living furniture

                                                          • Bottling
Food            • Beverages and spirits
processing                                                • Fruit juices
                • Preparations of fruits and vegetables   • Jams
                                                          • Vegetable oils
                • Dairy and eggs                          •   Milk
                                                          •   Cheese
                                                          •   Butter
                • Meat                                    •   Yogurt
                                                          •   Poultry/Beef/Pork/Lamb
                • Plastic packaging
Packaging
                • Paper packaging



www.investingeorgia.org 5
www.investingeorgia.org 6



 SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S
 TRANS-SHIPMENT FLOWS AND RESOURCES

 OPPORTUNITY      CURRENT ADVANTAGES TO BE LEVERAGED                   POTENTIAL FOR GEORGIA




 VEST
 ALUMINIUM
 INDUSTRY         • Large transshipment flows of raw               • Value chain integration
                    materials/input (Bauxite) and aluminium       -   Production of aluminium
                    cross Georgia to/from Tajikistan (largest     -   Production of aluminium
                    aluminium plant in Central Asia)                  products (fabricated or end
                  • A lot of water recourses and large                products)
                    hydropower plants in the pipeline

 IRON AND STEEL                                                   • Vertical integration of value chain
                  • Georgia mines Manganese ore
 PRODUCTION                                                         by adding production of iron and
                  • Georgia produces ferro alloys, largely for
                    export (USD ~250 mn)                            steel and related end products




ORGIA
                  • Large imports of iron and steel products to   • Regional import substitution
                    Georgia (USD ~300 mn) and neighboring
                    countries


 COPPER
                  • Georgia and Armenia export copper ores,       • Production of copper alloys
                    copper waste and scrap                            and end products (regional import
                  • Import overhang of copper products                substitution)
                    (alloys and final products e.g. wire, tubes,
                    pipes) amounts to USD ~200 mn in
                    the region
 POLYMERS &
                  • Import overhang of plastic products           • Plastics and petrochemicals
 OTHER PLASTICS
                    amounts to 230 mn in Georgia and 8 bln in         production (regional import
                    the region                                        substitution for plastics/rubber)
                  • Georgia transships large flows of
                    petroleum products
OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT
FLOWS AND RESOURCES - ALUMINUM EXAMPLE

LEVERAGING TRANSSHIPMENT FLOWS, GEORGIA CAN INTEGRATE INTO A




                                     IN
GLOBAL VALUE CHAIN OF ALUMINUM PRODUCTION.

Current value chains in aluminium production
use Georgia as transit country …                   … offering opportunity for integration upstream




                                 IN GEO
                                                                                       +use/create
                                                                                    complementarities
                                                   … or downstream                   with transport &
• Tajikistan Aluminium Company (TALCO) is l                                           power sectors
  argest aluminium manufacturer in Central Asia
- Total production 300-400 k tons, ~1% of global
  production
- Using ~40% of Tajikistan’s power generation
  (largely hydropower)
• No domestic bauxite/alumina, all imported
  (mostly from Ukraine, Azerbaijan, Kazakhstan)
• Export of raw aluminium to Europe, Turkey,
  CIS, China, accounting for ~40% of all exports
  of Tajikistan




 www.investingeorgia.org 7
www.investingeorgia.org 8



 OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT
 FLOWS AND RESOURCES - ALUMINUM EXAMPLE




 VEST
    OPPORTUNITY                                                        EVALUATION AND SIZING



 Upstream integration (aluminium production)
                                                             • Production capacity: ~300 k tons aluminium
                                                             • Investment size: USD 250-500 million
                                                             • Power consumption: 4-5 TWh (~15,000
                                                               kWh/t), current generation in Georgia ~11 TWh
                                                             • Market assessment
                                                               -    Globally growing demand
                                                                    mainly from emerging economies




ORGIA
                                                               -    Current surplus capacity utilized by 2016
                                                               -    Target market with cost advantage:
                                                                    Europe/Turkey



 Downstream integration (production of aluminium products)
                                                             • Production of
                                                               -    Foundred and fabricated aluminium
                                                               -    End-user products for import substitution
                                                                    (e.g. construction material, packaging)
                                                               -    End-user products with
                                                                    complementarities to other sectors (e.g.
                                                                    containers for transportation)
                                                             • Production capacity and investment size
                                                               depending on selected products
SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT
FLOWS AND RESOURCES – EXAMPLE OF IRON AND STEEL PRODUCTION

Despite hosting some of the crucial resources,               Existing production offers




                                     IN
Georgia currently only integrates the first step of           opportunity for further value
the iron & steel value chain …                               chain integration

            Ferro alloy      Iron and      Iron and steel                                   Iron and         Iron and steel
Mining                         steel                           Mining      Ferro alloy
            production                      end product                                       steel           end product
                            production                                     production
                                             production                                    production          production




Current value chain

  1


  2
                                 IN GEO
          Chiatura Manganese ore mines
          • Mining 1.18 mn tons of manganese ore
          • Extracting 400 k tons of concentrate

          Zestafoni Ferroalloy plant
          • Producing ~180 k tons of Ferrosilicomanganese
             (FeSiMn) and Ferromanganese (MC FeMn)
          • Own power supply from Vartzikha HPP (55 MW)
                                                             Vertical integration of value chain


                                                                             3


                                                                            4a
                                                                                    Production of iron and
                                                                                    steel and related end
                                                                                    products

                                                                                    Internal consumption/
                                                                                    regional import
                                                                                    substitution

  3       Export of ferro alloys, amounting to USD ~250 mn                  4b      Export of iron & steel
                                                                                    products
          Imports of iron and steel products to Georgia, amounting to
  4       USD ~300 mn, but also to neighboring countries




 www.investingeorgia.org 9
INVEST
        IN
IN GEORGIA
     IN GEO
      GEORGIAN NATIONAL
      INVESTMENT AGENCY
         www.investingeorgia.org

    E-mail: enquiry@investingeorgia.org
  Portfolio Manager: Kristine Meparishvili
   E-mail: kristinem@investingeorgia.org

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Manufacturing

  • 1. MANUFACTURING M A NUFACTU RING Georgian National Investment Agency 2013
  • 2. MANUFACTURING SECTOR OVERVIEW: OPPORTUNITIES: IN • Manufacturing and industries account for around 14% • Large import overhang in goods that are usually of GDP and ~ 5% of employment not traded extensively provides regional import • Largest industries are food and beverages (3% of total substitution potential in food processing, construction GDP) and metal products (2.5%) materials, household gods etc • Advantage to process goods - competitive cost of • Georgia’s current advantages in terms of handling power, labor and strategic location large transshipment flows, business stability, low • 2 Free Industrial Zones - In FIZ, businesses are cost of power generation and existing raw materials/ exempted from all tax charges except Personal intermediate products provide opportunities for Income Tax large industrial bets, like production of iron and steel products, aluminum etc IN GEO Russia Mestia Kulevi FIZ FIZ Black Sea Poti Kutaisi Tbilisi Batumi Turkey MRN Azerbaijan Railway Armenia www.investingeorgia.org 1
  • 3. www.investingeorgia.org 2 MANUFACTURING SECTOR USD milions, 2011 Value add Production value VEST INDUSTRY PRODUCTION VALUE TOP 3 PRODUCTS TOP 3 TOP 3 AND VALUE ADD (VALUE ADD) EXPORTS COMPANIES ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  297 ▪  ORGIA RGIA ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  260 ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  90 ▪  ▪  ▪  ▪  ▪  ▪  47 ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  170 ▪  ▪  ▪  ▪  ▪  ▪  47 ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  ▪  43 ▪  ▪  ▪  ▪  ▪  ▪ 
  • 4. MANUFACTURING SECTOR GROWTH OF SECTOR VALUE ADD CURRENT INDUSTRIAL BASE CAGR,2006 - 10 Textile & Leather IN N Transport equipment Paper & pulp Metals Food & IN G N GEO Wood Machinery & beverages products equipment Plastics Chemicals Mineral products 10 100 1,000 SIZE OF SECTOR VALUE ADD USD mn Food and metals industry provide the largest industrial base for Georgia, while textile industry, transport equipment and metals growing strongest www.investingeorgia.org 3
  • 5. www.investingeorgia.org 4 TRADE BALANCE IN GEORGIA AND IN THE REGION IMPORT OVERHANG, USD mln, 2011 mln, TRANSPORTATION VEST COST ORGIA RGIA
  • 6. SEVERAL HIGHLY ATTRACTIVE IMPORT SUBSTITUTION OPPORTUNITIES SECTOR PRODUCT GROUP PRODUCTS IN • Articles of cement and steel • Prefabs Construction • Ready-mix concrete - Building • Bricks materials • Finished articles of steel • Articles of wood • Plywood and laminated wood • Tiles • Sanitary ware Construction • Ceramic products • Windows IN GEO - Finishing elements • Glass & glassware • Glassware • Doors • Furniture • Living furniture • Bottling Food • Beverages and spirits processing • Fruit juices • Preparations of fruits and vegetables • Jams • Vegetable oils • Dairy and eggs • Milk • Cheese • Butter • Meat • Yogurt • Poultry/Beef/Pork/Lamb • Plastic packaging Packaging • Paper packaging www.investingeorgia.org 5
  • 7. www.investingeorgia.org 6 SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES OPPORTUNITY CURRENT ADVANTAGES TO BE LEVERAGED POTENTIAL FOR GEORGIA VEST ALUMINIUM INDUSTRY • Large transshipment flows of raw • Value chain integration materials/input (Bauxite) and aluminium - Production of aluminium cross Georgia to/from Tajikistan (largest - Production of aluminium aluminium plant in Central Asia) products (fabricated or end • A lot of water recourses and large products) hydropower plants in the pipeline IRON AND STEEL • Vertical integration of value chain • Georgia mines Manganese ore PRODUCTION by adding production of iron and • Georgia produces ferro alloys, largely for export (USD ~250 mn) steel and related end products ORGIA • Large imports of iron and steel products to • Regional import substitution Georgia (USD ~300 mn) and neighboring countries COPPER • Georgia and Armenia export copper ores, • Production of copper alloys copper waste and scrap and end products (regional import • Import overhang of copper products substitution) (alloys and final products e.g. wire, tubes, pipes) amounts to USD ~200 mn in the region POLYMERS & • Import overhang of plastic products • Plastics and petrochemicals OTHER PLASTICS amounts to 230 mn in Georgia and 8 bln in production (regional import the region substitution for plastics/rubber) • Georgia transships large flows of petroleum products
  • 8. OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES - ALUMINUM EXAMPLE LEVERAGING TRANSSHIPMENT FLOWS, GEORGIA CAN INTEGRATE INTO A IN GLOBAL VALUE CHAIN OF ALUMINUM PRODUCTION. Current value chains in aluminium production use Georgia as transit country … … offering opportunity for integration upstream IN GEO +use/create complementarities … or downstream with transport & • Tajikistan Aluminium Company (TALCO) is l power sectors argest aluminium manufacturer in Central Asia - Total production 300-400 k tons, ~1% of global production - Using ~40% of Tajikistan’s power generation (largely hydropower) • No domestic bauxite/alumina, all imported (mostly from Ukraine, Azerbaijan, Kazakhstan) • Export of raw aluminium to Europe, Turkey, CIS, China, accounting for ~40% of all exports of Tajikistan www.investingeorgia.org 7
  • 9. www.investingeorgia.org 8 OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES - ALUMINUM EXAMPLE VEST OPPORTUNITY EVALUATION AND SIZING Upstream integration (aluminium production) • Production capacity: ~300 k tons aluminium • Investment size: USD 250-500 million • Power consumption: 4-5 TWh (~15,000 kWh/t), current generation in Georgia ~11 TWh • Market assessment - Globally growing demand mainly from emerging economies ORGIA - Current surplus capacity utilized by 2016 - Target market with cost advantage: Europe/Turkey Downstream integration (production of aluminium products) • Production of - Foundred and fabricated aluminium - End-user products for import substitution (e.g. construction material, packaging) - End-user products with complementarities to other sectors (e.g. containers for transportation) • Production capacity and investment size depending on selected products
  • 10. SEVERAL OPPORTUNITIES ARISING FROM GEORGIA’S TRANS-SHIPMENT FLOWS AND RESOURCES – EXAMPLE OF IRON AND STEEL PRODUCTION Despite hosting some of the crucial resources, Existing production offers IN Georgia currently only integrates the first step of opportunity for further value the iron & steel value chain … chain integration Ferro alloy Iron and Iron and steel Iron and Iron and steel Mining steel Mining Ferro alloy production end product steel end product production production production production production Current value chain 1 2 IN GEO Chiatura Manganese ore mines • Mining 1.18 mn tons of manganese ore • Extracting 400 k tons of concentrate Zestafoni Ferroalloy plant • Producing ~180 k tons of Ferrosilicomanganese (FeSiMn) and Ferromanganese (MC FeMn) • Own power supply from Vartzikha HPP (55 MW) Vertical integration of value chain 3 4a Production of iron and steel and related end products Internal consumption/ regional import substitution 3 Export of ferro alloys, amounting to USD ~250 mn 4b Export of iron & steel products Imports of iron and steel products to Georgia, amounting to 4 USD ~300 mn, but also to neighboring countries www.investingeorgia.org 9
  • 11. INVEST IN IN GEORGIA IN GEO GEORGIAN NATIONAL INVESTMENT AGENCY www.investingeorgia.org E-mail: enquiry@investingeorgia.org Portfolio Manager: Kristine Meparishvili E-mail: kristinem@investingeorgia.org