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The construction sector was established long before the formation of the country as a legal state and has passed from primitive buildings to complicated and sophisticated complexes. Throughout various stages of the country’s development, buildings and other construction projects reflect the period in which they were built. For nearly the last two centuries Georgia was part of the Russian empire and the Soviet Union, thus, the development of the construction sector was in accordance with the laws and conditions accepted by Russia and the FSU, i.e. massive construction of industrial facilities. During that period the construction sector employed almost 250,000 people and produced construction materials worth approximately US$1.5 million annually.

After the collapse of the Soviet Union, the Georgian construction sector ceased development, which was mainly caused by the political, social and economic conditions of the country (i.e. a coup, civil war, and armed conflicts in Abkhazia and South Osetia), and also by non-efficient, highly energy consuming technologies and outdated equipment and machinery. As a result, almost one hundred percent of the construction factories and facilities ceased functioning.

During the early ‘90s, when Georgia became independent and positioned itself towards democracy and integration into the world economy, the Georgian construction sector realized that it was totally unprepared to meet the demands and standards of country’s development phase. The main negative aspects characterizing such non-preparedness were:

1. Non-efficient and partially destroyed equipment and machinery.

2. Lack of investment in majority spheres of construction (except private construction).

3. Weak management of the sector from the government’s side.

4. Lack of professional managers and specialists with knowledge of international principles.

5. Great need of specialized trainings for the staff.

6. Harsh economic condition of scientific, projecting and architecture institutions.

7. Import of foreign construction materials and workforce.

Among other important factors, considering the importance and crucial character of the construction industry for the country’s economic development, the Georgian government made several positive steps towards rehabilitation of the construction industry to create a favourable investment environment including passing the law on promotion and guarantee of foreign investment activities, and instituting a process of restructuring and privatisation. A few years ago the government of Georgia launched a process of restructuring and privatisation of large Soviet era construction enterprises. As a result, various non-efficient, illiquid and monster enterprises have changed their organizational structure and been converted into small cost and energy efficient, liquid plants. Derived from the privatisation process the majority of state construction companies have become private joint stock and limited liability companies. In addition, a huge number of uncompleted construction sites have been privatised and completed.

Main Indicators of Development in the Construction Sector. The slight revival and positive trends in the construction sector have been noticed since 1995 – the period when the Georgian national currency the Lari (GEL) was introduced.

The table below indicates the main financial flow in the construction sector during 1995-2002 (first nine months).

Source: Ministry of Construction and Urbanization

* The construction of dwellings in Georgia is mainly based on up-front deposits made by people who will live there after the construction is completed.

According to the table investments in main capital from 1995-2002 constitutes 2396 million Georgian Lari (1109 million USD) which includes: Government investment – 906 million GEL (419 million USD) – 37.8%, personal funds of the population – 335 million GEL (155 million USD) – 14.0%, foreign investment – 1155 million GEL (534 million USD) – (48.2%). Derived from this data we can state that investment in main capital shows a trend toward a positive increase (+2.7) from 1995-2001 compared to 1995. In addition, the increase in foreign investment is quite noticeable. This was mainly due to the construction of the oil pipeline and Supsa oil terminal in 1998.

In 2002 the positive developments in the construction sector continue to accelerate, resulting in construction of 545 buildings, among theses are the construction of a new Marriott hotel, 62 stores, 38 gas stations, and 12 food outlets (all in Tbilisi).

Market demand (Construction Materials). Even though several local construction material manufacturing plants have been restructured and rehabilitated, the goods manufactured by them do not have a high demand among Georgian customers. Mainly this is due to low quality and narrow assortment. The only Georgian made product of comparatively good quality is cement, produced by the Rustavcement and Kaspicement companies. This situation represents a good opportunity for U.S. firms to invest in and/or upgrade local building materials manufacturing plants. Presently, product imported from Turkey, Dubai, Iran and Russia occupies almost 95% of the Georgian building materials market. Even though they are perceived to be of a lower quality, the majority of people still buy them because of the low price. Nevertheless, another Georgian customer segment, the high income family, still prefers building materials made in the U.S. or Europe, due to the high quality and regardless of the higher price.

The following imported materials are in the highest demand on the Georgian market:

• Ceramic Products (tile, mats)

• Insulated American style windows, doors.

• Various colored wood and flooring materials.

• Heat, ventilation, air conditioning systems.

• Roofing materials

• Varnish paints

• Plastic tubes for water communication

• Wallpapers

• Lights and bulbs

• Vinyl sidings

Due to the growing wave of construction, a large market share still remains unoccupied and is ready for new companies and potential investors. The construction sector will play an essential and important role in Georgia’s further economic development and integration into the world economy.

1. Business

1. Company Registration and Licensing System

1. Company Registration System

Enterprise register. Registration of an enterprise is to be carried out by the Court by making due records in the Enterprise Register. The information concerning the registration is to be recorded into the Register Card. The Register Card specimens are presented below:

Registration card (sample) for Limited Liability Companies (LLC)

Registration card (sample) for Joint Stock Companies (JSC)

The Law on Entrepreneurs provides that data on newly registered companies should be published in the official newspaper. The Law also guarantees information on any company entered into the enterprise register held by courts be available to the public. Any person should be able to view the records and obtain extracts from the registration file.

Procedure for registering (establishing) an enterprise. Figure 4.1.1.1 provides an outline of the sequence of the procedures to register and establish a business in Georgia.

Figure 4.1.1.1 Business Registration Procedures

Produce the incorporation documents

Legalize, translate, and notarise the founders’ documents

Acquire office space

(legal address)

Характеристики

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