June 25, 2012
Tbilisi, Georgia
With so much economic doom and gloom out there, it’s easy to forget that there are actually some bright spots in the world. I’ve spent the last few days in one of them– Georgia.
Perhaps most famous for being continually stomped on by Russia, this place has suffered severe hardship practically since independence from the Soviet Union in the early 1990s.
In 2005, Georgia was shut out of the Russian market, it’s largest trading partner. It happened again in 2006.
Then, of course, you may remember the Russian military invading Georgia (do you see the theme here?) in August 2008 in support of the breakaway republic of Abkhazia in northwest Georgia.
Russian forces rolled across the border, occupied several key areas in the country, and bombed the hell out of Tbilisi just for good measure. The damage is still visible to this day.
Yet despite so many challenges, Georgia has finally turned the corner and become one seriously exciting economy with some seriously compelling opportunities.
One of the biggest reasons for this is that there is hardly any natural wealth in the country. Like Hong Kong or Singapore, Georgia has figured out that it can’t get rich by becoming a resource powerhouse.
Consequently, the last several years has seen what they call the ‘de-Sovietization and Singaporization’ of Georgia.
Georgia has shot up in the ranks of international business… from slumming with the likes of Pakistan just a few years ago, to besting places like Estonia and Switzerland.
They’re doing it by tearing down worthless, extractive economic institutions and making things easy for business and investors.
At a 15% flat rate, for example, corporate taxes are essentially as low as Singapore or Hong Kong. Capital gains, in many cases, is zero.
Regulation has been reduced dramatically– registering a property or starting a business, for example, are easier in Georgia than just about anywhere in the world.
And with both a US and UK comprehensive tax treaty (sorry Canada, Australia, and New Zealand), Georgia could make an excellent place to establish a tax efficient international business structure.
Ultimately, its ease of doing business is going to be one of the major growth catalysts for this economy– just like Panama, Dubai, or Estonia before.
Georgia is surrounded by places that are marred in obscene regulatory minefields, Byzantine tax codes, and corrupt officials. In the future, this will make Georgia the natural choice to do business in the region.
One of the clearest (and easiest) opportunities here is in the banking sector.
I’ve spent the last several days re-examining the local banking sector and diving into the numbers, and my analysis has led me to the conclusion that it’s one of the best capitalized banking systems in the world.
To give you an example, it’s common for banks here to hold in excess of 30% of their deposits in CASH. They don’t loan it out, they don’t invest in stupid government bonds or CDOs… they actually hang on to their customers’ funds.
By comparison, a bank like SunTrust in the US, or RBC in Canada, hold less than 3% / 5% of their customers’ deposits in cash, respectively.
Bankers here are also incredibly conservative; loan standards require borrowers to pay exorbitant interest rates and put up massive down payments… which also means they pay depositors relatively higher rates.
Just this morning, in fact, I negotiated a 1-year fixed deposit rate with a local banker on behalf of Sovereign Confidential subscribers for 10%… in US
dollars. Local currency rates are even higher.
For dollar holders who don’t want to take any currency risk, the carry trade potential is significant– borrow for 1% to 4% in the United States, Hong Kong, or Singapore… and invest in a 1-year CD in Georgia yielding 10%.
One of the most interesting things about this place, though, is that it is an easy ‘escape’.
If your back’s against the wall and you really need a place to go, Georgia gives visa-free entry for up to 360-days to dozens of
nationalities– including the US, Canada, Japan, all of Europe, St. Kitts… and even places like Cuba and Iraq.
That’s right. Without so much as a single piece of paper, you can show up to Georgia and spend nearly 1-year here. Afterwards, you need only exit the country for a day in order to start a new 360-day block. Not a bad deal.
Living here is dirt cheap… and a lot of fun. The people are incredibly warm, and I’ve found that the younger generations which are on board with the ‘Singaporization of Georgia’ are incredibly sharp.
I have much more to say on the country– specifically the massive agricultural, hydropower, and real estate opportunities… More to
follow.
