Georgia is a small country in the South Caucasus, offering a strategic geographic location that
facilitates uninterrupted trade flows and a liberal business environment that provides efficient
regulation and taxation to promote long-term business development. At the crossroads of Asia and
Europe, the country is striving to become a regional transport and logistics hub and aspires to achieve
enhanced participation in regional and global value chains. Due to its small and open economy, Georgia
is vulnerable to regional geopolitical shocks. Nevertheless, the Georgian economy has displayed
remarkable resilience, demonstrating solid growth in the post-pandemic years. Economic growth in
2021 and 2022 amounted to 10.6% and 11%, respectively. The trend continued in 2023, albeit slower
than in previous years, but still reflecting a high average growth of 7.5%.
Georgia is a small country in the South Caucasus, offering a strategic geographic location that facilitates uninterrupted trade flows and a liberal business environment that provides efficient regulation and taxation to promote long-term business development. At the crossroads of Asia and Europe, the country is striving to become a regional transport and logistics hub and aspires to achieve enhanced participation in regional and global value chains. Due to its small and open economy, Georgia is vulnerable to regional geopolitical shocks. Nevertheless, the Georgian economy has displayed remarkable resilience, demonstrating solid growth in the post-pandemic years. Economic growth in 2021 and 2022 amounted to 10.6% and 11%, respectively. The trend continued in 2023, albeit slower than in previous years, but still reflecting a high average growth of 7.5%.
The government has prioritized steps to ensure macroeconomic stability and manage fiscal risks, promote green and efficient transport for improved connectivity, and invest in renewable energy sources while seeking decarbonization and strengthened disaster risk resilience. The government also focuses on improving basic urban services delivery and developing municipal infrastructure, focusing on private sector involvement in policy planning and formulation. Georgia pursues strategies and policies aimed at greater social orientation and institutional and sector reforms.
The government has approved the National Development Strategy and Vision 2030, which aims to diversify the economy, boost exports, and transform the country into a hub for renewable energy trade, multimodal transit, tourism, logistics, and finance. It sets four priorities: (i) foreign policy, peaceful settlement between Georgia and the Russian Federation, and public security; (ii) economic development; (iii) social policy and human capital development; (iv) and public administration.
The Economist Intelligence Unit’s Infrascope Index 2020 ranks Georgia’s public–private partnership (PPP) enabling environment at 57th out of 71 countries, 11th in terms of overall investment and business climate, 63rd in terms of institutions, 32nd in terms of financing environment, 37th in terms of regulations, and 60th in terms of market maturity.
Infrastructure Investment Needs in Georgia
According to the Vision 2030 document, to fully use Georgia’s location, logistics potential, and regional hub capabilities, in the long term the Georgian government will continue to take care of basic infrastructure, such as the development of highways, water supply systems, waste management, and municipal infrastructure.
Transport Infrastructure
Transportation remains a critical focus for infrastructure development in Georgia. In 2023, substantial investments were directed toward improving road and rail networks. The ongoing development of the East–West Highway, which connects the Caspian and Black Seas, is a flagship project aimed at enhancing trade routes and regional connectivity. Additionally, efforts to modernize the railway system continue, with significant investments in both infrastructure and rolling stock to shift more freight and passenger traffic from road to rail, supporting Georgia’s decarbonization goals. The government has also prioritized the maintenance of existing road infrastructure to ensure safety and reliability.
Energy Infrastructure
Energy infrastructure is another critical area, with substantial investments planned in renewable energy sources such as hydropower, wind, and solar. Since 2017, investment in the sector has slowed down as a result of the power purchase agreement (PPA) moratorium. The introduction of new support mechanisms is expected to stimulate the sector. The Black Sea Submarine Cable Project, expected to launch in 2029, aims to establish an underwater high-voltage transmission network connecting the electric power systems of Georgia and Europe. This will enable Georgia and Azerbaijan to capitalize on expanded export and transit opportunities.
Water and Wastewater Sector
The water supply in the regions of the country is one of the important challenges due to damaged and in some cases nonexistent infrastructure. Not all regions have a functioning infrastructure network and water quality control mechanism. Due to damaged infrastructure, there are large losses of extracted water, as well as frequent network breakages and supply interruptions. Therefore, investment in water and wastewater infrastructure is critical for ensuring access to clean water and sanitation across Georgia. Projects aimed at modernizing water supply systems and expanding wastewater treatment facilities are necessary to meet growing demand and environmental standards. These investments are crucial for public health and sustainable urban development.
Information and Communication Technology
Information and communication technology (ICT) infrastructure is fundamental for modernizing Georgia’s economy and integrating it into the global digital landscape. Expanding high-speed broadband access, especially in rural and underserved areas, is essential for enhancing connectivity, supporting e-government services, and fostering innovation. Investments in ICT infrastructure will enable Georgia to improve public service delivery, support business growth, increase competitiveness and, most importantly, achieve its goals of positioning itself as a digital hub with global connectivity. The World Bank supports Georgia’s national strategy 2020–2025 regarding broadband development and is financing the Log-in Georgia project, which aims to increase access to high-speed broadband connectivity for populations in rural areas, promote the use of digitally enabled services (including digital public services) among connected populations, and improve the affordability of broadband services across the country.
The government announced that $2.47 billion would be spent on infrastructure projects across the country in 2024.
Overview of the Public–Private Partnership Legal and Regulatory Framework
Georgia has a nascent but developing ecosystem for PPPs. ADB has been involved in developing the PPP program in Georgia for many years by facilitating the establishment of the PPP legal framework in the country. Until 2018, PPPs in Georgia were implemented in an unstructured manner and on an ad hoc basis, without a well-defined institutional, policy, and legal and regulatory framework. There were several PPP projects in port, airport, energy, information and communication technology (ICT), and healthcare sectors that were implemented before the PPP Law was adopted. The Concession Law, adopted in 1996, provided the guidelines and procedures for issuing concessions to companies and governed the majority of projects in the energy sector. Renewable energy projects were governed by a separate government decree specific to the renewable energy sector projects. The contractual matters also used to be negotiated on a case-by-case basis at an individual PPP contract level.
However, the government realized the importance of PPPs as an alternative way of financing infrastructure investments and has been developing a PPP institutional, policy, and legal and regulatory framework. In 2016, government Decree 245, established an overall institutional structure and identified the areas for public–private cooperation through PPPs. Decree 245 states that PPPs in Georgia shall be implemented following the preliminarily defined process and regulations. Subsequently, in 2018, the Law of Georgia on Public–Private Partnerships, also known as the PPP Law, was adopted. This was followed by a package of bylaws related to the introduction and implementation of PPPs in Georgia. The PPP Law establishes the legal and regulatory framework for PPPs, including the rules and procedures governing the development and implementation of PPPs. It also defines the relevant institutions and other regulatory bodies related to PPPs.
The PPP Law and the secondary legislation provide the legal basis for procuring and managing PPPs in Georgia. It covers both concession and non-concession types of PPPs. It provides the definition and eligibility criteria for PPPs, the various stages for project development and management, and the relevant entities involved in PPP project identification, screening, preparation, procurement, and management, including their functions. It also establishes the process for dispute resolution and the identification and management of contingent liabilities.
The PPP Law and the secondary legislation also require the establishment of a formal PPP institutional structure including a PPP Agency, which has been set up under the Office of the Prime Minister of Georgia, and a related risk and fiscal management function under the Ministry of Finance. The PPP Agency became operational in 2019 and guidelines for identifying, appraising, procuring, implementing, and monitoring PPPs have been developed to support the PPP Law and the supporting secondary legislation.
The PPP institutional framework in Georgia consists of the public entities responsible for procuring the PPP project, the PPP Agency, the Ministry of Finance, the Georgian State Procurement Agency, the Ministry of Economy and Sustainable Development (MOESD), and sector-specific line ministries.
Overview of Financial Framework
In Georgia, the local banks have been the major source of funding for infrastructure PPPs. However, the availability of long-term financing from commercial banks is limited. The issuance of corporate and/or project bonds for raising funds for PPPs can be a more viable option as they offer more flexibility and the ability for the issuer to set its preferred terms. Generally, the domestic capital market in Georgia is in the early stages of development. The underdeveloped capital market could be a hindering factor for PPPs. In addition, the instability of the local currency (GEL) creates currency risks for projects that receive long-term funding in a foreign currency and generate project revenues in the local currency. The costs associated with the use of hedging instruments for managing the risk of foreign exchange rate fluctuations and volatility are relatively high.
Therefore, domestic capital market development is currently a priority at the national level. The national government, together with the national bank, representatives of the private sector (including the Stock Exchange of Georgia), experts, and consultants of the ADB have prepared a capital market development strategy for 2023–2028 and a 2023–2024 action plan.
The old strategy did not have a specific implementation period, but within the framework of the two-year action plan (which covered 2016 and 2017 only), several important measures were implemented. One such measure was related to a pension system reform to mobilize long-term capital and savings. The reform resulted in the formation of the pension agency. The former is also important for providing access to domestic long-term financing for PPP projects.
