The small Caucasian country of Georgia has emerged as the new tech hotspot. In 2020, only 1,971 IT companies were operating in the nation, with 79% of them being locally owned. Fast forward to 2024, the tally has risen to 24,117, with 84% now being international.
A recent study by Galt & Taggart, Georgia’s leading investment banking and management firm, highlights the information and communication technology (ICT) sector as the country’s fastest-growing industry since 2022. This growth has been driven largely by the IT sub-sector, which recorded a turnover of GEL 2.4 billion ($816 million) in 2023 – a significant boost to Georgia’s economic landscape.
Foreign companies are now increasingly relocating to Georgia, with many of them moving their entire operations. Currently, 72 companies are classified as large or medium-sized by the small Caucasian country’s government, while the majority of the remaining businesses are foreign sole proprietors.
The sector’s growth was initially spurred by tax incentives introduced in 2020. To strengthen Georgia’s appeal as a regional hub and attract multinational firms, the Caucasian country’s government lowered income tax rates to 5% for companies with international status.
What is fuelling the growth?
Georgia’s Innovation and Technology Agency (GITA) in August 2024, announced about launching of an information technology sector development project in the country’s regions. Within the scope of the “Do IT with the EU” project financed by the European Union, the GITA will hold information meetings in 10 regions of Georgia, aiming to strengthen regional IT ecosystems, develop the information technology sector and strengthen digital skills across the country.
“Do IT with the EU” is an IT ecosystem development project implemented by GITA and supported by the EU, enabling over 1300 individuals to acquire international certifications and enhance their competitiveness in the global tech market.
As per Kakha Samkurashvili, head of sector research at Galt & Taggart, while tax incentives were vital, the war in Ukraine reshaped the global IT landscape, creating unforeseen opportunities for Georgia.
“Following the war in Ukraine, many IT companies and developers relocated to Georgia, primarily from Belarus and Russia. The surge in code production and the number of developers in the country directly aligned with the peak influx of migrants,” Samkurashvili says.
According to various studies, the peak of emigration to Georgia – totalling approximately 100,000 people – was recorded in the first and second quarters of 2023. Samkurashvili noted that it was during this period that the IT sector experienced its highest growth rate.
In fact, the Georgian government, recognising the importance of creating a hub of technological excellence in the South Caucasus, in December 2023, passed laws that grant “International Company Status” to overseas technology companies, offering exemptions on property and dividends tax and a reduced 5% tax rate on profits and personal income.
The country also runs a “Virtual Zone” for the IT sector. The zone is known for conferring benefits including zero corporate tax and no VAT. Georgia supports international businesses with smooth company registrations, fast access to new bank accounts and high levels of privacy.
Georgia also operates an FDI programme, offering cashback payments for investing companies. Lineate, a New York-headquartered global software consultancy joined the programme last November after making an investment of $700,000 and creating at least 50 jobs at its new base in Tbilisi, Georgia’s capital.
Talking about GITA, the agency has invested $14 million in around 240 startups since 2018, helping to create a pool of globally scalable tech companies. The top beneficiaries have reportedly raised 10 times the level of GITA’s investment through additional private capital.
GITA’s grant programme has emerged as the most powerful innovation engine in the country, targeting first-time entrepreneurs with financial support, training, mentoring, networking opportunities, and access to Silicon Valley experts.
Notably, GITA offers “Startup Matching Grants” of up to $60,000 with just 10% co-financing and “Innovation Grants” for regions of up to $10,000, making it easier for aspiring entrepreneurs to kickstart their ventures.
“Georgia’s tech sector is booming and has doubled in scale since 2016, employing 36,707 people in 2022, a rise of 20% year-over-year. Georgia’s information and communications (ICT) sector grew 49.9% (in terms of GDP) between 2021 and 2022, according to the National Statistics Office of Georgia,” reported Bloomberg back in December 2023.
Georgian startups are attracting the attention of technologists worldwide. At “Web Summit 2022,” one of the world’s largest technology events, Georgia-based AI platform Theneo fended off competition from 2,300 startups to win the prestigious PITCH contest. As a measure of the winner’s potential, 2021’s PITCH winner, medtech startup Smartex, has since raised $25 million in funding. Theneo has already raised $1.5 million in US investment.
“The growing maturity of Georgia’s technology ecosystem was confirmed in 2021 with the first foreign acquisition of a homegrown startup, Pulsar AI. An advanced conversational AI platform that enables car dealerships to engage with customers, it was bought by American automotive software giant SpinCar, now known as Impel. Pulsar AI was one of the first Georgian startups to be supported by GITA,” Bloomberg added.
The country’s Association Agreement with the EU, which includes a “Deep and Comprehensive Free Trade Area” and visa-free travel, has further enhanced its appeal to entrepreneurs and investors seeking access to European markets.
GITA and AXEL: Meet the guiding force
Talking about the flourishing Georgian startup scene, Tether, an international Blockchain giant, invested $25 million in the ecosystem last year, covering the entire CIS region from its Tbilisi office.
Marco Dal Lago, Head of Expansion at Tether, praised Georgia’s entrepreneurial spirit and digitisation efforts.
“Georgia is an English-speaking country, so Gen Z and Millennials interact and speak excellent English. It’s full of talent, with many universities and technology-driven individuals who have studied abroad or have even built startups,” he noted, while adding, “The National Bank of Georgia is interacting with a lot of industry players to create a regulatory environment open to all parties. These continuing interactions should allow digital-asset companies to come to Georgia, making it a neutral state where investment flows and entrepreneurs can find a safe place to foster economic REGIONAL INSIGHTS EUROPE 03 06 03 growth.”
The nine tech parks managed by GITA provide inclusive spaces for idea generation and business development, benefiting up to 32,000 individuals, including 52% females, between 2020 and 2023 alone. GITA’s efforts extend beyond financial support, with significant investments in Georgia’s education system to enrich the country’s startup ecosystem at its roots.
Apart from supporting universities where students learn about business and develop digital skills, the agency closely collaborates with top universities in Georgia, establishing new educational courses, pre-acceleration programmes, hackathons, and tech boot camps. Some of the prominent examples are Business and Technology University offering a hardware product prototyping course with GITA and Kutaisi International University is doing summer camps.
The Georgian startup ecosystem is also benefitting from the presence of an active angel investor network, Axel, the Georgian Angel Investor Network, which is a member of the European Business Angel Network and the Global Business Angel Network.
Along with GITA, this network has been crucial in connecting startups with potential angel investors, organising events and nurturing a vibrant investment culture within the ecosystem. The 2024 chapter of the Investment Ecosystem Conference brought together up to 500 angel investors, 3,000 guests, and over 30 speakers, further solidifying Georgia’s position as an emerging startup hub. In the same year, a partnership was forged between GITA, the Bank of Georgia, and 500 Global, a world-renowned accelerator and venture capital firm.
Around 500 Global has rebranded its accelerator programme in Georgia to “500 Global in Eurasia,” reflecting its commitment to nurturing startups across the region. In partnership with GITA and Bank of Georgia, 500 Global has successfully accelerated up to 70 startups across five batches since 2020. The latest batch of the programme featured nine tech startups from six countries, focusing on web3 investment, AI-powered talent acquisition, and educational technology.
GITA has recently announced significant developments and initiatives to foster the growth of the Georgian startup ecosystem as part of its GITA 2.0. These initiatives include launching new early-stage acceleration programmes, additional tax incentives for innovative startups and SMEs, establishing Excellence Centres in priority technology areas, and creating a comprehensive digital platform called “Start-Up in Georgia.”
GITA will be mentoring 160 startups annually through four early-stage acceleration programmes, which will incorporate grants and the participation of top international accelerator experts to guide the programme. Additionally, it will offer new tax incentives, including 0% tax rates for innovative startups, 500% tax credits, and 30% cashback for innovative startups and SMEs.
The prioritisation of key technology areas, including Artificial Intelligence (AI) and Agritech, and the establishment of Excellence Centres to support research-based innovation and R&D commercialisation, are all set to signal to the world that Georgia is committed to advancing the region’s technological capabilities.
New strategic location amid Ukraine crisis
Russia’s full-scale invasion of Ukraine in 2022 impacted one of the leading international companies, Exadel. The war transformed the company’s newly opened Georgian office into one of its major strategic locations.
“We had our offices in Belarus and Ukraine, but the war has brought significant changes and challenges. While we have managed to keep our offices open, the situation for developers working in Ukraine is far from easy; periodical power outages and other disruptions make the work difficult. Additionally, there is an emotional impact on everyone,” said George Khoshtaria, a marketer at Exadel, while interacting with World Finance.
Exadel, an international technology company with over 25 years of experience in the digital market, entered Georgia in 2021. According to Khoshtaria, there were a few reasons why Exadel initially decided to enter the Georgian market.
“One of the main reasons is the tax incentives offered to international companies. The second is the high proficiency in English among developers, who are generally considered some of the strongest. Our clients are American and European companies that require highly qualified developers for international projects, and we can find such talent in Georgia. This is why Exadel operates in the country,” Khoshtaria said.
The Ukraine conflict has now proved the strategic importance of the Georgian office, as it became essential to relocate some operations from Ukraine and Belarus. Georgia, beyond being a base for companies like Exadel, has also become a new home for thousands of foreign developers from Belarus.
International companies have also created numerous opportunities in the Georgian socio-economic set-up, where the average nominal annual salary is GEL 24,000 ($8,750) and the unemployment rate stands at 13.7%. By 2023, the number of employees in Georgia’s IT sector reached 30,200, a sharp increase from just 5,000 in 2021.
The average annual salary in the industry too has doubled, now standing at GEL 83,280 ($30,400). Nika Kapanadze, an economist at the Policy and Management Consulting Group (PMCG), states that the arrival of international companies has played a crucial role in the country’s economy.
“International IT companies serving clients across different continents hire Georgian personnel and conduct operations locally. This effectively acts as an export of labour, and it is crucial that these individuals are physically present in Georgia. The money generated stays within the country’s economy, contributing significantly to its growth,” Kapanadze said.
Lineate is another international software development company that entered the Georgian market in 2022, establishing a regional hub to expand its business across Europe. With an investment of $14 million, the company has contributed to the country’s technological development by creating 200 new jobs, apart from launching the Lineate Dev School programme to support aspiring developers.
The company collaborates with schools and leading Georgian universities to promote education in the field. Giorgi Tsikolia, Vice President at Lineate outlined several reasons the company established its regional office in Georgia.
“The company found hiring qualified staff in Georgia highly attractive. Additionally, the tax system is quite flexible, especially regarding technology. Furthermore, Georgia’s geography provides the opportunity to access both European and Asian markets,” Tsikolia said.
However, the official also noted the importance of monitoring geopolitical risks.
He said, “We, like all international businesses engaged in the region, are concerned about the escalation of hostilities across the wider geography. Similarly, the company is actively monitoring political developments in Georgia.”
Worries remain
In March 2024, the ruling Georgian Dream party reintroduced a Russian-style draft law on transparency of foreign influence, making it mandatory for non-governmental organisations receiving over 20% of their funding from foreign sources to register with the Ministry of Justice as organisations serving the interests of a foreign power.
Although President Salome Zourabichvili vetoed the law, Parliament overruled her decision. Despite protests and international condemnation, the Speaker of Parliament signed the law on June 3, 2024.
The protests last year lasted nearly two months and were met with excessive force by Georgian security forces. The crackdown and the contentious law have strained Georgia’s relations with the West. The country’s EU accession process has stalled, along with the promised financial assistance.
The United States, on the other hand, imposed sanctions on two high-ranking Georgian officials for their involvement in human rights abuses during the violent suppression of protests. The US State Department also introduced visa restrictions on more than 60 individuals and their families, citing their role in undermining democracy in Georgia.
In the October 2024 parliamentary elections, the ruling Georgian Dream party declared victory, igniting further protests across the country, along with international condemnation, over alleged election fraud. These developments have sparked widespread concern in Georgia, with fears that the impact will extend beyond politics, affecting the business environment and the overall well-being of the population.
Kapanadze is convinced that the overall political environment must remain stable, with no ambiguity regarding Georgia’s Western orientation.
“I wouldn’t say that companies already established here will leave, but the real concern is that talent may start to exit the country as they no longer feel comfortable. We are talking about high-income individuals who seek a comfortable lifestyle. Now, with discussions around cancelling the visa-free regime with Europe, this could deliver a significant blow to the entire economy, especially the IT sector,” Kapanadze explained, while further emphasising that maintaining Georgia’s reputation is key to becoming a regional IT hub.
“We are the connecting link between the West and the East. If this connection is severed with either side, the potential to thrive as a hub will disappear,” he concluded.