Issue #816 Business

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Issue no: 816/13

• FEBRUARY 9 - 11, 2016

• PUBLISHED TWICE WEEKLY

Mercy Tembon: Georgia Needs to Invest More in its Human Capital

FOCUS FOCUS ON THE WORLD BANK

GT meets Ms. Mercy Tembon, World Bank Regional Director for the South Caucasus, to talk the present and future of Georgia’s economy PAGE 9

MCC Allocates USD 140 Million to Improve Education

BY ANA AKHALAIA

D

irect investment in Georgia’s future is how Prime Minister Giorgi Kvirikashvili assessed the grant of USD 140 million allocated by the Millennium Challenge Corporation (MCC) for improvement of the education system in Georgia.

The Prime Minister met with the Deputy Vice President of the corporation, Fatema Sumar, amongst others, to discuss new directions. PM Kvirikashvili asked the corporation to pay more attention to private sector involvement and professional education.

Continued on page 10

Prime Minister Giorgi Kvirikashvili met with the Deputy Vice President of the MCC, Fatema Sumar, and others, to discuss new directions

PRICE: GEL 2.50

In this week’s issue...

Administrative Border Line Shopping Center to Open in Spring PAGE 2

Tbilisi International Airport to Partially Close During Daytime for Runway Repair PAGE 3

Estonia Inspiring Georgian Reformers ISET PAGE 4

IFC on Climate Change: Threat and Opportunity for the Private Sector PAGE 6

Regional Economic Integration is Key to Development Success in Central Asia and the Caucasus PAGE 7 Prepared for Georgia Today Business by

Markets As of 05ͲFebͲ2016

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GEOROG 05/17

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103.13 (YTM 5.40%)

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34,06

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2,4850

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3,6039

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1 880,05

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1 780,59

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GT Index (GEL)

885,86

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BUSINESS

GEORGIA TODAY

FEBRUARY 9 - 11, 2016

Government officials tour the rennovation works on Aghmashenebeli Avenue

‘New Tiflis’ to Bring Tourism, Economic and Social Benefits

BY EKA KARSAULIDZE

T

he Government of Georgia announced the start of the first stage of the largescale restoration-rehabilitation works on the David the Builder (Agmashenebeli) Avenue and Dry Bridge surrounding area, which are among the oldest districts of Tbilisi. By the end of the year, 45 residential buildings will be completely rehabilitated; and parks and pedestrian zones will be introduced, alongside new tourist spots and facilities.

According to the ‘New Tiflis’ project, along the second half of the David the Builder Avenue – from Marjanishvili Square to Zaarbriuken Square (former Voroncov Square) – the Avenue will be completely transformed into a pedestrian zone which will include cafes, shops, renewed gardens and tourist routes.

Mayor of Tbilisi, Davit Narmania, highlighted that the project will bring social and economic benefits. “First of all, we care about our citizens and it is important for us to make their social condition more comfortable and give them rehabilitated buildings. At the same time, the majority of buildings in this district are cultural heritage, dating back to the 19th century; after the renovation, the price of real estate here will also become more attractive and interesting from an economic point of view,” Narmania said.

The Mayor noted that the new project is also to affect the surrounding areas of Dry Bridge – the 9

March and the Dedaena gardens will be connected with an underground pedestrian passage, where a gallery, shops and other tourist zones will be installed. The David the Builder Avenue and Dry Bridge, which are already among the top tourist destinations in Tbilisi, will become even more attractive.

Moreover, the Prime Minister of Georgia, Giorgi Kvirikashvili, highlighted the ecological problems in the city and stated that the government is going to recover the so called German gardens in the district according to 19th century’s maps. “We will increase the number of green zones in the city. It is highly important to balance while we have such heavy traffic. People will have more places for rest, and the gardens will have a positive effect on the environment,” Kvirikashvili said.

The government spent 21 million Lari on the first phase of the ‘New Tiflis’ project. In order to preserve the city center’s historic appearance, more than 200 architects and engineers worked in tandem with historians, art historians, restoration specialists and urban planners. After the project implementation by the end of 2016, it is expected that even more job places will be created.

“We need to breathe new energy into the city,” said the Prime Minister at the ‘New Tiflis’ presentation. “Tbilisi is a special city in its architecture and location. It is our duty to recover the heritage that as given us. We need to develop tourism and the economy. The city should give hope to residents and create more job places. Moreover, Tbilisi should become an even more interesting and attractive destination for tourists.”

Administrative Border Line Shopping Center to Open in Spring

BY EKA KARSAULIDZE

T

he state owned investment Partnership Fund announced the up-coming conclusion of the construction of the multifunctional shopping center in the Zugdidi district, Western Georgia. Within the center will be local and international brands, as well as various profile organizations. It is expected that the center will help develop the region’s economy and improve the condition of local residents.

The new shopping center is located on an area of 10,000 square meters and consists of 10 separate buildings which will include retail and wholesale stores, furniture and technical shops, a hypermarket and an agricultural market. A center for the sale of agricultural products is also due to open there.

“It’s not just a shopping venue but also a multifunctional center. There will be an entertainment center, playgrounds for kids, cafes, a veterinary clinic, financial and banking facilities, car services, a post office, a community center of the Ministry of Justice, as well as offices,” said Natia Turnava, Deputy Executive Director of the Partnership Fund. “It is particularly important

10 Galaktion Street

that in addition to international companies here will be presented local ones that will contribute to the development of the economic situation in the region.”

The construction of the shopping center began in September 2015 and ended within 5 months.

About 300 local citizens were involved in the construction process, and it is also expected to create up to 1000 jobs after its opening.

Further, the center is able to support the development of Western Georgia’s economic potential and deepen trade relations; the project also has an important strategic function. Rukhi village, where the center has been built, is located 600 meters from the Inguri Bridge, which is considered as the administrative border between Georgia and Abkhazia.

“The population of Abkhazia will be able not only to come here and use all the services of the multifunctional center but also to get a job here,” said Levan Shonia, the Governor of SamegreloZemo Svaneti region.

The construction in Rukhi village was carried out on the initiative of the Georgian government and cost up to 15 million Lari. According to Turnava, this is a very strategic and important project, and thus, the government is ready to invest in it.

The official opening of the center is planned for the spring of 2016.

Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge

BUSINESS

GEORGIA TODAY FEBRUARY 9 - 11, 2016

Georgian Sweets Firm Aims for European Market

Tbilisi International Airport to Partially Close During Daytime for Runway Repair

BY TAMAR SVANIDZE

BY ANA AKHALAIA

T

bilisi International Airport (TAV) will be partially closed for some time during each day from March 1st for approximately four months in order to renovate the airport’s runway.

Representative of TAV told Georgia Today that there is no plan on TAV’s side to reschedule or cancel flights as some reports have falsely announced and the exact time of renovation works will be be provided soon.

According TAV administration, the air companies have been informed of the renovation works well in advance and will choose themselves whether to alter their flying hours or cancel flights.

3

Georgian Restaurant Named Best of the Year in Poland SOURCE: GEORGIANJOURNAL.GE

A

Georgian restaurant in Warsaw has won the title of ‘Best Restaurant of the Year’ in a poll, accumulating more votes than Polish and Italian venues.

‘This nomination has existed for the last ten years and it is a great honor for us to be the winners. My son and I have received three diplomas. Winning in a foreign country is even more important

for us,’ owner Rusiko Turkistanishvili said.

The restaurant, named Rusiko, where five Georgians are employed, was opened in Warsaw on April 9, 2015, by Davit Turkistanishvili. He chose that name in honor of his mother, who is also the chef in the same restaurant. Davit Turkistanishvili has been living in Poland for 15 years and before opening his own restaurant, worked in this field for quite a long time.

The ‘Best Restaurant of the Year’ poll is carried out annually by one of the most popular Polish newspapers, Gazeta Wyborcza.

French Bakery Chain PAUL to Enter Georgian Market

G

eorgian sweets company Chirkoladi hopes to enter the European market in the coming years.

T h e c o m p a ny h a s employed a Dutch consultant who will help Chirkoladi export to Europe.

“We’ve invited a Dutch instructor who will help us in terms of production and export to the European market. This will take time, but we are working on it,” said the company’s founder, Gocha Kupreishvili.

The company’s main product line, also known as Chirkoladi, is a mix of dried fruit dipped in chocolate. The company’s sweets are produced using dried fruit from local farmers.

The company’s production facility is located in Bagdati, a small town in Georgia’s western Imereti region.

BY ANA AKHALAIA

F

rench bakery chain PAUL will open its first Georgian branch in the country’s capital Tbilisi in April.

PAUL will be the second bakery/café chain to operate in Georgia.

Entrée, a joint Franco-Georgian chain,

began operating in Georgia in 2008. It currently has 10 outlets throughout the country as well as a branch in Baku, Azerbaijan, opened in 2015.

PAUL has already announced that it is currently in the process of hiring staff for the Tbilisi branch, which will be located in the city’s Vake district.

Founded in 1889 in northern France, PAUL currently has 436 cafes in 30 countries.

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BUSINESS

GEORGIA TODAY

FEBRUARY 9 - 11, 2016

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

Estonia Inspiring Georgian Reformers

BY MAYA GRIGOLIA AND ERIC LIVNY

T

here is a lot of affinity between Estonia and Georgia, two tiny nations for centuries caught between the Russian rock and the German or Ottoman/ Persian hard place. Common fate may be, indeed, the reason for Georgia’s topping the list of Estonian development cooperation priorities.

Georgia is the largest recipient of Estonia’s bilateral aid, most of which is about sharing the Estonian experience of establishing itself as a new European democracy and a unique place to do business.

Uniqueness is a huge asset for small countries trying to carve out their niche in the global competition for talent and capital. The small bottles of wine foreigners receive upon entering Georgia are, in fact, all about signaling uniqueness. Estonia has no claims to being the world’s cradle of wine. Nor is it known for its mountains, pristine landscapes, exuberant hospitality or polyphonic singing. It is the birthplace of Skype, but otherwise it is flat and boringly clean and green.

Left with few other options to impress foreigners, Estonia has been utterly innovative and unique when it comes to economic policy. In 1992, Estonia was the only country in the entire transition uni-

verse to peg its new currency, the Kroon, to a European currency through a rigid arrangement known as the currency board. The goal was to ensure the country’s unique position as an island of relative macroeconomic stability in the hyperinflationary post-Soviet environment. Estonia did not abandon its currency board and did not devaluate the Kroon even in the face of the global financial crisis of 2008. Instead of printing money and devaluating, it found the political strength to cut salaries and undertake painful restructuring measures.

THE ESTONIAN CORPORATE TAX MODEL EXPLAINED In 2000, Estonia came up with another bold policy move, this time abolishing the conventional corporate tax on profit. The essence of this reform was to shift corporate taxation from the moment of earning the profits to the moment of their disThe cost-based Estonian tax system with its flat rate of 21% is considered one of the most unique and simple tax regimes in the world. Deferral of taxation shifts the time of taxation from the moment of earning the profits to that of their distribution. Thus, undistributed profits are not subject to income taxation, regardless of whether these are reinvested or merely retained.

tribution -- either in the form of explicit dividends, or implicitly, through fringe benefits, nice meals, gifts, donations, etc. The tax rate for any of these distribution methods was fixed at 21%.

The innovative element of this reform was not so much about the treatment of fringe benefits, etc.

(Such business expenses would not be considered deductible for the purpose of profit calculation in any normal tax environment.) What Estonia did was provide businesses with the incentives to retain or reinvest undistributed profits. As far as reinvestment is concerned, the new rules were equivalent to allowing businesses to immediately write-off the entire value of investment under a conventional corporate tax system. This, and the fact that retained profits were no longer taxed, had a positive impact on business cash flows, enabling Estonian corporations to save for the rainy day.

Accounting for the fact that reinvestment is contributing to the value of businesses, Estonia imposed a 21% tax on capital gains from the sale of property or securities. In early 2011, however, it agreed to further relax its tax code. Accordingly, capital gains transferred to a special investment account for reinvestment purposes were not be taxed until taken out of the investment account.

THE ESTONIAN MODEL ASSESSED Since the object of corporate taxation in Estonia is not business revenue in a particular period (a fiscal year), but payments transferred to natural persons (either in the form of dividends, fringe benefits, or capital gains), Estonian corporations are paying their taxes on a monthly basis, smoothening the seasonal tax collection cycle. Additional – and very important – benefits of this cost-based taxation method are simplified tax accounting and audit procedures.

At the same time, when introduced in 2000, the reform resulted in an abrupt reduction in the amount of corporate tax collected. Compared to 1999, total corporate income tax revenue almost halved in value, dropping from 1 638.8mln (2% of GDP) to 854.5mln Kroon (0.92% of GDP). Corporate tax collection rebounded in subsequent years, however, reaching 2 522mln Kroon (1.78% of GDP) in 2004.

In 2000-2004, Estonia has seen a considerable increase in FDI inflows: from €284mln in 1999 to €424mln in 2000, and a further tripling by 2004.

Yet, as shown by Bellak & Leibrecht (2009), it is impossible to attribute this entire increase to the tax reform. During this period, Estonia was on the receiving end of FDI for reasons that mainly had to do with its market size, labor costs, and other relevant factors.

A study by Masso, Merikull & Vahter (2011) shows that Estonia’s corporate tax reform resulted in increased holding of liquid assets and lower use of debt financing by Estonian corporations. It also finds a positive effect on investment and labor productivity. According to the authors, these developments have contributed to firms’ resilience and survival during the 2008 global economic crisis.

LESSONS LEARNED FOR GEORGIA While promising, Estonia’s tax model carries considerable implementation risks in Georgia. Also, given that Georgia already has a fairly liberal tax legislation, the advantages of adopting the Estonian system would be relatively modest.

First, unlike Estonia, Georgia greatly depends on corporate profits as a source budget revenue. Currently set at 15% (if retained) or 20% (if distributed in the form of dividends), the corporate income tax is the third largest contributor to the Georgian budget (after VAT and income tax on physical persons) – amounting to about 12% of total tax revenues and 10% of budget expenditures.

It is thus clear that abolishing the corporate tax would strain the Georgian budget far beyond anything experienced by Estonia back in 2000 (in 1999, the corporate profit tax accounted for about 6% of Estonia’s total budget revenues). One way to minimize this risk would be to stagger the corporate tax reform over a number of years. While helping avert the danger of a fiscal crisis, such a gradual

approach would defer the benefits of the simplified tax accounting and auditing procedures, which Estonia’s cost-based tax model is all about. Even a 1% corporate profit tax would force businesses and the Georgian Revenues Service to maintain the current, rather cumbersome model of tax administration.

A preferred approach might be to move ahead with an immediate implementation of the Estonian model while cutting budget expenditures and/or temporarily increasing other taxes, such as the VAT. Allowed by the Economic Freedom Act, a 3-year increase in VAT would help close the revenue gap. (Apparently, such a strategy is already being proposed by the Georgian Parliament’s Budget Office.)

While moving ahead with the corporate tax reform it would be important for the Georgian government to manage its own expectations and dispel any illusions associated with this reform.

• First, Georgia’s current corporate tax regime already allows corporations to write off the entire cost of investment in fixed assets in the year in which they are first put to use. (This provision is particularly effective in incentivizing capital intensive companies with heavy depreciable assets, as opposed to trading and service companies that have insignificant assets to depreciate.) Thus, the proposed reform will NOT provide additional incentives for reinvestment. It will, however, incentivize corporations to retain profits, i.e., potentially reducing their dependence on expensive debt financing.

• Second, if anything, not facing a rigid deadline for writing off capital expenditures in a given fiscal year Georgian businesses will have the incentives to DECELERATE INVESTMENT DECISIONS. Sounds bad? Not necessarily. The kind of “investment” businesses undertake at fiscal gunpoint, by December 31 of each year – such as luxury cars and Italian office furniture – are not of the most productive type. While showing as investment on the books of Georgian corporations, such expenditures do not bring Georgia an inch closer to the goal of becoming a developed economy. With the Estonian system in place, businesses will have the ability to retain profits, rationalize capital expenditures and avoid hasty decisions.

• Third, contrary to what one may hear from enthusiastic supporters, the fact that profits are not taxed under the Estonian tax model does NOT abolish the need for corporations to account for their expenses. If anything, the entire focus of tax reporting and auditing will be on scrutinizing expenditures in order to make sure that dividends are not disguised as payments to offshore consulting firms, etc.

• Finally, there is NO reason to fear that the proposed reform will encourage businesses to spend on consultants, fringe benefits and perks beyond what is already the case in Georgia. In fact, the new corporate tax law may provide a clearer definition of allowable business-related expenses, closing whatever loopholes there are in the existing tax code. * * * For small countries like Georgia and Estonia, bold policy experiments – such as Estonia’s currency board and 0% corporate tax, or radical deregulation reforms of the early Saakashvili period – are wonderful attention grabbers. Their immediate and direct effect is equivalent to opening the door for investors and shouting out loud: YOU ARE MOST WELCOME! Whether investors will come in and stay for the long haul will, of course, depend on fundamental factors such as market size, labor cost and quality, and locational advantages that are beyond any government’s immediate control.

“When small men begin to cast big shadows,” a Chinese proverb goes, “it means that the sun is about to set.” When small countries cast big shadow, it may mean that their sun is about to rise.

Eric Livny is president with the International School of Economics at Tbilisi State University (ISET). Maya Grigolia is an ISET graduate and senior researcher with the ISET Policy Institute

6

BUSINESS

GEORGIA TODAY

FEBRUARY 9 - 11, 2016

IFC on Climate Change: Threat and Opportunity for the Private Sector OP-ED BY DIMITRIS TSITSIRAGOS

A

s world leaders met at the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) in Paris last month to hammer out a deal to prevent global warming, one thing became clear: the private sector, with its financial clout and penchant for innovation, must play a leading role in the struggle for a greener future.

The private sector was more visible and active at COP21 than in any of the previous COPs. CEOs from industries as diverse as manufacturing, mining, technology, and renewables stepped up their collective efforts to address climate change, readily pledging to decrease their carbon footprint, use more renewable energy, and adhere to sustainable resource management. Meanwhile, global financial institutions pledged to release hundreds of billions of dollars in new investment over the next fifteen years in clean energy and energy efficiency. Most prominently of all, the private sector called on governments to put in place stable long-term regulatory regimes, including a price on carbon, that they can use to guide their companies through the transition to a low-carbon economy.

“Developing countries will need about $100 billion of new investments each year over the next four decades to bolster economic resilience to the

effects of climate change.”

No matter what kind of agreement follows Paris, arresting climate change will not come cheap.

Developing countries will need about $100 billion of new investments each year over the next four decades to bolster economic resilience to the effects of climate change. Mitigation costs are expected to balloon to anywhere between $140 and $175 billion annually by 2030. This enormous burden cannot be carried by national governments alone. Many are already struggling to make ends meet and will need the buy-in and participation of the private sector in order to comply with the agreement reached in Paris.

But why should businesses, whose main fiduciary responsibility is to their shareholders, care about climate change? The answer is simple: a growing number of studies show that climate change is disastrous to their bottom line. If global temperatures jump four degrees by 2100 – the direction we’re heading in now – droughts, flooding, and ferocious storms will wreak financial havoc, upending small shops and large conglomerates alike.

A study by CitiGroup found that excessive warming could shave up to $72 trillion off the world’s gross domestic product. Another report, this one published in the journal Nature, concluded that global warming may reduce average global incomes by nearly a quarter. A four-degree (C) jump would also batter sectors such as agriculture, real estate, timber, amongst a host of others. Emerging market equities would suffer as well. All told, that would

Chile: Mountain Landscape. Photo: Curt Carnemark / World Bank

produce a toxic environment for businesses of all sizes.

Investors wouldn’t remain immune either. A report by Cambridge University suggests equity portfolios could tumble by up to 45% as climaterelated fears ripple across global markets. Some companies are already starting to feel the pinch.

Earlier this year, the CEO of Unilever – which had $52 billion in 2014 sales – turned heads when he said natural disasters linked to climate change cost his company about $330 million a year.

Perhaps Dean Scarborough, the CEO of manufacturing firm Avery Dennison, put it best in a recent interview with the Harvard Business Review: “Climate change threatens (our) supply chain, our customers’ businesses, and the communities we’re part of. If we want to stay in business for the long

“Developing countries will need $100 billion in new investment annually over the next four decades to bolster economic resilience to the effects of climate change.” term, contributing to the fight against climate change is just smart strategy.”

For years, companies around the world bristled at the idea of going green. Their argument: we just can’t afford it. However, a dramatic plunge in the price of eco-friendly technologies – especially renewable energy – and the rise of carbon pricing – which charges firms for releasing greenhouse gases – has changed that calculus. Companies are now flocking to climate-smart investments, not only because it’s morally the right thing to do, but because it adds to the bottom line.

A recent study that looked at a sample of 1,700 leading international firms found that the money they put into reducing greenhouse gas emissions saw an internal rate of return of 27% – a clear indication that those investments are paying off. Other studies, like one from Harvard, have shown that companies with a reverence for environmental and social sustainability outperform firms that treat those issues with disdain.

Companies also realise the concerns over regulatory risk and governments proactively managing the transition to a low-carbon economy need to be taken into account while planning business strategies. That is why the private sector has become increasingly more open to a pricing carbon emissions and is calling for more stable regulatory regimes and long term price signals.

In September 2014, more than a thousand companies joined forces to speak out in support of carbon pricing. They have now signed up for the Carbon Pricing Leadership Coalition, which was formed during COP21 in Paris with the goal of expanding the use of effective carbon pricing policies in order to maintain competitiveness, create jobs, encourage innovation, and deliver a meaningful reduction in emissions. This adds to the growing corporate support for progressive climate action.

Six major oil companies petitioned governments, and the United Nations, to take stronger action on carbon pricing in an open letter published in June 2015.

WHERE ARE THE OPPORTUNITIES? You don’t have to be a tech giant to embrace ecofriendly technology. Just ask Lebanon’s Arab Printing Press (APP). The company, which has 130 employees, is a prime example of the growing number of small businesses that are going green.

The Beirut-based firm installed solar panels at its headquarters a couple of years ago, cutting its reliance on expensive fuel oil.

Like any disruptive force, climate change is creating opportunities for companies willing to innovate. A report by the International Finance Corpo-

ration (IFC), for example, found that Eastern Europe, Central Asia, the Middle East, and North Africa could support up to $1 trillion in climate-related investments by 2020.

Globally, one area especially primed for growth is renewable energy. Countries from Honduras to India have set ambitious targets for wind, solar, and hydro-power generation and they’ll need private sector investment to get there. Just how widespread is the desire for clean energy? Even Saudi Arabia, home to one of the world’s biggest oil reserves, is looking to generate the bulk of its electricity from renewables and nuclear power by 2040.

We’ve already seen companies take up the mantle in Panama where a consortium is building what will become Central America’s largest wind farm. The 215-megawatt Penonome plant will prevent the release of 400,000 tonnes of carbon dioxide emissions each year – equivalent to taking some 84,000 cars off the road. Meanwhile, the private sector is playing a key role in the construction of a massive 510-megawatt solar plant in the Moroccan desert that will provide power to 1.1 million people. The project, worth $2.6 billion, could help turn the North African kingdom into a renewable energy powerhouse and serve as a model for future public-private partnerships. In Nepal, the first project-financed hydropower plant in the country is expected to generate about 200 GWh of electricity, helping address debilitating power shortages which underlie the country’s lack of industrial progress.

Renewable energy isn’t the only climate-related sector primed for growth. Companies can find opportunities in eco-friendly construction and in helping cities prepare for changes in climate. By 2050, more than six billion people will live in urban areas, creating a pressing need for a host of infrastructure services such as water and sanitation. As well, 400 million homes are expected to be built by 2020, a potential boon for construction companies that can incorporate green technology into their designs.

Finally, there are great opportunities in climatesmart financial solutions. These run the gamut from green bonds issued by governments and international institutions to micro-loans for entrepreneurs. Just how much potential does the industry have? According to conservative estimates, borrowers need to invest at least $700 billion annually in infrastructure, clean energy, resource efficiency, and green construction between now and 2030.

One lender that has gravitated towards that market is found in South Africa. Sasfin Bank has created a credit line to expand lending to projects that will help small businesses in South Africa become more energy efficient and sustainable.

The Paris climate conference brought into sharp focus the hazards of runaway climate change. It constitutes a fundamental threat to economic development in our lifetime and, left unchecked, could push 100 million people into poverty by 2030.

That would undo the stunning progress the world has made in fighting poverty over the past fifteen years.

SUPPORTIVE POLICIES REQUIRED The private sector can help the planet avoid its fate. However, in many parts of the developing world, corruption and excessive red tape stifle investments in renewable energy and other climatefriendly projects. At the same time, state subsidies for fossil fuels keep prices artificially low, making it hard for renewables to compete.

Governments must remove these barriers and create an environment in which the private sector can thrive and in which investments in renewable energy make financial sense. The private sector should play a role in pushing for these reforms, which have the potential to unlock billions of dollars’ worth of investment opportunities. It is time for the private sector to seize this opportunity by developing business strategies fit for a future without carbon.

ABOUT THE AUTHOR

Dimitris Tsitsiragos is vice-president of Global Client Services at the International Finance Corporation, a member of the World Bank Group. Mr Tsitsiragos leads the investment operations and advisory services for IFC, overseeing new business development, portfolio, and client relationships with key private sector partners worldwide.

First published in Capital Finance International magazine See more at Worldbank.org

BUSINESS

GEORGIA TODAY FEBRUARY 9 - 11, 2016

7

Regional Economic Integration is Key to Development Success in Central Asia and the Caucasus

BY DR. SHAMSHAD AKHTAR

A

s the countries of Central Asia and the Caucasus celebrate the 25th anniversary of their independence, structural reform has become critical. The key to meeting many of the challenges, and seizing the opportunities of the changing global environment is closer regional economic integration with the rest of Asia and the Pacific.

Much has already been achieved in the post-independence era. Market institutions are generally well established, and socio-economic progress has been significant, but this is threatened in 2016 by economic contractions, driven by steep declines in oil, gas and commodity prices, as well as by ongoing currency depreciations.

The deep and complex reforms necessary to build economies capable of weathering these storms have yet to be completed. As a result, according to the latest analyses by the Economic and Social Commission for Asia and the Pacific (ESCAP), the economies of North and Central Asia, excluding the Russian Federation, saw GDP growth fall to 3% last year, down from 5.1% in 2014. This

is expected to improve only slightly in 2016, to 3.4%.

Some countries, such as Kazakhstan and Uzbekistan, have long-term diversification plans, but commodity dependence has increased during the last decade, driven by strong demand and high prices.

The difference between commodity prices and their average production costs, for instance, has increased significantly and remained above 30% of GDP for the subregion over the past 25 years.

Job-generating growth, and wider prosperity in Central Asia and the Caucasus, therefore call for a renewed commitment to economic diversification, as well as accelerated regional economic cooperation and integration – specifically in priority areas such as cross-border infrastructure in transport, energy and ICT, as well as for additional policy reforms to support market-driven trade and investment-led diversification and integration.

A valuable window of opportunity now exists for the subregion to revisit its development trajectory, and to effectively implement the new 2030 Agenda for Sustainable Development. These opportunities are driven by a number of emerging dynamics.

Enhanced political cooperation, to address issues of peace and security, including to counter the threats of extrem-

ism and terrorism, as well as closer collaboration to eradicate extreme poverty, will facilitate further stabilization.

Rebalancing and reviving growth and trade, with supportive diversification and structural transformation, will be particularly critical. North and Central Asia has the lowest share of intra-regional trade in Asia and the Pacific – just 6.6%.

Stronger regional economic integration is therefore imperative to better link these economies to world markets and global value chains.

A number of key new subregional agreements and integration deals, in both transport and energy, lend greater hope for the deepening of regional connectivity and trade facilitation, which are together critical to revive trade growth in the short term.

Enhanced capitalization of the Multilateral Development Banks, as well as the recent establishment of China’s Silk Road Fund and the Asian Infrastructure Investment Bank, offer new vehicles and financing conduits for the infrastructure required for closer integration and sustainable development New momentum has also been generated for subregional integration – both East and South – by recent regional initiatives such as China’s ‘Belt and Road’, the Republic of Korea’s ‘Eurasia Initiative’, as well as discussion on South Asia-

Dr. Shamshad Akhtar Under-Secretary-General of the United Nations and Executive Secretary of ESCAP

Central Asia transport connectivity. All of these aim to advance connectivity of Central Asia and the Caucasus to the wider Asia-Pacific region and beyond.

To support countries in taking advantage of this window of opportunity, ESCAP will host an unprecedented dialogue for the leaders of North and Central Asia on 17 May in Bangkok, as a focus of its annual Commission session.

By creating a platform for all leaders of the subregion to set a new vision and course for regional economic cooperation and integration, we aim to accelerate coherent structural reform and eco-

nomic diversification, for a more resilient, inclusive and sustainable subregion.

The author is an Under-Secretary-General of the United Nations and Executive Secretary of ESCAP. She has been the UN’s Sherpa for the G20 and previously served as Governor of the Central Bank of Pakistan and Vice President of the MENA Region of the World Bank. She will be meeting with Heads of State and Government, as well as senior ministers across Central Asia and the Caucasus in early February to obtain their guidance on the parameters and focal areas for the ESCAP deliberations in May.

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BUSINESS

GEORGIA TODAY

FEBRUARY 9 - 11, 2016

Visa Opens its Global Network with Launch of Visa Developer

V

isa Inc. has announced the launch of Visa Developer, a milestone that transforms the world’s largest retail payments network into an open platform that will drive innovation in payments and commerce.

For the first time in the company’s nearly 60 year history, software application developers will have open access to industry leading payments technology, and products and services by Visa.

The new Visa Developer platform is designed to help financial institutions, merchants, and technology companies meet the demands of consumers and merchants, who increasingly rely on connected devices to shop, pay and get paid. The new platform will offer access to some of Visa’s most popular payment technologies and services including account holder identification, personto-person payment capabilities, secure in-store and online payment services such as Visa Checkout, currency conversion and consumer transaction alerts.

Visa plans to provide access to more of its payment capabilities over the next year.

“As the leader in payments we have an opportunity to transform global commerce by opening-up access to our global network and supporting our clients, industry partners and innovators in their pursuit of creating new, easier and more secure ways to pay,” said Charlie Scharf, Chief Executive Officer, Visa Inc. “Visa Developer represents not only a new access point to our network, but a new distribution platform

for Visa products and services globally.”

Over the past few months leading financial institutions, technology companies, and start-ups have participated in beta trials of the new Visa Developer platform and many have already created innovative prototype applications using Visa technology. Trial partners include Capital One, CIBC, Emirates NBD, National Australia Bank (NAB), RBC, TD Bank, Scotiabank, TSYS, U.S. Bank and VenueNext. According to a recent Accenture study, FinTech investments

We are unbundling Visa’s full suite of products and services and giving developers open access to underlying payment capabilities

reached more than $12B globally in 2014.

The creation of the Visa Developer platform has been a multi-year initiative led by Visa’s global product and technology teams. The team is transforming Visa’s payment products and services into application programming interfaces (APIs), standard technology used by developers for building software and applications. Key attributes that differentiate Visa’s global developer program include: • A globally accessible developer portal offering an easy way to search Visa’s extensive suite of payment products and services.

• An open platform that provides access to hundreds of Visa APIs and software development kits for some of Visa’s most popular payment products and capabilities.

• A testing sandbox that offers application developers a plug and play experience, as well as access to Visa test data.

• Visa Developer engagement centers

that are designed to foster collaboration and co-creation with application developers in key markets like San Francisco, Dubai, Singapore, Miami and São Paolo.

“We are unbundling Visa’s full suite of products and services and giving developers open access to the underlying payment capabilities,” said Rajat Taneja, Executive Vice President of Technology at Visa Inc. “We believe this will lead to the creation of entirely new commerce experiences with Visa technology integrated to enable greater security, scale and convenience when it comes time to pay. When you add the ability to distribute those new experiences across Visa’s global network, you can see why Visa Developer will become the preferred playground for developers everywhere.”

Visa’s vision for its global developer engagement program includes the creation of a marketplace that enables thousands of financial institutions, millions of merchants and technology companies to collaborate, share and

search for innovative digital commerce applications and services.

ABOUT VISA Visa Inc. is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world’s most advanced processing networks — VisaNet — that is capable of handling more than 65,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, ahead of time with prepaid or later with credit products.

For more information, visit usa.visa. com/about-visa, visacorporate.tumblr. com and @VisaNews.

BUSINESS

GEORGIA TODAY FEBRUARY 9 - 11, 2016

9

Mercy Tembon: Georgia Needs to Invest More in its Human Capital

BY ANA AKHALAIA

M

s. Mercy Tembon was appointed World Bank Regional Director for the South Caucasus, effective as of October 1, 2015. In this position, Ms. Tembon oversees the Bank’s program in Armenia, Azerbaijan and Georgia and leads the development and implementation of the Bank’s Country Partnership Strategies in these countries, as well as continuing the dialogue with civil society and development partners. Ms. Tembon is based in Tbilisi, which hosts the Bank’s Regional Office for the South Caucasus.

GEORGIA TODAY spoke to Ms. Tembon, a Cameroonian national who expressed her fascination with Georgia and discussed with us the World Bank’s projects and the economic situation in the country.

WHAT ARE THE POSITIVE STEPS THAT GEORGIA’S GOVERNMENT HAS TAKEN SO FAR (IN TERMS OF SUPPORTING BUSINESS, ECONOMIC REFORMS) AND WHAT ECONOMIC SECTORS SHOULD BE THE PRIORITY TO DEVELOP?

Georgia is one of the top performing countries in the region according to the Doing Business Index. Georgia has made a leap forward in terms of improving the business climate and attracting investors from all over the world. It has cut the time it takes to obtain necessary licenses, it has a good banking sector and has undertaken reforms to ensure macroeconomic stability. However, there is still much to be done.

Now Georgia is moving to the second generation reforms. I was in Kutaisi recently to listen to President Margvelashvili’s annual address, where he said that Georgia should focus on fast paced economic growth and on the initiatives that would speed up infrastructure projects and increase engagement with businesses, as well as continue with education reform. So, Georgia is on the right path.

WHAT ARE THE MAIN CRITICAL ISSUES FOR THE COUNTRY’S ECONOMY RIGHT NOW? Georgia is currently facing some headwinds from exogenous shocks, for example, the global decline in oil prices, and economic slowdown in the countries that are its trading partners. The difficult economic situation in Russia has led to a tangible decline in the demand for Georgia’s exports. Similarly,

remittances from Russia and the neighboring countries have reduced tremendously.

With all of these, Georgia is in a situation where it has to adjust to what is happening beyond its borders. And the way to do that is by maintaining macroeconomic stability through prudent fiscal and structural reforms.

HOW IS THE GEORGIAN GOVERNMENT DEALING WITH LARI DEPRECIATION? The government is treating the Lari depreciation issue with the seriousness it deserves. The National Bank of Georgia (NBG) allowed the Lari to float and thereby, correct external imbalances. To dampen the impact of the depreciation on the financial sector, NBG allowed an extension of maturities for loans denominated in foreign currency. The government has also adjusted social assistance (pensions, targeted social assistance and health spending) to protect the poor from higher inflationary expectations while continuing with structural reforms.

WHAT STEPS SHOULD THE GOVERNMENT TAKE TO SUPPORT BUSINESS IN GEORGIA? Georgia needs to continue making the business environment more conducive

for investors to come. It would also need to continue financial sector development and spur innovation, undertake additional reforms in the judicial system.

Georgia needs to invest more in its human capital and skills development in response to the needs of the 21 century marketplace. I was very pleased to note that in the Prime Minister’s vision for Georgia, education and skills are the priority areas. This is critical because, as the private sector creates jobs, the skills have to be there to actually respond to the requirements of those jobs. In this context, I believe Georgia is on the right path.

WHAT PROGRAMS ARE NOW BEING CARRIED OUT

BY THE WORLD BANK IN GEORGIA AND WHAT ARE THE FUTURE PLANS AND MAIN CHALLENGES?

World Bank’s current portfolio consists of eleven investment projects of a total of USD 840 million. The portfolio includes key infrastructure projects like the East-West Highway, energy sector, regional and municipal development, cultural heritage preservation, internally displaced people and others. These investments are complemented by substantial analytic and advisory services that underpin our future investment programs and reforms. We also have development policy operations that support the government’s reform agenda to improve macroeconomic stability, accelerate economic growth and boost shared prosperity. I am pleased with the Bank’s current portfolio implementation performance, however there is always room for improvement. I think our partnership with Georgia is strong and we are working to strengthen it even further.

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BUSINESS

GEORGIA TODAY

FEBRUARY 9 - 11, 2016

Meeting the Demands of the Industry

BY MERI TALIASHVILI

T

he Industry-led Skills and Workforce Development (ISWD) is a USD 16 million project of the Millennium Challenge Account-Georgia, funded under the second USD 140 million Compact between the Millennium Challenge Corporation (MCC) and the Government of Georgia.

This Project is implemented in collaboration with the Ministry of Education and Science of Georgia. The project started in September 2014 and will continue until March 2019.

It aims to address the gap between the need of the labor market for skilled personnel and the supply of workers with the required technical skills. The project supports the development of industryrelevant programs and the capacity of technical and vocational education and training (TVET) providers.

There is an emphasis on skills development in the areas of science, technology, engineering and mathematics (STEM) which are considered vital for Georgia’s future economic development.

A consultation session with the semifinalists of the Program Improvement Competitive Grants (PICG) scheme was held at Rooms Hotel Tbilisi in December.

At the session, the participants received clarifications based on their interests and questions. The meeting was opened

by Magda Magradze, CEO of MCA – Georgia, Kateri Clement, Millennium Challenge Corporation Resident Country Director and David Handley, Team Leader, ISWD, and attended by shortlisted applicants, including the representatives of TVET sector, industry and non-governmental organizations.

Magda Magradze, CEO of Millennium Challenge Account Georgia: Millennium Challenge Account – Georgia (MCA-Georgia) is implementing a vocational education project in Georgia aiming at human capital development and enhancement in the most important sectors of Georgia’s economy. We have done preliminary studies to find out where the major demand from the labor market for vocational education and the skilled professionals is. Consequently, based on the findings of the study, we have prioritized STEM, agriculture and tourism sectors eligible for the grants facility to enable vocational education providers to strengthen existing and develop new programs and address the industry and employers needs in contributing to the growth of Georgia’s economy.

HOW MANY APPLICANTS HAVE YOU RECEIVED?

We received a large number of applications for the first stage which was carried out early 2015. By the announced deadline 70 concept paper proposals had been submitted with the overall requested grant amount of USD 69 million. The total budget amount of all submitted applications is more than USD 90 million of which the co-financing from the industry reaches USD 21 million, quite an unprecedented amount for the Georgian context. In October 2015 the Technical Evaluation Committee and international experts screened and evaluated the received proposals and revealed 29 shortlisted semi-finalists with the total requested grant amounted to USD 38 million. However, the shortlisted applicants will compete for up to USD 12 million in grants, with grant sizes ranging from USD 300,000 - 3 million per proposal. The ISWD project is managed by the German international firm PEM Consult that has been hired by MCAGeorgia to administer this grant facility.

WHO ARE THE BENEFICIARIES? The program targets both public and private vocational-education providers, offering partnership with private sector and industries in the fields I mentioned earlier. PEM Consult received applications from vocational education centers and colleges as well as local and international universities, which offer vocational education programs.

HOW MANY YEARS IS IT SET TO LAST? The Millennium Challenge Account – Georgia was established in 2012 with the mission to implement Georgia’s Second USD 140 million Compact with the Millennium Challenge Corporation. Over five years, MCA will implement programs in general, vocational, and higher education, focusing on increasing the quality of STEM education and developing human capital in those fields.

The main aim of the ISWD project is to develop high-quality vocational education programs in Georgia, which on the one hand will increase the employability of its graduates with higher salaries, and on the other hand, assist employers to recruit a qualified workforce as is currently in demand.

Vocation education providers, which will be selected and financed by the MCA grants, may develop and implement programs up to 24 months within the scope of the ISWD project. We strongly believe that by offering this outstanding grant facility, the Georgian vocational education system will strengthen and enable students to acquire the modern skills needed to reduce unemployment and develop Georgia’s economy.

GiorgiKhokhobashvili–abeneficiary, Executive Director of Georgian Research and Development Foundation: Our foundation, which is known to the public as a GRDF, is a Georgian Research and Development Foundation that was

founded in 2001, in Washington, on the initiative and with the financial assistance of CRDF. CRDF Global is an independent nonprofit organization that promotes international scientific and technical collaboration between the United States and the countries of the Former Soviet Union (FSU) and was authorized by the U.S. Congress in 1992. We implement US government programs in Georgia in science and technology. Our aim in this project is to establish a vocational education center in wireless technology in partnership with Auburn University, USA.

WHAT IS THE SCOPE OF THE PROJECT YOU HAVE SUBMITTED? Within the framework of our proposed project, we will prepare a workforce in wireless technology that can be used in agriculture. Georgia has a shortage of qualified workers in this field and the demand for wireless technology professionals is high, not only in Georgia but abroad, too. Our program will be a unique one, as it will offer ABET (Accreditation Board for Engineering and Technology) accredited educational programs. What’s more, we have a well-established partnership with the industry, since collaboration with the private sector is vital for vocational education. As we know, the primary goal of vocational education is to prepare a skilled labor force that is responding to industry demands.

PM Calls for Dynamic Development of Adjara

BY EKA KARSAULIDZE

G

eorgia’s central government and the local government of Georgia’s Autonomous Region of Adjara came together to discuss developing a plan for the region. Prime Min-

MCC Allocates USD 140 Million to Improve Education Continued from page 1 The PM stated that education reform is one of the top priorities of the government and the Millennium Challenge Corporation’s grant in this regard is the most important assistance program of the US. “The USD 140 million grant is a direct investment in the future. The most important programs are being carried out; science and high technology development, training programs of the University of San Diego, improving infrastructure in secondary schools, teacher trainings and much more,” the PM said.

The compact seeks to improve the quality of education in the science, technology, engineering, and math (STEM) fields and increase the earning potential of Georgians through strategic investments from the start of a student’s general education to graduation from technical training and advanced degree programs. The compact includes a focus on increasing women’s participation in STEM professions.

The compact builds on the success of Georgia’s first compact with MCC, completed in April 2011, which rehabilitated a major highway, improved energy and water security and supported agribusinesses.

ister of Georgia Giorgi Krivikashvili stated that despite the fact that Adjara is the most economically developed region in Georgia, it is still has greater potential to improve its figures, as well as the need to deal with the current problems.

Adjara’s Black Sea coastal region recently became one of the top tourist destinations in Georgia not only for the summer

but during other seasons as well. This fact leads to the increased interest of both local and foreign investors.

“Not so long ago, I met with several investors and they have a desire to carry out projects here. I would like to see a more dynamic work in this direction,” said PM Kvirikashvili. “There are no problems in terms of economic development in Adjara, the indicators are quite

high. However, I think the region has more potential. We have to use its hidden reserves and give Adjara an even bigger dynamic of development,” added the PM. PM Kvirikashvili also noted that the central government is ready to support the local government to implement an economic project for its better and quicker realization and establish better communication between authorities.

In addition, the Prime Minister touched upon the issue of the renovation of Batumi Boulevard which recently caused clashes between the Adjara authorities and local residents, who ask for the Boulevard not to be changed. “I do not think that people run by any political motives. I believe that we just need better coordination and communication,” said PM Kvirikashvili.

BUSINESS

GEORGIA TODAY FEBRUARY 9 - 11, 2016

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Dechert OnPoint: Georgia and the WTO

D

echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, an international specialist law firm that focuses on core transactional and litigation practices, providing world-class services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide.

For more information, please visit www. dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

GEORGIA AND THE WTO Georgia has been a member of the World Trade Organization (“WTO”) since 14 June 2000. It was the fourth former Soviet republic to join the organization, following Kyrgyzstan, Latvia and Estonia.

As a member, Georgia is bound by the WTO acquis in its entirety. In essence, the acquis is comprised of the Annexure to the Marrakesh Agreement (the “Annexure”), the founding agreement of the WTO. The Annexure encompasses: (i) the General Agreement on Tariffs and Trade (“GATT”); (ii) the General Agreement on Trade in Services (“GATS”); (iii) the Agreement on Agriculture; (iv) the Agreement on Sanitary and Phytosanitary Measures (“SPS”); (v) the Agreement on Technical Barriers to Trade (“TBT”); (vi) the Agreement on Trade Related Investment Measures (“TRIMS”); (vii) the Anti Dumping Agreement; (viii) the Agreement on Subsidies and Countervailing Measures

(“SCM”); and (ix) the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”), among others. As a member of the WTO, Georgia is subject to the jurisdiction of the WTO Dispute Settlement Mechanism and Dispute Settlement Body (“DSB”).

This week’s edition of OnPoint provides a brief overview of Georgia’s principal obligations under the WTO acquis and the WTO’s most recent Trade Policy

Schedules (“Schedules”) to the relevant Accession Protocol. The Schedules are not simply announcements regarding tariff rates. They entail the commitment not to increase tariffs above the listed rates — the tariff rates are “bound.” WTO members have also made individual commitments under GATS stating which of their services sectors they are willing to open to foreign competition, and precisely how open those markets are. In general, Georgia’s Tariff and Services Schedules are both considered to be generous. However, there are certain exceptions and limitations to the commitments prescribed. For example, Georgia’s Services Schedule provides that any organization in which a government’s ownership share exceeds 25% has no right to participate as a buyer in the privatization process of Georgia.

2016 TRADE POLICY REVIEW

Review (“TPR”) of Georgia, which was held at the WTO headquarters in Geneva on 19-21 January 2016.

PROMINENT WTO OBLIGATIONS The most important obligations of WTO members, which serve as the basis of the acquis, are the institutions of nondiscrimination between foreign trade partners and between foreign and domestic trade, as enshrined in the Most-Favored Nation (“MFN”) and National Treatment (“NT”) principles. The MFN principle provides that when one WTO member is granted a special favor (such as a lower customs duty rate for one of its products), that same treatment must be granted to all other WTO members.

Some exceptions are allowed. For example, countries can set up free trade agreements applying only to goods traded within the group. This can include discriminating (in relative terms) against goods from outside the group. Members can also grant developing countries spe-

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cial access to their markets, among other things.

By virtue of the NT principle, imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same principle should apply to foreign and domestic services, foreign and local trademarks, copyrights and patents. NT, however, only applies once a product, service or intellectual property item has

EDITORIAL DEPARTMENT:

Editor-In-Chief: Katie Ruth Davies

entered the market. Therefore, charging customs duties/tariffs on an import is not a violation of the NT principle even if locally-produced products are not charged an equivalent tax.

Other main obligations include the passage and application of strict antidumping policies, limiting subsidization of all and any sectors of trade (in principle), removing all technical barriers to trade and introducing food safety measures in line with the SPS Agreement, among others.

Upon accession to the WTO each country is bound to make a series of commitments on tariffs on goods and services, which are attached as Market Access

Journalists: Tony Hanmer, Tamar Svanidze, Zviad Adzinbaia, Beqa Kirtava, Meri Taliashvili, Eka Karsaulidze, Zaza Jgharkava, Maka Bibilashvili, Nina Ioseliani, Karen Tovmasyan, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Ana Akhalaia, Robert Isaf, Joseph Larsen, Will Cathcart, Vazha Tavberidze, Nugzar B. Ruhadze

The TPR mechanism’s purpose is to improve transparency, generate greater understanding of the policies adopted by member countries and to assess the impact of relevant policies. Many members also view the review process as a means to receive constructive feedback on their policies. Only two TPRs have occurred since Georgia’s accession to the WTO. One occurred in 2009 and another on 19-21 January 2016. At the most recent TPR, WTO members commended Georgia for its open, transparent and predictable trade and investment regimes.

The TPR Report highlighted that Georgia’s customs procedures had been further simplified and that the MFN tariff rate of 2% was one of the lowest in the world, while almost 80% of Georgia’s imports were duty free. It noted that Georgia has undertaken an impressive range of reform initiatives aimed at streamlining, liberalizing and simplifying trade regulations and their implementation, resulting in a relatively healthy GDP growth rate, an impressive international ranking in terms of ease of doing business, and prudent macroeconomic policies. WTO members participating

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in the review, however, recognized that recently reduced exports and remittances have led to increasing external vulnerability. Furthermore, structural reforms are required to strengthen Georgia’s resilience to shocks, attract additional foreign direct investment, diversify Georgia’s industrial production, increase productivity and increase exports, thereby sustaining economic growth.

The TPR noted that reforms to Georgia’s trade and investment regime have been largely driven by the Government’s commitment to align its legislative and regulatory framework with that of the European Union (“EU”). Some WTO members have stressed the necessity to ensure WTO-consistent implementation of the commitments included in Georgia’s Deep and Comprehensive Free Trade Agreement with the EU signed in 2014.

A number of areas for potential improvement were highlighted at the TPR. Notably, in the area of food safety, members were interested in further discussing how Georgia could ensure that its regulatory system would be implemented according to WTO obligations in the SPS Agreement, which calls on WTO members to base their regulations on international standards and scientific principles. Also at the SPS, Georgia was encouraged to further advance its regulatory framework and infrastructure for animal health control as well as to improve efficiency, hygiene and quality standards in agro-processing. Other areas where the WTO required further information and discussion included the issue of auctions for spectrum allocation in telecommunications, aspects of the new Tax Code affecting investors in Georgia and technical issues regarding the launch of an e-visa portal for tourists wishing to visit Georgia. *** Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

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