Issue #820 Business

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Issue no: 820/15

• FEBRUARY 23 - 25, 2016

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Entrepreneurship to Begin at School PAGE 2

Georgian Students to Start Apple Chip Production

FOCUS

ON OPENING NEW WAYS

A new all-season resort opens in Svaneti aiming to develop tourism and boost local employment PAGE

Bureaucracy – Kadagidze’s FourLetter Word

2

PAGE 2

A Georgian Man Without Land Is Nobody?

ISET PAGE 4

It is Time to Know What You Eat

BY CHARLES JOHNSON

O

utgoing National Bank of Georgia (NBG) president Giorgi Kadagidze is leaving his post this week and doing so with strong words for the Georgian government. In a controversial speech last week he called out the Georgian bureaucracy for being bloated and unnecessary. He cited foreign examples such as Switzerland who have few ministries and a more streamlined process of administering the executive functions of government.

Continued on page 3

PAGE 6

Polish Foreign Minister on Ukraine, Georgia and Russia PAGE 8 Prepared for Georgia Today Business by

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BUSINESS

GEORGIA TODAY

FEBRUARY 23 - 25, 2016

Entrepreneurship to Begin at School

BY EKA KARSAULIDZE

T

he Ministry of Education and Science of Georgia has started a pilot project to launch Fundamentals of Entrepreneurship lessons in more than 220 schools throughout Georgia at the beginning of this academic year. The Ministry recently officially presented the new schoolbook of this subject and organized a meeting with teachers.

The project on teaching children the Fundamentals of Entrepreneurship in graduating classes was initiated by the Georgian government and implemented by the Ministry of Education and Science with partnership of the Georgian Chamber of Commerce and Industry in the 2015-2016 academic year.

The subject is not currently mandatory, but has aroused great interest among

This should greatly help the development of small and medium sized businesses in Georgia,” said Tamar Sanikidze, Minister of Education and Science of Georgia

the pupils and teachers. According to the Chamber of Commerce and Industry, initially, it was planned to introduce these lessons in only 100 schools throughout Georgia, but in the end the number of schools was increased to more than double that and there is the chance that it will soon become a mandatory subject in all the country’s schools.

“Students and graduates of profile colleges show very good results. Therefore, we believe that entrepreneurship education should start at an earlier age. This should greatly help the development of small and medium sized businesses in Georgia,” said Tamar Sanikidze, Minister of Education and

Science of Georgia.

The subject Fundamentals of Entrepreneurship develops pupils’ skills of planning and organizing, self-fulfillment and self-development, and teaches them how to turn ideas into concrete activities which in the future will be able to generate income and provide an opportunity for self-realization.

Minister Sanikidze, at a meeting with teachers of the Fundamentals of Entrepreneurship, also discussed the learning process at school, challenges that teachers and pupils face and highlighted that the Ministry and business sector is open to collaboration and improving the education process.

Tetnuldi Ski Resort Opens in Northwestern Georgia

BY ANA AKHALAIA

T

he Tetnuldi ski resort, located in the Svaneti region, northwestern Georgia, has officially opened.

The opening ceremony was attended by the Prime Minister of Georgia, Giorgi Kvirikashvili, along with members of the government who were introduced to the project. The Prime Minister also visited the resort’s administrative building and viewed snow tamping techniques.

“This will be one of the best resorts not only in Georgia, but in Eastern Europe.

We plan to add an additional ski-lift, which will connect Mulakhi village to the Tetnuldi base. A Kutaisi-LentekhiTetnuldi road will also be built,” the Prime Minister announced at the opening.

PM Kvirikashvili was the initiator of

the South Caucasus at 9.5 km and will have the biggest vertical downfall of 1.7 kilometers. It is planned to increase the ski run to 30 kilometers in 2016. It is intended for amateurs, professionals and experts alike.

The Tetnuldi ski resort is under the management of the Mountain Resorts Development Company Ltd. of the Ministry of Economy and Sustainable Development which has set up a free bus service for tourists connecting Mestia, the central town of Upper Svaneti, and Tetnuldi. Further, the ski lift service will be free throughout the season.

According to the Mountain Resort Development Company, Tetnuldi is expected to be able to simultaneously receive 6,806 guests, while the ski complex itself will simultaneously serve 4,100 skiers in an extended skiing period lasting 6-7 months.

Tetnuldi resort will be open to guests year-round and will employ only local residents.

the building of a road from Tetnuldi which will make it possible to travel to and from the airport in Kutaisi, the legislative capital of Georgia, within two hours. According to the Prime Minister, there is one ski run in Tetnuldi and it is planned to open three additional cableways for it by the end of the year.

At this stage, the resort has one cableway with 6-seat chairs which was built by the French ski lift manufacturer company POMA. The project is worth USD 100 million and is funded by the Georgian government with the support of the French government.

Construction of the Tetnuldi resort began in May, 2014 and ended in January, 2016. It sits at an altitude of 2,200 meters above sea level and is located 15 kilometers from Mestia. Through the Partnership Fund, the largest state-owned investment fund, several hotels will also be built in Tetnuldi for the development of the resort.

Tetnuldi ski run will be the longest in

Turkish Company to Organize Heli-skiing Tours in Mestia with visual flight regulations (VFR).

Heli-skiing is a type of extreme sport which uses a helicopter to transfer skiers and snowboarders into otherwise inaccessible off-trail areas. Adventure tourism followers often book tours in advance, before the winter season begins.

BY ANA AKHALAIA

T

urkish helicopter company Guneydogu Havacilik Isletmesias is to begin organizing Heli-skiing tours and serve tourist groups in

Mestia.

The Georgian Civil Aviation Agency

of the Ministry of Economy and Sustainable Development (MoE) has approved the company’s application on implementing operations in the Mestia resort zone from March to April, 2016.

The company plans to operate in the Mestia resort zone in cooperation with the Georgian SkiGeorgia Group. The flights will be performed by the company owned Eurocopter AS 350 83 in favorable weather conditions in accordance

10 Galaktion Street

The Georgian Civil Aviation Agency approved the third application on the fulfilment of flights in the winter resort zones of Georgia. Helicopters of German HTM Helicopter Travel Munich GmbH and Austrian Wucher Helikopter Gmbh already operate in the

Gudauri resort zone.

According to the MoE, operating companies will contribute to developing winter tourism in Georgia, attracting foreign tourists to the country’s ski resorts and creating a more comfortable environment for winter tourism.

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

BUSINESS

GEORGIA TODAY FEBRUARY 23 - 25, 2016

3

Bureaucracy – Kadagidze’s Four-Letter Word Continued from page 1 What does Georgia’s bureaucracy look like? It has nineteen ministries. The massive bureaucracy of the United States has fifteen departments (and several dozen agencies).

Kadigidze’s favorite model, Switzerland, has seven. Why have ministries of Euro-Atlantic Integration and Diaspora Issues when the Ministry of Foreign Affairs is charged with Georgia’s diplomacy? Who speaks to the EU vis-à-vis the association and free trade agreements? Why have ministries of Culture and Sport when a department like Education and Sciences could likely assume its duties? Georgia certainly doesn’t need this much bureaucracy, so the main questions to consider now are: 1. what is the right level of bureaucracy for Georgia? And what should Georgia do with the money it saves from a potential downsizing?

Does bureaucracy make a better government? That is a complicated question. Certainly we cannot expect a state to function and distribute public goods without specialists in a variety of technical areas. However, given their expensive nature, and the fact that they are often the subject of the ’just how much should government do?’ philosophical debates, bureaucracies are a hot button issue in most countries’ politics. For right-wing libertarian policymakers, bureaucracy is a swear word. It was the messiah of the contemporary neoliberal movement Ronald Reagan who hyperbolically said, “The most terrifying words in the English language are ‘I’m from the government and I’m here to help’.” What this disposition fails to realize is that government has to have some form of apolitical staying power from administration to

administration. It has to have the authority to enforce laws, ensure safety, and provide services such as standards, education, and diplomacy with other states. Having worked in US bureaucracy myself (as a Russian analyst with State and Defense departments) I am a proponent of technocratic and apolitical experts working across different administrations as critical to the functioning of the American government and ensuring its interests around the world.

We can assume that some bureaucracy is healthy, but too much creates for unnecessary government spending. Georgia likely has the latter problem.

Georgian Students to Start Apple Chip Production

BY ANA AKHALAIA

A

group of food technology students at Georgia’s Agricultural University have started producing apple chips that will later be introduced to the domestic retail market.

The student group previously won a USD 10,000 grant from Georgia’s TS Fund as part of its Student Innovation Program. With the grant, they hope to create a start-up that will eventually export to Europe.

The group has already created a prototype apple chip that will appear on the Georgian market within the next six months.

Student representative Nona Noniashvili said their product contains the same nutritional properties as fresh apples.

The students also plan to launch a line of beetroot chips later this year.

The Education, Science and Technological Development Foundation for Tomorrow’s Success, or TS Fund, was established in June 2015 aimed at assisting in the development of high tech production by local enterprises and companies.

However, a downsizing would likely result in hundreds or perhaps thousands of government positions closing if the country is to “save millions” like Kadagidze says. Certainly, the government’s budget would be trimmer, and it would have to collect fewer taxes to service its needs, but merely cutting ministries would not be enough to spur economic growth, it is what is done with that money that would make or break Kadagidze’s claim. By releasing that saved money back into the “wild” of Georgia’s and the world economy, there are no guarantees that this money would work for the Georgian people and economy previously receiving services from the ministries their tax paid for. Alternatively, these “millions saved” could be repurposed into more impactful government programs such as expanding social welfare for pensioners or the unemployed, or on incentives for innovative industries. An influx of cash to these areas lets the money work for Georgian interests rather than gambling on the free market return-

ing some benefit to the country.

After the Rose Revolution, the Georgian government was structured on Reaganomic principles (remember when Saakashvili conceded defeat in 2012 with a bust of Reagan behind him on TV?). Recent economic research shows how in fact neither side – neither the big spending left, nor the thrifty right – have the holy-grail answer to the correct size for a government and its spending habits. The proper way to spend government funds depends on the current state of the economy, according to a National Bureau of Economic Research (NBER) working paper

by Johns Hopkins economist Carlos Vegh. Vegh and his research partners found that countercyclical government spending is the most effective way of mitigating future output shocks. Put simply, expanding government spending when the economy is down lessens the relative size of the inevitable future economic shock. Cutting government spending under the same conditions has the opposite effect. With the Georgian economy currently stagnant and at risk of possible recession, now is not the time to cut government spending.

But cutting ministries could potentially be a winwin-win for Georgia. It would end wasteful spending on ineffective government programs. The repurposed money could work for Georgia’s poor and marginalized citizens. And it could create a more internally diverse and sound economy that would not be so susceptible to economic shocks from Russia, the EU or elsewhere. Kadagidze has started a very important public debate, and we should finish it for him.

4

BUSINESS

GEORGIA TODAY

FEBRUARY 23 - 25, 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.

A Georgian Man Without Land Is Nobody?

BY ERIC LIVNY

M

ordecai Richler’s The Apprenticeship of Duddy Kravitz “focuses on the young life of Duddy Kravitz, a poor Jewish boy raised in Montreal, Quebec… As a child, Duddy learns from his grandfather that “a man without land is nobody,” and comes to believe land ownership to be life’s ultimate goal and the means by which a man is made into a somebody.” (from Wikipedia) Just like Richler’s Duddy, the poor Jewish kid growing in Montreal, Georgian men (and women) appear to be reluctant to part with their parcels of land, however small and unproductive. Whatever the reason, Georgia sees almost no structural change out of agriculture, and, as a result, very low productivity and income growth for the poorest strata of its population. As of today, employment (or, rather, under-employment) in agriculture is a staggering 45% of Georgia’s total labor force.

As we have written on these pages, the notion that too many Georgians are ‘stuck in agriculture’ was a key element of the Saakashvili government’s modernization ideology. According this ideology, to catch up with the West, Georgia had to go through the processes of land consolidation (creation of large private farms in place of fragmented plots

under 1ha which constitute the vast majority of Georgia’s agricultural holdings) and urbanization.

Hence, the idea of building new cities such as Lazika (to provide the pull), and an active neglect of agricultural policy (to push smallholders out of agriculture). When, finally, agricultural subsidies started being thrown at rural dwellers in 2010-2012, it was done for purely political reasons.

Georgian agriculture could certainly benefit from greater efficiency – both per worker and per ha.

Yet, efficient agriculture of the kind that Georgia can potentially develop does not necessarily require “land consolidation”. Georgian smallholders cannot compete with the rest of the world in soya, maize and corn, in which scale is essential. They should not even try. That said, Georgia can have a competitive edge in niche agricultural products, such as branded alcohol, silk, honey, cheese, elite teas, or organic apple, citrus and nuts, in which production costs do not necessarily go down with scale.

Yet, to be successful, Georgian peasants have to become much, much better at farming. And they have to acquire a better organization – utilizing economies of scale in access to finance, agricultural inputs and services, joint processing and marketing. In fact, they have to become professional farmers.

GEORGIA NEEDS A DYNAMIC LAND MARKET! Unfortunately for Georgia (and for themselves),

But is there really any reason to believe that completing land registration would provide the Georgian land market with impetus it needs so badly?

It seems quite plausible that many peasants have not bothered to register their lands until now because they were not interested in selling. Why go through the bureaucratic hassle and pay costly fees unless you have a buyer in sight? If that’s the case, MoJ’s initiative will fail to deliver the economic bang for the buck. Subsistence farmers would continue sitting on their tiny plots, whether registered or not. the lion’s share of Georgian rural dwellers are far from being professionals. They are unable to help themselves or each other. Yet, they remain attached to their small pieces of land – whether because of its sentimental value or for lack of profitable urban employment opportunities.

Most observers agree that Georgian agriculture requires an urgent infusion of new blood – foreigntrained professionals and young Georgian enthusiasts like Baia Abuladze and her friends. On the one hand, what is needed is some degree of land consolidation and a gradual transition to industrial farming methods (as is already happening, for instance, in Kakheti). One the other, Georgia also has to create opportunities for modern family farming. And none of this can happen in the absence of an effective market mechanism to re-allocate land from those who are stuck in agriculture to those who see it as their vocation. Hence, the million dollar question: what can be done to bring life to Georgia’s land market?

FOREIGN INVASION? A very original, Misha-esque solution to the problem was attempted by the Saakashvili administration in 2010-2012. The essence of it was to ratchet up land prices by opening the Georgian land market for competition by land-hungry foreigners (some of whom were even granted Georgian passport upon landing in Tbilisi). This solution assumed that Georgian farmers-by-default would sell their land, if only the price were right.

At first, this strategy appeared to work. African Boers, as well as Egyptian, Panjabi and Iranian investors responded to Misha’s invitation. The government quickly repurposed and sold some of the state-owned pasture land to foreign farmers.

Additional land could be acquired in the secondary market through Georgian intermediaries who jumped on the opportunity to offer their services.

Yet, this strategy backfired the moment foreigners started fencing and cultivating former pasture lands on which locals depended for their livelihoods. Instead of selling and leaving for the cities, Georgian villagers started invading fenced properties. What followed was a series of ugly incidents and clashes with the police. By October 2012, Georgia had a new government. By June 2013, this tumultuous chapter in Georgia’s agricultural policy was closed by the infamous moratorium restricting foreigners’ access to agricultural land.

LAND REGISTRATION? One possible reason for the weakness of Georgia’s land market is incomplete land registration. Indeed, only a small portion of agricultural lands is properly registered in Georgia’s electronic cadaster.

Completing the registration process may be a good idea in its own right (to protect property rights).

Yet, the Georgian Ministry of Justice (MoJ) has recently come up with a new – rather revolutionary – idea to require land owners to register their plots within a period of one year or face consequences in the form of de-jure nationalization.

Nobody doubts the Ministry’s intentions, but this particular initiative is causing a lot of concerns.

For one, the registration process envisaged by MoJ involves a costly surveying procedure which farmers may not be able to afford; even more importantly, by expediting the process beyond the government’s administrative capacity to handle disputes over boundaries and faulty paper documents, MoJ is likely to jeopardize the very property rights it is purporting to protect.

A TAX ON LAND? Surely, a tax on landed property, if high enough, could quickly force Georgia’s subsistence farmers off their landed properties. However, even verbalizing such a strategy would be akin to committing a political hara-kiri. Forcibly driving farmers off their land is not a viable policy option in a democratic system in which rural voters have a major say. Moreover, what would Georgia do with hundreds of thousands of hungry and angry peasants???

The country’s private sector would not be able to provide enough jobs (all taxi driving jobs are already taken). And, in any case, keeping so many people on welfare is far worse than allowing them to maintain their plots of land and dignity, and continue safeguarding Georgia’s rural traditions.

FINALLY, HOW ABOUT IMPROVING RURAL INFRASTRUCTURE? There is a reason for Georgian subsistence farmers not to want to part with their plots of land. On the one hand, there is no cost to holding on to one’s land. Agricultural land is not taxed. Irrigation infrastructure, while in need of massive investment, is provided almost free of charge (water is not metered; moreover, peasants often steal it from open canals; and even when they do contract the Georgian Amelioration company, the fee they pay for irrigation services is ridiculously low). Finally, the opportunity cost of holding agricultural land is also very low. Land prices are such that by selling one’s plot, no farmer would have enough money to move to a nearby city and start a new business.

At the same time, the opportunity cost of giving up on one’s plot of land is extraordinarily high for subsistence farmers. First and foremost, having a small piece of land provides reasonable insurance against hunger. Second, rural households very often find themselves on the receiving end of social welfare program, agricultural subsidies (vouchers, price support, free insurance) and donor-financed support programs targeting Georgia’s agricultural sector. And, of course, there is the quality of rustic life and freedom that come with land ownership.

With no cost and so many benefits, no wonder Georgian subsistence farmers remain attached to their lands.

An impasse? Not necessarily, if the following twopronged approach is pursued over time: One the one hand, the value of agricultural land should increase. This could be achieved through continued public investment in rural infrastructure, including access roads, amelioration and irrigation services (which, alone, can greatly increase land productivity) and amenities (schooling, healthcare and culture).

On the other, peasants have to be gradually weaned off agricultural subsidies, raising the opportunity cost of staying in subsistence agriculture. Irrigation tariffs might be a good place start. Land served by modern irrigation infrastructure should be more expensive to hold whether farmers make use of this infrastructure or not.

The result will be market-driven self-selection into more professional, commercial family farming and urban migration. Farmers with a verve will use the opportunity to transition to higher productivity crops and/or cultivation methods. Farmers by default will sell the land plots (which will now have a higher commercial value) and move to other occupations and places.

The author is President of the International School of Economics at Tbilisi State University

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BUSINESS

GEORGIA TODAY

FEBRUARY 23 - 25, 2016

It is Time to Know What You Eat

Irakli Chkadua, Director of the Quality Lab

BY EKA KARSAULIDZE

O

ne of the leading food quality testing laboratories in Georgia, Quality Labs is the only laboratory in the country to reveal the presence of genetically modified organisms (GMO) in products. After only two years of operation, it has already proved that it is the guarantor of quality, a fact recognized not only in Georgia, but also abroad. Recently, the Quality Lab received the highest-grade from Accredited Laboratory Proficiency Testing FAPAS. “FAPAS sent an unknown substance to the laboratory, and our task was to identify what it was and whether it contained GMO or not,” said Director of the Quality Lab, Irakli Chkadua about the proficiently testing process. “From the 30 laboratories all over Europe, we entered the top three to not only detect the presence of GMO, but also to deter-

mine what gene it was. Thus, receiving the highest score.”

According to Chkadua, the laboratory’s success lies in the latest equipment and qualified staff. Almost every 3 months one of the laboratory’s employees goes on training or refresher courses abroad in order to stay abreast of new technologies and improve their skills.

The Quality Lab holds a certificate of European Accreditation ISO / IEC 17025.

All equipment meets international standards. One of them is the unique PCR by Applied Biosystems– the only device for the detection of GMOs in various food products by quantitative and qualitative disrupt existing in Georgia.

“Despite the fact that scientists have not exactly proven whether or not GMOs are harmful to humans, I still tend to assume that all unnatural products will have an impact on the human organism sooner or later. Therefore, everyone needs to know what he/she is eating, whether it is natural or genetically modified and then make their own choices,”

noted Chkadua.

A GMO is an organism whose genotype is artificially modified by genetic engineering techniques. Most often, this involves fusion of the plant genome with the genome of an animal to increase the shelf life of the product, or for other purposes. “For example, if we inject a polar bear gene into a tomato, we might get a vegetable resistant to the cold,” explained Chkadua.

Despite the fact that GMO product turnover is increasing every year, it is worth noting that the movement against them is also growing. Some genetically modified products are prone to mutation and some scientists tend to assume that the use of such products may lead to cancer. In some states of the US, in some European countries and even in Georgia’s neighbor country Azerbaijan, the law prohibits GMO products.

According to Georgian legislation, the importation of GMO seeds is also prohibited, but not the importation of GMO products. Therefore, the Quality Lab

tests not only local products, but also imported ones.

Chkadua said that, unfortunately, the business sector is not very interested in checking the quality of products for a variety of reasons. That said, in the two years they have been operating on the Georgian market, the demand for their services has begun to increase, since many brands are concerned about their quality and know that having non-genetically modified products is in itself a definite sign of quality.

“Frequently, companies do not even know whether their products contain GMOs or not. Therefore, they bring them to us for testing. In addition, we offer not just a single service but a continuous one, as it is important to monitor all the time and check the products at regular intervals, at least because providers are constantly changing and nobody knows what we can find there,” said Chkadua.

The Quality Lab’s doors are open to everyone, not only for food companies,

but also for individuals who have a suspicion about a product. According to Chkadua, prices are available and suitable for absolutely everyone. Tests in the laboratory are made within a maximum of two days and reveal the presence of not only GMOs but also other harmful substances.

Irakli Chkadua states that GMO testing became more urgent after Georgia signed the Association Agreement with Europe. The quality of the products distributed within the country is also an important element of rapprochement with Europe.

The Quality Lab signed a memorandum of cooperation with the Georgian Chamber of Commerce and Industry and won a tender in partnership with the National Food Agency and Customs Department to test products and conduct joint projects. In addition, the laboratory has a transparent policy and all information about quality and non-GMO products can be seen on the Quality Lab’s website (http://www.qlab.ge/).

French Thales to Provide Technical Support to Radar Systems in Georgia

BY ANA AKHALAIA

F

rench company Thales is to provide technical support to radar systems in Georgia. The cost of the project is EUR 2 million.

According to the agreement signed between Thales and Sakaeronavigatsia Ltd. (Air Navigation) of the Ministry of Economy and Sustainable Development, the French company is to take responsibility for providing technical support and scheduled system software update of three radars in Georgia in the next 5 years.

The project provides Thales representatives to carry out maintenance checks of radars once a year, based on which annual reports will be prepared.

The technical parameters of radars will be continuously reflected in the technical base of Thales headquarters and if needed, services will be carried out via e-mail and telephone. According to the

agreement, theoretical and practical trainings of Sakaeronavigatsia staff is also planned in France.

French multinational company Thales Group designs and builds electronic systems and offers services to companies working in the field of aerospace, defence, transportation and security. Thales Group employs more than 68,000 people in

more than 50 countries and more than 180 countries use the company’s navigation systems.

With Thales’ technical support, Sakaeronavigatsia’s radar systems will become consistent with international standards and recommendations which will allow the company to effectively serve airlines without any delays.

8

BUSINESS

GEORGIA TODAY

FEBRUARY 23 - 25, 2016

Polish Foreign Minister on Ukraine, Georgia and Russia ern flank, by which I mean the countries of Poland, the Baltics, Romania, and Slovakia through security provided by the deployment of NATO troops as well as through defense facilities. These were the issues under discussion, alongside the question of how to implement the decisions reached at the defense ministers’ meeting in Brussels a few days prior and of NATO’s increased presence in the East.

Polish Foreign Minister Witold Waszczykovsky. Photo: www.vbox7.com

FROM VOA UKRAINE BUREAU

V

oice of America’s Ukrainian service spoke with Polish Foreign Minister Witold Waszczykovsky about the Ukraine crisis and its impact on the Eastern Partnership countries.

DOES THE US AND THE WORLD UNDERSTAND THE CRISIS IN UKRAINE CORRECTLY? WHAT DID YOU DISCUSS IN YOUR RECENT MEETING WITH THE US ADMINISTRATION? Of major concern is security in our part of Europe because of the crisis in Ukraine and the Russian aggression there. We hope the answer from NATO will be an increase in the security status of its East-

THERE IS WIDESPREAD THINKING IN THE EXPERT COMMUNITY THAT NATO IS NOT READY TO “FIGHT” RUSSIA, AND THAT RUSSIA HAS BEEN BUILDING MILITARY CAPABILITIES FOR A LONG TIME. DO YOU THINK NATO IS READY TO GO AGAINST RUSSIA? It’s not necessary to fight Russia- no one wants to fight Russia, nobody is building a defense. This is a security measure and

a precaution that will discourage Russia from further aggression, this military presence and forward deployment is a deterrence measure to avoid military conflict with Russia.

GEORGIA AND UKRAINE SAY THEY WANT MEMBERSHIP OF NATO. WHAT’S THE POLISH VIEW ON NATO EXPANSION? It’s another main topic for the Warsaw Summit- not just troop deployment but keeping its doors open. I hope the message will be clear and sound in Warsaw that those who want to join will be able to join in the future. There is no veto power of third countries to NATO membership and to the ambitions of Ukraine and Georgia to join.

GEORGIA WANTS TO GET ASSURANCES IN WARSAW. DO YOU THINK GEORGIA IS READY FOR NATO?

I hope the NATO Summit in Warsaw will provide additional mechanisms.

The doors to NATO are supposed to be open. Eastern and Central Europeans are working hard to issue a strong message to Georgia during the Summit.

HOW SERIOUS IS THE THREAT OF THE RUSSIAN-UKRAINE CRISIS TO POLISH SECURITY? Our message is very straightforward in our view: we see clear aggression in Ukraine, annexation in Crimea, and open intervention in Donbas, where Russia sends troops, weapons, and rebels. We are supporting countries in the West that keep pressure on Russia to stop and to solve the conflict in a peaceful way.

We hope that the Minsk 2 Agreement will be implemented in the next few months and that Russia’s deteriorating economy and falling oil prices will push Russia to better cooperate.

Third Meeting of Business Café

BY KATIE RUTH DAVIES

C

onsultancy Company Insource continues Business Café meetings with exclusive sponsorship of PASHA Bank.

The third meeting of the project

was held in Rooms Hotel, Tbilisi, on February 17th. Representatives of top management of the leading Georgian businesses attended the session on “Management 3.0 or MBA Books in Mirror” led by Andro Dgebuadze.

The first meeting of Business Café was held in October, 2015 and covered “The management of human resources” moderated by David Gogichaishvili.

The second meeting was hosted by Alexander Jejelava who spoke about organizational corporate culture.

There is rising interest towards Business Café gatherings as they give a good opportunity to top-management representatives from different companies to discuss specific workrelated topics and share experience with each other in informal atmos-

phere.

Insource plans to hold six Business

Café meetings with exclusive support of PASHA Bank in 2016.

BUSINESS

GEORGIA TODAY FEBRUARY 23 - 25, 2016

Prime Minister Giorgi Kvirikashvili met with the company’s founder Jimsher Chkhaidze

Georgian Company Donates 100,000 Mulberry Saplings to the State

BY ANA AKHALAIA

G

eorgian alcohol producing company Askaneli Brothers donated 100,000 mulberry saplings imported from Uzbekistan to the Georgian government for the development of sericul-

ture.

Prime Minister Giorgi Kvirikashvili met with the company’s founder Jimsher Chkhaidze, thanked him for the company’s exciting projects and expressed the hope that with this successful collaboration between the public and private sectors, Georgian sericulture will survive and develop.

According to the Prime Minister, a year ago, the Ministry of Economy created the Industrial Development Group into which the government invited Georgians who work abroad. The Group is working on development strategies for various industries including the concept of sericulture revival. Sericulture is based on the model of small farming, the revival of which will contribute to the development of small production and the increase of employment in the country.

“We’ve been urging businessmen to help us in the implementation of the concept and we’re very pleased that the initiative was responded to by Askaneli Group’s co-founder Jimsher Chkhaidze, who, with other Georgian businessmen from different countries including Uzbekistan, brought 100,000 mulberry saplings and donated to the State,” PM Kvirikashvili said after the meeting.

The Prime Minister asked the Ministry of Economy and the Ministry of Agriculture to distribute the seedlings among small entrepreneurs in an organized manner and provide them with all the necessary information.

“Distributing these seedling will contribute to the development of sericulture. This is an important step toward employment in general and saving sericulture. I’m glad that the government is very ambitious in the process, supports interesting projects and does everything possible under the circumstances,” Chkhaidze said after the meeting.

Askaneli Brothers was founded 18 years ago and is one of the leading Georgian alcohol producing companies. The company produces eight varieties of cognac, 32 varieties of wine, and four types of ChaCha (Georgian pomace brandy).

Georgian Tea Exported to Mongolia

BY ANA AKHALAIA

A

djara based company Emir is now exporting high quality Georgian tea to the Mongolian market.

According to Agricultural Project Management Agency, the company has built a modern factory and expanded production under a preferential agro credit project. The factory employs more than 30 people. At this stage, the company acquires tea for processing from existing plantations in Western Georgia.

Emir was founded in 1993 in Kobuleti, Adjara, when the founder of the company, Levan Okropiridze and his Mongolian partners decided to export Georgian products to Mongolia, having first stud-

ied the market and chosen Georgian tea. After seeing the market potential, the founder decided to upgrade his company and took out a preferential agro credit in 2014, which he learned about from a TV advertisement, and started developing tea production.

The Preferential Agro Credit Project was developed by the Ministry of Agriculture of Georgia based on the initiative of the Government of Georgia. The project has been developed by the Project Management Agency under the Ministry of Agriculture since March 27, 2013. 13 banks, 2 microfinance organizations and 2 leasing companies are involved in the project.

Emir produces only fermented tea at present but plans to produce single use tea in future, to expand production, and also start offering its products on the Georgian market.

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BUSINESS

GEORGIA TODAY

FEBRUARY 23 - 25, 2016

Government Supports Multifunctional Trade Center in Western Georgia

BY ZVIAD ADZINBAIA

T

he government stated today that a large scale infrastructural project has been finalized in Zugdidi, Western Georgia. The PM, along with several cabinet members visited the multi-functional trade center of Rukhi, near occupied Abkhazia, which

is expected to become fully operational from this spring.

The project, worth 15 million GEL was implemented by the Partnership Fund and encompasses 10 buildings occupying an area of 10,000 square meters. The center unites wholesale and retail stores, furniture and hardware shops, supermarket, open market, a Public Center of the Ministry of Justice, financial and banking facilities, auto services, a post office and a pharmacy.

Georgia’s Economic Council Discusses 2016 Priorities

The PM expressed his hope that the trade complex will be a new world within the region and will contribute to its economic and social development.

From February 22nd, village residents will be able to take advantage of more than 200 services without leaving their village. The local community will be able to obtain identity documents, biographic data from the archives, receive notary service, free legal aid and register their property in a comfortable

G

eorgian Prime Minister Giorgi Kvirikashvili on Friday discussed with the country’s economic council plans to accelerate infrastructure projects and a financial support scheme for business start-ups and activities in 2016.

PM Kvirikashvili urged the Ministry of Regional Development and Infrastruc-

ture to minimize the terms for project elaboration and to ensure the swift construction of strategically important highways.

One of the main talking points of the meeting was a proposal aimed at fostering new business projects and entrepreneurial activities in the country.

Cultural Minister Mikheil Giorgadze stated that open concert venues will be built in the country’s regions with the hope of encouraging Georgian and foreign artists to perform at the sites as early as the coming spring.

Minister Tea Tsulukiani said that the center is one of the most successful accomplishments of the government, which saves time and funds for the local community. She declared that the provision of public services in a comfortable environment is no longer a luxury only available to large cities.

The Hollywood Reporter: Advantages to Filming in Georgia

BY TAMAR SVANIDZE

BY ZVIAD ADZINBAIA

environment. Locals will also benefit from the private sector (“Liberty Bank”, “The Company”, “Mechanic”) services.

Further, a modern electronic library, free Internet, Skype space, meeting rooms, ATM and fast payment machines, and a conference room are located in the center.

T

he Hollywood Reporter (THR) has published an article about the progress of Georgian film production in the last few years.

The Film Office and representatives of several countries were in Berlin over the past week to tout their new production incentives at the European Film Market amid the increasing competition for Hollywood and other international shoots.

Foreign film-makers are being encouraged to use the unique Georgian landscape and architecture to shoot their films.

THR reported that Georgia was the

first former Soviet republic outside the Baltic area to develop an incentive scheme.

Last year it announced plans for a 20% plus cash rebate and has been promoting its “Film in Georgia” initiative in Berlin.

Film in Georgia formally launched last month and currently an additional 5% on top of the standard rebate is available for those films that signal that they have been shot in Georgia, for example by showing the flag or well-known buildings.

The Georgian Film Commission’s David Vashadze told THR that there is a request that any films shot in Georgia should cast the country in a positive light.

“The application process is online and you can apply with a script and a treatment. Funds are released within 90 days

Foreign film-makers are being encouraged to use the unique Georgian landscape and architecture to shoot their films. Photo: Giorgi Mrevlishvili

of presenting audited accounts of incountry spend,” he said.

Georgia offers architecture that reflects a jumble of European, Asian and Soviet style and has landscapes ranging from snow-covered mountains to desert and seaside within a few hours’ drive of each other.

According to THR, the scheme has already attracted two projects – a Bollywood movie and a pilot designed to appeal to a US network show.

BUSINESS

GEORGIA TODAY FEBRUARY 23 - 25, 2016

11

Dechert OnPoint: Land Registration in Georgia

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 to 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, a global specialist law firm that focuses on core transactional and litigation practices, providing worldclass 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.

INTRODUCTION The National Agency of State Property (the “Agency”) commenced comprehensive registration of state property (the “Project”) in March 2013. The objective of the Project is to create an integrated, updated and easily-accessible information system for real property owned by the state of Georgia.

According to the Project, hundreds of unregistered land plots in districts across Georgia have been registered in the ownership of the Agency since January 2016. The media have raised the issue of whether the Agency gained ownership over the land plots without giving any notification to the lawful possessors.

The problem of unregistered land plots has sparked heated discussion regarding the urgent need for a coherent state policy with regards to land ownership.

This edition of OnPoint provides an overview of recent developments in the legal framework regarding land ownership in Georgia.

RECOGNITION OF LAWFUL POSSESSION The Law of Georgia on Recognition of Property Rights of the Parcels of Land Possessed by Natural Persons and Legal Entities under Private Law (the “Law on Recognition”) regulates the procedure under which the lawful possessor is entitled to register ownership rights over a given property. According to the Law on Recognition, lawfully-possessed land constitutes state-owned agricultural or non-agricultural parcels of land with or without fixed structures built upon them. An additional requirement

for lawfully-possessed land is that a natural person or legal entity acquired the right to lawful possession before the abovementioned law entered into force, as well as land squatted on before 1994 and registered in a technical inventory archive.

A person who lawfully possess a land parcel can submit a request for recognition of property rights to the Public Registry. To register ownership rights over the land, a document confirming the lawful possession of the land shall be presented. In most cases such documents do not exist due to their being lost, destroyed or never concluded.

According to information from the Public Registry, only 30 percent of existing land plots are officially registered (only 1,200,000 million registered land parcels out of an estimated existing 4,000,000).

REGISTRATION OF STATE OWNERSHIP In accordance with the objectives of the Project, the Ministry of Justice of Georgia (the “Ministry”) adopted a Strategy regarding Land Registration and Unification of Cadastral Data in Pilot Areas (the “Strategy”) on 29 October 2015.

Under the Strategy, the Ministry plans to prepare legislative amendments and carry out awareness campaigns before taking further actions towards land registration.

Accordingly, the Ministry presented a bill with amendments to the Law of Public Registry (the “Bill”). Under the Bill, the Public Registry would register state ownership over property upon the submission of the Agency. The lawful possessor is entitled to claim rights over the property within one year of such registration upon presentation of documentation confirming lawful ownership. The Agency shall also be prohibited from disposing of the property for one year from the date it becomes the registered owner. The Bill is still pending before the Parliament and it is planned to be reviewed in the upcoming plenary sessions.

Despite the fact that the Bill has not been adopted, the Public Registry commenced the process of registration and hundreds of land plots in pilot areas have now been registered in the ownership of the Agency.

ing it. By its decision dated 26 June 2012, the Constitutional Court of Georgia (the “Constitutional Court”) declared the abovementioned practice unconstitutional because it disproportionally restricted the rights of foreign individuals.

Then, on 28 June 2013, the Parliament of Georgia further amended the Law on Agricultural Lands to prohibit foreigners from acquiring agricultural land on the territory of Georgia until 31 December 2014 (the “Moratorium”). On 24 June 2014, the Constitutional Court decided that the Moratorium constituted an even stricter prohibition—as it ruled out the possibility of a foreigner owning land even temporarily—and declared the Moratorium unconstitutional.

Legally, following the decision of the

Constitutional Court and expiration of the Moratorium, foreigners and legal entities registered in Georgia by foreigners shall be able to purchase and register agricultural land parcels located in Georgia without restriction. However, it is an established practice of the Public Registry that each and every application of a foreigner regarding the registration of agricultural land is reviewed, and granting ownership rights is decided on a case-by-case basis without any such procedural indication in the law.

Legal entities registered outside of Georgia are prohibited from purchasing land on the territory of Georgia since both applications to the Constitutional Court were made by individual persons, and prohibition for legal entities thus remains in force.

CONCLUSION The existence of a coherent, effective land registration system is an important tool for the state in terms of land administration and the protection of private and public interests related to land ownership. It forms a basis for the functioning of a market economy, especially in the agricultural and investment sectors. The issues of unregistered lands and the purchase of agricultural lands by foreigners have become the subject of heated debates. Such issues indicate the need for a comprehensive state policy and long-term plan regarding land ownership. Fortunately, the Ministry of Justice of Georgia has begun taking steps toward creating an improved system for land registration in Georgia.

REGISTRATION OF AGRICULTURAL LANDS

BY FOREIGNERS Another unresolved problem closely related to the urgent need for state policy regarding land ownership is the registration of agricultural land parcels by foreigners.

In 2010, the law of Georgia on the Possession of Agricultural Lands (the “Law on Agricultural Lands”) was amended and foreign individuals were deprived of the right to gain ownership over agricultural land in Georgia. A foreign citizen who gained ownership of agricultural land by inheritance or by possessing the land legally as a Georgian citizen was obliged to sell it to a current citizen, household or legal person registered in Georgia within six months from acquir-

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Foreigners and legal entities registered in Georgia by foreigners shall be able to purchase and register agricultural land parcels located in Georgia without restriction. Photo: Transparency Georgia

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