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December 26, 2016 #175
December 26, 2016, Issue 175 - www.cbw.ge
UN Women GEPRA supports women empowerment principles Pg. 19
Real estate LISI Development Recognized as Best Residential Complex in Georgia
PR Georgia’s leading PR professionals give their top tips
Georgia’s Business and Economic Review
A new statement on CSR from the company that is building the Shuakhevi HPP Adjaristsqali Georgia LLC (AGL), which is constructing the Shuakhevi Hydroelectric Plant (HPP), issued a new statement on corporate social responsibility in support of tourism development in mountainous Adjara. According to oﬃcial statistics, the number of tourists in Adjara is growing every year: 358,883 in 2012; 393,617 in 2013; 431,678 in 2014; 443,667 in 2015; and 435,585 as of October, 2016. Recognizing the increasing importance of tourism’s role in Adjara’s economy, AGL is supporting tourism in highland Adjara through targeted projects in the Shuakhevi and Khulo municipalities. Several months ago, AGL funded the development of the Goderdzi Botanical Garden, which will serve as a regional tourist attraction in the near future. At the same time, it has identified tourism as a corporate social responsibility priority for the Shuakhevi HPP during its operating stage. Pg. 6
TBC Bank Unit Signs $55 mln Loan Deals with FMO TBC Bank Group PLC said Wednesday that its subsidiary JSC TBC Bank has inked two loan agreements worth a total of USD55 million with the Netherlands Development Finance Co, or FMO. Under the agreements, FMO will provide two facilities, a USD25 million seven year loan for JSC TBC Bank, and a USD30 million five year financing agreement for its subsidiary Bank Republic. TBC said the proceeds will be used to finance investment projects with micro and small-andmedium-enterprise companies in Georgia. “We are delighted to continue our successful partnership with FMO. These two facilities will help TBC Bank to further strengthen its position in the SME segment by expanding its portfolio in areas of Georgia. We are especially pleased to continue cooperation with FMO, which is a testament to the truly eﬃcient working relationship our respective organizations have formed during last ten years,” said TBC Chief Executive Oﬃcer Vakhtang Butskhrikidze.
December 26, 2016 #175
2016 Year Proved that Politics is important, however Economy is even more vital
NODAR CHICHINADZE Economist
he year of 2016 was very overloaded in terms of political and economic developments. We can emphasize two topics in both directions – elections and GEL exchange rate. The year of 2016 has proved that politics is important, but economy is a fundamental field. Despite diﬀerent facts have taken place in Georgian politics such as sudden appearance into politics from the concert stage and then sudden disappearance, establishment and suspension of political parties, parliamentary elections, constitutional majority and so on, economy field remains a key direction anyway. When I decided to summarize the year of 2016 in terms of economic aspects, I had to use archives of various websites to recall important events, besides my own memory. And then I arranged facts due to the following principle – the most important facts were that I recalled myself and then facts from internet search engines come. Let’s start with these topics: replacement of economic block management and national currency exchange rate.
Staﬀ Reshuﬄes in Economic Block It may be openly said that the year of 2016 was the period of staﬀ reshuffles, especially in oﬃces of economic profile. The country started the year of 2016 with New Prime Minister, after Irakli Gharibashvili filed resignation and Giorgi Kvirikashvili took over the state governance. In 2016 the National Bank president was replaced, as well as Minister of Economy, Minister of Agriculture and Minister of Infrastructure. In practice, I cannot recall the case, when the management of economic direction would have been replaced entirely. These changes could be divided in two parts. The year started with new Prime Minister and new president of NBG. It should be noted that these changes have brought considerable positive tendencies into the economy, including GEL exchange rate was strengthened to 2.10 point and the Business confidence Index increased after long-term contraction. ISET international school of economics called this event as the Kvirikashvili Eﬀect. However, we cannot name a wave of changes in the economic block as successful, that was recorded after elections. Extreme depreciation of GEL emerged as a main negative trend in this respect. Business Confidence Index also started declining. Though, despite failed start, the
“ In 2016 for the first
time in history of independent Georgia, in the WB classification of lowincome countries, Georgia moved to the category of countries with above the average revenues
economic team of the Government has to prove many things, but the new government was shaped only a month ago. And now the key reason of failure – GEL exchange rate. GEL again The GEL exchange rate has become the most relevant issue over the past 2 years. It is so global topic that discussions over GEL and its condition may be applied as basis for appraising the whole economy and all economic developments. At the beginning of 2016 the GEL exchange rate stood at 2.39 point. In late February the exchange rate fell to 2.49 point, but then GEL passed a long period of strengthening and grew to 2.12 point by mid June. But After June GEL started depreciation in “stable” regime and it has finally dropped below 2.80 point. Why has this happened? Let’s start with inflow of USD. In January to September 2016, 1.3 billion USD investments were made in the country, up 60 million USD compared to the same period of 2015. In January to November 2016 the net inflow of money transfers made up 856 million USD, up 32 million USD compared to the same period of 2015. If we do not count imports of Hepatitis C medications that are transmitted free of charge, but are reflected in imports statistics, in January to November 2016, the negative trade balance was improved by 262 million USD. This signifies in January-November 2016 the diﬀerence between money paid for purchase of imports and revenues received from exports was 4.855 billion USD, while the figure marked 4.593 billion USD in January-November 2016. According to indicators of the second quarter of 2016, Georgia’s net external debt declined by 70
million USD and this is a positive fact, but this factor does not foster GEL exchange rate strengthening, contrary to previous years, when the country was taking a great volume of debts and GEL was also stable. For example, in 2012, compared to 2011, Georgia’s net debt increased by 1.2 billion USD. According to recent indicators, revenues from tourism sector have grown. Currency outflow from the country may be related to withdrawal of Societe Generale from Bank Republic. This deal amounted to 140 million USD, however, in January-November 2016 the country attracted more USD compared to 2015. Though, GEL depreciated anyway. It is logical that internal factors have driven depreciation and this factor derives from National Bank’s policy. NBG has violated correlation between USD and GEL as a result of alleviation of monetary policy, excessive crediting of commercial banks and growing minimum reserve requirement. As a result, GEL exchange rate has fallen. Year of Merger of Businesses The year of 2016 was exceptional in terms of major deals in business sector. Amid economic problems,
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similar tendencies should not be considered as Georgian specifics, because similar tendencies take place in other countries too. Magticom has bought Caucasus, TBC Bank has acquired Progress Bank and Bank Republic and stole leadership of Bank of Georgia. TBC Bank has also bought Kopenbur insurance company. Meanwhile, Bank of Georgia bought ProCredit Bank’s loans portfolio (assets), pharmacy network GPC and Pharmadepot. Nikora has purchased almost all supermarkets and AltaOK has bought almost all medium and small stores of equipment. In short, 2 or 3 similar new deals and Georgian economy will grow into one mega company. Georgia in Ratings Georgia has advanced to 59th position among 138 countries in the 2016-2017 Global Competitiveness Index, while the country occupied 66th position in the 2015-2015 index. In 2016 Georgia improved positions in Global Innovations Index by 9 places and moved to 64th position. In 2016 World Bank renewed the Doing Business rating and Georgia advanced to 16th place from 23rd position.
This year brought progress in terms of economic freedom indicators too. In the rating published by The Heritage Foundation, in 2016 Georgia ranks 23rd in the world and 12th in Europe. To put simply, Georgia has improved positions in all influential ratings. Achievements of the Year Amid various diﬃculties, several important projects were also inaugurated in 2016: - Free Trade Agreement with China; - Start of Anaklia Seaport construction works; - Introduction of Startups Financial Support Program; -Introduction of Estonian Model of Profits Tax; The factors named for state economy development are very important and their reasonable and correct employment will take the country to a higher level of development. And finally, when I was going to finish the article, I recalled one symbolic fact – in 2016 for the first time in history of independent Georgia, in the WB classification of low-income countries, Georgia moved to the category of countries with above the average revenues.
Editor: Nutsa Galumashvili. Mobile phone: 595 380382 Reporters: Medea Samkharadze; Mariam Kopaliani; Merab Janiashvili Designer illustrator: Ilia Chrelashvili. Technical Assistant: Giorgi Kheladze
Source: www.commersant.ge, www.bpi.ge, www.gbc.ge, www.agenda.ge, www.civil.ge
December 26, 2016 #175
GEL Exchange Rate Depreciation Hits Historical Maximum in 2016
Dimitry Kumsishvili Finance Minister of Georgia
Georgia Sees Corporate Tax Reform Spurring FDI 7-8%, Considers IPOs
Merab Janiashvili Economic Analyst
Somehow or other in 2016 currency crisis was sharply reflected on Georgian citizens, despite under the government plan, for two months in 2017 loans taken in USD will be converted into GEL and state budget will subsidize every 20 Tetri. This program cannot essentially alleviate condition of our citizens.
n 2016 the national currency depreciation and economic growth rate deceleration were key problems in Georgian economy. GEL exchange rate collapse has aﬀected both state budget and financial condition of our citizens. Despite GEL exchange rate stability is one of the key factors for ensuring macroeconomic stability of the country, Government has taken no measure in practice to halt the national currency devaluation process that emerged at the end of 2014. Over the past 2 years GEL depreciation has become an inseparable problem of Georgian economy. The process started in November 2014, turned smoother in spring-summer 2016 and renewed downfall in November 2016. National Bank of Georgia (NBG) was following this policy in synchronous regime that started under the previous president and continued in 2016 too. However, one exception was recorded anyway. In Spring NBG tightened monetary policy and extremely cut the volume of refinancing loans. It should be noted that in that period annual inflation rate missed target indicator and the central bank had to take decisive steps. However, NBG renewed the crediting of commercial banks immediately after inflation growth risks disappeared (in autumn annual inflation dropped below 1% and even deflation was recorded for a short period). In December 2016 the volume of issued credits to commercial banks made up 1.5 billion GEL and this is a historically maximum figure. In 2016 GEL exchange rate slightly fell, but in spring the devaluation process was replaced by extreme strengthening. It should be noted that the GEL exchange rate at the end of spring and in summer period was stable more or less and was showing slight strengthening signs. National Bank was buying USD on currency market to prevent extreme hike in GEL exchange rate. As a result, in March-August period NBG purchased 278 million USD. At the end of August GEL slightly strengthened to 2.27 point against USD. Encouraged by GEL strengthening, NBG took sharp decisions and lowered monetary policy rate to 6.5% from 8% stage by stage. Moreover, under the pretext of dedollarization policy, NBG also revised obligatory reserves requirements for commercial banks. Namely, under the NBG decision, starting June 16 minimum reserve requirements on GEL-denominated one-year resources made up 7% instead of 10%. As to USD-denominated resources, the reserve norm increased to 20% from 15%. Obligatory
eorgia expects corporate tax reform to boost foreign direct investment by 7-8 per cent in 2017 and is considering selling two stakes in major state-owned firms, Finance Minister Dimitry Kumsishvili said in an interview with Reuters. He said the moves should lift Georgia’s expanding economy, but said the government did not plan to raise cash by issuing Eurobonds. Instead, Kumsishvili said it was considering initial public oﬀerings (IPO) of 25 per cent stakes in the state Oil and Gas Corporation (GOGC) and the state railways monopoly. The former would be listed in London, the latter in Shanghai. The ex-Soviet republic’s economy, which has suﬀered from falling exports and remittances and a plunge in the Russian rouble, expanded by 2.5 per cent in the first 10 months of the year, compared with the same period a year before, when growth was running at 2.8 per cent. The country, which is crisscrossed by pipelines taking Caspian oil and gas from Azerbaijan to Europe, has cut its economic growth forecast for 2016 to 2.7 per cent from 3 percent but expects its economy to expand by 4 per cent next year. “We expect to attract $1.63 billion [Dh5.98 billion]-$1.64 billion this year and we expect this indicator to rise by 7-8 per cent in 2017,” Kumsishvili, who is also a vice premier, said. Foreign direct investment (FDI) in Georgia rose by 5 per cent in the first nine months of this year compared with the same period in 2015 to reach $1.298 billion, preliminary statistics oﬃce data showed earlier this month, with Azerbaijan the biggest investor and the transport and communications sectors the biggest beneficiaries. Kumsishvili said that the existing liberal economic environment and planned tax reforms would drive foreign investment. “When we talk to investors, they say that this reform will be a big benefit for them and a big advantage for Georgia,” the finance minister said. Georgia will stop taxing corporate undistributed profits, reinvested or retained, from January 1, 2017 and plans to tax dividends instead. The government estimates revenues from corporate profit tax will decline by 500 million lari ($187 million) next year and plans to cover this gap by revenues with increased excise levies on tobacco, cars and oil products as well as with taxes on gambling from January 1, 2017. The IMF is sceptical about the corporate tax reform and projects that it might knock 1.5 per cent oﬀ Georgian GDP growth, leading to a wider fiscal deficit. “We don’t think so … The increase in excise tax will oﬀset losses and about 500 million lari will remain in the economy,” Kumsishvili said. “As for the fiscal deficit, it will be down to 4.1 per cent next year from 4.4 per cent expected in 2016.” He said that the next year’s fiscal deficit was to be covered by external and internal borrowing as well as by proceeds from privatisations. Kumsishvili said that the government was considering launching IPOs on foreign stock exchanges for the state-owned energy corporation, GOGC, and for Georgia’s Railway. “We will do it when market conditions will be appropriate for the placement … It may be in one year or even in a year and a half,” he said. The GOGC, which operates the North-South gas pipeline transporting gas from Russia to Armenia via Georgia, issued $250 million of its first fiveyear Eurobonds in 2012 and the same amount again in April 2016. Goldman Sachs and J.P. Morgan acted as lead managers. Georgia’s state railways monopoly, which is involved in developing new routes such as the Baku-Tbilisi-Kars project providing a corridor from the Caspian Sea through Azerbaijan and Georgia to Turkey, postponed a planned London listing in 2012 due to volatile markets.
December 26, 2016 #175
reserve norm on foreign currency denominated resources with the maturity period of 1-2 years also increased to 10% from 5%. It is interesting that in 2003-2004 the obligatory reserve norm was equal in GEL and USD, in practice, and it ranged from 13% to 14%. In the following years the reserve norm for GEL-denominated resources started declining, while the norm was maintained at 13% on USD-denominated resources. In 2007-2008 reserve norms were revised several times, but the reserving norm in GEL and USD was equal. Starting 2010 the NBG increased the reserve norms to 10% from 5%, and later to 15%. As reported, starting June 16 commercial banks have to reserve 20% of attracted funds. Starting autumn the Georgian national currency is demonstrating devaluation tendencies and in September-October GEL exchange rate dropped to 2.30-2.31 position from 2.27. In that period the NBG was carrying out interventions on currency market to prevent extreme depreciation. In August to November period, amid GEL exchange rate devaluation, the NBG supplied about 180 million USD to the market. However, the NBG ceased interventions on the currency market and GEL exchange rate was beating historical records day to day. As a result, starting November up to mid December, GEL exchange rate against USD was extremely falling and on December 1 USD against GEL was strengthened to 2.78 GEL. NBG intervened in currency market only on December 20 and sold 40 million USD. Depreciation paces were halted, but the process may erupt again in 2017, because NBG policy has not changed. Somehow or other in 2016 currency crisis was sharply reflected on Georgian citizens, despite under the government plan, for two months in 2017 loans taken in USD will be converted into GEL and state budget will subsidize every 20 Tetri. This program cannot essentially alleviate condition of our citizens. The fact is that neither government nor NBG can answer questions around GEL depreciation process that started 2 years ago. Some oﬃcials only talk about external factors, but the question is whether government and NBG genuinely want to stabilize GEL, because all steps taken by NBG over the past months were directed to GEL depreciation, not its stabilization. Therefore, we should not expect the national currency stabilization until Government and NBG have not decided to strengthen GEL exchange rate. Before, it is diﬃcult to make any forecasts, even more so NBG actively grows money mass in turnover, while the Authorities grow budget deficit.
“If we grow taxes by 600 million GEL, budget expenditures should be cut by 1.2 billion GEL. Budget’s revenues part should be balanced. Spendings should be commensurate with revenues. We should not take internal debts. This famous Estonian model is such a simple mechanism and this simple model brings real results. This country was adopted into EU and NATO because of its willpower and readiness to take similar decisions.”
Giorgi Kadagidze Former president of National Bank of Georgia
December 26, 2016 #175
Supporting Tourism – A new statement on corporate social responsibility from the company that is building the Shuakhevi HPP Adjaristsqali Georgia LLC (AGL), which is constructing the Shuakhevi Hydroelectric Plant (HPP), issued a new statement on corporate social responsibility in support of tourism development in mountainous Adjara.
ccording to oﬃcial statistics, the number of tourists in Adjara is growing every year: 358,883 in 2012; 393,617 in 2013; 431,678 in 2014; 443,667 in 2015; and 435,585 as of October, 2016. Recognizing the increasing importance of tourism’s role in Adjara’s economy, AGL is supporting tourism in highland Adjara through targeted projects in the Shuakhevi and Khulo municipalities. Several months ago, AGL funded the development of the Goderdzi Botanical Garden, which will serve as a regional tourist attraction in the near future. At the same time, it has identified tourism as a corporate social responsibility priority for the Shuakhevi HPP during its operating stage. With the support of the Adjaran government and its tourism department, AGL organized a conference on the development of tourism in upper Adjara, hosted by the Hilton Batumi on December 15. The conference’s objective was to create new opportunities for the development of tourism in highland Adjara by involving the public, private, and NGO sectors. The event was attended by the CEO of AGL Ronny Solberg, the head
of Adjara’s Tourism Department Mamuka Berdzenishvili, the Chief Operations oﬃcer of the Shuakhevi HPP Naresh Telgu, AGL’s director of land and social issues Zviad Diasamidze, Minister of Agriculture of Adjara candidate Lasha Komakhidze, the director of the Batumi Botanical Garden Irakli Archaia, and representatives from the public, private, and non-governmental sectors. AGL’s CEO Ronny Solberg said, “The goal of our meeting today is to bring the public, private, and NGO sectors together to discuss new ways to support the region’s long-term sustainable development. Even though construction will finish soon, our social programs will carry on during the operating stage, which means that our active participation in Adjara’s development will continue. Our new direction in corporate social responsibility is to support tourism in mountainous Adjara.” Mamuka Berdzenishvili, the head of Adjara’s Tourism Department, stated, “In 2017, one million laris will be spent on the development of tourism in highland Adjara. We increased the budget of the Tourism Product Development Agency to a million laris in order to support development and promote tour-
December 26, 2016 #175
Naresh Teglu The Chief Operation Oﬃcer of the Shuakhevi HPP
“Shuakhevi HPP is a project that is signiﬁcantly improving the lives of the people living in the project area. Our social projects are helping to promote the region’s longterm development in areas such as education and awareness raising, infrastructure development, and community strengthening. One of the most promising areas of development in highland Adjara is tourism.”
ism products in areas beyond the seaside. This year alone, the Agency has implemented important projects such as creating and marking tourism routes and organizing diﬀerent thematic festivals, but the Agency’s projects will become even more extensive next year. As for today’s conference, our objective is to increase private sector involvement in tourism development in mountainous Adjara and to promote eﬀective cooperation.” Naresh Teglu, the Chief Operation Oﬃcer of the Shuakhevi HPP, went on to present AGL’s social responsibility work, he stated: ,, Shuakhevi HPP is a project that is significantly improving the lives of the people living in the project area. Our social projects are helping to promote the region’s long-term development in areas such as education and awareness raising, infrastructure development, and community strengthening. One of the most promising areas of development in highland Adjara is tourism. Today’s conference is an ideal opportunity to discuss and review challenges like these and to explore directions for fully developing the tourist potential of highland Adjara.’’ The conference included a discussion on current challenges facing tourism in mountainous Adjara. During this discussion, participants defined ways
to assist tourism development and created important preconditions for AGL’s long-term plans for developing tourism in upper Adjara. The company’s initiative was discussed by representatives of the business sector participating in the conference. “Adjaristsqali Georgia is the largest investor in Georgia’s energy sector, which is crucially important for the country’s economy and development. At the same time, the company is implementing projects that are directly related to social responsibility and rural development. The best thing about these projects is that both the private and public sectors, as well as NGOs, are involved in this process” remarked Tite Aroshidze, a conference participant. The Shuakhevi HPP will begin operation in 2017 after several years of construction. Since construction first began, the company has focused on the long-term development of highland Adjara by implementing more than 70 social projects in the Shuakhevi and Khulo municipalities in areas such as education and awareness raising, community strengthening, and infrastructure development. Further working meetings related to the development of tourism in mountainous Adjara will be held on a regular basis.
December 26, 2016 #175
Achievements and Challenges in Georgia’s Power Sector in 2016 The current year was one of the most important periods for Georgian power sector. 2016 year has faced many challenges, however currently energy sector has to deal with many other obstacles. ANDRIA GVIDIANI
eveloped power sector preconditions social and economic welfare. Consequently, main objective of energy strategy is to provide safe, clean and aﬀordable energy for population of Georgia and business sector. In this respect, the key challenge of the energy strategy is to harmonize energy system development with economic development of the country and ensure sustainable development of the sector due to growth in energy consumption. Active job is being performed in this direction and this is reflected in many aspects. Georgian energy strategy calls for employment of domestic energy resources and development of electricity trade opportunities. Moreover, this year Georgia joined European Energy Union. Georgia has been striving for integration into European family for many years. This is the policy declared by the Authorities and consequently, integration into European and Euro-Atlantic structures is an irreversible process. Naturally, energy sector cannot miss this process. In October 2016 at the European Energy Union ministerial, the members signed a protocol on Georgia’s inclusion into foundation agreement of energy union. As a result, Georgia has become oﬃcial and plenipotentiary member of the Energy Union. The year of 2016 was also important in terms of introduction of alternative energy resources. Namely, Georgia’s first wind power station was built near Gori. Six wind-driven turbines with 3.45 megawatt installed generation each have been already installed. Total installed generation of the station is 20.7 megawatts. It should be noted that Georgia’s first wind power station has already started electricity generation within the united power system. It should be noted that this year Georgian National Energy and Water Supply Regulatory Commission (GNERC) has considerably improved consumer rights protection issues. Namely, according to decisions taken at
a public meeting of the commission on existing disputes between citizens in electricity, natural gas and water supply sectors, total of 4 018 458 GEL were written oﬀ from citizens. Naturally, this tendency improves quality of protection of citizens rights and consequently, we welcome GNERC has started this practice. The year of 2016 was also very important in terms of improvement of international ratings. According to Doing Business 2017 report of World Bank (WB), Georgia has improved positions by 26 places in terms of electricity generation and moved to 39th place from 65th position. The report reads that electricity supply reliability has improved, because penalty sanctions were introduced for breaking determined norms of frequency of electricity supply disruption (SAIFI) and medium duration of electricity supply disruption (SAIDI). Moreover, awareness of citizens of planned cessation of electricity supply has been also improved. Naturally, the mentioned achievement is an important advancement, because improvement of positions in similar ratings gives a positive signal to investors, because free access to energy resources persuades investors to simpler take decisions on making investments. As to investment projects implemented by the field companies for infrastructure improvement, it is worth noting that distribution companies operating in the power sector have spent quite huge funds. Namely, in 2016 JSC TELASI spent 18 575 135 GEL on 24 investment projects, while JSC Energo Pro Georgia implemented 71 investment projects and spent 37 716 948 GEL investments. Future Challenges In the future, Georgia’s economic development perspectives may be considerably hampered because of energy deficiency in the event internal resources will not employed in optimal way. For the purpose of balancing dynamics of consumption of energy resources and improving
Georgia’s first wind power station was built near Gori parameters of energy security, it is necessary to carry out a number of measures such as: faster and more reasonable use of domestic energy resources, creating competitive market and investment environment, implementing energy eﬃcient measures and diversifying imported energy carriers. In the future, according to various scenario for energy sector development, Georgia’s annual energy consumption is expected to rise by 44-90% by 2026 and reach 231-305 thousand terajoules. In the same period, natural gas consumption may increase by 67-11%, oil products consumption may rise by 2830% and electricity consumption may grow by 32-78%. In Georgia nonindustrial sector is a main consumer of energy resources (household economies, private and state services, agriculture and so on) (about 44%). Major part of energy consumed by them is natural gas (39%) and electricity (32%). As to industry, its ratio in total energy balance
is about 15% (distribution of resources: coal – 47%, electricity – 40% and natural gas – 13%). This is a very low indicator and it signifies development of industry sector will radically change the existing situation. Today it should be noted that automatic regulators of the existing hydro power stations are outdated or disordered. A major part steam power stations are amortized. Consequently, in the existing situation rational employment of Georgia’s rich hydro resources acquires a special importance. Namely, Georgia power sector development strategy should prioritize the construction of hydro accumulating stations that will considerably improve energy security and reduce dependence on imported energy in deficient period of winter. Specific and eﬃcient steps will accelerate the process of constructing hydro power plants on the river Enguri, namely, Khudoni, Nenskra and Namakhvani HPPs, in upper chain of the river Enguri basin.
Namely, Georgia power sector development strategy should prioritize the construction of hydro accumulating stations that will considerably improve energy security and reduce dependence on imported energy in deﬁcient period of winter
Naturally, the mentioned stations will reduce seasonal deficit thanks to their seasonally regulated systems. Besides the above-mentioned factors, challenges in natural gas sector are also very important. Preparatory works are being actively carried out for gas storage tank construction that will ensure gas supply to consumers in emergency situations and reduce problems arisen from seasonal misbalance between supply and consumption.
December 26, 2016 #175
Georgia’s leading PR professionals give their top tips A while ago Caucasus Business Week has started it’s newest category PR, which sooner attracted everyone’s attention. We have interviewed dozens of Public Relation professionals and ejoyed their brave quotes and helpful pieces of advice. We oﬀer you some of their best tips of being successful and becoming real expert. Anano Korkia, head of PR and Marketing Department at PASHA Bank Georgia “One Meeting That Changed Life and Contributed to Professional Growth” “Work is a quiet substantial part of my life; I spend large amount of time at the oﬃce, basically like most of us who work at commercial companies. Therefore starting a new job actually means a change of life to me. As an interesting episode that changed my life I can name one unplanned meeting – I remember I was at a presentation in National Bank of Georgia, where I met my old colleague, who told me about the opening at PASHA Bank.” Kakha Maghradze, senior consultant and clients relations manager for GEPRA consulting company
Natalia Zueva, founder and director of PR Oﬃce GE PR and Events Agency “Discipline and Hard Work Are the Secrets to Success”
Teona Baghdavadze, Founder of Key Communications PR-Consulting Company
“You should be disciplined. Day and night, you must think and work hard without complaining to overcome all diﬃculties. Intuition and instinct are also very important. You should be resistant to stress. You may be an educated person, but it is important to realize that it is impossible to treat diﬀerent projects identically. It is always necessary to demonstrate new ideas and channels of communication. Lately, old regulations and traditions have lost importance. The internet and social networks have made a revolution in this field and changes continue through an intense regime.”
“This field is being developed very dynamically. I believe our task is to create academic expectations (who act in this field). Some persons manage to do this better, because they work in this direction more, some have less capabilities. However, I do believe that PR as a standard of communications art, should be still developed in Georgia. It is necessary to make mixies in our country. PR is considered (fairly) one of the stressful professions because it depends on external factors. It is very diﬃcult to determine human behavior in advance. Therefore, ability of keeping good relations with various types of people assists me very much to attain success in this field.”
Mzia Sharashidze, PR Manager of Tbilisi Zoo
“PR Campaigns in Georgia Lack for Comprehensive Conceptual Purpose”
“You Should have Ability of Standing up, When you Think Everything is Over”
Public relations principles are the same, but in Georgia these principles work in comparatively diﬀerent way. In Georgia PR campaigns and philosophy lack for comprehensive conceptual purpose. Accent is made on volume and frequency of media coverage, because evaluation mechanisms are limited. In our country relations with media is diﬀerent. Facebook is managed by diﬀerent principles and so on.
“I have recently read such a thing: «No human exists, who on the verge of death, would dream of time spent at oﬃce and job. People mainly regret that they did not spend much time and did not pay due attention to family, friends and favorite aﬀairs». I am happy, because I do my favorite business. Mondays do not push me into depression and I do not hate going to oﬃce.
Natia Ghlonti, Beeline PR Manager
Tamar Zamtaradze, Head of Marketing department of investment company Alliance Group Holding
“Staying Away from Political PR”
Ketevan Adeishvili, Head of Sales and Marketing Department of Unix Development Company “This PR manager Names Three Things You need to Succeed” “I would name the following necessary features you need to succeed in Public Relations field in Georgia – commitment, sociability and vigour.” Lela Tsikhiseli, Comshi PR Agency Director
“Bureaucratic Details Generate Much Discomfort in Working Process” I have been working for Beeline company for 6 years. My job is the best for my career promotion, because Beeline, as an innovative company, understands new technologies very well as well as the permanent changes in digital works. Consequently, the company understands that my performance should be updated and revised jointly with this continuously changing world. My eﬀorts should comprise both traditional forms of PR and new digital spaces and fields. Ekaterine Zhvania, CEO of GEPRA Consulting company.
“PR Field Makes Progress Every Day in our Country and We have More Potential Today” “Naturally, international education is better in PR field, but today in Georgia we can replenish gaps thanks to trainings and master classes by various international-level PR and marketing specialists. Good practice was established in our country too, when colleagues share experience to each other. This field makes progress every day in our country and we have more potential today than a little while ago.”
“Success of Project Depends on PR Company’s Expertise” “I would not dramatize the reality, but PR concept is a little diminished in our country and PR is considered to be a simple field. However, PR requires reception, analysis of huge information, going into details. Graduation of certain courses and PR positions at this or that organization does not mean perfect knowledge of this field. PR cannot be studied at once. Superficial knowledge is useless in this profession. It requires much time and energy in the form investments, on our personal level, first of all. Comprehensive working process and tireless learning process are required in this field.”
Khatia Alpaidze, Head of PR and Marketing Department at Clean World
Nino Nodia (Zuzu), Pr manager of Voulez Vous
“PR and Marketing Specialist Who Writes Fairy Tales in Her Free Time”
“In PR Practical Efforts Bring The Real Results”
99% of PR specialists do not have due experience in strategic PR. They mainly perform functions of relation with media and events management. Only a small part of PR specialists are able to provide complex services for employers, but to a certain degree, this is the fault of employers too.
“In the last period, the demand for valuable PR and Marketer agents are has become more in-grow, because people have understood their importance for organization, but this is a new direction in Georgia anyway. On the one hand, it is clear that PR is good, but they have a little diﬀerent perception. They think PR should write articles, translate, organize events, order uniforms, draw clients and many similar things. This signifies the problem hides in ourselves, marketers and PR specialists. There is very few professionals in this field in Georgia and we do not try to improve the situation, to upgrade perception of our potential employers about what is PR, what is marketing, what is promotion, what is event, what is the diﬀerence between them, what PR does and so on.
“As a rule, everything in Georgia is special. Therefore, it is necessary to have good circle of friends and close people, because when you do this business, you have to get in touch with many fields. Therefore, based on the Georgian set of mind, it is necessary to have many friends in any field to resolve the issues as soon as possible. This is an additional mechanism to make PR successfully in Georgia. Special education is very important and necessary for success. However, I think practical eﬀorts bring real results. I do not have special knowledge in this field, I have not attended special courses. I have achieved all this thanks to my intuition, my friends. Moreover, when I do something, I study the product and its pros and cons, because I must be just before myself definitely.”
Khatia Shamugia, head of PR and Marketing Department of the ICI-Paris
Iza Gotsadze, Head of Communications at Adjaristsqali Georgia LLC (AGL),
Elene Otarashvili, head of JSC Château Mukhrani tourism department
“Nobody Taught Me PR Management. This is Inherent”
“A Crisis is Just a Challenge That you Can Accept, Overcome, and Use as An Apportunity to Achieve Better Results”
“Break out of Established Patterns in Order to Look at Things in a Different Way”
“A PR manager should love the company that he/she works for. Motivation is also necessary, but practical experience brings everything. Nobody has taught me PR management. I suppose this is inherent potential. I love my work so much and that’s why I have grown into a good PR manager. Moreover, the personal nature of a PR manager is very important. A PR manager must be very balanced, calm and able to receive criticism. A good PR manager can either revive or frustrate a company.”
“In PR, Time Genuinely Means Money and We Need to Learn How to Save It” “Factors that create major discomforts in the working process is Waiting for a response when the time is deliberately being protracted just to say no. In our field, time genuinely means money and all of us should learn how to better save it. I appreciate timely responses in any case, regardless if the response is negative or positive. Giorgi Kalatozishvili, head of PR management of Delta state military-technical center “Georgian PR Remains in Formation Process”
“Management of crisis situations is an inseparable part of working process. I always try to transform similar situations into opportunity. There`s always a way out. Sometimes you should break out of established patterns in order to look at things in a different way”
“I believe that crisis management and making fast decisions under pressure is an important part of any manager’s job. Managing a crisis without harming the quality of work requires not only a strong character but also depends considerably on experience and knowledge. In my 15 years of experience, I have come to learn that a crisis is just a challenge that you can accept, overcome, and use as an opportunity to achieve better results.”
December 26, 2016 #175
LISI Development Recognized as Best Residential Complex in Georgia LISI Development company has obtained two awards at International Property Awards in 2016. The company has gained victory in the following nominations: Highly commended – 1) Mixed use Development Georgia and 2) Highly commended – Residential Development Georgia Lisi Tower. International Property Awards was founded 20 years ago and it is considered as one of the leading contests in real estate industry. The worldwide famous experts assess the submitted competition projects. More than 70 real estate experts from various countries were involved in evaluation process. The very experts have recognized LISI Development as Georgia’s best residential complex. The company marketing director Mariam Osepaishvili explained that LISI Development has won many prestigious awards on global real estate market. “We have been winning awards for 6 years on. This year we have won 2 nominations. The winning projects are: LISI Tower and LISI Green Town. We genuinely take pride in this victory. Our competitive advantage is 80/20. This signifies we arrange green zones on 80% of project territories and residential zone occupies only 20%”, Osepaishvili said. Moreover, this year the company has also obtained an award of the European CEO edition, as the best Green Developer. This award directly reflects the company concept, she added, LISI Development oﬀers ecologically clean environment, refined architecture, best views and modern infrastructure in the new residential complex. «There is comfort, protected zone, ecologically clean environment for people and families, who give preference to healthy lifestyle. There is a swimming pool for them too and all required comfort. This is a green city, in terms of not only ecology, but also energy eﬃcient houses and these technologies enable to save electricity taxes by 30%», Mariam Osepaishvili said. The company transmits apartments to customers in green framework. «We do not sell only square meters. We oﬀer comfort in a complex way and this complexity includes ecologically clean environment, protected territory, swimming pool, sports complex, vicinity to the LISI lake, one of the major recreational zones of the capital city. The territory also comprises
kindergarten, two academies and so on», the company marketing director explained. LISI Development is the first development company in Georgia that implements such a major project on 400 hectare land plot near the Lisi lake. Founded in March 2010 the company has been implemented project —LISI Green Town. Objective of LISI Development company is to create a modern-style residential complex with refined architecture and establish a new ecological and healthy lifestyle. At this stage, the residential complex comprises buildings with many apartments, duplex penthouses (private houses), villas. The complex includes diverse infrastructure with a swimming pool, sports and children entertainment squares, outdoor cafes and restaurants, beach, running track and bicycle tracks. A new campus of Academy functions near the LISI lake territory. British-Georgian Academy, in partnership with LISI Development and TBC Bank has built a campus on 10 000 square meters with modern infrastructure and highest standards. The project idea is: «Green Concept of Contemporary School».
Nodar Adeishvili explains the green living vision behind Lisi Green Town
LISI DEVELOPMENT BRINGS GREEN REAL ESTATE TO GEORGIA Georgia’s simple tax policies, transparency, and ease of doing business are attracting billions in foreign direct investment, fuelling demand in highquality real estate. Nodar Adeishvili, CEO of Lisi Development, explains the new lifestyle his company is trying to build: combining comfort, environmentalism, state of the art architecture and security; all within close proximity of Tbilisi city centre. By adopting an 80:20 ratio of green space to buildings, Lisi Development is hoping to create a green and healthy environment for its customers, and a special atmosphere and lifestyle unique in Georgia’s real estate landscape. European CEO: Georgia’s simple tax policies, transparency, and ease of doing business are attracting billions in foreign direct investment, fuelling demand in high-quality real estate. Joining me is Nodar Adeishvili from Lisi Development. - Nodar, what is the current state of Georgia’s real estate market? - Georgia’s real estate market is very stable and very promising. One of the main factors is that Georgia itself, the country itself, is developing dramatically. Only this month it has improved its ease of doing business ranking from 23rd to 16th. This shows how Georgia is developing at this point. At the same time there is a growing trend for foreign investors to invest in real estate assets. Starting from residential, going to the commercial, and also there is a very big trend in hospitality business, and in diﬀerent types of leisure facilities. - Lisi Development is trying to do something new; what’s the concept behind Lisi Green Town? - The main concept is that we’re trying to establish a new lifestyle in Georgia. This is a combination of
comfort, healthy environment, state of the art architecture, also security; and very close to the city centre. Unfortunately not in many places in Georgia are you able to find all those benefits in one place. In the whole world there is a big issue of the environment; unfortunately Tbilisi, the capital of Georgia, is not an exception. So the green concept that we’re delivering – this is the main reason why we’re creating demand for our product. - What is this 80:20 concept you’ve adopted; how does it work? - We use only 20 percent of the land for the footprints of the buildings which we are developing, and 80 percent of the land is used for green zones, for roads, infrastructure, which creates this special feeling, a special atmosphere, for our Lisi Green Town. - Why is green living so important to you? - It’s a big problem in the whole world – the environmental problem. So we are spending half of our life in our homes, so it is very important that our children and our families live in a green and healthy environment. Lisi was one of the first – if not the first – companies building ecofriendly and energy eﬃcient houses. We’re the only company, as I said, to set the 80:20 concept. And the first company to start waste-sorting within our projects. There are some movements in the Georgia market to see this same type of oﬀerings by other companies, and I hope this influence will grow in the future. - And in the coming one, two, five years: what’s next for Lisi Development? - At this point we are developing the land around Lisi lake itself: approximately 350 hectares. So we are developing gradually. When we say residential, there is not only residential: we are developing high schools, gardens, restaurants, diﬀerent leisure facilities. So we are growing and we are planning to bring new entries and new products to the Georgian real estate market.
We Want Private Sector to Rationally Regulate Prices following National Currency Changes
Autonomous Republic of Ajara expects tourists inflow to grow in 2017. The figure will reach about 1 million visitors by the end of 2016. MAMUKA BERDZENISHVILI, head of Ajara Tourism Department, noted that amid changes in national currency exchange rate, no essential revision is recorded in terms of prices in the tourism sector. In the future we expect the private sector to take rational decisions in terms of regulation of prices, he added. Ajara Tourism Department has already started diversification of markets for attracting more tourists and added United Arab Emirates, Saudi Arabia, Latvia, Estonia, Germany and Iran to the list of target countries in 2017. - How would you appraise the year of 2016? How successful was it for the region’s tourism sector development? - The year of 2016 was successful for the region and the growing statistics of tourists inflow proves this assertion. According to the January to October indicators, inflow of visitors has increased by 4.7%. This year was a special one in terms of unprecedented number of flights. Only in July, more than 300 flights were performed to Batumi from 22 directions. Flights were performed mainly from Turkey, United Arab Emirates, Poland, Israel, Kazakhstan, Belarus, Ukraine, Iran and Russian Federation. I would like to note that along with the operating airlines, in 2016 flights were performed by 7 new airlines, including Scat Airlines, Skybus, El Al Israel Airlines, Israir Airlines, Air Arabia, Bravo Airlines, Taban Air from Tel Aviv, Sharjah, Tebriz, Tehran, Mashada, Kuwait, six towns of Kazakhstan and Kyiv. The year of 2016 was also a special period in terms of hotel infrastructure. High-level hotels opened in the region such as Castello Mare and Euphoria. Low-cost hotels were also unveiled. As a result, total of 1526 new beds were added to the Region’s tourism sector. - According to our information, Ajara Tourism Department collects statistics itself, I mean the coeﬃcient of hotels workload. How would you appraise the current situation in this respect, compared to the 2015 indicators? Have the coeﬃcients increased? - As I noted above, according to JanuaryOctober indicators, tourist inflows to Ajara Region increased by 4.7% and totaled 435 585 visitors, including ratio of foreign tourists rose by 19.5% and totaled 295 269 ones. Our indicators are based on information supplied from accommodation facilities registered in the Region. However, this year we started exploration of non-registered sector too, because a considerable part of our tourists stay at guesthouses and houses. According to the 6-month indicators, 264 511 tourists have stayed at non-registered hotels and guesthouses in Ajara. We expect this figure to considerably increase after we have calculated the 12-month indicators. At the end of the first quarter of 2017, we will have maximally realistic picture on
how many tourists have visited Ajara in 2016. We expect this figure will exceed 1 million persons. - Do you have information about prices? Amid GEL depreciation has the private sector increased prices and what are your expectations for 2017 in this respect? - At this stage, we do not see essential change in prices. However, we would like that in the future private sector regulate prices based on changes in national currency to avoid dissonance between prices and quality of services. - Correct marketing campaign is required to draw tourists. What results have you received in 2016 in this respect and what are your plans for 2017? Will you make focus on the same markets or you plan to penetarte new markets too? -Increased inflow of tourists is a direct result of PR and marketing camapiagns that we and private sector have carried out in target countries. In 2016 we carried out active advertising activities in 11 target countries (Turkey, Armenia, Azerbaijan, Ukraine, Belarus, Lithuania, Poland, Kazakhstan, Israel, Turkey). We prepared special programs for the region’s tourism potential, organized press and info tours, held Ajara Days and participated in international tourism exhibitions, conducted flashmobs, contests, press lunches, news conferences, promo campaigns, gastro tours and culinary masterclasses, arranged online and outdoor advertising campaigns. We plan to implement these activities in 17 target countries. We have started market diversification process and added United Arab Emirates, Saudi Arabia, Latvia, Estonia, Germany and Iran into the list of target countries. We will finance PR and AD activities by 5 425 000 GEL from the budget. - The department is implementing several important projects, but I would emphasize Secret Guest project. What results has the program brought in 2016? Has the service level improved compared to the 2015 statistics? - We have examined 150 tourism facilities in Ajara thanks to Secret Guest program. The service has definitely brought positive tendencies. Compared to results of the previous
year, quantity of hotels with the best services increased by 10%, while quantity of hotels with good services grew by 11%. As to number of hotels with low-quality services, the figure has declined by 14% compared to the previous year. In general, quality of services has improved by 7% at hotels, marketing quality has grown by 13%, while management of conflict situations has improved by 14%. Positive tendencies are recorded at food outlets too. Quantity of food outlets with best services has increased by 5%, while number of food outlets with good services has increased by 17%. As to food outlets with low-quality services, their number has decreased by 2% compared to the previous year. In general, conflict situations management at restaurants and cafes has improved by 13%. - Nautical tourism is the most in-demand direction in Ajara Region. Has the appearance of a new resort increased an inflow of tourists to the Region? - Goderdzi ski resort is very popular among tourists and I believe the tourist inflow will further increase. As I noted above, starting 2017 we will start diversifying markets and this signifies that we will advertise Goderdzi resort, as well as other tourism products in 17 target countries. Our research shows that a major part of the Region’s visitors is interested in highland zones and we expect them to give preference to Goderdzi ski resort. In the future our PR strategy will be focused on making Ajara Region a yearlong tourism destination for all 4 seasons. Naturally, Goderdzi ski resort will play a special role in this respect. - From which countries does Ajara Region host the most number of tourists? Is their interest related to gambling games tourism rather than other tourism directions? - A major part of tourists come from Turkey, our neighboring country. Many factors precondition this reality and naturally, gambling business plays a special role. However, research of foreign visitors shows that (in April-June 2016) many Turkish tourists also give preference to visits in nature, culinary tourism and culture tourism. This signifies that Turkish visitors are also interested in intangible culture heritage, as well as other tourism directions.
December 26, 2016 #175
More than 60 Touristic Destinations to Have Quality in Ajara Currently, 5 restaurants and 11 hotels received a quality degree by tourism department in Ajara. The quality degree of Ajara was given to 16 more touristic destinations and the overall number of such kind of places increased up to 62. At present, the quality degree was given to 16 touristic destinations. The places which have been approved so far will appear in Ajara in June with the title “Recommended by Tourism department”. “During the year, 106 hotels, restaurants and cafes were registered for the project, however only 62 of them matched the standards”-was declared in the tourism department. Tourism department implements monitoring considering sanitary conditions, hygienes and minimal standards of service, which are measured by the principles HotRec, Hot Star union 21 recognized worldwide. The project of giving quality degree to diﬀerent touristic destinations started in 2016. It is a choice to take part in it. It will continue the next year as well. You can find the list of recommended places on the following website: recommend.ge.
« Hotel Apolon » – 17 year of experience and high-class service Years ago in Bakuriani Hotel “Apollo” was a pioneer in the the Alpine-style hotels concept. Hotel built in the style of a ski resort: the three-storey building’s interior – wall paneling and furniture – is made of local wood. Three fireplaces create a romantic and cozy atmosphere. Here is especially felt love and support for ski sport and mountains. For 17 years Hotel “Apollo” maintains its tradition and high quality of service. Hotel Apollon really stands out with a conscientious staﬀ, individual approach and long experience. A pleasant time spent here is especially memorable for the guests. What are your plans for future? In the near future we are going to change/ renewal entertainment inventory on existed area (3000 sq.m). After a few years, we plan to do major repairs, which includes not repair, but more to restoration work, so we will try to keep intact the appearance of Apollo Hotel. What achievements do you have in your field? Over the years, our hotel and management gained a lot of diﬀerent certificate, but for us one of the most joyful recognition of last year’s Welcome To Georgia is the getting in list of The National Award finalists. For the duration of your existence you had to meet many challenges, what is the position on this issue today? The greatest obstacle, which is not only for us but probably all the hotels meet in our region is an endless construction works, which are being carried out without any general plan. The ugly buildings spoil the view of Bakuriani and destroying the environment, which is the most important aspect for Bakuriani. And finally how would you summarize this year in terms of tourism? Tourist season of 2016 in Bakuriani was quite productive, it should be noted the increase of tourists and also work of resort investment agency. With their eﬀorts Bakuriani maintained the leading ski resort status in Georgia, because together with ” Didveli” restored the functioning of ” Kokhta” cableway and in the following season the tourists will be able to ski on ” Mitarbi” ropeway. This year we are also participants of The National Award Welcome To Georgia, we take part in this award from the beginning and we think it is incentive and motivational event for the tourism sector.
- Mr. Giorgi, how would you appraise the year of 2016? How successful was it for tourism sector? - We appraise tourism administration performance in 2016 as successful. Record indicators and oﬃcial statistics prove this assertion. This year Georgia attained two important objectives: quantity of international visitors exceeded 6 million persons and, for the first time, revenues from international tourism exceeded 2 billion USD. Various campaigns were conducted throughout the year with the aim to attract tourists. For example, summer, autumn and winter active marketing campaigns were held in various countries of the world. Moreover, we have been hosting reporters throughout the year from various countries of the world. This year we have invited and hosted about 600 reporters, who have prepared materials, TV programs, documentaries, newspaper articles and blogs about our country. Naturally all these eﬀorts have increased perception of Georgia and emphasized Georgia’s tourism potential. As to other projects and campaigns, in 2016 Georgia hosted the first international global wine conference. The event was conducted by UN World Tourism Organization (UNWTO). It should be stressed that conference of this type was conducted for the first time in Georgia. More than 250 guests attended the conference, including UNWTO secretary general Taleb Rifai. We have done our best to maximally emphasize the role of Georgia as the homeland of wine. We believe we have managed this. At this conference, UNWTO secretary general Taleb Rifai directly noted this country should be openly announced as a cradle of winemaking. To his words, Georgia is a country, where everybody should arrive just once in a lifetime. In 2016 we implemented small infrastructural projects, including the city of Mtskheta was fully adapted to persons with disabilities. Access ramps were installed at historical monuments. Infrastructure was also arranged for the blind. We believe that it is very important to bolster inclusive tourism. Therefore, we will continue similar projects in the future too. Domestic tourism development is very important for our country because of several reasons. Domestic tourism fosters development of tourism infrastructure and products in the country to serve both domestic and foreign tourists. In 2016 we continued domestic tourism stimulation large-scale campaign – Know Georgia. We have conducted 13 press tours as part of this campaign. Media representatives have prepared articles, various materials about Georgia’s tourism potential. We believe these eﬀorts have reminded many people of Georgia and inspired them to travel across their own homeland. - Statistics genuinely prove that tourist inflows and tourism sector revenues grow in the country, but how would you appraise tourism sector growth paces in Georgia compared to other regional countries? - Inflow of both visitors and tourists has considerably increased (visitors who stayed for 24 hours and more). According to January-November indicators, number of international visitors made up 5 864 684 persons, up 7.9% year on year. Considerable growth was registered in tourist inflows too (tourists who stayed in the country for 24 hours and more) and 2 536 791 tourists were recorded in January-November 2016, up 19.3% year on year. Increased inflow of visitors has brought additional revenues to Georgian economy and total revenues of two quarters made up 868 million USD, up 13.2%.
December 26, 2016 #175
Georgia is Attractive Tourism Country, where One In-demand Destination Replaces Another Due to Seasons As a result of successful marketing campaigns in 2016, quantity of international visitors and tourists has registered record figures. Giorgi Chogovadze, head of National Tourism Administration of Georgia, noted that over the past period, number of business trips increased in Georgia thanks to significant campaigns carried out in the country. International visitors arrive in Tbilisi most frequently. Their ratio makes up 46% in total number of visitors. Batumi is the second most in-demand tourism destination with 41% ratio. Quantity of international tourists is calculated by various methodologies in various countries. The comparison shows that quantity of tourists in Georgia is growing compared to other regional countries. - I understand that in all seasons tourists choose various tourism destinations, but which directions are most in-demand destinations in Georgia and what is the ratio of foreign tourists in these directions? - International visitors arrive in Tbilisi most frequently and its ratio makes up 46%. Batumi is the second popular destination with 41% of visitors, while 8% of tourists visit Kazbegi. Like the case with international visitors, Tbilisi is leader in terms of quantity of visits of domestic visitors with 24%. Kutaisi ranks second with 8% and Batumi is third with 7%. - Which tourism direction has become the most in-demand destination, according to statistics of the past 2-3 years? - Georgia is an attractive tourism country in many aspects, where demand grows for one tourism product on seasonal basis and then it may be replaced by other tourism product. In summer period seaside is the most popular direction. A major number of tourists arrive in summer period. Ski resorts of
In 2016 we implemented small infrastructural projects, including the city of Mtskheta was fully adapted to persons with disabilities. Access ramps were installed at historical monuments. Infrastructure was also arranged for the blind. We believe that it is very important to bolster inclusive tourism. Therefore, we will continue similar projects in the future too.
Georgia also become more and more popular. Growing number of foreign visitors spends vacations at Georgian ski resorts. Culinary and wine directions are also very important. The last period has recorded upturn in number of business trips. Important campaigns that were carried out in Georgia over the past period have considerably promoted this direction. A convention bureau was created for attracting tourists to the business trip segment. - How would you appraise marketing campaigns in 2016? What are your expectations and plans for 2017? Will you make focus on the same market or penetrate new markets too? - Thanks to our marketing campaigns, we have managed to considerably increase tourists inflow from traditional markets (for example Russia, Ukraine, Israel, Kazakhstan, Belarus). It is also important that we have entered new markets, for example, United Arab Emirates, Saudi Arabia, India. Thanks to successful marketing campaigns, we have attained serious growth in inflow of international visitors and tourists in 2016. As to future plans, we will continue campaigns on our target markets. Supposedly, this list will include: Russia, Persian Gulf countries (UAE, Qatar, Kuwait), Germany, Israel, Ukraine, Italy, Poland, Belarus, Azerbaijan, Kazakhstan, Turkey, Armenia, Baltic countries. We will also continue organizing press tours in various countries of the world. We believe documentaries, articles, blogs and various other materials prepared during these press tours will grow perception of our country and raise interest of foreign tourists. - Education level should be developed to bolster the tourism field. What measures are taken for improving service level in the country? What is the demand-supply balance? - National Tourism Administration
actively cooperates with higher and vocational schools. We also promote entrance of foreign international schools to Georgia. In general, we hold various kinds of workshops to improve the quality issues. In 2015 we trained 1100 persons. In 2016 trainings were held in various regions of Georgia for upgrading service quality in private tourism sector. As a result, we have trained 1270 persons in the following directions: taxation code and financial accountability, hotel business and service skills; guesthouse management, marketing and sales promotion, wine – as a tourism product, base English language courses, urgent medical assistance, tourism development tendencies and grounds of management of accommodation facilities. - Appearance of new airlines and introduction of new destinations are important factors for drawing more tourists to the country. What are your expectations in this respect? - In general, aviation and entrance of new airlines is very important for tourism sector development, including low-cost airlines. Appointment of 6 new flights from Kutaisi airport is very significant fact in this respect. And National Tourism Administration carries out marketing campaigns in cities, where these flights were appointed and this implies presentations about Georgia aimed at raising interest in our country. We also invite journalists and tour operators from various countries of the world. According to information of civil aviation agency, in January-October 2016, Georgian airports transported 2 445 496 passengers by regular and charter flights, up 23.88% (471 461 passengers) compared to the same period of 2015 (1 974 035 passengers). Considerable upturn was registered in all three international airports: Tbilisi International Airport served 1 931 285 passengers in the reporting period, up from 1 603 675 passengers of the same period of 2015. Consequently, the year on year growth marked 20.43%. Batumi International Airport served 293 566 passengers, up 43.65% compared to the same period of 2015 (204 367 passengers). Passenger turnover rose by 34.10% at Kutaisi International Airport to 217 118 persons, up from 161 906 passengers year on year. Currently, 33 airlines operate at Georgian airports and flights are performed to 46 destinations in 20 countries.
Banking Sector in 2016
PASHA Bank Planted 2017 Georgian Pine Trees on Behalf of Its Partners
As a New Year gift for its partners, PASHA Bank planted 2017 Georgian Pine Trees near Borjomi, where 260 hectares of forest got burnt down in August 2008. “At our pre-New Year reception, we promised our partners that in 2017 we will pay double attention to Green CSR activities and be more involved in environmental projects. At this point, we can happily say that we have planted 2.000 trees for our partners and then symbolically added 17 more,” commented CEO and Chairman of Board of Directors at PASHA Bank, Shahin Mammadov. “We do hope that our partners will be happy with their New Year gifts. As a result of this project, they have all, in fact, taken part in the rehabilitation process of a beautiful forest. We brought about this project with the assistance of Treepex, a company that is actively working on environmental friendly projects and many are already using their app for planting trees,” said Anano Korkia, Head of PR and Marketing Department at PASHA Bank. Last year, PASHA Bank presented its partners with signed copies of a painting by Rusudan Petviashvili, original of which the Bank donated to a charity fund “First Step Georgia”.
The merger caused various rumors, but the fact was appraised positively ﬁnally. There are new opportunities. Conﬁdence of international ﬁnancial organizations and institutional investors grow and this positive tendency refers to not only TBC Bank, but also the whole banking sector.
Success of Family Business In that period heavy economic and political crisis was reigning in the country and it was very risky to undertake any business, but close relatives founded Baia food products store for earning their living. Twenty years ago Gia Arsenidze, Zurab Arsenidze and Elguja Gelashvili started daily supply of their first store. They used to choose assortment and care for consumer’s content. In two years Baia store was followed by several new stores of the same format. The successful business raised interest of other businessmen too and quantity of founders increased, as well as the quantity of stores. In that period owners of the Baia network of stores acquired Zgapari restaurant by auction. The founders thought food products store business was comparatively more perspective compared to restaurant business and they jointly decided to call the network of stores as Zgapari. All further expansion activities were carried out under the same name. Our respondent Gia Arsenidze, one of the founders of network of supermarkets, noted that the main secret of success consists in full understanding, respect between founders and responsibility for business. “We take all small or important decisions jointly. Fortunately, we reach agreement in simple way on all issues and we have joint visions and values”, Gia Arsenidze said. They have also taken a joint decision to make all spaces for new facilities their own property. “Commerce is not our only objective. By acquisition of real estate, we grow investments and this guarantees additional stability for us and our consumers”. Two years ago the founders visited Terabank for acquisition of additional space and adding several new supermarkets to the network. «We had applied to many commercial banks, but their conditions were worsening in the course of time and we could not maintain stability in doing business. Two years ago we visited Terabank and we found best conditions in this bank. We covered all credits of other banks thanks to Terabank and took a loan for acquisition of two additional facilities», he said. Zgapari network of supermarkets has been a client of Terabank for two years and it actively uses services of SME personal banker and newly established business hub.
December 26, 2016 #175
We take all small or important decisions jointly. Fortunately, we reach agreement in simple way on all issues and we have joint visions and values
anking sector is meeting the New Year of 2017 with new merged and amalgamated companies. TBC Bank has become a hero company in 2016 with 315 million GEL transaction. TBC Bank has paid the mentioned amount to Societe Generale for bank assets. TBC paid 360 million GEL for acquisition and integration of Bank Republic. The year of 2016 was important for the French banking group too. The 10-year performance was finished by a successful deal. Societe Generale holds a 5% ratio in TBC Bank and controls shares of about 40 million GBP that are listed at London Stock Exchange (LSE). TBC Bank CEO Vakhtang Butskhrikidze named London Premium Listing and acquisition of Bank Republic as main events of 2016. «It is very important to be a major banking institute in Georgia, the country with less than 4 million residents. We should follow large scales to be a more eﬃcient institute and we should offer new services to our clients, new technologies and better conditions. I mean better conditions for both technological products and loan and deposit products. Borrowers have already seen the eﬀect. TBC Bank was the first that introduced an entirely new credit product onto the market», Vakhtang Butskhrikidze said. Merger of two commercial banks with major assets (TBC – 6.5 billion; Bank Republic – 1.8 billion) was included into the list of positive events of 2016 that was named by Zurab Gvasalia, president of Association of Banks of Georgia. Zurab Gvasalia: “The merger caused various rumors, but the fact was appraised positively finally. There are new opportunities. Confidence of international financial organizations and institutional investors grow and this positive tendency refers to not only TBC Bank, but also the whole banking sector. Like previous years, the year of 2016 has also proved that commercial banks play a key role in financing the real sector. The sector’s steadiness is a certain guarantee for the country and all indicators have increased, coeﬃcients are high, ratio of bad loans in total loans portfolio has decreased, ROA and ROE profitability has increased, negative indicators of return on capital and assets was recorded for only two commercial banks, among 16 ones. Assets of commercial banks reached 29 billion GEL (25 billion in 2015: +16% year on year); loans portfolio marked 18 billion GEL (16 billion GEL in 2015; +12.5% year on year); Deposits portfolio exceeds 16 billion GEL (14.2 billion GEL in 2015; +14% year on year). The amount of nonperforming loans is about 665 million GEL and holds 3.7-4% in total portfolio. International ratings also prove stable growth in the sector. In 2016 Fitch Ratings has approved ratings to Georgian commercial banks with the outlook of Stable. Long-term ratings: Bank of Georgia (BB; Stable); TBC Bank (BB; Stable); ProCredit Bank (BB; Stable); Basisbank (B; Stable); Cartu Bank (B+; Stable) and Halyk Bank Georgia (BB-; Stable); Liberty Bank rating increased to the level of B+ from B and it was also granted the outlook of Stable. The Agency has applied coeﬃcient of improved profitability of commercial banks, capitalization and quality of assets. Approval of ratings reflects strong franchising of commercial banks (in case of Bank of Georgia and TBC Bank), as well as solid capitalization in Cartu Bank. Key lobbyist and supervisor over commercial banks positively appraises the supervisory body changes in 2016. In the reporting year the national bank’s supervisory board was reshuﬄed and Larization campaign received large-scale forms along with imposition of certain obligations on commercial banks.
Starting January 2017 loans of about 100 000 USD will be issued in GEL. Moreover, loans of about 40 000 USD will be converted through budget subsidies under preferential exchange rate. This model of state co-subsidization always generates risks of careless spending, but this is an important process, because the best components bolster crystallizing process. The banking sector considers small and medium business sectors as locomotives of state economy. All bankers agree that Dedollarization is a key challenge and Larization campaign is useful for both banks and clients. “Larization measures should become of campaign character in region and we will reap results in long-term perspective definitely”, Gvasalia said. The Georgian banking sector registered 16 commercial banks in 2016, including Bank Republic. Its integration into TBC Bank will be finished at the beginning of 2017. The year of 2016 should be appraised as a period of crystallization. Several commercial banks disappeared in 2016. Progress Bank was absorbed by TBC Bank. Caucasus Development Bank moved to liquidation regime after the parent bank went bankrupt in Azerbaijan. National Bank sent Capital Bank to liquidation regime too and abolished its banking license on charge of ignoring legislative requirements for prevention of legalization of illegal revenues. The year of 2016 brought surprises to top bank managers too. Bank of Georgia CEO Murtaz Kikoria jointly with Archil Mestvirishvili and Robert Singlert were elected as members of the National Bank board for a period of 7 years. This is an unprecedented fact of return to supervisory structure from the private sector. Kikoria has returned to the National Bank, from where he had gone several years before. The NBG board consists of 7 members. It is chaired by the NBG President Koba Gvenetadze, who replaced Giorgi Kadagidze in 2016. Irreplaceable employee of Bank Republic has also returned. Bank of Georgia has enticed competitor bank’s manager Ramaz Kukuladze, as well as TBC Bank’s investment banker David Tsikaluri. The latter will work as Bank of Georgia deputy director general. TBC Bank and Bank of Georgia will remain key players and competitors on the market in 2017 too. The competition will proceed in business crediting segment. The last acquisition by Bank of Georgia serves the same objective. Namely, Bank of Georgia has bought 45 million USD (120 million GEL) portfolio of micro and small business loans from ProCredit Bank, the case of loans of about 100 000 USD. The German bank group explained the decision for sales of micro portfolio by a new strategy that calls for making focus on major loan borrowers. A year earlier before restriction of loans of about 100 000 USD, ProCredit Bank introduced 10 000 EUR margin. And now the bank announced about restriction of the target group. A part of Georgian society perceived this decision as a signal for withdrawal from Georgia. However, the bank management assures they have never through similar things. “The new deal with Bank of Georgia proves ProCredit Bank follows long-term plans in Georgia and the bank does not intend to withdraw from the market”. ProCredit Bank is recorded among billionaire banks with assets of more than 1 billion. Total ratio of billionaire banks exceeds 92%. Bank of Georgia is leader in terms of assets (9.3 billion GEL), while Cartu Bank leads in terms of Return on Assets (ROA – 3.5%). Highest Return on Equity (ROE – 3.5%) is recorded for Bank Republic. Major net profits are recorded for TBC Bank (192.7 million GEL).
December 26, 2016 #175
Insurance Association The year of 2016 was not exceptionally positive for insurance market. The industry problems have not been resolved and they still exist, Devi Khechinashvili, head of Insurance Association, noted. It is necessary to bolster insurance industry even in 2017 by introduction of obligatory insurance component, Khechinashvili said. “Obligatory insurance system is widely practiced all over the world as a mechanism for protection of people and state economies. Regretfully, Georgia has failed to regulate this issue. We hope the next year will bring certain changes in this respect. Insurance relations are developed through obligatory mechanisms worldwide. Many people have joined insurance relations, received benefits and insurance culture was shaped in this way stage by stage. We had similar samples in Georgia too. For example, state insurance programs have introduced optional insurance component. Number of citizens accustomed to purchasing private insurance products increased tenfold in several years”, Khechinashvili noted. It is not clear what will be the result of eﬀorts for separating private and universal insurance components. Government is still working on the issue and we expect these eﬀorts to develop one of the important directions of insurance relations, Khechinashvili said. “We are sure that the state budget of Georgia cannot provide every beneficiary with a required level for services. We expect the year of 2017 to bring breakthrough in health insurance and vehicle owners civil responsibility insurance directions. TBC Bank has bought Kopenbur and this signifies TBC Group has entered insurance market. I welcome the major market player is interested in insurance sector. TBC Group is an influential body in Georgia and I believe it will promote the insurance business, Khechinashvili said.
Georgian Insurance Market – Industry Appraises Year of 2016 “
Obligatory insurance system is widely practiced all over the world as a mechanism for protection of people and state economies. Regretfully, Georgia has failed to regulate this issue
eorgian insurance market registers 14 insurance companies. There is sharp competition on the market and beneficiaries are able to enjoy various insurance services and products. Currently, the 2016 financial indicators have not been specified yet, but Georgian insurance sector has finished January to September period in profits. According to statistics of Insurance Surveillance Oﬃce, the sector’s annual profits have extremely increased to 22.98 million GEL from 237.5 thousand GEL. Net profits in the last quarter rose by 10.5 million GEL. Net profits from nonlife insurance products made up 42.7 million GEL, while net profits from life insurance totaled 10.997,72 million GEL. In the same period, investment returns marked 11.4 million GEL, up from 3.7 million GEL of the same period of 2015. As to expenditures, a major part of them (49.8 million GEL) was reflected in salaries, due payments and administrative costs. The sector’s assets account for 568.38 million GEL, liabilities marked 445.9 million GEL. Amount of generated insurance premium made up 316 299 291 GEL. The Caucasus Business Week (CBW) has explored the 2016 insurance market tendencies and asked the private sector representatives and the field specialists to appraise the industry development aspects.
Insurance Institute president Giorgi Gigolashvili has positively appraised the year of 2016 for Georgian insurance sector. Several important changes have taken place in Georgia’s insurance sector in 2016 and these changes will bring positive results in the future. According to amendments to the law on insurance activities, a general meeting of stakeholders will be a supreme management body of the insurer. The general meeting of stakeholders is obliged to elect a supervisory board that will control the insurer’s activity. The supervisory board shall consist of at least 3 and no more than 21 members. This body will control directors. The quantity of directors must be at least 3. The general meeting of stakeholders shall elect a member of the insurer’s supervisory board for a period of 4 years. At the same time, it is inadmissible to elect the same person repeatedly. Commissions of directors shall be determined and separated by the insurer’s statute. One of the directors shall possess full management and representative authority. So far insurance companies were founded as joint stock companies or limited liability societies. Organizations of these two legal formats were managed diﬀerently under the law on Entrepreneurship: Namely, a LLC could be founded by one person and the founder could have full control over the company management. This signifies one person could fully manage the company and take individual decisions. This practice used to pose threat to rights of beneficiaries, Gigolashvili said and added that introduction of solvency margin was another positive change in insurance industry. Namely, on June 8, 2016 Parliament of Georgia adopted amendments to Georgian Law on Insurance Activities aimed at strengthening financial steadiness and solvency of insurance companies and admitting a supplier of duly organized and qualified financial services to the market. The mentioned amendments represent the first stage of measures for undertaking and operation of insurance business for including requirements of EU and Council of Europe 2009/138/EC instructions of November 25, 2009 into Georgian legislation. Financial steadiness and solvency of insurance companies is an inseparable part of stability of Georgian insurance market and this is a key guarantee for protection of consumer rights. This mechanism is to ensure higher financial steadiness of insurance companies, Gigolashvili said. Several months earlier insurance companies were obliged to submit a business plan for obtaining a license, he said. “Determination of prices and so on were made superficially so far. That practice comprised high risks and today these risks have minimized”, Gigolashvili noted.
PSP Insurance The year of 2016 has brought very positive results and benefits, PSP Insurance director general Vladimer Bezhashvili said and added that PSP Insurance revenues have increased by about 70% compared to 2015. In whole, the company has paid claims of about 25 million GEL and this is very impressive figure. As to non-financial indicators, the company has launched important projects in terms of service improvements. The company has introduced new electronic services that enable beneficiaries to more comfortably enjoy insurance services. We have announced the year of 2017 as the year for improving electronic systems. This is the most important problem for our beneficiaries, because we operate in a corporate segment with deficient time. Therefore, PSP Insurance strategy for 2017 and other years is to load our services with electronic platforms. As to industry, the situation is quite heavy. Financial indicators are unfavorable. Total portfolio of our beneficiaries have considerably increased. It is important to introduce mandatory insurance products. This is necessary and very important for our population.
Unison Insurance Company Georgian insurance market was not enlarged in 2016, Unison insurance company director general Vasil Akhrakhadze noted and added that the sector’s profits have increased anyway because of two factors. «First, insurance companies with noncore businesses, which are aﬃliated companies in pharmacy or hospital segments. Their profits were generated from the mentioned segments. Second, diﬀerence between exchange rates. This year we had hyperinflation, which grew profits in GEL. This is a temporary eﬀect, because nobody knows how diﬀerence between exchange rates will be changed and balanced», Vasil Akhrakhadze noted. Insurance companies had much more expectations from Government and the regulator in 2016. They thought that eﬃcient steps would have been taken regarding employment of insurance mechanisms, he said. “We expected more initiatives in terms of introduction of several mandatory insurance products that have been long practiced in the civilized world. Regretfully, this year the regulator could not emphasize and develop any mechanism, where insurance system instruments would be applied. I believe this is a very negative moment”, Akhrakhadze noted. Georgia is a sole country in Europe and Post-Soviet space, in practice, that does not apply insurance mechanisms and this is nonsense, he added. “When the Government does not use all these mechanisms, state budget funds are spent. All losses after natural disasters are compensated from the state budget, instead of insurance companies. Therefore, we should have mandatory insurance system in the country”, Akhrakhadze pointed out. As to Unison company, it does not own non-core profile businesses and operates only in insurance business and all profits are generated in insurance business, Akhrakhadze said. Unison insurance company has comparatively improved positions in 2016. In certain components we are market leaders, including in aviation, responsibility insurance and so on, Akhrakhadze noted. As to 2017, the company will make focus on Internet sales. In the future Unison’s strategy will be oriented on minimizing barriers with beneficiaries. The company will intensify activities in this direction. Moreover, Unison company hopes that the new parliament will introduce mandatory insurance component in 2017, Akhrakhadze noted.
The top trends in the auto industry for 2016 MARIAM VACHNADZE
The year of 2016 turned out comparatively successful for automobile business compared to previous years. Sales indicators have grown, representatives of automobile companies noted. At the same time, sales indicators of used cars were maintained, while there is less demand for new vehicles of authorized dealers. A new trend has also appeared – demand for electric cars grows. In this respect Toyota Prius hybrid automobile is very popular on the market. Over the past years quantity of right-steering vehicles has increased considerably, as well as their sales. The USA, Japan and Germany share leading positions among key suppliers of automobiles.
Giorgi Supatashvili, director general for Caucasus Auto Import, explained that the year of 2016 recorded growing sales compared to previous years, but internal sales dropped because of national currency volatility. “The problems started in November 2014, when USD started strengthening and GEL exchange rate dropped. Azerbaijan market was closed in practice, re-exports dropped almost to zero in 2015. Consequently, the state and business sector lost turnover with Armenia and Azerbaijan. The year of 2016 recorded upturn in imports and internal sales. The diagram shows that exchange rate depreciation coincides with contraction in internal sales. Amid exchange rate volatility, sales also drop to minimum. However, when exchange rate is stabilized, sales also grow. In whole, Japan-made vehicles hold a major ratio in total sales, as low-cost vehicles. Japanese vehicles exporter companies have made much profit from this business, in practice. Vehicles importer companies had to bear losses in this case. Consequently, now we expect sales to decline in a short period before the market’s new configuration ends and the consumer realizes that acquisition of old automobiles will be carried out from only domestic market, while comparatively newer automobiles will be imported from abroad”, Supatashvili noted. The director of Caucasus Auto Import noted that in 2016 the major demand was recorded for Toyota Prius hybrid vehicles. The current year recorded a great demand for hybrid automobiles on Georgian market, Supatashvili noted. “Major demand was registered for Toyota Prius in 2016. This is a hybrid automobile. The decision that granted preferences for one-year automobiles and excise tax reduction by 50% have increased demand for these automobiles. The demand was high previously to and these additional preferences have further increased this demand. I can openly say that the year of 2016 was the period of growth in demand for hybrid automobiles”, Giorgi Supatashvili said. Giorgi Kobakhidze, sales manager of Toyota Center, noted that, compared to other centers and factors, the company performed successfully in 2016 as a
result of upturn in sales in 2015. “Traditionally Toyota is a leader in sales. Compared to other centers and other external factors, in 2016 we have performed very well and we expect this year to close successfully. We appeared on the market a short period ago, but we have fulfilled our ambitious plans. For example, we have recorded real upturn compared to 2015. Solvency has changed because of USD exchange rate. If customs clearance tariﬀs grow, sales will be aﬀected. Despite these factors, we hope anyway that in 2017 we will have growth», Kobakhidze said. GT Motors founder Temur Ustiashvili has a diﬀerent opinion. The market has not enlarged, he said. The company sales have genuinely increased, but after the competitor company stopped operation, Ustiashvili added. «In general, sales have increased compared to the previous year, but the market has not enlarged in itself. This signifies that some competitor companies have disappeared and that’s why our sales have increased. In general, imports of new automobiles have not increased, while imports of used cars are very high in Georgia. Imports of new cars make up only 2-3% in total imports. The last quarter has recorded contraction compared to the last quarter of the previous year», Ustiashvili noted. Major demand is recorded for Ford vehicles in our company, he added. The year of 2016 was less successful for Iberia Business Group, one of the leading companies on the market. Ia Modebadze, the company marketing department head, noted that in previous years sales were more stable. Modebadze also talked about the bestseller brands in Iberia Business Group. “In previous years sales were more stable. KIA Motors is the bestseller brand in our group, as it oﬀers the best combination of quality, price and guarantee conditions. As to corporate sales, Czech Skoda is a very popular brand. In general, market of new automobiles in Georgia is very small, therefore, used cars oﬀer serious competition to the business of new vehicles. As to exports, the year of 2016 was successful in this respect», Modebadze noted. As to expectations for 2017, namely
December 26, 2016 #175
concerning excise tax growth on imported vehicles, Iberia Business Group representatives noted that this decision will not bring radical changes. «As to expectations, the past years’ statistics shows that Georgian economy is quite instable and therefore it is diﬃcult to talk about the 2017 expectations. Excise tax will grow and naturally, higher rates will reduce demand, however, the market of new automobiles is very small and specific. We do not expect excise tax growth to cause serious changes», Modebadze explained. Shalva Ogbaidze, president of National Automobile Federation, talks about sales of used cars and demand for rightsteering vehicles. Imports of hybrid vehicles have also increased, he said and positively appraised the fact. “The previous year’s trend was maintained and deepened in 2016. This signifies inflow of used cars increased, as well as quantity of vehicles with lower mileage. At the same time, in 2015 rightsteering vehicles ratio was about 40% and this year the figure has reached 50, i.e. this trend was maintained. The US auction remains the major supplier, as well as German and Japanese markets, Ogbaidze said. Re-exports faced certain diﬃculties. Re-exports became useless started 2011, when Kazakhstan joined the Customs Union, because member countries, namely, Russia is a manufacturer country and therefore, this customs space has high customs taxes. Therefore, our re-exports lost a major part of Armenian market. Losses were recorded on Azerbaijani market too since April 1, 2014, after Azerbaijan banned imports of vehicles manufactured before December 2004. All these factors were deepened by national currency exchange rate collapse, expected changes in customs clearance tariﬀs. All these factors have negatively finished the current year. However, small, but positive tendency is noticed. Imports of hybrid vehicles have increased after customs clearance tariﬀs were halved on them. Moreover, imports of 100% electric cars is becoming also very popular, because they are entirely exempted from customs duties. Mercedes and Opel maintain leading positions in sales of used cars”, Ogbaidze said.
December 26, 2016 #175
The year of 2016 has brought quite positive results for Georgian development business. Despite GEL depreciation created certain problems, the field representatives appraise the current year as a quite attractive and active period in terms of sales and many other aspects. Though, there were a lot of problems too, but development companies show content with increased sales indicators. Representatives of many companies noted that development companies started sales of apartments in GEL or fixed exchange rate amid GEL exchange rate devaluation. According to their information, revision of sales strategy have brought certain results and this factor makes the year of 2016 positive for developers. Developers Association Tornike Abuladze, representative of Developers Association, noted that the best indicators of sales in development business were recorded in 2014. In that period, apartments of about 1 billion USD were sold in Tbilisi, he said. It is interesting fact that a half part of these apartments were financed by bank institutions, both old and new apartments. It is also interesting that in the midst of 2015, amid GEL exchange rate depreciation, sales indicator declined by only 7%. As to 2016, sales indicators on the market have increased by about 20% as compared to the previous year, Abuladze noted. «I do not count the last month and a half, because GEL volatility may suspend activities», Abuladze said. One of the reasons for sales growth on development market in 2016 is related to the initiative of Developers Association. This initiative calls for reducing the rental incomes by 5%, Abuladze said and added that much money is preserved on deposits at commercial banks, interest rates have also decreased and that’s why population prefers to put money in real estate. It is also important that a half part of sold apartments are bought by mortgage loan and another part is bought by cash. This signifies our population has money, he added. Previously, traditionally, 3 months earlier before elections, real estate sales were paused on the market. This year, this practice was not repeated amid
Development Business – Positive and Problematic Year of 2016 parliamentary elections. This is a very good fact. In general, the year of 2016 was very positive for development sector, Abuladze said. Red-Co Development Company Malkhaz Kunelauri, manager of Red-Co development company, noted that the current year of 2016 was successful, because the company expanded the investment package. This year Red-Co bought a land plot of 500 000 square meters for 12 million USD to construct a large resort. The project plan has been developed by Canadian architects, Kunelauri said. «After the project implementation we will have an Europeanstandard ski resort that will not have analogy in the Region. We have already started construction of the mentioned project», Kunelauri noted. As to other ongoing projects, RedCo company has finished them in planned timeframes, he said. When a country faces certain economic diﬃculties, problems arise in the sector too. Naturally, there were diﬃculties in 2016, but we have overcome them. We have implemented projects amid many obstacles in 2016, but the main thing is that we have attained our objectives, he said. «It should be noted that there were more problems in 2016 compared to previous years. This was directly related to currency
situation in the country. Because of this factor many issues were frustrated, including in terms of sales. Despite a major part of our clients are foreign citizens, problems arose anyway. Georgian segment takes wages in GEL and they face problems with payments. Some of them even had problems with purchase of property. This situation continues even today. We hope currency crisis will be resolved», Kunelauri noted. As to future plans, Red-Co company plans to expand business activities and launch large-scale projects. G&G Development Company Bezhan Tsakadze, head of G&G development company, noted that the year of 2016 was not bad in terms of sales. However, the situation worsened over the past month because of extreme depreciation of GEL. In general, December is an active month and currency volatility are rarely recorded in this period, however, it is diﬃcult to make long-term
forecasts. According to Tsakadze’s words, in 2017 the company may revise prices and this fact may reduce sales. «Consumers will have to get adapted to new reality. It would be diﬃcult, but I believe GEL will be stabilized anyway and everything will go OK», Tsakadze said. As to problems, bureaucratic barriers in the process of issuing licenses were not removed in 2016 and this factor makes quite serious problems in the sector. «We believe they will adopt the construction code in spring finally and this code will bring order to the sector in all directions. Processes should be settled at Tbilisi City Hall too, because licenses are issued too late. I have two projects and I could not finish procedures for either of them. Previously, it was possible to accelerate the process thanks to payment system, but now this practice does not work any more and deadlines are violated. Years pass in the waiting regime», Tsakadze noted.
Atori Development Company Beso Tkhelidze, Atori development company founder, noted that the year of 2016 was very positive for the company. Atori has finished several projects and this is expressed in quite considerable upturn in sales. It is also very important that the company has received licenses for new projects, he said. «It was diﬃcult to obtain licenses in 2016. These procedures are delayed at the city hall. We can finish one project within a year, while I have to wait for licenses for 2 years. This factor creates artificial barriers and makes huge problems», Tkhelidze said.
Sveti Development Company Tornike Janelidze, director of Sveti development company, noted that the year of 2016 was quite active for the company, because it introduced many innovations that were absent on the Georgian market previously. This factor has created ground for upturn. According to the 2016 indicators, the company started construction of 4 new blocks, including the finished project in Bakuriani was set out for sales, he said. «This year Sveti company has insured two projects. This is innovation on the market. This factor has increased our sales and interest in our company. Despite competitors appeared on the market, the market was expanded considerably anyway. This signifies, unlike previous years, the market was loaded significantly. Licenses issued by Oﬃce of Architecture prove this assertion» Janelidze noted. Sveti company director also overviewed the existing problems in 2016 and noted that GEL depreciation was the major obstacle. «This situation has badly aﬀected customer payments and prices of materials. Our clients receive wages in GEL, but have to pay in USD at high rates and this factor generates certain problems in terms of payments. I hope this situation will be stabilized as soon as possible», Janelidze said. The market should be regulated by legislation, including in terms of issuance of licenses, shaping correct position on green plants and so on, he said.
December 26, 2016 #175
December 26, 2016 #175
Overview of Business Sector in 2016 Georgia ranked 16th among 190 countries in the 2016 Doing Business rating. The country has advanced by 7 places. However, success of companies depends on the existing economic situation in the country. There is no evident answers on how successful the year of 2016 was for companies in various segments. All companies equally suﬀer from GEL depreciation aﬀects. Many companies are expected to correct prime costs and increase product prices in 2017.
“We have exported 100 tons of wool for the last 3 months and we have still orders to fulfill. Our wool is rude and it is mixed with other sorts of wool. Our prices are aﬀordable and they range from 55 to 70 Cent. In 2017 we will arrange wool washing facility and number of employees will increase to 45 ones from 15. At the same time, we will build a storehouse in Lilo and invest 100 000 USD”. Businessman Vano Ioseliani has moved from mushroom business to rabbit breeding business. The brand of My Rancho will appear on the market in the near future: “We will introduce rabbit meat at the end of spring. This is a high-technology industrial farm and we have invested about 1 million USD in creating it. We will oﬀer unique sort of rabbit meat to our consumers. Rabbit breeding was a strong direction in Soviet Georgia, while it was annihilated in 1990s and we want to revive it. The market demand is huge. We conduct preliminary negotiations with restaurants. Initially, we will keep 10 000 rabbits and later their number will increase to 25 000 ones. First of all, we plan to replenish the domestic market and later we will also penetrate exports markets.
17 European standards. Sales were improved. Bulgaria is our main exports market and we supply our products to this country in continuous regime. Bulgaria is a certain barometer for us to determine the existing situation on European market, how competitive our products are. We have also visited Polish and Baltic countries for search of new markets and we plan to expand our primary production, sales and number of employees in 2017. Initially, Herbia was oriented on exports markets, but since there was no opportunity for manufacturing high-quality homogeneous products in large volumes for European market, we decided to take eﬀorts on Georgian market and it turned out that our consumer is tasteful and buys high-quality products and our decision has justified. Georgian product is in much demand, but we do not have large volumes of product. Therefore, we plan to develop corporate direction. This step will enable us to help small entrepreneurs in overcoming diﬃculties. Moreover, we will be able to enlarge production of homogeneous products for exports markets. We also plan to arrange training centers to promote activities of farmers.
usinessman Temur Chkonia thinks that it is not interesting to talk about his own business. “Nobody cares, we have more problems”, he said and appraised the current situation in the country instead of overviewing his own business. “Any year is interesting in ordinary life, but in economy every year is very diﬃcult. After the 2012 elections we have only heavy years. We remain in political competition regime. The winner party competes with the defeated party over the past 6 years. The winner party should have entirely diﬀerent mission and show more responsibility. Serious economic changes are taking place in the world and if Georgia wants to be integrated into the global economy, then we should remember that visa liberalization does not imply only travel, it implies integration into the global and European systems. The current economic developments in Georgia are interconnected with external factors. For example, Turkey faces economic problems and this factor aﬀects Georgia too. What does the economic might mean? When many reasonable people create export products, but, regretfully, we lack for similar people. We are people infected by Communist set of mind and we only ask Government to rescue us. The 25th year has passed and Georgian business cannot realize we should not wait for government mercy. Our economy is heading to the bottom and in this situation Government should cut expenditures. We do not need so many Ministries. Our economy cannot put up with such expenditures in government structures. When business takes costs, we try to optimize expenditures. Sometimes we have to even dismiss workers, regretfully. Economy implies fight, war and regretfully, not everybody can win and be happy in this war. We need radical changes and these radical changes need radical oﬃcials... GEL exchange rate is a painful issue for our country. It is erroneous statement that the GEL exchange rate cannot aﬀect prices. The New Year is coming and we do not grow prices, because we respect our clients, but nobody can work without profits. We will have to make our services more expensive. However, the main thing is that higher prices cannot work without solvency of our population. Higher prices work when salaries also grow. In 2016 the state budget received 85 million GEL from my business and I have made 120150 million GEL investments since I started doing business in Georgia”. Avto Svimonishvili, founder of Margebeli Holding (that unites Nabeghlavi, Marneuli, Emgadi brands) says that the year of 2016 was a transient period for the company, because the company built a new factory in Nabeghlavi, and entirely renewed infrastructure. Thus, the company will be able to manufacture various sorts of strong drinks. We have taken a loan from EBRD and made investments of 32 million EUR jointly with our partners. We will test the enterprise in January
2017 and we will start full production in spring 2017. We manufacture our products jointly with famous company Rauch that produces RedBull. Our clients will receive high-quality products thanks to experience of Rauch and our raw materials. Thanks to such mighty enterprise, our products will be supplied to both domestic market and exports markets. We want to further develop our production and use concentrates of Marneuli enterprise in Nabeghlavi enterprise and develop a basis of raw materials. We use our own raw materials in processing fruits and vegetables. We hold our own land plot, where we grow cucumber and tomato. We also own fruits gardens in Gardabani. As to sales of our products, we mainly sell our products on domestic market, but we have also sent a small consignment of tinned fruits and vegetables to the USA and several other markets. The raw materials basis does not suﬃce for exports, while there is much demand for Georgian products. Nabeghlavi is exported to about 25 countries. We plan to further expand the basis in Asia, for example, in Iran, United Arab Emirates, Japan, Korea... In whole the holding grew by about 15%, but in 2017 our portfolio will be broadened and we expect high growth». Georgian Wool company founder Zaur Kuliev is content with the year of 2016. The last 3 months recorded a growing demand for Georgian Wool. Exports to India, Britain and Ukraine was successful.
Giorgi Korghanashvili, commercial director of Zarapxana, is discontent with the year of 2016, because the existing economic diﬃculties have aﬀected the company plans too. “Price of gold dropped in the second half of 2016, but the exchange rate changes could not balance it. The year of 2016 was not better than 2015. We still manage to maintain gold prices despite the exchange rate depreciation thanks to certain reserves, but if the current tendencies continue, we will have to revise prices. In 2016 we had to close our store in Baku and relocate it to trade facilities because of existing economic diﬃculties in Azerbaijan, where the demand has extremely dropped. In 2017 we plan to develop a new collection and open at least one store in Tbilisi, supposedly, at the new shopping mall. We also plan to oﬀer online sales services. Currently, the major demand is registered for diamond jewelery. We have various collections and serial works in natural and precious stones. Collections of Vani and Tamar are very successful projects, but there is growing demand for diamond jewelery with multiple petty stones”... Herbia director general Zurab Janelidze noted that in 2016 the company implemented re-branding project as part of USAID program and arranged a packing enterprise equipped with modern technologies. The Global Gap standard was also renewed. «Our production comprises a full cycle starting from packing to sales and our consumers receive high-quality products, according to
Serious economic changes are taking place in the world and if Georgia wants to be integrated into the global economy, then we should remember that visa liberalization does not imply only travel, it implies integration into the global and European systems. The current economic developments in Georgia are interconnected with external factors.
December 26, 2016 #175
December 26, 2016 #175
GEPRA supports women empowerment principles
Georgian Companies Are Facilitating Women Empowerment Principles A press conference took place in hotel “Tbilisi Marriott” organized by the UN Women organization and the NGO “CiDA,” who represent the Georgian network for the UN Global Compact. The conference covered gender equality in Georgia’s business sector and women empowerment principles. Representatives of the business sector, NGOs, and international organizations attended the conference. Caucasus Business Week took special interest in the initiative and talked with the UN Global Compact Network Georgia Corporate Social Responsibility Manager / Legal Expert at Civil Development Agency (CiDA), SAOME ZURABISHVILI. - What are women empowerment principles? Why were they formed and what goals does this initiative serve in the world and in Georgia? - Women empowerment principles are a joint eﬀort by the UN Global Compact and the UN Women organization. They appeal to companies on matters of gender equality and in three women empowerment directions in particular: employment (within companies); on the market (in frames of contractor relations); and in the public (in social projects). By signing the principles, the company takes up an obligation to carry out activities in these three directions and in accordance to the 7 principles. These principles appeal to companies to develop strong corporate management in order to ensure gender equality (principle 1); protect human rights and support non-discriminatory stances within the company (principle 2); ensuring the health, safety and well-being of every man and woman (principle 3); contributing in developing women’s education and professional advancements (principle 4); implementing the types of instruments in production development, providers’ network, and marketing that will expand women’s rights (principle 5); supporting equality through public initiative and advocacy (principle 6); reporting on the initiatives undertaken in frames of the previous principles (principle 7). - Where and why did the idea to implement this initiative in Georgia appear, and what challenges does the country face in these matters? - In April 2016, in Georgia, a local network of the largest corporate sustainability initiative of the UN Global Compact was established. To date, 30 members make up the Georgian network. The goal of the initiative is to promote company corporate responsibility in accordance to international standards, in four primary directions: human rights, labor rights, environmental protection and combating corruption. One of the primary directions of UN Global
Compact Georgia was Women’s Empowerment. This platform is based on Women’s Empowerment Principles, which is a joint initiative of the UN Global Compact and the UN Women’s organization. Two above-mentioned organizations – the UN Women’s organization and CiDA – started working in Georgia towards this direction with businesses. The project was split into several stages: (1) raising awareness in companies towards women empowerment principles; (2) a pilot project that covered technical assistance towards five companies in terms of implementing women empowerment principles; (3) Conference “Women Empowerment Principles – Equality Means Business.” The situation in Georgia in regards to women’s economic activity and labor rights leaves much to be desired. According to the 2015 Gender Inequality index, Georgia is a low-to-medium income country, and in a list of 145 countries it comes 60th in women’s economic participation and opportunities; 83th in labor-intensive participation; and 110th in the average ratio between genders. The problematic issues are: Combating discrimination at workplaces when hiring new employees and on site of employment towards colleagues, facilitating inner policies for combating sexual harassment, creating mechanisms for complaint charges, re-qualifying women and including them in mentorship programs in order to ensure their subsequent job promotions, encouraging men to take vacations for looking after their children, abolishing pay gaps between men and women, encouraging women entrepreneurs, carrying out public projects which aim to empower women in society, etc. Encouraging Women Empowerment Principles in business aims, on one hand, to resolve the aforementioned issues in the country, and on the other to help business be more responsible, more sustainable and more profitable in the long run. - As we know, a short while ago five companies signed a leadership support statement in Georgia, which pertains to introducing and carrying out Women’s Empowerment Principles in companies. They also prepared action plans; what are some of the notable points in their plans, and what issues or challenges have they revealed? Have any tendencies surfaced that are diﬀerent from global examples? - As you have noted, 5 companies took part in the project; these are: Adjara Group, Development Company M2, PR & Marketing Communications Company “GEPRA”, the Georgian American University and the “Crystal” Microfinance Organization. I, as a consultant for the UN Women’s orga-
nization, provided technical assistance for them to evaluate their operations in terms of women’s rights, and develop action plans for gender equality and women empowerment. These five companies are the first business organizations in the world who have facilitated “Women Empowerment Principles.” Despite all five companies having existing practice in gender equality, these were not systemized activities and the companies did not have any pre-established standards or policies in this regard. Another challenge was the lack of complaint filing mechanisms within the company, as well as the non-existent practice of men taking vacations in order to care for their children. None of the companies had recorded sexual harassment complaints, which is surprising since in the report from the Oﬃce of the Public Defender of Georgia, in our country “sexual harassment at place of employment represents the most widespread form of rights violation.” A study conducted in EU countries reveals that every second woman experiences unwanted sexual treatment, physical contact or other forms of sexual abuse at work. - What results will we see by implementing Women’s Empowerment Principles specifically for companies (or for businesses), and how will this act contribute in the country’s development in general (economy)? - As I have noted, implementing Women’s Empowerment Principles is beneficial both for companies and the public, and contributes in sustainable and inclusive development of the country. Various studies conducted at an international level have shown that companies with higher representation of women in management positions have a 42% higher index in sales (as opposed to companies where women are less represented in highranking positions). These companies also have a 66% higher return on invested capital, their staﬀ is 22% more productive, the revenue rate of businesses is 27% higher, and consumers’ satisfaction towards the company is 39% higher. - How many more companies are planned to be included in the initiative, and what are the scales of the project in the future? - We are planning to promote Women’s Empowerment Principles to members of the UN Global Compact and to members of the Corporate Social Responsibility (CSR) Club. Several companies have already expressed interest to join the initiative and receive an action plan, hence the number of businesses that wish to empower women and implement standards and carry out activities for gender equality is growing. We will consult every business that is interested in this matter.
The company GEPRA is among the five companies, who were among the first in the world to facilitate and confirm their action plan for implementing Women’s Empowerment Principles. Caucasus Business Week talked with GEPRA’s CEO, EKATERINE ZHVANIA, regarding this matter. - Ms. Eka, your company is one of the first to have responded to facilitating the Women’s Empowerment Initiative. Why did you decide to prepare an action plan based on these principles, and what are some of the problems you see in terms of gender equality in companies at Georgia? - GEPRA has been a member of the UN Global Compact since 2007. The Global Compact is the largest corporate sustainability initiative in the world, and it benefits development of a sustainable and inclusive global economy for the public, society and the market. The aforementioned initiative is based on 10 primary principles and 4 directions – human rights, labor rights, environmental protection and combating corruption. These principles are the base standard of corporate social responsibility, which is quite important for GEPRA, it’s important for us to implement these principles in everyday operations. GEPRA is also notably a co-founder and member of the Social Responsibility Club. It was membership in this club that logically led us to the desire to implement Women’s Empowerment Principles and prepare an action plan – an endeavor that was assisted by UN Women’s organization and CiDA. - What sort of results will implementing Women’s Empowerment Principles bring to your company? - While preparing the action plan, two things became clear: First was that our company has been unknowingly protecting women’s empower-
ing principles over the years, through inner processes and procedures. The second was that it’s necessary to move to the next stage and re-formulate this on a policy level. The primary task of the action plan is to ensure equal opportunities of gender equality, work environment, and career progress for both men and women. A united group is the prerequisite to success. “Equality means business.” - How are you planning to raise awareness to these principles among your employees, and what activities do you have planned? - We have a series of activities planned in 2017 aimed towards implementing Women’s Empowerment Principles. A number of them are aimed towards raising awareness in employees and their participation in the process. A number of them are also aimed towards the outer audience, in order to raise relevance towards the subject. The maternity leave is a good example; it is something mostly women use, without an alternative really being considered. We at GEPRA oﬀer the men working with us, if they so desire, to take advantage of maternity leave. The trainings plan for 2017 has been updated with certain new matters of gender equality and human rights, in order to organize basic healthcare education and safety standards, work-life balance, prevention of stress, and flexible working hours. To create a complaint mechanism for employees in case of abuse of human rights and labor rights (discrimination, sexual harassment, etc.) and communicate it with staﬀ. Additionally, along with other member of the project, in 2017 we’re planning an information campaign that will aim to promote and include more women in engineering and various other field which are stereotypically perceived as a man’s job.
December 26, 2016 #175