Caucasus Business Week #189 by Caucasian Business Week

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April 24, 2017 #189

April 24, 2017, Issue 189 - www.cbw.ge

Agro Business Threats and Advantages of Ban on Land Sales Pg. 11

Banking Sector Preferential Business Sectors for Commercial Banks

Sako Tsotsoria: Successful Company Brings Benefits to Society

Pg. 6

Pg. 8

Economic Freedom (Act): Do We Need It or Not?

Crisis Deepens in Book Business

The so-called “Economic Freedom Act” (EFA), which has been a matter of public discussion in recent weeks, refers to two pieces of legislation: (i) a Constitutional amendment from 2010, which requires a referendum for introducing new taxes or increasing the tax rate, and (ii) the Law on Economic Freedom (2011), in force since 2013, setting a number of additional restrictions to government fiscal policy. Several economists have criticized this legislation as limiting the government’s ability to utilize fiscal policy effectively. Some of the center-left MPs from the ruling party have actively endorsed this idea, proposing the revocation of the legislation. Other government officials, however, affirmed the that EFA, which does limit the discretionary power of the government to add new taxes and to expand the public budget, is consistent with the current government’s vision for economic development and therefore does not need to be modified. Pg. 9

Agro-insurance must step-by-step move fully to commercial basis For the last few years, the state has been implementing several important projects in the field of agriculture. In 2017, the budget of the Ministry of Agriculture has decreased compared to previous years. However, there are projects that still continue. One of them is the project of Agro –Insurance.

Pg. 7

The state’s participation in the agroinsurance program from the current year will be 70% for all crops, but as for the vine it will be -50%. If the farmer has not registered the land, the size of subsidy increases by 10 %. It should be noted that, initially the agro –insurance program was oﬀering farmers harvest subsidizing from 70 to 95 %. Legal and physical entities who are the owners, users or have in actual ownership not less than 5 ha of plot, including agricultural land, can participate in the agro-insurance program. The exception is the wheat and the beneficiary will be able to participate in the program if it owns no more than 30 hectares of wheat. Pg. 11

2 GOVERNMENT

NEWSROOM Germany Allocates 125 mln EUR Credit to Georgia for Electricity Network Development The program calls for developing transmission line infrastructure in Guria Region and implementing the first phase of the so-called North Chain, which calls for integration of hydro power plants.

Georgia To Spend 10 Billion on Infrastructural Projects Almost 10 billion GEL will be spent on infrastructural projects in the next 3-4 years, and it is a very important process in our country’s physical transformation.

ECONOMY

Index of Production Prices of Industrial Products Declined by 1.4% in March Over the past year, production of processing industry products rose in value by 8.6%, including food products and tobacco production value increased by 7.8%.

National Tourism Administration Launches Campaign with TripAdvisor Georgia’s advertising campaign on Tripadvisor will cover ten countries – Germany, Poland, Italy, Sweden, Denmark, Ukraine, Russia, Israel and Turkey.

BANKING

Proﬁt Increased to Banking Sector by 131 Percent As of April 1, 16 banks have a profit merely one bank has a loss –Turkish Isbank. Total profit is 258 million GEL (Q1/2016 – 17 out of 19 banks had a total profit of 111.5 million).

TBC Bank and SOCAR is Offering Joint Card to Start-Uppers Leading companies, operating on Georgian market, oﬀered “Start-up – Energy” card to the beginner businessmen, who have applied TBC Bank’s program “Start-Uppers”.

BUSINESS

Airports of Georgia See 43.6% Q1 Trafﬁc Surge Passenger traﬃc through the airports of Georgia surged 43,6% year-on-year in the first quarter of 2017 to 621,800, Business Georgia portal cites the national civil aviation authority as saying.

Georgia’s Dependence on Imports of Meat is Growing Imports have increased - in 2010-2015 meat imports increased by 184%, chicken - by 100%. Impored meat comes mainly from the Emirates, Brazil, Ukraine, Argentina, the USA, Belgium, India.

COMPANY

BAT Sues Georgia’s Parliament in Constitutional Court Namely, the company asserts that paragraph 2 of article 5 of Georgian Law on Tobacco Control is unconstitutional as it bans sales of tobacco products under cost in Georgia.

April 24, 2017 #189

Tehran Eyes Creation of Transport Corridor Between Persian Gulf, Black Sea

he creation of a transport corridor between the Persian Gulf and the Black Sea will promote greater rapprochement of people, Iranian Foreign Minister Mohammad Javad Zarif, who is on an oﬃcial visit to Georgia, told journalists in Tbilisi on April 18. “Georgia, Iran, Azerbaijan and Armenia must necessarily participate in the creation of such a corridor,” the Iranian minister said after meeting with his Georgian counterpart Mikhail Janelidze, Georgia Online reported. He also underlined the importance of his visit to Georgia and pointed out the cultural and historical relations between Tbilisi and Tehran. “We have strong, centuries-old ties. Iranians have long been living in Georgia, and Georgians – in Iran. Today, compared to a few years earlier, the number of our students studying in Georgia has increased five-fold, and this contributes to the growth of contacts between our people,” Zarif said.

At the meeting with his Georgian counterpart, the prospects for expanding cooperation between the two countries in the fields of transit traﬃc, industrial production, simplification of banking transactions, science, and cooperation in international organizations in dealing with regional issues were discussed, according to Iranian minister. “We are looking forward to Prime Minister Giorgi Kvirikashvili’s visit to Iran in the coming days, which will be a historic event,” Zarif said. On April 18, Zarif had a meeting with Georgia’s Minister of Economy and Sustainable Development Giorgi Gakharia aimed at expansion of cooperation between the two countries. The meeting discussed various areas of cooperation, including the sphere of trade and transit, banking and financial sectors. During the talks, the importance of expanding economic cooperation between the two countries was also stressed. About 30 businessmen and representatives of Iranian enterpris-

es accompany Zarif on the trip. Within the framework of the visit, the Georgian-Iranian business forum was held, where about 100 companies from both countries were represented. Georgia is seeking to attract more investments from Iran and has informed foreign investors about opportunities oﬀered by the country’s business-friendly environment. During the visit, Iranian Foreign Minister is expected to meet with Prime Minister Giorgi Kvirikashvili and President Giorgi Margvelashvili. The trip is taking place on the eve of the 25th anniversary of Georgia’s independence, as well as the 25th anniversary of the establishment of political relations between Iran and Georgia. Trade volume between Georgia and Iran increased by 50 percent during the first two months of 2017. The number of Iranian investments increased by 90 percent in Georgia last year due to the country’s favorable business and investment environment.

OPIC Significantly Increases Investment Limit of Georgia

n “independent” U.S. Government agency The Overseas Private Investment Corporation (OPIC) increases investment limit in Georgia. Georgian Finance Minister Dimitri Kumsishvili and Dev Jagadesan, Acting President and CEO for OPIC have discussed the issue within the frame of a business trip to the USA. The parties have considered issues of bilateral cooperation, including ongoing projects in Georgia funded by the support of OPIC and financing opportunities of the potential projects. “We had a very important meeting at the “independent” U.S. Government agency. This organization supports development of our country from 1995. However, investment of more than 500 million USD is implemented through this period. Today the

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organization adopted essential decision – they are significantly increasing country’s investment limit. We are glad that the United States will be able to make new, bigger investments in our country”, – said Dimitri Kumsishvili, First Deputy Prime Minister and Minister of Finance. “We have a very fruitful cooperation with Georgia. We have significant success in expanding our business and making investments in your country. The United States Government Investment Corporation sees great opportunities in the development of your country and is willing to invest more in the future. We plan to increase our portfolio significantly and take specific steps to make more American investments in your country. United States Government Investment Corporation will continue active cooperation with the Government of Geor-

gia”, – Dev Jagadesan, Acting President and CEO for OPIC declared. Kumsishvili expressed his gratitude towards U.S. Government agency and President of OPIC for the support – including the financial sector, tourism, healthcare, agriculture, education, industry, real estate, energy, small and medium enterprise development. Among the projects funded by independent” U.S. Government agency include: American Hospital in Tbilisi ($ 18 million); GMT Hotels chain ($ 29 million); “Wendy” restaurants throughout Georgia (18.9 million USD); JSC Bank of Georgia – credit line of 30 million USD for small and medium businesses. The meeting was attended by Zurab Alavidze, the Minister of Regional Development and Infrastructure and Nikoloz Gagua, Deputy Finance Minister.

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

April 24, 2017 #189

PUBLICITY

ECONO-MIX

Monetary Fund Narrows Economic Growth Forecast from 5.2% to 3.5% for 2017

Kakha Kaladze Deputy Prime Minister and Energy Minister of Georgia

Transit Projects Add Great Value to the Country’s Energy Security

Underground Gas Storage Project in Georgia The planned Underground Gas Storage (UGS) is first of all considered as a strategic infrastructure, supporting improvement of energy security of Georgia and providing guaranteed supply of consumers with natural gas in any possible critical situation. The UGS volume shall also be allocated to commercial purposes if considered that withdrawal patterns respect strategic storage needs. A detailed feasibility study for the evaluation of the establishment of the UGS at Samgori South Dome depleted field was performed by Geostock in 20152016 following a call for tender launched by GOGC in January 2015 (Phase 1). The conducted feasibility study confirms technical possibility to construct underground gas storage and also provides terms for its commercial appropriateness. With current approved schedule and strategy, in order to achieve an operational injection start-up of the underground storage in 2021, the construction tender procedure needs to be launched in following few months. Georgian side is ready for considerations and cooperation with SOCAR in frame of the project. Privatization of Georgian Oil and Gas Corporation The issue of privatization of Georgian Oil and Gas Corporation JSC was in consideration earlier, however no specific decisions have been made. As well as, no particular possible interest of Azerbaijan’s state oil company SOCAR was discussed within the context. Azerbaijan-Georgia-Romania Interconnector (AGRI) project Transit projects add great value to the country’s political significance and energy security of the region. Georgia continues to actively support the development of diﬀerent projects enabling an alternative transportation corridor for the Western markets, such as AGRI and the projects within the TransCaspian transport route. Georgia is a participant of AGRI project. Georgian Oil and Gas Corporation JSC is assigned as a shareholder of AGRI LNG Project Company, which is a special purpose vehicle incorporated by the project participants. In April 2015, shareholders of AGRI LNG Project Company approved the AGRI project feasibility study prepared by UK-based Penspen LTD. It is planned to start preparation to apply for PCI (projects of common interest) status. Trans-Caspian International Transport Route As it was mentioned, transit projects are important for the country and the region. Georgia is a crucial transit country for the Caspian oil and gas resources to reach the EU market and is very much interested in larger transit volumes for strategic and security purposes as well as for a long-term economic development. Therefore, we especially welcome the development of plans of Azerbaijan and Kazakhstan, as well as Turkmenistan in connection with the Trans-Caspian International Transport Route’s implementation, which may ensure creation of an additional oil and gas resource base from Central Asia for the Southern Gas Corridor projects.

Merab Janiashvili Economic Analyst

According to information of International Monetary Fund, in 2017 global economy rose by 3.5%, economy of developed countries increased by 2%, while economy of developing countries rose by 4.5%.

nternational Monetary Fund (IMF) has decreased Georgia’s economic growth forecast for 2017 from 5.2% to 3.5%. IMF updated economic growth indicators for its member countries in the previous week. According to the updated forecasts, Georgia’s economic growth may record 3.5% in 2017. Under the IMF prognosis, real inflation will exceed the 4% target indicator set by National Bank of Georgia (NBG) because of national currency depreciation in previous years, high commodity prices and growth in excise tax rate. Inflation level will equal to target indicator in 2018. Hardly predictable developments in regional and global economies will make influence on Georgian economy. According to information of International Monetary Fund, in 2017 global economy rose by 3.5%, economy of developed countries increased by 2%, while economy of developing countries rose by 4.5%. With 2.7% economic growth pace in 2016, Georgia ranked 98th among world countries, while according to the 2016 prognosis, the country ranks 75th with 3.5% growth pace. In 2016 the highest economic growth pace was recorded in Nauru (10.4%) and Iraq (10.1%), while the most negative indicators were recorded in Venezuela (-18%) and South Sudan (-13.8%). 3.8% plunge was seen in Azerbaijani economy and 0.2% contraction was seen in Russian economy. According to IMF forecast, in 2017 the highest economic growth will be recorded in Libya (53.7%), Myanmar (7.5%) and Ethiopia (7.5%). The major contraction will be seen in Venezuela (-7.4%). Russian economy will grow by 1.4% and economy of Ukraine will rise by 2%. According to IMF information, in

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Cooperation between Azerbaijan and Georgia on gas supply The Georgian side welcomes participation of Azerbaijan’s state oil company SOCAR in the energy sector of the country. In particular, on the basis of the memorandum signed with the Georgian government and the mutually beneficial agreements concluded with the Georgian Oil and Gas Corporation, SOCAR ensures guaranteed, continuous and reliable gas supply to the social sector – households and power generation facilities, which is a factor significantly contributing to increasing the energy security of the country. With SOCAR and Shah Deniz field (and South Caucasus Pipeline), Azerbaijan almost fully satisfies total gas consumption of Georgia. Current possible daily volume of gas supply is about 11.2 million cubic meters from these two sources, which is expected to get some increase for the fourth quarter of 2017.

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Trend.az publishes an exclusive interview with Kakha Kaladze, Deputy Prime Minister and Energy Minister of Georgia, where he talks about key issues regarding energy security and transit projects, however interview emphasizes mainly on the importance of Georgia-Azerbaijan energy relationship. Transit projects add great value to the country’s political significance and energy security of the region. Georgia continues to actively support the development of diﬀerent projects enabling an alternative transportation corridor for the Western markets

April 24, 2017 #189

2016 the highest economic growth paces were registered in the following countries: 1. Nauru – 10.4%; 2. Iraq – 10.1%; 3. Ethiopia – 8.0% 4. Uzbekistan – 7.8%; 5. Côte d’Ivoire – 7.5%; 6. Iceland- 7.2%; 7. Cambodia – 7.0%; 8. Laos – 6.9%; 9. Bangladesh – 6.9%; 10. Tajikistan – 6.9%; It should be noted that International Monetary Fund (IMF) frequently corrects economic growth forecasts and sometimes, this institution makes erroneous forecasts too. For example, in 2016 Georgian economy was to grow by 3.4%, according to IMF prognosis, while according to the report by Geostat, national statistics service of Georgia, our economic growth marked 2.7%. In 2017 Georgian government forecasts 4% economic growth. It should be noted that Georgian Government also makes mistakes in forecasts, like IMF. Over the past 3 years, Georgian economy has showed lower indicators compared to the initial plans. According to Geostat information, GDP real growth pace in February 2017 made up 4.4% year on year, while January-February averaged real growth marked 4.8%. In January, GDP upturn constituted 5.2%. The fact is that January-February 2017 recorded pleasant tendencies for the Government and this tendency suggests that economic growth could reach 4% at the end of 2017. Thus, we should wait to see which forecast will justify. Georgian Government forecasts 4% upturn in 2017, while International Monetary Fund predicts a little bit pessimistic 3.5% upturn.

“Our Goal is to Show Investors Georgia’s Business Opportunities and Environment Created in the Country. This program allows us to open a completely new page in our country’s life, to give the entrepreneurs as well as start-up businesses an opportunity to expand, innovative-minded young people to enjoy the state program and set new trends in the economy.”

Giorgi Kvirikashvili Prime Minister

April 24, 2017 #189

BANKING SECTOR

April 24, 2017 #189

Larization Policy Makes Interest Rates more Expensive

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Preferential Business Sectors for Commercial Banks Bank sector is of crucial importance for economic and financial stability of the country. Commercial banks represent functional mediators between those saving money and borrowers. Owners of excessive money resources oﬀer their resources to financial mediators, while the latter chain oﬀers these money resources to potential investors. Various physical and legal entities need money resources. In case of business loans, we can say that every loan creates more benefits. As a result, depositors receive yields, banks receive commission fees, investors receive money to draw more financial resources by investing money taken from banks. If a financial mediator is ejected from this scheme, both moneyowners and borrowers will bear losses. Naturally, banking sector creates wealth for the society in Georgia, but it is interesting which sectors and why commercial banks credit more. If we analyze loans issued by commercial banks since 2003, we will see that commercial banks have issued 35 billion GEL loans in national currency and 48 billion GEL in foreign currency. Ratio of GEL-denominated loans due to sectors is as follows: commerce – 35%, financial mediation – 26%, industry – 17%, housing sector – 8%. As to foreign currency denominated loans, the situation is the following: commerce – 46%, industry – 22%, housing sector – 8%. Ratio of the latter three sectors accounts for 76% and this is a huge ratio. We see that in Georgia of the 21st century, commercial banks credit commerce sector, most of all, as well as industry and housing sectors. As to financial mediation, this sector occupies a small ratio in foreign currency. This situation has not changed in practice since 2003. Commercial banks, like all other businesses, are oriented on profits – they strive for connecting the above-mentioned two types of society to receive maximal profits. Consequently, it is entirely logical to escape risks and issue loans to less-risky businesses. The mentioned 76% of three main sectors signify that commercial banks cannot take risks of crediting hardly foreseeable businesses. That’s why access to financial resources is limited for a number of fields. Namely, undeveloped business sector has less access to finances and at the same time, those businesses with a less access to financial resources, cannot be developed in due manner. As a result, we receive a certain closed chain, however, problem has deeper routes, in reality. The fact is that a considerable part of business sector has limited access to financial resources.

Commercial banks have been long complaining about higher risks compared to European banks. However, bad loans portfolio shows that the amount of bad loans does not exceed 2% and it does not exceed the level of bad loans in European banks. Consequently, enslaving interest rates cannot be justiﬁed by high risks. In reality, similar interest rates have absolutely different reasons. First of all, high interest rates are caused by a lack of market competition. Today we have duopoly situation on the market, when, in practice, two huge commercial banks control the whole market and the general picture is very heavy, despite there are other market players too.

“

When talking about the exchange rate volatility, we should remember how much this ﬂuctuation was, when tariffs were corrected. We do not have similar ﬂuctuations currently. Therefore, it would not be correct to make accents on this issue.

According to the February indicators of National Bank of Georgia (NBG), interest rate on GEL-denominated loans rose by 2.8% to 20.9%, including 11.9% GELdenominated loans are available for legal entities, while physical bodies have to pay 24% interest rate for GEL-denominated loans. It should be noted the rise of GEL-denominated loans in value was preceded by Government’s Larization initiative. Under this initiative, loans of about 100 000 GEL are issued only in national currency. This signifies that consumers’ option was restricted and they can take loans of about 100 000 GEL only in national currency. Meanwhile, interest rate of foreign currency denominated loans decreased by 0.3%. This signifies that more expensive GEL-denominated loan is an only option for bank clients. Businessmen have already expressed discontent with loans risen in value. Businessman Tsezar Chocheli says that high interest rates set by commercial banks frustrate business process and many important projects. “Production of ceramics, concentrates and aethereal oils was suspended. Interest rates are very high and production cannot withstand them”, Tsezar Chocheli said. Vakhtang Khomizurashvili, expert of investments, also talks about high interest rates. Current interest rates have led business sector to a blind alley, he said. “If borrowers use loans for buying fixed assets, naturally, this will aggravate situation in business sector, because commercial banks demand guarantees, first of all. As to interest rates, despite commercial banks set grace periods, clients have to pay interest rates in any case. Interest rates impose heavy burden on any business, especially in agriculture sector, because this sector requires preferential conditions. This sector comprises high risks and it takes a long time to receive profits. Consequently, this business requires individual approaches. In general, any country pays special attention to agriculture sector. As to importers, this factor will make less eﬀect on them, because they have a short-period cycle. The general picture shows that today the business sector has come to blind alley, in practice”, Khomizurashvili said. The expert has also talked about problem solution ways and pointed out that development of securities market is one of the best ways in this respect. “In this case, everything is aﬃxed to currency exchange rate. National Bank should first make currency exchange mechanism more transparent. The current system should be completely replaced. Currency exchange hedging mechanism should be introduced so as companies be able to insure currency exchange rate. The country should care for upgrading investment and corporate culture and education. Business should

be launched not by bank loans, but partnership capital. Seeking of alternative sources of investments is also very important issue. I mean securities market. If companies start issuing securities and attracting investment resources from abroad, naturally, demand for loans will decline and banks will have to lower interest rates”, Khomizurashvili said. Bank sector expert Gocha Tutberidze said that business may be developed under any interest rate. “Naturally, low interest rates are acceptable for business, but this also comprises certain risks. We dream about low interest rates, but there are high risks in Georgia – including political, economic, macroeconomic and so on. That’s why interest rates cannot be lowered. If we try to set very low interest rates, this regime will not be continued for a long period, because an inflow of foreign investments will decline and money resources will become deficient. I understand the position of businessmen, but there are certain circumstances that we cannot avoid, regretfully. As to business development, it may be developed under any interest rate. Development pace is another issue. Interest rates reflect the level of risks in the country. Therefore, high interest rates signify there are high risks in the country”, Tutberidze noted. AYFB vice president Paata Bairakhtari says the above-mentioned arguments are unacceptable and he makes focus on oligopoly situation in banking sector. “Commercial banks have been long complaining about higher risks compared to European banks. However, bad loans portfolio shows that the amount of bad loans does not exceed 2% and it does not exceed the level of bad loans in European banks. Consequently, enslaving interest rates cannot be justified by high risks. In reality, similar interest rates have absolutely diﬀerent reasons. First of all, high interest rates are caused by a lack of market competition. Today we have duopoly situation on the market, when, in practice, two huge commercial banks control the whole market and the general picture is very heavy, despite there are other market players too. On the other hand, commercial banks represent an only source of attracting financial resources. As to increased interest rates, this is directly related to Larization component. Namely, commercial banks are obliged to issue loans of about 100 000 GEL only in national currency. In reality, small business and physical bodies have faced the situation, when they can take loans only in national currency and commercial banks have made a use of this situation and promptly increased interest rates. This signifies small business has no alternative option. It should be also noted that interest rates on foreign currency denominated loans were lowered in parallel regime”, Bairakhtari said.

April 24, 2017 #189

BOOK BUSINESS

We do not have money to print them. Consequently, this factor makes negative affect on the market. We also lack for new books because of economic problems.

CRISIS DEEPENS IN BOOK BUSINESS Bookstores are closed because of financial problems. Representatives of several bookstores say that the crisis deepens in the sector over the past 2 years. There is heavy situation in the sector, in general, they said. Mariam Kikacheishvili, head of Books in Vake store, talks about diﬃcult financial situation in the sector. Sales indicators have considerably decreased compared to the previous year and there are several reasons: economic situation in Georgia and reduction of solvency of our citizens. As a result, Georgian citizens do not have money to buy books and they prefer to buy essentials, Kikacheishvili noted. As to the second reason, books have risen in value because of GEL devaluation. Publish-

ing houses have to pay higher imports tariﬀs and this factor directly hikes the prime cost of books, she pointed out. Problems deepen, because publishing houses have been ejected from printing school textbooks. As a result, they are facing financial problems and publishing houses are less interested in printing fictions, Kikacheishvili said. Biblus network applies dumping prices on the market and sells books at very low tariﬀs, giveaway price. “I do not know what resources they use to sell fictions for 2-3 GEL. Other bookstores are in minority. They should be protected by law, but there is not due legislation in Georgia”, Kikacheishvili said. Biblus is the market leader and leads other

7 bookstores to bankruptcy, she added. As to the growing demand for electronic books, Kikacheishvili noted that ratio of similar books on the market is very small. Moreover, activation of electronic books cannot narrow the market, because printed books have their readers, she said. “Everybody has realized in the world that replacement of printed books by electronic books will destruct major industries. Therefore, they provide much support to printed books. Even more so, there are many readers in Georgia”, Kikacheishvili said. As to the most in-demand field of literature, Kikacheishvili said that books for children and foreign-language literature are in great demand. As to business literature, Georgia lacks for these books. The company conveys this literature that are published in English and Russian, but Georgian readers are less interested in them, Kikacheishvili noted. Giorgi Darsalia, head of Parnasi store, noted that over the past 2 years number of clients decreased. Books became cheaper and this factor makes negative effect on market development. Consequently, low-quality books are printed and other stores also face problems. GEL depreciation has affected various sectors, but Biblus feels responsibility before the country to make the books and reading affordable and attainable in any point of Georgia. Therefore, we are trying to cope with all problems and improve the quality, Biblus representatives said. Despite the market realities, Biblus expands the network. Two new branches will open in the near future (Tbilisi and region), he said. As to prices in the network, 90% of books have fixed prices. Biblus is trying to permanently offer books to readers as part of campaigns and tariffs are discounted as part of these campaigns, Biblus representatives said. Several months ago Tamar Lebanidze, head of Diogene publishing house, talked about 40% reduction in number of clients, as well as about growing financial problems. Today, Diogene representatives confirm that there is heavy situation in Diogene. People prefer to buy essentials and they do not have enough money to buy books, she said. There are several reasons behind a plunge in sales, Tamar Lebanidze noted several months ago. General economic background and subjective factors have brought this reality, she said. “We do not have enough quantity of long-sellers and bestsellers to increase sales. We do not have money to print them. Consequently, this factor makes negative affect on the market. We also lack for new books because of economic problems. Consequently, sales have plunged because of lack of new books”, Lebanidze noted. As to expected influence of electronic books, Lebanidze explained that, according to the 2015 indicators, sales of electronic books decreased on English-language market too, while this segment was a leading niche on the market. “Development of electronic books and growth in their market ratio was mostly recorded on English-language market. Certain reduction was recorded in 2016. Therefore, sales of printed books increased. Thus, electronic books will not have considerable influence”, Lebanidze said. A little different situation is reported at Santa Esperansa bookstore. The company explains that in previous years the book business was in crisis, but now sales have increased. Our marketing activities have preconditioned upturn in sales. Fiction literature is the most indemand segment currently, they explained.

PR PERSON

April 24, 2017 #189

Successful Company Brings Benefits to Society Sako Tsotsoria, PR and Marketing Manager for Radisson BLU Tbilisi and Radisson BLU Batumi hotels in her interview with CBW talked about her path to success, peculiarities of public relations in Georgia and most importantly she stressed the importance of social responsibility, which is mutually beneficial for business and for the society. The reason of this is to show example that applying CSR is just redefining aspects of what you’re already doing; it needn’t be exotic or costly. Instead, start small and gain momentum.

- What is your profession? - I am specialist of Public Relations. I have also graduated from journalism faculty. - Your first job place. - I remember my first job place very well. My lecturer Ekaterine Togonidze oﬀered me to work in a magazine. I was a second-year student and I was very happy and surprised that she chose me among so many students. - Current job and position. - Currently I am PR and marketing manager at Radisson BLU Tbilisi and Radisson BLU Batumi. - Your first success. - I believe I have chosen a right profession and this is my first success. - Business, project that you take pride in even today. - I am proud of all projects implemented jointly with Radisson BLU as part of social responsibility activities, including environment protection project, charity campaign for orphan children, growth in perception of breast cancer, woman in leadership project and so on. - Field, where you would never work in. - Never say never. At the same time, I would feel very bad at the job, where I would not be able to create something new. - What makes a person successful in your field? - In general, I believe a person should choose a right profession, because if you love your business very much, consequently, you want to know and learn more and you remain in development process permanently. Therefore, self-determination and hardworking is required, besides knowledge. - Is it possible today in Georgia to study PR on valuable level, or international knowledge and experience is necessary?

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PR shapes general image and attitude toward company and this is not determined by one company or media coverage or frequent placement of advertisements. I think similar mistakes are made frequently in Georgia.

- In my student years this field lacked for due literature. We had to search information in internet and translate it. Naturally, we have made advancements in this respect and Georgian universities provide valuable courses to students. At the same time, practical skills are as important as theoretical knowledge and foreign experience is necessary component in this respect. - Is PR perceived and understood in Georgia in its classical form? - PR shapes general image and attitude toward company and this is not determined by one company or media coverage or frequent placement of advertisements. I think similar mistakes are made frequently in Georgia. A company should follow specific strategy and goals when planning PR campaigns. - How easily can you settle crisis situations and take decisions? Do you think similar cases worsen working process quality? - Management of crisis situations is not a simple business and it requires quite profound knowledge and practice. Naturally, the more experience you have in this field, the more cases you have passed and, therefore, in the course of time, you cope with crisis situations easier. It is also important how well a person analyzes general situations, because right decisions depend on this analysis. As to me, it would be more expedient that my employer company talk about this. - Interesting episode from your life (business) that has changed your life. -I would name my working period at Radisson BLU Iveria hotel, because working with a global brand has brought diﬀerent experience to me. Besides local issues, I also work on foreign markets and this is very interesting and important experience. - If not this profession, which field

would you work in? - Last period I am interested in gastronomy. I also want to make music… And it is not necessary to change my profession to take eﬀorts in these two fields. Just more time is required and I know I can do this. As to job, I would be rather defender of women rights. - What about your personal strong features? - Devotion to my business and hardworking, without which I would not be able to attain desirable goals. - What benefits do you receive from your employer company? What factors make it interesting for you? - I think I have answered this question partly. I would add that, besides residential apartments, Radisson BLU hotel also includes 2 world level restaurants, bars and spa services and these factors make our working process more interesting. Working on six diﬀerent brands shapes various skills in me. I believe a company should be appraised as successful when it brings benefits for society. Intense involvement of Radisson BLU in social responsibility project is the value that is of crucial importance for me. I think my project – Woman in Leadership is especially interesting project. It calls for creation of equal working environment and structure for women and men. - What makes major comfort in working process? - A lack of team spirit, involvement of unnecessary people in working process and conservative thought. At the same time, little discomforts cannot hamper our working process to make business due to my priorities. - Where do you see yourself after 20 years? - I think and I hope to have my own favorite business that I will be devoted entirely to.

April 24, 2017 #189

ECONOMY

Economic Freedom (Act):

Do We Need It or Not? LEVAN PAVLENISHVILI and NORBERTO PIGNATTI

www.iset-pi.ge The so-called “Economic Freedom Act” (EFA), which has been a matter of public discussion in recent weeks, refers to two pieces of legislation: (i) a Constitutional amendment from 2010, which requires a referendum for introducing new taxes or increasing the tax rate, and (ii) the Law on Economic Freedom (2011), in force since 2013, setting a number of additional restrictions to government fiscal policy. Several economists have criticized this legislation as limiting the government’s ability to utilize fiscal policy effectively. Some of the center-left MPs from the ruling party have actively endorsed this idea, proposing the revocation of the legislation. Other government officials, however, affirmed the that EFA, which does limit the discretionary power of the government to add new taxes and to expand the public budget, is consistent with the current government’s vision for economic development and therefore does not need to be modified. Given the importance of this piece of Georgian economic legislation, in this article we will discuss in greater depth the merits of both positions, looking separately at its two most relevant consequences: • the inability of the government to introduce new taxes (or to increase the existing ones) • the constraints it poses to expansionary fiscal policies.

NO NEW OR HIGHER TAXES? Requiring a referendum to introduce new taxes can be problematic if it prevents the government from introducing new (specific) taxes to align the incentives of market players with those of the society (as in the case of negative externalities). Given the limited number of taxes allowed by Georgian legislation and the way in which they are defined, there is a real possibility that the EFA could prevent the introduction of potentially useful economic instruments (such as a tax per unit on pollutants released in the air or discharged in a river) or, at least, delay their introduction and add a nonnegligible element of unpredictability to the legislative process. Even the modification of existing taxes to fit emerging needs, whenever possible, could theoretically be challenged as “introduction of a new tax.” What is more concerning – to those that oppose the EFA– is that the final decision about the legitimacy of the instrument used would not depend on whether its introduction led to a net gain or a net loss for the society but, rather, on a court’s interpretation as to whether the instrument constitutes a “new tax,” or not, potentially preventing even the introduction of a welfare (and efficiency) enhancing instrument. Similar concerns can be raised also with respect to situations in which, facing an exogenous revenue shortfall in the state budget, the government finds itself in the impossible position of being unable to raise taxes (or indebt itself, something we will discuss below) and must adopt sub-optimal choices (such as cutting crucial investment expenditures), with potentially negative long-term effects on the economy. Does this need to be the case? Not necessarily. The EFA does not prohibit the introduction of new taxes or the increase of the existing taxes tout court. It “just” conditions the adoption of such initiatives to the approval of the Georgian population. While there is a justified concern that the population would instinctively oppose tax increases (or the introduction of new taxes) and favor the reduction of taxation, there is some evidence to the contrary coming from the experiences of other countries (e.g. the approval of a sales tax increase and of a property tax increase in the USA and the rejection of a proposed tax cut in Switzerland). Voters can (and do) vote to increase taxes and to reject tax cuts when a sufficiently strong case is made. Ultimately, having a rule such as the EFA could even be beneficial if it forced the government to have a good case for requiring the introduction of new taxes or an increase in existing ones. Finally, the fact that the EFA allows the government to temporarily increase taxes for up to 3 years without referendum gives some additional leeway to government action, limiting potentially negative impacts. WHAT ABOUT GOVERNMENT SPENDING? The other critical aspect of the Economic Freedom Act concerns the rigid limits imposed on the government concerning some parameters such as the share of government expenditures, budget deficit and public debt over GDP. As we mentioned, the rationale of such constraints would be to limit the potential burden on the economy associated with a hypertrophic government. However, as those opposing the current legislation remind us, these very rigid constraints might prove counterproductive in exceptional circumstances, limit-

ing the capacity of the government to act in a countercyclical way. They have a point. In situations characterized by a prolonged underutilization of factors of production (such as capital and labor), an increase in public expenditure can play an important role in accelerating a recovery and preventing painful (and wasteful) stagnation. The excessive rigidity of the Euro Convergence Criteria (also known as the Maastricht Criteria), for example, are being criticized by an increasing number of economists around the world as lacking economic meaning and as being among the main causes for the poor macroeconomic performance and the increasing social tensions within the Euro Area. It is interesting to note how two out of the three macroeconomic indicators included in the Law on Economic Freedom coincide with the Maastricht criteria (namely, the 3 percent limit for the budget deficit/GDP ratio and the 60 percent limit for the debt/ GDP ratio). Another interesting observation is that the Euro Convergence Criteria do not mention any maximum limit to public expenditure (as share of GDP). Indeed, there is no generalized consensus in the economic profession about the relationship between the size of government and development of a country. The reason is simply illustrated by an analysis of Table 2. For example, Ireland and Switzerland, which have a share of government expenditure to GDP similar to Georgia, are among the top ten countries in terms of the Human Development Index (a broader measure of economic development, compared to GDP), exactly like Denmark and Norway, whose share of government expenditure to GDP is more than 20 percentage points higher. All this seems to indicate the absence of a clear, univocal relationship between government size and development Also in this case, however, things are not as dramatic as they may seem at first sight. The EFA does leave some flexibility to the government to exceed the values set in the law, requiring in exchange the definition of a plan to “reabsorb” the excesses over a two-year period. CONCLUSION To summarize, while the Economic Freedom Act does not currently prevent the government from conducting an active fiscal policy, it does constrain its capacity to conduct it. On the positive side, this maintains a simple and transparent tax system, reduces the risk of the government overreacting to temporary fluctuations of the economy, and conditions the introduction of new taxes and any increase in existing ones to the scrutiny of the population, encouraging a more thorough analysis of the expected impacts of public expenditures. On the negative side, however, it creates obstacles to the introduction new (potentially welfare enhancing) tax instruments, it may limit the possibility of the government to act in a decisive manner to tackle deep and prolonged recessions, and it may prevent the government from investing significant resources in the development of the country (financing its expenditure by issuing debt). Overall, whether the benefits of this legislation will exceed its costs will depend on the challenges faced by Georgia, and on the pragmatism and flexibility shown by both the Georgian government and Georgian society. Rules can be useful, but one should always keep in mind that they are a means towards a goal, not the goal itself.

BUSINESS

April 24, 2017 #189

Kakhetian Traditional Winemaking Allocates 2 Million GEL in Gurjaani Hotel Kakhetian Traditional Winemaking will build a hotel in Gurjaani, Akhasheni. The head of the company, Zurab Chkhaidze declared to Business Contract that the hotel will have 35 rooms and investment cost will amount to 2 million GEL. According to Zurab Chkhaidze, the construction of the hotel will be launched in the near future and it will last for 10-12 months. It willl be very unique because it will have landscape of vineyards and Caucasian mountains. The hotel will be available during 4 seasons. The head of Kakhetian Traditional Winemaking declares that there will be guides and tour operators who will oﬀer guests diﬀerent directions.

HOTEL

BANK

PASHA Bank plants 1000 oak trees

This year again PASHA Bank congratulated its partners and clients on Easter in a special way: on behalf of its associates the Bank planted 1,000 Georgian Oak (Quercus Iberica) and Imeretian Oak (Quercus Imeretina) trees, the latter of which is in the Red List of threatened

species of plants. The seedlings were planted in Imereti region and fully covered one of the areas in Ajameti Managed Reserve that rehabilitation processes are carried out. Together with Treepex and PASHA Bank the representatives of the Agency of Protected Areas of Georgia

NEWS

STARTUP

Public Registry Records 5 071 New Business Entities According to National Agency of Public Registry (NAPR), a total of 5 071 business companies were registered in March 2017, including 95% of them are commercial entities (individual entrepreneurs, limited liability companies, branches of foreign companies, joint stock companies and so on). Ratio of noncommercial enterprises made up 4.6%. Month on month growth in March made up 24.4%, while year on year upturn marked 3.3%. Number of commercial entities rose by 24% month on month, while number of noncommercial enterprises increased by 33.9%.

Georgia To Export Unique Wine Tea Project “Wine Tea” became the winner of the government program “Startup-Georgia”, Hvino News reported. This 100% natural powder product, obtained as result of processing of wine, was invented 25 years ago by a Georgian pharmacist professor Irakli Natroshvili. The founder of the startup Giorgi Bukia learned about this product from his lecturer, son of Irakli Natroshvili. “The uniqueness of tea is that there are no analogues in the world market.The tea contains all the useful substances of wine, and at the same time protects the consumer from the harmful influence of alcohol. It can be consumed by young children, the elderly, all those who are not drink alcohol for various reason,” says Giorgi Bukia.

and local schoolchildren also joined the planting process. “At PASHA Bank we pay considerable attention to corporate social responsibility and we have carried out a number of charity and social activities in Georgia. This year we have decided to mostly focus on environmental friendly projects and get our clients and partners involved as well. Together with Treepex we are happy to have another opportunity to contribute to the rehabilitation program and make a good deed,” – said Anano Korkia, Head of PR and Marketing at PASHA Bank. “We highly appreciate PASHA Bank’s initiative to

Blush Handmade PursesAnother Georgian Startup Blush handmade purses is a new startup which was founded by two friends Lela Shaburishvili and Salome Lomidze. In the interview with Caucasus Business Week, founders revealed more details about their startup and the story behind it. Tell us about yourself, how did you come up with an idea to create the brand, who are the founders and etc. Brand was created by us, two friends Lela Shaburishvili and Salome Lomidze. We are interior designers and quite established in this field and we came up with an idea during our trip. We started working on the brand as soon as we came back to Tbilisi. Where do you create the production and how many people work in this field? In the beginning, we sewed ourselves but soon we hired a tailor who is very good at what she does. A month ago, we added another one. Currently, we are only 4 people working for the brand. How did public react to the appearance of your brand and who is your target group? People reacted to the appearance of our brand very positively and our customers are basically young girls and boys. However, I think people of any age can wear our purses. What is the current situation in Georgia in terms of supporting startups and what are the obstacles you have to overcome? Recently, I have seen many new companies which promote and support startups however, we didn’t participate in any event yet. There is quite big competition at the accessories and clothes market. How do you position your brand and what is necessary for the success? We are trying not to copy anything from others. We are creating models which we like ourselves and would wear them. We focus on quality as well. We think for a long time about the new model, its shape, colour and little details. In the beginning, we sew the first model few times and after that, we provide our customers with the final result.

participate in the rehabilitation of Ajameti Managed Reserve. It is a part of 10-year plan according to which the Imeretian Oak and Zelkova trees will be re-planted here. We hope that the Bank will continue its “green activities” and give a good example to other companies as well.”- Said Toma Dekanoidze, acting Head of Planning and Development Service at the Agency of Protected Areas. In terms of its “green projects” PASHA Bank planted 2017 Georgian Pine Trees near Borjomi, where 260 hectares of forest got burnt down in August 2008. The Bank plans to fulfill even more eco projects in future.

New 100-bed Hotel to Open in Omalo, Tusheti Levan Sulakauri, founder of Nabadi hotel, told Eugeorgia.info that this is an only big hotel in Tusheti. Nabadi Hotel will occupy a special niche contrary to local guesthouses. The hotel will make focus on high-quality services and maintain traditional-ethnographic style. “They rent 2-3bed suites. One bed is rented for 25 GEL. Meals cost about 50-60 GEL, while in our hotel the price of a two-bed hotel will be 120 GEL jointly with meals”, Levan Sulakauri said. The project value is about 500-600 thousand GEL. Tusheti has become a very popular destination among travelers and there will be no problem in terms of profitability, he added. “Our family started tourism business in 1993. We used to transport foreign guests to Tusheti and established contacts with Italian, Swiss and German tourism agencies. We also provide Camping. Today we do not need tourism agencies, because there is much demand and tourists contact us themselves. According to information of Tusheti Preserved Territories, in 2015 the location was visited by 8.5 thousand tourists, in 2016- 13 000 tourists and if even 900 of them stay at our hotel, the business will work valuably”, Levan Sulakauri noted. “Construction of guesthouses should be intensified. Many local residents have applied to Ministry of Economy for preferential loans for hotel industry. Ten villages of Tusheti have been included in space arrangement program of Government of Georgia. Therefore, we expect tourism business to strengthen in Tusheti. There are also plans for building a new motor road”, Lado Kakhoidze, representative of the Governor in Tusheti administration, noted. Eugeorgia.info has also learned that businessman Lasha Papashvili is also building a big modern hotel in Omalo. Construction of both hotels are expected to end in autumn 2017.

April 24, 2017 #189

he state’s participation in the agro- insurance program from the current year will be 70% for all crops, but as for the vine it will be -50%. If the farmer has not registered the land, the size of subsidy increases by 10 %. It should be noted that, initially the agro –insurance program was oﬀering farmers harvest subsidizing from 70 to 95 %. Legal and physical entities who are the owners, users or have in actual ownership not less than 5 ha of plot, including agricultural land, can participate in the agroinsurance program. The exception is the wheat and the beneficiary will be able to participate in the program if it owns no more than 30 hectares of wheat. As well as any beneficiary who is the owner of 100 or 200 hectares of land and who insure 5 he of plot, will get co-financing from the state. This year 7 million Gel was allocated from the budget for the new program of agro –insurance, which is less for 3 million Gel than the last year’s financing. The state program of agroinsurance has started in 2014 and it has been undergoing for 3 years already. The aim of the project is the development of insurance market in Agro sector, supporting agriculture activities, maintenance of income of people who are engaged in these activities and reducing risks. The interested beneficiaries are able to get insurance policy in 4 insurance companies. Interested beneficiaries will be able to purchase insurance policies in 4 insurance companies operating in Georgia: • Aldagi • JPI Holding • IC Group

AGRO BUSINESS

• Ardi group Within the program the policy will cover the following insurance risks: • Hail • Flood • Storm • Autumn frost (only for citrus crops) the period from the 1st of September to 30th of November. It should be emphasized that in 2014-2016, within the agro-insurance program there was issued 47,485 policies; the insured area amounts 39,138 ha; totally there was insured harvest of 326,842,630 GEL; the state has subsidized 22,051,912 GEL from the amount which the farmers had to pay for the insurance service. During the 2 years the compensation has amounted to 19 million GEL. In 2014 the pilot program of agro-insurance had 21 thousand beneficiaries. In 2016, the above mentioned program was using 16 thousand people. Despite the fact that in 2016, far fewer people used agro-insurance than it was in 2014, it should be mentioned that the number of beneficiaries in 2016 compared to 2015 have been doubled. In general the farmers’ attitude towards the results of the project was unmatched. Some of them are satisfied, and some are disappointed. The reasons for their dissatisfaction are the several factors: -The farmers are not fully informed about the present project, correspondingly when the fact of loss appears, only after that they get the information about the project details and it often leads to the conflict situation. The state has taken some steps concerning the issue of providing the farmers with information regard-

ing agro-insurance and it has already got result. In 2016, the number of people who used the agro –insurance has been doubled, than it was in 2015. However, in this direction there is still much to do. - Assessment of loss is not made by a common method by all insurance companies, accordingly in this direction the dissatisfaction is frequent, because people who are affected in one zone, are compensated in various percentages by different companies. -In general we think that the agro-insurance has to move This year 7 million Gel was allocated from the budget for the new program of agro –insurance, which is less for 3 million Gel than the last year’s financing. The state program of agro-insurance has started in 2014 and it has been undergoing for 3 years already. The aim of the project is the development of insurance market in Agro sector, supporting agriculture activities, maintenance of income of people who are engaged in these activities and reducing risks.

step by step fully to commercial basis and this might become more attractive for the insurance companies. The state should not pay to peasant or farmer for lack of knowledge, although we have to reach to such result. The way out and the only way to achieve this aim, is the import of modern technologies and knowledge in Georgia, in order to make our agriculture beneficial and to produce more product in one unit area. All these will definitely bring the result. The state will not spend money in the agroinsurance program and it will be beneficial sphere for the insurance companies. Consequently, the tariﬀs of these companies will fall down and the farmers will benefit from the agro insurance product.

BFM.GE

Threats and Advantages of Ban on Land Sales

embers of the constitutional commission cannot reach agreement on sales of agriculture land plots to foreign citizens. We remind you that there are several initiatives proposed by Georgian Dream, Democratic Movement and Alliance of Patriots. Under their bills, transmission of agriculture land plots to foreign citizens and bodies without Georgian citizenship in ownership must be banned. There are various opinions in Georgian political circles concerning sales of lands. A part of politicians thinks that it is categorically unacceptable to sell Georgian agriculture land plots to foreigners, while another part finds nothing hazardous in similar deals. Countries with a resource of agriculture land plots always raise special interest. All developed countries with a resource of agriculture land plots have set a strict control over sales of lands. There are two approaches in the world regarding this issue: 1) governments completely restrict sales of agriculture land plots to foreign citizens. For example, Lithuania, where the organic law has banned sales of agriculture land plots. According to another position, governments set conditions that must be satisfied by foreign citizens wishing to buy agriculture land plots. For example, in Austria, sales of landsto foreign citizens is regulated by separate land laws and special licenses. «Sales of agriculture land plots does not concern constitutional sphere. Land Code should regulate all these aspects. It is inadmissible to sell agricultural land plots in indefinite spaces. Agriculture land plots should be sold for necessary public needs and strategic interests of the country. Nowhere in the world lands are sold for attracting investments, because this is inadmissible and restricted. Developed countries and major international research centers know very well that similar foreign investments annihilate medium, poor and small farmers», Paata Koghuashvili, expert in agriculture issues, noted. First of all, we should restore legal status to villages and transform them into territorial units. Involvement of communities in rural development is of crucial importance. Preferential rights for purchase of lands is one of the priorities for agriculture cooperatives and the main thing is Government of Georgia should move to a program financing component, Koghuashvili said. As to sales of lands to foreigners, we are obliged to admit this through the Code, because Constitutional Court of Georgia has taken a decision that is unjustified and no country has adopted similar decision ever. In practice, Constitutional Court of Georgia has forged Organic Law of Georgia as if it obliges the Court to legalize sales of lands to foreigners. «If foreign citizens buy lands, they should be used for agriculture purposes to grow products

that will fully correspond to social-economic development of Georgia and food safety interests of Georgia. Organic Law of a high-developed democratic country directly reads that it is absolutely unacceptable and restricted to trust land issues to indefinite games of free forces and separate individuals», Paata Koghuashvili noted. Otar Khupenia, president of Social Equality Center told the Banks&Finances newspaper that the land does not belong to only one generation and it is inadmissible to sell it at unreasonably low tariffs. «We should have established valuable market institutions to ensure reasonable sales of our agriculture lands. Since we have no exchange, it is impossible to sell agriculture lands. Despite all these aspects, we cannot avoid sales of agriculture land plots amid free economy, but we should be based on experience that is practiced worldwide. There are many countries that practice strictest regulations around agriculture land plots», Otar Khupenia said. Giorgi Gakharia has also made comments over sales of lands to foreign citizens. He asserts that sales of land plots should not be banned by organic law. At the same time, he noted that the mentioned issue should be regulated to a certain degree. «Our position is that land, as a key asset, must be maximally used efficiently in economic activities. All of us know very well that there are various approaches: a little bit strict, more liberal, left-wing, rightwing and so on. We want that land plots be efficiently used in economy. Even amid restrictions, there were certain instruments and the Government had discretion to issue permits to foreign owners in case of economic expediency. I believe this process will be continued», Gakharia said. Beka Natsvlishvili, secretary of parliament faction of Georgian Dream – Social-Democrats, states that under constitutional amendments, restrictions will be introduced on sales of land to foreign citizens: «I believe lands should not be sold to foreigners. Only exceptional cases may be permitted, when it is unreasonable to refuse huge benefits, based on state interests. In all other cases, naturally, sales of lands to foreigners is inadmissible, because our citizens have not fully employed potential of our land resources. We have to perform serious job in agriculture sector». I do not know the final version of the constitutional bill, but I know the pathos of this issue, Natsvlishvili said. «According to my information, the bill admits possibility of land sales in exceptional cases, but similar exceptional cases will be limited considerably», Natsvlishvili noted. We remind you that meetings as part of the third phase will be held in constitutional commission in the midst of this month. In this period the commission will submit a bill of amendments to the State Organic Law.

PUBLICITY

April 24, 2017 #189

WORLD NEWS

April 24, 2017 #189

Quotes

“ A goal Energy cooperation is developing intensively, Russia is the largest supplier of natural gas to Armenia, Russian gas accounts for 100% of Armenian gas consumption.

without a plan Taxation of firms with investments is just a wish in foreign countries according to the

”

Antoine de SaintExupéry

Power, Potential of New Silk SOCAR building new Road Lies in its Versatility

he power and potential of the Belt and Road — aka the New Silk Road — lies in its versatility, wrote Wade Shepard in his article published by Forbes. This emerging network of revitalized transportation routes and new trading hubs which stretch between China and Europe finds eﬃciency, security, and healthy competition in the fact that it is not a single route but a network of multiple, interconnected trans-Eurasian corridors, says the article. Like in the days of the ancient Silk Road, if one corridor goes down due to a change in government, war, an economic upheaval, or a spat over tariﬀs, cargo can simply be shipped to similar destinations via alternative routes — like a river flowing around a boulder, noted the author. “Eurasia, the continental landmass that contains both Europe and Asia, is rapidly being drawn into a single massive market covering upwards of 65 percent of the population, 75 percent of energy resources, and 40 percent of GDP in the world, and it is revolutionized rail routes that are the strings tying it all together,” said Shepard in his article. “There are currently three operational rail corridors that physically connect China and Europe. The northern one goes mainly through Russia, and for the most part follows the route of the Trans-Siberian Express,” says the article. “The central route goes all the way across Kazakhstan before linking into the northern route in the west of Russia. While the southern route goes through Kazakhstan to Aktau and either crosses the Caspian Sea by ferry or goes around to Iran before

going through Azerbaijan, Georgia, and Turkey. Along each corridor the transport time is in the ballpark of 10.5 to 16 days.” While the north and central overland routes of the New Silk Road are currently booming, the southern one is just now becoming established, said Shepard adding that major initiatives, like the commissioning of the first UK to China direct cargo train last week, the creation of new Silk Way Logistics, a joint venture between three of Europe’s largest freight forwarders, and the Kazakh multimodal company KTZ Express setting up operations in Europe, show that accessing China by rail is becoming increasingly attractive to Western companies. “As demand for the services on the Southern rail corridor continues to grow, the authorities in Lianyungang and Chengdu are looking to introduce scheduled services into Istanbul in the coming months. Once in place, these scheduled services will enable greater flow of goods along the corridor and spur China-Europe trade,” said Steve Huang, the CEO of China operations for DHL, the German freight forwarding giant who is one of the core companies that are blazing trails along the New Silk Road, according to the article. Pushing forward regular service on the southern rail corridor is the soon to be launched Baku-Tbilisi-Kars (BTK) rail line, which will directly link the port of Baku in Azerbaijan with Turkey, says the article. “The Baku–Tbilisi–Kars railway is expected to be completed in 2017. Once it’s operational, transportation from China to Turkey will be faster and more cost eﬀective,” Huang continued.

Carry Traders Pile Record $2.8 Billion Into Russian Bonds

oreign investors lured by interest rates among the highest in emerging markets poured 159 billion rubles ($2.8 billion) into Russia’s localcurrency debt in March, the most on record. Most of the inflow came in the second half of the month after the U.S. Federal Reserve laid out an unexpectedly dovish rate-hike outlook, Russia’s central bank said in a report on Wednesday. The strong demand means there’s little risk of substantial ruble weakening, even after the currency’s 8.7 percent surge this year, it said. The Fed’s tone reignited the so-called carry trade for investors who borrow where interest rates are low to invest in high-yielding currencies. Demand for the bonds, also known as OFZs, hasn’t abated in April and the Finance Ministry sold all 39.5 billion rubles of 2019 and 2033 notes tendered on Wednesday as investors bid for more

than three times the securities on oﬀer. Bid-to-cover ratios in the auctions were “unexpectedly high,” said Richard Segal, a London-based analyst at Manulife Asset Management. The central bank’s statement is “a good hint that foreign investors drove much of the auction demand,” he said. While public finances have stabilized with a rebound in oil prices, Russia is increasing domestic borrowing more than fourfold from last year as it cuts back on using its sovereign wealth funds to finance the budget shortfall and looks to balance the books by 2020. The inflows are a sign investors trust the government’s policies, Finance Minister Anton Siluanov said in Moscow on Thursday. Russia’s benchmark February 2027 ruble bond climbed for a second day on Thursday, trimming the yield to 7.89 percent. That was three basis points oﬀ a more than three-year low reached on April 6, data compiled by Bloomberg show.

respective tax jurisdictions where they operate is a principal subject in this regard

Foreign corporations in Turkey must file taxes

offshore oil platform Azerbaijan’s state oil company SOCAR is building a new fixed platform #10 at the Western Absheron offshore field, SOCAR said in a message Apr. 19. The platform is designed for drilling 10 production wells, according to the message. “The platform will be installed on nine bearing units at a depth of 13.5 meters,” reads the message. It is planned to daily produce 1,2001,500 tons of oil from the offshore platform, the total area of which will be 3,480 square meters, the message said. The Western Absheron field is on the balance of SOCAR’s Absheronneft Oil & Gas Extraction Management. SOCARAQS carries out drilling operations at the field on the basis of the agreement. SOCAR produced 1.85 million tons of oil from offshore and onshore fields in January-March 2017 as compared to 1.9 million tons in the same period of 2016.

Armenia makes first step towards creating free economic zone on border with Iran Armenian minister of economic development and investments Suren Karayan and the director of the Syunik Free Economic Zone Yervand Ghukasyan have signed today an agreement regulating the operation of the Free Economic Zone (FEZ) to be created on the border with Iran. The document regulates all the issues concerning the establishment of the free economic zone, creation of relevant infrastructure, setting service tariﬀs and attraction of investments and companies. Sarkis Aghabekyan, Chairman of the Board of the Syunik Free Economic Zone, told journalists that the free economic zone will enable to significantly increase the volume of trade between the Eurasian Economic Union and Iran. According to him, the cost of products to be produced in FEZ will be lower by approximately 25%, which is significant from the view point of competitiveness. The establishment of the free economic zone in the southern Armenian Meghri, near the border with Iran is estimated to cost $32 million, of which $28 million are capital expenditure. The free economic zone is said to create 2,500 new jobs and increase Armenian exports by 30%. According to the government, the main purpose of the free economic zone is to help boost trade and economic relations with Iran and other countries of the region, help the development of the southern Armenian province of Syunik, as well as position Armenia as a link between Iran and members of the Eurasian Economic Union (EEU) and Georgia.

he pace of growth and development in the Turkish economy and its foreign trade implications over the last decade, coupled with the deepening interconnectedness of markets across the globe and the interdependence of national economies - both those in geographical proximity to each other and those in distant continents - has brought topics related to direct and indirect foreign investment to the top of the agenda. Taxation of firms with investments in foreign countries according to the respective tax jurisdictions where they operate is a principal subject in this regard. Historically all income generating entities be it local lor foreign, individuals or corporations alike, have been subjected to tax provisions according to their tax-statute in Turkey. In other words, individuals and corporations, before being designated as taxpayers by the tax authorities, are classified either within the context of full tax liability or limited tax liability. Foreign corporations with investments in Turkey are deemed limited-liable taxpayers and are subjected to taxation on their income elements derived in Turkey by the provisions of the relevant tax laws, provided that they neither have legal headquarters or a center of transactions established in Turkey. Income elements derived by foreign corporations on their activities carried out in Turkey that are liable to taxation according to the principles of limited tax liability are articulated one by one in the Turkish Corporate Tax Law (TCTL) as the following: -Income derived from commercial and agricultural activities, -Income derived from the rental of real estates and rights and returns on stocks and bonds, -Income derived from conducting independent professional activities, -Other income and earnings derived from activities specified by the law. Foreign corporations with a limited tax liability are expected to declare their aggregate income elements through filing diﬀerent tax returns depending on their type of income and their activities.

the concerned income elements. Normally, the tax return regarding income elements derived from commercial and agricultural activities during the course of a specific year should be submitted between April 1-25 of the following year. And the payable tax calculated and assessed on behalf and account of managers or representatives of foreign corporations is paid at the end of the same month. But upon the recent calls from business circles demanding the Government to grant extra time for filing tax returns, the deadline of both annual tax return submission and the payment of calculated tax was extended to May 2, 2017 for the income and revenues of 2016. Foreign corporations stopping their activities in Turkey altogether are also held responsible for filing a final tax return declaring all income derived from their commercial and agricultural activities carried out between the beginning of the accounting period(be it the calendar year or a special period) and the date of departure. That tax return shall be submitted within 15 days before the departure and the tax amount calculated is paid within the same period.

Annual tax return Similar to domestic corporations with full tax liability, foreign corporations file an annual tax return depicting all their revenue elements generated from their commercial and agricultural activities and operations conducted in the course of the calendar year. This particular tax return is submitted to the tax oﬃce of the district in which their branch or permanent representative is located. In the absence of such a branch or permanent representative, the tax return is filed with the tax oﬃce of the business partners who provide

Tax withholding On the assumption that foreign corporations do not have any commercial and agricultural activities in Turkey (with all their revenues derived from the disposal of intangible rights such as copyrights, royalties, franchises, patents, company names, trademarks etc.), they are taxed by the buyers of these rights, who are held responsible by Article 30 of TCTL, to withhold 15 percent of the revenue paid to foreign corporations on behalf of the tax authority. Filing a tax return displaying these income elements is voluntary.

Special tax return On the other hand, those foreign corporations that have merely “other income and earnings” derived from the disposal of movable and immovable capital elements or profit-generating incidental activities (specified between articles 80-82 of Personal Income Tax Law) have the legal obligation to file the so-called “special tax return” that encompasses only cited income elements. Since there is no specific taxation period such as accounting period or calendar year for the declaration of the incomes cited above, special tax returns shall be filed with the concerned tax office within 15 days from the date of the disposal of capital elements or fulfillment of the incidental activity. The tax office with the authority to receive these types of tax returns varies according to nature of the income element. The payable tax computed and finally assessed by the relevant tax office shall be paid within the filing period.

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April 24, 2017 #189

Embassy United States of America Embassy 11 Balanchivadze St., Dighomi Dstr., Tbilisi Tel: 27-70-00, 53-23-34 E-mail: tbilisivisa@state.gov; askconsultbilisi@state.gov United Kingdom of Great Britain and Northern Ireland Embassy 51 Krtsanisi Str., Tbilisi, Tel: 227-47-47 E-mail: british.embassy.tbilisi@fco.gov.uk Republic of France Embassy 49, Krtsanisi Str. Tbilisi, Tel: 272 14 90 E-mail: ambafrance@access.sanet.ge Web-site: www.ambafrance-ge.org Federal Republic of Germany Embassy 20 Telavi St. Tbilisi Tel: 44 73 00, Fax: 44 73 64 Italian RepublicEmbassy 3a Chitadze St, Tbilisi, Tel: 299-64-18, 292-14-62, 292-18-54 E-mail: embassy.tbilisi@esteri.it Republic of Estonia Embassy 4 Likhauri St., Tbilisi, Tel: 236-51-40 E-mail: tbilisisaatkond@mfa.ee Republic of Lithuania Embassy 25 Tengiz Abuladze St, Tbilisi Tel: 291-29-33 E-mail: amb.ge@urm.lt Republic of Latvia Embassy 16 Akhmeta Str., Avlabari, 0144 Tbilisi. E-mail: embassy.georgia@mfa.gov.lv Greece Republic Embassy 37. Tabidze St. Tbilisi Tel: 91 49 70, 91 49 71, 91 49 72 Czech RepublicEmbassy 37 Chavchavadze St. Tbilisi ;Tel: 291-67-40/41/42 E-mail: czechembassy@gol.ge Web-sait: www.mzv.cz Japan Embassy 7 Krtsanisi St. Tbilisi Tel: +995 32 2 75 21 11, Fax: +995 32 2 75 21 20 Kingdom of Sweden Embassy 15 Kipshidze St. Tbilisi Tel: +995 32 2 55 03 20 , Fax: +995 32 2 22 48 90 Kingdom of the Netherlands Embassy 20 Telavi St. Tbilisi Tel: 27 62 00, Fax: 27 62 32 People’s Republic of China Embassy 52 Barnov St. Tbilisi Tel: 225-22-86, 225-21-75, 225-26-70 E-mail: zhangling@access.sanet.ge Republic of Bulgaria Embassy 15 Gorgasali Exit, 0105 Tbilisi, Georgia Tel: +995 32 291 01 94; +995 32 291 01 95 Fax: +99 532 291 02 70 Republic of Hungary Embassy 83 Lvovi Street, Tbilisi Tel: 39 90 08; E-mail: hunembtbs@gmail.com State of Israel Embassy 61 Agmashenebeli Ave. Tbilisi Tel: 95 17 09, 94 27 05 Embassy of Swiss Confederation’s Russian Federation Interests Section Embassy 51 Chavchavadze Av., Tbilisi Tel: 291-26-45, 291-24-06, 225-28-03 E-mail: RussianEmbassy@Caucasus.net Ukraine Embassy 76-g Chavchavadze Ave., Tbilisi Tel: 231-11-61, 231-14-54 E-mail: emb_ge@mfa.gov.ua Consular Agency: 71, Melikishvili St., Batumi Tel: (8-88-222) 3-16-00/ 3-14-78 Republic of Turkey Embassy 35 Chavchavadze Ave., Tbilisi Tel: 225-20-72/73/74/76 embassy.tbilisi@mfa.gov.tr Consulate General in Batumi 9 Ninoshvili Street, Batumi Tel: 422 25 58 00 consulate.batumi@mfa.gov.tr Republic of Azerbaijan Embassy Kipshidze II-bl . N1., Tbilisi Tel: 225-26-39, 225-35-26/27/28 E-mail: tbilisi@mission.mfa.gov.az Address: Dumbadze str. 14, Batumi Tel: 222-7-67-00; Fax: 222-7-34-43 Republic of Armenia Embassy 4 Tetelashvili St. Tbilisi Tel: 95-94-43, 95-17-23, 95-44-08 E-mail: armemb@caucasus.net Web: www.armenianembassy.ge Consulate General, Batumi Address: Batumi, Gogebashvili str. 32, Apt. 16 Kingdom of Spain Embassy Rustaveli Ave. 24, I ﬂoor, Tbilisi Tel: 230-54-64 E-mail: emb.tiﬂis@maec.esRomania Embassy

TBILISI GUIDE 7 Kushitashvili St., Tbilisi Tel: 38-53-10; 25-00-98/97 E-mail: ambasada@caucasus.net Republic of Poland Embassy 19 Brothers Zubalashvili St., Tbilisi Tel: 292-03-98 Email:tbilisi.amb.sekretariat@msz.gov.pl Web-site: www.tbilisi.polemb.net Republic of Iraq Embassy Kobuleti str. 16, Tbilisi Tel: 291 35 96; 229 07 93 E-mail: iraqiageoemb@yahoo.com Federative Republic of Brazil Embassy Chanturia street 6/2, Tbilisi Tel.: +995-32-293-2419 Fax.: +995-32-293-2416 Islamic Republic of Iran Embassy 80, I.Chavchavadze St. Tbilisi, Tel: 291-36-56, 291-36-58, 291-36-59, 291-36-60; Fax: 291-36-28 E-mail: iranemb@geo.net.ge United Nations Ofﬁce Address: 9 Eristavi St. Tbilisi Tel: 225-11-26/28, 225-11-29/31 Fax: 225-02-71/72 E-mail: registry.geo@undp.org Web-site: www.undp.org International Monetary Fund Ofﬁce Address : 4 Freedom Sq., GMT Plaza, Tbilisi Tel: 292-04-32/33/34 E-mail: kdanelia@imf.org Web-site: www.imf.ge Asian Development Bank Georgian Resident Mission Address: 1, G. Tabidze Street

Freedom Square 0114 Tbilisi, Georgia Tel: +995 32 225 06 19 E-mail: adbgrm@adb.org; Web-site: www.adb.org World Bank Office Address : 5a Chavchavadze Av., lane-I, Tbilisi, Georgia ; Tel: 291-30-96, 291-26-89/59 Web-site: www.worldbank.org.ge Regional Office of European Bank for Reconstruction and Development Address: 6 Marjanishvili St. Tbilisi Tel: 244 74 00, 292 05 13, 292 05 14 Web-site: www.ebrd.com Representation of the Council of Europe in Georgia Address : 26 Br. Kakabadze, Tbilisi Tel: 995 32 291 38 70/71/72/73 Fax: 995 32 291 38 74 Web-site: www.coe.ge Embassy of the Slovak Republic Address: Chancery: 85 Irakli Abashidze St. Tbilisi, 0162 Georgia Consular Office: 38 Nino Chkheidze St. Tbilisi, 0102 Georgia Phone: 2 222 4437, 2 296 1913 e-mail: emb.tbilisi@mzv.sk

Hotels in Georgia TBILISI MARRIOTT Tbilisi , 13 Rustaveli Ave. Tel: 77 92 00, www.marriott.com COURTYARD MARRIOTT Tbilisi , 4 Freedom Sq. Tel: 77 91 00 www.marriott.com RADISSON BLU HOTEL, TBILISI Rose Revolution Square 1 0108, Tbilisi Tel: +995 32 402200 radissonblu.com/hotel-tbilisi RADISSON BLU HOTEL, BATUMI Ninoshvili Str. 1, 6000 Bat’umi, Georgia Tel: 8 422255555 http://radissonblu.com/hotel-batumi SHERATON METECHI PALACE Tbilisi , 20 Telavi St. Tel: 77 20 20, www.starwoodhotels.com SHERATON BATUMI 28 Rustaveli Street • Batumi Tel: (995)(422) 229000 www.sheratonbatumi.com HOLIDAY INN TBILISI Business hotel Addr: 1, 26 May Square Tel: +995 32 230 00 99 E-mail: info@hi-tbilisi.com Website: http://www.hi-tbilisi.com BETSY’S HOTEL With Marvellous Tbilisi Views Addr: 32/34 Makashvili St. Tbilisi Tel: +995 32 293 14 04; +995 32 292 39 96 Fax: +995 32 99 93 11 E-mail: info@betsyshotel.com Website: http://www.betsyshotel.com

Restaurants CORNER HOUSE Tbilisi, I. Chavchavadze ave. 10, Tel: 0322 47 00 49; Email: contact@cornerhouse.ge RESTAURANT BARAKONI Restaurant with healthy food. Georgian-European Cuisine Agmashenebeli Alley 13th Phone: 555 77 33 77 www.barakoni.com CHARDIN 12 Tbilisi , 12 Chardin St. , Tel: 92 32 38 CAFE 78 Best of the East and the West Lado Asatiani 33, SOLOLAKI 032 2305785; 574736290 BREAD HOUSE Tbilisi , 7 Gorgasali St. , Tel: 30 30 30 BUFETTI - ITALIAN RESTAURANT Tbilisi , 31 I. Abashidze St. , Tel: 22 49 61 DZVELI SAKHLI Tbilisi , 3 Right embankment , Tel: 92 34 97, 36 53 65, Fax: 98 27 81 IN THE SHADOW OF METEKHI Tbilisi , 29a Tsamebuli Ave. , Tel: 77 93 83, Fax: 77 93 83 SAKURA - JAPANESE RESTAURANT Tbilisi , 29 I. Abashidze St. , Tel: 29 31 08, Fax: 29 31 08 SIANGAN - CHINESE RESTAURANT Tbilisi , 41 Peking St , Tel: 37 96 88 VERA STEAK HOUSE Tbilisi , 37a Kostava St , Tel: 98 37 67 BELLE DE JOUR 29 I. Abashidze str, Tbilisi; Tel: (+995 32) 230 30 30 VONG 31 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 BRASSERIE L’EXPRESS 14 Chardin str, Tbilisi Tel: (+995 32) 230 30 30 TWO SIDE PARTY CLUB 7 Bambis Rigi, Tbilisi Tel: (+995 32) 230 30 30

SH. RUSTAVELI STATE THEATRE Tbilisi. 17 Rustaveli Ave. Tel: 93 65 83, Fax: 99 63 73 TBILISI STATE MARIONETTE THEATRE Tbilisi. 26 Shavteli St. Tel: 98 65 89, Fax: 98 65 89 Z. PALIASHVILI TBILISI STATE THEATRE OF OPERA AND BALLET Tbilisi. 25 Rustaveli Ave. Tel: 98 32 49, Fax: 98 32 50

Galleries ART GALLERY LINE Tbilisi. 44 Leselidze St. BAIA GALLERY Tbilisi. 10 Chardin St. Tel: 75 45 10 GALLERY Tbilisi. 12 Erekle II St. Tel: 93 12 89

Real Estate International Real Estate Company (IREC) Tbilisi. 9 P. Aslanidi St. Tel: +995 32 238 058 Mob: 599 95 76 71 Email: Info@irec.ge www.irec.ge

GSS Car rental offers a convenient service for those who are interested in renting car in Georgia. Rental ﬂeet mainly consist of Japanese made SUV’s, the company has various models of cars including sedans and minivans which are in good technical condition. Contact information: Email: info@gsservices.ge. Address: Shalva Dadiani 10

Cinemas AKHMETELI Tbilisi. “Akhmeteli” Subway Station Tel: 58 66 69 AMIRANI Tbilisi. 36 Kostava St. Tel: 99 99 55, RUSTAVELI Tbilisi. 5 Rustaveli Ave. Tel: 92 03 57, 92 02 85, SAKARTVELO Tbilisi. 2/9 Guramishvili Ave. Tel: 8 322308080,

LIMELIGHTTRAVELINFOCENTER Address: 13 Sioni Street, 0105, Tbilisi (at the end of Shardeni Street) Phone: +995 322 999 123 E-mail: info@limelight.ge Web-page: www.limelight.ge Facebook page: www.facebook.com/limelight.ge

Theatres A. GRIBOEDOV RUSSIAN STATE DRAMA THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 93 58 11, Fax: 93 31 15 INDEPENDENT THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 98 58 21, Fax: 93 31 15 K. MARJANISHVILI STATE ACADEMIC THEATRE Tbilisi. 8 Marjanishvili St. Tel: 95 35 82, Fax: 95 40 01 M. TUMANISHVILI CINEMA ACTORS THEATRE Tbilisi. 164 Agmashenebeli Ave. Tel: 35 31 52, 34 28 99, Fax: 35 01 94 METEKHI – THEATRE OF GEORGIAN NATIONAL BALLET Tbilisi. 69 Balanchivadze St. Tel: (99) 20 22 10 MUSIC AND DRAMATIC STATE THEATRE Tbilisi. 182 Agmashenebeli Ave. Tel: 34 80 90, Fax: 34 80 90 NABADI - GEORGIAN FOLKLORE THEATRE Tbilisi. 19 Rustaveli Ave. Tel: 98 99 91 S. AKHMETELI STATE DRAMATIC THEATRE Tbilisi. 8 I. Vekua St. Tel: 62 59 73

THE BEST GEORGIAN HONEY OF CHESTNUTS,ACACIA AND LIME FLOWERS FROM THE VERY HART OF ADJARA MATCHAKHELA GORGE IN THE NETWORK OF GOODWILL, NIKORA AND SMART

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April 24, 2017 #189