Issue no: 1054/132
• JUNE 5 - 7, 2018
• PUBLISHED TWICE WEEKLY
ON FIGHTING FOR JUSTICE A summary of the latest Rustaveli Rally and promises made by the government
PRICE: GEL 2.50
In this week’s issue... Minister: Current Economic Growth is the Result of Implemented Reforms NEWS PAGE 2
When Football Meets Finance, Education Scores ISET PAGE 5
Photo by Nika Kavtaradze
Tobacco Control Alliance Calls for Smoking Ban in Casinos
Launch of 230 MW Gardabani Thermal Power Plant 2 Construction BUSINESS PAGE 6
Agara Sugar Factory Resumes Work after 7-Month Pause
BY THEA MORRISON
ollowing on from the regulations adopted prohibiting smoking in all enclosed buildings and public spaces, with some exceptions, on May 1, the Tobacco Control Alliance (TAC) has addressed the Parliament of Georgia with a legislative proposal for prohibition of cigarettes in casinos and cigars in cigar bars. The legislative proposal registered by the Alliance states that the exceptional norms of the Law on Tobacco Control significantly damage the process of the law implementation in the country. Continued on page 2
BUSINESS PAGE 10
May: Electricity Market Watch BUSINESS PAGE 11 Prepared for Georgia Today Business by
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JUNE 5 - 7, 2018
Tbilisi Metro Closed BY THEA MORRISON
he whole metro system is paralyzed in Tbilisi after the drivers and other staff went on strike- and some on hunger strike - on the evening of June 3. The employees demand a 45% salary increase and improved working conditions; however, Tbilisi Mayor, Kakha Kaladze announced that City Hall cannot afford to do so. “The strike of the metro workers is illegal and targeted against the interests of the population… A rise in salary is only possible if we increase the metro tariffs, abolish social benefits and suspend some infrastructural projects,” the Mayor stressed, adding the City Hall
will find a way to resume metro services quickly. On May 21, Tbilisi City Court made a decision which stated that metro workers could go on strike only during outof-office hours. The union of metro workers ‘Unity 2013’ claimed the decision of the court is the equivalent of a restriction of their right to express protest, as the strike itself means workers refusing to perform their duties as a form of protest. This is the third time Tbilisi City Court has ruled against the metro workers, highlighting that a strike during working hours would paralyze traffic in the capital. Union 2013 claims they will not obey the “unlawful” decision of the court and the strike will continue until their demands are met.
Photo: Georgia’s Finance Minister Mamuka Bakhtadze. Source: theceomagazine.com
Minister: Current Economic Growth is the Result of Implemented Reforms BY THEA MORRISON
amukaBakhtadze,Georgia’s Finance Minister, commented on the January-April statistics issued by the National Statistics Office of Georgia (Geostat), according to which the estimated real Gross Domestic Product (GDP) growth rate in April 2018 amounted to 6.5% and the average estimated real GDP growth for the first four months of 2018 equaled 5.5%. “The economic growth observed in April of the current year indicates that the reforms of the Government of Georgia are oriented to the growth of the country's economy,” the Minister stated.
Bakhtadze believes that the positive dynamics will be maintained throughout the year. “6.5% is really a good indicator but the figures for the first quarter were quite interesting too. Accordingly, we expect a similar trend to continue to the end of 2018,” he said, adding that the government will continue reforms focused on facilitating small and medium enterprises (SMEs). “For us, the government, high economic growth is very important…and we want the positive outcome to benefit each and every citizen,” he emphasized. Bakhtadze also spoke about the 2017 data provided by Geostat, according to which almost 22% of Georgia’s population is under the absolute poverty line. “One of the reasons for poverty today is that small and medium-sized enterprise share in our economy is small,” the
Finance Minister stressed. Bakhtadze believes that encouraging small and medium businesses with different methods is vital for the revival of the economy. “The main objective of the government's economic policy is the defeat of poverty and, in parallel, to increase the share of small and medium business in the whole economy,” he added. The average monthly income in Georgia was 1,016 GEL in 2017, while the average monthly salary was 1,069.1 GEL in the third quarter of 2017. In April 2018, the estimated real growth, compared to the same period of the previous year, was posted in the following activities: Other community, Social and personal service activities, Transport, Financial intermediation, Trade, Manufacturing and Real Estate.
President of Georgia: TANAP Project Will Help Ensure Energy Security in Europe BY DIMITRI DOLABERIDZE
urkish President Recep Tayyip Erdogan has invited President of Georgia, Giorgi Margvelashvili to open the project of the Transanatolian gas pipeline (TANAP) on June 13. “During a phone call, which was held at the initiative of the Turkish President, Recep Tayyip Erdogan congratulated Giorgi Margvelashvili on the 100th anniversary of Georgia's independence and invited him on June 13 to Eskishehir for the opening ceremony of the Transanatolian Natural Gas Pipeline project
TANAP.” – it stated on the Georgian President’s website. In the telephone conversation, Margvelashvili also noted that thanks to the TANAP project, gas from Azerbaijan will go to Turkey and then to the EU countries, which will “help the energy security of continental Europe.” He also highlighted the importance of Georgia's participation in this project. The TANAP project provides for the transportation of gas from the Azerbaijani Shah Deniz field to the GeorgianTurkish border then on to the western border of Turkey. Turkey will receive gas this year, and after the Trans-Adriatic gas pipeline (TAP) is completed, gas will be delivered to Europe from around the beginning of 2020.
Tobacco Control Alliance Calls for Smoking Ban in Casinos Continued from page 1 “After the smoking ban took effect in nearly all buildings from May 1, the rights of people employed in casinos and cigar bars are still being grossly violated. In comparison with other employees, they work in unequal conditions, in tobacco smoke, which harms their lives and health,” TAC stated. It added that the exceptional norms
promote gambling and the opening of new casinos and cigar bars. TAC says that since May 1, not even a single casino or bar has addressed the Ministry of Finance to obtain the special license necessary for continuing or starting work. Since May 1, the smoking of tobacco, including electronic cigarettes and Hookah, is prohibited in all enclosed areas, with the exception of houses,
psychiatric clinics, penitentiary facilities and casinos. Smoking is only permitted in designated areas in airports. Smoking of cigars is only allowed in cigar-bars where food products are not sold. In addition, a special license is necessary to open such a bar. Smoking is not allowed in any kind of public transport, with the exception of taxis and motor boats. Institutions will be fined GEL 500 for
violation of the rules, in case of repeated violation by GEL 1000, while offenders will be charged GEL 50, and in case of repeated violation, the fine will be doubled. Smoking in air, sea or land public transport also carries a penalty. The driver of the transport will be fined 500 GEL, and if repeated, this will be doubled. However, if an individual person
smokes on land public transport, the violator will be fined 100 GEL. As for the violation of rules in air or rail transport, the violator will be fined 50 GEL, which will be doubled in case of a repeat violation. The statistics say that 57% of men in Georgia are active smokers, while every year the number of smoker women is doubled. Every fourth underage in Georgia is said to be a tobacco consumer.
JUNE 5 - 7, 2018
The Teen Murder Case & Protests Summarized BY THE GT TEAM
he murder that led to the ongoing protests took place on December 1, near Tbilisi Public School 51, when a confrontation started among six teenagers. Two 16-year-old boys were brutally stabbed during the brawl, which caused the immediate death of one, with the second boy dying soon after in hospital. One of the suspected juveniles was arrested at the scene, while the other hid from police but surrendered soon after. A street protest started last Thursday after Tbilisi City Court announced the verdict in the case of the stabbing of the two teens in which the two minors detained for the murder were found guilty. The judge found one of the detainees guilty for the premeditated murder of one of the victims- Levan Dadunashvili, while another detainee was found guilty for the attempted murder of the second victim- Davit Saralidze. But the court was not able to say who in fact killed Saralidze. After the trial, the father of Davit, Zaza Saralidze, went to the Chief Prosecutor’s Office, asking for a “fair investigation.” Chief Prosecutor Irakli Shotadze resigned shortly before the protest rally began outside the old Parliament building on Rustaveli, ultimately seeing thousands gathering to demand “justice” and an overhaul of the justice system. The rally became even more political when Prime Minister Giorgi Kvirikashvili arrived on the scene to a deliver a message but was not permitted to speak, booed off by aggressive members of the crowd. Instead, he retired to the governmental administration to make his state-
ment live on TV. Kvirikashvili stated the investigation would be re-launched the next day and that the Minister of Internal Affairs, Giorgi Gakharia, would lead the process and periodically inform the public about the results. The PM added that Parliament had decided to set up an investigative group where the opposition would be represented as well as the majority, united in supervising the process. Of Chief Prosecutor Irakli Shotadze’s resignation, Kvirikashvili said he approved his decision to quit amid the doubts and questions regarding the case. According to Kvirikashvili, the process of selecting a new Chief Prosecutor will start as soon as possible. He emphasized that the opposition, NGOs and society would be involved in the selection process in order to eliminate any doubts regarding a new Prosecutor General. “I want to guarantee the deceased children’s parents and relatives that they will receive maximum information about the investigation,” Kvirikashvili said. “I take it as my personal responsibility to get results in this case. This is our response to the families of the victims and to political groups.” On June 1, the President of Georgia, Giorgi Margvelashvili, met personally with Zaza Saralidze to discuss the case, following the latter’s statement that the only politician he trusted to speak the truth was the President. After the meeting, Margvelashvili stated he would be sure to get involved in the process to reveal the truth while ensuring stability in the country. “My goal is to have a relationship with Zaza and other people who have this pain in their hearts, in order to ensure peace in the country,” he stated. “My only demand of the President was to hold all the people involved in my
Father of murdered teen addresses media. Photo by Amos Chappie/rferl.org
son’s murder responsible,” Zaza Saralidze said after the meeting. Monday June 4 saw the PM inviting the parents of the deceased teens to a special meeting to discuss the case. Saralidze, having repeatedly mentioned feeling “under pressure from the government” took with him other parents of deceased teens and his lawyer. Present were majority and opposition party members, justice body representatives, media and the family members and lawyers of the murdered teens. At the conclusion of the meeting, it was announced that the PM had once again promised to look into the cases. “All our demands must be studied and responded to,” said lawyer Mariam Kublashvili. Saralidze added that if their demands
are not met by June 10, they will hold large-scale rallies. “Our demand is unchanged: the offender should be punished. The Prime Minister has been given a reasonable term to act.” Human rights organizations the same day released a joint statement regarding the recent protests, labeling them “a clear indication of a crisis in the country.” “The majority of reforms declared by the government in the system of lawenforcement and the judiciary has proven to be pro-forma and these reforms have done nothing to eliminate the public’s sense of deep injustice and vulnerability,” the NGOS stated. “Recent highprofile cases have clearly shown the problem of excessive use of authority by law-enforcement, which has not been
followed by an effective investigation.” The NGOs made a list of proposals, saying it will help the government to find a way out of the current situation: 1. Ensure comprehensive and effective investigation and fair prosecution of the teenagers’ murder case, including abuse of power and possible instances of falsification in service by officials linked with the case; 2. The parliamentary commission should monitor not only the case of the teenagers but other similar cases as well, which contain signs of excessive use of power by the law enforcers; 3. Dismiss those officials who failed to ensure implementation of consistent, meaningful and effective reforms in the field of criminal law and justice; 4. To ensure broad involvement in the process of selection of the new Chief Prosecutor (since the Prosecutor General resigned amid the protests); 5. Renew works on the creation of an effective independent investigative mechanism that will not only investigate but also have the function to criminally prosecute crimes committed by the lawenforcement system. 6. Timely reform the justice system and launch a fundamental reform of the Prosecutor’s Office, the Interior Ministry and the State Security Service. The temporary parliamentary investigative commission to be set up in connection with the murder case will be headed by the representative of the parliamentary minority European Georgia, Vice Speaker Sergi Kapanadze, and of 17 seats, will see 9 members taken by European Georgia and the remainder taken by majority party members. The United National Movement has said it will not participate in the work of the commission. For the latest on this story, check out georgiatoday.ge
GEORGIA TODAY JUNE 5 - 7, 2018
THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS
The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.
When Football Meets Finance, Education Scores BLOG BY IRAKLI BARBAKADZE
Graph #1. The distribution of correct answers for the pre-test (number of respondents - 232)
he World Cup 2018 is getting close and football can already be felt in the air. The squads are almost finalized, new jersies are already on sale, and fan clubs are preparing venues to watch the games. These are all traditional preparation for the World Cup, but interestingly for me, and possibly for you as well, football has also affected education, specifically financial education. If you are intersted in how football and financial education are linked, Financial Football is the answer. To give you some background information before you test the game yourself, Financial Football is a project developed by VISA in more than 40 countries in the world. It is an interactive game that allows people (particularly youth) to have fun and also test their financial knowledge. Last week VISA, in collaboration with the National Bank of Georgia (NBG), launched the Georgian version of Financial Football. The launch event was opened with a panel discussion where the panelists highlighted the activities already implemented in Georgia to promote financial education. They also mentioned that none of the financial education programs have been assessed in terms of their effectiveness. This inspired me to start exploring the effectiveness of already-piloted financial education projects. Let’s forget about Financial Football for a while, because it has just been launched and further reasearch cannot be done at this stage. But, thanks to the National Bank of Georgia and the Ministry of Education and Science, we do have a financial education project called SchoolBank, which requires further elaboration. SchoolBank is a project that was developed by the Child and Youth Finance International (CYFI) and implemented by the NBG in collaboration with the Ministry of Education and Science. The project aims at the economic empowerment of children and youth by providing them with access to appropriate banking products and economic citizenship education. As emphasized in the National Strategy of Financial Education, the foundation of financial education should be built starting at a young age. At this early stage, it is easier to develop good personal finance management habits, and turn them into a culture. In the long run, by investing in youths’ financial education, it is possible for them to form useful attitudes and skills which they will need to make better financial decisions. The positive effect of a financial literacy program in Japanese schools, for instance, is summarized by Sekita (2011). He finds that if people save regularly when they are children, they are more likely to develop a plan for retirement when they become adults. SchoolBank was piloted in 11 public schools in Tbilisi, Rustavi and Mtsketa for three months, starting last October and running until December 2017. The piloted SchoolBank project was mostly concentrated on a teaching component. The teaching module contains 15 topics related to personal finance, consumer rights and responsibilities, and topics related to the banking sector in general.
Source: Author's own calculation
To evaluate the effectiveness of the SchoolBank project, a pre- and postprogram questionaire was used. The standard methodology to measure the level of financial literacy is to count the number of correct answers to the financial literacy questions (Hung et al. , Kalwij et al. ). Similarly, in this case, financial literacy has been calculated as the number of correct answers to six of the financial literacy questions. Q1. Attitude: I think that saving is useful; Q2. Behavior: I regularly save money in a safe place; Q3. Behavior: I always plan how to spend money; Q4. Education: I know what the main financial terms, deposits and payment cards mean; Q5. Education: Suppose 10 children are given 250 GEL and 50 Tetri. If this money should be distributed equally, how much money each child will get? Q6. Education: Suppose you make a 100 GEL deposit and the annual interest rate on the deposit is 2%. How much money will you have accumulated after the 5th year? Q1-Q4 are Likert scale questions (a scale used to represent people's attitudes to a topic), starting from “strongly disagree” to “strongly agree.” Answers such as “agree” and “strongly agree” are treated as “correct,” while “strongly disagree,” “disagree,” and “neutral” are treated as “incorrect.” Q1-Q6 cover all three components of financial literacy, such as financial attitudes, financial behavior and financial education. The distribution of financial literacy based on the pre-test results shows that the most of the students answered the majority of questions correctly. The distribution is left-skewed and there was only 1 student who answered all questions incorrectly. On average, 68% of the questions were answered correctly, which amounts to four questions out of six. The data does not give the opportunity to use more sophisticated methods; instead, we focus on mean comparisons to evaluate the effectiveness of the SchoolBank project. It should also be kept in mind that the number of responses for pre- and post-tests are not the same. This means that 232 students started SchoolBank classes but only 161 finished them. The exact reasons for the dropouts are not known, but it might affect the interpetation of the results. As we mentioned above, we measured the financial literacy before and after the SchoolBank project for different sub-
groups. On average, the level of financial literacy increased significantly, meaning that after the SchoolBank project, students answered 77% of financial literacy questions correctly, while the same indicator was 68% before the SchoolBank project. The study shows that such improvement of financial literacy is mostly driven by a significant increase of financial knowledge and attitudes, with the effect on financial behavior (answers to the following questions: I regularly save money in a safe place and I always plan how to spend money) being very limited. These results are consistent with existing studies (Batty et al. , Kalwij et al. ) which conclude that in the short term, financial education programs contribute to financial knowledge and attitude, but need time to transmit financial skills to financial behavior. Boys and girls recorded very similar financial literacy levels before and after the SchoolBank project. This is intriguing, but because of the self-selected sample, we can’t conclude that in general boys and girls have similar literacy levels and that no gender inequality exists. The result might be driven by the methodology of the sample selection. SchoolBank is not a mandatory course, and only children who are interested in the topic are enrolled. This means that, more or less, children with similar interests and similar initial financial literacy levels are selected. We observe a statistically significant improvement of financial literacy in both groups. Before Schoolbank, both girls and boys
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answered 68% of questions correctly but afterwards the share of correctly anwered questioned increased to 77%. It is worth noting that before the SchoolBank project, the difference in financial literacy levels between Tbilisi’s schools and schools from other cities, such as Rustavi and Mtskheta, was six percentage points. After the course, we observe a significant improvement in financial literacy in both sub groups. Interestingly, on average, students from Tbilisi schools improved their financial literacy level (by 13 percentage points) more than the students outside Tbilisi (by 6 percentage points). Thus, the gap in financial literacy between Tbilisi schools and the schools outside Tbilisi increased significantly. The exact reasons behind this disparity cannot be observed from the data, but further investigation is needed as to why the project was less effective outside Tbilisi - was it due to students, teachers, or other administrative or technical issues? Due to the fact that SchoolBank was the first official financial literacy course taught at schools, we observe that the initial financial literacy for 7th and 8th grade students is very similar, in the 67-69% range. After the SchoolBank project, improvement in financial skills is observed to occur at a higher (by 11 percentage points) for 7th grade students than for 8th grade students (by 7 percentage points). It is noteworthy that students who have a bank account, on average, answered 76% of financial literacy questions correctly in the pre-test, while the same indicator is only 67% for students who do not have a bank account. After the SchoolBank project, we observe almost no change in financial literacy level for account-holder students, but the improvement in financial literacy for students without a bank account is significant. Therefore, after SchoolBank, we observe a convergence of financial literacy levels between these two groups. The positive interdependence between having a bank account and financial literacy is captured in our empirical model as well. Due to the lack of available data, we can’t conclude that there is a causal relationship between having a bank
account and higher financial literacy. But students with bank accounts are more likely to be financially literate than those without. On the other hand, there might be some external factors which determine both children’s financial literacy and having a bank account. Existing literature mostly concentrates on economic socialization. Economic socialization is largely based on the role of the family in teaching children about money and personal finance (Lunt and Furnhain, 1996). The role of parents in this process is vital. Parents help children in opening savings accounts and teach them the importance of saving (Mandel, 2010; Kim et. al, 2011). From this viewpoint, children’s economic socialization is mostly affected by parents’ individual decisionmaking. This might be true for the Georgian case as well. Between the ages of 13 and 14, financial decisions such as opening a bank account are not made by children alone, but require the parents’ permission. So, having a bank account means that parents have decided to save money for their children. Thus, this decision is mostly driven by parents’ financial literacy, not the children’s financial literacy per se. Despite direct knowledge transition from parent to children, existing literature highlights the role of early access to financial products for children’s financial literacy. Specifically, when children already have a bank deposit they receive benefits in terms of knowledge that they gain when visiting banks, depositing money in accounts, calculating their interest income, becoming familiar with the time value of money, etc. (Friedline et. al (2012)). To sum up, the SchoolBank pilot project has already finished, and we see it has some interesting and action-provoking results in terms of improving financial literacy among school children. We hope the new tool offered by VISA and National Bank of Georgia will further enhance the skills of our next generation to deal with personal finances. So, while you are watching the World Cup, encourage your children to try out Financial Football. Unlike the World Cup, Financial Football does not have losers; everyone can score financial goals.
Table 1. Pre and post financial literacy (% of correct answers) by different sub-group
*** significant at 1% level, ** significant at 5% level, * significant at 10% level Source: Author’s own calculation
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JUNE 5 - 7, 2018
Tiflis Palace & Tiflis Veranda Re-Open tury Sulkhan-Saba Orbeliani’s book the main ornament of our rooms, guaranteed to please the taste of any guest and keeping them in touch with the rich culture and history of the country. Besides comfortable and cozy rooms, we offer a spacious conference and banquet hall for up to 100 people that can host various business events and serve lunch and coffee breaks. Tiflis Palace has been transformed into the best choice for both business and leisure travelers. The renewed design of the fascinating restaurant, Tiflis Vernada, is well on par
e are thrilled to announce the reopening of the stylish, newly renovated, luxury boutique hotel - Tiflis Palace and its wonderful restaurant - Tiflis Veranda. Situated in the very heart of the historical center of the city, the amazing Tiflis Palace is offering guests from around the world the opportunity to enjoy
extremely comfortable accommodation and the highest standards of service. We have upgraded our facilities in order to provide the highest level of comfort and the best quality services. Moreover, we thought through the smallest details and touches that would make our guests’ stay in the hotel cozy and unforgettable. As a specialty for Tiflis Palace’s guests, in order to ensure they get a comfortable sleep, we provide different types of pil-
with the captivating views from the property and also underlines the rich history of Tbilisi in numerous interesting symbolic details. Our menu is designed to meet the expectations of guests with various tastes, and the specially invited Chef from Turkey promises to amaze our guests with culinary masterpieces of local and international cuisine. Where: V.Gorgasali #3, Tbilisi. (+995 32) 2 000 245 email@example.com www.tiflispalace.ge
lows, from which guests can choose according to their preference. Each of our newly designed 43 rooms provides a calm ambience and maximum comfort with a touch of luxury and modernity. Emphasizing our location as well as our greatest respect to the history of Tbilisi and the country, we have made the beautifully framed uniquely adorned Georgian letters from the early 18th cen-
Launch of 230 MW Gardabani Thermal Power Plant 2 Construction
Georgia 67/137 for Global Road Quality BY DIMITRI DOLABERIDZE
xperts have named the countries with the worst and best roads in the world. The list is compiled based on the Global Competitiveness Index 2017/18, an annual report published by the World Economic Forum since 2004. The rating includes 137 countries and the quality of their roads is assessed on a scale of 1 to 7. The first place among the best roads in the world was taken by the United Arab Emirates, which scored 6.4 points. In second place, Singapore (6.3 points). Switzerland came third with 6.3 points. Also in the top 10 were Hong Kong (6.2
points), the Netherlands (6.1 points), Japan (6.1 points), France (6.0 points), Portugal (6.0 points), Austria (6. 0 points) and the United States (5.7 points). From the countries of the former USSR, the roads in Azerbaijan, Lithuania and Estonia were recognized as the best, coming in at 36th, 37th and 38th place, respectively. Russia is located at 114th place in the general rating. Georgia came in at 67th place for road quality. The roads of Mauritania were named as the worst, with the country earning just 2 points, meaning that in the general list it came last in 137th place. In second place on the list of the worst roads in the world was the Democratic Republic of the Congo (2.1 points), followed by Haiti (2.1). 2.2 points were awarded to both Madagascar and Guinea.
BY SHAWN WAYNE
new Combined Cycle Thermal Power Plant will be built in Georgia to increase the country’s power generation and move Georgia one step closer towards energy independence. Georgian government officials laid the foundation for the 230 MW Gardabani Thermal Power Plant 2 in Georgia’s Kvemo Kartli region last week. Georgian Prime Minister Giorgi Kvirikashvili and Economy Minister Dimitry Kumsishvili visited the construction site on May 31. “The foundation is almost prepared and turbines have already arrived in Poti. We expect the construction work to be completed on schedule in 2020, before the winter season,” Kumsishvili noted. The construction project is being imple-
mented by Gardabani TPP 2, which is a subsidiary of the Georgian Oil and Gas Corporation. The plant will have the function "launching from zero,” which is provided via autonomous/independent diesel generator (Black Start Diesel Generator). This function enables the TPP to be started even during a so-called “System Black-out.” The combined cycle’s new energy-
efficient (productivity factor exceeding 50 percent) is planned to be exploited for the 2019-2020 winter season. To note, a similar TPP with an installed capacity of 230 MW, Gardabani 1, has been in operation since 2015. The project is being implemented by China Tianchen Engineering Corporation (TCC), which is one of the largest Chinese corporations.
GEORGIA TODAY JUNE 5 - 7, 2018
The 3rd Tourism & Hospitality
Conference Held within WTG! Awards BY THE GT TEAM
n June 4, the 3rd Tourism and Hospitality Conference within Welcome to Georgia! National Tourism Awards was held at the Biltmore Hotel Tbilisi. The Conference was opened by CoFounder/Managing Partner of the Project, Maryna Chayka. She welcomed guests and promised an interesting com-
petition year for Nominees of the Welcome to Georgia! National Tourism Awards 2018. The first Vice Prime Minister/Minister of Economy and Sustainable Development of Georgia, Dimitry Kumsishvili; CEO of Partnership Fund, Davit Saganelidze, and Head of Georgian National Tourism Administration, George Chogovadze, also addressed guests with welcome speeches, speaking about the importance of tourism for the development of the country, in general, as well as for Tbilisi, as one of the major tourist destinations in Georgia, and emphasiz-
ing the role of each company in contributing to this field. During panel discussions, the representatives of the government and private sector discussed the challenges and opportunities in the tourism and hospitality industry. Top market suppliers and field experts made presentations on international standards and safety for the hospitality industry and talked about the importance of digital marketing in tourism. The organizers of the Welcome to Georgia! National Tourism Awards introduced guests to the new Jury Board, new categories and other interesting news
about the project. The participants of the Conference had an opportunity to arrange B2B meetings to establish useful business connections. More than 350 representatives of the respective industry, government officials, international and local experts and media attended the 3rd Tourism and Hospitality Conference. The Tourism and Hospitality Conference within the Welcome to Georgia! National Tourism Awards Project is an annual business event held in Georgia since 2016 and serves as a unique business platform where different companies and organizations have an opportunity
to exchange information, communicate and catch up with the latest trends and challenges in the spheres of tourism and hospitality, and in the Georgian business sector in general. The project supported by: the Ministry of Economy and Sustainable Development of Georgia, Tbilisi City Hall and Partnership Fund, Co-organizers: Georgian National Tourism Administration and Bank of Georgia. Project’s Independent Auditor ‘BDO in Georgia,’ General Sponsor – Alliance Group. For more detailed information about the Project, please visit www.awards-tourism.com
JUNE 5 - 7, 2018
Spotlight on the Georgian Food Delivery Market BY ANNA JHVANIA
Casino Ambassadori T Celebrates 1 Year
asino Ambassadori celebrated one year since its foundation on June 1. The first VIP casino in Georgia arranged a great showcase for guests to celebrate its anniversary, organizing an event that was attended by celebrities, Georgian VIPs, and foreign guests. The show started at 8 PM with illusionist Sergi Dolidze’s performance. Welcome drinks, nice background music, fourchette and the tricks of the wonderful illusionist wowed the crowds throughout Hotel Ambassadori, with guests able to enjoy a variety of entertainment on the veranda, patio and restaurant. Famous Georgian performers and the band ‘Sculer’ from Berlin took turns to play on the stages of the
Ambassadori veranda and in its casino. But it was the magic of the ‘Friedrichstadt Ballet’ from Germany which gave a truly special glow to the evening. The culmination of the casino anniversary party was the playing of the Mercedes-Benz GLA, the prize of which is $100,000. However, it was not the only surprise Ambassadori’s management had in store for lucky guests, as numerous other gifts were up for grabs: money awards, accessories of luxury Italian brand Stefano Ricci, exclusive parfum of Aromateque, voucher of Ambassadori Kachreti, unique cognac from the “vintage line” of Sarajishvili, dated 1968; and the luxe-of-the-luxe prize from Ambassadori Tbilisi: an unforgettable holiday in Monte-Carlo.
he rise of digital technology has given customers worldwide the ability to shop online through apps and websites. According to a study done by McKinsey & Company, the food delivery market is expected to grow 14.9% annually by 2020. The market of food delivery in Georgia is definitely reshaping the traditional model where you place an order directly with the restaurant. The traditional model has proven to be inconvenient for many reasons, with restaurants unhappy with the lost expenses associated with logistics. So why is it that many still hold back from joining online delivery platforms? With the rise of delivery apps, restaurants can actually serve more customers at far lower costs. The food delivery service offers unique new business opportunities to the Georgian market. Companies are always looking to make dining experiences more customized, with a personalized touch. As the market matures, the food delivery industry is becoming saturated. New online platforms are on the rise, trying to capture customers across the regions, expanding choice and convenience by offering a wide range of restaurant options just a single tap away. Yet, there are still many customers not fully utilizing the ease of having dinner delivered right to their door. Could this be attributed to the culture of Georgians who would rather dine out than spend money on delivery? Customers, especially in other cities of Georgia, may perceive ordering online as a luxury. Or is it that people are still accustomed to the traditional way of ordering? To learn more about the market characteristics, business model behind delivery services and potential of the market, GEORGIA TODAY spoke to market leader, co-founder of Menu Group UK and director of Menu.ge, Stepan Aslanyan.
MENU.GE HAS BEEN OPERATING ON THE MARKET FOR FOUR YEARS. TELL US ABOUT YOUR EXPERIENCE We initially started with only one team member and have increased to over 300 people in our Georgian team. Four years ago, the food delivery market was at a newborn stage. Before we entered the market, our previous competitor was already operating. But food delivery was not a usual thing for the Georgian market. It is still not typical and is currently progressing on a daily basis, but we have come a long way and see potential for the future.
HOW IS THE NUMBER OF PEOPLE ORDERING FOOD AT HOME INCREASING? We feed around 5,000 people per day, but this is still a small amount. Per month, we’re gaining more than 10,000 new customers, and these customers are mostly those ordering for the very first time. Many still do not understand or see the benefit of a food delivery service as they are not used to it. Which is why some still hold back, perhaps on the misconception that typical Georgian food cannot be delivered to their door.
HOW DOES MENU.GE OPERATE IN THE CAPITAL AND IN THE REGIONS? The main turnover of HORECA business as well as food delivery is located in Tbilisi. However, potentially, all the cities that have restaurants in place with locals visiting leads us to believe that the delivery market can very well exist there. We already operate in seven other cities of Georgia, but more than 90% of business is placed in Tbilisi.
YOU RECENTLY LAUNCHED A NEW WEBSITE. TELL US ABOUT IT We launched a new website and new mobile application for Apple and Android. It is cardinally different from our previous system as we implemented AI technology to calculate the real estimate delivery time from a specific restaurant to a specific location. This does not only take into account the distance, but also the type of food being prepared and the amount of time it takes. However, this is still at the early stage and we are constantly working to develop and improve it. It is much better than our old version and our customers now have the chance to decide whether they want the food delivered in 15 minutes or can wait 45 minutes to order from a restaurant located further away or order food that takes longer to prepare.
WHAT IS THE DEMAND FOR
DELIVERY SERVICES IN GEORGIA VIA ONLINE AND MOBILE APP? If we compare the situation to 3-4 years ago, 90% of our customers order online, which is split into 50% website and 50% application orders. However, there is a difference when people order during the day as they are using their computers compared to the evening time when customers are using their mobile phones.
WHAT ARE THE MAJOR EXPENSES FOR YOUR COMPANY? 80% of our expenses are attributed to salaries.
TELL US ABOUT NEGATIVE FEEDBACK MENU.GE HAS RECEIVED ON SOCIAL MEDIA HORECA and the delivery market is like a live organism and we observe many cases that can lead to failure. For instance, we have about 100 car or scooter accidents per month. Other reasons are attributed to technical problems, for instance bad internet connection or failure to find the correct address. Nowadays, less than 1% are failed orders, but sometimes even this 1% can be a lot. We always try to identify the situation and instead of removing negative comments from social media platforms, we try to find the problem and fix it. Our mission is to always take action and constantly improve.
HOW WAS FOODPANDA ACQUIRED BY MENU.GE? Last year, FoodPanda left more than three countries, and Georgia was one of them. The exact price of the acquisition is non-disclosable but, at the moment FoodPanda was acquired, we had an investment of around $3 million as compared to their investment of EUR 2 billion. We managed to buy out FoodPanda because we offered them a large sum of money, but simply because they were leaving the market and we took action to speed up the process of their closing their operations. FoodPanda operates well on some markets, but not all business models of delivery service work with every country.
A FEW MONTHS AGO, MENU.GE WAS AUDITED AND CAUGHT THE INTEREST OF THE TAX AUTHORITIES. WHAT TURNOVER ARE WE TALKING ABOUT? Yes, there is a lot of interest because last year we started to have a 7-digit number of turnover per month which, for the HORECA market, is certainly no small amount. We are still in audit since September.
MENU GROUP RECEIVED INVESTMENTS IN THE NEW ROUND OF ABOUT $3 MILLION USD. WHO ARE THE CURRENT INVESTORS? The main investors we had last year were a few US Venture Funds. One was a founder of a Russian delivery service who later sold the company to open a venture fund and invest in us.
WHO ARE YOUR BIGGEST COMPETITORS AND HOW IS MENU. GE DIFFERENT FROM THEM? I do not consider them as ‘competition,’ but rather an increase in the market of delivery and quality of our services. The market is very small right now, but there is potential to be bigger. Around 70% of restaurants do not even understand the benefits of delivery services. Continued on page 10
JUNE 5 - 7, 2018
Agara Sugar Factory Resumes Work after 7-Month Pause
Photo source: 1 TV
BY THEA MORRISON
fter a 7-month break, the sugar factory in Agara, central Georgia, has resumed work. Levan Kalandadze, Deputy Business Ombudsman, Chairman of Supervisory Board of Agara Sugar Company, Savash Uzan, representative of Agara Sugar Company, Nikoloz Natbiladze and Shida Kartli government members attended the ceremony of the factory re-opening on June 2. At the event, the best employees of the company were awarded. "Today is a very important day for Agara Sugar Company and in general for the town of Agara. The factory was not working for months and now it has resumed at full capacity. This is a good example of how the government's economic team and Business Ombudsman's Office has been engaged in negotiations together with the investor,” Levan Kalandadze stated. He added that if the factory had not become
operational again, families of 500 employees would have been left without an income. The factory stopped working on November 1 due to financial difficulties. The employees of the company held several protest rallies in both Agara and Tbilisi, asking the government to solve the problem as the factory is the only source of income for the local community. On April 18, the workers of Agara Sugar Factory started a demonstration from Agara and walked 110 km to Tbilisi. The workers and representatives of the trade unions organized a protest rally in front of the Government Chancellery building, demanding a meeting with government representatives. Ombudsman Lekvinadze promised the protesters that the problems at the factory would be resolved through state involvement. After some time, negotiations took place between the government and the founders of Agara Sugar Company, involving the Business Ombudsman's Office. The parties reached an agreement on resuming work in the factory. The package of support for Agara Sugar Company was developed and, as a result, the factory resumed work from June 2.
Number of Passengers Increases in Kutaisi Airport BY THEA MORRISON
nited Airports of Georgia reports that from January to May of 2018, Kutaisi International Airport served 171.064 passengers, which is 20% more compared to the same period
of 2017. In May, Kutaisi Airport served 52,631 passengers, which is 37% more than the data of the same period last year (38, 417 passengers). The number of flights also increased. In May 2018, 187 flights were performed from Kutaisi
International Airport, which is 26% more than the flights in same period of the previous year (149 flights).
Spotlight on the Georgian Food Delivery Market Continued from page 8 They don’t see the coming consequences of the May 1 smoking ban. Around 25-35% of restaurant turnover is delivery, but many perceive that this will lead to a decrease in their sales. However, the market proves that it is always the opposite. Restaurants do not lose customers this way; it can actually increase their sales. Some customers are not even aware of these restaurants until they see them on our website. We have always had competitors in the market: we just took a big share of the market by constantly delivering high quality services.
WHAT IS YOUR LONG-TERM STRATEGY IN GEORGIA AND INTERNATIONALLY? Our plan in the Georgian market is to make our services more useful and expand our customer base. Our plan is to offer a wider range of restaurants and a cheaper delivery service. We already have a free delivery service for some restaurants and we are available 24/7, except New Year’s Eve, in all areas of Tbilisi. Our strategy is to increase the quantity of high- and low-level restaurants and be available for everyone, everywhere. As for internationally, we already operate in Armenia and Belarus and are preparing to enter another market. It is not yet finalized, but we are in the process of expanding.
GEORGIA TODAY JUNE 5 - 7, 2018
The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research. For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at firstname.lastname@example.org.
May: Electricity Market Watch Abkhazian region was down respectively by 8.5% y/y and 5.0% y/y in 4M18. Domestic generation was up by 20.6% y/y in 4M18, mainly driven by 39.8% y/y increase in hydro generation. This dramatic increase in hydro generation can be explained by last year’s low base and by the good hydrological conditions. The surplus in hydro Generation (19.5% over the planned level) in 4M18 reduced thermal generation (-16.8% y/y) and imports (-38.9% y/y), both being significantly below the planned levels (17.8% and 40.6% respectively). Electricity imports stood at 0.5TWh (US$ 27.9mn) in 4M18. The 88.6% of total imports came from Azerbaijan, while the rest came from Turkey (6.7%) and Russia (3.3%). Unexpected surplus in hydro generation also resulted in unexpectedly early exports of electricity. Export of electricity started in second half of April and reached 61.7GWh (US$ 1.8mn) in 4M18.
FOR GEORGIA TODAY BY MARIAM CHAKHVASHVILI
ector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine, and Real Estate sectors in Georgia. As part of our energy sector coverage, we produce a monthly Electricity Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website gtresearch.ge.
ANNUAL FORECAST FOR 2018 ELECTRICITY BALANCE REVISED The 2018 electricity balance forecast was approved by Ministry of Economy and Sustainable Development in December 2017. The document outlines the generation and consumption plans for each market participant. The updated annual forecast of 2018 electricity balance was issued on May 16, 2018. Electricity consumption expected to increase by 6.9% y/y in 2018. The updated annual forecast of 2018 electricity balance was issued on May 16, 2018. Main modifications are related to export and import amounts, hydro generation and 4M figures (forecasted replaced by actuals). According to the modified annual forecast for 2018: Electricity consumption expected to reach 12.7TWh (growth revised down to 6.9% y/y from 7.1%y/y in previous edition); Import expected to reach 1.3TWh, which is 12.4% y/y reduction compared to initial forecast of 30.8% y/y increase; Export planned at 0.5TWh. GSE should define the exporter companies and export directions by the public auctions. So far, the most popular direction within exporters remains Turkey and Armenia is second most popular market.
ELECTRICITY CONSUMPTION AND GENERATION – APRIL 2018 Domestic electricity consumption increased 5.0% y/y to 1.0TWh in April 2018. The main contributors to the overall consumption growth were distribution licensees (+13.8% y/y), driven by addition of new commercial subscribers. Consumption by Abkhazian region and eligible consumers was down by 13.2% y/y and 14.5% y/y respectively, contributing negatively (-4.4ppts) to the overall growth of consumption. 2018 export season started a bit earlier than usual - in second half of April, due to unexpected increase in hydro generation. Electricity exports reached 61.7GWh in April, 5.7% of total electricity supply. The largest exporter was Enguri HPP exporting electricity to Armenia (59.7% of total exports). The rest of surplus electricity was exported by ESCO to Russia (38.0% of exports) and Azerbaijan (2.3% of exports). There was no electricity transit in April 2018. Electricity generated by domestic sources increased by 30.2% y/y to 1.1TWh in April 2018, 25.2% above the planned level. Hydro generation showed significant increase (+41.1% y/y) in April 2018, 21.9% the planned
ELECTRICITY SUPPLY AND DEMAND IN 4M18 Electricity consumption increased by 6.7% y/y to 4.3TWh in 4M18. The increase was mainly driven by the 8.4% y/y growth in consumption of distribution licensees due to addition of new commercial subscribers (Energopro’s consumption was up by 9.7% y/y and Telasi’s was up by 6.1% y/y). Consumption by Eligible consumers and
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level: 1) Enguri/Vardnili generation more than doubled increasing by 135.4% y/y. This significant increase can be explained by good hydrological conditions and last year’s low base (-13.8%). Notably, in April 2018, Abkhazian region consumed only 35.7% of electricity generated from Enguri/Vardnili, for comparison this share equaled 96.9% in April 2017. 2) Generation of other regulated and deregulated HPPs also increased by 6.0% y/y and 17.0% y/y, respectively, due to high water flow and addition of new HPPs (Dariali and Khelvachauri) to the group of deregulated HPPs. The surplus in hydro generation reduced thermal generation (-58.6% y/y) and imports (-92.3% y/y). Electricity imports almost halved (-92.3% y/y) to 11.2 GWh in April 2018 and accounted for only 1.0% of total supply. Most of the imported electricity came from Russia (87.3% of total), while the rest came from Azerbaijan. The guaranteed capacity fee was down 7.8% y/y to USc 0.73/kWh in April 2018, due to increase in consumption, which serves as a base for guaranteed capacity fee calculation. Guaranteed capacity was provided by all five sources for entire month, with only Gardabani CCGT operating for the first decade of the month, while other thermal power plants being mostly on standby.
ELECTRICITY PRICES IN GEORGIA AND TURKEY The average import price increased by 24.2% y/y and reached USc 5.7/kWh in April 2018, from USc 4.6/kWh in April 2017. This growth can be explained by last year’s low base, when there was a subsidized electricity import from Russia via Salkhino line to satisfy the excess needs of Abkhazian region. Despite higher import price, the wholesale market price increased only by 5.0% y/y to USc 5.0/kWh, due to low electricity imports. Electricity traded at the wholesale price through the market operator was 17.7% of total electricity supplied to the grid, down from 26.0% in April 2017. The average price of electricity in Turkey was up 18.8% y/y to USc 4.8/ kWh, 3.8% below the wholesale market price in Georgia. The average export price was USc 2.9/ kWh in April 2018. We assume the low average price of export is due to high share (38.0%) of exports to Russia at significantly low price, and the barter of electricity agreed by ESCO in February 2018.
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June 5 - 7, 2018