Issue #978 Business

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Issue no: 978/94

• SEPTEMBER 5 - 7, 2017

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Forest in Mountainous Adjara Catches Fire NEWS PAGE 2

Georgian, Hungarian Foreign Ministers Meet in Budapest

FOCUS ON CRIME & PUNISHMENT

Paying your bills and the punishments if you don't

ISET PAGE 5

Visegrad Group Reaffirms Strong Support for Eastern Partnership

POLITICS PAGE 4

China & its Dealings in the South Caucasus BUSINESS PAGE 6

Visa: Offering Security and Innovation in Georgia & Worldwide BUSINESS PAGE 9

Georgia Hosts Annual Agile Spirit Drills

BY THEA MORRISON

T

he Ministers of Foreign Affairs of the Visegrad Group (V4) reaff irmed their strong support to the Eastern Partnership and named it a key factor in the stability of Eastern Europe.

Continued on page 4

BUSINESS PAGE 10

Number of Foreign Visitors up by 27.4% in August SOCIETY PAGE 11 Prepared for Georgia Today Business by

Markets As of 01ͲSepͲ2017

STOCKS BGEO Group (BGEO LN) GHG (GHG LN) TBC Bank Group (TBCG LN)

COMMODITIES Crude Oil, Brent (US$/bbl) Gold Spot (US$/OZ)

INDICES

Price

w/w

m/m

BONDS

Price

w/w

GBP 34.66

Ͳ0,4%

Ͳ0,5%

GEOROG 04/21

106.43 (YTM 4.80%)

+0,3%

+0,7%

GBP 3.48

Ͳ2,0%

Ͳ6,0%

GEORG 04/21

112.46 (YTM 3.18%)

+0,3%

+0,5%

GBP 16.18

+0,8%

Ͳ2,3%

GRAIL 07/22

110.67 (YTM 5.23%)

+0,5%

+0,6%

BGEOLN 07/23

103.60 (YTM 5.28%)

+0,8%

+1,3%

Price

w/w

m/m

52,70

+0,6%

+1,8%

CURRENCIES

1 323,91

+2,5%

+4,3%

GEL / USD

2,4480

+1,4%

+2,3%

GEL / EUR

2,8984

+0,7%

+2,8%

Price

w/w

m/m

m/m

Price

w/w

m/m

GEL / GBP

3,1754

+2,1%

+0,5%

FTSE 100

7 448,52

+0,6%

+0,3%

GEL / CHF

2,5454

+0,9%

+2,6%

FTSE 250

19 777,36

+0,5%

Ͳ0,4%

GEL / RUB

0,0425

+3,2%

+7,1%

DAX

12 144,82

Ͳ0,2%

Ͳ0,9%

GEL / TRY

0,7142

+1,8%

+5,3%

DOW JONES

21 993,25

+0,8%

+0,1%

GEL / AZN

1,4400

+1,4%

+1,5%

+2,0%

+2,0%

NASDAQ MSCI EM EE

6 433,15

+2,7%

+1,1%

GEL / AMD

0,0051

156,81

+2,7%

+6,9%

GEL / UAH

0,0949

+0,5%

MSCI EM

1 087,70

+0,2%

+1,7%

EUR / USD

0,8415

+0,3%

Ͳ0,7%

SP 500

2 476,29

+1,4%

Ͳ0,0%

GBP / USD

0,7709

Ͳ0,7%

+1,8%

+2,5%

MICEX

2 009,35

+1,5%

+3,6%

CHF / USD

0,9617

+0,5%

Ͳ0,4%

MSCI FM

2 806,33

Ͳ0,4%

+2,5%

RUB / USD

57,5656

Ͳ1,8%

Ͳ4,6%

GT Index (GEL)

1 133,66

Ͳ

Ͳ

TRY / USD

3,4265

Ͳ0,4%

Ͳ2,9%

GT Index (USD)

922,38

Ͳ0,4%

+0,6%

AZN / USD

1,6982

Ͳ0,1%

Ͳ0,0%

2

NEWS

GEORGIA TODAY

SEPTEMBER 5 - 7, 2017

Demirel College to Appeal Closure Photo source: pia.ge

Forest in Mountainous Adjara Catches Fire

BY THEA MORRISON

F

ire broke out in the forest of Shavnabada Mountain, Khulo Municipality, Mountainous Adjara on Sunday.

More than 150 firefighters, policemen and forest officials are fight-

ing the blaze at time of going to press.

A special access road is being cut to allow fire-fighters to reach the affected area. The Emergency Management Agency of the Ministry of Internal Affairs reports that the fire is under control.

“The exact scale of the fire is unknown but there is no necessity to involve aviation in the fire-extinguishing efforts,” the agency stated.

BY THEA MORRISON

T

he Administration of the Private Demirel College, which was officially closed last week, is to file a lawsuit and demand the abolition of the Educational Institution Authorization Board’s decision.

The statement of the college administration reads that the Authorization Board made a decision on August 29 not to

grant authorization to Demirel College, which means the school cannot continue functioning.

“By this decision, the right to education has been denied to 350 students and up to 100 employees face unemployment,” the statement reads.

The Administration stressed that during 2016-2017, financial police entered the college and regularly summoned the school staff to the police for questioning.

“The college manager, Mustafa Emre Chabuk, was detained on ungrounded charges and sentenced to pre-extradition

imprisonment, while Demirel College was repeatedly referred to by various media outlets as an institution linked to terrorists,” the statement reads.

The school administration expresses concern over such attitude to Demirel College, which had been carrying out educational activities since 1993.

“The Private Demirel College will consult with lawyers and non-governmental organizations and will, in accordance with the law, address the Court to prevent the violation of pupils and teachers' rights,” the statement says.

Director of Demirel College Releases Statement

Photo Source: OC Media

EFTA Agreement Comes into Force

BY NINO GUGUNISHVILI

T

he Free Trade Agreement between Georgia and the European Free Trade Association (EFTA) came into force on September 1.

At this stage, the agreement covers free trade between Georgia, Norway and Iceland. The agreement between Georgia, Lichtenstein and Switzerland will come into force three months after the agreement ratification by Switzerland and Lichtenstein.

The Free Trade Agreement with the EFTA and Georgia was signed in Bern, Switzerland, on June 27, 2016.

“Following the agreement coming into force, Georgian enterprises will have the opportunity to see a large number of their products, with no tariff barriers, on a 14 million, high purchasing power market,” the Ministry of Economy and Sustainable Development of Georgia noted in a statement.

In the area of trade in goods, according to the agreement, “the Parties abolish all customs duties on industrial products as of the entry into force of the Agreement”.

The Free Trade Agreement covers trade in goods; trade in services, establishment and protection of intellectual property rights, government procurement, competition and trade, and sustainable development.

STATEMENT BY NINO KAVTIASHVILI, DIRECTOR, DEMIREL PRIVATE COLLEGE

S

tatement released by Nino Kavtiashvili, Director of the Demirel Private College: On August 29, 2017, the Council for General Education Institutions denied further authorization for Demirel Private College, which was followed by various comments from different media sources and from council members that were both unjustified and baseless.

On August 31, Ms. Tamar Sanikidze, Director of the National Center for Education Equality Enhancement issued incorrect information concerning the council meeting and regarding the announcement I made. In an interview given to a number of TV channels and news agencies, Ms Sanikidze made it seem as if I had claimed there was pressure from the founders of the school. She said that: “At the council meeting, instead of sharing responsibility, the director pointed to the school founders who were ‘intruding in school matters’ and ‘forcing her to sign falsified documentation’”. This statement is not true and can be verified through

the records of the authorization council meeting. At the meeting, I explained how the school founders were working on a joint school study which consists of a year-long strategy. This incorrect statement insults both my honor and dignity. I would like to note that I was appointed to the position of Demirel Private College Director in October, 2016, when the foreign pupils were already studying at the college and the process of education recognition had already started, which is carried out by the National Center for Education Equality Enhancement together with the Ministry of Education and Science of Georgia.

4

POLITICS

GEORGIA TODAY

SEPTEMBER 5 - 7, 2017

Georgian, Hungarian Foreign Ministers Meet in Budapest

BY THEA MORRISON

M

ikheil Janelidze, Georgia’s Foreign Minister and Vice-Premier, met with his Hungarian counterpart Péter Szijjártó on August 31 in Budapest.

Relations between Georgia and Hungary, and increasing the level of cooperation in the areas of trade, economy, education and people-to-people contacts, were the top issues of the meeting.

The Georgian FM thanked the Hun-

garian side for the exchange programs and scholarships offered to Georgian students, noting “the number of Georgian students studying in Hungary increased to 80 this year”.

Janelidze expressed satisfaction that the Hungarian companies were showing an increased level of interest in Georgia’s investment environment and expressed readiness to host the next meeting of the Intergovernmental Economic Commission in Tbilisi.

Georgia’s European and Euro-Atlantic integration agenda was also discussed during the meeting, with it being noted that the Eastern Partnership Summit scheduled for November, will give a

fresh impulse to the partnership with Georgia and will contribute to the development of result-oriented co-operation.

Georgia’s Ministry of Foreign Affairs reports that the ministers spoke about developments in Georgia’s occupied territories and highlighted the European Union’s role in ensuring security and a peaceful resolution of the conflict.

“Janelidze thanked Szijjártó for Hungary’s active involvement in the EUMM and for placing the occupation of Georgian territories high on the agenda of international organizations,” the MFA stated.

In Budapest, Janelidze took part in the plenary session of the Ministers of For-

eign Affairs of the Visegrad Group (V4) and the Eastern Partnership countries.

“The process of comprehensive rapprochement with the EU will open up new prospects of in-depth integration for Georgia,” he stated at the joint pressconference.

He went on to highlight that the Eastern Partnership countries play a significant role in ensuring the economic, energetic and physical security of the European Union.

"Georgia is committed to the Eastern

Partnership. It is our joint project and a framework of diverse opportunities.

The cooperation between the Eastern Partnership and the European Union is not a one-way road,” Janelidze stated.

He thanked the Hungarian chairmanship and the V4 countries for their firm support of the Eastern Partnership.

The plenary session held in Budapest on 31 August was fully dedicated to preparations for the fifth Eastern Partnership Summit, scheduled for 24 November in Brussels.

Visegrad Group Reaffirms Strong Support for Eastern Partnership Continued from page 1 The Joint Statement of the Ministers of Foreign Affairs of the Visegrad Group, adopted in Budapest on 31 August, reads that the Ministers reaffirm their strong support to the “Eastern Partnership as a strategic dimension of the European Neighborhood Policy and a key and active factor of stability, security and economic progress in Eastern Europe”.

They urge the Eastern Partnership be kept high on the EU’s political agenda.

The statement underlines that the Eastern Partnership should have a clear political narrative, a new strategic vision and an architecture that guarantees joint ownership of European institutions, Member States and partner countries.

They also highlight the necessity of continuing the reforms in partner countries to strengthen their internal stabil-

ity, resilience and civilian security, and welcome the Summit’s focus on tangible benefits delivered to citizens of the six Eastern Partnership countries: Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine.

“The V4 Ministers welcome the introduction of visa-free travel for Georgian and Ukrainian citizens into the Schengen Zone. This will undoubtedly contribute to enhancing people-to-people

contacts among the EU and the partner countries,” the statement reads.

Furthermore, the V4 Ministers reconfirm that the implementation of the Association Agreement/Deep and Comprehensive Free Trade Area is the key task for Georgia, Moldova and Ukraine to further develop their relations with the European Union.

The ministers agreed that the Brussels Declaration should reflect the various

aspirations of the partner countries and offer a European perspective for those interested, as well as setting out an ambitious agenda for the Eastern Partnership in the longer term.

The document reads that, “Better connections shall contribute not only to the strengthening of economic cooperation and people-to-people contacts, but also to the tightening of political ties”.

BUSINESS

GEORGIA TODAY SEPTEMBER 5 - 7, 2017

5

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

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

Crime & Punishment. The Georgian Version

BY ERIC LIVNY

D

riving back home after a two-week family vacation in Turkey, a horrific surprise awaited us at the bordercrossing in Vale (near Akhaltsikhe). We arrived just before midnight on Saturday, August 26. What we knew to be a very efficient procedure lasted much longer than the expected 2-3 minutes. And then came the shocking verdict: “Dear Mr. Livny, you will not be able to continue your journey. According to our records, there is an order to have your car impounded. We are not yet sure why, but perhaps you haven’t paid a fine”.

The officer in charge of our case spends the next hour on the phone and then confirms: we forgot to pay a 10 GEL fine issued by the patrol police for a parking violation committed at the end of May. “Mr. Livny, since you have failed to pay on time, and the payment is now more than two months overdue, I have no choice but to take your car away. I can see you have two children in the back of your car, and I understand it may be a little unpleasant, but I have to follow my instructions”.

A little unpleasant? Hmm. Try to imagine: well after midnight; the whole family exhausted after 1,200km on the road; two kids hardly dressed for the 12 degrees outside; truly in the middle of nowhere, 300km away from home and no hotels nearby, no other cars on the road, and no taxi service available to take us to safety.

“I am very sorry, Batono Eric,” the police officer suddenly adds. “There is another small problem. Because you did not pay the fine, it appears that your driving license was revoked on July 29. If that’s the case, I have to fine you another 500 GEL for driving without a valid license”.

Another hour goes by in order for the police to issue the 500 GEL fine and for the car towing service to arrive at the scene of the crime. Shortly before dawn, close to 4am, we did manage to get to civilization (if Akhaltsikhe counts as such), given a ride by the kind towing service guys. We did not freeze to death, and were not eaten by the wolves. Welcome to Georgia, at its best.

A little crime and punishment calculus is in order.

Crime: • Non-payment of a 10 GEL fine for a

parking violation committed on May 29, 2017.

Punishment: • Me, my wife and our two children subjected to immense stress.

• Car impounded early on Sunday morning, August 27. The earliest it can be retrieved is August 29 (at the cost of 160 GEL). The 10 GEL fine can be paid online any time but police offices are closed on Sunday and Monday (due to a national holiday).

• Cost of hotel in Akhaltsikhe (200 GEL).

• Time and cost of transfers to Tbilisi for family and luggage, and back (300 GEL).

• Time and cost of having my driving license immediately restored: 40 GEL paid to the Ministry of Justice, 60 GEL paid to the police; 4 hours spent in lines at the police (x2) and the Justice House.

For some reason, the single window approach does not work for people who need it the most, people whose car has been impounded!

• Fine of 500 GEL for driving without a license (actually, for driving without knowing that the license has been revoked).

A sarcastic comment by a friend on my wife’s Facebook post: “If late to pay a 20 lari fine, one should be executed by a firing squad and burned together with his vehicle.”

TAKING BRUTALITY OUT OF THE SYSTEM, STEP-BY-STEP Obviously, we were extremely unlucky.

The above crime and punishment calculus could have been much more humane had we been stopped in Tbilisi, with no kids and luggage in the car, in the middle of the week and during the government’s office hours. But, should bad luck be reason enough to torture innocent (though, perhaps, forgetful) citizens or God-sent guests? Would it not be better to rewrite Georgian laws and regulations so as to bring legal sanctions in proportion with the administrative sins and offences committed?

The theme of Georgia’s brutal laws and regulations is hardly a new one.

Brutality in the administration of criminal justice was one of the main reasons for the political defeat of the Saakashvili administration and subsequent contempt for his National Movement. Taking brutality out of the criminal justice system has been one of the top priorities, and a key achievement, of the incoming Georgian Dream government.

Moreover, pressure by Georgian businesses and international business associations has led to significant improvements in the system of Georgian tax administration. For example, business bank accounts can no longer be frozen for an indefinite term upon the slightest suspicion of tax evasion.

Yet, as I have written on these pages in the past, there is much less public awareness of the brutality embedded in Georgian administrative practices when it comes to households and individuals. And, since ministerial chairs are not impounded, and governing licenses are not invoked for a lack of timely action, there appears to be no political will for taking the necessary action. At least for now.

“A guillotine is an apparatus designed for efficiently carrying out executions by beheading. The device consists of a tall, upright frame in which a weighted and angled blade is raised to the top and suspended” (Wikipedia). In 2004-6, the Georgian government used the so-called guillotine strategy to eliminate unnecessary business regulations. A similarly harsh and efficient method is used still today to punish Georgian citizens who fail to pay their fines or utility bills on time.

A TIME TO WEEP AND A TIME TO LAUGH (ECCLESIASTES, 3:4) Zero-tolerance and excessive punishment of crime, corruption, tax evasion, as well as non-payment of fines and utilities fees, may have been justified as part of a radical reform effort in 2004-6 that sought to restore trust in Georgia’s state institutions (and, actually, build them almost from scratch). Indeed, after more than a decade of utter lawlessness, Georgian citizens and bureaucrats had to be scared into law-abiding behavior. Hence, no presumption of innocence in dealing with crime, corruption and … non-payment of fines or utility fees.

• You happen to be suspected of crime or corruption? Buckle up for a wild ride: a lengthy pre-trial detention in a terribly overcrowded prison cell, torture and intimidation until you confess and agree to an expensive plea-bargaining deal. If you refuse (why would you?), pliant courts will sentence you to many more years of torture in Georgian jails. Benefits: every criminal gets punished. Costs: many innocent people get punished, too.

• You are two days late to pay your electricity bill? Your electricity supply will be cut off, regardless of circumstances (small children or somebody sick in the household). Benefits: everybody pays their bills in full and on time. Costs: those who are late to pay (e.g. newcomers) get disproportionately punished.

A complementary reform was undertaken to simplify public administration rules in order to reduce and, in many cases, completely eliminate bureaucratic discretion and related corruption risks.

• The government is tendering the construction of a bridge? The contract goes to the lowest bidder in an anonymous electronic tender procedure, without

10 Galaktion Street

reviewing the applicants’ prior experience. Benefits: price offers can be reviewed by a robot, hence no corruption risks; the government saves on expenses. Costs: contracts are sometimes awarded to companies that lack necessary qualification, hence construction risks (if a project get completed) and waste of public resources (if it doesn’t).

• Your business is audited by the Georgian tax authorities? For fear of mistakes (that would not be tolerated), tax inspectors take months to complete an audit; any findings result in the maximum allowable penalties and a freezing of the business’ bank accounts. Benefits: businesses pay their taxes on time and in full.

Costs: businesses are paralyzed, resulting in losses of private and public income and morale.

Such brutality has been very effective in changing people’s expectations and moving the system to a new ‘equilibrium’ in which everybody thinks twice before engaging in illegal behavior: bureaucrats no longer extract bribes; citizens no longer offer bribes; businesses and households pay their taxes, fines and electricity bills without the slightest delay.

The challenge for the policymaker is to realize that brutality is no longer necessary to maintain the new equilibrium in which people are already used to paying their bills and fines on time. Georgia’s

prosecutors can no longer extract confessions, and their cases are now held to a stricter standard by independent courts.

Did this cause a spike in violent crimes or crimes against property or drugs?

Obviously, not. Similarly, the requirement to receive a court order for a lengthy freezing of a business bank account did not lead to a spike in tax evasion.

Different countries use different means of making sure fines and fees are paid on time and in full. In Israel, the country I come from, late payment of a fine results in fairly steep financial penalties. And there is no avoiding: you will have to pay the moment you approach the government for any service such as car registration, or extension of a license. The Israeli government is probably very happy to wait for late payments while charging above-market interest and penalties on any overdue amounts. Proud of its e-governance and IT capabilities, the Georgian government could complement the Israeli solution with text messaging to remind people of due payments. That would be good business and actually nice.

Eric Livny is President at the International School of Economics at Tbilisi State University (ISET), and ISET Policy Institute, www.iset.ge, www.iset-pi.ge

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

6

BUSINESS

GEORGIA TODAY

SEPTEMBER 5 - 7, 2017

Techno Park Tbilisi Hosts Georgian-German Startup Forum

BY NINO GUGUNISHVILI The signing of the China-Georgia FTA this year

China & its Dealings in the South Caucasus OP-ED BY EMIL AVDALIANI

T

he South Caucasus has a strategic location as a hub between Asia and Europe as well as Russia and the Middle East. This naturally encourages regional powers to vie for political and economic influence here.

One of the newcomers is China, which, through its Belt and Road initiative, sees South Caucasus ports and vital railway and road infrastructure as an important part of the grand design to reshape Eurasia’s connectivity.

In the South Caucasus, Georgia attracts most of China’s economic and political attention. Chinese trade and investment in the country has dramatically increased in recent years: China is among the top four largest trade partners of and is the largest investor in Georgia. As to the import, China is now one of the biggest importers of Georgian wines. Chinese companies are active in construction throughout Georgia (real estate primarily in Tbilisi and Kutaisi). In May, China and Georgia signed the China-Georgia Free Trade Agreement (FTA), China’s first such agreement in Eurasia. Beyond the trade and investment statistics, Beijing is primarily interested in railway, road and other infrastructure here.

In neighboring Azerbaijan, too, China is increasing its influence. Economic contacts are fewer than in Georgia, but nevertheless, by 2016, China settled on Azerbaijan’s list of top ten trade partners. In the past two years, there have been a number of high-level visits involving the Azerbaijani president and two Chinese politburo members. Such frequency is rarely observed between China and any other Eastern European country. Moreover, the State Oil Company of Azerbaijan Republic (SOCAR), and China National Petroleum Corporation signed an agreement to cooperate in the realms of oil, gas, and petrochemicals. In late 2016, the Asian Infrastructure Investment Bank (AIIB) approved a $600 million loan to finance the Trans-Anatolian gas pipeline (TANAP) which runs from Azerbaijan through the Georgian territory to Turkey.

As mentioned above in the case of Georgia, Chinese interests in Azerbaijan also involve cooperation regarding existing railway and road infrastructure, among which is the upcoming Baku-TbilisiAkhalkalaki-Kars railway aimed at enhanc-

China is among the top four largest trade partners of and is the largest investor in Georgia

O

n September 4 - 5, Techno Park Tbilisi hosted the Georgian-German Startup Forum, gathering around 100 Georgian Startupers, with the aim of sharing their knowledge and experience in entrepreneurship.

The event, organized by PMC Research in partnership with Georgia’s Innovation and Technology Agency, falls within the framework of Georgian-German Year.

Giorgi Cherkezishvili, the Deputy Minister of Economy and Sustainable Develop-

ment of Georgia, Dr. Heike Peitsch, Ambassador of Germany to Georgia, Aleksi Aleksishvili, General Director at PMCG, and Giorgi Zviadadze, Chairman at the GITA, opened the Forum, while Colin Donohue, an entrepreneurship strategy specialist, and Giorgi Laliashvili, chief specialist of strategic development at the GITA, were on hand to moderate discussions.

Leading German entrepreneurs were present: Michael Huebl (flinc GmbH), Wolfgang Bernecker (Pandata GMPH) and Stephan Dabels (AmbiGateGmbH), all sharing their extensive experience with the audience on global trends and the successes and failures on the road to building and managing startups.

“Such forums are vital for sharing knowledge, experience and technologies between the two countries, as well as for establishing partnerships,” said Mikheil Skhiereli, Project Manager from PMC Research. “We hope that Georgian companies will acquire useful experience from German companies and will be able to develop strategic collaboration with them”.

The Georgian startupers had the chance to meet in person with the GeorgianGerman Startup Forum speakers on September 5, through B2B meetings.

The Georgian-German Startup Forum is supported by the German Embassy in Georgia and Procredit Bank.

Chinese interests in Azerbaijan also involve cooperation regarding existing railway and road infrastructure ing connectivity from the Central Asian region to the Caucasus and Turkey.

Armenia has perhaps been the least influenced by Chinese investments or overall geopolitical interests since the end of the Soviet Union. However, recently there have been some interesting developments indicating the growth of Chinese ambitions with the construction of a new embassy in Yerevan. Once completed, it will be Beijing’s second largest in the former Soviet Union space.

China has also invested heavily in iron mining in Armenia, while trade between the two countries is growing. Although not big in numbers, China in 2015 ranked behind only Russia on the list of Armenia’s top import/export partners.

There are even nascent military contacts between the two countries. Several days ago, it was announced that the Armenian defense minister would visit China. Similar moves from the Armenian side are important to watch as Yerevan aims to diversify its military contacts and lessen dependence on Russia.

Moreover, in 2016, Armenia was accepted as a dialogue partner in the Shanghai Cooperation Organization (SCO). At the same time, although there are hopes that Armenia will start playing a major role in the Road and Belt initiative, the country still remains pretty much isolated.

Closed borders limit connectivity possibilities. Even the $3.2 mln project of the Armenian section of the long-planned Tehran-Yerevan railroad is undecided at present.

Thus, it can be said that China only recently set its eye on the South Caucasus and its valuable infrastructure, primarily as a result of China’s Belt and Road initiative, according to which the country’s east will be reconnected (as in ancient times) to Europe through the shortest distance through Central Asia, the South Caucasus and the Black Sea (although that is not the only road which the Chinese are working on). Georgia can boast of its Black Sea ports, east-west highway, which essentially connects Azerbaijan and the Black Sea coast, and existing and upcoming railway projects (Baku-TbilisiKars). Azerbaijan, due to its location, will play no less a pivotal role. As to Armenia, despite some positive developments in relations between it and China , it is still largely unclear how the country will be involved in China’s grander strategic plans.

Georgian Wines Win Top Awards in Japan Photo source: Japan Wine Challenge

BY THEA MORRISON

E

ight Georgian wines won Platinum, Gold, Silver and Bronze medals at the 20th Japan Wine Challenge, held in Tokyo, Japan, in August.

The Saperavi 2015 of Chigogidze Wines won the highest award of the competition - the Platinum Medal.

Vaziani Company Makashvili Wine Cellar Mtsvane 2016 and Vaziani Company Makashvili Wine Cellar Khikhvi 2016 won gold medals.

The silver was awarded to Badagoni GAU#5 White One 2015 and Chigogidze Wines Aleksandrouli 2015.

Three wines of Badagoni: Badagoni Brut 2015, Maestro Saperavi 2015 and Saperavi Reserve 2010 won bronze medals.

Chigogidze Wines Saperavi 2015 was also awarded the Regional Trophy for Best Red Wine for Georgia and Makashvili Wine Cellar Khikhvi 2016 was awarded Regional Trophy for Best White Wine for Georgia.

The 20th Japan Wine Challenge is one of the most important international wine competitions in Asia.

A total of over 1,700 wines took part in the competition and were judged by a panel of leading wine professionals

from Japan and elsewhere.

The wines came from 30 different countries, with the principle entries being from Australia, Austria, Chile, France, Germany, Italy, New Zealand, and Japan.

A total of 11 International Trophy medals were awarded, 39 Regional Trophy medals, 5 No.1 Best Value Trophy medals, 17 Best Value medals, 19 Platinum medals, 120 Gold medals, 426 Silver medals and 797 Bronze medals.

The official website of the competition

reads that the Trophy Awards Ceremony for the Japan Wine Challenge 2017 will take place in November 2017 or February 2018 (to be confirmed), and Her Imperial Highness Princess Takamado will present the Trophies.

The Georgian National Wine Agency reports that triumph in such prestigious competitions will enhance the promotion of particular companies as well as raise awareness of Georgian wine, their popularization and development on the major export market in Japan.

BUSINESS

GEORGIA TODAY SEPTEMBER 5 - 7, 2017

7

Turkish Stream Gas Pipeline Reaches Turkey build a gas hub and relies mainly on Russian gas. The head of Gazprom said, according to Interfax, that the demand for Russian gas in South and South-Eastern Europe is growing rapidly. "In the countries of this region, the growth rates are really impressive," Miller said. "In Turkey, demand has increased by almost 26%, in Greece by 12%, in Bulgaria by 14%, in Hungary by 31%, in Serbia by 47%, and in Austria by 77.5%".

There is already one gas pipeline in the Black Sea from Russia to Turkey: the Blue Stream, built by Gazprom in 2002. About 13 billion cubic meters of gas were supplied by the 1213 km pipeline last year.

The construction of the Turkish Stream will be a significant blow to Ukraine. "For Ukraine, the implementation of this project will have negative consequences, not as great as from the Nord Stream, but the loss of approximately 15 billion cubic meters of transit from 70 billion cubic meters of the current is a very large amount," said the head of Naftogaz Ukrainy,

Pipelayer Pioneering Spirit

BY DAVID DRUMMERS

T

he construction of the Turkish Stream on the territory and in the waters of Russia seems to have been completed. According to the navigational portal Marinetraffic, Pioneering Spirit, a pipelaying ship, has crossed the border and entered the economic zone of Turkey. The last time the ship transmitted a signal on the AIS (automatic identification system) was on August 29, marking it around 200 km from the coast in the Black Sea. Its speed in this case was 0.1 knots (4.4 kilometers per day).

Throughout August, the laying of the gas pipeline averaged 3.5 km per day.

Judging by the location and possible progress in the last three days, Pioneering Spirit has already laid 190-200 kilometers of the first thread of the Turkish Stream. Pioneering Spirit’s location was confirmed by data on the Siempearfi sh supply vessel in the Netherlands and the Flevogracht cargo vessel, which delivered pipes from Bulgaria’s Varna on August 1.

The pipelayer is expected to finish its work in the Black Sea on November 1, however, according to technical specifications, within two months, Pioneering Spirit will be able to lay no more than 300 kilometers of the

From the first thread, 12 billion cubic meters will flow to the domestic market of Turkey. The second thread of the Turkish flow is to supply Europe, bypassing Ukraine

required 700 km. If the data is correct, then perhaps the November stop signals a break for the winter storms, as in November and December the work may reach the very center of the Black Sea. At the end of June, during a visit to the Pioneering Spirit pipelayer, Gazprom CEO Alexei Miller told the Russian president that the construction of the first thread of the Turkish Stream would be completed in March 2018 and the second thread in 2019.

21% of the first thread of the Turkish Stream gas pipeline has already been laid and even a break will not prevent the timely construction of the offshore section of the 937 km pipeline. The work, judging by the pace, is going faster than scheduled.

Data on the construction of the gas pipeline is confirmed by the announcement of Gazprom CEO, made on 31 August, that two lines of 220 kilometers have already been laid. Work on laying the shallow part of the two threads of the pipeline was carried out by another pipelayer of the Swiss company Allseas - Audacia. This vessel has already left the Black Sea and is in Spanish Cadiz.

Mid-August, Russian Energy Minister Alexander Novak said that the point of the gas pipeline's exit to the land of Turkey had been agreed.

"There were different views on where this should be. North of Kiyykei village was decided upon- a place most effective and optimal from an economic and geographical point of view," Novak said.

The two threads of the Turkish Stream gas pipeline will ensure the supply of 32 billion cubic meters of gas per year, bypassing Ukraine. From the fi rst thread, 12 billion cubic meters will flow to the domestic market of Turkey, and the remaining 4 billion cubic meters, as stated by the Turkish authorities, will be submitted to the construction of the "Southern Gas Corridor" from Azerbaijan to Greece and Italy.

The second thread of the Turkish flow is to supply Europe. Last February, Gazprom, Edison SpA (an energy company in the field of electricity and natural gas headquartered in Milan, Italy) and DEPA SA (the public natural gas supply corporation of Greece) signed a memorandum of understanding on the supply of natural gas from Russia to Greece and from Greece to Italy. Another option is the supply of gas through Bulgaria, which plans to

Andrei Kobolev.

Today, Ukraine receives about $2 billion per year for the transit of Russian gas, and the construction of the Nord Stream-2 and the Turkish Stream will reduce revenues five-fold. After the contract expires and two new bypass routes are put into operation, Gazprom plans to reduce transit through Ukraine to 15 billion cubic meters per year.

At the same time, the Turkish flow may fall under new anti-Russian sanctions, a law recently signed by US President Donald Trump in which it states that foreign companies are prohibited from investing or providing goods and services for Russian gas pipeline projects of more than $5 million-worth per year. The construction of the Turkish Stream is now provided by the pipelayer of the Swiss company Allseas. According to experts, the cost of freight can be EUR 250-300 thousand per day. The company itself has not given comment on the possible consequences of the anti-Russian sanctions.

8

BUSINESS

GEORGIA TODAY

SEPTEMBER 5 - 7, 2017

Chen Tsutu, President of CEFC China Energy Huaxin

Rosneft Becomes Chinese Strategic Partner

BY DAVID DRUMMERS

R

osneft and the Chinese conglomerate CEFC China Energy Huaxin signed an agreement on strategic cooperation and a long-term contract for the supply of oil at the BRICS IX summit in Xiamen. The heads of the companies, Igor Sechin and Chen Tsutu, signed the documents.

"The agreement on strategic cooperation provides for the implementation of joint exploration and production projects in Western and Eastern Siberia and is an indication of the integral approach of

the Chinese corporation to cooperation with Rosneft. The agreement also provides for the interaction of companies in such areas as oil refining and petrochemicals, trade in oil and oil products," Rosneft said in a statement.

"We plan to make joint investments in strategically important projects in the Russian oil and gas sector," the president of CEFC said.

Huaxin is also to join the holding company QHG Oil, which manages a 19.5% stake in the Russian state-owned company bought in December 2016 by a consortium of the Swiss trader Glencore and the Qatar Investment Authority (QIA), Qatar's state-owned holding company that can be characterized as a National Wealth Fund.

Gov’t to Construct Logistics Hub in Kutaisi

Photo source: georgiantour.com

BY THEA MORRISON

T

he Government of Georgia plans to construct a logistics center in Georgia’s second largest city, Kutaisi. The project was announced by the Prime Minister of Georgia, Giorgi Kvirikashvili on Saturday, at the presentation of the ruling Georgian Dream (GD) party’s majoritarian candidates in the Imereti region.

Kvirikashvili talked about the development of logistics and noted that it is planned to build one of the largest logistics centers near Kutaisi Airport, which is expected to increase the country's transit and logistical potential and create new jobs.

He said that the construction of the logistics center will begin in the near future and “will transform Kutaisi into one of the leading economic centers”.

“Kutaisi will be the center of our spatial development…It should regain its historical status and

become the second largest center in Georgia,” the PM stated.

He also said that the government is going to expand Kutaisi International Airport.

“The railway line connecting the city to Kutaisi International Airport is under construction. Our citizens and foreign guests will enjoy modern infrastructure and will have more comfortable and safer travel. This will further increase Georgia's tourism potential,” the Prime Minister said.

Kvirikashvili also spoke about the large-scale Kutaisi University City project, financed by the Cartu Fund.

The total cost of the project is EUR 1 billion and it envisions the creation of a regional education and research hub by building the largest, modern university complex not only in Georgia, but the whole Caucasus region.

“The university city will become a business card not only for Kutaisi and Imereti, but also for our whole country and the region as a whole,” he stated.

BUSINESS

GEORGIA TODAY SEPTEMBER 5 - 7, 2017

9

Visa: Offering Security and Innovation in Georgia & Worldwide

INTERVIEW BY NINO GUGUNISHVILI

F

ollowing the Visa Middle East and Eastern Europe Security Summit 2017, held at Tbilisi’s Biltmore Hotel on August 21-22, GEORGIA TODAY met with Hector Rodriguez, Visa’s Regional Risk Officer for Central and Eastern Europe, Middle East and Africa, to talk about electronic payments security, global trends in customer oriented innovative solutions and emerging demands on the market.

With over 20 years of extensive experience in risk management in the payment industry, Rodriguez is responsible for Credit Settlement Risk, Enterprise Risk Management and Payment System Risk, including Data Security, Brand Protection and Cyber Investigations at Visa.

WITH THE RAPID GROWTH OF ELECTRONIC AND ONLINE PAYMENT USAGE GLOBALLY, WHERE DOES VISA STAND IN ENSURING SECURITY FOR CONSUMERS? Consumers are crucial, and the event we’re having today (Middle East and Eastern Europe Security Summit) is a vital part of our efforts to ensure they’re

Being the largest retail payments network in the world, we have a vast amount of transactions and data upon which we can build solutions and insights

protected when using our products and network. For the last two days, we’ve been here in Tbilisi with a group of clients not only from the CISSEE region but also from across the Middle East and North Africa to talk about what we need to do to make sure the electronic payments system is secure for consumers.

Visa can do a lot of things, the banks can do a lot of things, and merchants can do a lot of things, but at the end of the day you, as the consumer, need to have trust what we’re doing.

WHAT MEASURES ARE UNDERTAKEN SPECIFICALLY? We do many different things and we can talk about the tools and techniques that we’re using. When it comes to consumers, we believe first in raising awareness - we need to make sure that consumers are aware of what is available in terms of the tools and solutions designed to protect them when using their cards.

These include EMV chip cards, which use an embedded microprocessor instead of a magnetic stripe to store cardholder data, making it almost impossible to counterfeit, and Verify by Visa, our online solution that helps ensure that payments are made by the rightful owner of the Visa account, building consumer confidence in online shopping. We also run consumer education campaigns in many markets. Through these campaigns, we offer consumers tips to help consumers avoid pitfalls and stay protected at all times. For example, we offer advice like, if you’re shopping online, make sure that the site has a padlock icon and never share your password. Also, sharing and not protecting your PIN is something people should avoid doing. Another things we also see is scams, unbelievable deals that attempt to lure cardholders into giving up their personal and account information. As part of the campaign, we run short 20-second video messages on social media to help show consumers how to protect their personal and account information at all times. We also work to remind consumers that if they are victims of fraud involving their card, they won’t be held responsible for it. So, talking to our clients in Georgia and around region helps us make sure that the right tools and processes are in place to ensure consumers feel safe, comfortable, and confident using their cards.

That’s our key aim with regards to consumers.

SO, IN A WAY, IT’S ALL ABOUT EDUCATION? Yes - education and awareness are key.

We can explain complex things such as tokenization and encryption, but what consumers need to understand is that a chip card is a secure way of making a transaction and that it will protect them.

And, when they’re shopping online and are authenticated by Verified by Visa, they should feel comfortable and safe.

Finally, not sharing their passwords, and avoiding unsafe websites, are simple steps that will go a long way in ensuring they are protected from fraud.

HOW DO YOU CONVINCE YOUR CONSUMERS THAT THE ONLINE PAYMENTS AND THE CASHLESS CONCEPT GENERALLY IS MORE RELIABLE AND LESS TIME CONSUMING? Georgia ranks among the top ten countries for contactless transactions and has one of the highest card penetrations within the region. Contactless is the perfect example of security convenience, because what contactless has is the same chip card used in the same dynamic cryptogram that basically alternates and prevents it from being counterfeited.

And, at the same time, it gives you the convenience because you just tap and go. We discuss contactless payments in our security summit to educate our other clients on the convenience and security of this type of payments technology.

Georgians are innovators in this space.

With regards to eCommerce, we have to continue to deliver the message of safety and security, and how we’re working to enhance the way we use Verified

by Visa for added security. We have something called 3D Secure, a protocol upon which Verified by Visa is based.

With 3D Secure, more information is shared between merchants, issuers, and banks, allowing them to better authenticate and identify that individual’s device and information. Using additional pieces of information - such as geo-location, information about the device, and even the language of the device - gives enough contextual information about the transaction for us to assess accurately its risk level. If it’s a high risk, there is an extra

layer of security in the form of an OTP sent to the cardholder, and if it’s not high risk and we feel it is a genuine transaction, then we approve and notify the consumer that they’ve been validated and authenticated. We see that as a significant thing with a positive impact on people. Consumers get a more seamless experience and it continues to be as safe and secure as before – this helps improve merchant profitability. By creating this seamless transaction, by using more information that can be shared between the merchant and the issuer, we can approve more transactions, the consumer has a better experience and, at the same time, the merchants enjoy better sales.

WHAT ARE THE THREATS AND DEMANDS THAT NEED TO BE ADDRESSED TODAY? Today’s threats are mainly cyber securityrelated. Cyber security threats are happening around the world on all levels: you have breaches of personal information within governments and you have websites being taken down with malware.

The latter is a key area of our focus and one of the things we continue to develop a response against. We’ve been working very closely with our clients to identify and disrupt these threats, making sure that the entities that have information are protected, and that we devalue the data and make sure we use the same information to make better decisions.

Being the largest retail payments network in the world, we have a vast amount of transactions and data upon which we can build solutions and insights which we can share with our clients as part of payments security training we provide.

The data capability of our network is an integral part of our multi-layered approach to security. And, with regards consumers, protecting and educating them is critical.

WHAT NEW DEVELOPMENTS DO YOU FORESEE IN TERMS OF A CASHLESS ECONOMY IN GEORGIA? One of the big things is the Internet of Things, where everything will be connected and wearables such as rings, and watches and more and more phones will have the capability to make payments.

We were just discussing at the summit today that in 2016, there were an esti-

Georgia ranks among the top ten countries for contactless transactions and has one of the highest card penetrations within the region mated five billion connected devices - by 2020, it is expected that there will be over 20 billion connected devices. Now, is Georgia there yet? We’re seeing Georgia moving in this direction but I think it is still some years away. But with more transactions, and data connected and transferred there are more opportunities for criminals to steal information. So, one of the key technologies we developed to address this is tokenization, which replaces sensitive account information with a token, which has no meaning or value. It’s a critical thing coming to this market and Georgia is one of the first countries leading the implementation of tokenization within the CIS region.

It’s a proven testament of Georgia’s ambition to be an innovator, and Visa is bringing new technologies and innovations to Georgia first because of its desire and innovative spirit. We’ve already launched an initiative to start tokenization with the Bank of Georgia, and obviously there will be other banks here that will follow.

WHAT NEW SOLUTIONS DO YOU PLAN TO LAUNCH IN THE FUTURE? Biometrics as a key area of focus and interest. At the moment, we need to make sure we have the right standards, and interoperability of the technology is also something we’re exploring.

10

BUSINESS

GEORGIA TODAY

SEPTEMBER 5 - 7, 2017

Georgia Hosts Annual Agile Spirit Drills

BY THEA MORRISON

T

he annual multinational military drills ‘Agile Spirit’ have been launched at Georgia’s Orpolo firing range, Akhaltsikhe, southern Georgia.

Military personnel from six countries: the United States (US), Bulgaria, Latvia, Romania, Ukraine and Azerbaijan are in Georgia to take part in the drills from September 3-11.

“Conducted by the General Staff of the Georgian Armed Forces (GAF) and US Marine Corps, the exercise will see participants train their interoperability, support regional security and improve operational skills,” the Ministry of Defense (MoD) of Georgia announced.

Agile Spirit 2017 includes command and staff training and, in total, 1515 servicemen are participating.

Georgia’s MoD welcomed the engagement of the regional and other countries in Agile Spirit drills, highlighting that the training facilitates peace and

stability in the Black Sea and Caucasus region.

“Our goal is to contribute to the defense of our shared values, free society and peace and to strengthen the trust built during the exercise,” the ministry added.

Agile Spirit 2017 was officially opened by President of Georgia Giorgi Margvelashvili and Defense Minister Levan Izoria.

While addressing the servicemen, President Margvelashvili remembered those who had sacrificed their lives for Georgia and for global security.

“I welcome the military exercise which is now a tradition…Today, your coordination and your determination is very important,” he stated.

Georgia's Supreme Commander-in-Chief thanked all the countries participating in the exercises, Georgia's partners and the organizers of the training.

An exhibition of the military equipment being used in the training was held at the end of the opening event.

Agile Spirit was originally a joint US-Georgian military exercise that began in 2011. In 2015, the combat drills were expanded to include other NATO members and NATO-associated countries.

Wine & Cigars: A New Tourist Destination for Batumi Visitors

George Ermakov, the Mayor of Batumi, rolling a cigar

BY MARIKO NATSARISHVILI

I

n August, Hotel Euphoria opened a Georgian Cigar & Wine exhibition-trade space.

29 Cigars, cigarillos and wrapping tobaccos produced by LLC Imeri are on display.

Visitors also have the chance to taste trademark wines such as Chkhaveri; Tsolikauri, and wines of the Uzado brand, made following the traditional Georgian method in ‘Turmanidze’s Marani’.

The purpose of creating the exhibition-trade space was to promote and sell products produced in Keda municipality. Tourists and locals will be able to get acquainted with cigar manufacturing technologies and observe and participate in cigar making.

Imeri and Turmanidze’s Marani LLC are daughter companies of Mardi Holding, which is the Holding responsible for this latest initiative.

“We are the first producers of Georgian cigars and decided to create an informational and promotional space for tourists and locals,” says Natia

Sirabidze, Executive Director of Mardi Holding.

“Visitors will be able to make their own cigars learn about the history of Georgian wine production and enjoy a free degustation. I am sure this space will be put among the must-see tourism destinations of Batumi”.

Members of the Supreme Council of Adjara, Ministry of Agriculture, Finance and Economy, guests from Batumi City Hall and the Adjara Tourism Department, attended the opening ceremony.

LLC Imeri started growing a traditional variety of Georgian oriental tobacco trial batches in the mountainous areas of Adjara in 2007.

Based on the research and recommendations of foreign experts, the company decided to innovate on the Georgian market, providing a wide choice of cigars and cigarillos.

The first Georgian cigar samples were made in May 2009, in Indonesia, by ‘Taru Martani 1918’.

With the optimal combination of Indonesian, Cuban and Dominican tobacco, the professionals received a Georgian cigar with exceptional taste.

The new exhibition-trade space is open to Batumi visitors daily for free wine tastings and cigar making.

SOCIETY

GEORGIA TODAY SEPTEMBER 5 - 7, 2017

11

Number of Foreign Visitors up by 27.4% in August The precise statistics for the last month are as follows: Tourists – 573,368 visits Transit – 274,878 visits Other purposes- 232,203 visits Tourists by country arriving this August, compared to August 2016: Armenia (+12 %), Russia (+28 %), Azerbaijan (+19 %), Turkey (+42), Ukraine (+4) and Iran (+85).

The MIA reports that a positive tendency is maintained from European Union countries Germany, UK, France, Poland, Lithuania, Italy and Greece, from which the number of arrivals in Georgia is growing.

The statistics show that in JanuaryAugust the number of arrivals in Georgia increased from Israel, Kazakhstan, Uzbekistan, Belarus and the United States.

BY THEA MORRISON

T

he Information-Analytical Department of the Ministry of Internal Affairs (MIA) has released the official statistical data of foreign visitors that arrived in Georgia in August.

According to the data, last month, 1,080,449 foreigners visited Georgia, which is 27.4% more compared to the same period of 2016.

In the January-August period, there were 5,059,106 visits to the country, which is 18.9% more y/y.

Visits from foreign tourists are numbered at 2,402,699 for the period, 29.4% more than the same period y/y.

Photo Source: RFE/RL

Football Stadium in Tskneti Demolished: What Will Local Kakhi Kaladze Do? a lot of rallies within the last year, but in vain. There was no reaction at all from the party of the city government. What we long for right now is to save the basketball stadium located near it, on Abkhazia Street, and the surrounding forest.

My children have played football and basketball in these two stadiums since their early childhood. Not only the district but the whole central Tskneti is worried,” he said.

Reportedly, when IDPs came to central Tskneti 25 years ago, even shocked and paralyzed as they were, with hardly any ability for rational thought after the Abkhazian war, and desperate to find shelter, they still chose not to take over the administrative building of the stadium in order to save it for their children.

OP-ED BY MAKA LOMADZE

T

he elections are coming on fast. But the Georgian Dream candidate does not seem to care ever so much if he wins the Tskneti vote or not.

Tskneti is a forested village above the capital city, belonging to Tbilisi municipality, popular as a health resort, though with many permanent residents.

The only stadium serving the central area was recently demolished to make way for the construction of apartment blocks and, in spite of numerous signatures collected and protest rallies organ-

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However, one imperfect day, it was viciously sold by the government to a Georgian Parliamentarian, who enclosed it and the neighboring forest. According to an official source, the former football stadium belongs to the family of late tycoon Badri Patarkatsishvili.

Will Kakhi Kaladze, former football player of FC Milan, save at least the Tskneti basketball stadium and open a new football stadium for the sake of his three sons and the others of the future generations of Tskneti? He will have to, if he does not want to lose a significant number of votes. After all, what guarantee does Tbilisi have that he will not do the same there, despite his promise to “make Tbilisi greener”. Must the votes decide?

ized by locals, there has been no reaction from the government, or even from Kakhi Kaladze, the candidate for the post of Tbilisi Mayor, who lives in central Tskneti himself.

“The whole of our district is highly concerned about it,” says I. K, an IDP from Abkhazia who has lived in central Tskneti for the past 24 years. “We’ve held

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