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facebook.com/ georgiatoday

Issue no: 1020/115

• FEBRUARY 6 - 8, 2018

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue... Number of Inter’ Visitors Up 14%, Number of Tourists Up 23% in January NEWS PAGE 2

FOCUS ON ECONOMIC FREEDOM Georgia ranked 9th among 44 countries in the Europe region

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Prime Minister Participates in Georgia-EU Association Council Meeting BY THE GT TEAM

ISET PAGE 4

Georgia to Host WFTGA 2019 Convention

BUSINESS PAGE 7

Porta Caucasia Kazbegi: Setting Standards for the Georgian Hospitality Sector BUSINESS PAGE 8

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eorgian Prime Minister Giorgi Kvirikashvili, together with a governmental delegation, participated in the February 5 meeting of the GeorgiaEU Association Council in Brussels. The 4th Meeting of the Council saw attendees discussing progress in the implementation of the EU-Georgia Association Agreement and the Deep and Comprehensive Free Trade Area Agreement. The discussions also involved the updated Georgia-EU Association Agenda covering priorities until 2020. After the plenary meeting, Georgian Prime Minister Giorgi Kvirikashvili and High Representative of the Union for Foreign Affairs and Security Policy Federica Mogherini held a joint press conference.

The Tale of Two Cities: Are Almaty-Style “Bombilas” the Future of the Tbilisi Taxi Market?

During the working visit to Brussels, the Head of the Georgian Government is scheduled to meet with European Commissioner for Trade Cecilia Malmström, and the Cabinet members will also hold bilateral meetings. The Georgian delegation, led by the Prime Minister, consists of First Vice Prime Minister and Minister of Economy and Sustainable Develop-

ment, Dimitry Kumsishvili; Vice Prime Minister and Foreign Minister, Mikheil Janelidze; Defense Minister, Levan Izoria; Minister of Environment Protection and Agriculture, Levan Davitashvili; Minister of Regional Development and Infrastructure, Zurab Alavidze; and State Minister for Reconciliation and Civic Equality Ketevan Tsikhelashvili. Check out the latest updates on georgiatoday.ge.

EBRD Board of Directors Unanimously Approves Nenskra HPP Project Financing BUSINESS PAGE 9

Economic Development Will Save Russia BUSINESS PAGE 11 Prepared for Georgia Today Business by

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NEWS

GEORGIA TODAY

FEBRUARY 6 - 8, 2018

UK’s Independent: Why Number of Inter’ Visitors Up 14%, You Should Visit Georgia’s Number of Tourists Up 23% in January Most Remote Village BY NINO GUGUNISHVILI

BY TAMZIN WHITEWOOD

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eorgia’soneveryone’sminds at the moment. Following on from the vast amount of press Georgia is receiving at the moment, UK-based The Independent has published an article entitled “Inside Ushguli, the Most Remote Village in Georgia.” The article, written by Nick Redmayne, concentrates on Georgia’s remote Svaneti region, saying that the once almost inaccessible region of Georgia now has a very different reality, with tourists flocking in their thousands to experience real Svaneti life. “Tough and taciturn, speaking an archaic Georgian dialect and practising a version of Orthodox Christianity owing much to earlier beliefs, Svan cultural identity is distinct. Isolated by an annual six-month winter, until the early 2000s, Svaneti remained a lawless place; blood feuds and banditry were widespread,”

the article reads, offering a brief history of the region. Yet, the author then goes onto to say how things have changed in the far mountainous north of the country, and is now very tourist-friendly, despite the many hours it may take by road to get there. “Once the country’s most dangerous road, the route to regional capital Mestia has now been upgraded. It’s still a journey approaching five hours from Kutaisi, but with the new flights [from London], it’s at least possible to visit.” “In Zhibiani, one of the larger villages, ancient Svan defensive towers overlook the winding lanes and wandering livestock. Substantial stone buildings of two storeys, upper floors fronted by enclosed wooden balconies, lie in varying states of repair.” The article goes on to say, and speaks with local people about the current tourism climate of the region. Check out the full article here: http://www. independent.co.uk/travel/europe/ushgaligeorgia-most-remote-villages-highest-europecaucasus-kutaisi-tbilisi-flights-a8180121.html

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he Georgian National Tourism Administration (GNTA) announced that 444,241 international travelers visited Georgia in January 2018, which, 57,171 more than in January last year and a growth of 14.8%. The number of foreign visitors, meaning tourists that spent 24 hours or more in Georgia, is 189,476 for the month of

January, 35,393 more than in January 2017, increased by 35,393 (+23%). Azerbaijan tops the list as origin country of visitors to Georgia in January (+0.8%), followed by Turkey (+20.1%), Armenia (+20.9%), Russia (+14.6%) and Iran (+92.4%). The GNTA says the positive tendency in the growing number of tourists from EU countries has been maintained, with tourists from the Czech Republic up 59%, Latvia (+46), the United Kingdom (+31%), the Netherlands (+28%), and Lithuania (+16%). Considerable growth is seen in the

number of visitors coming to Georgia from Kuwait (+131%), Saudi Arabia (+127%) and Iran (+92%), as well as from Israel (+77%) and India (+48%). In 2018, Georgia, according to the GNTA, is expected to reach and exceed the record number of 8 million tourists, while income from international tourism is expected to reach $3 billion. The expectations have been made based on the January 2018 data. In 2017, Georgia reached the record breaking number of 7 million tourists, with $2.7 billion received income from international tourism.

Georgia Tightens Punishment for Criminal Group Membership BY THEA MORRISON

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he Georgian Government has decided to step up efforts in the fight against the criminal world and will tighten punishment for members of criminal groups; especially for being a so-called “thief-in-law.” The proper legislative amendments, initiated by the Interior Ministry, were approved by the government and sent to Parliament for further consideration. According to the changes, any person who appears to be a member of a criminal group or a “thief-in-law,” for the purpose of settling any dispute or making any decisions, or supports the criminal world, will be punished according to criminal law. Also, any person who organizes the meeting of criminals or so called “thievesin-laws,” or takes part in such meetings, will be punished. Furthermore, where, under the current criminal code, being a “thief-in-law” is punished by 7-10 years imprisonment, according to the amendments, this punishment will be increased to 10-15 years in prison. As for membership of an organized criminal group, the punishment will be a term of seven to ten years instead of the previous 5-8 years. Georgia’s Deputy Interior Minister, Natia Mezvrishvili, says that should any member of the criminal world cross the

state border of Georgia, law enforcement bodies will detain them immediately. “People who provide any kind of assistance to members of organized crime groups will be also punished according to the law,” she stressed. Giorgi Gakharia, Interior Minister of Georgia, says if the members of the organized crime groups cooperate with the investigation, their punishment will be lifted. “The planned changes are necessary if we all want to build a successful country and eliminate organized crime once and for all,” he stated. The Minister believes that law and order will not be established in the country until there is effective cooperation between civil society and law enforcement agencies. “We are building this bridge of trust now. For this purpose, we needed to be honest to ourselves and to society,” Gakharia told Imedi TV. Georgia’s Prime Minister, Giorgi Kvirikashvili, welcomed the changes, saying Giorgi Gakharia enjoys tremendous support from the Cabinet. “I would like to emphasize and assure our population that the mentality of organized crime will never again take root in Georgia. In this regard, we will be truly consistent and merciless because it is about peace and quiet for our fellow compatriots and the building of our country's future,” the PM stressed. Vory v zakone, or “thieves-in-law,” are originally a Soviet phenomenon. They first appeared in the 1930s: people who

did not accept the Soviet regime and went into the criminal underground. “Thief” is not a profession, but a title backed by the thieves; “law,” refers to code of conduct. According to the thieves’ own code, one should not “rat” on others, repay debts, not be associated with sports teams, etc. But the title gives them the right to act as arbitrators in the criminal world. These “thieves” disappeared back in the early 1960s, when the death penalty was introduced for the involvement in gangs, said Mikhail Pashkin, Chairman of the Coordinating Council of the Moscow and Moscow Region Police Trade Union. These days, a “thief-in-law” refers to the leader of a criminal gang, with the exception of a few traditions that have been preserved: the ceremony of “crowning”(the awarding of this title), and the thieves’ cashbox, the so-called obshchak (common fund), which is held by the “thieves.” Only people who have been convicted many times can become “thieves-in-law.” Once accepted, they must live according to the thieves’ code. The penalty for violation of this code is often mutilation or death. After the collapse of the Soviet Union, the “thieves-in-law” assumed a leading role within the Russian criminal hierarchy. Today, the “thieves” are spreading their influence far beyond the borders of the former USSR and they have organized crime groups in Europe and even the USA.

Georgia Discusses Trade Routes with Russia through Disputed Regions BY TOM DAY

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n January 31, Zurab Abashidze, representative of the Georgian Prime Minister, and Grigory Karasin, the Deputy Foreign Minister of Russia, met in Prague to discuss opening two extra transit routes between the two countries. The routes proposed would go through the disputed regions of Abkhazia and South Ossetia. An agreement has not yet been met, and Abashidze told reporters “there was a serious difference on positions in Prague. It was confirmed that the Russian side interprets the agreement on customs monitoring in a completely different way.” Currently, there is only one trade route which runs between Russia and Georgia; from North Ossetia through the Upper Lars customs point. This road has two problems: it is very narrow, meaning long waiting times, sometimes of more than a day; and being in a mountainous area, the road is vulnerable to frequent blizzards and floods, resulting in the road being

closed for unpredictable periods of time. In the contract, the two new routes proposed are the main road from Vladikavkaz through South Ossetia to the Gori region, and the road from Sochi through Abkhazia to Zugdidi. Both routes go through conflict zones, which is why the routes have been closed since the 1990s. The contract being discussed says that these two routes would only be used if the main one already open were to be closed. Political analyst and professor at the Grigol Robakidze University, Paata Zaka-

reshvili, told reporters that “the contract with SGS is different from the contract of 2011 in that Georgia agrees to potentially open transport via roads through Abkhazia and South Ossetia. This was definitely not Georgia’s main aim, and it has probably been lobbying against the idea. The project has become increasingly more important, but even if it proceeds, the question remains: Will the alternative transport roads actually open in emergency situations or will this part of the agreement remain solely on paper?”

An MP from the European Georgia party, Sergi Kapanadze, told reporters that this “is indeed a very good and necessary agreement.” He went on to say that “Georgia has finally achieved international observers on the borders of the occupied regions […] Georgia has also got hold of a mechanism that will act on an international level, which will allow for commercial operations to be conducted through the occupied territories.” “But it’s important to highlight that here we are talking about possibilities: the mechanism itself will not give birth to commerce and does not obligate any of the parties to act in this direction,” he clarified. Russian Deputy Minister of Foreign Affairs, Grigori Karasin, said, “we have great hopes for this agreement: we hope it will give a powerful boost to commerce in the region.” Although the transit points proposed go through Abkhazia and South Ossetia, Karasin told Russian newspapers that the document “does not entail obligations for third-party countries, including, of course, the Republic of Abkhazia and the Republic of South Ossetia.” He made no comment on what this means for

those regions, which Russia recognizes as separate countries. The discussion of trade points being opened has been on-going since 2011, when Russia joined the World Trade Organization (WTO). One of the conditions for Russia to join the WTO was that all of the countries had to approve, and Georgia, already a member, took this as an opportunity to control goods coming from Russia into the breakaway regions of Abkhazia and South Ossetia. A condition of Georgia’s approving their vote which Tbilisi demanded, was that Moscow agree to have a third impartial country to monitor the shipments. After much negotiation, Switzerland was agreed upon, and the Russian and Georgian governments signed a bilateral “Agreement on the Basic Principles of the Mechanism of Customs Administration and Trade Monitoring” on 9 November 2011. A private Swiss company called SGS Switzerland SA was chosen to monitor trading. Georgia signed the contract on December 19, 2017, and once the contract has been signed by Russia, the project will become realized. This was what was being discussed in Prague, without any tangible results.


NEWS

GEORGIA TODAY FEBRUARY 6 - 8, 2018

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Georgia 16th Place in 2018 Index of Economic Freedom BY NINO GUGUNISHVILI

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eorgia holds 16th place in the 2018 Index of Economic Freedom, which is published annually by the Heritage Foundation. First launched in 1995, and covering 186 countries, the index evaluates countries in four policy areas affecting economic freedom: rule of law, government size; regulatory efficiency; and open markets. There are 12 specific categories: property rights, judicial effectiveness, government integrity, tax burden, government spending, fiscal health, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. The scores in each category are averaged to create an overall score. The world average score of 61.1 is the highest recorded in the 24-year history of the Index. Among the 180 countries ranked, the scores for 102 countries improved this year, while 75 declined. Just three were reported as remaining unchanged. “Six economies earned the Index’s designation of “free” (scores of 80 or above), while the next 90 are classified as “mostly free” (70-79.9) or “moderately free” (60-69.9),” the statement, released following publication of this year’s Index, reads. “Thus, a total of 96 economies, more than half of all nations and territories graded in the 2018 Index, provide institutional environments in which individuals and private enterprises benefit from at least a moderate degree of

economic freedom in the pursuit of greater economic development and prosperity.” It went on to note that the number of economically unfree economies remains high, with 63 considered “mostly unfree” (50-59.9) and 21 “repressed” (scores below 50). The 10 countries that are ranked “most free” in the 2018 Index of Economic Freedom are 1) Hong Kong, 2) Singapore, 3) New Zealand, 4) Switzerland, 5) Australia, 6) Ireland, 7) Estonia, 8) United Kingdom, 9) Canada and 10) United Arab Emirates. The “least free,” according to the report ,are: North Korea (ranked 180) Venezuela (179), Cuba (178), Rep. of Congo (177), Eritrea (176), Equatorial Guinea (175), Zimbabwe (174), Bolivia (173), Algeria (172) and Djibouti (171). Georgia, with an overall score of 76.2, increased by 0.2 points, the report says. “With a substantial improvement in property rights offsetting modest declines in government integrity, judicial effectiveness, and fiscal health. Georgia is ranked 9th among 44 countries in the Europe region, and its overall score is above the regional and world averages.” With regards to the rule of law in Georgia, the statement notes that, “the Constitution protects property rights, including ownership, acquisition, disposal, and inheritance of property. The enforcement of contracts has improved. The Constitution provides for an independent and impartial judiciary in civil matters, but the professionalism of civil judges and transparency of their adjudication is uncertain. Lingering Soviet-era corruption and ongoing Russian influence

Photo: Heritage Foundation Map. Photo source: GPB

remain problematic.” As for the government size indicators and taxes, “the flat income tax rate is 20%, and the flat corporate tax rate 15%. Other taxes include value-added and dividends taxes. The overall tax burden equals 25.9% of total domestic income. Over the past three years, government spending has amounted to 29.8% of total output (GDP), and budget deficits have averaged 1.6% of GDP. Public debt is equivalent to 44.9% of GDP,” it says. Moving on to explore regulatory efficiency, the publication notes that during 2016 in Georgia, “the reliability of elec-

tricity service improved, and protections for minority-stake investors were strengthened.” “The cost of hiring a worker compares favorably to the cost in most other European countries, but the labor market lacks dynamism, and unemployment is fairly high. Dollarization of the economy is high; over 60% of bank loans are denominated in a foreign currency, and the local currency continued to devalue in 2017,” the publication indicates. With regards to the open markets, the 2018 Index of Economic Freedom publication points to trade being “extremely

important to the country’s economy; the combined value of exports and imports equals 103% of GDP. The average applied tariff rate is 0.3%. Non-tariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The growing banking sector offers improved access to financing, but the stock exchange remains small and underdeveloped,” it says. For more about the 2018 Index of Economic Freedom, visit: https://www.heritage.org/ index


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BUSINESS

GEORGIA TODAY

FEBRUARY 6 - 8, 2018

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.

The Tale of Two Cities: Are Almaty-Style “Bombilas” the Future of the Tbilisi Taxi Market? BY DAVIT KESHELAVA

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ecently, the administration o f T b i l i s i Ci ty H a l l announced that the Tbilisi taxi market is to be regulated. The process of switching to a regulatory frame will be gradual. At first, the taxi drivers will be obliged to acquire taxi signs and a permit from an appropriate authority, a regulation which is not expected to create significant pressure on taxi service providers. At the second stage, however, taxi drivers will be required to pass a technical inspection and satisfy minimal quality standards. The details of all planned regulations remain vague, but economists have already started to estimate the possible consequences of different regulations on the Tbilisi taxi cab market based on the rich experience of other countries around the world.

THE GEORGIAN TAXI MARKET Regulating the taxi cab market is justified by the idea of eliminating market failure, a fact quite common in totally unregulated markets. To have a better understanding of the topic, we should briefly overview the structure of the Georgian taxi cab market. According to unofficial statistics, there are 40,000 unregistered and unregulated taxi cabs in the Tbilisi, and the taxi market can be further divided into three broad categories: pre-booked, hail and rank markets. In the pre-booked market, clients use telephone, internet and/or mobile applications to call a taxi. Here, consumers are arguably well placed to choose between service providers, being informed about price structure, quality differentials and able to verify the availability of vehicles. The hail market (or “street-hail” market) simply means that people hail a cruising taxi on the street. In this market, clients are less well-placed. People who hail taxies on the street are uncertain about the waiting time needed until the next taxi arrives. The price is not predetermined and is a matter of bargaining between client and driver, with bargain-

ing power strictly dependent on various circumstances. The quality of taxi cabs, route knowledge and professionalism of taxi drivers can also vary significantly. Taxi ranks are specially designed places (in some cases uncontrolled) at which taxies queue to await passengers, with clients expected to take the first taxi in the rank. Consumers in this market are worst placed as the price and quality of services provided in the taxi rank market can also differ quite substantially.

POSSIBLE REGULATIONS To correct the existing market failures related to price and quality, government authorities can introduce three basic forms of regulation: quality inspection, market conduct regulation and/or quantity regulations. Despite the fact that these forms of regulation are quite distinct, they co-exist in most jurisdictions. Qualitative regulations embrace two dimensions: regulated standard of vehicle (based on the age, type, or maintenance requirements of cars) and regulated standard for taxi drivers and operators (tests, uniform requirements, qualification requirements or route knowledge). This form of regulation ensures the safe and comfortable transportation of consumers. In theory, qualitative regulations do not have much of a negative impact on the efficiency and

competitiveness of the taxi market, unless there are a large amount of taxi cabs likely to fail to meet the basic requirements. Market conduct regulations might mean additional requirements for taxis to be affiliated with a radio network, or requirements in relation to ride-sharing and other rules of assigning licenses. These regulations mainly coexist with technical quality inspections and arguably should make our taxi experience much more comfortable. The quantitative regulations, on the other hand, are the most restrictive measures, being the major area of concern in terms of ensuring efficiency of the taxi market. The advocates of the system would argue that market entry restrictions would raise the incomes of taxi drivers (who are mostly poor, vulnerable workers), and reduce congestion/pollution at the expense of somewhat higher prices and reduced rivalry on the taxi market. Critics see in this the threat of market monopolization and overpriced services. Who is right? Before our policy-makers get “trigger happy” introducing new regulations, let us consider the cautionary tale of another post-Soviet city: Almaty.

REGULATIONS DON’T NECESSARILY LEAD TO

10 Galaktion Street

DESIRED RESULTS: THE CHAOTIC “BOMBILA” MARKET OF KAZAKHSTAN. A few month ago, my friend and I visited Almaty to present a paper at an international conference. Our strange story about the local taxi cab system started right after leaving Almaty International Airport. It was not surprising that taxi drivers were extremely active in convincing their potential clients that traveling in their taxi cab was the best option among all the alternatives, but it was a little strange that the number of vehicles equipped with taxi signs was quite limited. After that, we walked a lot in the city during our consecutive four days there, and noticed there were very few legal taxes with taxi signs, and it was easy to spot that these taxies were pre-booked and so not for the use of people waiting in the street. However, we quite often witnessed the strange practice of people standing on the side of the road and rising a hand to every car passing by, whether said cars professed taxi signs or not. It seemed a fast process: raise hand, “cab” stops, a quick negotiation with the “independent” driver, and off you go. We found out later that the taxi cab market was actually very tightly regulated in the Republic of Kazakhstan through the issuing of licenses and control of the quality of taxi service. How-

ever, this tightly regulated market seemed to be even more chaotic than a typical unregulated one, as unlicensed taxi drivers, called “Bombilas” (a nickname coming from the Russian word Bombila meaning ‘bombed’ and widely used to describe unlicensed “independent” taxi drivers of many post-Soviet cities) were seen to be dominating the taxi market. There are two main reasons that explain the fact that the tight regulation turned out to be powerless against the vicious practice of providing an unofficial taxi service. First, “Bombilas” are competitive compared to their official counterparts, as grabbing an unlicensed taxi (even without any taxi sign) is as easy as raising a hand while standing on the side of the road, while official competitors need several minutes to reach a customer (as supply of the official taxi service is quite restricted after introduction of the licensing regulation). Second, despite the fact that police try hard to find unlicensed taxi drivers and fine them by up to 45,000 tenge ($134) for tax avoidance, taxi cab drivers (who mainly represent poor, unemployed individuals) are especially dependent on the income earned from the illegal taxi service and so the risk of being accused and fined is an acceptable one. As a result, according to the unofficial estimates, there are around half a million people that drive unlicensed taxies to earn some form of income, and, for a country of 18 million population, this is no small number. A similar situation can be found in the majority of post-Soviet countries. Sure, it may be a good idea to introduce some basic requirements in the taxi market to provide for the safe and comfortable service of passengers, but policymakers should take into consideration the current state of the city’s transportation system, road infrastructure and possible impacts of introducing regulations on the main stakeholders (taxi drivers, pre-booked taxi service companies and consumers). In addition, government authorities should be careful when implementing these regulations in order to avoid substituting a “market failure” for a “government failure” or even worse – creating a chaotic “bombila” market.

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


6

BUSINESS

GEORGIA TODAY

FEBRUARY 6 - 8, 2018

Mastercard Introduces Digitalization of Life Research Findings in Georgia BY NINO GUGUNISHVILI

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n February 1, Mastercard presented its “Digitalization of Life” research” results at a presentation held at their new office at Regus Georgia, Tbilisi. The findings, presented by the regional director of Mastercard in Georgia and Central Asia, Igor Stepanov, show that 83% of Georgia’s residents support digitalization of banking services, and three out of four consider smartphones preferred gadgets for payment. The “Digitalization of Life” study was carried out by IPM Research for Mastercard in autumn 2017, surveying 1000 card holders and users of banking services aged 20 -75, in the cities of Tbilisi, Kutaisi, Batumi, Rustavi, Zugdidi, Poti and Gori. CATI, or computer-assisted telephone interviewing, was used as the survey method.

Results of the study also show that the residents of Georgia “support global digital trends and outstrip European preferences for innovations in some areas,” with 74% of participants selecting mobile phones as preferred devices for payments, and 44% of the respondents considering fingerprint recognition the best method for identification, as opposed to 38% of Europeans. It was also noted that 76% of the survey respondents already have some positive experiences with digital services. Speed and time savings turned out to be the main argument in the use of innovative technologies for the residents of Georgia - this was pointed out by 69% of respondents. . Bill payments, online shopping and money transfers were chosen the most frequently used digital financial services in Georgia. The study also highlighted that 48% of the participants use contactless cards for payments, most frequently

in grocery retail. The study findings suggest that there is a growing demand for card payments in taxis, public transport and online trading. Special offers from banks were selected among the additional benefits that Georgian card holders would like to get from the banks (64%). 48% of the par-ticipants pointed out that they would like the possibility of using other bank’s ATMs, and 48% said they would like to receive discounts on bank products. The research also indicated that the residents of Georgia would like to see more digital innovations in healthcare, education and public transport. “Many of the solutions we provide are based on contactless payments, which is a global trend. Georgia has the highest rate in contactless payment in the region,” Stepanov noted during the presentation. “The fact that smartphones are preferred devices for payments is quite logical, as mobile phones are becom-

ing an integral part of our everyday lives,” he said, also highlighting the growing trend of so-called chat bots used in banking services and the significance of e-commerce and mobile commerce. “By the end of 2018, m-commerce is going to get 50% of global e-commerce market,” he said, going on to emphasize that Mastercard is always investing in providing maximum security for its customers. “The research findings indicated that a growing number of cardholders would like cashless payments in taxis, public transport and stores,” Stepanov noted. “There’s also a clear demand for bank discounts and use of other bank’s ATMs” he said, noting that, according to the research, 32% of cardholders only use cards for payments once a week, cash withdrawals being one of the most frequent operations. “The Mastercard study confirms, once again, how open Georgia is to innovation,” Stepanov said. “The con-

tactless card has already become a sym-bol of speed and comfort. Today, we are seeing the emergence of a new trend: smartphone payments. We at Mastercard, together with our partner banks, work very hard to further develop the digital lifestyle. For example, Georgian cardholders have new opportunities for digital payments with the launch of the first NFC-wallets for smartphone payments.” “Today, we are working to introduce biometric payment solutions to allow safe payments with fingerprint or face recognition during online shopping, and payments using a phone or a tablet,” he underlined. “In terms of a cashless economy, Georgia has made considerable steps; its market is very progressive, with regards to Mastercard’s plans in 2018, we’re looking to implement more innovative solutions together with Georgian banks, improve the services we already have, and increase customer involvement in innovative banking services.”


BUSINESS

GEORGIA TODAY FEBRUARY 6 - 8, 2018

Georgia to Host WFTGA 2019 Convention

BY NINO GUGUNISHVILI

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eorgia will be hosting the World Federation of Tourist Guides Association (WFTGA) Convention to be held in Tbilisi in January, 2019. On a WFTGA delegation visit to Georgia, the association’s President, Alushca Ritichie, and Vice President Mary Camp Clarke, met with the Head of the Georgian Tourism Administration George Chogovadze to discuss the prepar-

atory works for hosting the 18th WFTGA International Convention January 20-25, 2019, in the capital, Tbilisi. The 2019 WFTGA Convention is expected to bring together 500 tourist guides from 80 countries worldwide, the Georgian media reports. The first International Convention of Tourist Guides was organized in 1985. The World Federation of Tourist Guide Associations now boasts members in more than 70 countries and more than 200,000 individual tourist guides. The Georgian Association of Guides has been a member since 2010.

European Dialogue on Internet Governance to Be Held in Georgia

Photo: EuroDIG preparatory meeting held in Technopark, Tbilisi

BY THEA MORRISON

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eorgia’s capital Tbilisi is to host the European Dialogue on Internet Governance (EuroDIG) 2018 on June 4-6. The information was released by Georgia’s Ministry of Economy and Sustainable Development, which says that the preparatory meeting was held in Technopark, attended by the representatives of the Ministry of Economy, the EuroDIG, the International Internet Community (ISOC) and the International Organization for Domain Names (ICANN). The meeting participants discussed the agenda of the EuroDIG 2018 and its main issues. The Ministry reports that following several successfully conducted forums on internet governance (GeoIGF) in Georgia, all of which received positive international feedback, the organizational committee on the European Dialogue on Internet Governance decided to hold the 11th EuroDIG in Georgia. The Forum is expected to host 300-600 guests, including the European Commissioner for Digital Policy and Society, Mariya Gabriel, who was also rapporteur on Georgia while Georgia’s visa-waiver was being discussed in European structures last year. This is the first time the Forum is being held in the Eastern Partnership (EaP) country and the second occasion when it takes place in a non-EU country, which makes the event outstanding for the Georgian Internet Community. Eka Kubusidze, Head of the Communications, Information and Modern Technologies Department

of the Ministry of Economy and Sustainable Development of Georgia, said the holding of such an important and large-scale internet forum in Tbilisi was preconditioned by the profound, intensive development of internet governance in Georgia. She highlighted that international society had given a very high evaluation of the forums on internet governance conducted in Georgia during recent years. The EuroDIG is an open multi-stakeholder platform to exchange views about the Internet and how it is governed. Created in 2008 by numerous organizations, government representatives and experts, it fosters dialogue and collaboration with the internet community on public policy for the internet. EuroDIG ‘Messages’ are prepared and presented at the Internet Governance Forum (IGF). The main aim of EuroDIG is to promote the engagement of Europeans in multi-stakeholder dialogue in order to share their expertise and best practice and, where possible, identify common ground. This enables EuroDIG to pull together national perspectives and to apply and shape European values and views regarding the internet. The EuroDIG is held annually in various European countries and is one of Europe’s most vibrant, open and multilateral European platforms for the exchange of opinions and best practices on how to manage the internet. Various stakeholders participate in the forum from governmental and private, academic and non-governmental sectors. In addition, international organizations and the younger generation are actively engaged in the work of the forums, where they jointly discuss and exchange views on the numerous topical issues of internet development.

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BUSINESS

GEORGIA TODAY

FEBRUARY 6 - 8, 2018

Porta Caucasia Kazbegi: Setting Standards for the Georgian Hospitality Sector EXCLUSIVE INTERVIEW BY SOFO JAVAKHISHVILI

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o find out more about what it takes to run an exclusive hotel in the current Georgian tourism environment, we sat down with Giorgi Dolidze, Director of Sales & Marketing of Porta Caucasia Kazbegi, a four-star hotel kitted out by Villeroy & Boch, nestled in the Kazbegi mountains.

WHAT ARE THE MAJOR CHALLENGES YOU FACE AS DIRECTOR OF SALES & MARKETING OF A FOUR-STAR HOTEL? Sales and marketing are a range of areas that can never be exhausted and always generate new ideas for business development. When you enter a market, you face a lot of work and challenges in order to ensure your integrity in the tourism market. The main challenges for a newly opened hotel are having an effective sales strategy, positioning the hotel, increasing awareness, and the need for marketing channels.

WHAT DO YOU THINK OF THE HOSPITALITY SECTOR IN GEORGIA? As statistics show, Georgia is gaining increasing interest in this field. If we compare the past years, the quality of service today is much higher. However, this doesn’t mean we should stop thinking about guest satisfaction, the introduction of international standards, and overall improvement, as this reflects on the development of the country's economy in future and the progress of the country in general, as the direction of tourism and service remains a potential field for the economy.

WHAT ARE THE STRATEGIC AREAS IN GEORGIA THAT YOU BELIEVE HAVE IMPROVED? I had five years’ experience in tourism company,

Turi.ge. As its incoming direction manager, I was able to make online reservations in Georgia with a representative of international bridging systems, through which Georgian hotels sold their services (Met global and Hotels Pro). Interest in Georgian

hotels is high, particularly in the cities of Tbilisi, Batumi, Kazbegi, and Mestia, and in the Kakheti region. Strategic spheres are tourism and service in Georgia, especially in hotels and restaurants. From tourist feedback, and from my own experience, I can say that the existing market has shortcomings in terms of service. There are no strict regulations when building a restaurant regarding standards to be met. Opening a hotel is very simple and therefore is not subject to control. Most hotels don’t even try to satisfy the minimum standards, and squeeze operational management, which is reflected in guest dissatisfaction, human resources, unreasonable expenditure and inadequate functioning of the hotel. In addition, incorrect pricing policies hinder the development of the tourism industry of the country, and I believe the State should provide some monitoring system to eliminate this problem. For example, hotels show their reserves in Excel; they don’t even want to spend out on a PMS (Program Management System), especially designed for hotels, and which would save time and human resources and would optimize the process overall.

TELL US ABOUT PORTA CAUCASIA KAZBEGI Porta Caucasia Kazbegi was opened in December 2017. It is a property of Winery Khareba and has been prepared and managed by Maia Tsereteli, Key Hospitality Management, to meet international four-star standards.

WHAT ARE THE CONCEPTS OF PORTA CAUCASIA KAZBEGI? The hotel stands out for numerous reasons. Paying attention to detail, the interior is manufactured by Villeroy & Boch, as is the furniture, which is wooden and eco-friendly. Luxury and taste merge to create a great sense of ambiance. Each room is well equipped, offering all the important facilities. Private bathrooms come with top-of-the-range toiletries. Porta Caucasia Kazbegi has pioneered the creation of a private online platform for bookings and reservations, allowing ease of contact with hotel staff.

WHY KAZBEGI? Kazbegi region has huge potential in the Georgian

tourism sector. It is one of the most in-demand destinations and, despite that, the hotel shortfall is quite large. We believe that the Porta Caucasia Kazbegi will fulfil this deficit. Kazbegi and its surroundings have been attracting a lot of visitors of late; people drawn there by a love of nature, exotic and historical sights, and the magnificent views of Mount Kazbegi found in the Dariali Gorge.

WHAT EXCLUSIVE SERVICES DO YOU OFFER GUESTS? The hotel has Georgian and European cuisine represented in two restaurants within the hotel, featuring delicious dishes made using locallygrown products. The wine is something particularly worth mentioning, as Khareba Winery presents varieties of wine in both restaurants. There is also a terrace and lounge on the top floor. Spasalone is also one of our gems, for which a representative of Franck Provost set the standards for the Swiss line. Our Chef is a high-class professional who works on both cuisine and bakery standards. Travel companies make a visit to us part of their exclusive Wine Tours. My experience gives me the opportunity to know exactly what demands and desires tourists have in the field of tourism. Accordingly, as the director of hotel sales, I’m aware of the needs that arise in relation to the hotel and its partners. The staff can plan trips according to our guests’ personal interests. They can try our Alpine Tour on Mount Kazbegi, with equipment and a personal guide provided. If they’re more into history and culture, guests can take advantage of our Culture Tour, which includes a visit to various historical sites, including Gergeti Church and several Chateaus. Kazbegi is also close to Gudauri Ski Resort and the hotel offers affordable transfer services.

WHAT FUTURE PLANS DO YOU HAVE FOR THE HOTEL? The future plan is to have Porta Caucasia Kazbegi positioned as the main resource of the tourism market. In continuous mode, we want to maintain quality-improvement. For us, it is important that each visitor leaves satisfied with our service and, as our motto says “feel at home in the Caucasus.”


BUSINESS

GEORGIA TODAY FEBRUARY 6 - 8, 2018

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Photo: The Partnership Fund, together with Korean K-Water, launch construction works for the Nenskra Hydro Power Plant (HPP) in Svaneti, Georgia's mountainous region, 2015. Photo source: korea.mfa.gov.ge

EBRD Board of Directors Unanimously Approves Nenskra HPP Project Financing

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n January 31, the Board of Directors of European Bank for Reconstruction and Development (EBRD) unanimously approved the financing of Nenskra Hydropower Plant project (HPP), which will become the largest HPP constructed in the recent history of independent Georgia. Provision of a senior secured loan of up to $214 million US to JSC Nenskra Hydro to finance the

development and construction of a 280 MW Nenskra HPP, as well as provision of a $15 million equity investment in JSC Nenskra Hydro, the Nenskra HPP project company. EBRD is satisfied the project meets EBRD’s environmental standards. It will reduce greenhouse gas emissions and will secure the country’s energy supply. The project is being carried out by Korea Water Resources Corporation K-water and JSC Partner-

ship Fund, which has recently become an official shareholder in the project company JSC Nenskra Hydro. Nenskra Hydropower Plant will be constructed in the Nenskra and Nakra river Valleys in Mestia Municipality of the Svaneti region. The HPP will generate approximately 1’200.00 GWh of electricity annually, which will be fully consumed by the Georgian market, contributing to significant decrease of energy import in winter time.

The Nenskra HPP construction is scheduled to commence in 2018, in the meantime the preparatory works are going on in the Nenskra Valley, as well as works within the framework of the Community Investment Program that was designed to contribute to the sustainable development of the Nenskra and Nakra Valleys, through investing in the development of small and mediumsized enterprises locally, skills training of the community members and so on.

Discount Week to Start in Adjara BY NINO GUGUNISHVILI

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he Georgian National Tourism Administration (GNTA), in partnership with the Tourism Department of Adjara Region, is organizing a Discount Week to be held from February 24 to March 11, in Adjara, giving tourists and visitors to the region a chance to take advantage of discount offers in hotels, restaurants, shopping areas and other tourist hot-spots. With the aim of promoting the tourism potential of Adjara region during the off-season period, the

Discount Week project is expected to assist private businesses in attracting visitors and potential customers. Hotels with 39+ room capacity may offer a 30-40% or higher discount on both local and international booking sites. Such hotels then become eligible to participate in the Discount Week project in Adjara, together with restaurants that will offer tourists at least 15% discount, shops that will offer at least 20% discount, and other tourist spaces offering a minimum 10% discount. Discount Week, initiated by the GNTA, was held in the Adjara and Kakheti regions for the first time in 2017 and saw the eager participation of some of the most popular hotels in both destinations.

BEST WESTERN KUTAISI THE ONLY INTERNATIONAL HOTEL IN KUTAISI Joseb Grishashvili Street 11, Kutaisi 4600, Georgia T: (+995) 32 2 197 100 info@bwkutaisi.com reservations@bwkutaisi.com www.bwkutaisi.com

Wherever Life Takes You, Best Western Is There.* Each Best Western branded hotel is independently owned and operated. Photo: Discount Week Poster. Source: GNTA


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BUSINESS

GEORGIA TODAY

FEBRUARY 6 - 8, 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 gt@gt.ge.

Electricity Market Watch

FOR GEORGIA TODAY BY MARIAM CHAKHVASHVILI

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ector research is one of the key directions of G a l t & Ta g g a r t 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.

ELECTRICITY CONSUMPTION IN 2017 Domestic consumption increased 7.7% y/y in 2017 and reached 11.9TWh. Consumption by distribution companies increased 7.1% y/y and accounted for 71.1% of domestic consumption. Telasi subscriber usage (+5.2% y/y) accounted for a third of distributor demand, while Energo-Pro Georgia and former Kakheti Energy Distribution consumption (+8.1% y/y) accounted for the rest. Electricity usage of eligible con-

sumers increased 18.1% y/y, despite the fact that two companies (Rustavi Steel Corporation and Georgian Railway) gave up this status in 2017. Consumption of the Abkhazian region increased 3.9% y/y and accounted for 16.9% of domestic consumption. Exports increased 22.7% y/y and reached 0.7TWh in 2017. Electricity transit through Georgia declined considerably (-70.1% y/y) to 254.0GWh, of which 80.7% went from Azerbaijan to Turkey, 16.6% from Russia to Armenia, and the rest from Russia to Turkey.

ELECTRICITY SUPPLY IN 2017 Domestic generation remained relatively constant in 2017. Deregulated HPPs posted a 20.3% y/y increase, due to the addition of new HPPs to the group, and accounted for 12.0% of total supply to the grid. Enguri/Vardnili generation increased 1.3% y/y, despite the temporary closure for tunnel works in February, and accounted for 32.7% of total electricity supply. 46.1% of Enguri/ Vardnili electricity was used to supply the Abkhazian region. Generation by other regulated HPPs (26.0% of total supply), down 11.4% y/y, was the main drag

on hydro output (-1.3% y/y) in 2017. Hydro generation did increase 6.7% y/y May through August, which was the main driver of export growth in 2017 (+22.7% y/y). The 20.6MW wind power plant generated 0.09TWh of electricity in its first full year of operation and accounted for 0.7% of total supply to the grid. Growth in demand was met by electricity imports from Azerbaijan (61.3%), Russia (30.2%), and Armenia (8.5%). Electricity import in 2017 increased 3.1 times y/y from the low base in 2016 to 1.5TWh, or 11.5% of total electricity supplied to the grid. The reasons behind the dramatic increase were consumption growth in 2017 and lower hydro generation in the winter (-7.5% y/y), mainly due to Enguri’s maintenance works. Electricity import was chosen over additional generation by certain TPPs due to the flexibility of import, technical constraints, the insignificant difference in prices, and the necessity to have some thermal capacity reserved for system security. Total supply of electricity, comprised of domestic generation (11.5TWh) and import (1.5TWh), reached 13.0TWh (+8.1% y/y) in 2017. 91.0% of total supply was consumed by domestic consumers, 5.3% was exported, and 3.7% was used by power plants or lost during transmission.

2018 FORECAST Electricity consumption is expected to increase by 7.1% in 2018. According to the electricity (capacity) forecast of 2018, approved by the Ministry of Economy, the growth in consumption will be met by higher import (+30.8% y/y) and hydro generation (+7.3% y/y). Import sources will be determined during the year according to available commercial contracts. Thermal generation is expected to decrease 4.5% y/y in 2018. According to the forecast, only three small HPPs,

with expected generation of 8.9GWh, will be added to the supply side in 2018. HPPs that were commissioned in 2017 will be the main source of the increase in hydro generation. Export of electricity is also expected to increase (+17.5% y/y). Export companies and directions will be determined through the auctions held by GSE during the year.

ELECTRICITY POWER PURCHASE AGREEMENTS (PPAS) ELIMINATED The government made changes to Decree 214, regulating the expression of interest process for HPP projects on the Ministry of Energy’s list. Currently, the list of potential power plants includes 98 small and medium HPPs with total approximate installed capacity of 1.5 GW. According to the change, these HPPs will no longer receive guaranteed PPAs from ESCO. In addition, the minimum pre-construction bank guarantee will increase from US$ 5,000 to US$ 15,000. The winner selection criterion (if several candidates bid for the same project) will be the amount of the bank guarantee the investor submits. Previously, the project was awarded to the bidder with the lowest PPA tariff in their proposal. The change will not affect MoUs that have already been signed. The Ministry of Economy did note that strategically important HPPs, such as those with seasonal regulations, might still receive guaranteed tariffs, as an exception, subject to detailed fiscal risk evaluation by the Ministry of Finance.

TELASI AND ENERGO-PRO TO INVEST GEL 85.6MN AND GEL 343.5MN IN GRID REHABILITATION OVER 2018-2022 Prior to setting new tariffs for distribution companies, GNERC approved not only the investment plans to be considered during

tariff calculation (GEL 66.2mn and GEL 278.4mn, respectively, for 2017-2019), but also the grid development plan for the next five years. That plan includes the addition of new subscribers, rehabilitation of amortized transmission lines, construction of new substations, increase in transmission capacities, etc. Users currently connected to the 35-110kV transmission grid will be obligated to register as direct consumers in May 2018. Subsequently, they will no longer be subscribers of Telasi or Energo-Pro and will purchase electricity directly from suppliers at prices negotiated with the suppliers on a monthly basis. Direct consumers will pay all service fees to the respective service providers (2.393 tetri/ kWh) and the guaranteed capacity fee to ESCO. This change will

roughly double direct consumption.

TARIFFS FOR WATER SUPPLY COMPANIES – GWP, RUSTAVI WATER, AND MTSKHETA WATER – INCREASED BY 22.0% GNERC set the tariffs according to the methodology adopted in 2017, replicating the “incentivebased” methodology used for other utility businesses in Georgia. The tariffs are set to ensure an adequate return on the GEL 124.1mn to be invested by these companies over 2018-2020. Notably, the weighted average cost of capital (WACC), used as the predetermined return on the regulatory asset base (RAB), is set at 15.99% for water supply activities. The new tariffs will be in effect for 2018-2020.


BUSINESS

GEORGIA TODAY FEBRUARY 6 - 8, 2018

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Left Without Leadership, RFE/RL Georgian Service Faces Crisis BY THEA MORRISON

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he Georgian service of Radio Free Europe / Radio Liberty (RFE/RL) a private, independent international news organization whose programs — radio, internet, television, and mobile — reach influential audiences in 23 countries, has been left without leadership and, according to Georgian media, is now facing a serious crisis. Davit Kakabadze, the Director of the Georgian service, was fired after an internal disagreement with his team, after which Marina Vashakmadze, a well-known and highly respected journalist and media scholar in Georgia, resigned as RFE/RL Bureau Chief in Tbilisi in protest and in solidarity to the dismissed Director. Kakabadze, who had led the Georgian service since 2005, was dismissed after he and the Editor-in-Chief of Programming, Nenad Pejic, reached different positions over cooperating with Georgia’s local, opposition-affiliated Rustavi 2 TV, perceived by many Georgians as being under the influence of the former ruling party, the United National Movement, and Ex-President Mikheil Saakashvili, who left Georgia and is wanted by the new government on multiple charges, which he dismisses as politically motivated. In summer 2017, Georgia’s state-financed Public Broadcaster terminated its contract with RFE/RL’s

two programs Red Zone and InterVIEW, and saw the RFE/RL management insisting they continue cooperation with private channel Rustavi 2. Kakabadze, however, said they should distance themselves from working with a broadcaster affiliated with the opposition or any other political forces, arguing that such a move would destroy RFE/RL’s reputation and credibility. RFE/RL Georgian service explained that they addressed a cooperation offer to the Adjara Public Broadcaster, which accepted the offer and decided to air two RFE/RL programs. “I explained many times to the RFE/RL senior management the negative results cooperation with Rustavi 2 would bring, but they chose not to listen to any of my arguments. Then I offered to talk to our other colleagues who had the same position as I, but this also failed to bring any results,” Kakabadze told Georgia’s Imedi TV. The Broadcasting Board of Governors Watch (BBG Watch), “working to restore good management and a sharp news focus to taxpayer-funded American media outreach abroad,” reports that Vice President Pejic was among the senior managers of the US taxpayer-funded station which is behind the push to affiliate the RFE/RL Georgian Service with Rustavi 2 and another local Georgian channels. The firing of Kakabadze was also supported by the head of RFE/RL’s managing US federal agency, BBG CEO John Lansing, an Obama administration-era appointee. BBG Watch reports that the entire Georgian Ser-

Photo: RFE/RL Georgian Service ex-director Davit Kakabadze and Georgian journalists in their Prague Office. Source: Netgazeti

vice united in support behind their director David Kakabadze for resisting these attempts from senior management. It says Georgian Service journalists wrote a memo to John Lansing and his deputy Jeff Trimble, in which they complained of being exposed to “growing intimidation, unfair treatment and attacks from RFE/RL management for over a year.” Moreover, the service staff also sent a letter of complaint to RFE/RL President, Thomas Kent. After this, some of the most prominent academics, writers, artists, and human rights activists in Georgia signed an open letter to the BBG, the Foreign Relations Committee of the US Senate, and the White House, as well as creating a separate online petition, in which they defend the RFE/RL Georgian Service. Non-Governmental Organizations (NGOs) based in Georgia also sent a letter to the management of Radio Free Europe, asking them to make public explanations regarding the recent developments inside RFE/RL and the firing of Kakabadze. “For many of us, RFE/RL reporting in the Geor-

gian language has been an example of the highest professional standards and journalistic ethics,” the letter reads. The NGOs stressed that resignation of the Head of the Local Bureau raised further concerns that the conflict between management and the Georgian Service staff goes beyond internal dispute and may have deeper roots. “We expect to be convinced by RFE/RL management that the journalism produced by this professional team is still in demand,” the NGOs stated. Jeremy Bransten, Regional Director for Europe at RFE/RL, confirms that discussions took place about airing the dropped shows on Rustavi 2, which led to a disagreement between management and the Georgian Service; however, he claims these are “internal issues” and refuses to discuss further details. “There were many other issues as well, which I am not prepared to discuss. As for Mr. Davit Kakabadze, he is a good man and a fine journalist,” Bransten stated.

Economic Development Will Save Russia OP-ED BY EMIL AVDALIANI

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ver the past decade or so, Russia and the West have been engaged in an economic and semi-military confrontation with each other across the former Soviet space. Differences between the two sides are becoming so wide that it is increasingly unlikely that the sides will reach a compromise in the near future. In fact, a compromise will only be possible if either Russia or the West backs off from already chosen foreign policy plans. Indeed, geopolitical trends show that for the next several years or even more, Russia’s economic development (although well out of recession) will be slow, while the EU’s march into eastern Europe and the former Soviet space will only intensify. Moreover, the US will increase its military capabilities in the Russian borderlands, particularly in Ukraine and Georgia. Taking the overall picture of the Eurasian landmass over the past 25 years, it is clear that the Russian power has been receding. Although it is fashionable to say that Russia is resurgent and that Moscow’s actions in Ukraine, Georgia and Moldova are good examples of that, in fact, Russia’s influence in those countries has only diminished. In the early 2000s, where civilians in these countries were either neutral or pro-Russian, now they are unequivocally pro-Western. Therefore, from a strategic point of view, politicians in the Kremlin should be worried that Russia’s sphere of influence is diminishing, and that major steps should be taken to rectify this for them. This leads to the following question: since geopolitical differences between Russia and the West are wide and Russia is likely to lose more, can Moscow take a different path? Could the Kremlin, at least theoretically, give up on its interests in the former Soviet space before it is forced to do so? World history teaches us that countries actually do this rarely. Germany gave up on its military aspirations only after two devastating world wars, as did Japan in Asia-Pacific. There were less traumatic instances, too. Great Britain, for instance, relegated its primary position to the rising US’ military power following WWII. Considering that, what should the future Russia be like in the XXI century, a century of technologies and supply chains, where the West and Asia-Pacific are increasingly predominant? Is

it worth pursuing the current geopolitical agenda in the former Soviet space, while lagging behind economically? Perhaps, it is worth Russia abandoning its geopolitical interests across Eurasia and instead focusing more on internal development. Germany and Japan did the same following their defeats in WWII and, by refocusing their military potential into the industrial sphere, became arguably the most successful economic stories. Russia can become a similar story. The country’s hinterland is almost devoid of major infrastructure and rich resources could only boost the development. Surely, international relations have never been free of geopolitics of some sort. Even in Germany and Japan, after decades of inward-looking foreign policies, politicians are becoming more vocal on how to protect their countries’ vital interests abroad, to secure supply chains and prevent other actors from gaining the upper hand. That is a paradigm, but Russia, it seems, needs something that will free her from overthinking on Ukraine, Georgia, Central Asia, etc. No doubt, these regions are important for Moscow, giving attention and spending economic resources on them are not worth the hassle, while inside the country Russia is quite fragile and uncompetitive in comparison with the European states/US. Russia could, in fact, benefit from European technology, which would eventually transform the country into a powerhouse capable of attracting the neighboring countries. Thereby, a veritable expanse in the north of Eurasia would be created, connecting the Atlantic Ocean with Vladivostok, at the Pacific. However, this is only one of the possible scenarios. Another would be Russia continuing the current course where it is neither attractive ideologically (as it was in the early stages of the Soviet Union), nor powerful enough economically to expand its Eurasian Economic Union (at least for the moment). While the scenarios laid out here are highly hypothetical, one fact remains absolute: Russia is experiencing deep pressure from the West, and Moscow’s foreign policy moves have been so unsuccessful that the Kremlin lost influence in several important territories across the Eurasian landmass. Something needs to be done to reverse the process. Leaving all the neighboring countries to freely choose foreign policy and instead concentrating on internal development will be one option which will make Russia more attractive politically and economically in the long run.

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Issue #1020 Business  

February 6 - 8, 2018

Issue #1020 Business  

February 6 - 8, 2018

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