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Issue no: 1064/137

• JULY 10 - 12, 2018

• PUBLISHED TWICE WEEKLY

In this week’s issue...

FOCUS

Interval to Be Reduced between Metro Trains

ON THE SMITHS

A tragic murder in the Georgian mountains

PRICE: GEL 2.50

NEWS PAGE 2

Great Expectations: Does the DCFTA Really Boost Georgia’s Economic & Export Potential?

PAGE 2

ISET PAGE 4

Georgia-China Negotiate Transportation Agreement

BUSINESS PAGE 7

World Bank: Azerbaijan Megaproject Will Help Develop Regional Trade

City Hall Makes 3rd Attempt This Year to Expand Bus Fleet

BUSINESS PAGE 8

Are Cancer Cases Really up in Georgia?

BY SAMANTHA GUTHRIE

T

bilisi City Hall has plans to expand its fleet of modern city buses, with a budget of GEL 45 million ($18.4 mil). The plan was announced in April, and a tender for the purchase was released in May, calling for 90 new buses manufactured in 2018, matching the make and model of the existing MAN blue buses, with at least 23 passenger seats, wheelchair access, integrated heating and air-conditioning units, and video monitoring. In May, the tender to supply the new buses failed to garner a single response. In June, the tender was released for a second time and the contract was won by MAN Truck and Bus AG, represented in Georgia by Tegeta Truck and Bus LLC, but the company was later disqualified. The tender is now being released for the third time. Currently, Tbilisi has 816 buses, including 143 new blue buses, the first of which were introduced in September 2016. The blue buses are in line with European standards for safety and emissions and are accessible for people with

SOCIETY PAGE 11 Prepared for Georgia Today Business by

Markets Asof06ͲJulͲ2018

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BankofGeorgia(BGEOLN)

GBP17.99

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GEOROG04/21

101.23(YTM6.26%)

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GBP10.15

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GEORG04/21

106.73(YTM4.26%)

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GBP2.73

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GRAIL07/22

105.65(YTM6.14%)

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GBP17.32

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GEBGG07/23

99.66(YTM6.08%)

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GHG(GHGLN) TBCBankGroup(TBCGLN)

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disabilities. They have been praised by the public for their comfort and user-centered technology, including air conditioning, USB chargers on board, and safety censors at the doors. Some details have been revised in the third version of the tender – previously, the maximum mileage for the buses was 2800 km, and now it has been extended to 5000 km. The warranty period was also increased to 24 months from 12

months. The company supplying the buses is now required to have 15 years of experience and have supplied at least 300 buses worldwide, less than the previous 600 required. The new buses are part of Tbilisi’s new transportation strategy, outlined by Mayor Kakha Kaladze last month, which is slated to include extended hours for public transport after midnight.

CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)

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76,97

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1254,22

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2,4712

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FTSE100

7617,70

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GEL/RUB

0,0389

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FTSE250

20618,34

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0,5352

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DAX

12496,17

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1,4395

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DOWJONES

24476,93

+0,8%

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0,0051

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NASDAQ MSCIEMEE

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7674,05

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GEL/UAH

0,0929

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159,59

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0,8520

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1054,35

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GBP/USD

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+1,1%

SP500

2760,89

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CHF/USD

0,9902

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MSCIFM

2673,28

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RUB/USD

62,9609

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GTIndex(GEL)

1582,68

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GTIndex(USD)

1208,13

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MSCIEM

0,7541


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NEWS

GEORGIA TODAY

JULY 10 - 12, 2018

Murder in the Mountains: Investigation Ongoing BY THE GT TEAM

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n July 6, the 112 emergency call center received a call out on the loss of two adults with dual citizenship of the US and Georgia, and their 4-yearold son. It was said the missing persons were in Khada Gorge in Dusheti region and had fallen out of contact, - the Ministry of Internal Affairs statement of July 7 read. “Upon receipt of the notice, the employees of the Mtskheta-Mtianeti Police Department of the Ministry of Internal Affairs and 15 emergency crews departed for the mentioned location. Policemen and rescuers immediately started searching and checked the places mentioned in the call. Law enforcers found a car and the personal belongings of the missing persons in Tsikere village. The rescuers of the Emergency Situations Service then found the body of one of the missing persons about 3 km into the gorge.” The search for the remaining two missing persons was suspended due to poor visibility and darkness and was resumed the next morning. At some point on Sunday, the body of the 4-year-old boy was found. It had been purposefully buried. The MIA on Monday made a second statement amid a media rush of rumors and accusations, confirming that American Ryan Smith, Founder and Director of ReWoven, and his wife, Lora, as well as their 4-year-old child Caleb, had been murdered in Khada Gorge, Dusheti. Mamuka Chelidze, Head of the Main Division of Combating Organized Crime of the Criminal Police stated that the police had arrested a man born in 1998 for the murder charges, who had confessed that on July 4, after a confrontation, he shot Ryan Smith and his son. The man, thought to be a shepherd, also stated that while the wife, Lora, was trying to escape, she fell into the gorge and died. Chelidze added the suspect then buried the body of the child to hide the crime, the location of which

he then described to police officers. “The investigation was initially launched under Article 116, section 2 of the Criminal Code, which implies negligent manslaughter. After receiving the primary data of the medical examination, the case was requalified as premeditated murder.” The charges imply life imprisonment. According to Chelidze, a psychiatric examination of the suspect will be carried out to assess his mental condition, and the investigation is ongoing. The husband and wife were citizens of the US but had Georgian citizenship, received in 2012. They had lived in the town of Marneuli for seven years and were well respected members of the local and expat community. In an exclusive interview with GEORGIA TODAY in 2015, Ryan Smith told us about his reWoven project. “I learned about rug-weaving when I lived in Azerbaijan 10 years ago. While I don’t weave our rugs, I’m involved in every other step of the process. I procure the yarn, select and draw the designs from historic sources, interact with the weavers, and oversee the finishing process of the rugs, never mind all of the marketing and sales. Because of my extensive experience in rug culture, I have a unique skill set to offer this project that is not immediately transferable… The weavers are making more money for their weaving than they ever did before, meaning they are able to provide more for their families through this craft. Additionally, there are more women weaving than when we started the project. Several of our weavers had not woven for 10 or 15 years before they wove a rug for reWoven. So, the weaving culture has taken small steps toward revitalization. These steps also have an impact on the broader community. When they first see our rugs, they assume they are antiques. They immediately recognize that the designs and colors are not the synthetic examples of decades past but represent the natural dyes and intricate designs of centuries past. They take pride in seeing this art revived and promoted to the world. Additionally, we have just committed funds from the proceeds of the project to remodel a school

The perfect pairing of Business and Lunch! Amb assadori Club cordially invites you

in one of the villages where our rugs are woven. Kids will return to school on September 15th to a building with fresh paint and new windows and doors. It’s our absolute pleasure to give back

Interval to Be Reduced between Metro Trains BY SHAWN WAYNE

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bilisi City Hall is working to reduce the intervals between Tbilisi subway trains, the Mayor of the capital Kakha Kaladze said live on the Georgian First Channel. At present, the interval between trains varies from 3 to 5 minutes in the daytime and from 8 to 10 minutes in the evening. "We are planning to add cars and are negotiating with Stadler, with whom we have a memorandum of cooperation. We want to reach an agreement

Lunch times: 12:00 $ 14:00 Dinner times: 18:00 $ 20:00 Delicious dishes, soft drinks and desert Cozy atmosphere, high-class service. Prices 20 - 25 USD per person

In order to book a table, please, contact us on: +995 32 243 9494 or +995 599 57 16 40 Visit us at: Ioane Sahvteli Street 17, Amb assadori hotel. Ground Floor. Italian-Georgian restaurant.

to the community beyond the preservation of rug weaving.” The GT team’s sincere condolences go out to the family and friends of the Smiths.

within the framework of the memorandum so that the production and assembly of wagons takes place in Georgia, satisfying not only the needs of our metro, but also serving the entire region," Kaladze said, adding that old metro cars would be repaired in parallel. The company Stadler, in May, decided to build a regional plant in Georgia and plans to supply the region with high standard trains. Stadler was founded by Swiss Ernst Stadler in 1942. Since then, the company has grown rapidly. To date, Stadler is represented in 11 European regions, Africa, Australia and the USA. Stadler specializes in the production of passenger trains and wagons and employs more than 7,000 people.


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BUSINESS

GEORGIA TODAY

JULY 10 - 12, 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.

Great Expectations: Does the DCFTA Really Boost Georgia’s Economic & Export Potential? Figure 3: Total and Agricultural Exports in the EU (2014-2018)

BY NINO KAKULIA AND SALOME DEISADZE

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n June 27, 2014, Georgia and the EU signed an Association Agreement (AA) and its integral part - the Deep and Comprehensive Free Trade Area (DCFTA). On July 1, 2016, the DCFTA fully entered into force. Until then, trade between Georgia and the EU was regulated by the Special Incentive Arrangement for Sustainable Development and Good Governance that contained a Generalized System of Preferences+ (GSP+) agreed to in 2005. The GSP+ covered 7,200 products for which the customs duty was reduced or eliminated when exporting to the EU market. It did not cover a number of products, including a very important export item for Georgia—wine. The DCFTA widened the list of GSP+ and Figure 1: The main export destination countries

nities it offers, and reforms that need to be undertaken in Georgia. One such chapter is devoted to trade in goods. In this article, we will put the main emphasis on trade-related issues; more specifically, on agricultural trade, and review the changes that have been undertaken since signing the DCFTA.

THE TRADE RELATIONSHIPS BETWEEN GEORGIA AND THE EU: EXPECTATIONS Expectations regarding the export of products subject to duty-free tariff-rate quotas within the DCFTA are high. According to the report EU agreement about the DCFTA and Georgia (the Economic Policy Research Center,2014), economic benefits generated because of the DCFTA will increase Georgia’s GDP by about 6.5%. Furthermore, the report predicted that the country’s export amount would increase by 13.5% within five years. The most optimistic expectations were regarding the export of textile Figure 2: The main importer countries

Source: GeoStat, 2018 includes data of January-May

set zero tariffs on all food categories (only garlic is under quota), including potentially interesting products for Georgian exports – wine, cheese, berries, hazelnuts, etc. In line with the World Trade Organization (WTO) GATT Agreement, the DCFTA aims to eliminate the customs duty on import and export of goods, including energy, and, thereby reduce “technical barriers to trade” (TBT) for better access to EU markets. It should be mentioned that the DCTFA is not as free as it seems: for certain products that are exported from Georgia to the EU, there are arrangements like “entry prices,” anti-circumvention mechanisms, and tariff-rate quotas. Nevertheless, the DCFTA aims to create a stable and growth-oriented policy framework that will enhance competitiveness and facilitate new opportunities for trade. As July 2018 marked only two years since the implementation of the DCFTA between Georgia and EU, valuable conclusions on its impact cannot be formulated yet. However, we do have some success stories of Georgian producers that have capitalized on new opportunities offered by the DCFTA. As discussed in our previous publication on ISET Economist Blog, Georgian wool met all the required standards and successfully entered the EU market under the DCFTA. Another example is Kona, which produces different variations of herbal teas and met all required standards to enter the EU market. Kona’s tea started with small amount of export to the Netherlands, but they have bigger plans for the future regarding new export destinations. The DCFTA is a comprehensive agreement and is comprised of 15 chapters, each of which focuses on different issues related to the obligations and opportu-

products, which are expected to increase by 55%, while export of food and nonalcoholic beverages will increase by 4%. Other research reports (ECORYS and CASE research, 2012) claimed that Georgia’s export would increase by 12% in the long-run, while imports by 7.5%, and GDP would increase by 4.3% in the longrun. As a result, Georgia’s trade balance is expected to improve. The sectors that mainly gain these benefits (68% increase of output) will be chemicals, rubber and plastic. Output of machinery and equipment and primary metals will increase by more than five percentages. Whilst output of livestock and meat products, other processed foods, electronics and computers, and other manufacturing is expected to decrease by 8-24%.

was 22%, and its share of exports was 19%. During the same period, the top export products were hazelnuts (shelled), spirits obtained by distilling grape wine or grape marc, wine, mineral and aerated waters and jams, jellies, marmalades, purées or pastes of fruit. Based on the export figures (Figure 3), it is not yet possible to analyze the trend in Georgia’s exports to the EU due to the insufficient passage of time. Prior to 2015 (before the full enforcement of the DCFTA), Georgia’s agricultural exports to EU countries (including Great Britain) increased by 20% compared to the previous year. This positive trend remained in 2016, when the same indicator increased by 5%. In 2017, which was quite bad year in terms of harvest in Georgia, we observed a 38% decrease in the country’s agricultural export to the EU (Figure 3). This decrease was mainly caused by a significant decrease (64%) in hazelnut exports during the same period. The reason for such a large decrease is that hazelnuts suffered from various fungal diseases due to unfavorable weather conditions in 2017. The Asian Stink Bug invasion worsened the situation, and in the end, hazelnut exports dropped dramatically in both value and quantity. It is interesting to observe agricultural trade within the same time period with CIS countries. In 2017, CIS’s share of Georgian imports was 51%, and its share of exports was 60%. The top export products in CIS countries were wine, mineral and aerated waters, spirits obtained by distilling grape wine or grape marc, hazelnuts (shelled), and waters, including mineral and aerated, with added sugar, sweetener or flavor, for direct consumption as a beverage. As we can see in both EU and CIS countries, the top export products are more or less the same. However, the main export destination market for Georgian hazelnuts are EU countries, but wine is mostly exported to the CIS countries. Due to the worsened economic situation in CIS countries, Georgia’s agricultural exports to these countries had decreased by 37% in 2015. Such a sharp decrease was mainly driven by a significant decrease in the export of alcoholic and non-alcoholic beverages, hazelnut, and live cattle. However, since 2015, Georgia’s agricultural exports to CIS countries have been increasing; we observed a slight 2% increase in the value

Source: GeoStat, MOF, 2018 includes data of January-May Note: Agricultural exports include food exports

of agricultural exports in 2016, and the same indicator was 37% in 2017 (Figure 4). That was mainly caused by the increased exports of alcoholic and nonalcoholic beverages (wine by 61%, spirits by 28%, mineral and aerated waters by 22%).

FADING HOPES AND NEW PERSPECTIVES Two years after the DCFTA came into force, it is challenging to discuss its impact on Georgia’s agricultural trade, because not enough time has passed. Georgia’s share of agricultural export to CIS countries is significant (60%), even though Georgia has started diversifying trade partners. According to the report DCFTA Risks and Opportunities for Georgia (ISET Policy Institute, 2016), the DCFTA did not represent a significant breakthrough, as the previous regime (GSP+) with the EU was already covering most products. Furthermore, niche agricultural products such as wine, hazelnut, and berries, need five to six years to be valuable for commercial purposes. Another important issue is meeting the standards to enter the EU market. Georgian producers should decide whether to make investments to develop the quality of their products, or market

their products to other countries that do not require compliance with the EU’s strict standards. For instance, on January 1, 2018, Georgia entered the Free Trade Agreement (FTA) with China, which creates better opportunities and benefits for Georgian exporters. On June 15, 2018, the Farmers’ Congress discussed the opportunities and challenges of the EU-Georgia DCFTA, focusing on small and medium size farmers and agricultural cooperatives. Pati Mamardashvili, the Head of the Agricultural Policy Research Center at ISET-PI, stated that “the challenges of small and medium size farmers and agricultural cooperatives are not specific to the DCFTA’s implementation. Rather, they reflect the very low level of the development of Georgian agriculture, whether with regard to production, value addition, or the marketing of agricultural products. Current adjustment costs should be considered as long-term investments in the modernization of Georgian agriculture and the development of efficient food systems in the country.” On the path to European integration, the private sector should play an important role in dealing with sectoral challenges and capitalize on the opportunities that DCFTA offers.

Figure 4: Agricultural Exports in CIS Countries (2014-2018)

Source: MOF, 2018 includes data of January-May Note: Agricultural exports include food exports

TRADE RELATIONSHIPS BETWEEN GEORGIA AND THE EU: REALITY While setting positive expectations, it is interesting to look at Georgia’s main trade partners. During the last five-year period, the top export countries for Georgia were mainly neighboring counties; for imports, neighboring countries and also China and Ukraine (Figure 1, Figure 2). Observing the trade indicators over the years, trade partners are almost the same for imports (Turkey, Azerbaijan, Russia, China, Ukraine, and Germany) and exports (Azerbaijan, Armenia, Russia, Turkey, and Ukraine). The EU is one of the largest trade partners for Georgia. The EU’s share of total Georgian imports was 28% in 2017, and for exports, 24%. Total exports have been more or less stable since 2014, except for 2016, when an 11% decrease was observed (Figure 3). Specifically, for agriculture, in 2017, the EU’s share of Georgian imports

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BUSINESS

GEORGIA TODAY

JULY 10 - 12, 2018

NGO: Gov't Spent 160m on PR Activities in 2013-2017 BY THEA MORRISON

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on-Governmental Organization (NGO) Transparency International Georgia has released the results of its survey, which reads that from 2013 to October 2017, Georgian state agencies spent more than GEL 98,480.000 on PR activities and advertisements, while up to GEL 160 million was spent in the same period on PR employee salaries, advertising and PR activities altogether. According to the organization's research, most funds were spent on PR and advertising of the National Administration of Tourism, National Wine Agency and Produce in Georgia program. The highest expenditure, GEL 28 million in this field, was observed in 2016, when the parliamentary elections were held in Georgia. “In 2013-2017, the amount of salaries of the Public Administration / Public Relations Department of Government Administration employees exceeded GEL 12 million, which is about a fifth of the total amount of money spent on PR salaries in 122 public agencies throughout Georgia,” the survey reads. The NGO noted that from 2012 to October 2017 the amount paid to PR agencies for advertisements amounted to more than GEL 110,650.000, from which more than GEL 98 million was spent after the Georgian Dream party

Photo source: YouTube

came to power. “The data we studied indicate that the PR and advertising spending of public agencies across the country is rising

sharply,” says the organization's survey, based on the information requested from public agencies. Opposition party European Georgia

has criticized the government for the expenses, claiming GEL 160 million is a lot of money. Irakli Abesadze, one of the leaders of

the party, says that against the background of the existing economic situation in the country, spending such money is “inadmissible.” “Over the last five years, the GD government has failed to solve such fundamental economic problems as poverty and unemployment…But they spend GEL 160 million informing society about their activities. It is cynicism,” he said. The ruling party says it is difficult for them to assess the objectivity of the survey, adding it is natural that money is spent in order to keep society informed about the carried out or underway activities of the government. Parliament Vice-Speaker Tamar Chugoshvili says the expenses on PR and advertisement is legitimate. “I cannot assess this survey because I do not have such a competence. There is the Audit Office and other agencies which can better evaluate such reports,” she added. GD MP Zaza Khutsishvili claims that more money was spent on PR during the previous government than by Georgian Dream. “I think the majority of that sum was spent in order to make our country look better,” he added. Transparency International Georgia stated they requested information from 34 state agencies but nine of them did not provide the requested data, including the governmental administration, Ministry of Defense, Energy ministry, Economy and Sustainable Development ministry or Justice Ministry.


BUSINESS

GEORGIA TODAY JULY 10 - 12, 2018

Georgia-China Negotiate Transportation Agreement

BY SAMANTHA GUTHRIE

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n July 4, the Ministry of Economy and Sustainable Development of Georgia released a statement on its website announcing that Georgia and China are involved in negotiations for an agreement on international passenger and freight transportation. The first round of negotiations was conducted July 3-4, on the text of the Draft Agreement on International Passenger and Freight Transportation between the Government of Georgia and the Government of the People’s Republic of China. The negotiations took place in the Georgian capital at the Tbilisi Marriott Hotel. Representatives of the Transport and Logistics Development Department of the Ministry of Economy and Sustainable Development of Georgia, the LEPL Land Transport Agency, the Ministry of Foreign Affairs of Georgia, and the Ministry of Justice of Georgia represented Georgia in the negotiations. Georgia initiated the agreement after a request by Georgian transportation companies for a legal basis for ground transport with China. In last week’s first round of negotiations, the sides discussed the main provisions of the project and signed a protocol framing continued negotiations. Representatives from Georgia’s Ministry of Economy have been invited to China at the beginning of August for a second round of negotiations, after which the agreement can be signed. The agreement is designed to “facilitate to increase the volume of passenger and freight transportation between Georgia and the People’s Republic of China and have a positive impact on mutual economic cooperation. The Draft Agreement deter-

mines the transportation of the freight transport via quota permits through bilateral, transit or thirdparty countries. The number of quotas shall be determined by the parties annually and the relevant permission documents will be transferred,” said the Ministry of Economy statement. In terms of legal issues, the agreement also provides for the settlement of legal disputes between Georgia and China related to motor transport. The Ministry of Economy hails the agreement, saying it, “as well as attracting additional freight flows to Georgia, will be of greatest significance for Georgia.” Increased motor vehicle traffic and railway-container transportation between Georgia and China will be a key part of the massive Chinese initiative One Belt, One Road. In September 2017, then-Minister of Economy Giorgi Gakharia visited China to meet with Fujian Province Governor, Yu Weiguo, to discuss deepening economic relations between China and Georgia. “2017 is an extremely important year for China-Georgia relations with the signing of a free trade agreement with China,” said Gakharia while in China. In a speech during his visit, Gakharia discussed Georgia’s transit role in the region, noting that the strategic location of the country enables Georgia to become the central transit platform for the One Belt, One Road initiative, acting as a crossroads connecting East and West. “The Georgian Government pays very special attention to strengthening the transit function of the country and to Georgia becoming the trade and logistical hub of the region,” said Gakharia. In November, Georgia hosted the Belt and Road Forum, a biennial event that serves as “a platform for discussions of various important issues related to trade facilitation in the region and beyond,” according to the Forum’s website.

Electricity up More than 10% in Baltic States

BY DIMITRI DOLABERIDZE

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he cost of electricity in the Baltic States increased by more than 10% this month, reports independent supplier Elektrum Lietuva. According to experts, the rise in prices occurred due to the fact that production volumes at wind power stations have decreased by almost half.

In Latvia and Lithuania, electricity became more expensive by 13% - the price rising to 51.78 Euros per megawatt-hour. In Estonia, the growth was 11% - up to 47.08 Euros per megawatt-hour. Parallel to the average for the Baltic region from June 25 to July 1, the demand for electricity decreased by 1%. Its production in the region fell by 0.7% to 280 megawatt hours. In Latvia and Estonia, this indicator grew by 3.4% and 2.1% respectively, while in Lithuania it decreased by 12.8% - to 50.1 megawatt hours. In mid-June, Elektrum Lietuva recorded a fall in prices in the region.

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BUSINESS

GEORGIA TODAY

JULY 10 - 12, 2018

World Bank: Azerbaijan Megaproject Will Help Develop Regional Trade

BY DIMITRI DOLABERIDZE

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he Trans-Anatolian gas pipeline (TANAP) will promote the development of regional trade and help strengthen regional ties, says the World Bank (WB). "TANAP is one of the priority projects for Azerbaijan, Georgia, Turkey and the countries of SouthEast Europe. Helping countries to implement bold and ambitious projects such as TANAP represents the commitment of the World Bank Group to support the development priorities of the countries," the bank stated. The WB highlighted that TANAP is a project that will allow the transportation of natural gas from a gas field in Azerbaijan through Georgia and Turkey to Europe. “In particular, the project aims to help Turkey ensure energy supply, and Azerbaijan to diversify its gas sales markets,” noted the WB. The World Bank believes that TANAP will not only increase competitiveness and create more economic opportunities in Azerbaijan and Turkey, but will also support regional trade, improve connectivity and support energy security in Turkey and Europe. "Given the importance of the Southern Gas Corridor project for all participating countries, international financial organizations such as the European Investment Bank, the European Bank for Reconstruction and Development, the Asian Bank for Infrastructure Investments and the Asian Development Bank decided to support this project," the WB said. On June 12, the opening ceremony of TANAP was

held in the Turkish province of Eskisehir with the participation of the President of Azerbaijan, Ilham Aliyev, the President of Turkey, Recep Tayyip Erdogan, and the President of Georgia, Giorgi Margvelashvili. And on May 29 in Baku, the ceremony of launching the first stage of the project "Southern Gas Corridor" was held. The Southern Gas Corridor (SGC) consists of three pipelines: the South Caucasus pipeline across Azerbaijan and Georgia, the TANAP pipeline across Turkey, and the Trans-Adriatic Pipeline (TAP) across Greece and Albania, with an offshore section to southern Italy. The first gas from the Azerbaijani Shah Deniz field has already passed through the first segment of the Southern Gas Corridor from the Sangachal terminal, extended by Shah Deniz-2 through the expanded South Caucasus gas pipeline. The next stage was the commissioning of the TANAP gas pipeline, through which gas will flow into Turkey and further to Europe. The TANAP pipeline is laid from the GeorgianTurkish border to the western border of Turkey. TANAP, together with another gas pipeline, the Trans Adriatic Pipeline (TAP), is part of the "Southern Gas Corridor" project, which provides for the transportation of gas from the Azerbaijani Shah Deniz field to Europe. The initial throughput capacity of the TANAP pipeline is expected to be 16 billion cubic meters of gas per year. About six billion cubic meters will be delivered to Turkey, and the rest to Europe. After the completion of the TAP, gas will be delivered to Europe starting around the beginning of 2020. The share distribution of TANAP shareholders is as follows: Southern Gas Corridor CJSC – 51%, SOCAR Turkey Enerji – 7%, Botas – 30%, BP – 12%.

EU Extends Sanctions Against Russia BY SHAWN WAYNE

F

our years since Russia’s illegal annexation of Crimea, the issue of sanctions against Moscow is more topical than ever. The European Union has extended economic sanctions against Moscow by six more months, due to actions related to its annexation of Crimea and backing of pro-Russian rebels in eastern Ukraine “On 5 July, the European Council prolonged economic sanctions targeting specific sectors of the Russian economy until 31 January 2019. This decision follows an update from President Emmanuel Macron and Chancellor Angela Merkel to the European Council of 28-29 June on the state of implementation of the Minsk agreements, to which the sanctions are linked,” a press release published by the European Council (EC) stated. This decision came into force on 9 July 2018. Sectorial sanctions against Russia, initially levied on July 31, 2014, which targeted the financial, energy and defense industries, as well as dual-use goods. Economic sanctions particularly restrict access to the EU’s primary and secondary capital markets for five Russian financial institutions and their subsidiaries founded outside the European Union, in which the state holds a majority stake, as well as for Russia’s three biggest energy companies and three defense companies. Sanctions also impose an embargo on weapons trade and ban exports of dual-use goods for military purposes to Russia, as well as restrict Russia’s access to certain strategic technologies and services that may be used for oil exploration and production. There are also two sanction packages which

Image source: finlandpolitics.org

concern the Ukrainian crisis. One of the packages includes restrictive measures against 150 Russian individuals and 38 entities. This particular package will expire on September 15, 2018, but can also be extended for six months The Minsk agreements, a deal reached to end the fight in Ukraine’s Donbass region, were intended to be implemented in December 2015. “The duration of the sanctions was linked to the complete implementation of the Minsk agreements by the European Council on 19 March 2015, which was expected to take place by 31 December 2015. Since this did not happen, the sanctions have remained in place,” the EC press release stated. Another sanction package that was implemented relates to Crimea. It includes a ban on importing Crimean goods, making investments in Crimea, including real estate purchases, financing businesses, providing services, particularly in the tourism industry. European vessels are banned from entering Crimean ports, while European aircraft are prohibited from landing at Crimea’s airports, except for emergency reasons. These measures have been extended by 12 months. Relations between Russia and the West have continued to deteriorate, and with the US adopting its “Countering America’s Adversaries Through Sanctions Act” in August 2017, a range of new sanctions came to be. Among other things, these strengthen existing restrictions on cooperation with Russian defense and energy companies, and penalize individuals and businesses not previously targeted, such as oligarch Oleg Deripaska and aluminum producer Rusal. More US sanctions are expected over the coming months.


10

BUSINESS

GEORGIA TODAY

JULY 10 - 12, 2018

Moody's: Demographic Trends Will Weigh on CIS Growth & Fiscal Sustainability

Source: Moody’s

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oody's Investors Service says that the demographic outlook remains adverse for countries in the Commonwealth of Independent States (CIS), which have experienced a significant deceleration in economic growth over the last decade as working-age populations have contracted. The most affected sovereigns will consequently see growth potential weaken and fiscal challenges mount, but the exact impact on potential and actual GDP growth will vary widely, given divergent trends in working-age populations across the region. While policy action could counteract ageing and labor force contraction, generally low levels of institutional strength and stretched balance sheets limit CIS governments' capacity to respond effectively. The economic strength of Belarus (B3 stable), Moldova (B3 stable), Ukraine (Caa2 positive) and Armenia (B1 positive) is most vulnerable to changing demographics, while the Kyrgyz Republic (B2 stable) is most exposed to their credit-negative fiscal implications. Moody's conclusions are contained in its justreleased report, "Sovereigns - Commonwealth of Independent States: Divergence in working-age population trends will shape credit profiles." Healthcare and pension costs tend to mount as populations age, raising overall government expenditure and reducing fiscal flexibility. Aging-related spending will increasingly strain government budgets across the region. It will represent a particular challenge for the Kyrgyz Republic, where the 60-plus population is growing

extremely fast compared with the working-age population, and counteracting reforms are relatively narrow in scope. Government-led capital deepening could provide a meaningful offset for Kazakhstan (Baa3 stable) and Russia (Ba1 positive), as they have strong balance sheets that could fund greater public investment on a sustained basis. More generally, the experience of other countries shows that a combination of policies to stimulate entrepreneurship, capital formation, labor force participation and productivity can effectively mitigate the most acute demographic pressures. Across the CIS, government measures to counter demographic challenges have mainly included reforms to keep older workers engaged in economic activity and fiscal reforms to prevent a structural widening of deficits due to aging-related outlays. The effectiveness and durability of some of these measures is largely untested among CIS sovereigns. Cross-border migration flows also have the potential to alleviate or exacerbate adverse demographic trends. The opening of EU and Russian labor markets to foreign workers, alongside persistent or widening intraregional income gaps, liberalization of travel, domestic political instability and natural disasters, will drive emigration within and from the CIS. These factors are likely to result in greater working-age depopulation for many CIS countries than the United Nations' demographic projections indicate. Subscribers can read the full report at http://www. moodys.com/researchdocumentcontentpage. aspx?docid=PBC_1110753.

'Film in Georgia:' 9 Projects Done, 6 Underway

Source: Enterprisegeorgia.gov.ge

BY ANNA ZHVANIA

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eorgia, known for its vibrant homegrown cinema, has become an ideal location for film producers. The initiative ‘Film in Georgia’ has attracted 15 foreign productions within its scope. The project provides local and international producers interested in film-making to shoot movies across the country. The main aim of the project is to support the development of Georgia’s film industry, attract international filmmakers and position Georgia as the main Eastern European Filming Destination. According to Enterprise Georgia, 9 films have

already been completed and 6 are underway. The productions include six Indian films, one Georgian-Italian-French co-production, one GeorgianAmerican-Norwegian, one Georgian-French, one Georgian-British, one Georgian-Irish, one Georgian-German-French, one Georgian-American one Georgian-Turkish, and even Georgian-Chinese. A total of GEL 26 million will be spent as a result of the initiative, employing about 2,000 people. Due to the success of ‘Film in Georgia’, a cash rebate mechanism reimbursed 20% expenses spent in Georgia. ‘Film in Georgia’ is an initiative implemented by the Ministry of Economy and Sustainable Development of Georgia, the Agency for Development and the National Film Center of the Ministry of Culture and Monument Protection.


SOCIETY

GEORGIA TODAY JULY 10 - 12, 2018

11

Are Cancer Cases Really up in Georgia? BY THEA MORRISON

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he Georgian National Statistics Office (Geostat) says around 10,000 new cases of cancer are seen in Georgia every year, while last year 6,819 cancer patients died in the country of the disease. The doctors claim the cases of cancer have significantly increased of late, adding that the number of Georgian patients who go abroad for tumor treatment is also up. Nana Metreveli, a doctor who works at the Iashvili children’s hospital in Tbilisi, says the statistics of recent years of oncological diseases is “alarming”. According to her, malignant brain tumors have become more common in children than was the case several years ago. “The cases of cancer in children have increased. It is directly linked with the environment in which our children live and the products they eat,” she added. Marina Berekashvili, who has worked in a Turkish clinic as a coordinator for

seven years, says that there has been a “dramatic increase” in the number of Georgian patients who address Turkish clinics for treatment. “An increase was observed over the last two years. Where, before, we had 20-25 Georgian patients, in the last 5-6 months this number has gone up to 65-70,” she told Rustavi 2. “Nearly every family in Georgia has at least one oncological patient and it means something is really wrong,” she added. In parallel with ecological problems in Georgia, the specialists say one of the main challenges is the increased lead in some products. They also call on the state to check construction material qualities in new block of flats, adding some of them may contain dangerous substances that pose a threat to the health of the people living there. The National Center for Disease Control and Public Health states that the increased tumor cases are not caused by the rate of the disease itself, but due to the regulation of its registration. Amiran Gamkrelidze, Head of Disease Control Center, claims the statistics are not alarming in Georgia, adding the

increased cases have been observed only in three municipalities of the country: Ozurgeti, Racha-lechkhumi and Akhaltsikhe. “In terms of cancer statistics, Georgia does not have a bad situation. We are slightly below the EU and CIS states in terms of cancer spread,” he added. Gamkrelidze says the most common form of cancer in Georgia is thyroid cancer, followed by lung cancer in men and breast cancer in women. Last year, 8,960 Georgian patients went abroad to undergo cancer treatment. Specialists believe that not only the state should act but that people are also responsible to regularly undergo checkups, which is one of the most effective ways of cancer prevention. Georgians can undergo state-initiated free cancer diagnosis programs for men and woman: breast cancer checks for persons from 40 to 70 years old, cervical tests for persons from 25 to 60 years old, intestinal tests for citizens aged 50-70, and prostate tests for men from 50 to 70 years old. The World Health Organization (WHO) says in 2015, 8.8 million people died worldwide from cancer, and 30-50% of

Photo source: penochaoinformativo.com.br

cancer deaths could be prevented by modifying or avoiding key risk factors, including avoiding tobacco products, reducing alcohol consumption, maintaining a healthy body weight, exercising regularly and addressing infection-related risk factors.

The annual number of new cases in the world is projected to rise from 14.1 million in 2012 to 21.6 million in 2030. Around 75% of cancer deaths occur in low- and middle-income countries, where the number of cancer cases is rising most rapidly.

POLITICS

The US in Eurasia: More Competitors & Troubles OP-ED BY EMIL AVDALIANI

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fter World War II, the US shared world dominance with its major competitor, the Soviet Union. Despite numerous local conflicts which took place in the 40 or so years prior to the breakup of the Soviet Union, both powers’ relatively equal strength made the world pretty much stable geopolitically, though Washington had to spend a lot of money and military strength to contain the Sino-Soviet bloc, as much of Eurasia was under communist control. The fundamental principle of the then American strategy was based on military and economic containment. Washington was unable to defeat the Soviet Union militarily and that encouraged the Americans develop a new strategy to check it. Thence came the spread of the US influence to parts of Europe, Iran and the Asia-Pacific. The Soviets’ strategy was to outmaneuver the US containment strategy by instigating insurgencies in the US neighborhood. This led to a common perception that after the Soviet Union’s collapse, the US became so powerful that it could hardly be challenged by any other power. Since 1991, for the first time in history, there was a sole power with essentially unlimited global military as well as economic reach. Neither the Roman Empire in antiquity nor the British one in the late 19th - early 20th century equaled the capabilities the US possessed. However, this had largely changed by the second decade of the 21st century. The United States remains enormously powerful and able to wage wars on several fronts simultaneously. However, this is very different from previous US omnipotence. Politicians as well as analysts sometimes believe that the US power has no limits, but there are always limits, and such a global state as the US

can only remain powerful and survive by knowing and respecting them. The primary limit of American is the same as that of the Roman or British empires: demography. In Eurasia-Asia and Europe together, the Americans are outnumbered from the moment they set foot on the ground. The US military is built around force multipliers, weapons that can destroy the enemy before the enemy destroys the relatively small force deployed. Sometimes this strategy works. There are simply so many potential US enemies that the US striking forces could easily be absorbed and attrition would be near. Thus, the deployment of a major US force in Eurasia is unsupportable except in special cases where an overwhelming power is necessary to win a major battle (Iraq and Afghanistan come to mind). However, the Eurasian landmass is also going through deep geopolitical changes. On the surface, one might say that it is easier nowadays for the US to manage a divided Eurasia where there are numer-

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ous regional powers competing, as opposed to the stable era of the Cold War. The modern-day Eurasia is more chaotic, and this unpredictability creates a definite break with what the US had to cope with in previous decades. In the predictable world of the Cold War era, geopolitics was important, but it was more hidden under various democratic and idealistic premises. In the modern Eurasia, though, there is a clear shift towards a new more untenable “world order”. Take the example of the new US national security document (signed under Trump). It has now formally ushered in the end of ethical and moral premises in international relations and heralded the return of geopolitics; an expected step and one rooted in the experience of past generations. This thinking is well summarized in the following quote from the document, which notes increased unpredictability and competition among various powers in Eurasia: “These competitions require

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Dimitri Dolaberidze, Maka Lomadze, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze, Nino Gugunishvili, Thea Morrison Photographer: Irakli Dolidze

the United States to rethink the policies of the past two decades, policies based on the assumption that engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners. For the most part, this premise turned out to be false.” The more chaotic Eurasia will be also more difficult for the US to contain. Where previously there was only a powerful Soviet Union, nowadays the US faces Russia, China, Iran and a destabilized Middle East. Moreover, terrorism as well as cyber security issues are piling up on the desks of the US foreign policy makers. This versatility gradually makes the US rebalance its strategy. Numerous indications in the US foreign policy towards Ukraine, Georgia, Israel and Japan in the Asia-Pacific show that Washington now understands increasingly more and more that it can no longer afford to be directly involved in a number of conflicts around the world or

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specifically in Eurasia. It would simply be exhausted rapidly. The US thus would slowly shift towards creating more regional and global balances based on wide financial and military support, be it Ukraine and Georgia in the former Soviet space against Russia, or Israel and others in the Middle East against Iran. Beyond the immediate Russian security threat to eastern Europe, are China and Iran which aspire towards changing the existing political power of balance in their immediate neighborhoods. China’s economic rise, coupled with military development, has poised the country to become a powerful world player in international politics. More importantly, China’s strategic imperatives clash with those of the US: China needs to be more secure in procuring necessary oil and gas resources which are currently mostly available through the Malakka Strait. In the age of US naval dominance, the Chinese imperative is to redirect its economy’s dependence as well as supply routes elsewhere from the Malakka Strait. Thus, comes the famous almost trillion Dollar Belt and Road Initiative to reconnect the Asia-Pacific with Europe through Russia, the Middle East and Central Asia. At the same time, Chinese naval ambitions are on the rise to thwart the US dominance close to its shores. Since domination in the oceans is at the heart of the US global power and insecurity of the Chinese economy, mutual suspicions between Beijing and Moscow are bound to increase over the next years. In the long run, this is more dangerous for the US than was the Soviet threat in the Cold War. The Soviets were competing militarily: nowadays, China is economically predominant. The issue of the future US global power potential is a large subject, but one thing is clear: in the coming years, we will likely see an America which will become less directly involved in various theaters across Eurasia, but will support various states to keep Russia and China at bay.

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Profile for Georgia Today

Issue #1064 Business  

July 10 - 12, 2018

Issue #1064 Business  

July 10 - 12, 2018

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