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Issue no: 826/18

• MARCH 15 - 17, 2016

• PUBLISHED TWICE WEEKLY

FOCUS ON THE NEW

Tech Park hosts first Youth Innovation Summit to encourage young inventors

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PRICE: GEL 2.50

In this week’s issue... Lessons from the Economic Crisis and Formation of New Development Models PAGE 2

A Portrait of a Tushetian Farmer as an Entrepreneur ISET PAGE 4 David Khosroshvili, founder of WiFisher.com and co-founder of Eventer.ge, spoke at the Summit on the many challenges facing those launching a start-up

Sustainable Urban Transportation in Tbilisi and Lessons from Seoul BY CHARLES JOHNSON

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bilisi traffic has become a point of consternation for the city’s residents, especially as population and income grows, adding to the number of cars on the road. Recently, the South Korean embassy has been taking proactive steps to offer support and expertise. On Friday, the South Korean embassy organized a seminar between leadership of the Tbilisi Transport Company (TTC) and the Korean Transportation Institute (KOTI). According to Kim In Hwan, Charge D’Affairs of the South Korean Embassy, his government is ready and willing to assist and finance traffic reforms and infrastructure in Tbilisi. Continued on page 5

Azerbaijan – In Need of a New Growth Model GALT & TAGGART PAGE 6

Anaklia Port Competitor? APM Terminals to Build Port in Poti, Georgia PAGE 7

Trade in Strategic Goods: Global security, National Interests and Economic Development Prospects PAGE 11 Prepared for Georgia Today Business by

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BUSINESS

GEORGIA TODAY

MARCH 15 - 17, 2016

Lessons from the Economic Crisis and Formation of New Development Models BY NINO EDILASHVILI

February Sees 4,231 New Businesses Registered in Georgia BY ANA AKHALAIA

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ccording to official data of the National Agency of Public Registry, 4,231 businesses were registered in February, 2016, of which 95.7 per cent are business entities and 4.3 per cent nonprofit entities. In February, the index of business registration (December 2010 = 100) was 0.967 which increased by 50.5 per cent compared to the previous month and also by 2.4 per cent compared to the same period last year. The number of business entities (sole proprietor, general partnership, limited liability company, jointstock company, limited partnership, cooperative, foreign legal entity branch) increased by 48.1 per

cent and the number of non-profit entities (nonprofit legal entity, foreign branch of a non-profit legal entity, public legal entity) by 134.6 per cent in February compared to the previous month. A similar trend was observed in comparison with the same period last year where the number of business entities has increased by 1.2 per cent and the number of non-profit entities by 37.6 per cent. The monthly index of business registration in February was 0.953 for business entities and 1.441 for non-profit entities. The majority, 2,055- or 48.6 per cent of total registered business entities -were sole proprietors and limited liability companies (1,865 or 44.1 per cent of total registered entities). It appears that 92.6 per cent of business entities have a preference for the two above statuses. In February were registered: 181 non-profit legal entities, 90 cooperatives, 26 branches of foreign legal entities, 12 joint stock companies and 2 public legal entities.

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n March 11, 2016, a presentation of the book 'Lessons from the Economic Crisis and Formation of New Development Models' by Professor Irakli Kovzanadze was held at Tbilisi Mar-

riott hotel. The new Russian-language book is designed for MA and PhD students specialized in banking and economics as well as for academic staff. The book will also be helpful for scientists and researchers, economists and public servants working in financial and economic fields. The content deals with the economic crisis of 2007-2009. A separate chapter is dedicated to the developmentt of the economy and the banking sector and its problems. The book gives concrete examples of countries, the efforts made and the results obtained. The author gives his estimation of recovery and the future of sustainable development. “The book analyzes various studies by economic

schools, the recovery of historical and contemporary experiences and global economic development trends,” the author said. “It presents the problem of macroeconomic, structural and institutional factors.” The book provides deep analysis of economic crisis and is full of practical examples. Irakli Kovzanadze is a professor, a Doctor of Economic Sciences and the Chairman of the Banking and Finance Department at I. Javakhishvili Tbilisi State University. He is author of several books and more than 50 articles about economics. He served over 20 years in senior positions in the commercial banks of Georgia and on boards of leading banks in Post-Soviet countries and Europe. In 1998-2003 Mr. Kovzanadze was CEO of United Georgian Bank. From 2004 to 2008, he was an MP and held the position of the Chairman of the Budget and Finance Committee of the Georgian Parliament. In 20072009, he chaired EBRD/OECD Task Force on Corporate Governance of Banks in Eurasia. He worked as EBRD Board Nominee Director at several financial institutions in CIS countries (2009–2012). In 2012-2015 he was an Executive Director of the staterun investment fund, Partnership Fund.

UNDP Helps Georgia Reduce Natural Hazard Risks BY ZVIAD ADZINBAIA

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he United Nations Development Program (UNDP) Georgia office held a special information session for media representatives over flood risks and protection measures for western Geor-

gia. The event, involving around 20 participants from across the country, took place on March 11-12 at hotel Tskaltubo Plaza in the town of Tskaltubo, western Georgia. The representatives of the UNDP and Ministry of Environment, alongside the Adaptation Fund, introduced attendees to their mutual accomplishments and planned future actions aimed at reducing or preventing risks in the basin of the Rioni River in western Georgia. The talking points incorporated UNDP’s efforts in Georgia in terms of assisting Georgian agriculture and people living in rural and remote areas of the country. Namely, the UN-based organization and its partners have invested over USD 5 million for reducing natural risks and hazards in the Rioni Valley through which runs a river which has been a challenging factor for Georgia’s environment for years. The Environment Ministry assesses the Rioni river basin as an area of Georgia most vulnerable to floods and extreme climate events. Flood prevention and adaptation models tested there can be expanded to other regions of Georgia to reduce the risk of floods and protect the most vulnerable. The grant provided by the UN has been apportioned to installing a warning system in the river which will enable emergency services to evacuate citizens residing in the surrounding area in case of danger. The UNDP estimates some 200,000 residents have benefited directly and indirectly from the money injected into the project. Interestingly, experts participating in the session panel emphasized the disadvantages of Georgia’s mountainous relief. While the country is doubtlessly eye-catching to tourists for its unique nature and attractive terrains, the scholars underscored a number of shortcomings connected to the mountainous regions of Georgia, which create additional obstacles for environmentalists in terms of high risks of natural disaster. As part of the event, media representatives visited the villages of Sajavakho and Ianeti (Imereti region, western Georgia), where shoreline protection and agro-forestry works are ongoing to reinforce the damaged river banks and protect houses and agriculture plots from in-coming water. Head of UNDP Georgia office, Niels Scott, and Minister of the Environment, Gigla Agulashvili, joined the field event.

The problem of natural hazards in Georgia has been in the spotlight in particular since the tragic flood of of June 13 last year

“Our joint work with the Government of Georgia aims to introduce policies, economic practices and adaptation measures that will protect people and promote the economic development of these regions,” Niels Scott told GEORGIA TODAY, adding that the UNDP aspires to continue the projects launched and he hopes that sufficient resources will be mobilized for this purpose. Minister Agulashvili told GEORGIA TODAY that the technology employed by the UNDP for building shoreline protection with rock structures will definitely work and will assist a number of residents living along the Rioni River. “If these constructions were not built here, most of the inhabitants would have to leave the area due to flooding,” he said. This year, the UNDP is celebrating the 23rd year of its presence in Georgia and has categorically refused to mark the anniversary in a luxurious manner. Instead, the organization, which brings together dozens of value-based and bright-minded professionals, has planned a number of awareness campaigns to communicate better their accomplishments to date. Since 2012, the UNDP Georgia project has been involved in the construction of shoreline protection with rock boulders in 10 high-risk territories, including agro-forestry works started in 11 villages. In addition, 35 new hydro-meteorological monitoring sites have been established. An important part of the process is developing new policy documents that introduce flood resilient insurance schemes and building codes, as well as flood forecasting and early warning systems. The seminar organizers revealed that the United States government has promised to assist the Georgian side with an expensive radar system which will greatly increase the level of predictability of potential floods or other types of natural hazard in Georgia. The problem of natural hazards in Georgia has been in the spotlight in particular since the tragic flood of the night of June 13 last year, when a flood claimed the lives of dozens and left many homeless in the Georgian capital, Tbilisi.


BUSINESS

GEORGIA TODAY MARCH 15 - 17, 2016

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Youth Innovation Summit Full of Inspirational Success Stories BY EKA KARSAULIDZE

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he Technological Park (Tech Park) by Georgia’s Innovation and Technology Agency (GITA) was opened just two month ago in Tbilisi. The facility, which aims to support and help implement innovative ideas, actively works and constantly encourages young people not to doubt their ideas and aim to make them a reality. Prior to the establishment of the Tech Park, GITA itself supported innovative projects, some of which were presented at the first Youth Innovation Summit on March 11. One of the representatives of the new generation of inventors was Peter Tomadze, Game Developer and Founder of Freaky Screen. “My business journey started very simply. When I was 13 I had very bad marks at school and my parents forbade me from watching cartoons. So, I decided to make my own and watch it as much as I wanted. I sent the result to an international festival and won it,” said Tomadze. Peter Tomadze then created the International Festival of Animated Films ‘Tofuzi’ in Batumi. He has since won a tender from Nickelodeon Company and is soon heading off to The Netherlands to conclude a partnership with a local company. Tomadze

noted that with the massive help and support of GITA it was even made possible for him to run another business – online games platform Freaky Screen. David Khosroshvili, another young businessperson- founder of WiFisher. com and co-founder of Eventer.ge, highlighted that there are always many challenges to face in launching a start-up, and one of them is money. However, in this case you just need to follow what he calls the ‘OPM’ rule or Other Peoples’ Money. “Nowadays, top persons have more money but less energy; when they were

young they had to work a lot to reach leading positions. Today, we have energy and ideas but not money. To reach our own goals we have to cooperate with them and use OPM,” said Khosroshvili. Tech Park was created especially for those who had no possibilities to realize their ideas. It is open to everyone and supports the implementation of projects, not only with technology and equipment assessment, but also by providing training, consultation with the facility’s foreign partners, conducting learning courses and helping in the search for investors.

Chairman of GITA, Irakli Kashibadze, recalls the time when he himself was a young innovator and how difficult it was to set up something new. “Now, Tech Park is offering a great opportunity which didn’t exist in my time. When I was creating my online newspaper ‘Navigator,’ I was faced with many problems, which today Tech Park is ready to take on,” said Kashibadze. “If Tech Park had existed in my time, I think I would have gone much further forward.” In addition to the new generation of inventors, foreign experts and partnerorganization like USAID’s G4G and

AIESEC also attended the Youth Innovation Summit. Particular attention was paid to the example of Israel. Omer Pommerntz, an Israeli innovation consultant, highlighted that Israel and Georgia are both small countries and face similar problems. However, Georgia also has positive sides like great possibilities, a competitive environment and the experience of other countries to draw on. “Israel attaches great importance to innovation with about 4 per cent of GDP is put towards it,” said Pommerntz, comparing it with the 0.1 per cent of Georgia. “Another important issue is education. All universities in Israel are public – you should educate the nation from elementary school to University. Here, I mean innovation education as well,” he added. The Youth Innovation Summit also demonstrated the capabilities of young people’s own creative ideas and opportunities for them in development and promotion. In Tbilisi, this especially involves Tech Park itself, and other platforms like GeoLab, FabLab and more. The Summit was designed to encourage young people with innovative business ideas to develop start-up companies. Attendees were given a unique opportunity to communicate with already successful start-up representatives, authorities and foreign experts. The organizers of the event announced their intention to make the Summit an annual event.


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BUSINESS

GEORGIA TODAY

MARCH 15 - 17, 2016

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.

A Portrait of a Tushetian Farmer as an Entrepreneur BY RATI KOCHLAMAZASHVILI AND ERIC LIVNY

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e first met Gogi Elanidze in winter 2015, when interviewing farmers in Rati’s village, Kvemo Alvani. Located in Akhmeta municipality, Kvemo Alvani and its twin, Zemo Alvani, are not your usual Kakhetian villages. The two serve as the winter base for the people of Tusheti, an isolated valley separated from Kakheti by the 3000m high Abano mountain pass. Traditions die hard but may take a peculiar twist. Unlike their laid back Kakhetian neighbors, the Tushi people are always on the move: to the next pasture, and to the next objective in life. Having settled in the lowlands and no longer able to wander after their herds, the Tushi came to appreciate the value of education as a means of moving up in the social landscape. As they joke about themselves, a Tushi is either a shepherd or an academician. Gogi Elanidze was born into an above-average Tushi family. His father, Daniel Elanidze, resigned from his job as director of the Telavi Cheese Factory in 1988 in order to establish, together with his sons, one of Georgia’s first commercial farms. (These were early Perestroika days, and the family farm had to be disguised as a ‘cooperative’.) This was a risky and difficult endeavor, but with Soviet rubles in plentiful supply, and consumer goods sold exclusively under the counter, the family’s pig farm turned to be a lucrative business, allowing to quickly

complete all major construction works and acquire farm land and machinery from the local sovkhoz. Everything was fine until it wasn’t. Daniel Elanidze died, heartbroken, in 1994. Only 59 in his death, Daniel could not see his business fall prey to extortion by greedy mafia gangs in the chaos and lawlessness of Georgia’s early years as an independent state. During the next 12 years, in a desperate effort to fend for his family, Gogi tried himself in every possible occupation, moving from job to job and from country to country, in the best of Tushi shepherd traditions. In 1994-5, Gogi drove a bus on the Georgia-Turkey line, but, having had his passengers robbed by the Mkhedrioni thugs, decided to get a much safer tax inspector job in Akhmeta (working for the state is not my thing, he knows to tell today). He continued his Odyssey growing watermelons and tomatoes Getting settled. Kvemo Alvani’s rectangular shape and straight parallel streets betray a fairly recent, Soviet origin. Indeed, until well into the 20th century, the Tushi community’s center of life remained high up in the mountains. The lands granted to them by Kakhetian kings in the Alazani valley have been traditionally used by the Tushi shepherds to park their sheep during the cold winter months, but the first permanent buildings appeared here only in 1920s. Kvemo and Zemo Alvani settlements acquired their central status as late as in 1950s, after the Tushi people had been forcefully resettled from their ancestral villages by the Soviet planners.

Swiss Sanaan Goats in Gogi Elanidze’s former pig house.

in south Russia, and then sailing a fishing vessel in Poti. In 2005, Gogi finally hit a jackpot, landing a risky but well-paid job as a truck driver carrying supplies for the American military in Iraq. In one year, he managed to put aside more than 10,000 USD – paid directly into his bank account in Telavi – enough to invest in a small factory producing plastic doors and windows. Gogi’s ability to win municipal contracts for the refurbishment of local schools and public buildings in Kakheti, gave him a stable source of income for the next 7 years. It also provided Gogi with the financial slack to start thinking about going back to his agricultural roots and what was left of his father’s farm. The first thing he tried, in 2009, was beekeeping. Honey was good business, but, perhaps more importantly for Gogi’s Tushi soul, it gave him the opportunity to go back to Mother Nature, and the traditional way of shepherd life. Just like his ancestors migrated with their sheep between Tusheti, Shiraki and Alvani, Gogi would load his beehives (about 120 at peak) on a track and take them on a twomonth tour of Kakheti: from the acacia groves of Lagodekhi in early April, to the lush wildflower meadows of Shiraki, and to the linden forests around Kvareli in late May. (Needless to say, Gogi’s honey is really worth trying). Two years later, in 2011, Gogi ventured into horticulture, planting 600 persimmon trees next to his father’s farm. With a drip irrigation system added in 2015, he expects his persimmon harvest to reach 18-20 tons in just a couple of years, once trees grow to full size. This would make for a full truckload, he explains, making it easy to sell to Ukrainian buyers whose trucks circle Kakheti around harvest time, loaded with packaging materials, pallets and all.

OK GOOGLE, HOW DO I START A GOAT MILK FARM? In 2013, as his plastic windows business started winding down, Gogi hit upon a new idea: a goat milk farm. He’s read about the health benefits of organic goat milk. He’s heard of French goat cheeses. He was familiar with the myth that goats would eat almost anything from apples to bark to unsold Xmas threes and brooms. But how on Earth does one get started? Since goats and goat milk were anything but common in Alvani’s sheep breeding community, there was little chance of getting expert advice or learning from the experience of others. Luckily, Gogi had a computer connected to the World Wide Web, and so he was able to teach himself. When we met one Saturday morning on his father’s farm, Gogi was using the drawings he’s found online to refit the old pig house to accommodate the goats he’s just bought on the local mar-

ket. By then he knew that local goats are a lowly bunch, producing about 0.5-1 liter of milk per day as compared to 4-6 liters by the elite Swiss breeds. The simplest solution was to import male goats from Switzerland in order to improve the local breed, a process that would take 3-5 years. Yet, transporting a small number of Swiss goats turned out to be a financial impossibility. After an extensive search, Gogi found another goat milk enthusiast in Natakhtari with whom he could join forces to save on delivery costs. A deal was struck, and in May 2015 five Saanen billy goats proudly stepped on the red carpet rolled for them in Kvemo Alvani. A year later, 29 of Gogi’s nanny goats (the best ones he could find) gave birth to 39 kids. While the little snow white babies are strikingly similar to their aristocratic fathers, Gogi knows that it would take a couple of additional generations and at least three more years for his goats to get to the original Swiss level of productivity. Since Xmas trees and brooms are not an ideal long-term source of animal feed, Gogi invested another $8,700 in a China-made hydroponic feed production plant. Incidentally, he was hoping to have at least a part of his investment financed by the Georgian government’s “Invest in Georgia” program, for which he applied, but could not afford waiting 4 months for the review process to be completed. His goats had to be fed. As Gogi knows to explain, hydroponics is an excellent solution for Georgian smallholders who are short on pasture land. His plant consists of five compartments, equal to the number of days it takes for barley seeds to grow to optimal size in a nutrient mineral solution. Each day, Gogi plants one compartment with about 30-40kg of barley. Five days later he is able to harvest up to 150kg of 100% organic green fodder, which is more than sufficient for his current needs. Gogi’s pace is truly breathtaking. A partnership is already in the making between him other and goat farmers (yes, Gogi is no longer alone) on joint chees production, meat goat farming and genetic improvement of their herds. Finally, he is in talks with Jean Jacques, a mythological Frenchman who settled in the nearby Argokhi village, on the possibility of learning French cheese recipes and marketing cheese, wine and other delicacies through Jean Jacques’ Tbilisi shop and expat networks. Very importantly for Gogi, his entrepreneurial successes may be reason enough for his son Levan (25), a civil engineer by education, to join the family business and continue in his father’s footsteps. His daughter, Salome (21) is a 4th year student at the Tbilisi Arts Academy. A talented artist, Salome is not very likely to go into farming. Well, nobody is perfect.


BUSINESS

GEORGIA TODAY MARCH 15 - 17, 2016

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Sustainable Urban Transportation in Tbilisi and lessons from Seoul Continued from page 1 GEORGIA TODAY’s Charles Johnson sat down with Mr. Jin-Young Park, KOTI Director, on the sidelines of the conference to get his impressions on Tbilisi’s transportation system and what the city and government can do to improve the lives of its residents.

CAN YOU BRIEFLY TELL US ABOUT KOTI AND THE KIND OF WORK YOU DO IN SEOUL? KOTI is a research institute in Seoul that covers research and implementation of transportation initiatives in the country. We often act as an intermediary between operators, citizens, and government. My specialty is in urban transportation and sustainable development

WHAT SPARKED YOUR INTEREST IN TBILISI’S TRANSPORTATION SYSTEM AND YOUR CURRENT TRIP TO GEORGIA? The South Korean Embassy has been interested in this matter for a long time, and my colleagues in the industry told me that Georgia has great potential to be a lovely and livable city. After this I researched and read many reports about the situation here. It’s been very interesting to be here and to share the Korean experience with the Georgian people. I found quite similar pictures and figures between our two countries. If Tbilisi could learn from Seoul, it could end up a well-developed and better city.

WHAT LESSONS FROM SEOUL DO YOU THINK ARE MOST RELEVANT HERE? Seoul has a long history and heritage,

like Tbilisi. This means that the town was not planned for a large population with lots of traffic, much like here. Seoul also had a very similar experience of a rapid increase in population and cars on the road in the last forty years. In the Korean case, we were not totally successful in dealing with these problems, so we hope to share the experience in the hopes that Tbilisi can avoid some of these mistakes and improve their system.

HAVE YOU BEEN ABLE TO TOUR THE CITY DURING YOUR TIME HERE? WHAT WERE YOUR IMPRESSIONS OF OUR URBAN TRANSPORTATION SYSTEM? Frankly speaking – and this comes from my experience in having visited many cities like Delhi, Bangkok, Ho Chin Min City, and other places – conditions in Tbilisi are not so severe. That said, considering the previous conditions, Tbilisi is undoubtedly getting worse. But Tbilisi is still in a position to fix things.

TRANSPORTATION OVERHAULS TAKE A LOT OF TIME AND MONEY. WHAT SHORTTERM AND LONG-TERM SOLUTIONS EXIST FOR THE GOVERNMENT OF GEORGIA? Transportation should grow with the city. New metro extensions, for example, should be planned where you’re building large residential complexes in order to reduce the number of cars on the road. This is not a very easy solution because of car culture. In Asia, having a car improves your social position, much like here. However, the key is to keep these cars out of the center of the city by offering better commuting alternatives. From

what I saw yesterday, I think much progress can be made by focusing on improving just a few choke points around the city. You see problems at just a few intersections that are rippling out to bad traffic across the city. You need bus lanes, public parking, and better traffic management. There are technical options to reduce traffic. Drawing a clear lane map is an example of a quick solution. Also, Tbilisi and Seoul have a similar problem with illegal parking. You cannot control every road, but you definitely have to control this on the major roads that are important for capacity.

South Korean embassy organized a seminar between leadership of the Tbilisi Transport Company (TTC) and the Korean Transportation Institute (KOTI)

HOW DO YOU INCREASE CAPACITY AND EFFICIENCY WHILE ALSO PROVIDING A SAFE ENVIRONMENT FOR BOTH DRIVERS AND PEDESTRIANS? I’d have to spend more time getting to know the culture here better, but I noticed that speeds on the road are unusually high. Even coming from a place like Seoul where we are famous for our ‘hurry-hurry’ culture, I’d say that speeds are high here. Even now Korea is fighting to reduce accident rates and improve safety. It isn’t easy, especially when it comes to cultural issues. We successfully changed our roads through enforcement – guiding our drivers to create safer road conditions. There are speed-trap cameras to catch and fine high speed cars. This could be an easy solution for important roads and intersections in Tbilisi. But in the long run you should work to improve the driving culture to be safer.

WHAT CAN GEORGIA’S CIVIL SOCIETY AND ITS RESEARCH

INSTITUTIONS DO TO AFFECT THESE POLICY CHANGES AND THE ROAD CULTURE HERE. Sometimes academics are too academic, and companies are too operational. It doesn’t leave room for popularized studies. Developing policies and properly implementing them requires a variety of stakeholders and a common structure for everyone to share their thoughts. If you could develop this kind of brainstorming system, it would be very effective. In Korea we often create joint committees for reforms consisting of NGOs, citizens, government, media, and experts. From this we find out how to best benefit everyone. Everyone lives in their own silo and they have to break out of this and work together if they want to see effective changes. Now is the right time for everyone to work

towards common solutions here.

WHAT CHALLENGES DID SOUTH KOREA FACE IN MAKING THE CHANGES? WHAT CAN TBILISI DO NEXT? In Korea we were a little late in finding the right solutions. We focused too much on flow, on getting a lot of people moving, and not enough on the quality of life of our citizens. There should be a focus on non-motorized transport. After twenty years of focused infrastructure changes, you can do things like building bike lanes that are usable, especially along the river. You could promote these cultural changes through creative one-day events like car-free days or bike-to-work day. These are healthier solutions and you get to experience your city in new ways by taking part.


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BUSINESS

GEORGIA TODAY

MARCH 15 - 17, 2016

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.

Azerbaijan – In Need of a New Growth Model BY ALIM HASANOV

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n 2015, falling oil prices challenged Azerbaijan’s growth model, which had been heavily oil revenuefinanced, particularly through construction and trade in non-oil sectors. A strong local currency, again supported by oil-related inflows, had been another characteristic of the economy, contributing to banking sector stability, low dollarization, and improved welfare. These “givens” were shattered in 2015, forcing Azerbaijan to enter the uncharted territories of low oil prices, low public expenditure, currency fluctuations, and monetary tightening. As a result, growth slowed to 1.1% in 2015 and contracted 3.3% y/y in January 2016. With these challenges, Azerbaijan’s growth prospects have worsened, necessitating a new growth model. We believe that the massive capital expenditure seen in previous years has created added capacity, but it is probably underutilized. Utilizing this capacity, particularly through foreign participation, may be one of the sources of growth. From 2010 to 2014, Azerbaijan’s growth was mainly driven by non-oil GDP, while oil GDP contracted by 2.9% per annum on average. The data indicate that nonoil GDP growth was fed by the booming construction and trade activity. Over the five years to 2014, non-oil GDP grew by a strong 8.8% per annum. Our calculations indicate that 37.1% of this growth was driven by construction, with average annual growth of 18.2% over the five years. However, infrastructure improvements that resulted from this construction boom were probably not fully utilized, as the oil sector dominated revenue generation. Trade activity contributed another 10.0%. Together, trade and construction sectors accounted for almost half of the non-oil GDP growth from 2010 to 2014. In 2015, however, the Azerbaijani economy grew 1.1% in real terms – the lowest level since 2011. Unlike previous years, oil and gas GDP increased more than non-oil GDP, with the latter posting 1.1% growth – the lowest level since records of non-oil GDP began in 2000. This weak non-oil performance was mainly due to

10 Galaktion Street

the 13.4% contraction in the construction sector and the 1.7% decline in transport and storage. Trade activity continued to feed growth, along with manufacturing and the rebound in agriculture. Based on this information, we can conclude that construction was at the center of Azerbaijan’s growth model from 2010– 2014. These five boom years in the sector have probably improved the country’s infrastructure, which had been in considerable disrepair since the early 1990s. However, the investment data indicate that most of this construction (72.6%) was financed from the public purse, which itself was 70% funded by oil revenues, thereby making it dependent on oil prices. Following the collapse of the oil price, the Azerbaijani government slashed its expenditure, particularly capital investments. The construction sector, which had continued to boom until mid-2015, suddenly ran out of new projects, eventually finishing 2015 with a 13.4% contraction. Other sectors have been much less affected and have generally been less volatile. For example, excluding mining and construction, the GDP growth rate in 2015 was 4.9%, down from 5.8% in 2014. Along with construction, another driver of growth – trade – is also expected to

be hurt by low oil prices. It appears that following the first AZN devaluation in February 2015, people rushed to exchange their devalued currency for goods whose prices were relatively stable, as long as shops and distributors were tapping their stocks. However, anecdotal evidence suggests that activity declined following the second AZN devaluation in December 2015 as stocks were almost depleted. Prices increased relatively quickly, with the annual inflation rate jumping from 3.7% in November 2015 to 7.7% in December 2015 and 13.7% in January 2016. According to the latest data, trade activity slowed to 4.3% y/y in January 2016, down from 10.9% y/y in 2015. Two devaluations in 2015, themselves triggered by persistent low oil prices, resulted in a 29.2% fall in nominal GDP in US$ terms to US$ 53.3mn in 2015, and GDP per capita contracted 31.3% to US$ 5,493 – its pre-2010 level. Fiscal sustainability in the low oil price environment required budget cuts. Government acknowledged this need by cutting capital spending which was reduced from over AZN 8.0bn (above US$ 10.0bn) in previous years to AZN 4.6bn (US$ 2.9bn) in 2016. As a result, an important source of funding for construction, trade and other sectors has

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shrank, with a negative impact on potential overall growth rate, which is forecast to remain in the low single digits. At the same time, monetary tightening undermines any prospect of investment financing from the domestic banking sector, leaving foreign investment as the best alternative for growth financing. In this setting, efficient utilization of idle capacity is an important source of growth. Massive capital expenditure in previous years, particularly investments in infrastructure, has probably expanded Azerbaijan’s potential economic output. However, the booming oil sector has been relegating this potential to second place. The Azerbaijani authorities now need to develop policies to utilize this capacity, particularly by attracting foreign investment and know-how. This could be achieved by welcoming foreign banks. Through competition and by bringing in foreign capital, these banks can take financial intermediation to a new level that will assure the efficient utilization of investments. Foreign banking finance is particularly promising given that at 24.5% of GDP, corporate loans in Azerbaijan are low by international standards, leaving scope for expansion. Anecdotal evidence suggests that during Azerbaijan’s rapid development

phase, project finance in the country was generally done directly, bypassing bank intermediation. This has probably resulted in some inefficiency. It was bearable given the need for rapid implementation and available revenue flow thanks to high oil prices. Now Azerbaijan needs to change gears, as the revenue inflows have decreased, exposing the need to secure alternative financing sources besides public funding and concentrate on efficient allocation of funding. Financial enterprises, specifically banks, are important entities in this respect. Banks, particularly international ones, have solid experience in attaining efficiency of capital allocation in the economy. They not only provide loans, but also “supervise” project development, assuring that projects are completed. Moreover, international banks can secure the necessary capital from abroad – a vital detail for Azerbaijan, given the low oil revenues. To summarize, growth expectations in Azerbaijan can be improved, once the business environment is reformed and welcoming to foreign participation. Subsequently, FDI can leverage idle capacity to generate new growth, in place of the past reliance on the publicly financed construction sector.


BUSINESS

GEORGIA TODAY MARCH 15 - 17, 2016

Anaklia Port Project Anaklia Port Competitor? APM Terminals to Build Wins Prestigious Port in Poti, Georgia Industry Award BY ANA AKHALAIA

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BY ANA AKHALAIA

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naklia Development Consortium (ADC) was honored by CG/LA Infrastructure with the Strategic Infrastructure Project of the Year award at the 9th annual Global Infrastructure Leadership Forum, held in Washington DC from 9-11 March. ADC won the award for its Anaklia Port Project, which it developed after winning an open tender to build a $2.5 billion deep sea port near Georgia’s Black Sea coastal city Anaklia. The project is expected to create as many as 3,400 jobs during the construction stage, and 6,400 jobs to oper-

ate the port once it is completed. According to ADC, the Georgian government has committed $100 million to build a port for berth container ships with capacity of 10,000 TEU (twenty-foot equivalent units). The port will have the capacity to process 100 million tons of cargo and annually contribute 0.5% of the GDP by 2025. ADC will develop 400 hectares of land over the next 49 years as part of the port’s overall development. It will also receive the right to develop a free industrial zone on 600 hectares of land, adjacent to the planned port. ADC is a consortium of Georgia’s TBC Holding LLC and Conti International LLC from the United States. CG/LA Infrastructure, is a nonpartisan global strategic advisory firm based in Washington, D.C.

PM Terminals, owner of the Poti Port in Georgia, plans to build a new port in Poti, a port city in western Georgia. According to East Gate Group’s Supervisory Board Chairman, Irakli Iashvili, the port may aim to cover the demand of freight services in Georgia for the next 100150 years. If implemented, the project will be a serious competitor of the Anaklia Port in terms of attracting financial resources, as well as transportation. The company has already completed an Environmental Impact Assessment study. The first stage of the project, expected to be completed in 2018, includes the construction of two new deep-water

ports where the annual throughput capacity will be one million Twenty-foot Equivalent Unit (TEU) containers, while it will be possible to receive 9,000 TEU capacity ships at berth. According to the company, after conclusion of the project, the capacity of annual turnover of the Poti mega-port will be 50 million tons and 2 million TEU containers. The largest ships in the Black Sea will be able to enter Poti mega-port which will be 16 meters deep. In the first stage, it is planned to invest USD 250 million. According to APM Terminals, the company will announce a tender in the near future. “Economies around us are not as developed, they don’t have that much freight for Anaklia Port’s capacity as it was announced. 100 million tons of freight is an unimaginable number. Currently, we have two more or less profitable ports. If a third one of this scale is added, it is

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East Gate Group’s Supervisory Board Chairman, Irakli Iashvili

sure to be unprofitable as there will be competition, including in terms of freight. Attracting freight is not possible merely by having a port,” stated Iashvili of East Gate Group, which owns Georgian Trans Expedition Poti, the largest and most technically equipped container terminal in Poti. After winning an open tender to build a USD 2.5 billion deep sea port near Georgia’s Black Sea coastal city Anaklia, Anaklia Port will be built by Anaklia Development Consortium (ADC), which is a consortium of Georgia’s TBC Holding LLC and Conti International LLC from the United States. According to ADC, the Georgian government has committed USD 100 million to build a port for berth container ships with a capacity of 10,000 TEUs. The port will have the capacity to process 100 million tons of cargo and annually contribute 0.5% of the GDP by 2025.

European Investment Bank to Allocate EUR 100 Million to Georgia BY ANA AKHALAIA

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he European Investment Bank (EIB) is to allocate EUR 100 million for a 25-year term, which will be used for Georgia’s current and future infrastructure projects. The public was informed of the decision by Deputy Minister of Finance, Giorgi Kakauridze, following a meeting of the Environment and Natural

Resources Committee. EUR 50 million, within the agreement between Georgia and European Investment Bank, will be spent on the rehabilitation works of the damage in Tbilisi caused by the 2015 flood, EUR 25 million will be spent on development of tourism infrastructure, while the remaining EUR 25 million will be spent on various small projects of different municipalities, including roads and water system rehabilitation. According to the Deputy Minister of Finance, each tranche of funds will be

carried out gradually and currency units of the allocated amount and loan terms will be determined individually. The European Bank loan is being managed by the Municipal Development Fund. The members of the Committee voted in favor of the agreement being presented at the plenary session. The European Union’s leading financial institution, the European Investment Bank (EIB), finances projects in Georgia on the basis of an EU mandate for the countries of the Eastern Neighborhood, the so-called External Lending Mandate.


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BUSINESS

Blauenstein Georgia to Open More Cattle Farms in Racha

GEORGIA TODAY

MARCH 15 - 17, 2016

First Beekeeping Cooperatives Forum Held in Georgia

Georgian Deputy Minister of Agriculture, Davit Galegashvili

BY ANA AKHALAIA

BY ANA AKHALAIA

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eorgian-Swiss company Blauenstein Georgia plans to open a total of 10 cattle farms in the Racha region, north-western Georgia. The cattle farms are scheduled to be opened in 4 villages before October, 2016. The company offers farmers special conditions to create joint farms with the company. In particular, for partnership with the company, the beneficiaries have to build a farm on 60 hectares of land and make a commitment to take care of the animals which will be given by the company. The farms will use Preferential Agro Credit, a state financing project by the Min-

istry of Agriculture. Improving the genetics of the local Caucasian breed of cattle is carried out with the Schwyz and Simmental breeds which can reach 800-1100 kg in weight. The company was established with Georgian-Swiss investment in Racha region in 2008, which implemented an investment of more than GEL 15 million in total. It already owns six farms in Racha and around 600 heads of cattle. Blauenstein Georgia produces so-called ‘flesh meat’. After slaughtering cattle, the meat is placed in refrigerators with appropriate humidity and temperature for 14-21 days in order to minimize the acidity in the meat. According to Georgian media outlet Business Contact, the company also plans to open a dairy factory in two years and produce the Swiss cheese type Gruyère.

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he first Forum for Beekeeping Cooperatives was held in Tbilisi, Georgia, on March 11th, within the EUfunded European Neighborhood Program for Agriculture and Rural Development, ENPARD. The forum was initiated and organized by Mercy Corps, In Need, CARE International and OXFAM GB. According to the organizers, the Forum provides a space where beekeeping cooperatives and other interested parties can discuss the current challenges in the beekeeping sector and develop solutions, as well as learn about the country’s current and planned state programs, initiatives, and current legislative regulations. The Forum will contribute to enhancing cooperation between beekeeping cooperatives and the private sector. It was officially opened by Georgian Deputy Minister of Agriculture, Davit Galegashvili, and Head of the Agriculture Cooperatives Development Agency,

The Forum will contribute to enhancing cooperation between beekeeping cooperatives and the private sector

Giorgi Misheladze. “The laboratory will be ready this year to export our products to the European Union. It will not be able to manage by the summer but those laboratories with international certification in Georgia and Turkey will soon be supporting honey export to Europe and we will also soon be able to catch up with our technical resources,” Galegashvili said. The Laboratory of the Ministry of Agriculture was granted accreditation of ISO 17 025 standard, which means its research results will be recognized internationally.

The Forum was attended by representatives of the EU Delegation, the Laboratory of the country’s Ministry of Agriculture, the Scientific-Research Center, several Georgian professional associations active in beekeeping and agriculture, the Regional Information Consultation Centers, as well as cooperatives and other stakeholders. ENPARD is a five-year program (March 2013 – March 2018) to reinvigorate the agricultural sector in Georgia with the thorough cooperation of government, civil society and farmers. The total budget of the program is EUR 52 million.


BUSINESS

GEORGIA TODAY MARCH 15 - 17, 2016

Geostat Releases FDI Data: Azerbaijan Georgia’s Top Investor in 2015 BY EKA KARSAULIDZE

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he National Statistics Office of Georgia (Geostat) has announced its preliminary data about foreign investments to Georgia in 2015. According to the statistics, Azerbaijan invested USD 542 million in the economy, accounting for 40% of total Foreign Direct Investment (FDI). Other top investor-countries are the UK with USD 198 million (15 per cent) and the Netherlands, USD 111 million (8 per cent). In total, Georgia attracted USD 1.3 million in FDI in 2015, which is 6 per cent higher than the preliminary data for 2014 and 23 per cent lower than adjusted data for the same period. Geostat also named Luxembourg with USD 87 million, Turkey USD 77 million, China USD 58 million and Russia USD 49 million among the other

leading investment-countries. Other countries invested USD 190 million while international organizations invested USD 39 million in Georgia last year. The share of FDI by three major economic sectors of Georgia reached 68 per cent in 2015. The transport and communications sector had the largest share with USD 594 million, representing 44 per cent of the total volume of FDI. The financial sector received USD 191 million (14 per cent) last year, the construction sector had USD 129 million (9 per cent) and Energy USD 90 million (7 per cent). In compiling the statistics, Geostat was guided by the data of the National Bank of Georgia, Ministry of Economy and Sustainable Development of Georgia, Ministry of Finance and Economy of Adjara, as well as its own statistical surveys on external economic activities. The adjusted data about Foreign Direct Investment in 2015 will be published on August 15, 2016.

Admiral Stavridis: NATO Should Consolidate Balkans before Expanding Further BY ANNA KALANDADZE, VOA GEORGIAN SERVICE

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ormer NATO Commander Admiral James Stavridis, the current dean of The Fletcher School at Tufts University, spent 30 years in the US Navy. Among his many commands were four years as the 16th Supreme Allied Commander at NATO, where he oversaw operations in Afghanistan, Libya, Syria, the Balkans and piracy off the coast of Africa. In an interview with Voice of America’s Georgian Bureau, Admiral Stavridis covered a host of issues beginning with how the US and Russia found themselves in a new geopolitical confrontation.

WHAT BROKE THE RELATIONSHIP? Frankly, the moment that really broke the relationship was the invasion of Georgia and the occupation of Abkhazia and South Ossetia. Since then, we have seen an additional series of disagreements culminating in a significant disagreement with the invasion of Ukraine and the annexation of Crimea. So we’re in very difficult situation with Russia today.

IS THERE A WAY FORWARD? If I were to give a prescription, it is that we should confront where we must but cooperate wherever we can...We should confront on the invasion of Ukraine and annexation of Crimea. That is a clear violation of international law. We should confront on Russian support of Syria for the Assad regime, which is clearly an illegal regime that is using barrel bombs and chemical weapons against its own population. On the other hand, we have area where we can cooperate - Counter-piracy, counter-narcotics, counter-terrorism, potentially on further arms control, perhaps in the Arctic. I think it is going to be a very mixed picture in terms of the relationship between Russia and the West.

WOULD YOU SAY THAT RUSSIA HAS GREATER LEVERAGE OVER THE SITUATION THAN THE WEST? I think both sides have a certain amount of leverage. Russia derives leverage from the fact that they are in place. They are conducting an aggressive military action. They have been very loyal to the Assad regime and have experience working with Assad, so they have military and political leverage. On the other hand, the West has stronger economic leverage over Russia, particularly with the oil prices under USD 40 a barrel and continued sanctions on Moscow…I think there is room for maneuver in terms of a dialogue.

WHAT ABOUT NATO’S EXPANSION, IS THAT ON PAUSE FOR NOW? I think NATO expansion will continue; the Alliance has an open door policy for nations that are democratic or in a position to advance the interests of the Alliance. Montenegro will join at the Warsaw Summit, bringing us to 29 nations. I think next logical step is probably Macedonia; beyond that Bosnia-Herzegovina has some possibilities. Ultimately it would be good [for NATO] to consolidate the Balkans before doing any further expansion. I think there will be expansion, but it won’t be rapid, it will be a very time-phased approach. For the full interview in Georgian, go here: http://www. amerikiskhma.com/a/stavridis-nato/3212707.html

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BUSINESS

GEORGIA TODAY

MARCH 15 - 17, 2016

TSU Students Protest Corrupt Spending Policies BY TAMAR SVANIDZE AND NICHOLAS WALLER

Several hundred attendees of Georgia’s top university launched a major protest earlier this week railing against the institute’s alleged corrupt spending policies. Photo: Anna Gvarishvili/ Netgazeti

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everal hundred attendees of Georgia’s top university launched a major protest earlier this week railing against the institute’s alleged corrupt spending policies, including the provision of funds to privileged student government members. Tensions at Tbilisi State University (TSU) peaked Friday as protestors clashed with security guards and police after demanding full transparency and immediate oversight over the student government’s use of university funds, which they allege have been misappropriated and used for special kickbacks and benefits for certain members of the student administrative body. The protesters claim that members of the student government enjoy exclusive access to the university’s financial support system to sponsor expensive outings instead of being properly allocated to the general student population, which has resulted in several individuals being forced to drop-out, as they were unable to pay the required tuition fees. The protests have been organized by an umbrella organization of various local NGOs and social movements under the title Students Against Education Policy (SAEP). “These protests are against the student government’s unchecked privileges and monopoly on funding. Members of the student government use this money to go on expensive holidays or take part in

USAID Donates Greenhouse Gas measuring Equipment to Georgia

trainings at five-star resorts. All of this goes on while the university has a multitude of serious problems, including a lack of Georgian-language textbooks or the increasing number of student dropouts due to their inability to cover tuition fees,” Irakli Kupradze, an activist from SAEP, said. SAEP claims in an online report posted on their Facebook page that the student government received 19,000 GEL ($7,900) in December 2015 for a training project in Georgia’s winter ski resort Bakuriani. The group also claims the student body received 24,600 GEL ($10,300) from the university’s budget for unspecified purposes. The protestors demand that TSU’s authorities, as well as the rector, be held accountable for the student government’s actions and a cap be put in place on all future expenditures made by the university’s elected bodies. On Thursday, both the rector and student government appeared to ignore the protestors’ demands and attempted to move ahead with a hotly contested vote to elect the university’s new chancellor – a position whose duties include managing TSU’s budget.

Violent clashes broke out as protestors successfully shut down a plenary session of the university’s senate; preventing it from electing a new chancellor. They claim the lead candidate for the position, Giorgi Gaprindashvili, must have his name withdrawn for being complicit in the misappropriation of funds as a sitting member of the student council. The protestors also accuse Gaprindashvili of having muzzled a 2011 investigation into the beating of students by other fellow members of the council. Georgia’s Prime Minister Giorgi Kvirikashvili weighed into the matter on Friday and requested that Gaprindashvili suspend his candidacy in order to avoid inciting further conflict with the student protestors. Gaprindashvili, however, ignored the calls to withdraw his candidacy, going on record as saying he has no intention of abandoning his goal of being named chancellor. Buoyed by newfound support from students at the nearby Ilia State University and several members of the university’s faculties, the demonstrators responded to Gaprindashvili by vowing to continue their protests until their demands are fully met.

BY ANA AKHALAIA

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Sgovernment-fundedNGO USAID has donated greenhouse gas measuring equipment to Georgia, the mission’s director Douglas Ball said Thursday. The equipment is the first of its kind to be purchased and used in Georgia, according to Tbilisi’s Ministry for Regional Development and Infrastructure. Georgia has made commitments under the EU Association Agreement and the Paris Agreement on Climate Change to monitor and reduce emissions of methane and other gases that contribute to global climate change. The country had, until now, lacked the proper equipment and technical knowledge to fulfil its greenhouse gas commitments.

According to the US Embassy in Georgia, USAID’s ‘Waste Management Technologies in Regions’ (WMTR) project donates equipment and provides training to technicians working for the Georgian Solid Waste Management Company (GSWMCG). Within the framework of a Memorandum of Understanding signed between the WMTR project and the GSWMCG, a plan will be developed aimed at reducing harmful greenhouse gas emissions. The baseline data accumulated during the development will be used to devise future plans that will lead to the closure and care of landfill sites. The USAID-funded WMTR project has been actively working on introducing sustainable waste management practices in Georgia’s Kakheti region and Adjara Autonomous Republic since 2014. The project aims to maintain a cleaner and healthier environment and to minimize the adverse ecological impact from pollution emanating from waste sites.


BUSINESS

GEORGIA TODAY MARCH 15 - 17, 2016

A MEDEVAC armored medical evacuation vehicle built by the Delta State Military Scientific-Technical Center. International regulations require a certain level of transparency in the activities of parties involved in trading strategic products. Source: http://delta.gov.ge/en/ productcategory/armored-vehicles/

Trade in Strategic Goods: Global security, National Interests and Economic Development Prospects BY SHORENA LORTKIPANIDZE

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n 30 January 2016, twelve MEDEVAC armored medical evacuation vehicles built by the Delta State Military Scientific-Technical Center were sent from Georgia to Saudi Arabia. In early February, Georgian and foreign press actively covered the successful deal, concluded on the basis of a contract signed between Delta and Saudi Arabia in December 2015. According to the contract, Saudi Arabia plans to buy more such vehicles. International regulations adopted with the support and participation of nearly all UN member states require a certain level of transparency in the activities of parties involved in trading strategic products. The export, import and transit of military and dual-use materials and products and related brokerage and technical services is governed in Georgia by a special trade regulation regime as the issue has a security aspect in addition to the economic dimension. Dual-use products are defined as materials, products or technologies, including computer programs that can be used in the manufacture of weapons, including weapons of mass destruction. Georgia, as a UN member state, has in recent years taken major steps towards refining its regulations governing trade in strategic products and harmonizing them with Western approaches.

THE LAW GOVERNING TRADE IN STRATEGIC PRODUCTS Georgia has a special law “on controlling military and dual-use products,” the latest version of which went into force on 1 October, 2014. The revamped law created a new basis for controlling

the import and export of dual use products in Georgia. Experts from the USA, EU and the German Federal Export Control Agency took part in the elaboration of the draft law alongside the Georgian parliament and executive government. The new legislation was drafted with Western experience in mind and the lists of dual-use products are fully in line with EU regulations. The mentioned export control system will facilitate bringing Georgian legislation into line with EU norms and standards, as well as Tbilisi’s obligations under the Association Agreement with the EU. This implies establishing an effective national export control regime, specifically “strict control over the export and transit of products linked to weapons of mass destruction, control over end-users of dual-use technologies linked to weapons of mass destruction, and harsh sanctions for violators of export control rules.” The new legislation determines which government bodies are charged with issuing permits for trade in military and dual-use products. In the case of dualuse products it is the Revenues Service (under the Finance Ministry) which is responsible for issuance permits and licenses, while in the case of military products permissions and licenses for export, transit, brokerage service and technical assistance can be issued by the permanent Standing Commission for Oversight of Military-Technical Issues of the Ministry of Defense (MoD). The afore-mentioned Delta is governed by the new law. Delta is a legal entity of public law subordinated to the MoD and requires permits for the export of dual-use products. The permits are issued for a specific number of units and cover a specific period of time; their terms are strictly monitored. End-user certificates docu-

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ment who the ultimate recipient of the product is - that is to say that the State oversees whose hands the products ultimately end up in. In countries under sanctions - countries that violate human rights or where an armed conflict is ongoing - the MoD is not allowed to issue permits for the export of military or dual-use products. Before permits are issued, the MoD-based permanent Standing Commission issues its conclusion and recommendations. Representatives of various bodies take part in this

Journalists: Tony Hanmer, Tamar Svanidze, Zviad Adzinbaia, Beqa Kirtava, Meri Taliashvili, Eka Karsaulidze, Zaza Jgharkava, Maka Bibilashvili, Karen Tovmasyan, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Ana Akhalaia, Robert Isaf, Joseph Larsen, Will Cathcart, Vazha Tavberidze, Nugzar B. Ruhadze

process: the Justice Ministry, the Interior Ministry, the Foreign Ministry, the State Security Service, the Technical and Construction Oversight Agency and the Environment and Natural Resources Protection Ministry. Each agency assesses, based on its own considerations, whether to recommend that a given product be granted an export permit and license by the MoD. Among the main criteria for giving recommendations and issuing export licenses are the situation regarding human rights and the upholding of international humanitarian norms in the country of ultimate use, and the risk that the product could end up in the hands of terrorists or terrorist organizations. Since its foundation, the MoD’s Standing Commission for Oversight of Military-Technical Issues has refused companies’ requests for export permits on several occasions for failing to meet the above criteria.

HOW DO PERMITS GET ISSUED? Logistics and transport companies which export military or dual-use goods or bring them into the country for transit purposes submit relevant documentation - including the end-user certificate - to the MoD’s military-technical department, which makes the decision on issuing an export license. After the permit is issued, these companies refer to the Patrol Police and the Emergency Situations Department, which provide escort and protection for the cargo. The company must pay a fee for this service. Such cargoes are subject to a special safety regime - as per the international obligations Georgia has undertaken.

REVENUES SERVICE STATISTICS ON ISSUANCE OF PERMITS According to the Revenues Service, in the year following the law’s entry into force, 235 permits were issued while one company was refused the right to transit a cargo from Iran. At that time Iran was under sanction. There were also cases in that period where permits were not granted because the company in question sought to transit through the country products that did not meet the technical requirements of the list

Photographer: Zviad Nikolaishvili Layout: Misha Mchedlishvili Webmaster: Sergey Gevenov Circulation Managers: David Kerdikashvili, David Djandjgava

of dual-use products. The Revenues Service has shared with us the following examples of this: One company was refused the right to import detonation cords and industrial explosives. In this case, the product contained a methane-detonator, which is a compound of ammonium nitrate, TNT and inert salt and has a detonation speed of 3,000 meters per second, which far exceeds the maximum stipulated in the list. Another case involved a company seeking to export Ultra-X gas monitors which detect toxic materials. According to the list of dual-use materials, toxic gas monitoring systems and detectors are subject to special controls. The list of gases detected by the product in question did not correspond to those indicated in the list of dual-use products and therefore the export permit was not granted. These two examples illustrate the intricacy of the issue of controlling the circulation of military and dual-use products. Regulations require simultaneous, multidimensional approaches and capabilities, the upholding of international non-proliferation obligations, and the consideration of economic interests and the potential for relevant medical-technical uses.

FUTURE REFINEMENT The future refinement and development of Georgia’s export control system is important from the standpoint of strengthening national security, as well as meeting important economic development goals. These include: retaining the country’s function as an east-west transit corridor; ensuring high economic growth; attracting investment (including in the high-tech sphere); and quickly reaching free trade deals with various countries, including the successful finalization of talks with the EU, the USA and China. This article was prepared within the framework of the project “Studying Export Control Legislation and Practices in Georgia,” which is implemented by the Civic Council for Defense and Security Issues Non-governmental Organization, with the support of the US Energy Department and the Argonne National Laboratory.

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Issue #826 Business  

March 15 - 17, 2016

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