Issue no: 896/53
• NOVEMBER 15 - 17, 2016
• PUBLISHED TWICE WEEKLY
PRICE: GEL 2.50
In this week’s issue... National Bank Head Expects Lari to Gain Value PAGE 3
Georgian Haves and Have Nots. Who’s to Blame and What to Do? ISET PAGE 4
FOCUS ON (UN)EQUAL OPPORTUNITIES
Brands and Business Conference to Be Organized in Tbilisi
The latest EBRD Transition Report highlights Georgia's poor performance in inclusion and social mobility
Tbilisi Mayor Criticizes Former Gov’t for Making Deal with C.T. Park BY THEA MORRSION
avit Narmania, the Mayor of Tbilisi, says the former ruling party United National Movement (UNM) made an unprofitable deal with the company C.T. Park, which regulates parking in the capital. Narmania made the statement in response to independent member of Tbilisi City Council (Sakrebulo), Aleksandre Elisashvili and Republican member, Davit Zurabishvili, who requested the Mayor’s Office suspend the contract with C.T. Park, saying the service costs and rules have raised various questions with regards to the company. Continued on page 2
Tbilisi Mayor, Davit Narmania Source: marshalpress.ge
Vano Chkhartishvili Refuses to Give up Federation of Businessmen’s Building PAGE 7
Georgian Bay to Export its Product in 2017 PAGE 8
RETAIL FPI | Food Prices Start to Go Up PAGE 10 Prepared for Georgia Today Business by
STOCKS BankofGeorgia(BGEOLN) GHG(GHGLN) TBCBankGroup(TBCGLN)
COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)
NOVEMBER 15 - 17, 2016
Global Chemical Producer BASF Enters Georgia BY THEA MORRISON
leading chemical products producing company BASF is entering the Georgian market. The company management assessed business environment in all countries of the region and chose Georgia in which to open their first regional office. The opening ceremony was attended by Georgia’s Prime Minister, Giorgi Kvirikashvili, and other governmental officials on Thursday. The PM thanked the BASF management, especially Senior Vice-president Laurent Tainturier, for establishing the company's regional office in Georgia, which, according to Kvirikashvili, highlights the progress the country has made due to effective government reforms. Kvirikashvili expressed satisfaction that BASF has taken the advantage of Georgia's strategic location and one of the most attractive business climates in the Eurasian region - a hub for business, logistics
and transportation. “Georgia needs investors like you,” the PM said. “Companies which acknowledge our country's strategic role as a gateway between Europe and Asia, a bridge between east and west and a part of the modern Silk Road.” He went on to wish the new BASF venture in the region even greater success. BASF, which last year celebrated its 150th anniversary, is the world's leading chemical producing company. Its portfolio ranges from chemicals, plastics and crop protection products to oil and gas and performance products. Last year, BASF posted sales of EUR 70 billion and income from operations of approximately EUR 6.7 billion. The BASF Group comprises subsidiaries and joint ventures in more than 80 countries and operates six integrated production sites and 390 other production sites in Europe, Asia, Australia, the Americas and Africa, aiming to “combine economic success with environmental protection and social responsibility.”
Tbilisi Mayor Criticizes Former Gov’t for Making Deal with C.T. Park Continued from page 1 The Mayor’s Office had earlier stated it could not abolish the agreement with the company, as, according to international auditing company Ernst & Young, cancellation of the agreement will cost the Mayor’s office 25 million GEL in expenses. “This idea needs more arguments in favor- the city cannot become victim of such irresponsible and reckless statements. But the previous government did make a one-sided agreement with C.T. Park which prevents us from suspending the agreement,” the Mayor stated. Narmania had meetings with representatives of C.T. Park but the parties were unable to agree on new regulations. “We cannot cancel or make any reasonable changes to his agreement unless C.T. Park agrees, and at present we do not have their consent to do so,” said the Mayor. The contract with C.T. Park was signed in 2007
during the rule of UNM. Its term expires in 2025. Several days ago, Sakrebulo members Elisashvili and Zurabishvili called on the Mayor’s Office to pay the 25 million GEL fine from the city budget, saying during the last three years the amount of fines paid by Tbilisi residents to C.T. Park amounted to 62 million GEL, only 18 million GEL of which was transferred to the Tbilisi budget. As the MPs noted, the City Hall and C.T. Park contract is valid until 2025, which means that within this period the parking company can be expected to receive more than 270 million GEL from the people. “Parking should be a municipal service, and it should be governed by City Hall until a new tender is announced,” stated Elisashvili. C.T. Park has been operating in Tbilisi for around nine years and has an exclusive right to arrange and administer parking lots. However, Tbilisi residents disapprove of the work of the company, saying the costs are high and the cars are often taken to the pound illegally.
GEORGIA TODAY NOVEMBER 15 - 17, 2016
National Bank Head Expects Lari to Gain Value BY THEA MORRISON
ead of the National Bank of Georgia (NBG), Koba Gvenetadze, has positive expectations over the Lari's future and says the national currency is going to stabilize soon. However, the Lari (GEL) continues to
devaluate against the US Dollar, and currently one dollar officially costs 2.48 GEL but in some commercial banks it reaches even 2.52 GEL. The rise of the Dollar has resulted in the increased cost of products, clothes and food. Financial experts do not have positive expectations. “I think in the medium and long-term, the Lari will gain value. However, it is difficult to make strong predictions as the currency rate in Georgia is floating
Koba Gvenetadze, Head of the National Bank of Georgia (NBG), is positive about the Lari's future
and is affected by many internal and external factors,” stated the NBG Head. Georgia’s main opposition party, the United National Movement (UNM), says that the Lari devaluation is the result of the government’s inefficient policies. “The government is carrying out such policies which directly lead to Lari depreciation,” Zurab Chiaberashvili, UNM member, stated. The economists say that the government has too much internal debt, and is as such unable to balance expenses and income. “In this case the government should reduce administrative expenses in order to eliminate deficiency,” said Givi Adeishvili, Economic Analyst of Non-Governmental Organization – Society and Banks. Some experts disapprove of the actions of the National Bank of Georgia, which sold its Dollar reserves several times before the October 8 parliamentary elections. The experts suspect these actions were aimed at keeping the Dollar rate low in order to attract more voters. The GEL began to lose its value in November 2014. At that time, one US dollar was equivalent to 1.75 Lari. Since then, the National Bank has intervened many times but the Lari still continues to devaluate against the Dollar.
Georgian National Tourism Administration Makes Presentation in Iran
National Tourism Administration Presentation in Iran
BY NINO GUGUNISHVILI
ver 30 companies and 70 representatives from different sectors attended the presentation made by the Georgian National Tourism Administration (GNTA) in Iran, with Invest in Georgia, Red-Co and ORC companies among them. According to the information pre-
sented by the GNTA, the data for the 10 month period of 2016 shows that 131,026 international travellers visited the country from Iran, demonstrating a clear increasing tendency of 494.4 % compared to the same period of the previous year. For October alone, the number was 10,854 visitors originating in Iran, which is 344.3% more than the previous year. The GNTA claims Iran to be at sixth place among the top fifteen countries with tourists visiting Georgia.
NOVEMBER 15 - 17, 2016
THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS
The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.
Georgian Haves and Have Nots. Who’s to Blame and What to Do?
Chart 1: Income inequality and inequality of opportunity in the transition region. Note Georgia’s location in the upper right corner with the least equality of opportunity and very high income inequality.
BY ERIC LIVNY AND FLORIAN BIERMANN
ike the World Bank’s Doing Business, Transparency International’s Corruption Perceptions Index and many other international rankings, EBRD’s Transition Reports have typically carried a very positive message for Georgia, Eastern Europe’s poster child of transition since the Rose Revolution of 2003. This year’s Transition Report, launched last week in Tbilisi by Alexander Plekhanov, EBRD’s deputy director of research, is somewhat exceptional in this regard. Subtitled “Equal opportunities in an unequal world”, the 2016 report draws attention to the inconvenient truth that Georgia has performed exceptionally poorly when it comes to inclusion and social mobility. In fact, when compared to all other transition nations, Georgia finds itself on the extreme right (both literally, on the chart, and figuratively) by failing to equalize the opportunities for its (largely urban) haves and (rural) have nots. Based on a survey of 51,000 respondents in 34 countries (with Germany, Italy, and Czech Republic serving as comparators), the chart shows how income inequality (on the vertical axis) correlates with inequality of opportunity (on the horizontal axis). As can be seen, the two variables are strongly and positively cor-
related: income inequality in a country is very much a function of the extent to which its education system, labor and financial markets allow for upward social mobility. According to EBRD calculations, 20% to 50% of income inequality in the EBRD region is due to circumstances at birth: urban/rural place of birth, parents’ level of education and membership in the Communist Party (i.e. belonging to the old elite), gender and ethnicity. On average, this may not seem like a major disaster – inequality of opportunity is an even more serious issue in the US and most emerging economies. Georgia’s specific problem, however, is that it is well above the regional average. According to the EBRD data, the future social and economic status of Georgians is almost predetermined by their circumstances at birth: the inequality in opportunities limits social mobility and perpetuates the society’s rigid division into those who are integrated into the modern economy and those who survive in the traditional subsistence farming and other forms of self-employment and underemployment. What are the reasons for this frustrating situation, and how can it be changed?
ARE GEORGIANS PROUD, LAZY OR WHAT? A key paradox of Georgia’s economic development since the Rose Revolution has been the almost complete lack of expansion in the country’s hired labor
Source: EBRD 2016 Transition Report
force. Despite growing demand, the share of hired labor remains constant at about 13% of the population, of which 5% are employed in the public sector – teachers, army, police, local and national administration (GeoStat). 13% is a staggeringly low share. For comparison, of Germany’s population of 80 million, about 53% are employed. It is crucially important to understand that formal employment remains stagnant not for lack of jobs. If anything, jobs are not created for lack of suitable labor. Georgia has seen a lot of investment in
the modern sector of the economy: banking, tourism, trade, transport, manufacturing, modern industrial agriculture and food processing. On the one hand, employers are hungry for people with specific professional qualifications, e.g., IT technicians, production line workers, tractor operators, sales, kitchen and hotel management personnel. On the other, they are looking for staff culturally adjusted for employment in the service industry, able to communicate in their own and foreign languages, read and follow instructions, operate computers and exhibit basic discipline, attention to detail and timeliness in the performance of various tasks. Georgian employer surveys show that, for most companies, availability of qualified labor is THE binding constraint for business expansion (it is consistently ranked as the #1 or #2 factor hindering business development, e.g., in the latest Global Competitiveness Reports). And as demand for hired labor consistently outstrips supply, wages in the modern sector of the economy have been growing by between 5% and 12% per year since 2011 (GeoStat), increasing the income gap between those have jobs and those who do not. If Georgia’s economy is to remain competitive, something must be done to facilitate and encourage transition out of low productivity agriculture and other traditional activities (e.g., housekeeping) into the modern sectors of the economy. The remedy for a lack of social mobility is not only vocational training, as many pundits keep saying at every opportunity, but investment in early learning systems targeting the rural population. Given the incredibly low starting point, there are a lot of gains to be made. Improvement in early learning must start with an effort to bring new blood and new ideas into the system, including technology, young teachers, and young role models (Georgian and international).
Examples of such new role model are American Peace Corps volunteers and teachers enlisted in the innovative Teach for Georgia program. While highly successful, these two recruitment models are very limited in scope. For example, there are only a few dozen of Peace Corps volunteers servings in Georgian schools and NGOs. To provide a mass of underprivileged kids growing in Georgia’s periphery with something resembling equal opportunity, we would have to scale up existing programs or come up with new ideas, based on existing best practices from around the world. There is no need to reinvent the wheel. One easy possibility would be to institute civil service as an alternative to military service. Additionally, Georgia could create a mechanism to engage its best and brightest, who study with governing funding, in giving back to remote communities in Georgia’s small towns and villages. The deep rift between Georgia’s traditional and modern economies is not only a key bottleneck for its economic development. It is also a threat for its fledgling democracy. Not all inequality in wealth and income is equally disturbing. If people had more or less the same chances to realize their potential, inequality would only reflect differences in performance (and a bit of luck), and inequality would not be much of a social and political problem. On the other hand, “inequality at the starting gate”, i.e. a radical lack of equal opportunity at young age, threatens the legitimacy of any economic and political system. Bridging this rift and creating the conditions for spatial and social mobility is the only way to break out of the vicious circle reproducing functional illiteracy, poverty and inequality, in which a very substantial part of Georgia’s population finds itself since independence. There is no time to waste. More on the report on page 9.
GEORGIA TODAY NOVEMBER 15 - 17, 2016
Workers Resume Construction of Railway Tunnels after 8-Day Rally BY THEA MORRISON
fter eight days of protest rallies and strikes, the employees of Zvare village, Kharagauli Municipality in western Georgia, resumed construction of railway tunnels, after all their demands had been met by the contracting Chinese company. The protest rallies started on November 3, when seven local workers were brutally beaten, allegedly by the representatives of the Chinese contractor company - China Railway 23rd Bureau Group, which was employed by the Government of Georgia to build several railway tunnels in western Georgia. The local workers stated that several of the Chinese workers, carrying knifes and truncheons, attacked the Georgian workers early on November 2 after they found the Georgians were helping a village resident to transport firewood. The Ministry of Internal Affairs of Georgia launched an investigation and arrested three Chinese citizens for physically abusing Georgian workers. The investigation established that the attackers injured four local people with sharp objects. The injured men were taken to hospital for medical treatment. The local workers went on strike, demanding a change of management at
the contracting company and improvement of their labor conditions, saying the Chinese company frequently violated the workers’ labor rights and often pressured them. The working process was resumed on November 10 after the management of the Chinese company was replaced. The Governor of Imereti, Professional Union of Georgia and the representa-
tives of the Chinese company managed to reach agreement on all disputed issues last Wednesday. “We reached an agreement and the management of the company was replaced,” said Gela Chitiachvili, a local worker. “The attackers were sacked and we received guarantees that such incidents will not happen in future.” Imereti Governor Givi Chichinadze says that permanent monitoring will be carried out at the work site to prevent further escalation of the situation. “We sent our Georgian representative to the company to regulate the working process and ensure that labor rights are not violated,” the Governor stated. Violation of labor rights is frequent in Georgia. Non-Governmental Organizations (NGOs) and the Public Defender of Georgia are recommending the labor rights law be tightened.
Brands and Business Conference to Be Organized in Tbilisi BY NINO GUGUNISHVILI
rganized by the branding agency Maeutica, an upcoming conference on brands and business is planned on November 24, in Marriott Hotel Tbilisi. With a mission to bring together professionals and experts in the field, the conference seeks to share the knowledge and experience through the existing best practices in the sphere of business and branding while creating a platform for professionals and business representa-
tives who are interested in the recent developments, new emerging trends and new technologies being used in the industry. The conference will focus on the topics of Brands & Trends, Brands & Territory, Brands & Fashion, Brands & HR, Brands & Digital, and Brands & Finance. The Brands and Business conference expects to host around 600 participants and 60 professionals and is to become a major event on the regional event calendar, offering a variety of workshops, panel disscussions and lectures to be organized both in Tbilisi and Yerevan, where the conference will start on November 26, after being held in Tbilisi.
NOVEMBER 15 - 17, 2016
Dmitro Krepak, Visa Regional Manager to Georgia, Ukraine and Armenia and Tengiz Kapanadze, Director of Mcdonald’s Georgia
McDonald’s Georgia Launches Innovative Self-Service Kiosks BY NINO GUGUNISHVILI
n partnership with Visa and Bank of Georgia, McDonald’s Georgia presented an innovative self-ordering kiosk at the restaurant’s Digomi branch this weekend. With its flexible design and layout, the newly launched self-service kiosk is tailored to provide faster and easier service to customers and, most notable, is adapted to meet the needs of customers with disabilities. The new self-service kiosks offer the customer a touch-screen through which they can make an order choosing any item from the McDonald’s menu displayed on the screen and then pay by credit card, reducing queue and payment processing times. McDonald’s Georgia is among the first in Europe to introduce the new technology, in line with the global strategic priorities of the company. The implementation of the self-service kiosks is seen as a new stage in the customer service sphere, bringing more unique and innovative services soon to be offered to the Georgian clientele. For several consecutive years, McDonald's Georgia has been named the best service provider in
the country. “With the introduction of this innovative service platform, and exactly with projects like these, McDonald’s Georgia is rightly positioned as one of the most advanced on the European market,” said Tengiz Kapanadze, Director of Mcdonald’s Georgia. “Our customers are very important for us and such projects aim to create maximum comfort for them. We constantly seek to provide better, faster services. But this is just the first step and we have a lot more plans for the future.” “In 2013, together with McDonald’s Georgia and Bank of Georgia, we launched the first contactless payments in McDonald’s restaurants and now we’re continuing this tradition of offering more convenient, faster solutions to our joint clients” said Dmitro Krepak, Visa Regional Manager to Georgia, Ukraine and Armenia. “McDonald’s customers will be able to use the innovative self-service kiosks from today onwards. One of our many key focus areas is safety of payments- important for both us and for our customers. We’re working on several very interesting solutions that will soon be launched in Georgia.” Self-ordering kiosks are currently available at four McDonald’s restaurant branches: next to the US Embassy, on Tsereteli Avenue, at East Piont Tbilisi and on Friendship Avenue in Rustavi.
New Sarajishvili Enterprise Opens in Kakheti
PM Kvirikashvili visits the Sarajishvili enterprise and renovated Sarajishvili museum
BY THEA MORRISON
ne of the leading alcohol producing companies in Georgia, Sarajishvili, has opened a new enterprise, the Sarajishvili Distillery, in Gremi village, Kakheti region. With support from the State, the Sarajishvili Distillery was built under the Preferential Agro Credit Project, with USD 827,000 spent on its implementation, of which USD 600,000 was allocated as an agricultural loan. The distillery is equipped with eight Charente distilling devices which enables the company to use traditional methods in order to produce topquality brandy from wine for the local market. The company plans to produce 500,000 liters of brandy spirit annually and will employ up to 150 people, mostly local citizens. Georgia’s Prime Minister, Giorgi Kvirikashvili, visited the new facility on Sunday and wished success to the newly established enterprise. “52 new enterprises have been established and 303 expanded so far in the Kakheti region with State support,” Kvirikishvili said. “In total over USD 17 million has been allocated to support these projects under the Preferential Agro Credit Project.” After visiting the Sarajishvili Distillery, the PM and other governmental officials attended the opening ceremony of the reconstructed Sarajishvili Museum complex in Bakurtsikhe village, Kakheti. The museum is of historical and architectural importance, as it is the place where the production of Georgian cognac first began. The whole museum complex was renovated by the Black Sea Group, at a cost of 700,000 GEL, under supervision of the Agency for Cultural Heritage Preservation of Georgia. The construction of an additional small hotel and arrangement of vineyards on five hectares of land is also planned there but in the meantime the current hotel, wine cellar, and residential building have received restoration works. “I’m confident that the house museum, with its historical and architectural importance, will become one of the top attractions on Georgia’s tourist map, especially for wine tourism,” PM Kvirikashvili said. Sarajishvili is the oldest leading wine brandy manufacturing Georgian company. It was established in 1884 as a pioneer in Georgia for using classical French cognac technologies for wine brandy production. The brand offers a generous range- from three to 100 year-old brandies, produced to satisfy the needs of many, from low to high-income consumer categories. Sarajishvili products are successfully sold in more than 15 countries.
GEORGIA TODAY NOVEMBER 15 - 17, 2016
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Vano Chkhartishvili Refuses to Give up Federation of Businessmen’s Building TIFLIS KIS TARIFESI 7.5x6cm ING.indd 1
BY MAIA MISHELADZE
he Federation of Businessmen (FoB) is demanding that Vano Chkhartishvili vacate their building, which he is so far refusing to do. In 2008, an agreement was signed between the executive director of the Federation of Businessman, Giorgi Isakadze, and Vano Chkhartishvili’s company ‘SG Company.’ According to this agreement, the FoB would give a building located on No.3 Gergeti Street, Tbilisi, to Vano Chkhartishvili. In return, SG company was to build a multi level apartment in which a space worth 728 thousand GEL would be given to the FoB. In 2015, the FoB asked about the status of the building and it turned out that SG Company had failed to fulfil their duty. The Federation took the case to Civil Court and demanded that their building be returned to them. For a year the Court has been delaying the review of this case. On the November 10, the new executive director of the FoB, Tamaz Kapanadze, and the Federation’s lawyer hosted a press conference at the First Radio pressclub. Georgian Federation of Businessmen was founded in 2004 on the initiative of businessman Badri Patarkatsishvili by three companies, TBC Bank, Agari Sugar and People’s Bank, along with 52 members, including Mamuka Khazaradze, Irakli Rukhadze, Bidzina Ivanishvili, Badri Japaridze, Davit Dumbadze, Temur Chkonia, Aleko Tavartkiladze, Gogi Topadze, Levan Dzneladze, Niko Lekishvili, Nika Ivanishvili, Gia Mikeladze, Shalva Ogbiadze, Zaza Sioridze, Giorgi Mshvidobadze, Giorgi Isakadze, Giorgi Tkemaladze, and Rusudan Kervalishvili. Is Chkhartishvili going to take Bidzina Ivanishvili’s and other businessmen’s building? Mr Kapanadze is waiting for justice to prevail and announces that Chkhartishvili has set up his office in the building located at No.3 Gergeti Street: “Given that for eight years Chkhartishvili’s company SG Company hasn’t fulfilled a single duty, today (November 10), we officially sent them a letter asking them to vacate the building.” We asked Mr Kapanadze if he had had a direct conversation with Vano Chkhartishvili. “Yes we’ve had discussions, but he told us that the agreement between SG Company and the FoB had expired and thus he isn’t obliged to fulfill the terms of agreement. At the following meeting, he said that he was ready to pay the FoB 700,000 GEL for the building in question. But this offer doesn’t meet the terms of the agreement. The agreement states that SG Company has to give us space, worth 728,00 GEL, at the location where the
Federation of Businessmen is registered (No.3 Gergeti Street). But I would also like to say that this term is one-sided, because the given space didn’t cost 728,000 GEL back in 2008 and it certainly isn’t the case now either. Given that these terms were not fulfilled, we demand an abolishment of the agreement and the return of the building. As for Chkhartishvili’s proposal, apart from the fact that it’s amusing, for us it’s disrespectful. This building was initially purchased using the Federation’s own funds, but now as it turns out it has to be given to one businessman for free. Of course, we are hoping on a fair court here in Georgia but if needs be, we’re ready to go to the European Court.” The FoB lawyer, Gocha Gogishvili, told us that at the beginning of 2016, eight years after signing the agreement, the representatives of the Federation went to court after they were sure that SG Company would not fulfil its duties: “The FoB demanded the return of property as a way of abolishing the agreement. It has already been a year since the Federation’s lawsuit was taken to court but the case hasn’t even been reviewed yet,” Gogishvili said. “The reason for this is that the cautionary judgment has yet to be confirmed. This is very important for us. When the lawsuit is about a property, it’s logical and necessary that the lawsuit have a cautionary judgment confirmed. The Federation is demanding a cautionary judgment so that SG Company cannot sell or take a mortgage out on the property. We hope that the court won’t delay a cautionary judgment any longer and that the case review will start soon. We
also hope that the court will make the right decision, which in this case would be the complete satisfaction of our claim. In any other case, we’ll have a situation where SG Company would receive the Federation’s very expensive property for nothing in exchange.” Gogishvili went on to say that the First
Instance Court declined to make a cautionary judgment. This means that during the court process the property could be sold. “When we first went to the court, SG Company had a mortgage out on the property from Basis Bank. In July, we found out that the mortgage had been
removed, which allowed us to seek what we wanted in the first place. We changed the claim and requested that the FoB be admitted as the owner of the property. Once we had requested a document of ownership, we decided to request a cautionary judgment. Given that the property is disputed, at least until the case is closed, the property should not be sold nor have a mortgage taken on it. Our request was satisfied, in other words SG Company was prohibited from selling the property. The other party objected to this decision and the court satisfied their objection by canceling the cautionary judgment. However, this decision has yet to become effective as we have appealed it in the Appellate Court. According to our appeal, the cancelation of the cautionary judgment was illegal and unfounded.” Mr. Kapanadze sent a letter to SG Company’s director Mamuka Gviniashvili on November 10 in which he called for the property to be returned to the Federation: “For the Federation of Businessmen’s property rights, which were violated, to be restored, and in order to avoid long court hearings, we call upon you to return the property located at No.3 Gergeti Street, Tbilisi, to its rightful owner, the Federation of Businessmen.” Kapanadze says the Federation has many plans and projects to execute. Given that the required conditions are non-existent, the Federation is being obstructed from pursuing its activities. As for those future plans, people will hear about them at the convention of the FoB which will be held in the near future.
Georgian Bay to Export its Product in 2017
The Bay leaf processing factory ‘Georgian Bay’ was launched within the state program ‘Produce in Georgia’ in 2015 Source: bnp.ge
BY NATIA LIPARTELIANI
ompany ‘Georgian Bay’ (ქართული დაფნა) is planning to export its product. “We plan to target Ukraine, Russia, Belorussia and Kazakhstan,” says Grigol Tkeshelashvili, representative of ‘Georgian Bay,’ which is based in Vani Municipality, western Georgia. "Everything is ready, the machine is installed, as are technologies brought from Ukraine and Turkey," he added. The current production capacity is 250 tons per year and a thousand tons of raw
material are necessary to obtain that amount. The Bay plants are to be grown on the company’s own 10 hectares of Bay plantation in a project worth 1 million GEL (404067 USD). Tkeshelashvili says that the company will process two species of Bay– wideleafed and narrow-leafed. The company will employ 20-30 people. The Bay leaf processing factory ‘Georgian Bay’ was launched within the state program ‘Produce in Georgia’ in 2015. The construction was opened by First Deputy attorney Governor of Imereti, Paata Nadiradze, Vice-Governor George Chighvaria and MP David Lordkipanidze.
NOVEMBER 15 - 17, 2016
IFC Study: Climate Pact Opened up $23 Trillion in Emerging-Market Opportunities
study released last week by IFC, a member of the World Bank Group, shows that the historic global agreement on climate change adopted in Paris last year helped open up nearly USD 23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030. Since the Paris Agreement was adopted in December 2015, a total of 189 countries have submitted national plans that target aggressive growth in climate solutions—including renewable energy, low-carbon cities, energy efficiency, sustainable forest management, and climate-smart agriculture. These plans offer a clear roadmap for investments that will target climate-resilient infrastructure and offset higher upfront costs through efficiency gains and fuel savings. IFC’s study, based on the national climate-change commitments and underlying policies of 21 emerging-market economies, identifies sectors in each region where the potential for investment is greatest. This includes green buildings in East Asia and the Pacific— where China, Indonesia, the Philippines, and Vietnam show a climate-smart investment potential of USD 16 trillion. Latin America and the Caribbean offer the next largest opportunity—particularly in sustainable transportation, where the potential for investment in Argentina, Brazil, Colombia, and Mexico is about USD 2.6 trillion. Opportunities in South Asia are mostly in climateresilient infrastructure, where USD 2.5 trillion of opportunities exist in India and Bangladesh. “There has never been a better time than now for climate-smart investing,”
said IFC Executive Vice President Philippe Le Houérou. “This reflects the dramatic reduction in the price of clean technologies and the rise of smart policies that are driving businesses to invest. In this context, it is important to set ambitious goals—which is why IFC has pledged to increase our climate investments to a goal of USD 3.5 billion a year by 2020 and catalyse another USD 13 billion through other investors.” Sub-Saharan Africa represents a USD 783 million opportunity—particularly for clean energy in Cote d’Ivoire, Kenya, Nigeria, and South Africa. In Eastern Europe, the biggest markets—Russia, Serbia, Turkey, and Ukraine—show a combined investment potential of USD 665 billion, mostly in energy efficiency and new green buildings. And in the Middle East and North Africa, the total climate-investment potential for Egypt, Jordan, and Morocco is estimated at USD 265 billion, over a third of which is for renewable-energy generation,
while 55 percent (USD 146 billion) is for climate-smart buildings, transportation, and waste solutions. The report also finds that government action will be critical to take advantage in order to unlock the full scale of investment potential. It recommends that governments integrate national climate commitments into their development strategies and budget processes, strengthen the investment climate for climate-smart industries, and deploy public funds strategically to mobilize private capital—by reducing risk and providing project support, for example. In Georgia, IFC has been supporting climate solutions, including renewable energy, through investments and advisory, which supported the development of three hydropower plants. IFC’s financial resources have also supported the development of energy efficient, affordable housing projects and construction of a hotel with energy efficient technologies.
President of Georgia Awards Medal of Honor to 2 Female Religious Figures
Entrepreneurship Week Starts in Georgia BY NINO GUGUNISHVILI
BY NATIA LIPARTELIANI
ithin the Week of Tolerance in Georgia last week, the President of Georgia, Giorgi Margvelashvili, awarded medals of Honor to Rusudan Gotsiridze, Bishop of the Evangelical-Baptist Church in Georgia, and Mother of Georgia’s southern Poka Monastery, Elisabeth (Meskhishvili). The two female religious figureheads were awarded for their efforts to promote tolerance.
“I thank you for the appreciation,” Gotsiridze said at the awards ceremony. “It is highly important to support religious and ethnic minorities living in Georgia.” Georgia's President Giorgi Margvelashvili agreed. The President also hosted representatives of ethnic minorities living in Georgia at the Presidential Palace in Avlabari district and openly discussed their needs with them. The Administration of the President of Georgia took the opportunity to also present a special information brochure about the projects financed through the Presidential Fund.
long with 160 countries worldwide, Georgia is participating in the Global Entrepreneurship Week. Officially launched Monday at the Technology Park (Tech Park), Tbilisi, the ceremony was opened by Giorgi Kvirikashvili, Prime Minister of Georgia, and Ian Kelly, US Ambassador to Georgia. The Global Entrepreneurship Week in Georgia seeks to promote entrepreneurial spirit in the younger generations, engaging them in more and more activities. The initiative attempts to address the need for the structural transformation of the economy, creating new possibilities to motivate young entrepreneurs in the country.
The project is supported by the G4G Project of the United States Agency for International Development (USAID) and the US Embassy in Georgia. As Prime Minister noted, “It is very important to develop enrepreneurial thinking and keep in tune with modern ideas and contemporary dynamics.” Kvirikashvili also emphasized the importance of crowd-funding practices for Georgia, a concept that is relatively new to the country. “We have to show our solidarity for innovative ideas to move our country forward. It is important to stimulate young Georgian entrepreneurs and to get them involved and get financial assistance for their projects,” he added, giving examples of successfully crowd-funded projects globally, such as the new generation smartwatches which received USD 12 million through crowd financing, and the Flow Hive that,
through internet crowd financing, was able to gain USD 13,200,000. Flow Hive enables the extraction of honey without harming the bees. The Prime Minister then expressed his hope that many new projects and iniatives will be implemented. A number of successfully financed start-up projects were introduced at the opening of Global Entrepreneurship Week, including Quick Cash (platform for financial assessment for SMEs), David OS (a universal medical records system based on block chain technology), and Tamashobana which produces traditional Georgian games. The Global Entrepreneurship Week will go on until November 20 covering the topics of women entrepreneurs, entrepreneurship and innovation development policy, agricultural entrepreneurship and startups.
GEORGIA TODAY NOVEMBER 15 - 17, 2016
EBRD Report: Inequality Down, Satisfaction Up
BY LUKAS MÄDER
t's a top-ranking position Georgia cannot be proud of. In a new Transition Report from the European Bank of Reconstruction and Development (EBRD) presented last week, it was revealed that Georgia has the biggest inequality of opportunities among the post-communist states. Georgia, it seems, is highly dependent on family background when it comes to what people in Georgia can achieve regarding job and income. The inequality of opportunities is even higher than in, for example, Moldova, Kosovo or Kazakhstan, “The inequality of opportunities is a very important issue, because it can have negative effects on a country,” said Bruno Balvarena, Regional Director of the EBRD, at the presentation of the report in Tbilisi. “The economic system is not as effective as it could be because people aren't able to make the best use of their skills.” Inequality of opportunities may also diminish confidence in the market system and in democratic institutions. This can make reforms more difficult or even impossible. An overall inequality of opportunities is not only seen as unfair but it can also slow down the growth of a country. Apparently, when you are born a girl
in a Georgian village far away from the big city and your parents were not once members of the Communist Party, then you will find yourself at a particular disadvantage as to what work position you can get and how much income you can earn. In Georgia, gender is the strongest factor affecting opportunities in life. Therefore, women are more likely to have a lower income than men. The fact that gender matters so much is also found in Georgia’s neighboring countries of Azerbaijan and Turkey. Yet in other post-communist regions it is different- in Central Asia and the Balkans, gender is not such a big factor when it comes to life opportunities. Georgia is also among the leading countries in the region with inequality evident in income and wealth. This gap between the poor and the rich can be a direct consequence of the inequality of opportunities. One billionaire's wealth in Georgia is worth over 35 percent of the GDP. That's one of the highest ratios in the world according to EBRD. It means that most people have a low income and a few people are very rich. Further, in Georgia the poverty rate is relatively high, similar to that of China, with almost 30 percent of the population earning less than USD 3.10 per day. “The situation in Georgia is not as good as the World Bank suggests,” said EBRD’s Balvanera said, referring to the Doing Business Report 2017 of the World Bank
released late October. “In this report, Georgia ranked among the Top 10 global improvers for implementing reforms to their business regulations. Yet further reforms are necessary.” To fight inequality of wealth, the EBRD sees taxation of wealth or inheritance as an effective method. The wealth taxes in Georgia are low, with a revenue of less than 1 percent of the GDP compared to the average of OECD members with 2 percent. Revenues from taxation can be used to fight poverty and the inequality of opportunities. At the presentation of the report, Alexander Plekhanov, Deputy Director of Research at the EBRD, mentioned the tax reform for companies starting next year. With the so called Estonian Model, re-invested earnings will be tax-free from 2017. “This reform means less taxation for companies, which is good for them, but it also means less income for the State to redistribute.” Despite such negative aspects and the need for further reforms, the latest EBRD report also shows one positive trend for Georgia: the people here are more satisfied with life than they were in 2010 when the last such survey was conducted. Georgians are now about as satisfied as Italians, and clearly more than Russians, Greeks or Hungarians. The report can be found (online version and pdf) here: http://2016.tr-ebrd.com (http:// tr-ebrd.com
On ENPARD, LEADER, LAGS and Minor Conundrums BY VAZHA TAVBERIDZE & INGA MUMLADZE
mbarkingonyetanothermedia tour organized by ENPARD (European Neighborhood Program for Agricultural and Rural Development), we (that is, me and my partner in crime) already had a more than vague idea what it would be about: another regional program, where the EU and its implementing partners here (Mercy Corps, Care and People In Need) are trying to convince the locals that organized production and
value chains are in fact a better option (at least in term) than sporadically sending whatever goods they can muster to whoever is willing to buy them. As we Georgians are not exactly fond of this kind of caretaking (unless it’s forcefully imposed, whereupon we are besides ourselves with sheer joy and consequently, suffer from severe nostalgia over ‘ole good Soviet times), one can say it’s an arduous task, as it always is with changing people’s mentality. This time it wasn’t potatoes – it was the beautiful Borjomi valley and its surroundings, where, unlike the region of Akhaltsikhe, the possibilities for both tourism and agricultural development
are abundant. The famed Borjomi water, so sought-after in Soviet times, still boasts a host of suitors, especially those coming from post-Soviet states, with Central Asian countries being the chief contributor. This explains the presence of two of the large hotel brands in the regions (Rixos- which, to our surprise, appears to be partly state-owned) and Crowne Plaza. Courtesy of our hosts from ENPARD, we had the luxury to visit both and even had a very enlightening chat with the RIXOS General Manager, who explained to us the dynamics and tourism potential of the valley through the prism of the hotel industry. Continued on page 12
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NOVEMBER 15 - 17, 2016
RETAIL FPI | Food Prices Start to Go Up
eorgian retail prices increased at the end of October. Driven by seasonal fruits and vegetables, ISETâ€™s Retail Food Price index gained 2.2% m/m (compared to the last week of September). However, compared to October 2015, we still observed a significant 13.5% decline in food prices.
IN THE SPOTLIGHT In the most noteworthy news, bi-weekly price increases were recorded for tomatoes (66%), cucumber (52%), and eggplant (29%). Despite an overall upward trend in food prices, some products are becoming cheaper. The biggest price declines were observed for tangerines (12%), rice (10%), and bananas (9.3%).
THE STORY OF BANANAS Compared to the previous month, bananas became cheaper: the average price of 1 kg of bananas went down from 3.73GEL to 3.38GEL. Taking into account the fact that bananas are an imported fruit, one might look to the exchange rate for an explanation. However, the Georgian Lari is experiencing depre-
Figure 1: the dynamics of banana price
ciation. In October, the exchange rate between the Georgian Lari and the US dollar moved up from 2.32 to 2.42, compared to September. In other words, imports should be more expensive for Georgia. Therefore, the question is - what is wrong with bananas? We need to look for the answer in the world market. The international price of bananas has definitely declined. One possible reason might be a good harvest. It is worth noting that the biggest banana importer
countries for Georgia are Ecuador and Turkey. In September 2016, the price of imported bananas from Ecuador was 0.86USD; that is not significantly higher than in August 2016 (0.83USD). However, the price of imported bananas from Turkey decreased from 0.72USD to 0.61USD (-15%) during the same period. It turns out that Georgian supermarkets are selling more bananas that are imported from Turkey, not that Georgian farmers have secretly started to produce bananas.
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GEORGIA TODAY NOVEMBER 15 - 17, 2016
GWP Rejects Claim that External Merchandise Trade Water Taxes to Be Set in of Georgia Grows by 22% Vacant Residential Spaces
Geostat report says the January-October 2016 external trade amounted 9.950 billion USD. Source: bfm.ge
BY THEA MORRISON
BY NATIA LIPARTELIANI
eorgian Water and Power (GWP), a leading company in water supply to the population of Tbilisi and to state organizations, industrial and commercial facilities, launched a new form of water tariff payment in October, news agency Business Press News (bpn) claims. According to the new system, the water tariff will be set at 3.15 GEL per resident. At the news, fears were raised that the tariff would be applied even to those residential spaces where officially no one lives, if the company suspects that someone may be living in the building. Concerns ran on social media that even a small amount of electric power consumption at a specific address might become the basis for GWP setting the water tax there. As Energo Ombudsmen Salome Vardiashvili told bpn, GWP’s action is unfair and unfounded.
“According to the company’s new system of tax assessment, if the company suspects that someone is living in an apartment, the company might be eligible to charge fees. According to that system, GWP would contact electricity distribution company Telasi and if even a small amount of electricity consumption is identified at a given address, customers get instantly charged for water,” she said, adding that the new form of payment represents a potential danger for users who own two or more properties in terms of being charged double taxes “even if water has not actually been consumed there.” GWP reacted to the claims, stating that there will be no such system of setting water taxes based on electricity consumption. “There were a certain group of customers registered in our company’s database who had not been charged for water. Based on information verified by us, those subscribers had been consuming GWP services, and as such were then charged water taxes. As a result, it was decided that at this stage that accrued taxes should be charged per resident,” GWO said.
eorgia’s external trade has increased by 22 percent according to the latest preliminary report of the National Statistics Office of Georgia (Geostat) published Monday. The report revealed that the External Merchandise Trade of Georgia amounted to USD 9.950 billion in January-October 2016 and in total grew by 22 percent from the same period of the previous year. Moreover, Geostat says that the value of export decreased by 7 percent to reach USD 1.701 billion,
while the import grew by 31 percent and amounted to USD 8.249 billion with respect to January-October of the previous year. The trade deficit equaled USD 6.548 billion and its share in trade turnover constituted 66 percent. The report also reads that import without Hepatitis C medicaments equaled USD 5.851 billion, 2 percent less year-on-year. A detailed report about external trade will be published by Geostat on November 21. The National Statistics Office of Georgia is a legal entity of public law and carries out its activities independently. It is an institution established to produce statistics and disseminate statistical information according to Georgian legislation.
Georgia’s Interior Ministry to Install Smart Cameras BY THEA MORRIOSN
eorgia’s Ministry of Internal Affairs (MIA) will soon install smart cameras throughout the country under the new project ‘Safe City, Safe Region, Safe Country.’ The MIA reported Monday that on the initiative of the Minister of Internal Affairs, Giorgi Mgebrishvili, the agency has launched this new project aimed
Smart Cameras will be installed throughout Georgia. Source: pinterest.com
at crime prevention, operative response to cases, detection and elimination of administrative violations as well as to help gather incontrovertible evidence. According to the Ministry, the project is being implemented by the Joint Operations Center of the MIA, which was opened on October 4, in Rustavi, Kvemo Kartli region, and which represents the centralized technology hub of the agency. Within the frames of the new project, the so called smart cameras, featuring video analytical programs, will be installed in pre-defined places throughout the country. The cameras will be connected to a joint network, the monitoring of which will be implemented by video-analytical programs of the Joint Operations Center. The MIA says that through the project, response to crimes, crime prevention and violations will be made in a real-time regime. “Safety and protection quality will be increased among the population, the index of car accidents will be cut, as will the number of injuries and deaths; the efficiency of the police activities and quality of investigation will also be increased,” the MIA statement reads.
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On ENPARD, LEADER, LAGS and Minor Conundrums Continued from page 9 First came the seminar, dedicated to the work carried out by the three projectimplementing partners of ENPARD: ‘Mercy Corps’ (Borjomi), ‘Care’ (Lagodekhi) and ‘People in Need’ (Kazbegi). And before we go into what the presentations were about, it needs to be said that ENPARD is expanding the scopes of the program (or, more correctly, it is entering its second stage), which means that an additional five regions will be given similar treatment. That’s how cool they are. The major topic of the presentations were the so-called LEADER mechanism and the creation of Local Action Groups (LAG-s). To put it simply, the EU thinks that the inhabitants of this or that region know best what’s good for them and which direction they should be going (of course, the path should be that of the European kind), so it encourages the creation of local action groups, helps them devise an agenda or a mandate of sorts and, finally, assists them in implementation of said agenda. A LAG, in principle, should incorporate representatives of both civil society, private sector and governing bodies, with an apparent balance that favors no side. The LAGs we were told about ranged mostly from 15 to 30 people, with quite an intricate system of nomination and functionality in some cases. Pulling off a trick like this requires that an aboveaverage sense of social responsibility is present in said community, of which we were somewhat skeptical at first, but the Borjomi LAG did their very best to allay our suspicions. Not only did these people look very much driven and willing to do what it takes to see their region moving forward, but there were couple of ideas worthy of a seasoned entrepreneur of the highest caliber. Equally apparent was also the massive amount of work the Mercy Corps has been doing there – the creation
of LAG is one thing, but maintenance ( ensuring that these people remain invested in the endeavor to the extent we saw) surely would have required a colossal amount of work on their part. On the project ideas mentioned above, here is probably the simplest: we met a very charming fellow, a local historian and photography aficionado, who takes simply sublime photos of, let’s call it, “what there is to see in the Borjomi valley” and aims to distribute it to popularize the region. The quality of shots is top-notch, the artistic side is apparent for all to see and the effort he’s put into all of this is just incredible. Apparently, people at ENPARD thought just that and helped him obtain a professional camera and the subsequent production will be turned into postcards to visualize the beauty of Borjomi for the first-comers. Simple, but very effective. The second day was the day of trips. First in line was the cooperative ‘Kenkra’ (Berries), which, as the name suggests, deals in the field of berries – strawberries, raspberries, you name it. Now a couple of words about cooperatives in general – unlike those that were force-
fully imposed upon people during Soviet times, the cooperatives of today are voluntary and therein lies their existential problem – well, not many want to join/ pay, instead opting for a solo run. Very few Georgian cooperatives are achieving a phase where they can sustain themselves economically without the support of government or international grants or donations. Despite all that, that’s still the way to go if Georgia wants to have European-styled chain agricultural production, according to Alvaro Ortega, ENPARD’s chief consultant, who was kind enough to sit down with us for an in-depth interview (to be published in GT’s next issue). This particular cooperative had a nicely gender-balanced composition (unlike what we saw in Akhaltsikhe) – 7 women and 6 men. Oh, and a very important detail: its all bioorganic, free of pesticides. There’s a niche for that kind of product in the EU, we were told, and it indeed seems logical that a country like Georgia which cannot produce large volumes, would go for such trope. Kenkra also has a greenhouse where they grow vegetables, tomatoes, cucumbers, greens, salads and
are actively involved in cattle-breeding, rabbit farming and collecting food for cattle. ENPARD is paying back their good faith with a sum of GEL 22,500, with which the cooperative will purchase a tractor and start construction of an additional greenhouse. Next stop was cooperative ‘Tori’ which aims at developing the beekeeping sphere and enlargement of their production in the field. The 7-man cooperative boasts about 75 beehives and they are thinking of adding to this tally in the immediate future. With the support of an EU grant (GEL 50,000), Tori plans to purchase 150 beehives. And they aren’t allowing themselves to get rusty with the manufacturing either: apparently, two of those beehives will be modernized, high-tech beehives and beekeeping equipment. The resulting honey will be A) also bioorganic and B) sold at affordable prices locally. Of particular interest to tourists should be the Georgian Gray Bee bread, named Rukhi, which we didn’t get to taste (no season for it), but were assured was particularly delicious. The last stop had a fair shot at adventure, with an offer of a rafting tour incor-
porated in the agenda, but the weather made sure we weren’t going to be foolish enough. The rafting club ‘Jomardia’ (Rafting in Georgian) was founded by TV personality and all-around athlete David Katsarava, in 2007 and has risen to the status of major touristic attraction since. The fame of the Borjomi rafting club has grown so much that the 2016 European cup tournament in rafting choose the place as its main avenue. Impeccably organized, the event was rated highly by the European partners and participants. The club has set its sights on expanding and ENPARD is helping it out with a solid funding of Gel 56, 820. We were pleased to hear that the founder of the Club is getting ready to host the European Championship in Rafting for the summer of 2017 in Borjomi. To all things an end and this trip was no exception. On our way home, we mused about what ENPARD could have done better and the common consensus was – Not much. One sure hopes they keep up the good work and serve as an inspiration for our people to safely travel on that European path we have so firmly set our feet on.
November 15 - 17, 2016