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Issue no: 1092/151

• OCTOBER 16 - 18, 2018

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue... Weekly Entrepreneurial News @entrepreneur.ge NEWS PAGE 2

Georgia’s New Gold Rush: Or the Economic Prospects of Export of Medical Marijuana

FOCUS

ISET PAGE 4

Badri Japaridze, TBC Bank, on the Georgian Economy Today

ON BUSINESS WITH BRITAIN

We take an in-depth look at the recent Bristol Business Conference

BUSINESS PAGE 8

PAGE 6-9

Georgia Investors’ Day at the London Stock Exchange BY THEA MORRISON

British Petroleum in Georgia: Ongoing Achievements BUSINESS PAGE 9

Azerbaijan Airlines Signs Agreement to Hold World Summit CANSO-2020 in Baku BUSINESS PAGE 11

T

he Georgia Investors’ Day conference was held at the London Stock Exchange on Friday, with Mamuka Bakhtadze, Prime Minister of Georgia, opened the trading. The event was organized by Galt&Taggart and saw 130 large investment companies in attendance. The Georgian PM addressed the audience and spoke about the investment climate in his country and the already implemented and planned reforms. The macroeconomic indicators were presented by Giorgi Kobulia, Minister of Economy and Sustainable Development of Georgia. "It was a very good opportunity for us to share information with inves-

A Finnish School For Every Child in Georgia! Photo source: Georgian PM’s Press Office

tors on the reforms implemented in Georgia and the ambitious plans that we have towards transforming Georgia into a regional hub,” the PM noted. “Great interest has been clearly seen in investing in Georgia and it will enable more Georgian companies to be traded at the London Stock Exchange. Our key goal is to integrate the country more effectively into the global economy.” According to Nikhil Rathi, CEO of the London Stock Exchange, Bakhtadze’s opening of the trading was an honor. He emphasized that the London Stock Exchange has a long history of successful cooperation with both large and small Georgian companies. “I believe that this partnership demonstrates that the global markets concentrated in London are excited by the existent opportunities in Georgia as well as its prospects for economic growth. It is a country with 5% economic growth, low tax rates, a low debt level, a highly skilled population and with a strong focus on renewable energy. We are excited to cooperate with the Government of Georgia, Prime Minister Bakhtadze and his team,” Rathi said.

BUSINESS PAGE 15 Prepared for Georgia Today Business by

Markets Asof12ͲOctͲ2018

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BONDS

Price

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BankofGeorgia(BGEOLN)

GBP16.05

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GEOROG04/21

102.87(YTM5.52%)

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GeorgiaCapital(CGEOLN)

STOCKS

GBP11.58

Price

+0,9%

w/w

+14,9%

GEORG04/21

104.95(YTM4.74%)

Ͳ0,1%

Ͳ0,5%

GBP2.18

Ͳ0,9%

Ͳ5,2%

GRAIL07/22

106.25(YTM5.86%)

+0,1%

+0,4%

GBP16.56

Ͳ1,4%

+2,5%

GEBGG07/23

98.07(YTM6.47%)

+0,2%

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COMMODITIES

Price

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CURRENCIES

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CrudeOil,Brent(US$/bbl)

80,43

Ͳ4,4%

+0,9%

2,6475

+1,0%

+1,2%

+1,5%

+0,9%

GHG(GHGLN) TBCBankGroup(TBCGLN)

GoldSpot(US$/OZ)

GEL/USD

1217,05

+1,1%

+0,9%

GEL/EUR GEL/GBP

3,4824

+1,3%

INDICES

Price

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GEL/CHF

2,6690

+1,3%

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FTSE100

6995,91

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GEL/RUB

0,0400

+1,8%

+5,5%

FTSE250

18973,45

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Ͳ6,9%

GEL/TRY

0,4513

+5,6%

+9,5%

DAX

11523,81

Ͳ4,9%

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GEL/AZN

1,5621

+1,1%

DOWJONES

25339,99

Ͳ4,2%

Ͳ2,5%

GEL/AMD

0,0055

+1,9%

+1,9%

7496,89

Ͳ3,7%

Ͳ5,7%

GEL/UAH

0,0946

+1,8%

+1,5%

156,64

Ͳ1,9%

+4,1%

EUR/USD

0,8651

Ͳ0,3%

+0,6%

NASDAQ MSCIEMEE

3,0636

+2,1%

+1,3%

980,09

Ͳ2,1%

Ͳ2,4%

GBP/USD

0,7602

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SP500

2767,13

Ͳ4,1%

Ͳ4,2%

CHF/USD

0,9929

+0,1%

+2,3%

MSCIFM

2496,26

Ͳ1,9%

Ͳ2,8%

RUB/USD

66,0646

Ͳ0,8%

Ͳ4,2%

GTIndex(GEL)

1582,68

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TRY/USD

5,8732

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GTIndex(USD)

1208,13

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AZN/USD

1,6952

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MSCIEM


2

NEWS

GEORGIA TODAY

OCTOBER 16 - 18, 2018

@entrepreneur.ge Gamarjoba! I’m the Editor-in-Chief of the Georgian edition of Entrepreneur magazine and I’m here to share the top weekly Entrepreneurial news with you:

Young Georgian innovators Ramaz and Mate Javakishvili have created the first ever smart watch capable of delivering accurate information on air pollution both outdoors and in, right on the watch screen. Owners of the new Smart watch ‘AIRAD’ can create a digital map with air pollution details structured by city district, while everyone else can see the same information on the website or mobile app.

GLOVO - World Leading Tech Company Entering Georgian Market

Coca-Cola Bottlers Georgia owner Temur Chkonia has announced the brand is to start production of Georgian still water. The decision was made after seeing the growing popularity of natural Georgian water worldwide. “This will be a Georgian brand in the Coca-Cola network in the Caucasus, the Middle East, and further afield,” says Chkonia.

Georgian startup STYX is launching a digital platform for logistics and cargo transportation, connecting customers and transportation companies all in one space. Lasha Gorgoshidze and Aleksandre Kuridze are the winners of the startup competition run by Georgia’s Innovation and Technology Agency. They also got financing from the World Bank to make the transportation service cheaper through automatization and simplified logistics, first in Georgia and then worldwide. Follow the Entrepreneur Georgia Instagram page to get the latest updates from Georgian Entrepreneurs. For doing business with Georgian Entrepreneurs, write us on business@entrepreneur.ge

G

lovo, a tech service application enabling anyone to get nearly any product delivered in less than 60 minutes, is entering Tbilisi. Glovo is a start-up launched in Barcelona, which began functioning in 2015, and then expanded its boundaries to 67 cities (including Madrid, Cairo, Istanbul, Sao Paulo) and 20 countries in three continents (Europe, Africa, and Central and South America). More than 70 million orders have been made worldwide using the GLOVO service, and the average service time is less than 45 minutes. This is a kind of tech market that allows users to order, receive and send any product in the city. Food, household, and pharmaceutical products are allocated sepa-

rately in the application, however, the users can purchase any item from another category. The courier service allows the recipient to get the order delivered in less than one hour. Once the order is made, the customer receives complete information about the purchased product and the location of the courier who will provide delivery service. Glovo's services will now be available to the citizens of Tbilisi. The company has already started cooperating with restaurants, flower shops, bakeries and candy shops. In addition, the application already has a partnership courier network that delivers products within a few minutes. In addition to cars, Glovo’s partner couriers use scooters and bicycles to

deliver products, contributing to reducing traffic congestion in the city and offering the customers an eco-friendly delivery service. "We are very happy that GLOVO is entering Tbilisi," said Giga Kerkadze, General Manager of GLOVO Georgia. "Europe's leading tech company’s investment will help the transformation of the country's economic sector. Our main goal is to create technological comfort that will allow every person to get remote access to the city, and will provide many partner couriers with a new source of income and new opportunities." More than 12,000 partner couriers are involved in the Glovo network, while the company has more than 800 employees in various regional offices.


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

3

US Deputy Assistant Secretary: Abkhazia & S. Ossetia Are Georgia BY THEA MORRISON

U

nited States Deputy Assistant Secretary of State for the Caucasus and Eastern Europe, George Kent, condemned the occupation of Georgian territories by Russia and expressed support to Georgia’s sovereignty and territorial integrity. “The United States remains faithfully and deeply committed to Georgia’s sovereignty and territorial integrity, and to our strategic partnership with the Government of Georgia,” Kent stated while visiting the occupation line in Georgia on October 13. He underlined that Russian-occupied regions of Abkhazia and South Ossetia are parts of Georgia, adding ten years have passed since Russia occupied these territories. “We are outraged by the ongoing detentions, mis-

treatment and deaths of Georgian citizens, and we offer our most profound condolences to their families. We stand beside our friends in Georgia and we renew the call upon the Russian Government to honor the terms of the 2008 ceasefire agreement by ceasing the recognition of these entities as countries and by withdrawing Russian troops to their pre-war positions. We also call on the Russian Government to allow the safe passage of desperately needed humanitarian aid to the people there,” he stressed. Kent noted that the aim of his visit was to remind Georgia that the US stands beside it and has not forgotten about the August war 2008. “The international community does not recognize this boundary line as an international border, and we will never accept any attempt to redraw the borders of Georgia’s territory in violation of its sovereignty. Georgian citizens continue to live and work in the shadow of occupation. These regions are part of Georgia,” he added.

2018 Saba Literary Prize Winners Revealed in Frankfurt

T

he winners of Georgia’s leading literary contest Saba have been announced. The award ceremony was held in Frankfurt, in the Kaisersaal, the historic hall of the Frankfurt City Hall. The full list of winners of the Saba Literary Prize 2018 are: •Novel of the Year: Lasha Bughadze - "Small Country" (Bakur Sulakauri Publishing House) •Prose Collection of the Year: Levan Muskhelishvili - "Short Stories" (Cezanne) •Poetry Collection of the Year: Zurab Rtveliashvili, "Dictatorship of Poetry"(Intellect) •Debut of the Year: Zura Jishkariani - "The Chewing Dawns" (Bakur Sulakauri Publishing House) •Essay and Documentary Prose of the Year: Irma Tavelidze - "Stalin's Spruces and Other Texts" (Diogene) •Georgian Translation of Foreign Work of the Year: David Tserediani, Johann Wolfgang von Goethe"Faust II" (Bakur Sulakauri Publishing House) •Foreign Translation of Georgian Work of the Year: Catherine Tate, for German translation of Julia Deng - Rezo Cheishvili's "Blue Mountains" •Foreign Critique of Georgian Literature of the Year: Tilman Spreckelsen •Foreign Publisher of Georgian Literature of the Year: Mitteldeutscher Verlag •Award for Contribution to Georgian-German Literary Relations: Nino Kharatishvili •Award for Special Contribution to Literature: Rezo Gabriadze The Saba award ceremony is considered the main literary event of the year. This year, the 16th Award ceremony was held on October 12 at Kaisersaal, historic hall of the Frankfurt City Hall, as Georgia was an honorary guest of the Frankfurt Book Fair.

The Saba Award Ceremony was one of the largest and the most outstanding events within the Georgian program. Winning authors received monetary prizes from TBC Bank in addition to special prizes. Honorary foreign guests, including famous writers, foreign publishers, and German officials also attended the ceremony alongside members of the official delegation from Georgia. The annual Literary Award Saba, founded by TBC Bank back in 2003, is now the most prestigious and influential award in Georgia. Each year, the jury reviews literary compositions (novels, poetic/prosaic collections, documentary prose, translations etc.) and Georgian translations of foreign texts of the previous year. This year, the jury members of Saba included: Professor Zurab Kiknadze, Rector of Ilia State University Giga Zedania, translator Lela Dumbadze, screenwriter Keti Devdariani, and actress Nino Kasradze.

Photo source: 1TV

Shardeni Hosts Georgian Wine Festival 2018

BY THEA MORRISON

T

bilisi’s Shardeni Street hosted the 2018 Georgian Wine Festival, which featured various wines presented by around 50 Georgian companies and cellars. The event took place on October 13 and was opened by the Minister of Environment Protection and Agriculture, Levan Davitashvili. "Various celebrations and events are traditionally held in Georgia during the Wine Month. This Wine Festival is just one of them,” he stated. “Many people are interested in Georgian wine which is why the celebrations will be extended to last several weeks this year in Tbilisi and throughout Georgia.” “This is a celebration of a successful harvest which brought a good income to farmers this year. The promotion of Georgian wine is very important for our country and we are continuously recognizing this through various events,” he added. The organizers of the Wine Festival are the online

shop and media portal allwine.ge and Maidan Group. In parallel with various kinds of wine, visitors were able to buy Georgian sweet churchkhela, honey, dried fruit, cheese and Georgian accessories. “We chose Shardeni Street as the festival spot for this year’s event. In total, about 50 companies participated, making it three times larger and much more diverse than in 2017,” said festival organizer Anano Tkhelidze, adding that the plan is to scale it up even further next year. The festival was a very important event for the representatives of wine companies and cellars for the promotion of their production. “I want to thank the Maidan Group and allwine. ge for organizing this festival, as we were given the opportunity to provide information about our wine to potential consumers,” said Miranda Maisuradze, manager of the Dzveli Marani wine company. Georgian folk ensembles, foreign musical groups, actors of the motion theater, drummers and stilt men also participated in the festival. The event was concluded with the concert of the Georgian band Metekhi and a fireworks show.


4

BUSINESS

GEORGIA TODAY

OCTOBER 16 - 18, 2018

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

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

Georgia’s New Gold Rush: Or the Economic Prospects of Export Of Medical Marijuana BY GIORGI MZHAVANADZE

T

his article continues the theme of ISET Economist blog “Decriminalize Marijuana?” written by my colleague Saba Devdariani in June 2015, where he described the philosophical aspects related to marijuana state regulations and medical consequences of its consumption.

RECENT CHANGES IN LEGISLATION Three years after the blog was published, regulation of cannabis became the hottest topic of discussion in the socialpolitical life of Georgia. On July 30th 2018, the Constitutional Court de jure legalized personal consumption of marijuana by declaring that “the administrative responsibility for marijuana use, if it does not create any threat to third parties, is unconstitutional”. The Georgian society reacted to the news in radically different ways. Some celebrated winning “the fight for freedom”, while some saw it as the end of the whole Georgian nation, traditions and culture. Without any changes in the existing legislation on cultivation, production, and sales of marijuana, the decision created a legal vacuum. In one and a half months the Government created a 131 pages draft law, restricting the consumption of cannabis in public spaces, such as parks, bars, restaurants, concert halls, stadiums and more, as well as consuming marijuana at work, driving under its effect and for people under age 21. De facto it would be legal to consume cannabis only at home. The second part of the law, however, was the most interesting, as it permitted the production and export of cannabis for medical and cosmetic purposes. While the leader of the GD party, Bidzina Ivanishvili, expressed a positive attitude towards the proposal and the minister of finance Ivane Machavariani stated that in 2-3 years the export of cannabis will amounted to 1 billion GEL, the initiative was withdrawn from the Parliament after the protests from the Georgian Orthodox Church. Yet, the question remains – just how lucrative the medical marijuana export could be for Georgia? Will it become the gold vein that would help fill the state coffers with foreign currency during the times of export slump? In this article I focus on a simple back-of-theenvelope calculation for Georgia’s export potential in cannabis for pharmaceutical purposes.

THE WORLD MARKET The legal use of cannabis has increased substantially since 2000. Before, legal use was restricted to scientific research and

was reported only by the United States. However, more and more countries started to use cannabis and its extracts for medical purposes. According to the UN data, total licit production of species constituted only 1.4 tons in 2000; by 2016 it skyrocketed to 209.9 tons. UK had the biggest share in production - 44.9% of total world production (95 tons), Canada followed with a 38.4% share. Portugal (10%), Israel (4.4%), Netherlands (0.7%) and Chile (0.7%) were other major players on the cannabis market. These countries are the main competitors of Georgia in the global market for medical cannabis – along with Australia, Colombia, Lesotho and Zimbabwe – the countries, which legalized cannabis cultivation/export earlier this year, and Lebanon planning to start the production by the end of 2018. With so many countries jumping on the opportunity, Georgia has most likely already lost the fierce competition for the lucrative market. According to the different estimations, despite the world’s growing demand for medical cannabis, in 2021 Canada’s production only will be enough to satisfy it. "We would like to be, potentially, the world's number one medicinal cannabis supplier," Greg Hunt, Health Minister of Australia “Israel can become an exporter of

Table 1:Countries where medical use of cannabis is legalized UK

medical cannabis with an income worth 4 billion shekels ($1.1 billion) a year.” – Ayelet Shaked, Justice Minister of Israel Currently, only 31 countries and some states in USA legalized medical use of cannabis in some capacity, or in the form of cannabis-derived pharmaceuticals. Considering the fact that cultivation of marijuana is officially prohibited in most of them, these countries represent the potential market for Georgian export of cannabis. However, in some cases, for example in Jamaica, Chile, Peru or Mexico, the legal market is considerably squeezed by “mind-blowing” scales of illegal counterparts. Despite the pessimistic overview of the prospects on global market for medical marijuana, I don’t want to disappoint the Government’s hopes to boost exports through cultivating new species. Marijuana should not be considered as a pure commodity, such as copper or manganese; there is a wide variety of cannabis, and cannabis-based products from Georgia could find its niche markets and sell at much higher margins than just a gram of raw weed. The situation is similar to wine production/export – despite the fact we can’t compete with Argentinian, Chilean or Australian wines in terms of prices or scales of production, the sector is still profitable and wine remains one of the top export product for Georgia (I know that comparing wine to marijuana in any context is not a good manner).

Argentina

Croatia

Germany

Lesotho

Netherlands

San Marino

Australia

Cyprus

Greece

Luxembourg

Norway

Switzerland

THE PROFITS

Canada

Czech Republic

Israel

Macedonia

Peru

Turkey

Chile

Denmark

Italy

Malta

Poland

Uruguay

Colombia

Finland

Jamaica

Mexico

Romania

Zimbabwe

The costs associated with starting a legal business in the cannabis sector differs, of course, between countries and depends on existing regulations,

Table 2: Annualised costs by cultivation regime, $ million

Cost category

Broadacre (13.2 ha)

Greenhouse (1.5 ha)

Indoor (0.9 ha)

Capital, land and infrastructure

0.02

0.32

1.33

Security design and infrastructure

0.43

0.3

0.27

Labour for cultivation

7.67

7.79

7.79

Materials for cultivation

0.67

7.6

10.74

Costs of compliance

0.07

0.07

0.07

1

1

1

9.86

17.08

21.2

Direct fees and charges Total

Source: Deloitte Access Economics

fees, land and electricity prices, infrastructure costs, etc. Table 2 shows price breakdown for cultivation of medicinal cannabis under different options in Australia. According to the existing draft law, future seekers of fortune in Georgia are required to grow the plant in indoor spaces, which means that annualized cultivation cost of 0.9 ha for them will be about $21.2 million (or less - material costs include expenses on seeds, electricity, insurance, pesticides, fertilisers and nutrients. I assume that prices on all of these cost components and labour costs are significantly lower in Georgia than in Australia). The average yield of dried flowers per square meter in indoor spaces are 300 grams x 4 times per year. It means that on average an 0.9 ha indoor farm cultivates about 11 tons of dried cannabis

per year, which results in $33 million total revenue or $11.8 million net profit. Considering the fact that due to fast growing supply the price of dried marijuana is dropping year by year. the business could become unprofitable soon if legal producers wouldn’t switch to production and export of medicines and other cannabis-infused products. And it is easy to calculate that Georgian needs about 12-13 ha of indoor cultivated spaces to reach the Ivane Machavariani’s desired value of export of 1 billion GEL. P.S. When thinking or making decisions about something bad for my health I always remember my father’s words he used to repeat to me in my teenage years: “My son, you should try everything in your life, but do not stick with the bad things”. The same advice could be relevant for the whole country.


6

BUSINESS

GEORGIA TODAY

OCTOBER 16 - 18, 2018

Georgian Deputy MFA Speaks at the Bristol Business Conference

BY KATIE RUTH DAVIES

T

he one-day Bristol Business Conference took place on October 12 as one element of an on-going celebration of the Twinship enjoyed between Bristol (a city in south-west England) and Tbilisi. The conference was arranged by the Bristol Tbilisi Association in partnership with TBC Bank on the occasion of the 30th anniversary of the Bristol- Tbilisi twinning agreement signed in 1988, with the aim of approximating ties in culture and business. In attendance were British business owners, investors and numerous expats living in Georgia who are investing in the development of infrastructure or society in some form. "It is our honor to welcome our guests from Britain," Mayor Kakha Kaladze said, opening the conference. "It is a significant day for Georgia and for Tbilisi. I met with the Mayor of Bristol and discussed transport, infrastructure and other ways in which experience can be shared. Bristol is an example city for us. In 2015, it was awarded the title of Green City of the Year. We have significant challenges in this regard- in terms of the environment, for which we have many

plans, some of which my colleague will present later today. In terms of the business environment in Georgia- we pride ourselves on our achievements in the field, being in the top rankings of various reputable international organizations in transparency, protection of private property and more. We take care of every cent invested in Tbilisi. I thank you for your present and potential engagement in the economy of the country and wish you every success." Jane Oakland, the Master of the Guild of Guardians in Bristol, took to the stage to thank the hosts and organizers for giving British investors a chance to discover the potential of Georgia and Tbilisi. "Our job at the Guild is to enhance the trade, commerce and traditions of our city. This covers financial services, banking, education, and other areas of interest in the city," she said. "In the last six months, you can hardly turn on the TV or radio in the UK without hearing a leading actor, politician or musician talking about their experiences in Tbilisi and Georgia. We're very pleased to be a part of that journey of development." The Deputy Minister of Foreign Affairs, George Sharvashidze then spoke extensively on Georgia's path of development and success, citing its place in international rankings and the increasing number of annual visitors, as well as its

achievements and plans for further development. “I would like to stress the role of the UK as a true friend and supporter of Georgia. We undoubtedly consider the UK a strategic partner, sharing common interests, values and, indeed, challenges. Through our comprehensive bilateral agenda, I would like to highlight the UK’s contribution to supporting Georgia’s Euro-Atlantic integration. The UK has been among Georgia’s top investors for a number of years, in particular according to the data of JanuaryJuly, it is the 2nd largest investor. We enjoy an exemplary partnership with BP, which has been operating here for over 20 years and has played a special role in shaping Georgia’s geopolitical role as a transit state. With Brexit on the horizon, Georgia is keen to explore emerging opportunities to deepen our cooperation with the UK and we do believe economic ties and fostering B2B dialogue will play a significant role in forming our post-Brexit relations,” he said, going on to note that Georgia continues on its path to EU integration and devotes utmost efforts to affecting implementation of the EU Association Agreement. “The DCFTA opened up new opportunities to attract investment, bring more technology know-how, and to create new

jobs and prospects for our citizens. With the current negotiations underway, we must try to come up with a new formula that will ensure clarity and predictability in our bilateral trade relations,” Sharvashidze noted. “As well as integration to the Euro-Atlantic space, we’re keen to develop close economic ties with the Asian countries, such as China, and to become a regional hub for trade and investments.” He recognized that Georgia is a relatively small market to fully utilize economies of scale and increase competitiveness from a global market standpoint, but highlighted that it serves as a window to a number of markets, among them the economies of Central Asia and the Far East, providing physical access through modern transport infrastructure and normative access in terms of free trade agreements. “We also have in place free trade agreements with China, Turkey, all post-Soviet countries and GSP regimes with the US, Canada and Japan. We are launching FTA negotiations with India this year, while Israel and Indonesia will follow in 2019.” The conference attendees then heard that the Government of Georgia is focused on strengthening the transit function of the country, carrying out major infrastructural projects such as the construction and development of the East-West Highway, modern railway infrastructure, and the Anaklia Deep Sea Port, the works

for which began in December 2017, which will also facilitate the development of Anaklia City and the economic zone next to the port. “We offer one of the best public services in the region,” Sharvashidze emphasized. “Low tax rates, corruption free and the most simple and affective customs and administrative system. Thanks to the implemented reform, currently Georgia has one of the most businessfriendly environments in the world, highlighted as such by a number of respected institutions.” Indeed, the World Bank rates Georgia 9th by Ease of Doing Business, the Fraser Institute ranks Georgia 7th in Index of Economic Freedom and the World Economic Forum rates Georgia as 9th least tax-worthy country in the world. “We have dramatically improved our positions in various indices such as in macroeconomic environment,” the Deputy Foreign Minister told the audience. “To ensure these positive trends, the Prime Minister of Georgia has initiated a new wave of reforms- this year we already introduced tax changes to support SMEs, the manufacturing sector as well as investments. At the beginning of 2019, we’re introducing a digital customs reform, the first of its kind in the region. While our trade turnover with the UK in each month of this year increased year-on-year, we believe there is untapped potential and ample opportunities for trade between our countries.”

The British Ambassador to Georgia on British-Georgian Business Relations BY KATIE RUTH DAVIES

B

ritain and Georgia reestablished diplomatic relations in 1992, after a 71-year hiatus. They first exchanged ambassadors in 1995, and Ambassador Justin McKenzie Smith is the eighth to have held the honorable post of British Ambassador, among the responsibilities of which is to promote business links between Britain and Georgia. Speaking briefly on the security of investment in Georgia, the British Ambassador began by highlighting the fact that two Georgian banks and three other Georgian companies are listed on the London Stock Exchange (LSE). “The levels of regulation and compliance that the banks and companies have had to fulfil to be listed on the LSE sends a strong message about the security of investment in this country,” he said, going on to note the three categories relating to the security of investment in Georgia.

STABILITY “Stability refers to the strategic partnership between the two governments, about the British government’s rock-solid support for Georgia and its development, the EU choices, the people of Georgia who have chosen consistently to have the closest possible relationship with wider Europe. It talks about our rocksolid support for Georgia’s sovereignty and territorial integrity, and it talks about the Wardrop Strategic Dialogue, named

after the first British Commissioner to Georgia here in 1919 and during Georgia’s First Democratic Republic. There is much the British Government is doing on the fundamentals of stability and support for Georgia’s development.”

RESILIENCE “This is about the institutions in Georgia, about putting in place the infrastructure which helps the Georgian state to withstand the inevitable natural and manmade shocks and crises, which occur in Georgia just as much as they do elsewhere in the world. There is a very strong relationship between the British and Georgian Armed Forces: they train together and serve together. We’re enormously appreciative of the contribution Georgia makes to international security in Afghanistan, Africa and other parts of the world. It’s a growing and intensely close relationship which can also be seen in our support for the establishment of a core, dedicated national security body at the heart of the government which is able to react when confronted by said shocks and crises.”

REFORM “The transformation that has taken place in Georgia over the last 15-20 years is really extraordinary. We must never lose sight of that transformation. Under that reform pillar, Britain is doing what it can to support the continuation of that transformation through people-to-people links: the Bristol-Tbilisi friendship is one of the best examples of that and it has been very exciting to be part of conver-

sations with Mayor Rees (Bristol) and Mayor Kaladze (Tbilisi) about the possibilities of cooperation on inclusive economic growth, infrastructure, air quality and other issues that both cities experience,” the Ambassador stated. “We are also pleased to support initiatives that aim to generate strong and sustainable economic growth. This includes our backing for the Investors’ Council, a unique body which brings the Prime Minister and his senior Ministerial team directly together with business representatives to identify opportunities and obstacles to investment, and our support for the establishment of Commercial and Tax Chambers, which are vital to giving Georgian and international investors the reassurance they need. “Education reform is also crucial to Georgia’s young people and to ensuring the country’s long-term success. We are partnering with the Georgian Government and others on a number of initiatives, including on professional and technical education. “The British Government’s support for Georgia is mirrored by the support provided by Georgia’s other partners, including from the EU and its Member States, the US, Switzerland, Japan and others. Taken together, this represents a major investment in Georgia and a demonstration of confidence in its future. “As we look ahead, and as the UK leaves the EU, both governments want to put in place the framework that will support the continued growth of our relationship, including our business links. There is strong political will on both sides to

ensure that the EU arrangements which today provide the framework for our relations, including the Deep and Comprehensive Free Trade Agreement, are transitioned into a bilateral agreement between the UK and Georgia. “More immediately, we are taking a number of steps to support our shared ambition to expand economic links and to respond to growing interest from businesses in both countries. In 2017, Prime Minister Theresa May appointed her personal Trade and Investment Envoy for Georgia, Mark Pritchard MP, who, in June 2018, led the first full UK trade mission to Georgia for many years. Last month, we were pleased to host a visit to Georgia by UK Export Finance, the UK’s export credit guarantee agency, who are offering very positive terms to British companies interested in doing business in Georgia. “There are a range of opportunities in Georgia which fit well with UK expertise

and strengths, including in professional and legal services and infrastructure. “Bristol and the South-West of England have real depth of knowledge to share on creative industries, energy efficiency and green technology. British brands are doing well in Georgia and there is room for more, both large and small. I am delighted that the boutique bakery Lily Vanilli recently opened its first branch outside of London in Tbilisi. And lastly, there is a real opportunity to match the UK’s unparalleled expertise in education at all levels with Georgia’s ambitious education reform plans. “I realize that the financial case has to make sense: business is all about the bottom line. I am confident these are opportunities that British businesses should look at very carefully. And when you add in the connections and friendships that have developed over the last 30 years between Bristol and Tbilisi, that can make a crucial difference.”


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

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Tbilisi City’s Development Plans BY KATIE RUTH DAVIES

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t the Bristol Business Conference last Friday, Andrea Basilaia, Head of Economic Development for the Tbilisi City Council, spoke to British investors on the ongoing projects in Tbilisi City, the Council’s priorities and the direction the capital is heading in. “7.9 million international visitors came to Georgia last year, up 17.6% year-on-year, of which 58% visited the capital, Tbilisi. That resulted in $2.7 billion in tourism revenue, up 27% year-on-year,” he said.

Tbilisi population: 1.1 mln, Average monthly salary: $450, Labor force: 440,100 persons, GDP per capita: $5422, Tbilisi’s share in the country’s GDP: 49%, 13th safest city in the world (Numbeo)

Tbilisi City Hall sees a stable, positive outlook moving forward and in particular looks forward to more trade and links with the UK. “Tbilisi, with a population of 1.1 million, boasts a third of the entire population of Georgia and generates half of the country’s GDP,” Basilaia said. “We forecast 11-12 million visitors to Georgia by 2025, and the municipality is working hard to do its part to achieve this goal.”

CITY PRIORITIES 1) Optimization and Development of the Municipal Transport System, including implementation of the ‘Tbilisi Transport Strategy,’ replacement of the municipal bus fleet and the development of priority lanes for public transport. “We plan to optimize and upgrade, replacing all buses by the end of next year, optimizing bus and minibus routes, and creating priority bus lanes, making it more desirable to use public transport,” Basilaia elaborated. 2) Regeneration of the City’s Green Areas & Improvement of Air Quality, including renovation of existing recreational areas, adoption of an air quality monitoring system and implementation of green space protection guidelines. “We will be working to generate green areas. We have big plans and are committing a lot of the budget to fund improvements to the city’s air quality,” he said. 3) Urban Development & Destination Promotion, including development of new tourist attractions, promotion of Tbilisi as a tourism destination and development of tourism infrastructure. “Tourism is one of the main pillars at around 7% of Georgia’s GDP,” Basilaia noted. “The potential still big, so we’ll be developing new tourist attractions, as well as promoting and developing tourist infrastructure.” 4) Fostering Investment Attractions &

Support for New Business Endeavors, including Tbilisi investment promotion, investment projects development and a business accelerator (incubator) for SME development. “We’ll be working closely with the business community. One of our priorities is SME development, which is going nicely so far. Take, for example, the new permanent street market, concentrated on supporting handcraft and creative industry businesses.” The business accelerator is supported by the EU and envisages the creation of a physical space for startupers and provision of free assistance from specialized professionals in marketing and accounting. “Entrepreneurs can come as an existing business and be helped to move to the next stage by writing a business plan and receive help advocating for financing,” he said.

THE CITY PROJECTS Basilaia spoke first of a project that is over half-way through completion, New Tiflis, which saw huge investment in the last seven years and the majority of the tourist route in the Old Town restored to preserve its former glory. “It has received very positive feedback,” he said. “Real estate prices tripled or quadrupled in the area and tourist interest is up.” The TV tower is set for a redesign to attract more tourist revenue. Working with the Ministry of Economy and renowned Estonian architect firm Koko, Tbilisi City Hall is finalizing the visuals for the creation of a new attraction point for visitors to the city: a café, exhibition center and viewing platform 70 m above ground. It is to cost $12 mln to develop and is expected to attract 350 mln visitors per year. “To give visitors more reason to stay longer in the city, we are developing the

Tbilisi Theme Park,” Basilaia told conference attendees. “This is a regionalscale project to develop 182 Ha of the current Dendrological Park zone next to Tbilisi Sea. The project will accommodate the Tbilisi Zoo, a theme park, hotels, F&B, retail facilities and a convention center for MICE events (something the city currently lacks). It’s too early to announce investment amounts, but we can say we’re working with worldrenowned concept designers,” he said. A ‘Radio City’ is to be created on the 12 Ha site of a former Soviet radio factory to the north of the city (Gobronidze Street). The area will be transformed into a modern regenerated urban space boasting a cinema, sports facilities, exhibition spaces and more. A feasibility study is being carried out by Colliers International.

Ageing housing in the capital is also on City Hall’s must-do list, where there still remain buildings constructed in Soviet times, which today are, as Basilaia put it “in bad shape.” City Hall has identified 15 land plots of various size worth a potential $2 mln $46 mln to investors. These will be given to investors for a symbolic price of 1 GEL. “After development, approximately 10-15% of the residential area will be transferred to City Hall, enabling it to satisfy the needs of those living in dilapidated buildings in dangerous conditions, and for those unable to afford housing. Work is ongoing with investors to bring this vision to fruition,” Basilaia said, concluding his talk by telling the investors in the room: “We are always open to new ideas and new investments.”


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BUSINESS

GEORGIA TODAY

OCTOBER 16 - 18, 2018

Badri Japaridze, TBC Bank, on the Georgian Economy Today BY KATIE RUTH DAVIES

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BC Bank, featured on the London Stock Exchange (LSE), is in an ideal position to promote Georgia as a prime destination for investment. Speaking at the Bristol Business Conference in Tbilisi on Friday, the Deputy Chairman of TBC Bank, Badri Japaridze, explained how. “Georgia is uniquely positioned in a region known for turbulence, offering a stable and predictable economy and politics,” he said. “The economy has

Ease of Doing Business #9, Ease of Starting Business #4, Economic Freedom Index #7, Ease of Registering Property #4, Safety Index #5, Protecting Minority Investors #2, Open Budget Index Globally #5

been growing fast in the last 10 years. When the world saw a financial shake up that affected our neighbors, Georgia saw a 2.4% increase in GDP. This year’s forecast is 5.6%. Negative developments in the region, such as that happening in Turkey, lead investors to be concerned about the potential impact on Georgia, but we explain to them that thanks to Georgia’s economic diversity, any impact felt will be minimal. The Turkish situation only hit Georgia with a 0.5 % impact, leaving a strong 5.6% GDP forecast due to that very diversity.” He went on to invite guests at the conference to compare the Lari performance to the currencies of neighboring countries, citing it as the most stable in the emerging markets economies. “The Lari is free-floating, absorbing regional shocks and enabling Georgian producers to keep their products competitive,” he said. “The Lari reacts in a prudent way, and while it depreciated at the beginning of the year, fluctuation since has been minimum. I would personally say the Lari is undervalued.”

TRADE & SERVICES As a result of the AA and DFCTA, last year Georgia-EU trade increased to make up a larger total percentage of export and trade as compared to 12 years ago when Georgia was more exposed to the neighboring market. Tax rate as a percent of commercial profit is just 16.4% in Georgia, putting it way below the majority of European countries (as an example, Estonia is 48.7%, Lithuania 42.7%, Turkey 41.1%, Ukraine 37.5%, Bulgaria 27.1%, and the UK has 30.7%). “Among the main drivers of the Georgian economy is tourism and hospitality. By September this year, we had welcomed 40% more British holidaymakers, the same amount as in the entire year of 2017,” Japaridze noted. Tourists are also up from Russia, Israel and Turkey in 2018. After the nearly 8 million visitors who enjoyed Georgia last year, the government is targeting 10 mln by 2020, an impressive number for

Deputy Chairman of TBC Bank, Badri Japaridze, speaking at the Bristol Business Conference in Tbilisi

a country that sports just a 4 mln population. “The difference between us and our neighboring countries is that we’re not dependent on oil prices,” he went on to note. “When they are low, we benefit as importers. When they are high, we still benefit because that means our neighboring countries are doing well and have more to spend on their visits to us.”

TRANSPORT AND LOGISTICS “The under-construction Anaklia Deep Sea Port will give Georgia the chance to increase flow of goods from the EU to Asia and vice versa. We are definitely a hub for financial services. We have two banks on the London Stock Exchange, which speaks of the high level of transparency and governance, setting us as an example and benchmark in the region,” he said. Japaridze then went on to compare Georgia to Singapore, where growth is

also driven by FDI. “It’s a good example for us as it also plays a role as a hub in financial services,” he said.

OPPORTUNITIES IN EDUCATION & HEALTHCARE The TBC Deputy Chairman spoke briefly on two sectors in Georgia that are particularly ripe for investment: the education system and healthcare, clearly hoping to tempt the British businessmen present to look into them further. “Georgia is historically known for its high level of education,” he said. “And today we’re seeing a growing number of foreign students coming from the Far East, India, and Africa. It’s also an attractive area for investment, which would help us to enhance our role as an educational hub in the region.” “We have one pharmaceutical company on the LSE, clearly speaking for the strengths and qualities of that company. Pharmaceuticals is an area with a big

role to play and makes for a good area to invest in. Georgia has a track record and special relationship with post-Soviet tourists interested in its health resorts, and so it boasts interesting opportunities for medical tourism development.”

LOOKING AHEAD Reforms implemented in the country are helping to facilitate and encourage reinvestment. TBC Bank claims to be a good benchmark in the region for its strength and resilience. “In 2008-09, Georgia experienced war, global financial meltdown and local instability. There was no bail-out for the Georgian banks, and yet we went on to enjoy strong growth. In the last five years we have seen responsible growth, not inflated or without fundamentals, demonstrating to investors, in the four years of TBC Bank’s being in the LSE, that we have delivered on all our promises and will continue to do so.”

The Caucasus Wine University BY SAMANTHA GUTHRIE

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Caucasus University

his weekend, Caucasus University announced that it will expand, opening a new campus in the town of Gurjaani to be called ‘Caucasus Wine University,’ which plans to accept its first class of students in the 2020-2021 academic year. The announcement was made during the 2018 Gurjaani Wine Festival. Member of Parliament, Gurjaani Majoritarian Davit Songhulashvili, presented the project to the Minister of Education, Science, Culture and Sport of Georgia, Mikheil Batiashvili, Head of the National Tourism Administration Giorgi Chogovadze, and other guests. Songhulashvili and representatives from Caucasus University, including founder and president Kakha Shengelia, presented a series of digitally rendered images of the new campus design, a modern, glassy, oversized take on a traditional Kakheti winery, resembling the Chateau Mere and Schuchmann Wines Chateau buildings. The 2018 Gurjaani Wine Festival presented more than 100 varieties of traditional qvevri wines from both large companies and small family-owned cellars. The festival was held within the framework of Georgian Wine Week,

supported by the Ministry of Environment Protection and Agriculture, the National Tourism Administration, and the National Wine Agency. Gurjaani’s festival was implemented by MP Songhulashvili and his staff. The festival was designed to promote the development of wine tourism and introduce wine culture and local traditions to international and domestic visitors. Gurjaani is a town with a population of approximately 8,000 people in the eastern Georgian region of Kakheti. It is 40 minutes from Telavi, the regional capital, and 30 minutes from popular tourist destination Sighnaghi, but does not have a significant tourism industry itself. Gurjaani has a long tradition of wine and viticulture, located in the fertile Alazani River Plain. The town’s history dates back to the 16th century, and has several significant landmarks, including the house-museum of actress Nato Vachnadze and the early medieval Kvelatsminda Church – the only twodomed church currently standing in Georgia. Caucasus University is one of Tbilisi’s largest and most prestigious institutions – and one of the most expensive. The high tuition cost funded the new Tbilisi campus, relocated from a cluster of older high rises in the Saburtalo neighborhood to a stunningly renovated Orthodox Christian seminary, built in 1909, in Svanetis Ubani (Svaneti Neighborhood),

near the New Aghmashenebeli area. Caucasus University began in 1998 with the establishment of the Caucasus School of Business by Kakha Shengelia. The school was expanded into Caucasus University in 2005 and now includes ten schools: Business, Law, Media, Technology, Governance, Humanities and Social Sciences, Tourism, Medicine and Healthcare, New Cinema, and Economics. It is currently unclear whether Caucasus Wine University will be considered a tenth school or a separate institution. Caucasus University’s stated priorities are “high-quality education, high employment rate of its graduates, international exchange, and dual programs.” While Caucasus University representatives have not yet released detailed information on their plans for Caucasus Wine University, the decision to open a campus outside Tbilisi is significant. The shift will increase access to formal education for rural populations in the Kakheti region and expand the knowledge and technical expertise collected in the capital to more of the Georgian population. There has recently been an increased push by the Georgian government to professionalize the national wine industry, particularly to strengthen export possibilities to the European Union and beyond. By car, it takes about an hour and 45 minutes to travel between Gurjaani and Tbilisi.


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

British Petroleum in Georgia: Ongoing Achievements BY KATIE RUTH DAVIES

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hristopher Schlueter, BP Georgia Country Manager and Area Operations Manager, was invited as a speaker at last Friday’s Bristol Business Conference, which was attended by numerous investors interested in hearing the British experience of Georgia’s successful development. BP in Georgia has evolved from a few pioneers during its early days in 1996, to a peak workforce of 6,000 employees during construction works of the Southern Caucasus Pipeline, to today's operational workforce more than 500 employees. BP is one of the world’s leading integrated oil and gas companies on the basis of market capitalization, proven reserves and production. Globally, it employs nearly 80,000 people and has exploration and production interests in more than 70 countries, including the midstream pipeline activities in Georgia. In Georgia, BP operates the Baku-Tbilisi-Ceyhan oil pipeline (BTC) and South Caucasus gas Pipeline (SCP) on behalf of two international consortia of energy companies and investors. The BTC and SCP pipelines run side-by-side for 248 kilometers within the country. Christopher Schlueter, who has lived in Georgia for five years, told conference attendees more about what BP has achieved in the region, and in Georgia in particular. “BP came to Georgia over 20 years ago shortly after the ‘deal of the century’ was struck in the Caspian Sea to exploit the oil and gas resources there. BP was at the core of that deal and it came about due to the actions of many governments willing to make it happen. Georgia is right in the heart of that. The only way to move these resources West is through Georgia, which is a key player in that transit,” he said. To date, BP has invested $4 billion in Georgia, and Schlueter was happy to confirm to future investors the potential of investing in the country. “In 1996, our first development in Georgia was the Baku-Supsa pipeline. The route had already been established during Soviet times and we reestablished it. In 1999, the first tanker was loaded at the Supsa Terminal, and we’ve been proudly and safely loading tankers there ever since,” Schlueter noted. “Every week a tanker leaves Supsa Terminal, carrying 100-150 thousand barrels.” The next project, which fully unlocked the Caspian, was the Baku – Tbilisi- Ceyhan line. Construction on that started in the early 2000s and concluded in 2006, and it now transports one million barrels a day at peak capacity. “Shortly after that we built the first major gas pipeline through Azerbaijan and Georgia to Turkey, known as the South Caucasus Pipeline, which has been operating since 2007,” the BP Georgia Country Manager said. “These three pipelines alone put Georgia as a hugely significant player on the global map, transporting essentially 1% of the world’s hydrocarbons. One out of every hundred barrels of hydrocarbons that the world consumes, by which I mean oil, and gas produced from oil, comes through Georgia, and it is something to be proud of.” BP’s latest project in the region is a gas pipeline running from the Shah Denis 2 oil field in the Caspian Sea to Italy. It comprises four big projects altogether. The Georgian section is ready, the Azerbaijan section of the pipeline is set for completion in the next few months, the Turkey section

is ongoing and the remaining European section crossing through Greece will be the final stage to construct. “We spent $2 billion in the last four years building a 42 inch-diameter pipeline from the Azerbaijan border through to Turkey, which includes two massive new compressor stations, one in Gardabani which is already online, and another in Tsalka at high altitude, set to start up in three months. At the border, this pipeline will connect with the TAP pipeline, much of which has been built but with a lot more still to be done, including the compressor stations. But the Georgian part is already providing Turkey gas at a low initial rate, as per targets, and is expected to reach full operation within at least four years,” Schlueter informed the audience. “BP is proud to work with the Georgian government and partners that have helped make Georgia a guiding star of success- we are the first on the Southern Gas Corridor to be in operation. It is the largest hydrocarbon development happening anywhere in the world right now, and for Georgia to be a part of that is a huge endeavor and a tribute to the success and confidence that comes with doing business in Georgia, working with the government, and with the communities, stakeholders and investors.” During the construction of the Southern Gas Corridor, BP Georgia had 6000 workers, 75% of whom were Georgian nationals. Engineering officers in the UK designed the pipeline, and British experts then trained the Georgian personnel how to build, operate and maintain an oil and gas facility. Almost the entire operation in Georgia is now run by Georgians- Christopher Schlueter being just one of a handful of non-nationals working here for the company. “So, let there be no question of the workforce capability in this country!” he stated. He went on to reflect how dramatically the country has changed over the past 25 years. “When we built the Supsa Terminal and turned the generator on, those were pretty much the only lights shining in that part of Georgia. Look where Georgia is today in terms of road infrastructure and developments!” He then spoke of the 44 communities that BP Georgia has invested time and money in- in terms of supporting SME development, education and more. “When you put a pipeline through a community, you need to develop relations with that community, and we have a very proud history of doing so,” he said. “BP has spent $100 billion since it arrived in Georgia on community initiative projects and social development projects, the kind of contribution any big business can make when entering a country like Georgia.” Schlueter also mentioned the energy efficiency and waste management projects BP Georgia has invested in as an important part of their operations here. Vocational education programs are another focus BP Georgia has. “Right now, we’re working with the Georgian Technical University and the Millennium Challenge Corporation on a VET program to train electricians, mechanical technicians, operations technicians, and control technicians for the benefit of the country as a whole, not just BP.” To conclude, Christopher Schlueter once again put emphasis on Georgia’s potential as a good country to invest in: “BP appreciates being able to operate in Georgia in world-class levels of safety, environment, performance, reliability, and costefficiency.”

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GEORGIA TODAY

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The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research. For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.

Electricity Market Watch was down by 3.1% y/y in August 2018, caused by above-mentioned reallocation of eligible consumers and favorable weather conditions. Despite addition of new commercial and household subscribers in the group, it was not sufficient to fully absorb the mentioned reasons for the decreased consumption. There was no export of electricity in August 2018 because of the deficit in the system. Generally, August is considered as an export month, but high growth in electricity consumption led to significantly low exports of electricity during 2015-2017 (3-year average at 28GWh). Drop in hydro generation (-12.3%y/y) caused thermal generation (+81.2%) and imports (36.7%y/y) growth in August 2018. The low volume of hydro Generation is explained by bad hydrological conditions and maintenance works on some regulated HPPs. Notably, generation of new HPPs increased in August, contributing positively to the total supply of electricity. A 9.2% of electricity demand was satisfied by electricity imports from Azerbaijan (65.7% of imports) and Russia (34.3%).

BY MARIAM CHAKHVASHVILI

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ector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine, and Real Estate sectors in Georgia. As part of our energy sector coverage, we produce a monthly Electricity Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website - gtresearch.ge.

ANNUAL FORECAST FOR 2018 ELECTRICITY BALANCE REVISED Electricity consumption growth rate was revised upwards by 3ppts for 2018. On August 27, 2018 Ministry of Economy and Sustainable Development updated the forecast of electricity (capacity) balance for 2018. Based on this document, forecast for electricity consumption in 2018 was revised upwards to 13.0TWh, which is 9.9% y/y increase and the highest growth of electricity consumption since 2010. This growth in demand expected to be satisfied by increased thermal generation and imports. Notably, imports are planned at last year’s record high level. The new balance also incorporates the changes into legislation made in May 2018 regarding the eligibility criteria for direct consumers and traditionally includes actual figures for 7M18..

ELECTRICITY CONSUMPTION AND GENERATION – AUGUST 2018 Electricity consumption growth slowed in August 2018, increasing by just 1.0% y/y after the 11.8% y/y growth during

May-July period. The slowdown in growth can be explained by the high base of August 2017 (+14.4%) and favourable weather conditions leading to decreased needs for air-conditioning. Consumption in 8M18 was up by 7.7% y/y.

The guaranteed capacity fee was down 3.8% y/y to USc 0.54/kWh in August 2018. The TPPs under maintenance were Mtkvari Energy and Block 4 of Tbilsresi; others provided guaranteed capacity for almost entire month.

ELECTRICITY PRICES IN GEORGIA AND TURKEY Wholesale market prices in Georgia increased 0.6% y/y to USc 4.7/kWh in August 2018. A 16.4% of total electricity supplied to the grid in August 2018 was traded through the market operator ESCO, with the rest traded through bilateral contracts. Average price of electricity imports to Georgia was down 6.4% y/y to USc 4.6/kWh in August 2018. Turkish electricity prices increased by dramatic 70.6% y/y in TRY terms, but in US$ terms y/y growth was mere 4.6%. This was market reaction to TRY’s radical depreciation in August 2018 as energy sector is highly sensitive to FX movements and is anchored to US$, based on analysts’ assessments. In august 2018, average electricity prices in Turkey reached US$ 5.3/kWh

Eligible consumers’ increased their consumption by 24.4% y/y, explained by addition of new companies to the group of eligible consumers, in line with legal changes effective since May 2018. Consumption by distribution licensees

Regus Opens New Saburtalo Branch BY SAMANTHA GUTHRIE

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egus is an international workplace company that offers 3,000 contemporary co-working spaces in 120 countries. In Georgia, there are two Regus locations – the first on Tabidze Street just off Liberty (Freedom) Square, and a newly opened location at Vazha-Pshavela 71 in Saburtalo, near the Vazha Pshavela metro station. Area Manager of Regus Georgia, Ruska Chakvetadze, told GEORGIA TODAY that Regus has plans to open a third location in Tbilisi soon, and aims to continue to expand to other Georgian cities, Telavi, Kutaisi, and Batumi, in the future. More locations offer an escape from a long commute in the city’s white-knuckle traffic. Regus Saburtalo offers two main workspace options: an unreserved desk in the large, open main hall and a reserved desk in a private office with four workspaces.

Image source: Regus

The virtual office service is popular among young local startups, offering access to the co-working space, any Regus business lounge worldwide, use of a

printer, scanner and photocopier, and Wi-Fi. The Saburtalo location opened in August in response to 80% occupancy rates at

the Tabidze location, and already has 30% occupancy in its 28 reserved office spaces. Pricing is on a monthly basis and use of the co-working space in Tbilisi starts at $93 for five days a month. Potential clients can request a quote online, but the pricing is generally in line with Regus’ target market of large, international companies. The Saburtalo location does offer lower prices than the Tabidze location, and attempts to cater more towards Georgians, as the neighborhood is one of Tbilisi’s highest-density residential areas. Chakvetadze calls it “the second business district of the city.” The Regus website boasts, “there’s also plenty to do outside work, from visits to the [Tbilisi State University] Museum of Zoology to a walk in the David Bolkvadze Park at lunchtime.” The main draw for most clients who use the unreserved desk area is flexibility, catering to people who would otherwise work from a café or restaurant, and offering a mobile workspace when traveling abroad. The Saburtalo Regus co-working space is large and airy with

high ceilings, streamlined design in whites and greys which are occasionally punctuated with a bright green chair cushion or shelf. It has the feel of a modern university library: youthful and studious. There is also a kitchenette where there is always coffee and tea available, and a fridge for those who bring their own meals. A 10-person meeting room is reservable by both Regus members and non-members. The center is open 24/7 with a constantly staffed reception desk and secure entrance. The popularity of Regus reflects the growth of international companies in Georgia. Companies such as Airbnb, Mastercard, and H&M use Regus’ services to house their handful of local employees and occasional visiting international staff. As Georgia becomes an increasingly popular place to work for location-independent businesses, and the business environment remains attractive, both in terms of the market and government incentives such as liberal visa regimes and low taxes, demand for spaces like Regus will grow.


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

Belarusian & Russian Businesses Sign Contracts for 22 bln Rubles

BY DIMITRI DOLABERIDZE

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elarusian and Russian businesses have signed contracts for 22 billion Rubles. When asked which the most promising areas of development of cooperation between businessmen of the two countries were, Sergey Katyrin, Chairman of the Management Board, President of the Chamber of Commerce and Industry of the Russian Federation,

singled out the medical industry, information technology, machinery and equipment, woodworking, heat treatment of metals and regional businesses. “But there are barriers,” he noted: “For example, there are still no equal conditions for access to participation in state procurement in the two countries. The issue of recognition of conformity certificates issued by the authorized bodies of one state in the territory of another state is yet to be solved. Plus, there is a lengthy procedure for administering VAT on export-import transactions between Russia and Belarus."

Azerbaijan Airlines Signs Agreement to Hold World Summit CANSO-2020 in Baku BY DIMITRI DOLABERIDZE

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delegation of the senior management of the International Organization of Providers of Air Navigation Support in Civil Aviation (CANSO - Civil Air Navigation Services Organization), headed by CEO Jeff Poole, were in Baku on a working visit at the end of September. The guests visited the civil aviation facilities of Azerbaijan, including the Air Navigation Directorate of Azerbaijan Air Navigation, the new Airspace Efficiency Center (ASEC) and the airport complex of Heydar Aliyev International Airport. As reported to AZERTAG in the department of public relations of CJSC Azerbaijan Airlines, at a meeting with AZAL President Jahangir Askerov, they discussed holding the 2020 World Summit on Air Navigation in Baku. In addition, the parties also discussed the prospects for cooperation between the Air Navigation Directorate (AZANS) and CANSO, including the issues of AZANS joining the CANSO Europe Executive Committee, as well as the participation of Azerbaijani specialists in the organization’s working groups. The meeting also discussed the creation of a joint training center for the 2020 Summit and the opening of an Air Traffic Control Center using artificial intelligence. Poole noted the great achievements of civil aviation in Azerbaijan, which is becoming increasingly attractive to the global aviation community. Airlines increasingly prefer to fly over the territory of Azerbaijan, which provides a high level of flight safety thanks to the most modern system of air navigation equipment. Following the meeting, Jahangir Asgarov and Jeff

Poole signed an agreement to hold the CANSO air navigation summit in Baku from June 8 to 12, 2020. The candidacy of Baku for CANSO AGM-2020 was unanimously selected in Bangkok at a meeting of the Executive Committee (consisting of the leaders of the US FAA, air navigation systems of Canada, Germany, the Czech Republic, Argentina, the Civil Aviation Administrations of Singapore, Tanzania, the UK and Saudi Arabia). Further, over 70 countries voted for the candidacy during the CANSO general meeting. The Global ATM Summit is one of the most prestigious civil aviation events. Over 250 participants from more than 100 countries take part in the summit annually. The scale of this event is often likened to the Olympics of aviation. The structural division of AZANS, as part of Azerbaijan Airlines CJSC, is one of the key air traffic control centers connecting Europe and Asia. Every year, over 90 thousand transit spans are carried out over the territory of the Republic of Azerbaijan. The geographical location of Azerbaijan has also made it possible to deploy the only airspace, strategy and development use center (ASEC) in the former Soviet Union.

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IDFI – The Fight against Elite Corruption Remains a Challenge for Georgia BY THEA MORRISON

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he non-governmental organization Institute for Development of Freedom of Information (IDFI) believes that the fight against elite corruption in Georgia remains a challenge and is calling on the government to create an independent anti-corruption service. The NGO says that in recent years, media and non-governmental organizations have revealed several cases where possible corruption signs needed additional investigation, but no proper action had been taken or, if it was, society was not informed. According to the NGO, the facts revealed

by them include possible corruption, abuse of power and other cases of civil crime. However, the IDFI recognizres that there have been cases in recent times when investigations of criminal cases have been launched against various rank officials and they have been convicted. The report of the State Security Service (SSS) reads that an investigation was begun looking into 62 cases of corruption this year, and 61 persons have been charged in 41 criminal cases. Most of the persons charged with criminal prosecution were employed in local self-government bodies and did not occupy high positions. According to the IDFI report, the investigation was not directed against any high ranking official of the central government. It is also unknown whether the Prosecutor's Office of Georgia responded to the

cases sent to them by the State Audit Office, where, according to the Audit, signs of possible crime were identified. "In Georgia, the existence of elite corruption as an important challenge is mentioned in the recommendations of authoritative international organizations such as the European Parliament and the Organization for Economic Co-operation and Development (OECD). In particular, one of the articles of the European Parliament's Resolution emphasizes the need for the establishment of an Anti-Corruption Service as an independent agency," reads the statement. The organization notes that at present, the role of preventing and fighting corruption is distributed among various public agencies in Georgia whose powers and activities are not clearly defined. "The absence of the investigation of

the cases of ‘elite corruption’ during the current and previous governments indicates that it is necessary to reform the existing system because it cannot effectively respond to cases of high levels of corruption, which raises questions in society and negatively impacts public trust towards public institutions,” the NGO stressed. Zurab Chiaberashvili, member of the parliamentary minority European Georgia says the ruling Georgian Dream (GD) party founder and Chair, Bidzina Ivanishvili, set up a corrupt scheme and clan system after coming to power in 2012. “IDFI confirmed doubts which have existed in the society for a long time regarding the corruption in the country,” he added. Roman Gotsiridze, member of the previous ruling party United National Move-

ment also shares the position that highrank officials are involved in the corruption. However, the GD team categorically rejects the allegations. According to Tbilisi Mayor, Kakha Kaladze, the IDFI report “means nothing.” “For me, only the assessments of international organizations are important… Georgia is mentioned among the top countries in terms of doing business and transparency,” the Mayor noted. Archil Talakvadze, the leader of the GD parliamentary majority, says that no matter who violates the law, everyone will be held responsible. “In terms of corruption, Georgia’s State Security Service has opened very important cases involving officials. This once again confirms that no one is untouchable in our country,” Talakvadze underlined.

Autumn Plantings Kick Off on Borjomi Plateau BY ANA DUMBADZE

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total of 1850 Caucasian pine trees were planted in Borjomi across the plateau territory, within the framework of the project #BorjomiFanOfNature, aimed at restoring and renewing the Borjomi forest. The Borjomi mineral water brand has been involved in the project for four

years already and has planted 7500 trees on three hectares within the framework of the brand’s Corporate Social Responsibility campaign #BorjomiFanOfNature. Borjomi aims to restore the forest covering in Borjomi and actively engage civilians in the process of that restoration. The representatives of the Ministry of Environment Protection and Agriculture, National Forestry Agency, 112, Emergency Management and Protected Areas Services, as well as media representatives and the employees of IDS Borjomi Georgia were

involved in the autumn plantings. "The participation of the private sector and local population in the process of restoration and maintenance of the forest is very important. Our employees also planted seedlings,” said Nika Gelashvili, Director of 112. “Our thanks go out to IDS Borjomi for this initiative.” On the same day, the award ceremony ‘Hero of Borjomi’ was held to thank those the who worked at the epicenter of the 2017 summer wildfire in Borjomi Gorge to localize the blaze. "Restoring and most importantly, main-

taining the forest is a responsibility each of us should carry,” said Nitsa Cholokashvili, IDS Borjomi Public Relations Manager. “Our project, which has existed for many years already, is aimed at planting new seedlings and taking care of them for five years. Talking about the issue is just as important to get more people involved and to encourage them to be fans of nature. Today, one year after the Borjomi wildfire, we express our gratitude to those who understand the importance of nature to those and who gave to save the forest during the wildfire.”

UP Founder on the Need for Good Public Relations BY ANA DUMBADZE

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ublic Relations (PR) plays an increasingly important role in today’s society, with ever more individuals and companies turning to PR specialists to create and maintain a favorable public image for them. However, it is no easy task to find a highly qualified professional, least of all in Georgia, where there are only a few trustworthy companies operating in this direction. PR company UP is one of the ones you can trust to get the job done and exceed expectations. Founded in 2014, UP has already implemented several successful projects and obtained a high reputation among customers. It is the first company in Georgia to offer three directions: public relations (PR), marketing, and advertising services, all in one convenient space. GEORGIA TODAY met the Founder and Director of UP, Salome Makharadze. She started her career as a journalist and went on to work as a head of PR at various State agencies, including the Ministry of Justice, Ministry of Defense, and Ministry of Internal Affairs of Georgia. She then decided to use her experiences to establish her own PR company. We took her away from her business successfully managing UP and conducting lectures at the training center of the International Black Sea University, to elaborate on her experience in the field, the successful projects implemented by UP, and the importance of PR for those companies and individuals who want to achieve ambitious goals, build relationships with key people and manage their reputation. “Before establishing UP, I studied the market for almost 12 months to be sure of the situation and the needs of customers. I had a lot of experience working in the PR departments of State agencies, where everything is arranged in a different way to the private sector, but there were few opportunities and tools to develop this direction. Accordingly, we decided to establish a new company and

it really worked for us and for the companies that collaborate with us. Consumers can be provided with a tailored service, integrated or full services. UP offers services at all levels - planning, management, consultation, research, organizing, and implementation. Our services include PR, marketing and advertisement, which combines events, branding, promotion, image, design, printing, web-service, and more,” Makharadze explained. When asked about the segment of the company’s customers, the UP Director noted that the range of those using their services is quite wide. “Our customers range from private individuals to political unions. Our customers also include companies with over 10 years’ experience operating in the market. What we particularly enjoy is successful collaboration found with companies who have tried several PR services before, but who still have a low number of customers and low income growth when they come to us. There are plenty such companies in our portfolio, who are very satisfied with our services and we are proud of it,” she said. What makes the UP service distinctive is its approach to its customers. Makharadze elaborated on their working strategies, which can be counted as one of the keys of the company’s success and excellent reputation among users. “We offer a different service to customers. Firstly, when we start negotiations with the customers, we give them guarantees about the future results. For example, we offered one company our marketing service, guaranteeing them 15% profit in the contract. They needed pay only for the rebranding works and then we started working on increasing the profit margin. Six highly qualified professionals worked for them, and, according to our agreement, we would not take anything if we failed to meet our agreed obligations. In the end, we got that promised 15%. Giving the customers such guarantees about the quality of our work, plus offering PR, marketing and advertising services in one space, which contributes to optimization of the customer’s expenses, is what distinguishes our

company from others. If they can’t get what they need from UP, they won’t have to pay for it.” When asked about how customers can get maximum benef it from UP, Makharadze noted that they have many choices related to using the company’s services. “Our customers can use the full service of PR, marketing and advertising, or they can use any one of them. We also provide consultations, do strategy planning, consult with them, achieve the goals planned by their marketing specialists, manage social media, and more. We have a full service in all these directions. We also have a subsidiary company, Openup, which offers a catering service. Establishing Openup was important because we started operating for larger companies and it was necessary in order to optimize customers’ expenses and offer a higher quality service.

The most successful (and most challenging!) project implemented by UP, Makharadze told us, was their collaboration with Gino Paradise, the largest Aqua Park in Tbilisi. “Before our collaboration with Gino Paradise, they had tried 17 different marketing services, however, we got the result for them after working for just six months: a 65% growth in customers and approximately 84% growth in income. It was winter but by setting up a real ‘summer’ at Gino Paradise, we made a distinctive success for our company. While working on it, everyone told us it would be difficult, but I love challenges! It also helped that the representatives of Gino Paradise followed our suggestions and recommendations, which made the work easier,” she said. The main challenge for PR companies is that often the customers do not believe in the possibilities of PR and marketing.

“Sometimes, it can be difficult to convince companies to follow your PR and marketing ideas, to do their work in a different way. But it’s all about what customers want, not what the companies want to do. I tell them: ‘We will ask the customers what they need, and then you produce the relevant products.’ Or, ‘You should make them want your product, but you should actually create it, not just package it in an attractive way.’ That’s what Gino Paradise had been doing- and by spending out on our ideas, the result we brought them and the pleasure we brought their customers made everything worth it,” Makharadze explained. Currently, UP is actively collaborating with the owners of various restaurants, as the number of foreign tourists visiting Georgia is on the increase and the dining sector is booming. They plan to work even harder in future and add more successful cases to their portfolio.


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

13

Economic Sanctions Alone Are Unlikely to Change Russia BY EMIL AVDALIANI

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he question of how Russia will evolve in the next decades is one of the most perplexing and at the same time central questions in modern geopolitics. Nowadays, Western leaders and analysts are preoccupied with how to influence Russia’s behavior in Eurasia. For the last four years, economic and political sanctions imposed by the West against Russia’s actions in eastern Ukraine and the Crimean Peninsula served as a major component in forcing Moscow to change its geopolitical outlook. Sanctions and overall western pressure did work in a way: the Russian economy took a toll, poverty levels have risen, while decade-long forecasts do not augur a fine future for the country. Western pressure also stabilized the situation in Ukraine as it is unlikely that any further penetration by Russian military will take place beyond the Donbass area. The situation in Georgia is likewise stable, as Russia is seen to have reached its limit of influence, namely deployment of military bases in Abkhazia and Samachablo. Seen from a strategic perspective, these

successes are only short-term. Russia, with her military and economic potential, will use to her benefit international tensions across Eurasia. Then what should also be made to influence Russia’s behavior, knowing how loyal the Russians generally are to their authorities? Political power in the country, unlike in western countries, does not emanate from the people, but is rooted in the stable state apparatus made up from security, intelligence and army agencies. It makes the question of influencing the Russians doubly difficult. In other words, economic problems inside the country and western pressure through sanctions are only short-term solutions. Russia’s history, however, provides some interesting insights on how the Russian state is generally susceptible to crises. The foreign policy realm is what has been crucial in causing changes in the politics of Russia and the subsequent change of political order in the country. Take the following examples. The war with Japan in 1904-1905 ushered in the 1905 Revolution when deep internal problems began. People were revolting, workers’ soviets (councils) were created and Russia’s foreign policy decision-making process influenced. 12 years later, defeats during World War I and economic troubles caused by it, brought the 1917 February and October

revolutions. Russia saw a dramatic change when the imperial pattern was substituted by a nominal workers’ government. During the Soviet Union, the war in Afghanistan was one of the defining moments in the decline of the Communist state and a major cause of its eventual disintegration. True that in all the above cases Russia’s internal economic and social troubles played an important role, but it is direct foreign military pressure that has been instrumental to causing reverberations in Russia. Although this pattern might relate to most big geopolitical players, the Russian case is different. I mentioned above how loyal the Russians have been to their rulers throughout history – it is a part of the Russian mindset and not necessarily wrong in concept. This brings to mind current geopolitical circumstances in and around Russia. The current crisis between Russia and the West, the product of many fundamental geopolitical differences in both the former Soviet space and elsewhere, will remain unabated at least for the coming years. Moreover, the successful western expansion into what was always considered the “Russian backyard” halted Moscow’s projection of power and diminished its reach to the north of Eurasia, between fast-developing China, Japan, and other Asian countries and the tech-

Image source: fee.org

nologically modern European landmass. However, overall, this might not be enough to dramatically influence Russia’s behavior. Protracted Russian military involvement in foreign countries is what the Russians fear most. Westerners hoped that the Russian troops would be bogged down in Syria: it did not happen. Similarly, many thought Ukraine might have turned into the major battleground, but it does not seem so. NATO’s expansion might seem a fundamental issue to

Russia, but it is unlikely that there a major military confrontation will come to pass between the two. Thus we may conclude that nowadays, we see how much Russia has lost throughout the last several decades in the former Soviet space. But internal problems alone do not suffice for changes in Russia’s geopolitical outlook. In fact, Russian history shows that foreign military pressure is fundamental, and this is the one thing Russia is not facing right now.

Village Support Program Revival BY SHAWN WAYNE

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rom 2019, the Ministry of Infrastructure and Regional Development of Georgia plans to revive the village support program, said Mzia Giorgobiani, the Deputy Minister of Infrastructure and Regional Development. The village support program, which included the implementation of small infrastructure projects in the regions of Georgia, was closed in 2016, during the government reform. "It is planned to restore the village support program. At this stage we are working with the local authorities to select the right projects with the help of the population, and with the Ministry of Finance to agree on the amount of funds" – said Giorgobiani. The state support program for villages was launched in Georgia in 2009 under the rule of the third President of Georgia, Mikheil Saakashvili, and operated until 2016. The program financed an average of

up to 100 projects a year, which were chosen by the villagers themselves. After the termination of the program, local authorities and politicians have repeatedly asked for its resumption, since the problems with the infrastructure of the villages were ignored and the work of the Ministry of Regional Development

was focused on the implementation of large-scale projects. After Mamuka Bakhtadze became the Prime Minister of Georgia in the summer of 2018, the government began talking about the importance of villages and their well-being, and promised to carry out reforms in this direction. Image source: financialtribune.com

US Senate to Help Europe Reject Russian Gas BY DIMITRI DOLABERIDZE

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S senators Ron Johnson and Chris Murphy have prepared a bill providing for the allocation of $1 billion to finance European energy projects. The project is aimed at confronting the “malicious influence” of Russia and

creating economic opportunities both domestically and abroad. “We have invested billions in strengthening the defense of Eastern Europe, but let's not forget about the equally dangerous consequences of energy choking for Russia,” said Murphy. According to the senators, Moscow is using its dominance in the energy market to undermine the Western institutions by creating “flexible governments” in Europe that will not be able to resist it.

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14

BUSINESS

GEORGIA TODAY

OCTOBER 16 - 18, 2018

EU to Financially Support Business Ideas in Keda & Khulo

Georgian Wine Festival Held in Hong-Kong, Shanghai BY THEA MORRISON

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ithin the Georgian Wine Tour in Asia, the Georgian Wine Festival was held in Hong-Kong and Shanghai. The events were organized by "Meiburg Wine Media", master of wine Debra Meiburg, who offered guests Georgian wine while introducing them to its history and culture, as well as to the modern Georgian wine industry. Both events in Shanghai and Hong-Kong were visited by numerous people, wine importers, masters, and representatives of media, restaurants and hotels chains. The festival included master classes, tastings, presentations and seminars. Meiburg says Georgian wine has been growing in popularity and gaining interets in recent years in China and on the Asian market as a whole. The

wine master emphasized that Georgia has moved from the 18th place to the 9th place in the list of importing countries on the Chinese market for the past four years. Wine festivals are also set to take place in Macau, Siam, Guanzhou and Shenzhen.

EU Launches Extended Producer Responsibility Consultations in Georgia Image Source: Imedinews

BY ANNA ZHVANIA

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he European Union is to allocate funds to dozens of entrepreneurial projects over the next four years in Georgia's Keda and Khulo regions. Local entrepreneurs will be able to receive grants through co-financing.

The Rural Development and Diversification Assistance Project will be implemented in Khulo for 48 months. EUR 2 mln will be spent in financing these projects, half of which will be issued as a grant for business development. Interested candidates in Khulo have already submitted their applications, and the commission has accepted 187 applicants out of 400 to the next stage. Winners will be announced in January next year.

Photo: European Union. Source: EU Neighbours

BY SAMANTHA GUTHRIE

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xtended Producer Responsibility (EPR) is a policy approach to waste management that is successfully implemented throughout Europe. With the EU’s support, there are plans for EPR to be implemented in Georgia too. The

country’s national obligations under EPR were discussed at a meeting in Tbilisi on 9 October. The event was attended by over 200 representatives of central and local governments, international and donor organizations, private sector, chambers of commerce and business associations. The event was a joint effort between Georgia’s Ministry of Environmental Protection and the EU, the United Nations Development Programme and the Government of Sweden.

Gudauri Ski Area to Be Increased 20%

BY SHAWN WAYNE

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ix cable cars are being built at the Gudauri ski resort, resulting in a 20% bigger ski area. Gudauri is one of the most popular ski resorts in Georgia, having received worldwide recognition. In 2023, the World Freestyle and Snowboard Championship will be

held there. The resort is also building the second phase of a snowmaking system, which will be completed by the 2018 winter season. The first phase of artificial snowmaking in Gudauri was carried out in 2015. The flow of tourists to Georgia is growing every year. The number of tourists at the four ski resorts in Georgia (Gudauri, Bakuriani, Goderdzi, Svaneti) has increased six times since 2011.


BUSINESS

GEORGIA TODAY OCTOBER 16 - 18, 2018

15

A Finnish School For Every Child in Georgia! BY ERIC LIVNY, TBILINOMICS POLICY ADVISORS

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n 2016-2017, according to the World Economic Forum survey, Finland was ranked the #1 educational system in the world, #1 in primary education, #2 in higher education, and #3 in the OECD Program for International Student Assessment (PISA) in science. To set things in perspective, among 72 countries participating in PISA (2015), Georgia ranked #63 in science. It was not any better in math (#60) and reading (#65). When Aieti Kukava came into the world in 1971, Finland belonged to a parallel universe on the other side of the Iron Wall. Growing up in Sukhumi, Aieti’s universe had its center in Moscow, and that’s where seven of his cousins were sent off to, eventually going on to become medical doctors. Aieti’s father did not want his three sons to lose their Georgian roots. Thus, all three ended up studying in Tbilisi’s prestigious Public School #51, the go-to place for the kids of Georgia’s well-connected families. Equally quick in math and rugby, Aieti does not have many fond memories from his days at School #51. He was forced to study subjects, such as drawing and chemistry, for which he had no talent. And even his math teacher did not appreciate his independent spirit, treating him in a mean and off-putting manner. The Tbilisi State University chapter in Aieti’s life left no memories whatsoever. His amnesia could be blamed on the severe concussions he suffered as a rugby player. But, more to the point, he hardly attended any lectures. Georgia’s early independence years (1989-1994) were not a time to study Soviet Planning (or, anything else, for that matter). Rather unexpectedly, Aieti’s educational journey ended in a remarkable way. In 2000, supported by a generous Muskie Fellowship, he landed in Clark University’s MBA program. “Challenge Convention. Change Our World.” reads the university’s slogan. Two years of American MBA education certainly changed Aieti’s world and challenged him to try and change the world outside. The idea of doing something for the education of Georgia’s future generations has been on Aieti’s mind ever since returning from the US. But, first, he had to establish himself as a businessman. And, second, not being an educator, he had to find the right partners. The stars aligned in 2016, when Aieti, by then the CEO and owner of Alliance Group Holding, met his namesake Alex Kukava, a San Francisco-based banker. At that time, the hype about Finland’s education system had probably reached its peak. Michael Moore’s “Where To Invade Next”, which came out that year, divulged its biggest secret (or, rather, myth) – no homework! What fascinated Alex and Aieti, however,

was the idea of early learning without the stress and (potential) stigma associated with grading. Alex, whose young children were about to start school, was looking for a way to come back to Georgia with his family. Thus, he had the incentives, and luckily, also a bit of time, to explore the concept of Finnish education and find potential partners and consultants. In September 2017, the two Kukavas went to Finland, visited schools, attended education workshops, met government officials and engaged consultants representing a consortium of more than 200 service providers. The idea of establishing a Finnish International School in Georgia was thus born.

A PRIVATE FINNISH SCHOOL??? For about a year, the partners proceeded with their plan to establish a private Finnish International school in the rustic environment of Tbilisi’s upscale suburb in Saguramo. According to the initial blueprint, the School was to operate away from Tbilisi’s pollution, offering healthy, locally-grown food, Finnish school architecture, a modern Finnish, student-centered program of study, and excellent Finland-educated instructors. The business model underpinning the project borrowed from other private international schools operating in Georgia’s capital. A relatively small student intake (up to 500 students in total); fairly high annual tuition fees (with partial scholarships for kids meeting certain criteria); English as the main language of instruction; a mix of local and international teachers; state-of-the-art facilities and technological solutions; and, last but not least, international (Finnish) certification. The school was to directly compete for students and teachers in the very tight market of private education for Georgia’s emerging middle class and expat families. Its competitive edge was to rest on its eco-friendly out-of-town location, and the Finnish education brand. Critics could spot many potential weaknesses in this approach. For example, an out-of-town location could be as much of an asset as a liability. But, even more importantly, the very notion of a private Finnish school is an oxymoron: there is no place for private schools in the Finnish education system. Indeed, the Finns designed their public education system to deliver excellence and equity, and prevent schools from “laundering privilege into qualification” (to paraphrase Walter Benn Michaels’ The Trouble with Diversity: How We Learned to Love Identity and Ignore Inequality (2007)). So, how could one square this circle and bring Finnish education to Georgia without losing its very essence?

FINNISH EDUCATION FOR EVERYONE! Perhaps the greatest surprise awaiting

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Hiidenkivi school, Helsinki, Finland (by Häkli Architects, 2005), is one of 7 schools featuring in The Best School in the World exhibition of Finnish architecture (2011) which explored the puzzle of Finnish education quality from an architectural perspective. Photo: Jussi Tiainen

Kimmo Kumpulainen and his team of consultants from Polar Partners was that Georgia’s national curriculum is remarkably similar in spirit and content to its Finnish equivalent. There was only one “small” problem: Georgia’s national curriculum was an exercise in wishful thinking. Georgia absolutely lacked the teaching workforce to make this curriculum a reality. Kimmo’s visit to Georgia in September 2018 coincided with the Georgian government’s unveiling of a new educational strategy. With the ancient Academy of Ikalto in the background, Georgia’s new Prime Minister Mamuka Bakhtadze and his Minister of Education Mikheil Batiashvili vowed to double and triple teachers’ salaries over 3-5 years, addressing a key bottleneck for any quality improvements in Georgia’s public education system. This was an Aha! moment for Kimmo, Aieti, Alex and their partners. What if the Finnish school, to be built in Saguramo, was used as a practical training camp for new Georgian teachers and education sector leaders? What if it served as a lab to test international pedagogical approaches and adopt them to the Georgian realities? What if the school’s 7-hectare compound included a guesthouse and a Finnish-style teacher training facility serving hundreds of aspiring young educators? What if the whole

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

project was restructured as a publicprivate partnership involving the Georgian and Finnish governments, other international donors and interested private companies? All of a sudden, everybody felt they were part of a much more important project: to bring Finnish quality education to every Georgian child. * * * There are many ‘urban legends’ about Finnish schools, such as that Finland scrapped traditional subjects or that students have no homework. But, as explained by Pasi Sahlberg, the author of Finnish Lessons (2011) and a worldfamous education expert, “Finns have not invented any supercharged teaching methods that lead to stellar learning results.” Instead, Finland invested, and quite heavily, in people. Whereas Georgian school teachers are held in very low esteem (and are very poorly compensated), Finns consider the teaching profession to be in the top 10 among 450 jobs. As a result, Finland can set a very high quality bar for the teaching profession: a master’s degree issued by one of the research universities. Additionally, Finland’s education policy has a strong focus on securing equal opportunities for all children, and making sure they all do well at school. At the national level, this means that kids

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growing in Helsinki get more or less the same deal as those growing in a remote provincial community. At the school level, the emphasis on equity translates into balanced curricula reflecting the fact that children have different, academic and non-academic talents. Thus, Finnish schools give arts, sports, music, manual skills, and other non-academic areas the same importance as traditional school subjects. Combined with an effort to address special needs, this approach helps make sure that no child is left behind while giving everybody the opportunity to discover their unique talents, gain in confidence and excel. Quite unlike Aieti Kukava’s experience at Georgia’s elite public school #51. * * * If you happen to be holding a glass of wine in your hand, this is the time to raise it to those great teachers and educators who appreciate our differences and know how to get the best out of each and every one of us!

ABOUT THE AUTHOR:

Eric Livny is Founder and President at Tbilinomics Policy Advisors. In 2007-2018, he served as President with the International School of Economics at Tbilisi State University (ISET) and ISET Policy Institute. His current advisees include the Caucasus University and the Finnish International School project.

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Profile for Georgia Today

Issue #1092 Business  

October 16 - 18, 2018

Issue #1092 Business  

October 16 - 18, 2018

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