Issue no: 898/54
• NOVEMBER 22 - 24, 2016
• PUBLISHED TWICE WEEKLY
PRICE: GEL 2.50
In this week’s issue... Georgian Wines Win Silver, Bronze Medals in Poland NEWS PAGE 2
Structural Transformation in Georgia – In the Right Direction at a Turtle’s Pace
ISET PAGE 4
ON LOOKING TO THE FUTURE The Georgian President opens the new parliament with messages of hope for better education, justice and balance
RETAIL FPI Breakfast in Tbilisi is Still Cheap PAGE 7
10-Multi-Storey Parking Lots to be Built in Tbilisi Center BY NATIA LIPARTELIANI
en multi-storey parking lots are be constructed in the central areas of Tbilisi, says Tbilisi Mayor Davit Narmania. “We will soon announce a tender for the works,” Narmania said. “First we are working on completing the necessary technical and financial documentation, after which the tender will be announced.” “City Hall recognizes the need for multi-storey parking in the central parts of Tbilisi, where traffic is dense and parking is difficult. To address this need we have developed 10 projects for the city center,” Narmania said.
The winning investor will be in control of setting the parking tariffs. “This does not, however, mean that our agreement with C.T. Park will be annulled,” the Mayor stated. “The C.T. Park agreement does not involve setting such parking lots and so we foresee no conflict of interest in that regard.” “Our current relations with C.T. Park are not good,” Narmania admitted. “We hope to alleviate our citizen’s discomfort with the implementation of this new parking project.” C.T. Park has been operating in Tbilisi for around nine years and has an exclusive right to arrange street parking spaces and administer fines for parking violations until 2025. Tbilisi residents have been expressing increasing disapproval of the work of the company, saying the costs are high and the cars are often taken to the pound illegally.
Business Awards Winners Announced PAGE 8
INTERVIEW: Nato Eristavi, Co-founder of White Studio, Small Business of the Year PAGE 9
Gritty Win over Samoa Sends Georgia to Scotland in Buoyant Mood SPORTS PAGE 12 Prepared for Georgia Today Business by
STOCKS BankofGeorgia(BGEOLN) GHG(GHGLN) TBCBankGroup(TBCGLN)
COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)
NOVEMBER 22 - 24, 2016
SOCAR: AGRI Project Needs More Time BY THEA MORRISON
zerbaijan’s state oil company SOCAR has said that the Azerbaijan-GeorgiaRomania Interconnector (AGRI) project needs more time. The AGRI project envisages transportation of Azerbaijani gas to the Black Sea coast through Georgia via gas pipelines. The gas will then be liquefied at a special terminal and, following this, will be delivered in tankers to a terminal at the Romanian port of Constanta. According to Azerbaijani news agency Trend.az, Suleyman Gasimov, Vice-President for Economic Issues of SOCAR, stated the project requires huge investments. “It is necessary to build a terminal in Georgia, and then another in Romania,” he noted. The cost of the project is expected to be from EUR 1.2 billion to 4.5 billion, according to preliminary estimations. The participants of the AGRI project are the State Oil Company of Azerbaijan (SOCAR), Georgia's Oil and Gas Corporation, as well as MVM (Hungary) and Romgaz (Romania). The parties established the SC AGRI LNG Project
The cost of the AGRI project will vary from 1.2 - 4.5 billion EUROS. Source: trend.az
Company SRL in February 2011 for the implementation of the project. The SOCAR Vice-President claims the AGRI project can only be implemented if all parties support the implementation. At present, SOCAR is also participating in the development of the Trans Adriatic Pipeline (TAP) and Trans Anatolian Natural Gas Pipeline (TANAP), both of which envisage supplying Europe with Azerbaijani gas.
Georgian Wines Win Silver, Bronze Medals in Poland
ENOEXPO 2016 in Krakow. Source: Wines of Georgia
BY THEA MORRISON
our Georgian wines, produced by two different companies, were awarded silver and bronze medals at the International Wine Fair in Krakow-ENOEXPO 2016. ENOEXPO is an annual meeting of winemakers from around the world interested in distributing wine in Poland. During the ENOEXPO Trade Fair, professionals were able to take part in many meetings and seminars. Those wishing to learn more about wine and how to serve it with different dishes had the opportunity to join special seminars and meet specialists in the field. A degustation of selected
wines from around the world was also held. The three-day event took place from November 15 to November 18 and saw 13 Georgian wine companies taking part. Gotsa family wine- Tavkveri 2014 - was awarded a bronze medal while three wines of Georgian company JSC Telavi Wine Cellar were awarded silver medals. On the last day of the event, the guests of ENOEXPO 2016 were able to taste Georgian cuisine and wines presented at the exhibition. Poland represents a strategic partner for Georgia in terms of wine export, having remained consistently in the top five wine export countries. According to the 10 month data of 2016, Georgia has exported 1.81 million bottles of wine to Poland, which is 44 percent higher compared to the same period of 2015.
GEORGIA TODAY NOVEMBER 22 - 24, 2016
Message of Hope: Georgian President Eco-Friendly Betonite Clay Opens First Session of New Parliament Factory to Employ up to 300 in West Georgia BY THEA MORRISON
BY THEA MORISON
eorgia’s President, Giorgi Margvelashvili, opened the first session of the new parliament, elected in the October elections, in Kutaisi city, western Georgia, on Friday. The President assessed the elections positively but recognized there had been a number of violations. “Generally, the elections were held in a free environment. As a result, we have democratically elected 150 deputies who will carry out the formation of the future legislative and executive branches of government," the President said, going on to congratulate the MPs on the election victory and wishing them success. Margvelashvili also thanked the observing organizations, political parties, electoral commissions and media which had ensured the continuity of the democratic process. The President offered a regime of cooperation and constructive dialogue in the interests of both the state and citizens. “I am ready to establish the practice of prior consultations on problematic, strategically important issues and to present my vision about the issues that need improvement and perfection,” he said. While he underscored that the constitutional majority belongs to one party -the ruling Georgian Dream (GD), which will legitimately approve a new government, the President reminded all present that “excessive concentration of power is dangerous” and called on the GD to fulfil all the pre-election promises they had made the population of Georgia. “The State today needs balance mechanisms to ensure that power lies not only
W President Giorgi Margvelashvili opens the first session of the new parliament with positive plans for the future
in one branch,” the President said. He also spoke of the need to revise Georgia’s Constitution, claiming it to be defective. “The 2013 edition of the Constitution is defective and needs to be revised, but achieving general consensus will be necessary for changes to be made,” he said. The President spoke about the need to change the judiciary system and called on parliament to invite the European Union’s (EU) Justice and Rule of Law Mission in order to implement a Georgian judiciary system development strategy. Margvelashvili also initiated the setting up of a unified National Security strategy which reflects the recent global and regional developments. He also said that education is the main tool for the development of the country and a guarantee for a better future.
“I announce 2017 as the Year of Education, as education is liberty. Only an educated person can achieve internal, social and political freedom,” he stated. The session was attended by the Patriarch of Georgia and other clergymen, chairmen of the Constitutional and Supreme Courts, representatives of the diplomatic corps, the Chairman of the Central Election Commission, and the media. The first round of Georgia’s parliamentary elections were held on October 8 and the run-offs were held in 50 districts on October 30. The elections revealed that only three political parties were able to pass the election threshold and gain seats in Georgia’s ninth Parliament. These parties are: ruling party Georgian DreamDemocratic Georgia 115 seats, main opposition party United National Movement with 27 mandates, and Alliance of Patriots of Georgia with 6 seats.
ithinthestateprogram ‘Produce in Georgia,’ an enterprise to process bentonite clay was opened in Dvabzu village, Ozurgeti Municipality in western Georgia. The new enterprise is initially to employ 130 locals, with that number expected to increase up to 300 in the future. At the initial stage, Askaneli Alliance LLC invested 30 million GEL in the project and intends to increase the investment up to 100 million GEL. Georgia’s Prime Minister, Giorgi Kvirikashvili, visited the plant on Saturday to officially open it. “Such substantial enterprises serve as a catalyst for entrepreneurial spirit within
the region and the country,” the PM said, complimenting the factory for being among the most advanced, based on the sophisticated German technologies which will produce eco-friendly production. “‘Produce in Georgia’ is a very successful program and this case is the best example of good cooperation between the public and private sectors. It is particularly noteworthy that the initiators of this project are great citizens of our country, who managed to succeed abroad, and then chose to return to their motherland to engage in the advancement and prosperity of our country,” PM Kvirikashvili stated. The government-led a 46 million GEL ($27 million USD) program Produce in Georgia, was launched on June 1, 2014 and is aimed at aiding the recovery of the country’s production industry and, in turn, improving Georgia’s economic future after years of severe stagnation.
PM at the bentonite clay enterprise in Ozurgeti
NOVEMBER 22 - 24, 2016
THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS
The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.
Structural Transformation in Georgia – In the Right Direction at a Turtle’s Pace BY DAVIT KESHELAVA
tructural transformation of the economy is one of the most important determinants of economic development. Almost invariably, nations that have managed to pull themselves out of poverty were able to diversify their economies away from low productivity sectors. In advanced countries, productivity differences between sectors are generally small, and growth mostly happens because of productivity improvements within sectors. Developing countries, on the other hand, are characterized by large productivity gaps between the sectors of their economies. These gaps are potentially good growth engines. When a labor force moves from a low productivity sector to a high productivity one, economic growth happens even if there is no productivity improvement within the sectors. This “development recipe” sounds simple, yet the speed of structural transformation differs greatly between countries. One may say that this is the key factor that differentiates unsuccessful economies from successful ones. Globalization and regional integration has affected developing countries (including transition economies), almost without exception, by making them more and more integrated with the world economy. Industrial tariffs are historically low, foreign direct investment flows are high, and transfers of technology are becoming easier than ever before. However, the outcomes of embracing globalization depend largely on the manner in which countries integrate with the world economy. As Dani Rodrik and Margaret McMillan argue in “Globalization, Structural Change and Productivity Growth” (2011), globalization in emerging Asia initiated the right path of structural change, and contributed to fast economic growth. But in the case of Latin America, labor has moved in the wrong direction, from highly productive to less productive sectors, including the informal sector.
WHAT DROVE ECONOMIC TRANSFORMATION IN THE FORMER SOVIET COUNTRIES? It is a widely recognized fact that the Soviet Union was an over-industrialized economy, with an exceptionally high labor concentration in the industrial sector, as compared to the other middleincome countries in the world. Mickiewicz and Zalewska in their article “Deindustrialization. Lessons from the Structural Outcomes of Post-Communist Transition” (2002) analyze the main reasons for over-industrialization of the USSR. The authors claim that the relatively high concentration of the labor force in the industrial sector was not driven by comparative advantage in
industrial exports - after all, the USSR was a semi-autarchic country with a small share of exports in GDP - or rich resource endowments - natural resources were not uniform across the republics, while the pattern of over-industrialization was common to all. Rather, this phenomenon was a consequence of military aspirations and considerations based on ideology. Therefore, after the Soviet Union collapsed, one should have expected an intensive deindustrialization process, which indeed was what happened.
HOW GEORGIA GOT IT BACKWARDS IN THE EARLY TRANSITION PERIOD Across the former USSR, the transition to a market economy and increased integration with the world market resulted in an immediate reduction of labor employment in the industrial sector and created the need for ambitious reforms. Successful transition economies (like the Baltic countries) managed to implement these reforms in a way which led structural transformation in the “right” direction, i.e. labor moved from the industrial sector to high-productivity services. Georgia, unfortunately, was the most distinctive case of ineffective structural transformation following the collapse of the USSR. In the early stages of transition, Georgia experienced several wars and cascades of unsuccessful reforms which resulted in destroyed infrastructure, problems with tax collection, hyperinflation, high corruption and increased criminal activities. This, of course, killed the incentives to invest and do business in Georgia. As a result, excess labor from the deindustrialization process moved into subsistence agriculture. In 1990, the share of agricultural employment in Georgia’s total employment was 26.3%, while the corresponding values in industry and services were 31.2% and 14.6%, respectively. By 2000, however, the share of employment in agriculture dramatically increased to 52.1%, the share of employment in services increased only slightly to 17.8%, and industrial employment was only 9.8% of total employment (Raiser, Schaffer and Schuchhardt, 2003).
Therefore, it is clear that Georgia experienced a “growth reducing” structural transformation, as labor moved from more productive sectors to less productive ones.
Figure 1 - Share of the sectoral employment in the total employment in 2015
Figure 2 - share of sectoral GDP in the total GDP in 2015
STRUCTURAL DECOMPOSITION IN GEORGIA Despite the fact that Georgia experienced a series of successful reforms after the Rose Revolution (2003), the structure of employment did not change that much. The first chart below shows the share of employment in different sectors of the economy in 2015. The agricultural sector was still the leader in terms of labor employment, absorbing 57% of the employed population. On the other hand, the importance of manufacturing in terms of labor employment is extremely low, with only a 4% share. Furthermore, it is notable that 5% of employed people are still involved in public administration (which is ranked fourth in terms of employment shares). This employment structure is sharply different from what we commonly observe in successful transition countries, which are characterized by a high share of employment in high productivity services, and a low share of employment in agriculture. The second chart below provides information about different sectors in Gross Domestic Product. Here we can see quite clearly that the most unproductive sector in Georgia is, of course, agriculture, where 57% of employed people contribute only 9% to the GDP.
IN THE RIGHT DIRECTION AT A TURTLE’S PACE So, where do we go from here? How can we assess whether the post-Rose Revolution Georgia has been moving in the right direction as far as the structural transformation of the economy? McMillan and Rodrik (2011) give us an interesting tool for assessing the direction of structural change. According to the authors, structural changes are growthreducing if the labor force moves over time to low productivity economic sectors (in this case, the increase in the flow of labor into the sector will be correlated with the reduction of relative labor productivity in that sector).
The change in employment in a particular sector is determined by the change in the share of employed people in this sector, relative to total employment between 2003 and 2015. Relative productivity is computed as the ratio of the productivity of a corresponding sector to the total productivity of the economy in 20151. The scatter plot below2 provides several interesting insights into the structural changes in Georgia between 2003 and 2015. We can see a positive and significant correlation between the change in the share of employment and relative productivity of labor, which indicates a growth-enhancing structural change. The main driver of this pattern is the reduced employment in the unproductive agricultural and relatively less productive wholesale, retail trade and repair of motor vehicles sectors. The number of workers in the agricultural sector declined steadily, starting from 60.56% (2011) to 56.63% (2015) of total employment. In addition, employment increased in the relatively high productivity sectors, like construction and financial services. This contributed to structural transformation-led economic growth, and explains the positive slope of the regression line. The only sector with lower than average productivity which experienced an increase in employment between 2003 and 2015 was education, where the share of the employment increased by 0.46%. From the scatterplot, it is clear that the majority of the economic sectors are concentrated along the Y axis, which represents no change in employment. This finding is not surprising for some relatively productive sectors, like mining and quarrying, and the distribution of electricity. These sectors are not labor intensive, and therefore, the increased production is not due to hiring more labor. These sectors were simply not able to absorb the working population from lower productivity sectors, like agriculture. The more worrying case is the lack of change in the share of employment in manufacturing. The size of this sector in Georgia is significantly behind the benchmark values of successful tran-
Source: Geostat - Integrated Household Survey (IHS)
sition countries. Despite the fact that Georgia has been experiencing a growth-enhancing structural transformation, with changes moving in the right direction, the speed of structural changes has been notably low. The fastest change was observed in the agricultural sector, where the share of employment dropped by 4.62%. This is not fast enough, as Georgia is still very far away from the structural decomposition of successful nations. To catch up with developed countries, Georgia should speed up structural transformation by diversifying industrial exports (moving away from raw materials export); creating a comparative advantage in tradable sectors, such as manufacturing; creating macroeconomic conditions to keep exports competitive; improving labor skills to enhance labor mobility; and last but not least, creating and maintaining a good environment for business investment. The relative productivity of a sector is determined by the nominal GDP per employed worker in this sector. If the correlation between change in employment and the natural logarithm of relative productivity of the labor is positive, the country experiences growth-enhancing structural change. The relative size of each sector in 2003 is indicated by the size of the circles presented in the scatter plot. The speed of structural changes is determined by the magnitude of the change in employment. The higher the share of people moving to the other sector, the more rapid is the structural transformation. 2 Correlation between sectoral productivity and changes in employment share in Georgia, 2003-2015 Source: Geostat - Integrated Household Survey (IHS) Abbreviates: agr - agriculture, hunting and forestry; fishing, wrt wholesale and retail trade; repair of vehicles, elec - production and distribution of electricity, man – manufacturing, hsw health and social work, pa – public administration, phed - private households employing domestic services, min - mining and quarrying, res - real estate, renting and business activities, hr - hotels and restaurants, trc - transport and communication, ocsp - other community, social and personal services, fin financial intermediation, con – construction, edu – education. 1
GEORGIA TODAY NOVEMBER 22 - 24, 2016
Cost of Conflict: Core Dimensions of the GeorgianSouth Ossetian Context
ost of Conflict: Core Dimensions of the Georgian-South Ossetian Context is an analytical publication which presents the diverse views of Georgian, South Ossetian and international experts. Georgian and South Ossetian peacebuilders worked together with the George Mason University and the Alliance for Conflict Transformation, with the financial support of the Conflict, Stability and Security Fund of the UK government and the United States Agency for International Development, to create an analytical publication that examines the costs of this conflict.
You can read & download the full text at the Regional Dialogue website: www. http://regionaldialogue.com
NOVEMBER 22 - 24, 2016
Cashless Ukraine Summit: Innovative Approaches and Trends BY NINO GUGUNISHVILI
lobal Payments Technology Company Visa organized the Cashless Ukraine Summit 2016 with a special online broadcast from the event for Georgian media representatives last week. The topics of discussions ranged from issues related to the currently implemented innovative financial services, to contactless and electronic payments which, in the rapidly changing world of an ongoing digital revolution, bring customers to a new reality with a cashless economy steadily developing and breaking the stereotypes of a traditional system of payments. Online presentations were made by Mandy Lamb, Visa Group Country Manager for CIS and South-east Europe; Dmytro Shymkiv, Deputy Head of Ukraine’s President Administration; Andy Woolnough, Vice President for corporate relations Visa; Valeria Gontareva, Governor of the National Bank of Ukraine; Nino Masurashvili, Deputy CEO Retail and SME Banking TBC Bank Georgia; Erik Benz, Founder of Credits UK; Ana Nives Radovic, Editor and analyst of Fintech; and Volodymir
A cashless economy is the future, but in order to make it work, financial institutions, regulators and banks need to unite in their efforts
For consumers to adopt electronic payment en masse, they need to believe that those electronic payments are more reliable, more convenient and safer than the alternative
Cashless Ukraine Summit
Lavrenchuk, CEO of Raiffesen Bank Aval. The speakers discussed recent successful practices, challenges and demands, addressed the development of a cashless economy, emphasizing the need to spread awareness and knowledge of the existing global trends in the e-commerce, mobile banking and mobile payments sphere, and spoke about the importance of innovative education and raising financial literacy that should be directed to the promotion of a cashless payment economy. Cashless payments are seen as a possibility to ease financial operations and make them less time consuming, whereas time is the most valuable resource nowadays and should be used wisely and responsibly. It was stressed numerous times during the summit that a cashless economy is the future for the 21st century, but in order to make it work, financial institutions, regulators and banks should join their efforts to move forward. The case of Denmark was presented as a success story by Dmytro Shymkiv, Deputy Head of Ukraine’s President Administration, since Denmark is the number one country in the world for using cashless payments systems, having done so for over 10 years now. A special card – the Den Card was created
and incentives offered with the intention to create an environment and inspire every citizen of Denmark to actually pay for their services or for products using it. “There are four key innovations that drive the process of a cashless economy,” Shymkiv stated. “The first is mobile payments, (Apple pay); integrated billing is the second, where the service is fully integrated into a cashless economy (Uber Cabs, for example). The third is streamline payments, or geobased payments, where when you enter a certain geolocation, an immediate transaction takes place, and finally we experience the next generation of security- security and prevention of fraud,” he said, going on to emphasize that simplicity is essential when talking about a cashless economy. “The three important aspects of cashless economy are: simplicity, inter-operability and value added services. The future of the world is cashless, how quickly Ukraine gets there depends on us, it’s a cultural change. The question for us is how to encourage people to be cashless,” Shymkiv said. “At visa we believe that financial education is foundational, because financially educated consumers living in inclusive societies create more sustained economic growth,” said Andy Woolnough of Visa.
“Financial education is in our DNA at Visa. Since 1995 we’ve been providing parents, teachers, students, governments and NGOs with high quality free financial educational materials with which they can make better financial decisions. So far, we’ve reached 40 million people but we need to do more. I believe that financial education can be a neighbor to a cashless society, but also a beneficiary of it. For consumers to adopt electronic payment en-masse, they need to believe that those electronic payments are more reliable, more convenient and safer than the alternative. They need to understand credit products versus debit products versus prepaid products… It’s about trust, and education leads to knowledge, knowledge leads to trust, trust then drives usage and adoption.” Erik Benz, Founder of Credits UK, introduced BlockChain and described how it is to transform a cashless society, especially in emerging markets such as Ukriane. “BlockChain is not about payments, bitcoins, banking, smart contracts, and capital markets or securities settlment. In reality, BlockChain is a trust mashine. It’s the ability to establish trust between parties. With BlockChain, the infrastructure can be changed and become more efficient. Legacy systems are broken and
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before we transform human mindsets in order to have people using cards and not using cash we have to do a lot of education. BlockChain is not about dissruption it’s about enablement,” he said. Credits UK is a BlockChain platform provider supplying distributed ledger technology software and cloud-based services with tools for building secure and scalable blockchains to power enterprise and public sector applications. “TBC is strategically focused on development of the retail segment,” said Nino Masurashvili, Deputy CEO Retail and SME Banking TBC Bank Georgia. “30 percent of our bank customers are heavily using internet and mobile banking services, with 7 percent using mobile banking only. We are working with Visa to bring new and innovative solutions to the market and to be effective.” One such joint product, to be released in 2017, is a mobile wallet. “We understood that focusing on multichanel, internet and mobile banking was not enough- why limit customers to mobile and internet banking when it’s so easy to use popular applications like WhatsUp or Viber? In the future we plan to offer new services in that direction, too,” Masurashvili said, underlining the importance of investing in digital products.
TK 387 TK 385 TK 383 TK 386 TK 384 TK 382
05.50 11.45 18.10 01.40 07.30 13.55
07.25 13.25 20.00 04.55 10.50 17.15
TK 381 EVERYDAY TK 380 TK 393 TK 392
GEORGIA TODAY NOVEMBER 22 - 24, 2016
RETAIL FPI | Breakfast in Tbilisi is Still Cheap
fter a couple of declines, food prices in the largest supermarkets in Georgia have increased. In the first two weeks of November, an upward trend was maintained: Retail FPI was 2% higher compared to the same period of October. The increase in FPI was driven by an increase in the price of fruits and vegetables, but on an annual
basis, we still record a significant overall 9.5% decline (November 2016 VS November 2015).
IN THE SPOTLIGHT According to data from the first two weeks of November, the price increase leaders were cucumber (26%), carrot (25%), and eggplant (24%). Not all food items became more expensive. The larg-
Month-on-Month Change in food prices (October 2016 vs September 2016)
est, but still modest, bi-weekly price drops were observed for buckwheat (7%), cabbage (6%) and wheat flour (4%).
CONSUMERS’ CHOICE Despite the overall upward trend in food prices, it is notable that in the first part of November, the costs of an ordinary breakfast, including coffee/tea, bread, butter, and eggs, did not differ significantly from October. By observing food prices on a month-on-month basis, modest price increases were observed for:
butter, from 3.48 GEL to 3.53 GEL (1.7%); bread, from 0.86 GEL to 0.87 GEL (by 1%); and eggs (by 0.6%), while coffee and tea did not gain in value at all. As for lunch and dinner, consumers can diversify their menus, as it will not be more expensive for them: prices of meat products such as chicken (fresh and frozen) and beef did not increase. In addition to this, some side dish products became even cheaper: buckwheat by 2% and rice by 3%. This means that Georgian consumers can still enjoy their cheap
breakfasts, and save their appetites for lunch and dinner. Still, vegetables and fruits are important components of peoples’ daily food ration, as they contain essential vitamins and nutrients. As they are less cognizant of the benefits of a healthy diet than consumers in more developed countries, the seasonal fluctuations in the prices of vegetables and fruits might impair Georgian consumers’ choice in pursuing healthy nutritional regimes.
NOVEMBER 22 - 24, 2016
Business Awards Winners Announced BY NINO GUGUNISHVILI
he Georgian business community, government officials, and public sector representatives came together on November 17 to award the winners of the annual Business Awards. The Business Awards is a joint initiative from TBC Bank and Geocell. The awards ceremony was held in the Museum of Tbilisi History, formerly known as Karvasla (Caravanserai). The idea of the Business Awards was born in June 2016 as an initiative to support small and medium enterprises and as an overall effort to develop entrepreneurial spirit in the country through stimulating individuals to start their own businesses. The main concept of the Business Award project is to raise brand awareness of the companies involved, and to share the stories of their success. The project is made up of several phases: companies are first registered according to category and then winners are selected. This year 523 companies were registered overall and three finalists were chosen by anonymous jury members in each category for the final competition. The Business Awards were selected according to the following categories: Small Business of the Year Innovative Business of the Year Tourism Business of the Year Agro-Business of the Year Georgian Product of the Year People’s Choice Business of the Year The companies competing for the People’s Choice Awards entered an online voting marathon, which gave the public the chance to vote for their favorite business.
TBC Bank and Geocell both helped the participant companies in their marketing campaigns, which resulted in massive social media coverage. The award design - symbolizing unlimited possibilities - was made by Zviad Tsikolia, a famous Georgian designer. “The Business Awards Project is a huge success! More than a million people were engaged in the project through social media and other platforms,” said Nika Kurdiani, deputy CEO of TBC Bank. “The hashtag Gaaziare Tsarmateba (Share Success) was used over 100,000 times, which allows me to say that our aim to promote the notion of business-making, support start-ups and medium and small scale enterprises worked extremely well, and it’s the public involvement that made it possible. We have to grow and expand this community of people further each year.” “Initially, when the idea of the Business Awards was first brought up at TBC Bank, I was hesitant, as I wasn’t sure that people would be interested,” admitted Vakhtang Butskhrikidze, CEO of TBC Bank. “But I was proven wrong. Each of the participants is a leader who not only shares a success story, but inspires others. I hope that next year, together with our partner Geocell, we will see even more companies involved and engaged, both as participants and as organizers of the Business Awards. I would like to thank the Ministry of Economy and Sustainable Development of Georgia, Entrepreneurship Development Agency, and Geocell, of course, for their partnership and support,” Butskhrikidze said. First Vice President of Georgia Dimitry Kumsishvili, thanked TBC Bank and TBC Group, highlighting that they are “always one step ahead in all initiatives,” particularly when it concerns assisting various business entrepreneurship programs and projects. “TBC Bank is our main partner in developing medium and small scale
enterprises. We have made considerable achievements so far, with ten thousand workplaces and a 470 million investment potential created, but we want to achieve much more,” Kumsishvili said. “I believe that, with projects like the Business Awards, we’ll stimulate the creation of new companies and new ideas, which will ultimately lead to more employment opportunities and benefit the economic growth of our country.” Kumsishvili then announced the winner of the Small Business of the Year category - White Studio, a company that produces ceramic products from Georgian white clay (see page 9). “But everyone is a winner today,” said Ivane Matchavariani, the commercial director of Geocell. “It’s impossible not to recognize the efforts each of the participants. I have no doubt they each have
a bright future ahead,” he said, before announcing the Geocell prize for Innovative Business of the Year category, BiochimPharm a manufacturer of biological preparations for treatment using bacteriophages. The lucky winner will be attending the Innovation Summit in Lisbon in 2017, a massive event that brings together more than 1000 companies and investors from around the world. Deputy Minister of Economy and Sustainable Development of Georgia, Ketevan Bochorishvili, emphasized that tourism is a top priority for Georgia and spoke about the importance of introducing and supporting successful business companies and entrepreneurs. Barbarestan, a family-owned Georgian restaurant, was then declared the winner in the Touristic Business category. “Georgian production is immensely
important for our country. It brings talent, information and technology exchange that increase the future potential,” said Jean-Frederic Paulsen, the chairman of the Board at ISET Georgia. “Having myself also started a business in Georgia, I can share with you that Georgia is indeed a place where you can start producing or developing your ideas and I do encourage my friends from abroad to come and invest in Georgia.” He went on to announce the winner for the Georgian Product of the Year category - Badagi, the company producing Churchkhela, a Georgian snack. Anna Kvaratskhelia, the director of the Entrepreneurship Development Agency of Georgia, said she was delighted to see TBC Bank and Geocell’s joint initiative. She announced the winner in the category Agro-business of the Year – BPC, a juice company. Kings, an educational management company, was named winner in the People’s Choice Category, announced by Ako Akhalaia, the founder of Marketer. ge and the marketing director at Silk Road Group. Akhalaia noted a positive and encouraging trend in Georgian media: a growing interest in covering successful business entrepreneurship stories. Publishers Books in Batumi was competing in the same category and lost to Kings by only 17 votes. “In a very short time, Books in Batumi has achieved a 20% market share, in part due to a brilliant marketing campaign during the business awards competition, so they also deserve a very special mention and congratulations, too,” Kurdiani noted. The final nomination for Business of the Year, Zeta Camping, was announced by Mamuka Khazaradze, chairman of TBC Bank. Zeta Camping has a camping and hotel facility in Kazbegi. “We’re witnessing an extremely significant moment, a historic one,” he said. “A day when a new generation of businesses is born, a new wave representing the third generation of Georgian business; of people who create workplaces and employment opportunities out of a single idea; of people who, despite difficulties, made a product, established themselves on the market, built up a team of professionals and are now moving forward. The challenges they have faced included limited cash flow, lack of marketing resources, and a lack of qualified personnel. But they have succeeded. They will be major players in the field, creating a new reality in Georgia, a country with the potential to become a center of innovations and start-ups; ideas that cross the borders of our nation,” Khazaradze said.
GEORGIA TODAY NOVEMBER 22 - 24, 2016
INTERVIEW: Nato Eristavi, Co-founder of White Studio, Small Business of the Year BY NINO GUGUNISHVILI
aving recently won the title of Small Business of the Year at the 2016 Business Awards, Nato Eristavi, Co-founder of White Studio, spoke to GEORGIA TODAY about her company and the difficult path to success.
WHAT WAS YOUR MOTIVATION TO PARTICIPATE IN THE 2016 BUSINESS AWARDS? Initially, we hoped for nothing more than to get more exposure through social media, and then suddenly we found out that we were among the finalists! We didn’t expect there to be so much interest in what we do and that people would be so engaged and supportive. It was a wonderful experience! We’ve had so many visitors to our facebook page, thanks to the promo video made within the Business Awards Campaign and the photos of us. We really felt honored to be so acknowledged.
WHAT CHALLENGES DID YOU FACE WHEN CREATING THE COMPANY? White Studio started out as something of an experiment. We had no experience of making unique pieces of art for commercial purposes, and then having to make the whole thing a commercially successful business. The first two years were quite hard. In a way, it was like inventing a bicycle, because when you’re creating a company, much more needs to be done that you ever thought about at the onset. Creating a company needs additional resources as you face emerging responsibilities and handle them accordingly.
HOW DID WHITE STUDIO COME ABOUT? The story is rather extraordinary. I myself worked on ceramics for many years, as did my partner and designer Nino Kambarashvili. Wanting to do what we loved most, we decided to open a small studio. We decided to make painted tiles, so we bought and ordered a stove. But it took four months longer than planned to get here. During those four months we took on two artists who had never worked with clay before, and I began teaching them We started to improvise, making different objects from clay, and the process turned out to be so enjoyable that we found our workspace filled with a variety of things, all white, since without a stove it was impossible to burn them and paint. When the stove finally arrived we had so many things made already that it was unrealistic to paint them all and we decided to make an exhibition of our white works at the old wine factory on Melikishvili Street, which has an outstanding atmosphere. It was a huge success.
HOW WELL WAS THE STUDIO RECEIVED IN GEORGIA? There’s no analogue to white clay ceramics in Georgia, although ceramics are very popular abroad. The challenge was to prove that the Georgian product, ceramic vessels, vases, cups, plates, were of the same high quality that can be found internationally. That it won’t damage in hot water for example, that the products are made with the same top quality material and technologies. Imagine how hard it is when there are no factories working on ceramic production now in Georgia. The brand, White Studio, producing ceramics, is represented by the Center for Ceramics which brings all the neces-
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PRICE 10.000 USD sary tools, technical equipment and materials from abroad for the actual product making. The Center for Ceramics also actively works to promote the field. Everyone can come and see the process, which is actually quite long and hard. When a person sees how difficult it is to prepare even a tiny cup, and how many stages of preparation there are, the question why the price for it might be high fades away. You have to explain that every piece we make is an exclusive one, with lots of work, effort and resources needed to create the final product, all of which are handmade and unique- that’s our concept. Working with ceramics and clay needs a different attitude, it’s not an easy material to work with.
HAVE YOU FACED ANY DIFFICULTIES SINCE SET-UP? It was hard, but we slowly got along and learned to manage our business. At the beginning we wanted our products to be affordable to our potential clients, not to scare them off; it’s challenging to enter the market and prove that you’re worth it, especially when stagnation in the field is visible. In the last twenty years, for many understandable reasons, Georgian ceramics lost its popularity and products made from it tended to be of very poor quality. We’ve assisted many studios to produce high quality products through the Center for Ceramics, so today new companies eager to enter the market are able to get their hands on the necessary top quality materials. This is essential for the development of the sphere, for healthy competition that will naturally boost the overall level of the ceramics field. If we get our customers to realize that products made locally, from Georgian white clay, have the same quality as they could get abroad, that it’s worth paying a little more for than they are used to, that would be a great achievement for all of us working in the sphere.
TELL US ABOUT GEORGIAN WHITE CLAY White Studio works exclusively with Georgian Porcelain made of white clay. White clay has the same qualities as porcelain base and it’s actually so good, so transparent, with such a wonderful
elasticity and is fired at such a high temperature that we decided to call it “Georgian Porcelain”. I can tell you that we have an exquisite relation and even attachment to each object we make. I’m often very interested what their journeys are once they are sold, or who their owners are. Sometimes it’s even painful to part with them, because no two products are the same; all of them are exclusive, both in product and in artistic quality, corresponding to the highest international standards. I do travel a lot for lectures, and I’m also involved in different projects as an artist working in ceramics, so knowing the recent trends in the industry allows me to say so.
IS THERE ANYTHING YOU REGRET OR WOULD HAVE DONE DIFFERENTLY IN RETROSPECT? I was lucky to have people around me that believed in me rather blindly, however, at first, as I said earlier, it was difficult. We were not sure what would come of our idea, whether the objects we were making would sell. It was quite risky. At the same time, it was my own huge responsibility not to fail. Now I hope we proved that the business we’re doing has a great potential. Looking back from where we started and having a bigger knowledge and experience of how everything works now, I would take more risks and possibly get additional funding to have a place that I would own, rather then renting one for White Studio.
WILL YOU EXPAND WHITE STUDIO? White Studio is quite small and, to be honest, we have no intention to expand because above all what we do is art, and our products are art objects. Georgia has everything needed for the development of ceramics, clay, materials, taste, and yet there are so many things that have to be transformed and changed. Look at the souvenirs that are frequently sold in our shops... they are no good. Our tradition of ceramics manufacturing is very long in Georgia and it’s hugely disappointing not to present the best of it. That’s why we always try to introduce contemporary Georgian products as much as possible to international audiences.
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NOVEMBER 22 - 24, 2016
INTERVIEW: Alvaro Ortega, Agricultural Attaché to the EU Delegation to Georgia BY VAZHA TAVBERIDZE
or three years now, the EU has been supporting Georgia’s agricultural sector through the European Neighborhood Program for Agriculture and Rural Development (ENPARD). The first phase of this program, dubbed ENPARD I, was a EUR 52 million (GEL 135 million) program. From 2016, however, an expansion is in order, as the second phase, ENPARD II, will inject a further EUR 50 million (GEL 130 million) to widen and deepen the agricultural and rural development measures launched under the first phase, adding a further five regions where ENPARD will concentrate its focal activities. Actively involved in assisting the government in drafting their national development strategy document (the first for a long time now), ENPARD is organizing intensive meeting points, where stakeholders and interested parties can discuss and provide their insights on the oncoming draft. One such possibility was presented at the media tour organized by ENPARD to Borjomi region, where GEORGIA TODAY was privileged to have an exclusive interview with Alvaro Ortega, Agricultural Attaché to the EU Delegation to Georgia. “What we are doing together with the government is integrating agriculture into the rural development strategy. Agrotourism, ecotourism, cultural heritage, protection of natural resources- all are integral aspects of this strategy that need careful consideration when incorporated into this new
national strategy,” he said when asked about the main challenges in drafting the policy document, which has already entered the final stage of negotiations with the respective ministries and public consultations, and which, “if all goes well, will be adopted before the end of the year.” The adoption of the strategy will be followed by an action plan, once again, with the priorities of various ministries outlined within. “Our ambition is to link the needs and priorities of the rural population with the needs and priorities of the public sector and public expenditure,” he explains. This approach is one that comes at odds with that of the previous government, which, despite facing the reality of 43 percent of Georgians living in rural areas and more than half the workforce deployed in the agricultural/self-employed sector, deemed the sector non-sustainable and entirely dependent on donations, therefore not a priority. Can the changes initiated by the new government herald change in this regard? “It’s a difficult question, as the reality is that the agriculture is still non-sustainable,” Ortega admits. “But you also need to keep in mind that it has been 3 or 4 years since the government first recognized how important agriculture is. I cannot comment on the stance of the previous leadership, but I can say we agree fully with the current government on its stance with regards agriculture, because, population-wise, employment-wise, it’s a sector that will remain part of the national economy for years to come.” The key to making agriculture more sustainable lies in making it more competitive, he believes. And how can we transform agriculture into a sec-
tor that supports the economy, instead of draining it? “It will be a long process, that much is clear,” is the curt answer, followed by more innuendo: “There are still many problems unsolved, the difficulties with land registration being one. We have a situation when the majority of farmers are small-time enterprisers, and the only way to support them is to give them access to finances. That will create a more competitive environment. Obviously, qualification and expertise are also huge factors. That’s why the EU is so actively engaged in helping the communities to set up cooperatives, as it helps experience-sharing and accumulates a collective expertise.” Georgians already have access to the European market and have their eyes on value-chain production. Assisting with the establishment of value-chain production seems to be one of the cornerstones of the ENPARD agenda, and Ortega is only too glad
to give us full disclosure: “There are several products, like hazelnuts and wine, where Georgia has enough capacity to create sustainable agriculture, within some limits, of course. Value-chain production is simply a means to maximize the potential of agricultural commodities from production sites to market. For example, the hazelnut manufacturers often face the problem of storage; how to conserve their production according to European standards. Building such storage rooms would set in motion value-chain production,” he explains. As a farewell, when asked just how long he thinks Georgia will have to wait to set its foot firmly on that European market, he is reluctant to provide an answer in numbers, but says that while it will require hard work and dedication from all involved stakeholders, the rewards to be reaped are not that far in the future. One certainly hopes that is the case.
Illegal Dumpsites in Kakheti Region Repurposed with Help of School Pupils BY BAIA DZAGNIDZE
wo villages in Telavi Municipality, Artana and Karajala, recently cleaned up their illegal dumpsites, foresting the areas in order to prevent future littering. Following the clean-up campaigns by the municipality, the USAID-funded Waste Management Technologies in the Regions program, implemented by ICMA and CENN, cleared the area of weeds and prepared the soil for tree planting, while the Austrian Development Cooperation (ADC) funded Sustainable Forest Governance in Georgia program, which is also implemented by CENN, provided tree saplings for the cleared area. The 0.7 ha area of the former illegal dumpsite of Artana village was located near a river basin and was covered with weeds and small amounts of construction waste. 130 trees were planted there, including pomegranate, linden, ash, Georgian oak, walnut and maple trees. A team of local school pupils joined in the tree planting process. Karajala’s former illegal dumpsite was afforested with 90 new trees. The area, covering approximately half a hectare of land, now has a well-structured fence with trees planted along the length of it.
School pupils were also involved in the planting process and expressed their strong belief that repurposing an illegal dumpsite is a significant step towards saving the environment. Ligustrum, linden, Georgian oak, ash and thuja trees were planted. The WMTR program concluded a memorandum of understanding with Telavi Municipality within which the municipality is obliged to maintain the cleared areas as well as ensure the development of a recreational zone.
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GEORGIA TODAY NOVEMBER 22 - 24, 2016
Balkan Gas Hub to Coordinate with Eastring Pipeline BY DIMITRI DOLABERIDZE
lovak company Eustream and Bulgarian company Bulgartransgaz recently signed an agreement of intent which concerns the implementation of the project of the Balkan gas trading unit (Balkan Gas Hub) in coordination with Eastring, says business portal Bratislava. Eastring is a new pipeline corridor ready for future gas imports to Europe from well-established and alternative sources: the Black Sea area, the Caspian region, the Middle East, a potential Turkish hub, and others. The Eastring pipeline was initiated by Slovak construction company Eustream, supported by the Government of that Republic. To be laid across the territories of Slovakia, Hungary, Romania and Bulgaria, its annual production capacity, according to the plan, will at the initial stage be 20 billion cubic meters of gas, with a gradual increase to double that. The length of the pipeline, depending on the selected route, is foreseen as 744 to 1015 kilometers, with gas travelling in both directions. Investment costs at the first phase of the project are expected to be to the amount of EUR 1.14 to 1.52 billion. "We have agreed that the joint analyzes and technical solutions of the Balkan Gas Hub project will be closely coordinated with Eastring,” said Rastislav Nyukovich, Eustream CEO, after signing the agreement. “I see this as a confirmation of the strategic partnership of both companies in the
New Gurian Art Palace to Educate Youth in Arts & Culture BY THEA MORRISON
rime Minister Giorgi Kvirikashvili this weekend opened new regional events center ‘Art Palace’ in Chokhatauri, Guria region, western Georgia. Financed by the state’s Regional Project Implementation Fund, the construction of the Palace started in 2015 with a 2.5 million GEL investment. It is equipped with modern lighting and
sound amplification systems of international standards to enable the hosting of various types of events. “The revival and development of art and culture in the regions of Georgia is one of our government’s top priorities,” the PM said at the opening ceremony. “Children will be able to watch films and stage performances here and so gain an education in arts and culture.” The Art Palace is able to place 350 persons. Over 100 locals were employed during the construction process. A Drama Theater and Art Center will also operate in the building.
implementation of these projects, with the aim to enhance the security of gas supplies in the region of Central and South-Eastern Europe.” The company is currently preparing Eustream documents together with partners from Bulgaria, Romania and Hungary, to request a European Commission grant for the preparation of project implementation.
USD 30 Mln Construction Project Suspended in Batumi: Batumi City Hall Rejects High-Rises BY NATIA LIPARTELIANI
he construction of a USD 30 million multifunctional project has been suspended in Batumi pending building permission from Batumi City Hall, says commersant.ge. The project was being implemented by ‘New Construction Company of Georgia’ at the start of the Boulevard, on Ninoshvili Street. It was to replace a number of old buildings with a new multi-functional complex which was to include a 100-room hotel, a restaurant, café-bars, swimming pools, a bowling club and fitness center. “City Hall does not want high-rise buildings to be built on this territory,” says Davit Beridze, CEO of New Construction Company of Georgia. “We had several ideas and we planned to build 28-33-35 storey buildings, but we were refused permission and correspondingly the project has been stopped.” The project was to be implemented in cooperation with Russian company ‘Svet.’ “For such a complex to be built, the requirements of people living on the territory had to be met,” Beridze said. The company was conducting negotiations with 41 families. “And we were ready to meet their demands,” Beridze added.
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NOVEMBER 22 - 24, 2016
Gritty Win over Samoa Sends Georgia to Scotland in Buoyant Mood BY ALASTAIR WATT
ouncing back from the previous week’s setback against Japan, Georgia flew to Scotland in a confident mood after a dogged 20-16 victory over Samoa at Tbilisi’s Mikheil Meskhi Stadium on 19 November. The Lelos’ defensive capabilities had been queried by some after throwing away a good winning margin against Japan, but any questions about Georgia’s ability to resist periods of pressure were answered brilliantly in a showcase of defensive defiance against Samoa. There were echoes of the last time Georgia emerged victorious over Samoa in 2013, where a heroic defensive showing saw the Georgians cling on for what was then an eye-catching result. Georgia have since recorded victories against the majority of tier two sides, and it is perhaps a reflection of the progress made by Georgian rugby that a win over the likes of Samoa is no longer viewed as a surprise. With the home fans again out in good numbers with a near capacity crowd, the Georgians began strongly, driving the Samoans into the surrendering of a penalty try after only nine minutes. Full-back Merab Kvirikashvili, who had a mixed performance against Japan, was back on form and dispatched an easy conversion to give the Lelos an early 7-0 lead, which was quickly chopped to four points by Samoan fly-half Patrick
Fa’apale’s long-distance penalty in the 12th minute. The away side then went ahead for the first time as the Samoan centers combined impressively, as Rey Lee-Lo broke past Georgian tackles before unselfishly teeing up George Pisi for a nicely created try in the 21st minute. Fa’apale’s subsequent conversion meant
that Samoa now held a three point cushion. You could not have blamed the Georgian fans for fearing the worst, with memories of the Japan defeat still fresh, but the Lelos demonstrated typically strong character to regain the lead. As the clock ticked past the half hour, the Georgian forwards, in customarily
uncompromising fashion, drove the scrum over the line with Beka Bitsadze touching down. Kvirikashvili notched a difficult conversion to steer Georgia four points ahead and their advantage was increased before half-time, the Georgian full-back kicking a penalty to make it 17-10 at the break. There was little doubt that Georgia
were worth their seven-point advantage at this stage but the second-half took on a different complexion, as the Samoans dominated possession and territory. Two penalties from the unflappable Fa’apale dragged Samoa back to within a point of the hosts with around 25 minutes still to play. It was looking ominous for Georgia now as the visitors were firmly in the ascendancy, but the Lelos were handed a welcome reprieve in the 59th minute when awarded a penalty 30 meters out, which Kvirikashvili scored – his fourth kick from four on a flawless afternoon from the boot for the full-back. That handed Georgia a 20-16 advantage, forcing Samoa to pursue a try which Georgia somehow managed to thwart with a 20-minute spell of determined defending. As the final whistle sounded, a mixture of relief and joy descended as the Lelos took another notable scalp. Samoa, no stranger to the top ten of the world rankings from time to time, have now played Georgia three times in the last three years and have failed to win once. The Lelos have also defeated Japan in that period, Tonga twice and Fiji once, in addition to a comprehensive win over Romania earlier this year. So, it is as one of the strongest tier two nations that Georgia goes to Scotland where they will seek to record what would be their greatest ever result should they win at Kilmarnock’s Rugby Park on 26 November (kick-off 6:30pm Georgian time).