Issue #846 Business

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Issue no: 846/28

• MAY 24 - 26, 2016

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Shumi Wine Takes Four Awards at International Competition PAGE 2

Georgia’s Revolutions and Economic Development: from 2004 to Present

FOCUS

ISET PAGE 4

TBC Bank CFO on the London Capital Markets Day Forum

ON TECHNOLOGY GY Y New Technology Institute, 5th largest in the world, to develop both fundamental and applied scientific research with help of particle PAGE 3 accelerator

PAGE 6

Trade Facilitation System Presented in Georgia

BY EKA KARSAULIDZE

GALT & TAGGART PAGE 8

300 Digital Library Spots to Appear in Tbilisi in 2016

G

eorgia’s Justice Ministry has launched a Trade Facilitation System (TFS) which will allow companies operating in the transportation and logistics field to exchange information electronically.

The system has already been operating in pilot mode for several months, but was not officially launched until May 18.

The exchange of electronic documentation is designed to facilitate the customs clearance process and better establish communication between structures.

Continued on page 2

Reforms in Azerbaijan: To Be or Not To Be?

PAGE 12

Justice Minister Tea Tsulukiani said the program would annually help save one million paper documents

Dechert OnPoint: Supreme Court of Georgia on Civil Procedural Rights PAGE 15 Prepared for Georgia Today Business by

Markets As of 20ͲMayͲ2016

STOCKS Bank of Georgia (BGEO LN) GHG (GHG LN) TBC Bank (TBCB LI)

COMMODITIES Crude Oil, Brent (US$/bbl) Gold Spot (US$/OZ)

INDICES

Price

w/w

m/m

Price

w/w

GBP 23.99

+2,9%

+13,6%

GEOROG 05/17

102.00 (YTM 4.76%)

Ͳ0,2%

Ͳ0,2%

GBP 2.32 +19,0%

+28,9%

GEORG 04/21

BONDS

110.81 (YTM 4.39%)

Ͳ0,1%

+0,1%

m/m

GRAIL 07/22

109.88 (YTM 5.81%)

+0,8%

+2,3%

GEBGG 07/17

104.31 (YTM 3.75%)

Ͳ0,1%

+0,5%

US$ 12.00

+7,1%

+20,0%

Price

w/w

m/m

48,72

+1,9%

+6,4%

CURRENCIES

Price

w/w

m/m

1 251,98

Ͳ1,7%

+0,6%

GEL / USD

2,1450

Ͳ2,5%

Ͳ3,8%

GEL / EUR

2,4075

Ͳ3,2%

Ͳ4,3%

Price

w/w

m/m

GEL / GBP

3,1058

Ͳ1,7%

Ͳ2,8%

FTSE 100

6 156,32

+0,3%

Ͳ4,0%

GEL / CHF

2,1610

Ͳ4,4%

Ͳ5,9%

FTSE 250

16 922,06

+1,6%

Ͳ0,6%

GEL / RUB

0,0321

Ͳ4,5%

Ͳ6,1%

9 916,02

Ͳ0,4%

Ͳ4,8%

GEL / TRY

0,7208

Ͳ2,7%

Ͳ8,9%

17 500,94

Ͳ0,2%

Ͳ3,3%

GEL / AZN

1,4341

Ͳ1,8%

Ͳ2,8%

4 769,56

+1,1%

Ͳ3,6%

GEL / AMD

0,0045

Ͳ2,2%

DAX DOW JONES NASDAQ

Ͳ2,2%

MSCI EM EE

121,60

Ͳ3,2%

Ͳ7,6%

GEL / UAH

0,0856

Ͳ0,8%

Ͳ2,3%

MSCI EM

785,26

Ͳ1,4%

Ͳ7,6%

EUR / USD

0,8910

+0,7%

+0,7%

SP 500

2 052,32

+0,3%

Ͳ2,4%

GBP / USD

0,6897

Ͳ0,9%

Ͳ1,2%

MICEX

1 891,33

Ͳ0,8%

Ͳ3,5%

CHF / USD

0,9903

+1,5%

+1,9%

MSCI FM

2 507,88

Ͳ1,4%

Ͳ0,1%

RUB / USD

66,8371

+2,1%

+2,6%

GT Index (GEL)

796,74

Ͳ

Ͳ0,0%

TRY / USD

2,9750

+0,2%

+5,8%

GT Index (USD)

733,25

+2,5%

+4,0%

AZN / USD

1,4915

Ͳ0,7%

Ͳ1,4%

2

BUSINESS

Trade Facilitation System Presented in Georgia Continued from page 1 TFS enables electronic connections not only between public sector businesses (freight companies, insurance firms, banks) but also with governmental institutions (customs, railway, border police) and private sector entities such as ports, shipping lines, airlines, postal carriers, airports, terminals and warehouses, amongst others.

There are 25 companies, including the Batumi and Poti ports, customs terminals, sea freight forwarders, transport companies and the Ministry of Finance’s Internal Revenue Service, involved in the Trade Facilitation System.

After the system’s official launch, it welcomes all small, medium and big businesses.

Justice Minister Tea Tsulukiani said the program would annually help save one million paper documents. “It sounds surprising but companies will be able to save about USD 4.5 million per year once they begin using the system,” said the Minister.

Tsulukini also noted that TFS supports the government’s drive to eliminate corruption.

The Data Exchange Agency of the Ministry of Justice of Georgia developed the TFS with the support of the United States Agency for International Development (USAID). The Internal Revenue Service, Poti and Batumi ports, transport companies, customs terminals and Georgian Railways were also involved in development processes.

GEORGIA TODAY

MAY 24 - 26, 2016

A Step Forward: Second Round of Georgia-China Free Trade Negotiations

BY EKA KARSAULIDZE

R

epresentatives of the Ministry of Economy and Sustainable Development of Georgia and the Special Administrative Unit of the Republic of China noted that both sides are ready to complete free trade agreement negotiations by the end of 2016 with the deals to come into force in early 2017.

The Georgian and Chinese parties met in the framework of the second round

of free trade talks in Beijing on May 9-13.

The first round was held in Tbilisi on February 22-23, 2016. After the meeting it was announced that the third round of negotiations will take place in Tbilisi this July.

The second round of talks between the parties focused on the exchange of offers on trade in goods and services. According to the Ministry of Economy, significant progress has been made in customs procedures, rules of origin, sanitary and phytosanitary measures, technical barriers in trade, trade security measures, competition, intellectual property protection, as well as trade in services.

“The free trade agreement with the Republic of China is another step forward in terms of diversification of export markets, which is one of the priorities of the government. After the enactment of the agreement, an additional market of 1.4 billion customers will open to us, significantly increasing the investment attractiveness and reflecting positively on Georgia’s economic development,” stated the Ministry of Economy.

Alongside the next round of negotiations in July, Georgia and China intend to conduct consultations every two months.

When the negotiations are complete and an agreement has been reached, Georgia will become the first country in the region to have this type of deal with China.

Shumi Wine Takes Four Awards at International Competition

BY EKA KARSAULIDZE

G

eorgian Wines Company Shumi won awards at one of the most prestigious events in the field of winemaking – the International Wine Challenge 2016 in London. Its red dry wine Ilerco 2012 was the only Georgian wine to win the Gold

Medal.

This year the company introduced four wines, and all four won an award. Alongside Ilerco 2012, Mukusani Wine 2012 and Tsinandali Iberiuli Wine received Silver and Bronze medals, while Kindzmarauli Iberiuli Wine gained a Commended award.

The International Wine Challenge is the most prestigious wine competition in the world. With 33-years’ experience, it is known for its scrupulous judges who try the wine blind and judge each for its faithfulness to style, region and vintage. Each wine gets an assessment after a three-stage tasting by at least ten judges over two weeks.

Among the participants of the International Wine Challenge are producers, sales agents, retailers, supermarkets and wholesalers. With Georgia, other big wine companies from France, Spain, the United States, South Africa, Portugal, New Zealand, Italy and other countries participate in the competition.

Shumi is a wine company which has repeatedly been involved in this and other international competitions, often receiving the highest marks and awards.

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

Georgia’s Economy Minister Discusses Transit Opportunities at Berlin Economic Forum

BY EKA KARSAULIDZE

G

eorgia’s Economy Minister, Dimitry Kumsishvili, on Thursday discussed Georgia’s transit and business opportunities at a conference organized by the German branch of the Organization for Security and Cooperation in Europe (OSCE).

“Georgia is a small but very attractive country for international investment. Its market is open, and the economy is decidedly liberal,” stated the Minister.

He said Georgia’s strong regional and international trade relations, as well as its strategic location at the crossroads of Europe and Asia, make it an attractive option for Western investors.

Kumsishvili made a speech at a session dedicated to economic hubs and trans-

port corridors, an area where Georgia sees major investment opportunities.

Particular attention was drawn to the country’s role in the New Silk Road corridor.

Georgia currently has the capacity help to transit goods from China to Europe in nine days via railway.

Kumsishvili also spoke about important infrastructure projects including the Baku-Tbilisi-Kars Railway – set to be launched in 2017– the East-West Highway project, five deep-water ports, railway modernization and the development of modern logistics centers.

Major transport companies, governmental officials and public institutions from representatives of the OSCE member states and their partners attended the forum. Particular attention was paid to the development of economic relationships between various competing regions.

Georgia’s Economy Minister, Dimitry Kumsishvili, at a conference organized by the German branch of the Organization for Security and Cooperation in Europe (OSCE)

3

Institute of Technology to Open in Tbilisi

BY EKA KARSAULIDZE

T

he construction of the fifth largest Institute of Technology, after Italy, Switzerland, Austria and Japan, has begun in Georgia.

Presentation of the Institute took place in Tbilisi on May 23. Representatives of the world's leading research centers and institutions, professors, scientists, students, government officials and representatives of the diplomatic corps, as well as the Prime Minister of Georgia, Giorgi Kvirikashvili, attended the event.

The Institute will be created to develop both fundamental and applied research.

The project focuses on masters and doctoral programs and the implementation of research works in physics, chemistry, biology, mathematics, engineering and computer technology. It is also planned to create a database of modern scientific experimental studies, vital for the development of scientific potential of the country and for raising the level of education.

“The most important component of the project is the construction of a particle accelerator, commonly known as a ‘collider’,” said the Prime Minister at the presentation ceremony. “With it, a new generation of scientists will be able to conduct important studies, including in medicine- in the direction of oncology and ‘Hadron Therapy’.”

The Government of Georgia has signed memoranda with some of the world's leading centers, including CERN (Euro-

The Institute will be created to develop both fundamental and applied research

pean Center for Nuclear Research), CNAO (National Center for Hadron Therapy), and INFN (Italian National Institute of Nuclear Physics).

The government founded the Georgia Institute of Technology with the financial support of International Charity Fund Cartu.

4

BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

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

Georgia’s Revolutions and Economic Development: from 2004 to Present

BY ERIC LIVNY

F

ollowing the collapse of the Soviet Union, the Georgian nation went through a process of rapid dis-investment and deindustrialization. It was forced to shut down industrial plants, sending scrap metal abroad, and workers into subsistence farming. Hunger has never become an issue thanks to the country’s moderate climate and good soil conditions, yet inequality and associated political pressures rapidly reached catastrophic dimensions, unleashing cycles of violence, undermining the political order and inhibiting prospects of economic growth. * * * United by a clear vision and knowledge that the broad popular mandate will not last forever, Georgia’s Rose Revolutionaries gained their place in history by taking unprecedented steps to crush the criminal gangs and restore trust in state institutions.

First, they took vigorous steps to convict mafia bosses, gangsters, petty criminals and drug dealers, pushing crime out of Georgia’s borders and bringing the country’s prison population to world record levels (per capita). To perform this task, the criminal justice system was reengineered to presume guilt – not innocence, – subjecting its victims to lengthy pre-trial detention periods and masterfully

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using the plea bargaining mechanism and pliant courts to extract confessions and money.

Second, they stripped the Georgian state of any imaginary functions it pretended to be performing, using massive layoffs to reduce and renew state bureaucracy (including, famously, the entire traffic police force), slashing taxes, regulations and whole agencies in charge of their “enforcement”.

Third, they created a corruption-proof public administration system reducing the bureaucrat to a robot undertaking simple automatic routines with very little room for discretion or judgment. With the legal repression system in full swing, applying a signature has become the Georgian bureaucrat’s nightmare.

The strategy of “zero tolerance” in handling crime, corruption, tax evasion and non-payment was a key factor in the Rose Revolution’s success – in just a few years – to overcome the failed state predicament. And what a great success it was! The young Georgian generation no longer knows how to give or take bribes; their older siblings and parents are now used to paying their taxes and bills in full and on time. No Georgian would ever miss a utilities payment. Even the share of bad loans in Georgia’s banking system remains extremely low despite the great difficulties experienced by Georgian households (and businesses) in the wake of the Lari devaluation. And then, of course, there are the smiling and professional traffic police and street level bureaucrats that have become symbols of Georgia’s new statehood. * * * Surprisingly for many, however, Georgia’s Rose Revolution reforms did little to close social gaps.

Between 2007 and 2011, the share of people living under the poverty threshold grew by 43%. Equally alarming were the official unemployment statistics, particularly for the young (in the 20-24 age bracket).

As shown in Figure 1, by 2014, Georgia had failed to engage the majority of its working age population in the formal sector of the economy.

The Georgian Dream coalition rode to a surprise electoral victory in October 2012 on waves of popular protest against legal abuses by the Saakashvili administration and its lack of willingness to deal with economic disparities. Dizzy from global fame, the makers of Georgia’s Rose Revolution became victims of their own success. They did not realize, at least not in time, that the brutal system they had created had to be gradually dismantled, giving way to a more humane and inclusive set of institutions. The result was a painful political defeat in October 2012 and public disgrace; emigration (and new political careers!) for some, and prison terms for others.

Three key elements on Bidzina Ivanishvili’s government agenda were to reset Georgia’s brutal justice system, reduce yawning social gaps, and restore economic relations with Russia while at the same time pressing ahead with Euro-Atlantic integration.

In line with this agenda, one of the first steps

taken by the new government involved a comprehensive reform of the justice system, starting with a large-scale amnesty to reduce prison population to more “normal” levels, limiting the use of pretrial detention and plea bargaining mechanisms by the prosecution (thus restoring the “presumption of innocence” principle); and, last but not least, granting greater independence to the judiciary.

Second, the new Georgian administration tried to act on its electoral promise to spread the benefits of growth to Georgia’s poor who, until 2012, had been left out of Georgia’s modern economy.

Key “inclusivity” measures undertaken in the first three years of Georgian Dream coalition rule included free healthcare, free access to publicallyprovided school readiness programs, increased pensions and social benefits, as well as a spate of subsidies thrown at rural dwellers (mostly, subsistence farmers).

Third, the new government took energetic steps to advance the European integration agenda by accelerating the implementation of harmonization measures across a broad spectrum of policy areas from migration and visa regulation, to labor markets, to TV advertising and excise taxes on alcohol and tobacco. Negotiations on the Association Agreement (AA) with the EU have been completed in record time, allowing for the AA to be signed on 27 June 2014; by October 2015, it had been ratified by the European Parliament and by 25 out of the 28 EU Member States.

The Deep and Comprehensive Free Trade Area (DCFTA) agreement, committing Georgia to nontrivial economic and institutional reforms in exchange for greater access to the EU, went into force on 1 September 2014. On March 9, 2016, quoting “the successful implementation by the Republic of Georgia of all the benchmarks set in its Visa Liberalization Action Plan”, the European Commission proposed “to allow visa-free travel to the Schengen area for Georgian citizens holding a biometric passport.”

In parallel, Ivanishvili’s coalition was successful in its bid to mend fences with Russia. By June 2013, the informal Karasin-Abashidze dialogue resulted in the re-opening of the Russian market for Georgian wine, mineral water and “low phytosanitary risk products” (such as tea, laurel, dried fruit, nuts, citrus, grapes, apples, pears etc.). As if competing with the EU, in May 2014, Russia lifted restrictions on “high risk” agricultural products, triggering a round of foreign and domestic investment in Georgia’s production and processing capacities. With most travel restriction removed, 925,000 Russian tourists visited Georgia in 2015 (14% up from 2014); more than 1mln are expected to arrive in 2016.

TAKING STOCK From “revolutionary justice” to rule of law. There is little arguing in Georgian society and politics in about the need to follow conventional rule-of-law principles.

Continued on page 7

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BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

TBC Bank CFO on the London Capital Markets Day Forum Giorgi Shagidze, Chief Financial Officer of TBC Bank

BY KATIE RUTH DAVIES

O

n Friday 13 May 2016, TBC Bank hosted its first Capital Markets Day (CMD) at the Sofitel London St James Hotel in London, with the aim of providing investors and analysts the opportunity to meet the Bank’s senior management team and receive a detailed insight into the business, as well as to hear TBC Bank’s first quarter 2016 financial results Prior to TBC Bank event, the Georgian Prime minister hosted a lunch presentation to extol the investment potential of the country, as reported in last week’s GEORGIA TODAY. Speakers at the forum included Mamuka Khazaradze, Chairman of Supervisory Board, who opened the forum; Badri Japaridze, Vice Chairman of the Supervisory Board, giving a Macro overview; Vakhtang Butskhrikidze, discussing Business strategy; Giorgi Shagidze, CFO, on Financial performance; George Tkhelidze, CRO, talking on the topic of Risk Management; Nino Masurashvili, Deputy CEO, on Retail Banking; Nika Kurdiani, Deputy CEO,

talking about MSME Banking; and Koba Gvenetadze – Chairman of the Board of National bank of Georgia.

Over 100 market participants attended the event, among them investors, analysts, brokers, global banks and international media.

GEORGIA TODAY had an EXCLUSIVE interview with Giorgi Shagidze, Chief Financial Officer of TBC Bank, to find out more.

WHY DID TBC ORGANIZE CAPITAL MARKETS DAY? WHY IN LONDON? London is the most important city from the perspective of its high investment concentration- giving us the opportunity to present to the investors and analysts the latest banking news- the TBC Bank strategy, goals, and development plansfrom Macro to specific banking areas.

And it’s a unique opportunity for the investors themselves to see the actual team behind the numbers, to see their energy and to enter into a Q&A session to find out more. Such CMD events are an established practice for companies not based in London or New York- to organize CMDs and this, our first, will hopefully be the first of an annual tradition for us.

WHAT DID THE INVESTORS AND BANKERS LEARN THERE? First they attended the lunch which was hosted by the Prime Minister of Georgia, Giorgi Kvirikashvili, organized by the ‘Invest in Georgia’ committee. The PM shared his view on the country’s development and its main priorities and then allowed the investors the chance to directly question him. When people invest in companies like TBC Bank, which are located in emerging or frontier markets, the Macro environment is extremely important- and so is the exposure of those investors to the PM and the Finance Minister.

Following the PM’s lunch meeting, the CMD began, focussing on the banking sector and developments within TBC Bank. The governor of the NBG, Koba Gvenetadze, also attended the CMD to share his view with investors.

YOU PRESENTED THE FIRST QUARTER 2016 FINANCIAL RESULTS. PLEASE TELL US SOMETHING ABOUT THEM. We are continuing to deliver strong results, with no dramatic changes in the first Quarter. We had good numbers in profitability, commission income and operation efficiency. We had strong numbers in asset quality, too, which is very

important especially now following the devaluation period. Growth was understandably reduced as focus inevitably turns to asset quality. We basically made it clear to investors that we are heading back towards growth having successfully weathered the challenges.

WHAT MESSAGE DID YOU HAVE, AS AN 'AMBASSADOR' TO GEORGIAN BANKING/ FINANCES, FOR THE LONDON AUDIENCE? First, Georgia really is unique in its investor-friendly environment and economic growth in this region and beyond.

Georgia has performed beautifully throughout the regional crisis- devaluation, Macro parameters, national reserve level, inflation…

Second, in terms of that investmentfriendly environment- all rankings and studies show improvement. Recently there was report claiming that Georgia was among the Top 4 most secure countries in the EU and good results were seen in studies on tax friendliness- that is something which is hugely appreciated. The third pillar of the country is the upcoming reforms- two of which are tax-related (reinvested profit will not be taxed and a planned pension reform).

Then, with regards the banking sector, investors appreciate how developed the banks are, seeing that they have good growth prospects and promising profitability. TBC Bank truly demonstrates the high customer experience, internet, mobile, iPhone, and iPad banking, through which it differentiates itself.

WHAT FEEDBACK HAVE YOU RECEIVED FOLLOWING THE EVENT? Very positive feedback- both for our CMD event and the PM session. This encourages us to prepare future CMD events.

HOW IS THE INVESTMENT CLIMATE LOOKING IN GEORGIA AT PRESENT? WHAT NEEDS TO BE DONE TO IMPROVE THIS? Georgia clearly stands out in the region. It is easy to seek out government officials to discuss initiatives; the system is corruption free and the service is efficient and fast.

Certain reforms are needed- pension is something I would strongly support from the point of view of the impact on the potential creation of Lari funding and capital market development, which is then a crucial factor for our SMEs. The key message: Continuity and consistency.

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

7

Georgia’s Revolutions and Economic Development: from 2004 to Present Continued from page 4

French Fries to Be Made in Georgia

BY EKA KARSAULIDZE

G

eorgia-producedFrenchfries by local Freco Company are to appear on the market this autumn. With an investment amounting to GEL 68,000, the construction works of the facility are already underway and are scheduled to be completed mid-August, 2016.

The company grows a special type of potato best suited for French fries and intends to produce 150,000 tons in 6 months. According to Freco’s representatives, the demand for fries, especially frozen fries, is increasing in the world market. Thus, during the first three years the company aims to substitute imported products in the Georgian market, with the ultimate aim of producing

enough to then also export.

The majority of frozen Freco French fries – about 90 percent – are to be sold to restaurants, bars and hotels while the remaining 10 percent will be sold to local supermarkets.

Freco is also testing potatoes for chip production.

The Ministry of Economy and Sustainable Development of Georgia, in the framework of the state program ‘Produce in Georgia,’ transferred 1,386 square meters of non-agricultural land in the Muskhi village, Akhaltsikhe region, southwestern Georgia, to Freco for a symbolic price of 1 GEL. Produce in Georgia is a government program designed to stimulate domestic production. The program has already funded 171 companies with a total investment exceeding GEL 395 million and provided workplaces for 7,600 people.

What is still not fully appreciated today is that some of the zero-tolerance policies, which survived the Rose Revolution days, could and should be relaxed today thanks to the tremendous and irreversible cultural changes Georgia has gone through since 2003!

For example, giving customers a few weeks to settle their bills (while charging penalties and interest!) will not run the risk of spawning a culture of nonpayment as long as the new rules are clearly communicated and enforced.

Likewise, the zero-tolerance and zerodiscretion practice of subjecting businesses to maximum allowable penalties and freezing their bank accounts in every case of (suspected) tax evasion is clearly counterproductive in today’s realities.

It may be that giving tax auditors some discretion in dealing with delinquent tax payers (and subjecting their decisions to court review) would marginally increase corruption risks and reduce tax collection (in the short run). However, the benefits of doing so (in terms of improved business climate, investment, business activity, and, ultimately, tax revenues) clearly outweigh any such risks.

Growth and equity. Ultimately, it is up to each society to decide – politically – what is a fair distribution of resources and how much it is willing to lose in economic efficiency in order to achieve it. In the process of doing so it is impor-

Figure 1: Georgian occupation structure in 2014

tant to consider that providing the poor with a minimum level of income and access to social services, such as healthcare and education, reduces the amount of resources available to the private sector. Hence, an obvious tradeoff.

So far, the efforts by the Georgian Dream government to achieve inclusivity have often been rushed, resulting in considerable waste of public resources, and most importantly, in little improvement in the lot of Georgia’s poor. A related concern is whether or not the generous social outlays could be sustained from the fiscal point of view, given the competing needs to accelerate investment in public infrastructure and reduce the tax burden on businesses.

Between Europe and Eurasia. Implementing the DCFTA with Europe while maintaining economic exchanges with

the Russia-led Eurasian Union will be a daunting balancing act, politically, economically and diplomatically. The EU will undoubtedly provide technical assistance and funding to offset some of the harmonization costs. At the same time, Georgia may have to deploy every diplomatic tool at its disposal to reduce the risk of Russia’s retaliation for joining a competing trading block. There are many reasons for Georgia to be closer to Europe, as laid out in Zurab Zhvania’s passionate speech at the European Parliament. However, dipping into the deep (and comprehensive) FTA with the EU without a careful consideration of national economic interests may backfire. If the costs of AA/DCFTA agreements exceed their benefits, Eurasia may come back with a vengeance.

Economically, as well as politically.

8

BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research.

For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.

Reforms in Azerbaijan: To Be or Not To Be?

BY ALIM HASANOV

A

zerbaijan’s economy contracted 3.5% y/y in 1Q16 as construction and transportation sectors declined a respective 32.5% y/y and 14.5% y/y. Growth in trade (+3.4% y/y) and manufacturing (+5.7% y/y) eased the downward pressure. Oil and gas extraction picked up, boosting oil GDP slightly (+0.8% y/y), while non-oil GDP contracted 5.7% y/y. A contraction is expected in 2Q16, followed by a relatively flat performance in the second half of 2016 as the high base factor subsides.

It is worth mentioning that following 1.9% average annual growth in the first quarter from 2011 to 2014, Azerbaijan’s GDP expanded by 5.3% in 1Q15, resulting in a high base for the current year. Calculations indicate that despite the contraction in 1Q16, GDP in constant terms is still higher than in 1Q14 (+1.6%). Therefore, we can assume that part of the explanation for falling GDP is a correction from the high base of the previous year.

Aside from the retrospective factors, the key challenges were rooted in falling investments, which can be explained by two devaluations in 2015 and bleak prospects, as reforms introduced in 2015 take time to yield tangible results. Azerbaijan’s growth model over the previous years was based on public investment feeding double digit growth rates in construction and providing employment for low-skilled labor. From 2007 to 2015,

the public sector accounted for 77.4% of total domestic investment. The model can be roughly summarized as follows: the financing (investment) was provided by the state, while the private sector implemented projects (acting as a client). While the need to improve domestic infrastructure justified this model, availability of oil revenues meant that the model was only sustainable as long as oil prices remained elevated.

As oil prices collapsed and associated revenues fell significantly, the Azerbaijan growth model became unsustainable.

The authorities could have continued

As oil prices collapsed and associated revenues fell, the Azerbaijan growth model became unsustainable.

Preference was then given to longterm fiscal sustainability, which called for cuts in public expenditure

10 Galaktion Street

this model for some more years with the resources available, but preference was given to long-term fiscal sustainability, which called for cuts in public expenditure. Public capital spending was slashed by 57.4% y/y in 1Q16, which helped bring the budget back to surplus territory.

Given the 1Q16 result and higher-thanbudgeted oil prices, the annual consolidated budget deficit will likely be in lower single digit levels compared to the double digit figures put forward in the official budget document.

Ideally, falling public investment should have been offset by increasing private sector investment to retain growth momentum. However, concerns related with future prospects have hindered private investment. Anecdotal evidence related to problems in the banking sector suggests that even if prospects improve, the private sector might face challenges in finding financing sources.

Addressing this dual challenge should be a priority for Azerbaijan.

This can be achieved by re-designing the economic growth model from public sector-led to private sector-led growth.

A conservative fiscal policy was one step in this direction, as it removed the “crowding out” effect of private sector investment by the public sector. The next stage should be structural reforms that address

the concerns of the private sector and yield rapid and tangible results. Guaranteeing access to finance should be an important component of these reform packages. This can easily be achieved by welcoming foreign financial entities to Azerbaijan, who in turn can bring cheaper foreign financing and improve competition in Azerbaijan’s banking sector.

The recent pick-up in oil price, up by more than 68.0% from the January dip, is definitely a positive development for Azerbaijan. However, this blessing should be digested with care and should not result in a return to the previous model.

Preference should be given to saving additional revenue rather than channeling it into public capex. High reserve buffers will support Azerbaijan’s credit ratings and make it an attractive destination for foreign investment. At the same time, higher oil prices and the current level of money supply will support the current exchange rate, thereby removing another “concern” hindering investments.

To sum up, Azerbaijan has probably passed the low point of the oil price crisis and settled at the new, albeit low, equilibrium. Further growth should be achieved through reforms that attract private and preferably foreign investment.

Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

9

Frontera Resources: Georgia’s Energy Ministry an Obstacle

BY ZVIAD ADZINBAIA

G

EORGIA TODAY has been following updates from US independent oil and gas exploration and production company ‘Frontera Resources’ which announced a find of around 5.31 trillion cubic meters of gas in the Georgian region of Kakheti last year.

In October 2015, the American company announced that ongoing work had assessed the gas resources associated with its exploration and production efforts at the South Kakheti Gas Complex to be as much as 135 trillion cubic feet (3.8 trillion cubic meters) of gas, found in reservoirs between 300 meters and 5,000 meters in depth.

In late December 2015, Frontera declared that the extensive integrated gas resource potential was larger than previously identified in October - with as much as an additional 52.5 trillion cubic feet (1.5 trillion cubic meters) leading to an overall estimate of 187 trillion cubic feet (5.31 trillion cubic meters).

On May 16, Frontera made a corporate update announcing considerable progress in executing its work program on the South Kakheti Gas Complex and advancing the asset towards a stage of full scale development.

“Efforts are currently underway to secure financing for these previously announced oil window and gas window

exploitation drilling plans,” Frontera said. “Since the beginning of the year, the Company's exploration works have produced a peak production of 750 barrels of oil equivalent per day (boepd) from its various testing operations.”

However, Frontera is claiming that previously announced expectations to achieve a daily gas production in excess of 7 million cubic feet per day from operations during Q1 of 2016 have been consistently delayed due to reluctance from Georgia’s Energy Ministry to encourage investment in the ongoing exploration of natural gas resources.

Frontera declares that discussions are ongoing to alleviate the Ministry's opposition to this work. “In the meantime, Frontera has the capacity to deliver this volume of production from its exploration operations as announced on 23 December, 2015, and the Company is hopeful that a swift resolution can be found in order to continue to progress gas exploration efforts.”

The American company further accuses the Ministry of Energy of giving misinformation of an unreliable and misleading nature to local and international public media related to Frontera's identification of extensive natural gas resources in the country. “Frontera reiterates that these natural gas resources have been independently verified by Netherland Sewell & Associates Inc., a highly credible international industry consultant, and have been accurately reported in accordance with its obligations as an AIM quoted company. The

Steve Nicandros, CEO of Frontera Resources

Company therefore advises that reliance should only be placed on official notifications made by the Company.”

Steve Nicandros, Frontera CEO, says that his company’s ongoing work continues to move the Company closer to

realizing significant value from the development potential in both the oil window and gas window areas of the South Kakheti Gas Complex. “The Company has invested over USD 400 million in these assets since assuming opera-

torship and we are excited about the near term prospect of reaping the benefit of this historic capital.”

The CEO declares that, to date, Frontera’s operations have largely been classified as exploration activities and these have greatly helped to technically understand the progression towards development. “Exploration operations carry an inherent risk association which impact certainty with regards to forecasting possible outcomes such as production forecasts and associated timelines. We have significantly reduced the subsurface risk of our holdings through our exploration and associated technical work and feel confident that we will be able to deliver on our operational objectives as we move into the next development phase of our work.”

The company leadership say in the case of their gas window operations, their work to date has shown them what is possible from a technical perspective in terms of producing gas from a pilot project, the results of which are both positive and encouraging. “At the same time, our work has also revealed political challenges in the domestic gas market monopoly that has provided a perspective on what must be done to overcome such challenges before fullscale development can confidently be undertaken.”

The potentially groundbreaking discovery by Frontera Resources has become a matter of debate by the government and expert circles in Georgia and beyond.

10

BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

Two Hotel Complexes to Meet Tourist & Employment Needs in Batumi Contact: www.edelbrand.ge

BY EKA KARSAULIDZE

Phone: 599 461908

L

ast week it was announced that two large hotel complexes are to be constructed in Batumi, a city on Georgia’s Black Sea coast. The total cost of the projects is around GEL 270 million and the complexes will be ready for operation in 2018 and 2019.

The Chairman of Adjara Government, Archil Khabadze, stated that the number of tourists is expected to increase up to 40 percent in the region by the beginning of the 2016 summer season and the new hotel complexes are expected to help meet those ever-growing dynamics.

“The number of tourists increased this March by 21.7 percent; April showed a 30 percent growth.

It’s natural that the coming summer season, with its numerous cultural events, will give us even higher rates,” said Khabadze.

The Chairman went on to say that at the moment Batumi offers 15,000 hotel rooms, and another 2000 rooms will be added by the end of the year. “Thus, the capital of Adjara will be able to provide 21-22 thousand hotel rooms, thanks to the new large complexes, by 2020,” he said.

The construction of the first large-scale hotel project, ‘New Wave,’ was started on Heroes Alley on May 18. It is also the first project in the framework of the Heroes Alley Development Concept.

Local development firm House in Alley is going to construct the 105-room hotel on 1000 sq. meters of territory, alongside commercial spaces, SPA centers, catering facilities (lounge, bar, cafe, pub), enter-

tainment centers and 300 residential buildings. At least GEL 18 million will be invested in the project, which is expected to open in 2019.

The Heroes Alley Development Concept was developed by the Ministry of Finance and Economy of Adjara. According to the plan, the three hectare valley area will be divided into 14 investment plots that will be developed in three stages. The new buildings there must not be taller than 140 meters nor shorter than 30 meters.

Currently, 35 people are employed in the construction works of the new hotel. However, the government stated that this number will increase to over 100.

The second hotel project is to be constructed on Batumi Boulevard next to the dancing fountains.

The Twin Tower hotel complex by Georgian ORBI Group will consist of two 45-storey blocks with 4,500 apartments in total. Khabadze stated that the Twin Tower will be the 6th biggest hotel in the world.

The groundbreaking ceremony was held on May 22 with construction set to start in June, 2016.

Besides the hotel buildings, the Twin Tower will host a casino, restaurants with Georgian and international cuisines, cafes, night clubs, swimming pools, a SPA and fitness center, lounge terraces, a children's center, shopping mall, medical center, garden, parking lots and more.

The Twin Tower complex construction budget amounts to USD 120 million. ORBI Group noted that the hotel will be ready in 19 months. During the construction, 1,500 people will be employed and after opening, the Twin Tower will provide jobs for up to 3,000 locals.

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

11

MEETING ROOM – A Cycle of Business Conferences by PASHA Bank

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ASHA Bank is launching a new project, a cycle of business conferences named MEETING ROOM. The project aims to bring together participants from various industries, providing a platform for sharing ideas and best practices as it relates to raising the capital for various projects in those respective industries.

The first business conference of MEETING ROOM will be hosted by PASHA Bank in Radisson Blu Iveria Hotel on May 25th with the topic: “Hotel Development in Georgia – The Best Practices.”

The conference is supported by the Georgian National Tourism Administration (GNTA) and Colliers International and will cover the following topics: Overview of the Hospitality Field, Trends and Expectations by the GNTA, International Operator Identification and Contracting for Hotel Management, and Requirements for Financing Hotel Projects and the Available Tools.

The presentations will be delivered by the following speakers:

• George Chogovadze, Head of the GNTA • Mark Finney, Head of Hotels & Resorts Consulting at Colliers Interna-

It is of major importance to get the private sector involved in the development of the hospitality business in our country. - George Chogovadze, Head of the GNTA

George Chogovadze, Head of the GNTA

tional | UK Office • Goga Japaridze, CCO, Member of the Board of Directors at PASHA Bank • Goga Kapanadze, CEO at Axis • Tamuna Guledani, Sales and Marketing Manager at Sheraton Metechi Palace The meeting will be moderated by George Sharashidze, Publisher & General Manager at Newspaper Georgia Today.

“I’m happy to introduce our new project - MEETING ROOM,” said Shahin Mammadov, CEO and Chairman of the Board of Directors at PASHA Bank Georgia. “In

the scope of this project, PASHA Bank will be organizing and hosting a cycle of conferences focused on various industries.

Since 2013 we have been serving a wide range of business sectors in Georgia and hospitality is one of them. PASHA Bank intends to contribute to the development of this business, as we clearly see its advantages to the economy of Georgia.

Our vision is to actively participate in the growth and development of the Georgian and regional economy through the funding of value accretive projects.”

“It is of major importance to get the pri-

vate sector involved in the development of the hospitality business in our country as each month the number of visitors to Georgia grows and new hotels appear," said George Chogovadze, Head of Georgian National Tourism Administration.

“The mutually beneficial cooperation with the business sector is the main reason why the GNTA supports MEETING ROOM. From January-April about 1,596.916 tourists visited Georgia and the growth compared to the same period of last year is more than 15.4%. In 2016-2017 more than 80 hotels will be built in Georgia.”

Georgia Looks to Export Sheep to Bahrain

BY EKA KARSAULIDZE

G

eorgia’s Deputy Head of the National Food Agency, Mikheil Sokhadze, on Friday met with representatives of Bahrain’s Ministry of Agriculture and various businessmen to discuss sheep exports, the National

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Food Agency reported.

Sokhadze said some technical issues needed to be addressed and a veterinary agreement agreed upon before any Georgian livestock can be sent to the Persian Gulf region.

“A new export market will be a significant step forward and positively affect the country’s economy as well as developing Georgia’s sheep farming industry,” the National Food Agency said in an official statement.

12

BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

300 Digital Library Spots to Appear in Tbilisi in 2016

Source: www.advantagecs.com

BY EKA KARSAULIDZE

S

aba Digital Book House has launched a new project which aims to turn the Georgian capital into a library by giving an opportunity for everyone to enjoy literature via their own electronic device. The spots, which offer electronic books, will be located throughout Tbilisi from December 2016.

Project organizers say that 300 digital library spots will be installed on the main streets and parks, near museums, libraries and other cultural institutions, as well as in the Metro. Each digital library will have unique QR codes to download books by both famous Georgian and foreign authors and read them on a mobile device any time using the Saba Reader mobile application, even without an internet connection.

The books will be available to download in text and audio form, enabling even people with visual disabilities to make use of the service.

“Young people have less time for books, so we want to get books on their digital devices as well as in their lives,” said Rati Amaglobeli, founder of Saba Digital Book House.

The project will be implemented with the support of Tbilisi City Hall and the President’s Fund.

In its turn, City Hall announced a competition to create a design for the digital library spots. Offers will be accepted until June 1. The winning design will be installed at appropriate locations on Machabeli and Tabidze streets, Rustaveli Avenue and other places around the city.

The Saba Digital Book House has an extended library of over 3000 digital books including contemporary and classical literature by both Georgian and foreign authors.

EBRD Names Bank of Georgia Most Active Issuing Bank in 2015

T

he European Bank for Reconstruction and Development (EBRD) has named Bank of Georgia as the country’s most active issuing bank for 2015.

The Bank of Georgia was awarded in a framework of the awarding best providers of trade financing in the world program.

The EBRD’s TFP, launched in 1999, promotes foreign transactions to, from and amongst the bank’s countries of operation and offers a range of products to facilitate trade.

Through the program, the EBRD provides guarantees to international confirming banks by taking the political and commercial payment risk of international trade transactions undertaken by banks in those countries where they have an active issuing presence.

The EBRD has thus far supported over 18,400 transactions, totalling more than €12.8 billion.

Tbilisi to Host 2nd Seed Forum

BY EKA KARSAULIDZE

T

he second Seed Forum Investment Conference will take place on May 24 in Georgia’s capital Tbilisi.

The conference gives innovative Start- Ups the opportunity to perform in front of potential investors. Two participating companies will then be selected and have a chance

to visit other Seed Forums in New York, Oslo, Singapore and Dubai.

The organizer of the first conference in December 2015, iHub Tbilisi, is responsible for putting together the second edition of the forum. iHub Tbilisi is a member of the Seed Forum Global Foundation, the world’s largest investment organization. It is supported by the Norwegian Ministry of Foreign Affairs and organizes investment conferences twice a year with its 46 membercountries.

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

Changes and Challenges in Georgia’s Energy Sector, New Research from Galt & Taggart

Hualing Group Builds Elevator Factory in Georgia

BY EKA KARSAULIDZE

G

alt & Taggart has published new research on Georgia’s electricity sector.

The report covers the latest developments in Georgia’s energy sector and focuses on challenges and changes ahead.

Transmission infrastructure is one of several key topics covered by the report.

Galt & Taggart looks into the existing capacity and the potential for expansion based on the ten year transmission system development plan set out by GSE, the transmission system operator. A total of EUR 809mn is expected to be invested into transmission system development in the coming decade. Newly built and rehabilitated transmission lines would accommodate the integration of an additional 4,000MW of installed capacity into the grid.

Galt & Taggart analysts also focus on the downward pressure on electricity prices and demand due to regional economic turbulence that triggered a drastic fall in Turkish electricity prices.

However, the report shows that despite

the challenges in terms of lower electricity prices, Georgia’s electricity generation sector remains attractive for investors. There are 27 HPPs and one wind power plant in licensing and construction stages with an estimated investment cost of US$ 3.2bn.

Galt & Taggart’s research is aimed at those interested in Georgia’s electricity sector and its development; general market trends in terms of supply and demand; Georgia’s path to energy independence; the role of the Turkish market and electricity prices; and next steps in Georgian electricity market development toward membership of the European Energy Community.

Galt & Taggart Research analysts follow economic and sector developments in Georgia and offer their reader a variety of products, including weekly updates on Georgian and Azerbaijani economies, a monthly update on the electricity market, and many more.

Read the full version of the electricity market report at www.gtresearch.ge

13

C

hinese company Hualing Group continues to expand its investments in Georgia after representatives of the company met with authorities in the western Georgian city of Kutaisi to discuss the ongoing construction of an elevator factory.

Once completed, the factory will be Hualing’s fourth major project in Georgia.

Kutaisi Mayor Shota Murgulia said the project would provide much-needed job opportunities to the local population and further strengthen the growing economic ties between Georgia and China.

“Hualing Group has many projects in Georgia. More than a year ago we opened the Free Industrial Zone in Kutaisi. We hope to continue our friendship with China as it opens up opportunities for the country and our city in particular,” said Murgulia.

Hualing Kutaisi Free Industrial Zone, operational since October 2015, is located on the site of a former automobile factory.

In accordance with legislation, companies registered within the Hualing FIZ are fully and permanently exempt from profit and property tax, dividend tax, and VAT, as well as import duties.

Hualing Group leased the site of the Kutaisi FIZ for 30 years and is investing at least USD 14 million (GEL 40 million) over the course of the contract.

14

BUSINESS

GEORGIA TODAY

MAY 24 - 26, 2016

Retail Fpi | Food Prices Go Down But What’s Wrong with Cucumbers?

D

riven by fruits and vegetables, Georgian retail food prices are going down. In the first half of May, ISET’s Retail Food Price Index lost 2.9% y/y (compared to May 2015) and 1.8% m/m (compared to April 2016).

The leaders in price declines were cheese, greens and coffee: down by 10.2%, 5.1% and 2.7%, respectively. Not all food items lost in value. Banana, garlic and frozen chicken are actually up by 12.5%, 9.9% and 6.0% respectively.

WHAT’S WRONG WITH CUCUMBERS? While most fresh products are currently trading below their last year’s prices, an 80.5% y/y increase in the price of cucumbers seems really odd. What could possibly go wrong?

The first thing to note is that the price of cucumbers in the FPI basket is constructed as a simple average of local and imported varieties. As can be easily seen, since the beginning of 2016, locally produced cucumbers have been trading well above last year prices (in April, the gap reached more than 1 GEL, or about 50% of last year’s price).

During the same period, imported cucumbers (mostly of Turkish origin), traded

well below their last year value thanks to Russia’s embargo on Turkish products. A big change came in early May. Last year, the price of imported cucumbers literally crashed (from 3.5GEL at the end of April to less than 1.75GEL/kg in early May). In May 2016, contrary to the seasonal trend, they suddenly increased in price from 2.6GEL to more than 3.5GEL/kg. As a result,

imported cucumbers currently trade at more than twice their price in May 2015.

We don’t know the reasons behind such a sharp increase in the price of imported cucumbers. It may have to do with weather conditions in Turkey or new barriers to trade. In any case, with the supply of delicious Georgian vegetables steadily increasing in the coming months, we should not be too much concerned about the price of imported veggies. At least not for the time being.

BUSINESS

GEORGIA TODAY MAY 24 - 26, 2016

15

Dechert OnPoint: Supreme Court of Georgia on Civil Procedural Rights

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argumentation of the appellant.

The Court additionally noted that the CPC intentionally excludes provisions setting out non-submission of the defense brief as a grounds for default ruling in case of appellate courts. Silence of law in this regard shall be viewed as a purpose of legislation to avoid application of default judgment at appellate level.

After analyzing relevant institutions of the civil procedure, the Court declared that the Appellate Court is not entitled to deliver a default judgment in case the respondent fails to present a defense brief. The Decision is significant since it interprets the rights of a respondent during appellate proceedings and it is expected to change the practice of the Appellate Court.

echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper to provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

OVERVIEW OF A RECENT DECISION OF THE SUPREME COURT OF GEORGIA REGARDING CIVIL PROCEDURAL RIGHTS INTRODUCTION On 17 March 2016, the Supreme Court of Georgia (the “Court”) delivered an important decision (the “Decision”) regarding: (i) default judgments; (ii) the nature of the Appellate Court; and (iii) the significance of a defense brief under the Civil Procedure Code of Georgia (the “CPC”). Previously, in the event of a respondent's failure to submit a defense brief, the Appellate Court of Georgia applied the provisions regarding default judgements. The Decision was the first time when legality of such application was challenged before the Court. The Court defined the procedural rights of the parties and delivered its decision based on the adversary principles of civil procedure. This week’s OnPoint provides a brief overview of the procedures before the Appellate Court and the key interpretations under the Decision.

LEGISLATIVE FRAMEWORK A default judgment is a final decision of a court in favor of the claimant when the respondent fails to take certain procedural actions before a court of law.

The CPC provides for two special grounds for the delivery of a default judgment in the first instance courts of Georgia. Firstly, under Article 2321 of the CPC, if the respondent fails to submit a defense brief, the Court shall deliver a final judgment without an oral hearing. The claim shall be satisfied if the indicated circumstances provide legal justification for the

The Appellate Court is not entitled to deliver a default judgment in case the respondent fails to present a defense brief

claim. Secondly, under Article 230 of the CPC, the second ground for a default judgment is a failure of the respondent to appear before the court at the hearing.

CPC provides for the possibility of the Appellate Court of Georgia to deliver a default judgment in case the respondent does not appear at the hearing. However, there is no explicit indication to such option in case the respondent does not submit a defense brief. Such an absence was cause of varying interpretations and judgments.

The Decision resolved the issue as to whether the Appellate Court is entitled to deliver a default judgment in case of such failure by interpreting the nature of appellate proceedings and relevant institutions of civil procedure.

FINAL DECISION OF THE COURT The Court further interpreted that a defense brief, as a mean of protection of a respondent’s rights, shall bear the importance of rejecting factual circumstances of the claim and responding to legal and procedural reasoning of the claimant. Failure to present a defense brief implies that the respondent agrees with the presented factual circumstances only but not with the law.

As noted above, the Appellate Court is not an instance which reviews factual circumstances since only legal and procedural questions are discussed during appellate proceedings. As a result, failure to present a defense brief before the Appellate Court does not imply that the respondent agrees with the law and

NATURE OF APPELLATE PROCEEDINGS The Court explained that the Appellate Court is an institution that reviews the legality and substantiation of a decision of the first instance court.

Different jurisdictions recognize limited and unrestricted types of appellation. Unrestricted appellation is a proceeding when parties are entitled to present new factual circumstances and evidence that had not been presented before the first instance court. In this case, the Appellate Court fully reviews the case in the same manner as in the previous proceedings. For limited appeal proceedings, parties have the right to present new circumstances only in the exceptional situations prescribed by law.

The Court notes that the CPC and Georgian legislation envisage limited appeal proceedings according to which the Appellate Court is only entitled to review a claim in light of the facts and circumstances presented and examined in the first instance court. The Appellate Court is entitled to deliberate on facts only in exceptional circumstances.

NATURE OF A DEFAULT JUDGMENT

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George Sharashidze COMMERCIAL DEPARTMENT

Commercial Director: Iva Merabishvili Marketing Manager: Mako Burduli

GEORGIA TODAY

Furthermore, the Court differentiates between two types of the default judgments. Under the CPC, the respondent must present a defense brief in first instance court and a failure to comply with the above results in a decision unfavorable for the respondent. The Court emphasizes that the court reviewing the case is obligated to deliver a default judgment and it does not have any discretionary power with regard to this matter if factual circumstances justify legal grounds of the claim. In case of the respondent’s failure to appear at the hearing, the court becomes obligated to deliver such judgment only in case the claimant submits a motion requesting the default judgment.

*** Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, a global specialist law firm that focuses on core transactional and litigation practices, providing worldclass services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide. For more information, please visit www.dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

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