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Issue no: 1112/161

• DECEMBER 25 - 27, 2018

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

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

Holiday Gifts Are a Deadweight Loss, So Why Do We Bother? ISET PAGE 4

NBG Director Presents Main Directions of Monetary & Exchange Rate Policies

FOCUS ON CELEBRATING Christmas kicks off in Tbilisi

PAGE 2

Forbes’ Best Countries for Business 2019 Rankings Sees Georgia Up 8 Spots BY SAMANTHA GUTHRIE

November: Average Hotel Prices in Georgia & Hotel Price Index BUSINESS PAGE 10

HUAWEI MATE20 Pro Smartphone Sales On In Georgia

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his weekend, Forbes magazine released its new rankings for the Best Countries for Business 2019. This year, Georgia is ranked at 44th place, up eight spots from last year’s

list. Deputy Minister of Economy and Sustainable Development, Ekaterine Mikabadze, reacted to the news on Friday, saying “the Forbes ranking is a good message to international investors that Georgia’s business environment is improving every year.” Forbes has published the Best Countries for

BUSINESS PAGE 5

BUSINESS PAGE 12 Business list since 2006. There are 161 countries on this year’s list. Georgia was at 68 in 2008. The list that year was published in June, less than two months before the August 2008 War with Russia that led to the occupation of Geor-

gia’s Tskhinvali region and began a downward economic spiral that the country has slowly pulled itself out of over the last decade. Continued on page 5

Taxi Fares to Be Put Up in Tbilisi BUSINESS PAGE 13 Prepared for Georgia Today Business by

Markets Asof21ͲDecͲ2018

STOCKS

Price

w/w

m/m

BONDS

Price

w/w

m/m

BankofGeorgia(BGEOLN)

GBP13.20

Ͳ2,0%

Ͳ17,0%

GEOROG04/21

100.63(YTM6.45%)

Ͳ0,1%

Ͳ0,4%

GeorgiaCapital(CGEOLN)

GBP10.20

+2,0%

Ͳ12,1%

GEORG04/21

105.26(YTM4.43%)

Ͳ0,1%

+0,1%

GBP2.08

Ͳ5,5%

Ͳ11,7%

GRAIL07/22

103.68(YTM6.57%)

Ͳ0,3%

Ͳ2,0%

GBP13.62

Ͳ3,1%

Ͳ13,0%

GEBGG07/23

97.43(YTM6.66%)

Ͳ0,5%

Ͳ0,8%

CURRENCIES

GHG(GHGLN) TBCBankGroup(TBCGLN)

COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)

Price

w/w

m/m

w/w

m/m

53,82

Ͳ10,7%

Ͳ15,2%

GEL/USD

2,6632

Ͳ0,1%

+0,3%

1256,94

+1,4%

+2,5%

GEL/EUR

3,0274

Price

+0,5%

+0,2%

GEL/GBP

3,3638

+0,3%

Ͳ0,9%

INDICES

Price

w/w

m/m

GEL/CHF

2,6768

+0,4%

+0,2%

FTSE100

6721,17

Ͳ1,8%

Ͳ4,7%

GEL/RUB

0,0388

Ͳ3,0%

Ͳ4,0%

FTSE250

17442,98

Ͳ1,3%

Ͳ6,1%

GEL/TRY

0,5023

+1,1%

+0,4%

DAX

10633,82

Ͳ2,1%

Ͳ5,4%

GEL/AZN

1,5677

Ͳ0,2%

+0,2%

DOWJONES

22445,37

Ͳ6,9%

Ͳ8,3%

GEL/AMD

0,0055

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6333,00

Ͳ8,4%

Ͳ9,2%

GEL/UAH

0,0974

+2,0%

+1,9%

151,82

Ͳ2,8%

Ͳ2,8%

EUR/USD

0,8794

Ͳ0,6%

+0,1%

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+1,1%

NASDAQ MSCIEMEE MSCIEM

957,33

Ͳ1,5%

Ͳ1,8%

GBP/USD

0,7915

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SP500

2416,62

Ͳ7,1%

Ͳ8,8%

CHF/USD

0,9938

Ͳ0,4%

MSCIFM

2458,61

Ͳ2,7%

Ͳ2,7%

RUB/USD

68,9508

+3,1%

+4,9%

GTIndex(GEL)

1582,68

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TRY/USD

5,3149

Ͳ0,9%

+0,1%

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GTIndex(USD)

1208,13

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AZN/USD

1,7051

+0,3%

+0,6%


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NEWS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

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

Christmas Tree Officially Switched on in Tbilisi

Looking for chocolate heaven? Then the Chocolate-Museum is a must. Find it in a historical building on Machabeli Street in Tbilisi, where the café offers a taste of natural black and white chocolate, nuts and dried fruit of Georgian production and Hausbrandt coffee and ice cream. A love of chocolate was the inspiration behind Levan Kikalishvili’s launching the 65-person museum, before which he studied the art of making chocolate, which he does with beans imported from Africa. From socks to the hoodies: the ‘Alter’ team have done it again with ‘AlterHoody’. Inspired by bright clothing seen on a trip to Mexico, Rezi Beselashvili and Nina Menteshashvili have introduced their new line of bright hoodies with Aztec characteristics with material imported from Mexico. You can only get them from the showroom as yet, but they may be sold online soon. The founders plan to start making their own cloth for their new ‘AlterHoody’ products. ‘Chicolli’ is the name of a new Georgian brand of unique handmade chocolates. Tamta Benashvili and Tea Tskipursivhili were inspired while wandering the chocolate stores of Paris, France. Their first stall at the Tbilisoba festival was followed by a number of orders. With the growing demand, the number of sleepless nights also increased. The income from the very first sales was allocated to the purchase of new equipment, which facilitated the chocolate production process. The founders agree that high quality is their main priority. Follow the Entrepreneur Georgia Instagram page to get the latest updates from Georgian Entrepreneurs. For doing business with Georgian Entrepreneurs, write us on business@entrepreneur.ge

Image source: Tbilisi.gov.ge

BY THEA MORRISON

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he main Christmas tree of the Georgian capital was officially lit up in the First Republic Square by Prime Minister Mamuka Bakhtadze and Mayor Kakha Kaladze on Saturday. A special concert and performances were held at the opening ceremony with the participation of Georgian singers, ballet dancers, Movement Theater actors, a team of young gymnasts and the First Art School Choir. The main Christmas tree is to be surrounded by a Christmas village and fair from December 25 to January 7 on First Republic Square, where visitors can enjoy entertainment, including concerts, taste Georgian food and wine and buy souve-

nirs and handmade crafts. At the ceremony, the Mayor addressed the guests and especially the children, noting that everything is being done for Tbilisi residents to help them properly celebrate Christmas and New Year. “I congratulate you on Christmas and New Year. First of all, I would like to wish the entire country peace and success. We have been through a lot of difficulties but many good things have been done: many reforms were implemented. The challenges still exist, but I’m convinced that with our united efforts, with the spirit we have today, we will be able to cope with the challenges and solve those problems together. I wish you all health and longevity,” Kaladze told the crowd. The Georgian Prime Minister also addressed people. He noted that the government is doing its best to ensure that 2019 is a better year than 2018.

Bakhtadze thanked the Mayor for his efforts and hard work and wished the population ‘happy holidays.’ “2018 has not been the easiest for our country. Most of our citizens are unfortunately still living in difficult conditions. Today, Georgia needs unity as never before. With the great love, motivation, and most importantly, with our joint efforts, we will solve all the problems,” he stated. The PM especially thanked the population for their trust towards the ruling party-supported presidential candidate Salome Zurabishvili, who became Georgia’s first female president this month. “I would like to welcome and congratulate our diaspora and our citizens living in the occupied territories. I am sure that we will achieve a lot with our unity. Merry Christmas and a happy New Year! I wish you peace, unanimity, happiness, and the prosperity and advancement of our homeland,” Bakhtadze said.


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BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

Holiday Gifts Are a Deadweight Loss, So Why Do We Bother?

Image source: howtosurviveinparis.wordpress.com

BY YASYA BABYCH

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his Christmas, over a third of the world’s population (around 2 billion people) will be celebrating Christmas. Traditionally, the holiday season will inevitably feature an exchange of gifts. The sums spent on Christmas gift-giving are huge! In 2018, the expected spending on Christmas gifts in the United States is around $885 per person - this is about 2.8% of what someone in the middle of income distribution earns per year. If we work backwards from these figures and assume that a similar share of an average family’s income is devoted to New Year’s gifts in Georgia, the average spending on presents should be around 372 GEL per family. Economists have long been pointing out that a holiday gift-giving tradition is extremely inefficient (yes, we are a profession of scrooges…). Think about it: how often, as a child, and even as an adult, did you have to roll your eyes at

the (non-cash) gifts your grandmother, uncle or distant relative gave you for the holidays? Think of all the toys you never played with, all the sweaters you never wore, those sets of lotions, soaps or perfumes you didn’t use. One consolation is that economists agree with you fully: Christmas presents generate an enormous amount of the so-called deadweight loss – the loss in value which simply vanishes as a result of gift-giving, and thus is enjoyed neither by the giver nor by the receiver of the gift. To illustrate this idea, a study published in the American Economic Review back in 1993 analyzed the data from surveys where the respondents were asked to provide detailed information on Christmas gifts they received (information about the age difference and the relationship with the gift-giver was also recorded). The respondents were asked to estimate how much the gift-giver had paid for a particular non-cash gift, and how much they themselves would be willing to pay for a similar item. The gap between the estimated amount paid and the maximum amount the gift-receiver was willing to

pay for the same item was around 30%. Nearly a third of the gift’s value was a deadweight loss! Not surprisingly, the deadweight loss rises with the age gap between the giver and the receiver. It also rises with the distance of the relationship. For example, it was found that gifts from siblings, spouses and significant others generate the least amount of deadweight loss, while those from grandparents, uncles, aunts and distant family members generate the most. An interesting finding was that if we account for the age difference, gifts from parents were among the most efficient, even more efficient than spouses’ gifts. I suppose this can be taken as a proof that “Mom knows best.” If gifts are so extremely inefficient, then why do we bother with them at all? Why not just give cash instead? The truth is, cash or cash-equivalent gifts are still relatively rare. Only 10-15% of gifts offered during the holiday season are in the form of cash.

Image source: blog.adyoyo.com

One may argue that it is “the thought the counts.” After all, we appreciate not just the gift but the amount of time and thought that was put into choosing a non-cash gift. But this explanation is not satisfactory. One could eliminate the deadweight loss by simply telling the recipient how much time we spent looking for a perfect gift, and what we would have bought for him/her, and then give the cash anyway… Sounds like a clever, but most unlikely scenario, indeed. The interesting question is why, despite being aware of the deadweight loss generated by non-cash gifts, do we keep giving them anyway, and why aren’t cash gifts widely accepted? While there are many possible explanations, the one that seems more relevant to the situation described here is that gifts reveal something about the gift-giver’s perception of the age gap, and/or the perception of the social distance between the two par-

ties. This is why you may be perfectly ok accepting cash from your grandma, but not from a close friend. If your grandma gives you cash for Christmas, you would know she really means to say “honey, I am too old to choose a perfect gift, so you better get something you really like”. On the other hand, if a close friend gave you cash, their gesture would be interpreted as saying, “the two of us are not close enough for me to be confident what you would really like, and I will not take the risk of choosing a noncash gift for you.” So, non-cash gifts from friends or relatives may reveal how they feel about the relationship, and this is what makes them valuable in our eyes. During this holiday season, let’s think about the reasons we give and receive gifts. When faced with the choice of whether to be efficient or to be open, warm and kind, I think even economists would often choose the latter.


BUSINESS

GEORGIA TODAY DECEMBER 25 - 27, 2018

Georgian Farmers' Association Presents Dairy Industry Policy Brief

BY SAMANTHA GUTHRIE

O

n Monday, December 17, the Georgian Farmers’ Association presented their first policy brief, titled Enforcement Challenges of Technical Regulation on Milk and Dairy Products, within the format of a public-private dialogue on issues facing the Georgian dairy industry. The Farmers' Association developed the brief in collaboration with project partners ISET Policy Institute (ISET-PI), Civil Development Agency (CiDA), Export Development Association (EDA), and Association Atinati. The project, titled Food and Agriculture SME Support Initiative (FASSI), is funded by the European Union. One of the main recommendations of the policy brief was that the roles of the public and private sectors must be clearly distinguished, and a complex approach should be developed to solve the problems in the dairy industry. "Given Georgia's reputation and its unique Sulguni and Matsoni products, we very much welcome the choice made for the first policy brief under the EU funded project. We believe that there are sig-

nificant market opportunities and hope that today's discussion will contribute to achieve higher productivity levels and better food safety in these sectors." said Dominik Papenheim, Programme Officer at the Delegation of the European Union to Georgia. Nino Zambakhidze, Chairwoman of Georgian Farmers' Association, noted that "In order to encourage the development of dairy sector, it is important to support the intensive farms. This will enable to resolve the existing challenges such as low productivity, inappropriate animal feeding techniques, lack of pasture management skills among farmers and lack of qualified veterinarians. At the same time, consumer awareness on new regulations as well as on possible threats for human health associated with usage of unlabeled milk and dairy products needs to be increased. In this process, strengthening the BSOs and collaboration of public and private sector is very decisive.” The FASSI project is dedicated to strengthening the capacity of business support organizations in the food and agriculture sectors to help them better assist their members to comply with the new regulations according to the DCFTA and gain access to the EU market. More on this on page 15.

Forbes’ Best Countries for Business 2019 Rankings Sees Georgia Up 8 Spots Continued from page 1 In 2009, thanks in part to the global financial crisis that sent other countries further down the list, Georgia increased its position to 64, despite economic growth reversing from 12% in the 2008 ranking to -6.7% the following year and the trade balancing swinging from -1.6 to -19.8 after Russia banned many Georgian imports. Georgia has been steadily climbing the charts each year, improving in nearly all ten categories. Georgia leads the post-Soviet countries, with the exception of the Baltic states. In the 2019 rankings, Azerbaijan is at 70, Armenia comes in at 81, Russia is at 55, Turkey – 57, and Kazakhstan – 65. Just ahead of Georgia are Malta (43), Greece (42), and Romania (41), and just behind fell Qatar (45), Bulgaria (46), and Thailand (47). Deputy Minister Mikabadze praised her party’s progress since their election to power. “This rating is the result of the reforms implemented by the Government of Georgia since 2013. Measures for reducing foreign vulnerability and reforms implemented by the government will positively affect investment decisions, which in turn will have a positive impact on economic growth,” said Mikabadze. She also noted that estimates from international investors and international financial institutions predict that the current economic situation makes it possible to carry out reforms that promote resilience to external shocks, economic diversification, and increasing compet-

itiveness of the private sector. Mikabaze promised that reforms will be directed towards ensuring inclusive growth. Forbes compiles its rankings based on data from the World Bank Ease of Doing Business rankings, the Global Competitiveness Index by the World Economic Forum, Economic Freedom Index by Heritage Foundation, Corruption Perception Index by Transparency International, World Freedom Index by the Freedom House, International Index of Property Rights by the Property Rights Alliance, the UN Human Development Index and the CIA's World Factbook. According to the ranking, as of December 2018, Georgia’s GDP is $15 billion, GDP Growth: 5%, GDP per Capita: $4,100, Trade Balance/ GDP: -8.9%, Population: 4.9M, Public Debt/GDP: 45%, Unemployment: 11.8%, Inflation: 6%. It is worth noting that GeoStat currently puts the country’s population at 3.7 million and unemployment at 13.9% - although it is much higher in practical terms, considering that rural subsistence farmers are counted as ‘employed.’ The 2019 ranking evaluates the countries according to ten components. Georgia’s place on the list reflects an average of starkly disparate rankings in different categories. The country scores particularly high for trade freedom (4th), investor protection (2nd), red tape (2nd), and tax burden (16th), while falling far behind in personal freedom (66th), monetary freedom (70th), property rights (74th) and innovation (83rd). It also ranks 45th for technology and 43rd for corruption.

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BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

NBG Director Presents Main Directions of Monetary & Exchange Rate Policies BY THEA MORRISON

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he President of the Georgian National Bank (NBG), Koba Gvenetadze, presented Parliament the Main Directions of Monetary and Exchange Rate Policies for 2019-2021, which reflects the target inflation rate, the main instruments of monetary policy that the National Bank will utilize to achieve its target, and the potential risk factors. In his speech, Gvenetadze underlined the need for a flexible exchange rate regime for the Georgian economy to maintain competitiveness and promote long-term economic growth. He noted the floating exchange rate is characterized by short-term fluctuations which, he claims, absorbs shocks and prevents them from affecting the economy. "The importance of the flexible exchange rate has been repeatedly confirmed during the past periods of crises based on the experience of other countries in the region. An example of this is the 2014-2015 crisis, when measures were taken to avoid short-term fluctuations in certain countries, but this caused more serious crises in the course of long-term policy. [In Georgia], short-term fluctuations are immediately reflected in the

exchange rate and help to prevent the accumulation of risks,” Gvenetadze said. The NBG Head also talked about the links between inflation and the exchange rate. He said that in Georgia, it is generally believed that the only factor affecting inflation is the exchange rate, but “this is not entirely so.” “Inflation is more dependent on joint demands and, of course, monetary policy decisions. Today, the National Bank’s Monetary Policy Framework and Tools have been developed to keep inflation low in the future,” he said. Gvenetadze explained that the inflation in developing countries is higher than it is in developed countries. “The targeted index of inflation in developed countries is 1-2%, while in developing countries it is within 2-4%,” the NBG Director noted, adding the inflation target rate in Georgia will be 3% in the mid-term. Gvenetadze also talked about the Currency Reserves of the National Bank, saying they are the most “inadequate” in the region, a fact which needs to be improved. “Reserves are very important and foreign and rating companies are paying a lot of attention to this. Improvement of this indicator will inevitably lead to improvement of the country's ratings. I think this is a very important issue and the National Bank will continue working

Image source: bm.ge

in this direction," he added. The lawmakers approved the Main

Directions of Monetary and Exchange Rate Policies for 2019-2021, presented

by Gvenetadze at the extraordinary session on December 22.


BUSINESS

GEORGIA TODAY DECEMBER 25 - 27, 2018

Photo: Ministry of Economy and Sustainable Development

Private Sector Development Advisory Council Meets at Ministry of Economy BY SAMANTHA GUTHRIE

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he Ministry of Economy and Sustainable Development of Georgia organized a regular meeting of the Advisory Council on Private Sector Development on Thursday. The meeting was led by the Advisory Council's Chairman of the Board and Deputy Minister of Economy and Sustainable Development Ekaterine Mikabadze. The meeting included various presentations on the ongoing reforms in the field of vocational education, including the Law on Vocational Education adopted in September and the activities carried out within the framework of the Sub-Agency for Women's Entrepreneurship. Additionally, meeting participants discussed factors hindering private sector development in Georgia. The Advisory Council on Private Sector Devel-

opment has been functioning since 2016 and aims to deepen cooperation between the private sector, including small and medium enterprises, and the public sector. The main functions of the Council are: promoting constructive dialogue with the private sector, identifying and reviewing factors in the development of the private sector, preparing proposals and recommendations on private sector development, including small and medium entreprise development issues, discuss ongoing and planned reforms related to the private sector, ensuring transparency of current and planned legislative and institutional changes in accordance with the legislation, and organizing public and group discussions on these topics. The functioning of a significant platform for dialogue and cooperation between the Council and the public sector is one of the main priorities for the government in the development of the private sector, especially small and medium enterprises.

Adjara AR Helps Pick Up Check for Latest EU-UNDP Development Project

BY SAMANTHA GUTHRIE

E

arlier this month, the Resident Representative of the United Nations Development Program (UNDP) in Georgia, Louisa Vinton, visited the Adjara Autonomous Republic (AR) on Georgia’s western Black Sea coast. Vinton met with Tornike Rizhvadze, the Chairperson of the Adjara AR, and other government representatives to discuss the UNDP’s ongoing support to sustainable development in the region. During her visit, Vinton opened a conference summarizing the five-year initiative in Machakhela National Park. The $1.3 million, funded by the Global Environment Facility (GEF) and implemented through the joint efforts of the UNDP, the Agency of Protected Areas of Georgia and local Adjara authorities, came to an end this year. The visit was also forward-looking, though, as the UNDP is participating in a new project in the region. The project will be part of the EU-funded ENPARD 3: Improving Rural Development in Georgia program, which aims to promote rural development and small and medium-sized businesses. ENPARD is the European Neighborhood Program for Agriculture and Rural Development and has been operating in several municipalities across Georgia since 2013, scheduled to continue until 2022. The total budget of the ENPARD program is 179.5 million EUR. ENPARD has three main goals: to build capacity and support government institutions in the reform of the agriculture and rural development sector; To improve employment and living conditions of rural populations by strengthening farmers’ cooperation skills and access to

resources; To promote diversified social and economic opportunities in rural areas, particularly for women and youth, in due respect to the environment and the cultural heritage. The first phase of ENPARD focused on developing the country’s agricultural potential, while the second and third phases aim to create economic opportunities for the rural population that go beyond agriculture. While in Adjara, Vinton signed a cost-sharing agreement with the Adjara AR Government, which pledged 230,000 EUR towards the implementation of ENPARD 3 in Adjara. The total budget for the project is 10 million EUR, while ENPARD 3 as a whole has a budget of 77.5 million EUR and plans to run from 2018-2022. There are also tentative plans for an ENPARD Phase 4 – details are expected to be announced early next year. After the signing, Vinton said “Rural development creates new opportunities for every village and promotes economic and social progress for every citizen. This new initiative gives us a chance to help Adjara families build sustainable livelihoods where farming is no longer profitable.” The project will assist families in rural Adjara to develop non-agriculture-based economic alternatives and support the region’s government to develop and implement effective rural development policies, says the EU. The Adjara region is unique in Georgia for its coastal resorts that back up against lush forested mountains. In 2019, the Adjara AR Tourism Department is planning a major onslaught of international promotion, representing the region in up to 27 international exhibitions. In 2018, the region was represented at 25 international tourism exhibitions and events and attracted significant attention worldwide, including the region’s capital, Batumi, being named by Airbnb as among the year’s best travel destinations.

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BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

Finland’s Education Miracles BY ERIC LIVNY

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oated in white, lit up and decorated, Finland was gettingreadyforChristmaswhen I visited it last week together with my oldest son Tal and two Georgian colleagues, Alex and Gala. Santa was on our minds, but the trip was fully packed with business meetings, leaving little time for our Christmas wish lists. We were going from town to town, on a mission to understand how this country works, and why the Finns are the besteducated and happiest nation on Earth. Yet, instead of simple cookbook recipes, we encountered more puzzles and grew more questions. Most Finns dream, so our hosts told us, of solitary existence in the middle of a forest or on the shore of a remote lake. How, then, did they manage to build a national community based on social solidarity and mutual help – a community obsessed with minimizing social gaps and integrating its weakest members (including migrants)? Finland gets pretty cold and gloomy towards the end of December. To recover from a day’s work, we were easily convinced to submit our tired bodies to the extreme heat of a public sauna and, then, to the icy waters of Lake Näsijärvi. Ecstatic from this treatment, we joined a tight pack of (supposedly) extreme individualists, sitting naked outside the sauna and sipping locally brewed beer. Heavily taxed, the beer was 4 Euro a bottle in a nearby supermarket, but neither its price, nor the dark and cold conditions outside appeared to be a factor. We were happy, and so were the dozens of people around us. The World Economic Forum crowned Finland’s school system as #1 in the world; its higher education and training system came second after Singapore; in the latest round (2015) of the OECD Programme for International Student Assessment (PISA) Finland was ranked 3rd in science. Yet, the schools we visited in Tampere and Turku seemed to be pretty average by the standards of Tbilisi’s private schools. These were public institutions (Finland does not have for-profit schools), built to educate rather than impress potential customers. Moreover, Finnish students appeared to be addicted to average phones, and demonstrated average enthusiasm to get engaged in team projects that are at the core of the Finnish approach to learning. How, then, do these average schools propel their average students to top performance in international education tests; to gainful employment (a young

car mechanic or cook grosses at least 2-3 thousand Euro per month); and to innovation and entrepreneurship (Finland is ranked 7th in the 2018 Global Innovation Index)?

MEETING A FINNISH SANTA Probably, not many of you have had the chance to go as far as Santa Claus village in Rovaniemi, Lapland. Personally, I had no idea that Santa manages his global reindeer-driven delivery service from this obscure spot beyond the arctic circle. Luckily, I did not have to go all the way to Rovaniemi to meet a real Finnish Santa. Even though he does Santa’s job for about 15 years, his name is not St. Nicholas but Kimmo. Kimmo Kumpulainen. I did not suspect he was a Santa, until the last day of our trip, when we travelled from Tampere to Turku. Kimmo was driving, I was sitting by his side, asking loads of questions and taking notes on my computer. Kimmo was not born a Santa, and has never imagined becoming one. In fact, he had studied to become an entrepreneur at the Tampere University of Applied Sciences. The first year, he tells me, was quite disappointing. Traditional lectures rather than the great things he was hoping for. A few projects on paper, nothing real. A few visits to companies. A lot of accounting exercises, which was not his thing at the time. None of this connected to anything. He had good grades, but was hardly motivated. Then, after the first year of studies, he bumped into a poster advertising a brand new study program: “Do you feel like a you have a tight band wrapped around you head? Do you want to have an experience that will blow your mind away?” Kimmo wanted to have his mind blown away. He applied together with 200 others. Only 15 got selected, including him and his future wife, Taru. The year was 1999. They were the first group, part of an educational experiment they called the “Pro Academy” (Proakatemia in Finnish). Though it doesn’t affect his driving, Kimmo gets visibly excited when explaining the Pro Academy concept. “The main idea,” he continues, “is that you best learn by doing. The program covered five large topics or skill sets – IT, accounting, marketing, management and teamwork, but we had no fixed schedule, no courses, no teachers. There were three ways to get credit. First, we had to read books and write ‘reflective essays’, making sense of what we’ve read. There were small books, worth one point, and thick volumes, worth three. Twice a week, we would come together, all 15 of us, to sit in a circle for a

discussion. A student would bring up a topic from a book, others would comment.” There was also a capstone project at the very end. “Divided into small groups of 3 or 4, we would be given 24 hours to solve a real problem a real company faced. We could do anything – call company staff, experts, distribution businesses – but by 9am the next day we had to present our solution to the customer. We were graded by ourselves, our peers, the customer, and teachers.” The true core of the program was to jointly establish and run a real company, a cooperative in which all of the students were shareholders. They were only 19-years-old, and so there was a lot of learning involved. Naming and branding, pricing and marketing, talking to clients and organizing themselves as an effective team. Their initial investment in “Wild Vision” (Villivisio in Finnish), as they called their company, was very modest, only 20 Euro each. So, their first projects had to be small, pay back quickly, and generate a profit. They started by organizing events and a Christmas party at their own school. Then came more ambitious projects: selling websites; preparing marketing plans for small and, later, even publicly listed companies; organizing a fair attended by more than 20,000 people. “In the end, we all started developing our own areas of expertise. I was elected to be the first CEO of our company, which may explain why I chose teamwork and management of business networks as the topic of my thesis project. I started calling companies, offering my help in optimizing their supplier networks. Even though I was only 22 at the time, I was hired by a large avionics company, producing wing flaps and other aircraft components. The pay was about 2,000 Euro per month, a very decent amount for a student.” Kimmo’s thesis triggered an attractive job offer from his avionics client, but he wanted to see how far he and four of his Pro Academy group mates could take their own business, to be shaped as a marketing and advertising company. But, in July 2002, having just graduated, Kimmo accepted a fateful invitation to teach a one-credit advertising course at the Tampere Vocational College. He did not know it at the time, but this was the first step in his new career as a Santa. Kimmo’s wife and two others stayed with “Wild Vision” for another 12 years.

MIRACLES DO HAPPEN! Inspired by his Pro Academy experience and subsequent training (as a vocational teacher and school principal), Kimmo tried to work around the existing framework of vocational education, with its

rigid schedule and lesson plans. A real breakthrough came in 2007, when he partnered with Junior Achievement, a US-based NGO. “This was my salvation,” Kimmo admits to me. Junior Achievement negotiated everything with the Finnish government, the tax authorities, insurance companies. They put in place a system for students to create and run mini-companies already at the age of 15 (by now, according to Kimmo, the age limit was dropped to 10!). By 2010, Kimmo was an established entrepreneurship teacher in “vocational upper secondary business administration qualification” program. All of his students were now young entrepreneurs, divided into small groups, and running their minicompanies, just like he did as a Pro Academy student. But, of course, not all teams were equally good at it. Five girls, a typical bunch of ‘back row students’, seemed to be completely disinterested and disengaged. When asked, they could not come with a single business idea. “We don’t have any special skills or hobbies,” they explained. “But what do you normally do at home?” Kimmo asked. “We watch TV,” was their response. “Maybe you could think of a business idea related to how people watch TV? Something to make them more comfortable?” Kimmo insisted. This triggered a brainstorming process. And soon an idea was born. How about a warm blanket (it was late autumn) for a product? “We just happened to have a textile design course running at the same time,” Kimmo recalls, “and so, the girls learned how to design and sew their own blanket.” Another brainstorming took place soon after, resulting in a modification of the original, rather bland, design. A blanket with sleeves, allowing one to hold a cup of tea, or a remote. The new product and the company received a difficult-to-pronounce Finnish name “Hihapeitto”. With the first Hihapeitto prototypes quickly sold to fellow students and teachers, the team started thinking where to go next. “The marketing course we had,” Kimmo tells, “taught students how to run Facebook campaigns, produce and distribute flyers.” But, experiencing an ‘entrepreneurial high’, the former back row

students decided to reach out to a major regional newspaper that ran a product review page. With a circulation of over 0.5mln copies, the newspaper was #2 in Finland. They prepared a package with a sample of their product. The cover note said: “We are happy to be interviewed.” And happy they were when – to everyone’s amazement – the newspaper published a full-page review with a photo of the editor cozying up under a Hihapeitto blanket while enjoying a cup of glögi (the Finnish version of Glühwein). With Christmas just a few weeks ahead, the girls’ email box exploded with orders. Now, they no longer had a marketing problem. Their challenge was to produce – quickly and in good quality. They found an outsourcing partner, but orders kept piling, forcing them to engage two additional sewing companies. Their business quickly reached and exceeded the limit of 8,000 Euro in VAT-exempt sales allowed by the Junior Achievement framework. They solved every single problem that was thrown at them: design and production, branding and advertising, communicating with clients and partners, accounting, and, of course, working as a team. “Seeing their shining faces was my biggest reward,” says Kimmo, and I feel a wave of emotions sweeping through the cabin.

EPILOGUE Between 2007 and 2015, Kimmo Kumpulainen helped more than 3,000 students to establish mini-companies. Even today, 3 years after he had finally decided to pursue his own entrepreneurial dreams, Kimmo still gets recognized on the streets of Tampere. A survey conducted by the Finnish Ministry of Finance in 2012 resulted in him being selected as Finland’s Entrepreneurship Teacher of the Year. “I am very proud of this achievement,” says Kimmo, “but the best prize for me is seeing my students – especially those in the ‘back row’ among them – transforming into young entrepreneurs, hungry to get their books, meet clients, create websites, get others to do everything that has to be done. In short, taking responsibility for their own lives. This is precious.” Kimmo’s company, Polar Partners, is now designing and co-creating full Finnish K-12 schools worldwide, including projects in Jordan, Namibia, Pakistan, India, and USA. Active negotiations are underway to start implementing Finnish-style education with partners in 18 countries. In fall 2018, Finland’s Santa and his company started working on a project to establish the first Finnish school in Georgia. I doubt there can be a better Christmas gift for Georgian kids and their parents. Merry Christmas and Happy New Year to you all from Tbilinomics!

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BUSINESS

GEORGIA TODAY DECEMBER 25 - 27, 2018

9

French Pharmaceutical Group "Servier" Celebrates 15 Years of Operation in Georgia bles patients to remain active. Treating with Lonsurf for patients means “more time for moments that matter.” Servier in worldwide is oriented on the research sector and invests 25% of revenues (one of the highest indicators in the pharmaceutical area) in researching and discovering novelties. It has 16 international research centers worldwide. In 2002, the company received a Galien Prize in recognition of its innovation and creativity in the research field. As a result, Servier medicines in the class are outstanding for their high efficiency and safety. Servier works in five therapeutic areas: cardiology, endocrinology, angiology, neurology, and now in oncology. Doctors have a number of effective management resources for the disease through Servier’s medicines that reduce symptoms, improve patients’ quality of life, and reduce the risk of complications based on nosology. The need for such treatment is high.

BY MARIAM MERABISHVILI

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rench pharmaceutical group "Servier" celebrated 15 years of operation in Georgia at an event attended by representatives of the Ministry of Health, industry specialists and company partners. The official meeting was opened by Maia Khetsuriani, Director of Servier in Georgia and the First adviser to French Ambassador Eric Tosatti. The 15-year history of the company was presented to guests on its very beginnings and the way the office was set up to the spirit of ideas and projects that Servier offers today. Maia Khetsuriani recalled the development period and path to success. "The support of the French central office was always important"- she said. The 15 years of Servier was said to have been interesting, diverse and challenging in Georgia. Since 2003, the company has undergone various phases of development. The company is focused on patients and on providing them the best possible therapeutic treatment. Together with the medical community, a number of scientific projects have been implemented to achieve this goal, which brought substantial benefits to doctors in terms of continuous education, as well as to patients in increasing access to quality medicines. Accordingly, the company’s image is associated with high quality, innovation and progress. 94 million patients worldwide are treated with Servier medicines daily. “Servier has one of the most important place on the Georgian pharmaceutical market”- noted M. Khetsuriani. “For 15 years, Georgian patients have been able

to receive effective treatment. I think this is a sign of remarkable success of our company. I would like to applaud my team, which is distinguished by its professional qualities as well as united spirit, aspiration for novelty and devotion to the cause. Today, Servier is the leader in cardiology and for nearest future the company plans to occupy the same place in oncology. Despite the upcoming challenges and the growth of the office, we will maintain our values and move on to a new stage of development” - she said. In 2018 various valuable and unique projects in Cardiology, Endocrinology and Phlebology were organized by Servier Georgia. During the meetings current medical issues were present in impressive and unique formats to different specialists.

“In 2018, Servier's first oncologic product was introduced in Georgia. Servier's office has been actively involved in awareness-raising campaign for colorectal cancer. A number of activities are planned, which include a scientific conference for Georgian oncologists with the participation of international speaker, as well as seminars for oncologists to discuss patient cases. Everything started in 2015, when Taiho Pharmaceuticals Ltd and Servier signed an agreement on the development and commercialization of Lonsurf. Georgian patients have the opportunity to receive Lonsurf through the universal healthcare program with 80% co-funding,” said Maia. Lonsurf is made to treat metastatic rectal and colon cancers. Lonsurf increases the duration of patients' lives, improves their quality of life, and ena-

Servier, the first independent pharmaceutical group, was founded in 1954. Jacques Servier an academic Doctor of Medicine and Pharmaceutics in Orleans (France), founded a pharmaceutical company of nine employees at the age of 30. Servier is France's leading independent pharmaceutical company and is the second French pharmaceutical company in the world. Servier opened its first office outside of France in London in 1964. Thereafter, new offices were added annually. Today, Servier works in 149 countries. The company employees more than 21,700, including 3,000 people in the research sector. Georgian office has been part of a big family for 15 years with 42 employees and Representation in 4 regions of Georgia aside from Tbilisi. Servier has four corporate values: courage for innovation, care for colleagues and patients, and professional growth through sharing and striving to succeed.


10

BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

November: Average Hotel Prices in Georgia & Hotel Price Index

Graph 1: In the graph, average prices for standard double rooms in 3 and 4-star hotels and guesthouses are given by region. 5-star hotel prices are provided above

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n Georgia, the average cost of a room in a 3-star hotel was 120 GEL per night in November 2018. The most expensive 3-star hotels in November in Georgia were in Samegrelo-Zemo Svaneti – 163 GEL. The average cost of a room in a 4-star hotel in Georgia in November 2018 was 221 GEL per night. The most expensive 4-star hotels in November was found in Kakheti – 277 GEL. The average cost of a room in a 5-star hotel in Georgia in November 2018 was 489 GEL per night. In Tbilisi, the average price was 608 GEL, followed by Adjara – 474 GEL, Kakheti – 368 GEL, and Samtskhe-Javakheti - 365 GEL.

The 3-star, 4-star and 5-star hotel price index decreased by 11.7% in November 2018, compared to October 2018. In these types of hotels, the highest price decreases were recorded in Tbilisi and Kvemo Kartli. In November 2018, compared to October 2018, the price increase of 3*, 4* and 5* hotels was not recorded in any of the regions. For guesthouses, the price index decreased by 7.1% in November 2018, compared to October 2018. In this type of accommodation, the biggest percentage price decreases for standard double rooms were recorded in Kakheti and Shida Kartli. In November 2018, compared to October 2018, the prices increase of guesthouses was not recorded in any of the regions. In Tbilisi the prices of guesthouses decreased by 4.4%. In November 2018, compared to November 2017, in Georgia the hotel price index decreased by 0.1%. The daily rates for standard double hotel rooms decreased the most in Guria (-14.7%) and Kakheti (-13.6%). In Tbilisi, in November 2018,

compared to November 2017, the overall price level of hotels decreased by 8.9%. Among ten regions of Georgia and Tbilisi, in November 2018, compared to November 2017, hotel prices increased only in three regions of Georgia, Adjara, Mtskheta-Mtianeti and SamtskheJavakheti. The 3-star, 4-star and 5-star hotel price index increased by 4.7% in November 2018, compared to November 2017. In these types of hotels, the highest price increases were recorded in Adjara (40.1%) and Samtskhe-Javakheti (20.6%). During this period, in Tbilisi, the prices of these types of hotels decreased by 10.8%. In November 2018, compared to November 2017, for guesthouses, the price index decreased by 3.7%. In this type of accommodation, the biggest percentage price decreases for standard double rooms were recorded in Kakheti (-17.6%) and Kvemo Kartli (-13.4%). During this period, in Tbilisi the prices of guesthouses decreased 2.2%.

In November 2018, the average cost of a room in a guesthouse in Georgia was 63 GEL per night. The highest daily rates for guesthouses were found in Guria – 110 GEL.

HOTEL PRICE INDEX In November 2018, in Georgia the hotel price index decreased by 11.2% compared to October 2018. The daily rates for standard double hotel rooms decreased the most in Tbilisi (-13.1%), Kakheti (-12.5%) and Shida Kartli (-12.5%). Among ten regions of Georgia and Tbilisi, in November 2018, compared to October 2018, the hotel prices increase was not recorded in any of the regions.

Table 1: Percentage change of prices in November 2018 over October 2018 and over November 2017

Tourism Figures Released for Azerbaijan BY DIMITRI DOLABERIDZE

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n January-November 2018, 2,633.5 thousand foreigners from 195 countries arrived in Azerbaijan, 6.1 % more compared to the same period last year, the State Statistics Committee of Azerbaijan reported last week. 31.1% of the arrivals were Russians, 20.9% citizens of Georgia, 10.1% citizens of Turkey, 8.6% citizens of Iran, 3.1% citizens of the UAE, 2.7% citizens of Saudi Arabia, 2.4% citizens of Iraq, 2%

citizens of Ukraine, 1.5% citizens of Israel, 17.5% citizens of other countries, and 0.1% stateless. Among those arriving in Azerbaijan, 65.7% were men, 34.3% women. 7.1% of foreigners and stateless persons came to Azerbaijan in January, 6.4% in February, 10.5% in March, 8.3% in April, 7.9% in May, 10.2% in June, 12.5% in July, 12.2% in August, 8.8% in September, 8% in October, and 8.1% in November. During this period, a greater increase among the visitors was observed among the citizens of the Gulf countries (with the exception of the UAE and Iran). In comparison with the corresponding

period last year, the number of Saudi citizens who came to the country increased 2.2 times, Bahraini citizens 2.1 times, Kuwait - 1.9 times, Qatar - 1.6 times, Iraq - 10.4% and Oman 8.5%. The number of tourists from Iran decreased by 33.4% and from the UAE by 6.5%. In General, 518.1 thousand people visited from the Persian Gulf countries, and almost every fifth person who arrived in Azerbaijan was a citizen of these countries. The number of visitors from the EU Member States increased by 7.1% amounting to 106.5 thousand people, and from

Image source: azernews.az

the CIS countries - by 4.3%, reaching 971.3 thousand people. 57.1% of tourists and stateless persons

arriving in Azerbaijan used rail and road transport, 41.9% used air transport and one percent used water transport.


12

BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

HUAWEI MATE20 Pro Smartphone Sales On In Georgia BY MARIAM MERABISHVILI

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UAWEI Mate20 Pro smartphones created by the most powerful, sophisticated and flexible technologies of the industry, have been for sale on the Georgian market since 14 December and now anyone can buy one. An incredible one year has passed since the release of the HUAWEI Mate10 Pro, but we all know HUAWEI likes to pamper its customer and so it came up with the upgraded and most innovative smartphone, the HUAWEI Mate20 Pro. The experts say the descendant of the Mate10 Pro, taking into consideration the existing parameters, easily competes with its predecessor. “A wonder,” they deservedly call it. “These smartphones, created by the most powerful, sophisticated and flexible technologies of the industry, represent the highest achievement in innovative technologies.” HUAWEI smartphones are the best choice, a fact recognized worldwide. The fast development of technologies has led HUAWEI to open the boundaries between dreams and reality. That's the infinite power of imagination which was the source of inspiration for the creation of the new HUAWEI Mate20 Pro. The HUAWEI Mate20 Pro's triple camera Leica with flash is featured in the center of the rear panel, distinguishing it among Mate series devices. Open a window to

the world around you with the HUAWEI Mate20 Pro lens. HUAWEI smartphones that are modern, innovative and charming with a variety of functional and design indicators will make it easier for Georgian customers to make the right choice. The high characteristics of artificial intelligence (AI), the powerful battery and the wide range of cameras make it possible to share the perfect life. Inspired by the rich colors of nature, the HUAWEI Mate20 Pro is available in four different colors: dark blue, emerald green, black and green. The light is beautifully reflected on the black and emerald green surface of the phone and creates a unique and brilliant optical effect. The special glass texture prevents slipping and leaves no fingerprints. The HUAWEI Mate20 series represents perfection in the innovative devices industry with an embedded Touch ID fingerprint, 3X optical zoom, 4K support, with the latest processor, new camera technology and infinite possibilities in AI. HUAWEI consistently shows it cares more about customer satisfaction and as such is offering special guarantee conditions to HUAWEI Mate20 owners, which, unlike its competitors, is even more attractive and tailored to consumer interests. If you buy a HUAWEI Mate20 series smartphone, the company will give you the chance to get an 18-month warranty service and an additional 6-month service for the cell phone screen (In particular, if the phone screen is accidentally damaged, you can replace it free of charge

under the additional warranty: the company will reimburse all the costs of the screen and the screen replacement service). A hotline is also up - 0322 422216 for people to call and get important and comprehensive information on the new models of smartphones, service centers, services and warranties of HUAWEI. Additionally, the company offers cus-

tomers a postal service throughout the country that provides free delivery of products from center-to-customer. HUAWEI products and services are available in more than 170 countries and are used by a third of the world's population. There are 16 research and development centers operating worldwide in the USA, Germany, Sweden, Russia, India

and China. HUAWEI Consumer BG is one of HUAWEI's three business units, mainly focusing on smartphones, personal computers, tablets and cloud services. HUAWEI Global Network is based on 20 years’ experience in the telecommunications business and serves to provide innovative technologies to customers around the world.

Development of Rational Technology for New Georgian Dessert Wine BY ROLAND BURDIASHVILI

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ll types of wine are prepared from Georgian and foreign varieties of grapes in Georgia, a country with ancient traditions: table dry, semidry, semi-sweet, sparkling, fortified, dessert. For almost all of these, basic technological methods are used: Kakhetian, European, Red, Imeretian, Champagne, Caramelization, Stratified Wine Production, and more. Georgian viticulture and winemaking have rich potential, not least for the rich native gene-fund of local vines, the microzones and separate soil-climatic factors of the Georgian regions, which give the opportunity to form an assortment of vastly different wine types. Introduced vine varieties in Georgia, such as Chardonnay, Cabernet, Merlou, Malbec, Riesling and others, further enrich the diversity of wine produced in Georgia. It is evident that the technological methods of enriching local and foreign vine varieties with biologically active substances today are a very real and prestigious issue of Georgian winemaking. In the recent history of our country, the changes in politics and economy- the expansion of the private sector, the establishment of large factories and private

companies -have allowed for the development and implementation of new methods. Moreover, Georgian historic varieties on Georgian soil have revealed the industrial potential of the abovementioned foreign varieties. The growth of the number of wine companies, study of ancient native species and the industrial potential of foreign varieties introduced in Georgia has led to an increase in the wine industry as well as the assortment of alcoholic beverages to include sweet, dessert, and aromatic drinks. Schuchmann-Wines Georgia launched a study to discover the new technological capabilities of French white grape variety Chardonnay, cultivated on Georgian territory owned by the company in Napareuli village, Telavi Municipality, Kakheti, for the production of alcoholic drinks fortified with new healthy nutrients, as well as the potential rational use of grape seeds in this new technology as a precious secondary raw material obtained from waste, in order to increase the profitability of the sector. Thus, we studied the possibilities of different variations of fortified wines produced from Chardonnay harvested in Napareuli, the organoleptic and physical-chemical properties of the drink made, and the polyphenolic compounds useful for health. From these we selected the best, according to which we made the new alcoholic beverage ‘Kavkasioni.’ It was made as follows:

I. In the first year, the separation of seeds from the residual waste (chacha) of physiologically ripe Chardonnay processed the European way; drying, packing and storage of the seeds; II. In the second year, one month before the season, in order to obtain useful substances from Chardonnay dry seeds, tinctures were made by pouring rectified spirits on the seeds and storing them in a dark place; III. In the second year, the processing of physiologically ripe Chardonnay grape took place in the European way – stem removing, squashing; IV. Thermal treatment of dregs: heating to 70-800C for 20 minutes in thermalexchanger, keeping temperature by steam generator; V. Cooling and cleaning of hot dregs; VI. Cold filter with sulfur anhydride of Fractions I and II; VII. Cleaned sweet decanting into fermenting vessels with yeast, adding of the dry seeds of the previous year (25g/l); VIII. Fermentation with seeds ≈ 5% sugar dissolution; IX. Alcoholization of partially dissolved fermenting sweet and fermentation suspension with ready-made spirit tinctures; X. Procrastination and cold-cleaning; XI. Wine decanting. Roland Burdiashvili is a Doctoral Student of the Iakob Gogebashvili Telavi State University and Production Director of “Schuchmann Wine Georgia” LLC


BUSINESS

GEORGIA TODAY DECEMBER 25 - 27, 2018

13

Taxi Fares to Be Put Up in Tbilisi underline that City Hall is doing its best to develop public transport and make it the most comfortable and attractive means of transportation in the city. “The public transport reform will give us the opportunity to be able to travel comfortably from one place to another, a reform which is just as important for the environment," he said. On August 1, Tbilisi City Hall launched the taxi reform, initiated by the Mayor, according to which from October 1, it became illegal to work as a taxi driver without a special permit. From October 1, 2019, all taxis in the capital of Georgia must be white. Threedoor vehicles and right-hand-drive vehicles will not be allowed to provide taxi services. All taxi drivers have to place the permit certificate inside the car. The certificate displays the driver's photo, name and surname, the permit number, date of issue and validity, state number of the vehicle, model of transport, and a fast feedback (QR) code.

BY THEA MORRISON

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bilisi Mayor Kakha Kaladze has said that taxi drivers in the capital will be obliged to offer passengers a good and high-quality service within the reforms planned by City Hall, but noted this will likely result in increased fares. "Citizens who use taxis have been demanding better services. This concerns both the cars and the drivers’ competence. Many taxi drivers do not know the streets of the capital well but with the reform that we have started this will be regulated to a very high level,” he stated. Kaladze says despite the fact that taxi fares will increase in parallel with the service quality, in general the fares are “too low” in the country. “It is very cheap to travel by taxi in Georgia, much cheaper compared to other countries,” he added, going on to

Image source: kvira.ge

Mitarbi Winter Resort Development Plan Underway BY AMY JONES

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n Bakuriani, the Kokhta-Mitarbi winter resort development plan is well underway. The project, to be completed by 2028, should attract international visitors with its car-free hotel developments and winter sporting opportunities. Georgian businesses are investing more and more money into winter facilities as skiing in the country becomes more popular internationally. In 2015, the Georgian Reconstruction and Development Company and the Georgian Government signed an agreement allowing the construction of hotels and apartment complexes near Kokhta-Gora. The government also pledged to develop the ski piste infrastructure, enabling easier access to the slopes. The first phase of the project is the construction of a new Rooms Hotel. Owned by the Adjara Group who constructed popular Rooms Hotels in Kazbegi and Tbilisi, the hotel plans to welcome its first guests in Spring 2019. It hopes to attract winter holidaymakers from around the world with its ‘ski in and ski out’ concept meaning accommodation is built directly on the pistes.

In an interview with bm.ge, the Head of the Georgian Reconstruction and Development Company, Levan Karalashvili, discussed the development phases of the project. “This is a 10-year project which will start in Kokhta and continue in Mitarbi,” he stated. The company and the government have invested 100 million GEL in the project – 50 million GEL each. The first step is the construction of the Rooms Hotel in collaboration with Adjara Group. The project is trying to encourage tourism to Mitarbi by establishing well-known Georgian hotel brands in the area. The government has already invested in the construction of ski lifts and gondolas to make it easier for holidaymakers to enjoy the pistes. The second phase of development will continue in 2023, following the completion of the first phase. The resort should already be world-class and capable of holding international competitions. “Bakuriani and Mitarbi will host the world championship in so-called Free Style,” explains Karalashvili. Following the example of resorts in France and Switzerland, a car-free resort will also be constructed in Mitarbi. “This will be a travel card for tourists that love mountain resorts and taking a holiday in the mountains,”

Image source: skigeorgia.ge

says Karalashvili. The second phase should allow for undisturbed enjoyment of nature. Second phase development will take 5 years and be completed in 2028.

As tourism to Georgia continues to grow year on year, ski resorts are increasing in popularity. Resorts in Gudauri, Bakuriani, Mestia, Goderdzi, Tetnuldi, and Mitarbi attract international visitors

for the quality of their slopes and snowfall. As the winter season opened in Gudauri, Georgia’s most popular resort, last weekend, businesses hope for a record number of visitors this year.

Russia's Plan to Poach Tourists from Georgia: New Border Resorts BY SAMANTHA GUTHRIE

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n Wednesday, Russia's Deputy Prime Minister, Olga Golodets, announced a new element of her government's strategy to develop domestic tourism, particularly in the North Caucasus. Russia will build two new resorts in the mountains along the Georgian border, explicitly hoping to entice Russians to stay domestic for their ski vacations or summer mountain getaways. As Golodets explained, the main impetus is economic; "People travel to Georgia, crosssing the border in millions. This is about a lot of money — they don’t just cross the border but also ski, eat, spend money on accommodations, and so on.

Photo: ncrc.ru

We will now be working to develop two resorts on the border with Georgia, from our side,” the Deputy Prime Minister told representatives of Russia's regional governments. The plan for the new resorts is to take advantage of the natural lanscape and climate of the selected locations, opening a longer ski season with snow from November to April. Golodets called on the regional representatives assembled to consider innovative ways to increase tourism in their regions, including festivals and sports tournaments. Georgia saw a record number of tourists in 2018. GeoStat and the Georgian National Tourism Agency report that for the first 11 months of the year, the largest number of tourists to Georgia came from Russia - 1,341,127 people, a 24% increase year-on-year. The first ski resort in Chechnya, an

autonomous Russian region which borders Georgia, opened in January 2018 after five years of construction works and multiple postponements. The Veduchi resort (pictured above) became the third to open in Russia's North Caucasus region and is located just 15 km from the Georgian border. There are plans to continue developing and expanded the resort through 2025, when developers plan to have several hotels and chalets, an ice skating rink, a spa complex, and a helipad, representing hundreds of millions of dollars of investment. This August, heavy rains washed out part of the road leading to Veduchi and the resort was closed for several weeks for repairs. It is not clear whether it will be fully operational for this year's ski season. There is currently only one 80-room hotel and a handful of guesthouses that service the resort.


14

BUSINESS

GEORGIA TODAY

DECEMBER 25 - 27, 2018

Following Rocketing Heating Tariffs, IMF Releases $ 1.4 bln

Image source: dawn.com

BY DIMITRI DOLABERIDZE

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kraine may get $ 1.4 billion from the International Monetary Fund (IMF), which says it is ready to allocate the first tranche of a new 14-month program. The total amount of the loan will be $ 3.9 billion, with Kiev able to take 1.4 billion "right now". The new program will have four main priorities: continued fiscal consolidation, which implies a reduction in public debt; lower inflation while maintaining a flexible exchange rate regime; strengthening the financial sector, facilitating asset recovery and restoring Bank lending; and promoting a targeted set of structural reforms, especially to improve tax administration, privatization and governance. “The Ukrainian authorities have successfully restored macroeconomic stability and growth with the support of the international community. Fiscal

policy and a flexible exchange rate regime helped to reduce the budget deficit,” said IMF First Deputy Managing Director and Acting Chairman David Lipton. He noted that the new reservation agreement will provide support for economic policy in the coming year. At the same time, the Fund notes that the implementation of some aspects of the program is subject to risks. “The implementation of the program is subject to significant risks, both internal and external. The authorities have taken important steps to mitigate these risks, including by adopting a robust budget for 2019, raising gas and heating tariffs, and enacting legislation to improve governance in state-owned banks. Full and timely implementation of the program will be crucial for its success in the light of challenges,” the IMF representative stated. Ukraine and the IMF agreed on a new program stand-by following rising heating tariffs which went up by 22.7%. The new agreement will replace the current EFF program, which expires in March 2019.

Successful Free Trade Talks Promote Export of Georgian Products

Image source: Ministry of Economy and Sustainable Development

BY SAMANTHA GUTHRIE

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katerine Mikabadze, Deputy Minister of Economy and Sustainable Development, announced Wednesday that in November 2018, exports increased by 19.6% compared to the previous year, a difference of $283.3 million. The Government of Georgia has been actively working on further growing and diversifying the country's exports. "Successful negotiations of free trade are deter-

mined by the growth of exports of Georgian products. The steps taken by the Government of Georgia to improve the competitiveness of the private sector and increase access to finance helps [Georgian producers] take advantage of free trade agreements," said Mikabadze. She further explained that Georgian exports have been growing annually since September 2016. In 2017, exports increased by 29.5% ($2,735.5 million). In January-November 2018, exports increased by 24% (3,033.5 million). Imports for the first 11 months of the year were 16.8% higher than the same period of the previous year. Foreign trade turnover increased by 18.6% ($11,324.7 million).


BUSINESS

GEORGIA TODAY DECEMBER 25 - 27, 2018

15

Challenges in the Enforcement of Technical Regulations in the Dairy Sector

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n August 3, 2015 the Government of Georgia adopted a technical regulation in the dairy sector in order to define major principles for the production, processing, and distribution of dairy products. Later, in 2017, the regulation was amended

the implementation of technical regulations include the absence of control over non-registered dairy producers, who produce more than 97% of milk; lack of control over registered dairy producers and retailers, and low awareness of consumers about their role in the enforcement of technical regulations.

Diagram 1. Raw milk production and imports of milk

to a bad harvest in 2017. In 2017, wheat production was 97.9K tons—23% lower than the previous year (126.6K tons). International prices might put additional upward pressure on wheat flour prices in Georgia. According to the Food and Agriculture Organization (FAO), international wheat prices went up due

Diagram 2. Wheat flour price index in Georgia

powder in Georgia

HIGHLIGHTS During November 2018, Georgia’s agricultural exports (including food) amounted to 68 mln USD, which is roughly one third of the total Georgian export value. While comparing this indicator to November 2017, it is down by 3 percentage points. As for imports, in November 2018, Georgia’s agro imports reached 103 mln USD, which constituted 17% of total Georgian imports. Year over year (compared to November 2017), agricultural imports increased by more than 1%. and the law now strictly regulates the labelling of dairy products and particularly the use of terms such as “cheese” and “butter”. According to the regulation, a product can be called “cheese” only if it is produced from raw milk, and the use of milk powder for cheese making is prohibited. As for butter, it can only be produced with milk fat and the use of vegetable oil is not allowed. While the regulation has been in force for a couple of years now, there are significant challenges to its implementation. It is particularly difficult to control the usage of milk powder in cheese production given that most cheese producers are unregistered family holdings. Milk powder is used not only by unregistered family holdings but by registered producers as well, due to the desire to minimize production costs and in response to the deficit of safe, high quality raw milk in the country. Statistics show that milk production in Georgia is declining while imports of milk powder are increasing (see Diagram 1). In 2017, Georgia imported milk powder from 19 countries and 24% of imports came from Ukraine. Imports of vegetable oils are also increasing and most of them come from Azerbaijan (62%). The major challenges associated with

PRICES In the category of food and non-alcoholic beverages, month-on-month (November 2018 vs October 2018) prices increased by 1.4%, contributing 0.41 percentage points to the overall CPI change. The main drivers were price changes in the following sub-groups of vegetables, milk, cheese, eggs and fruits and grapes. As to yearly changes, food prices increased by 0.8% in November 2018 compared to November 2017. On annual basis, significant price changes were observed in the sub-category of cereals and cereal products. Thus, buckwheat price decreased by 34%, while corn flour and wheat flour prices increased by 19% and 5% respectively.

WHEAT AND WHEAT PRODUCTS IN THE SPOTLIGHT Recently the increased price of wheat bread has gained a lot of attention from the public. In November 2018, prices of wheat bread increased by 4% compared to November 2017. This can be explained by the increased price of wheat flour (5% increase on annual basis). Starting from January 2018, annual wheat prices have been higher than the corresponding indicators in the previous year. One explanation is a shortage in supply due

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to deteriorated crop prospects and decreased supply globally. According to ISET-PI’s research, it requires seven months for prices to fully transmit from international wheat to Georgian flour prices. Accordingly, Georgian consumers might expect further price increases in wheat and wheat product prices. As to international prices, in November 2018, international prices maintained their downward trend and marked their lowest level since May 2016. The Food Price Index, measured by the Food and Agriculture Organization (FAO), decreased by 1.3% in November 2018, compared to October 2018. The main drivers were weaker vegetable oil (-5.7%), dairy (-3.3%), and cereal prices (-1.1%). Meat prices also dropped, but slightly by 0.2%. On the contrary, sugar prices increased by 4.4%–marking the third consecutive monthly gain since August 2018. On an annual basis, the FAO Food Price Index declined by 8.5%. Prices dropped for the following sub-categories: Vegetable Oil (-27.2%), Sugar (-13.9%), Dairy (-13.9%), and Meat (-7.4%). Meanwhile, the Cereal Price Index increased by 7.1% compared to November 2017.

HAZELNUT TRADE STATISTICS Hazelnut exports (shelled and in-shell) from January to November 2018 amounted in total to 50.4 million USD, which is just 68% of the corresponding value in 2017. The significant decline in monthly export values was observed for the whole autumn. The biggest part of this decline was due to a decline in export quantities, but price also played a role. For instance, this November the value of exported hazelnuts (shelled and in-shell) was 2.08 times less than the same figure

for 2017, while according to the Ministry of Finance of Georgia’s trade data, the quantity of exported hazelnuts (in tons) reduced by only 1.93 times. The official production statistics for 2018 are not available yet, but according to the National Food Agency, hazelnut production forecasts in terms of quantity are promising and expected to substantially outperform the previous year’s production figures. Nevertheless, hazelnut quality is still low as the harvest suffered heavily from powdery mildew, fungus, and other diseases (stinkbug effects were relatively low this year). The Hazelnut Processors and Exporters Association of Georgia cites the low quality of the product as one of the reasons for relatively low export prices of Georgian hazelnuts compared to the Turkish counterpart. On the other hand, lower quality in 2018, combined with a relatively small stock left from 2017’s harvest, negatively affected the export quantities of the hazelnut, as well (month by month comparisons of 2017 and 2018 export values are given in the Diagram 3 below).

Diagram 3. Hazelnut exports from Georgia (shelled, in-shell)

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Issue #1112 Business  

December 25 - 27, 2018

Issue #1112 Business  

December 25 - 27, 2018

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