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Issue no: 1060/135

• JUNE 26 - 28, 2018

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue... Stadler Plans to Build Factory in Georgia NEWS PAGE 2

Despite Optimistic Growth Forecasts, Trade Deficit up in April ISET PAGE 4

Fashion Tourism – the Next Big Industry Trend?

FOCUS

ON THE NEIGHBORS Erdogan wins the Turkish presidential elections

PAGE 2

Source: Financial Tribune

Mandatory Inspection of State Vehicles to Kick off July 1 BY THEA MORRISON

How Almaty Region Plans to Attract New Business BUSINESS PAGE 10

F

rom July 1, 2018, vehicles of state agencies and legal entities will have to undergo obligatory technical inspection. The technical inspection will be available in 32 accredited periodic technical inspection centers throughout Georgia. Georgia’s Ministry of Economy and Sustainable Development reports that in order to facilitate mandatory technical inspection and improve services, a website, www.pti.ge, has been created. There, users can arrange a visit to any available inspection center in advance. Moreover, on January 3, 2018, the hotline 1484 was activated which serves people interested in the process and provides relevant information regarding the conditions and terms of the technical inspection. Continued on page 2

BUSINESS PAGE 5

Parliament May Adopt Draft on Energy Efficiency of Buildings

Photo source: Legal Beagle

BUSINESS PAGE 15 Prepared for Georgia Today Business by

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NEWS

GEORGIA TODAY

JUNE 26 - 28, 2018

Stadler Plans to Build Factory in Georgia BY THEA MORRISON

O

ne of the world's leading rolling stock manufacturers, the Swiss company Stadler, is to build a regional factory in Georgia. Tbilisi Railway JSC, Tbilisi City Hall and the Swiss company Stadler signed a Memorandum of Cooperation on June 22. The document was signed by Tbilisi Mayor Kakha Kaladze, owner of Stadler and Chairman of the Supervisory Board, Peter Spuhler, and General Director of Georgian Railway, Davit Peradze. Before the signing of the memorandum, the sides held a meeting where the prospects of future cooperation were discussed. The meeting was also attended by Vice-Mayor of Tbilisi Irakli Khmaladze and Konstantine Guntsadze, Chairman of the Supervisory Board of Georgian Railway. According to the Mayor of the capital, construction of a new factory is very important in terms of creating new jobs. “We signed a memorandum with Stadler, which envisages launching negotiations in order to build a metro carriage and train manufacturing factory in Georgia. It is an important project in terms of transport development as it will enable us to introduce new buses and renew

metro trains in the capital,” Kaladze stated. Stadler has already implemented a successful project in Georgia- the four double-decker trains ‘Stadler KISS,’ carrying railway passengers from Tbilisi to Batumi and back. The trains are adapted for people with disabilities and are fully equipped with European standards of safety and comfort. Georgian Railway believes that it is thanks to Stadler’s successful entry onto the Georgian market, and the improvement of the country’s business environment, that the management of the company decided to establish a regional enterprise with the support of the Government of Georgia, Georgian Railway JSC and Tbilisi City Hall. “Launching such a high-tech enterprise in our country bears paramount importance for increasing the export potential of Georgia, providing high-end fully equipped railroad passenger trains as well as metro and tram rolling stock for the regional and worldwide markets,” the statement of the Georgian Railway JSC reads. Stadler Rail was founded in 1942 and since then the company has been producing high-quality and reliable production. It is also focused on niche products and is one of the last European manufacturers of rack railway rolling stock. The holding company consists of eight

subsidiaries with locations in Algeria, Germany, Italy, the Netherlands, Austria, Poland, Switzerland, Spain, Czech Repub-

lic, Hungary and Belarus. Stadler Rail employed approximately 7,000 employees in 2017.

Stadler formed a joint venture with Azerbaijan-based company International Railway Distribution LLC in 2014.

Erdogan Wins Presidential Elections in Turkey this election and its results to hide their failure,” Erdogan addressed his supporters. Erdogan had also said in the simultaneous parliamentary contest that his ruling Justice and Development Party, the AKP, and its allied Nationalist Movement Party, the MHP, had together retained their control of parliament. State media said that the AKP had won 42% and its MHP ally had 11%, while Ince's main opposition the Republican People's Party (CHP) had 23% of the vote. The pro-Kurdish Peoples' Democratic Party (HDP) had 11%, which put it above the 10% needed to enter parliament. The opposition nationalist Iyi (Good) party had 10%, according to

BY THEA MORRISON

T

urkish President Recep Tayyip Erdogan won the presidential polls on Sunday, extending his 15-year grip on power. The election body of the country stated on Sunday night that the incumbent had won with 97.7% of votes counted. Erdogan declared himself the winner before the official results were announced. “Our people have given us the job of carrying out the presidential and executive posts…I hope nobody will damage this democracy by casting a shadow on

Photo source: AP

state media. As declared, the voters’ turnout was 87% for both the presidential and parliamentary elections. Around 59 million people were eligible to vote in both presidential and parliamentary elections Sunday. Erdogan said the participation rate was 90%, an extraordinarily high number for any election. Under constitutional amendments approved after a controversial 2017 referendum, Turkey is making a transition from a parliamentary system to a presidential one. The changes took effect after the elections. Erdogan has been the President of Turkey since 2014. Before that, he was Prime Minister.

Mandatory Inspection of State Vehicles to Kick off July 1 Continued from page 1 Obligatory technical inspection of cars took effect on January 1, 2018. A total of 36,394 vehicles have been inspected in Georgia as of June 20, 2018 and 75% of them (27,143 vehicles) have been assessed as worthy, Georgia’s Ministry of Economy announced last week.

5,953 vehicle owners addressed technical inspection centers for a second round, of which 243 vehicles failed to meet the necessary standards again. The first stage of the mandatory technical inspection, launched in January, required trucks of over 3.5 tons and passenger cars with more than 8 seats to undergo safety checks.

The next stage, to be launched on July 1, requires all vehicles registered to state entities to undergo a mandatory check, which will be followed by inspections of all automobiles with 3.0 engines and above from October 1. From January 1, 2019, the government will start the final phase of the campaign and require all other vehicles to undergo mandatory testing.

Vehicles which are four years old or less will not have to undergo an inspection. Cars that are four-six years old will undergo testing once every two years and cars older than six years will have to be tested every year. In addition, driving an uninspected car will result in a 50 GEL fine. Moreover, transfer or disposal of a vehicle which

has not gone through a periodic technical inspection will be subject to a fine to the amount of 50 GEL, and legal entities or individual entrepreneurs will be fined 200 GEL. Under the Georgia-EU Association Agreement signed in 2014, Georgia is obligated to ensure all vehicles are in line with EU standards.


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BUSINESS

GEORGIA TODAY

JUNE 26 - 28, 2018

Despite Optimistic Growth Forecasts, Trade Deficit up in April

BY DAVIT KESHELAVA AND YASYA BABYCH

I

SET-PI has updated its forecast of Georgia’s real GDP growth rate for the second and third quarters of 2018. Here are the highlights of this month’s release: • Geostat has released its GDP growth estimate for the first quarter of 2018. The Q1 growth stands at 5.2%, which is 1.1 percentage points above the recent forecast. • ISET-PI’s forecast of real GDP growth for the second quarter of 2018 remains unchanged at 5.9%. The first estimate for the third quarter growth forecast is at 7.2%. • Based on April’s data, we expect annual growth in 2018 to be 6.2% in the worst-case or “no growth” scenario, and 6.5% in the best-case or “average longterm growth” scenario. Our “middle-ofthe road” scenario (based on average growth over the last four quarters) predicts 6.3% real GDP growth in 2018. Geostat has released its preliminary estimate of GDP growth for the first quarter of 2018. Its estimated growth figure is 5.9%, which is 1.1 percentage point higher than ISET PI’s forecast. As a result, our projected real GDP growth for the second quarter of 2018 has also been revised upward to 5.9%. Moreover, ISET PI’s first forecast of the third quarter growth is also very optimistic, at 7.2%. These high forecast figures can be explained by the fact that quarterly growth rates typically follow a certain pattern, captured by ISET-PI’s empirical forecast model. Thus, the higher-thanusual growth in the first quarter may result in an overly optimistic forecast about the next quarter’s performance. Indeed, ISET PI’s forecasts for Q2 and Q3 are largely influenced by the high Q1 actual growth. Yet, looking at the economic landscape from the standpoint of April data, we note that several variables changed significantly, affecting growth predictions. Improved external statistics, the accelerated growth of national currency deposits, credit expansion and increased monetary aggregates were the main contributors to real GDP growth.

IMPROVED ECONOMIC CONDITIONS IN THE WIDER REGION The beginning of 2018 showed strong growth figures in the wider region. According to the rapid estimates of real GDP growth, most of the countries in

the region experienced significant acceleration of economic activities in the first four months of 2018. The Armenian economy advanced by 8.9% annually, while the Russian and Azerbaijani economies grew on average by 1.4% and 1.2%, respectively. Improved economic conditions in the wider neighborhood further stimulated the Georgian economy though trade, remittances and tourism channels.

PROMISING STATISTICS OF EXPORT, REMITTANCES AND TOURISM In April 2018, total exports grew by 8.3% year over year (slightly decelerated growth rate compared to the earlier months of 2018), driven by the export of alcoholic beverages, higher re-exports of motor cars to Azerbaijan, Ukraine and Armenia, accelerated export/re-exports of tobacco products (increased by more than 22 times on an annual basis), and mineral/chemical fertilizers. Re-export of copper and copper ores, however, was reduced by 51.4%. The main destination markets for Georgian export products were Turkey, Russia, Azerbaijan, Bulgaria and Armenia, accounting for 55% of total exports. During the same period, imports of merchandise goods increased by 22.0%, driven by petroleum and petroleum gases, motor cars and copper ores and concentrates. The main trading partners of Georgia for imports were Turkey, Russia, China, Azerbaijan and Ukraine, accounting for the 47% of total imports. As a result, the trade deficit deepened by 29.5%, compared to the same month in 2017. Both remittances and tourism showed significant yearly increases in April of 2018. Money transfers rose by 17.1% in the fourth month of 2018, driven by remittances from Israel (32% annual growth), Italy (43.6%), Greece (35.2%), Germany (32.9%), Azerbaijan (35.2%), and Turkey (8.7%). Notably, remittances from the Russian Federation experienced a slight yearly reduction. Nevertheless, Russia remains the top country of origin for money inflow, accounting for 28% of total remittances. The number of all type of visitors in April of 2018 increased by 16.8% year over year and exceeded 619,000 people. Out of these, 56.6% were classified as tourists, and the growth rate of these visits reached 24.9% annually. The top five countries of origin for international visitors were Turkey (16.6% of total visitors), Azerbaijan (15.9%), Armenia (14.6%), Russia (14.4%) and Iran (4.2%). Both tourism and remittances contributed signifi-

cantly to the GDP growth forecast. Foreign Direct Investment, however, shrunk by 32.9% in the first quarter of 2018 compared to the same month of the previous year. According to Geostat, the main reason for decreasing FDI was the transfer of ownership in some companies from non-residents to residents, and the reduction of debt liabilities to non-resident direct investors (mostly payment of loans). The main countries of origin for foreign direct investment were the United Kingdom (29.6% of total FDI), Azerbaijan (18.2%), China (14.9%), the Netherlands (11.6%), and the United States (8.5%), accounting for 82.8% of total FDI. The economic sectors that depressed FDI growth the most were transport and communication (-37.7 ppt) and real estate (-24.2 ppt), while other sectors positively contributed to the growth figure – manufacturing (+8.1 ppt), financial (+7.8), and construction (+3.5 ppt).

INCREASE IN NATIONAL CURRENCY DEPOSITS Total deposits (stocks) in commercial banks amounted to 21 billion GEL by the end of April - 20.4% higher than in the same month of the previous year. In particular, the stock of national currency deposits grew substantially, by 46%, while the stock of foreign currency deposits increased by only 9.1%. The largest yearly increase was observed for National Currency Time Deposits with less than 3 months of maturity – a 169% increase relative to the same month of the previous year. The second largest yearly increase was experienced by National Currency Demand Deposits – a 95% increase year over year. Overall, National Currency Total Deposits increased by more than 46% yearly. National Currency Deposit-related variables had a positive contribution to our GDP growth projection The dollarization rates of non-bank deposits and loans decreased in April of 2018. Dollarization of deposits fell by 0.4 ppt, amounting to 62.5%, while loan dollarization was reduced by 0.1 ppt to 55.0%, compared to March of 2018. According to our model, deposit dollarization had

10 Galaktion Street

Source: National Statistical Bureaus

a small, but positive, impact on real GDP growth.

CREDIT EXPANSION Domestic credit to the private sector extended by commercial banks grew by 20.8% (even after excluding exchange rate effect growth rate, domestic credit still was 19.3%) in April of 2018. The credit portfolio grew due to the increase in loans issued in the national currency, as well as the expansion of loans issued in foreign currency. Rapidly growing credit positively contributes to the shortterm growth figures by stimulating private consumption. However, the growth rate of domestic credit significantly exceeds the growth of Georgian economy and borrowed money is often spent on purchasing imported goods and services, which might have negative consequences to long-run economic growth.

EXPANSION OF MONETARY AGGREGATES The other set of variables that had a significant positive effect on our forecast is related to currency in circulation. The Monetary Policy Committee of the National Bank of Georgia met in May and June, and decided to leave the monetary policy rate unchanged at 7.25%. However, all of the monetary aggregates, including the largest - Broad Money (M3) - experienced significant yearly growth (M3 aggregate rose by 17%). The largest increase was observed for Monetary Aggregate M2, which went up by 22% relative to the same month in the previous year. Moreover, Currency in Circulation itself increased by 8% in yearly terms. Rapid expansion of monetary aggregates contributed positively to real GDP growth forecast.

Our forecasting model is based on the Leading Economic Indicator (LEI) methodology developed by the New Economic School, Moscow, Russia. We constructed a dynamic model of the Georgian economy, which assumes that all economic variables, including the GDP itself, are driven by a small number of factors that can be extracted from the data well before the GDP growth estimates are published. For each quarter, ISET-PI produces five consecutive monthly forecasts (or “vintages”), which increase in precision as time goes on. Our first forecast (1st vintage) is available about five months before the end of the quarter in question. The last forecast (5th vintage) is published in the first month of the next quarter.

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


BUSINESS

GEORGIA TODAY JUNE 26 - 28, 2018

5

Fashion Tourism – the Next Big Industry Trend? BY SAMANTHA GUTHRIE

T

ea Agladze, the editor-inchief of fashion and lifestyle magazine Bomondi, proclaims that fashion tours of Georgia are the next big trend in the tourism industry. As head of the popular magazine, Agladze is a both a trend forecaster and an arbiter of taste. This past Friday, Agladze spoke on the subject, saying “Tourist companies bring people interested in fashion to our country, who not only taste our wine, dishes and do sightseeing, they learn about the country’s fashion industry. A lot of people are interested in successful and amateur designers of Georgia. That’s why tours are planned with the involvement of all interesting designers. This direction helps them release their products, increases demand, promotes penetration on markets abroad and in addition promotes tourism in country.” Fashion is no longer simply an entertainment industry but plays a significant role in the growth of the Georgian economy. Many people have become familiar with the country through its fashion industry and superstar designers such as Demna Gvasalia, the creative director of Balenciaga and head designer for Vetements. Gvasalia brought the post-Soviet aesthetic to the world stage and turned heads with his Georgian 90s-inspired collections. Even after proclaiming, in 2017, that “Eastern Europe is over,” young Georgians still flock to the bazaars to buy knock-offs of his designs – and the occasional authentic piece. In May, GQ wrote about the future of fashion and Georgia’s role in it in an article on their website, calling Georgia “the wildest country in fashion.” The piece highlighted six up-

Photo: Avtandil

and-coming designers who showed collections in Florence earlier this month at the bi-annual Pitti Uomo, (in English, "Pitti Men"), one of the world’s most important platforms for men’s clothing and accessory collections, and for launching new projects in men’s fashion. Pitti Uomo is described by GQ as “typically known for generating insane, eyeballtwitching street style.” Each year, Pitti Uomo hosts selected designers, and this time Georgia was in the spotlight as the guest nation. Big Georgian brands have received international success, such as Avtandil, worn

by Lady Gaga and Mary J. Blige, Situationist, worn by Bella Hadid, and George Keburia, worn by Rihanna and Kortney Kardashian. Beyond the reach of most average Georgians, the high-end fashion from local designers inspires street wear lookalikes and draws culturally curious fashionistas to the boutiques and workrooms of Georgia’s top fashion houses. Fast fashion has also had an impact on the Georgian economy. In April of this year it was announced that a textile factory would begin operations in Kutaisi, manufacturing clothing for brands H&M, Mango, Zara, Coast, Colveta, United

Colors of Benetton, and Oasis. The company is expected to start with 250 employees, eventually expanding to 350, and to see an annual turnover of 3.3 mil GEL ($1.3 mil), according to a statement released by parent company MGMTex. In a 2016 op-ed in The Financial, economist Tamta Maridashvili predicted Georgia’s participation in textile manufacturing will follow Turkey’s arc. “From an economic perspective, having a strong textile industry is a double-edged sword,” she writes, “due to its heavy dependency on low labor cost, particularly when it comes to the most labor-intensive CMT

activities (cut, make and trim). A country will have a textile industry only so long as it offers the cheapest labor. Once economic development sets in, textile producers will be the first to leave.” From 2000-2010, Turkey had a very strong apparel and textile industry, making up a significant portion of the economy. In 2009, 56,000 apparel and textile companies operated in the country, employing approximately two million people, and 18.69% of Turkey's total exports were in the sector. The boom did not last long, however. From 2009-2013, “Turkish salaries almost doubled, leading to the country’s loss of its cost advantage” and its “creeping demise,” writes Mariamidze. She explains that as Turkey lost its cost advantage, Georgia, particularly the Adjara region, “became the natural destination of the wandering textile industry...starting in the mid-2000s.” By 2015, Turkey’s textile and apparel industry had essentially evaporated. Mariamidze warns, though, that Georgia’s new economic sector will not last forever, as wages will inevitably rise, pricing itself out of the sensitive industry. She recommends Georgia follow Turkey’s trajectory, “Rather than wait for the CMT industry to move on (or become robotized), the Georgian government could use the current momentum to launch a “Designed in Georgia” branding campaign and in this way channel Georgians’ innate creativity into the lucrative fashion design and clothing industry.” A linkage to Georgian design could, of course, be fashion tourism, bringing together two of Georgia’s most popular concepts. Agladze says that fashion tours are currently being developed, and while it is an as-of-yet unexplored direction for both Georgia’s tourism and fashion industries, with a strong marketing campaign, she predicts long term success.


6

BUSINESS

GEORGIA TODAY

JUNE 26 - 28, 2018

Asian Development Bank Leads in Transparency BY SAMANTHA GUTHRIE

T

he Asian Development Bank (ADB) has been ranked first in the 2018 Aid Transparency Index (ATI), an independent measurement of aid transparency created by British NGO Publish What You Fund, released on June 21, at the Brookings Institution in Washington, D.C. This is the first time that ADB has come in at the number one spot on the ATI, which has evaluated the transparency of the practices of major aid organizations since 2011. In 2016, ADB was scored 84.9% transparent, while in 2018, the bank’s score jumped to 98.6% - although methodology changes since 2016 make the scores not directly comparable. The ATI evaluated a total of 45 development agencies worldwide. The leading organizations, scoring at least 80% and earning the classification of “very good” were: the Asian Development Bank, United Nations Development Program, UK Department for International Development, African Development Bank, Millennium Challenge Corporation, World Bank-International Development Association, and Inter-American Development Bank. “I am proud of the progress that ADB has made since the last Aid Transparency Index,” said ADB President Mr.

Takehiko Nakao. “This reflects a crossorganizational commitment, including at the highest level, to improving the quality of our open data. Transparency is a critical aspect of effective development work and we are glad to be at the forefront of it.” The 2018 ATI report looked at the trends in the aid sector, including the “unprecedented amounts of timely aid

and development data [that] are available in an open and comparable format.” ADB is one of “only two organizations publishing all index indicators in the ATI standard, making their information fully open and comparable.” The ATI measures organizations across five categories: organizational planning and commitments, finance and budgets, project attributes, joining-up develop-

ment data, and performance. ADB received a perfect score for project attributes and scored within several tenths of a point from perfect in all other categories. On the lower end of the spectrum, ranking below 30% for transparency, were the Japanese Ministry of Foreign Affairs (10.2%), the UAE’s Ministry of Foreign Affairs and International Coop-

eration (1.8%) and China’s Ministry of Commerce (1.2%). Since 2016, ADB has made an effort of increase transparency, reviewing its practices of releasing information and adhering to high standards. ADB has significantly improved the quality and scope of the information it discloses to the public. The Asian Development Bank, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in co-financing. ADB has been operating in Georgia since 2007 and is one of the country’s largest multilateral development partners. Sovereign loans to Georgia total $2.42 billion. Non-sovereign loans total $330 million. As of January 1, 2017, Georgia’s classification as a middle-income country excludes it from further access to the ADB’s concessional ordinary capital resources. The ADB says its key development priorities in Georgia are to foster inclusive and sustainable economic growth, reduce poverty, enhance regional connectivity, and improve public service delivery. Priority sectors include transport, water supply and sanitation, energy, public sector management, and finance.

Where.ge 3rd in Tourism Campaign of the Year 2018 at EBRD Emerging Europe Awards BY ROBERT EDGAR

T

he inaugural Emerging Europe Awards ceremony was hosted by the think tank which bears the same name at the European Bank for Reconstruction and Development's headquarters in London on 22 June. No matter where you go in London, even at a fairly small awards ceremony focusing on Central and Eastern European business, it seems that Brexit has a tendency to become the main focal point of any panel discussion or speech. Günter Verheugen, European Commissioner for Enlargement between 1999 and 2004, spoke on what he sees as the importance of further integration between member states to act as an economic bulwark against the USA and China. "When I spoke to European astronauts who had been on the ISS, they would first say how vulnerable the world looks from above, but they would also say that Europe does not look very impressive". Doubtless mindful of Europe's turbulent history, he issued a stark warning with reference to Brexit and current events in Italy and the Czech Republic, "we have to live together peacefully, or we kill each other". His proposed solution to what he sees as a rise in populism (whatever that may mean), was a common economic area stretching from Lisbon to Vladivostok. To my mind, it was unconvincing: popular disquietude over European enlargement is unlikely to be assuaged by yet more enlargement. A slightly more optimistic view followed in the 'fireside chat' (read 'panel discussion'. There was - thankfully - no

fire) between Peter Stracar, President and CEO of General Electric Europe, and Olga Grygier-Siddons, CEO of PwC Central and Eastern Europe. Despite getting themselves into difficulty when asked about potential opportunities Brexit poses for the region, with Stracar referencing the problems faced by Europewide production chains and GrygierSiddons stating, “Europe will be weaker,” there was a reference later to PwC's role in Polish cable giant Tele-Fonika Kable's recent takeover of the British company JDR Cable Systems. Also noted was Poland's rapid rise as an IT hub; an industry whose survival depends a great

deal on simply having an internet connection and is therefore more insulated from geopolitical turbulence. Despite justifiable concern over a lack of clarity about Europe's likely direction in the coming decades, the panel members were perhaps more optimistic than they themselves realized. Businesses will always need input and skills from a variety of regions; cross-pollination between EU and non-EU countries is still happening organically, regardless of the direction that the EU's political wind blows. As for the ceremony itself, Where.ge (part of the GEORGIA TODAY group)

was third runner up in its category, “Tourism Campaign of the Year 2018”; We Care, the Georgian branch of the global group MenCare, came first in the “Equality Friendly Initiative of the Year 2018”; Invest in Georgia was a runner up in the “National Investment Promotion Agency of the Year 2018”. The full list of winners follows: Young Empowerment Initiative of the Year – Teach for Armenia (Armenia) Social Impact Start Up of the Year – Deepdee (Belarus) Equality-Friendly Initiative of the Year – WeCare (Georgia) Tourism Campaign of the Year – Lju-

bljana ‘Plecnik’s Year’ (Slovenia) City FDI Promotion Strategy of the Year – Wrocław, The Meeting Place (Poland) Renewal Project of the Year – New Bazaar, Tirana (Albania) Research and Development Initiative of the Year – Siemens (Czech Republic) Global Market Champion of the Year – Solaris Bus & Coach (Poland) FDI Project of the Year – Amazon (Slovakia) National Investment Promotion Agency of the Year – Invest Lithuania (Lithuania) Lifetime Achievement Award – Günter Verheugen


BUSINESS

GEORGIA TODAY JUNE 26 - 28, 2018

Survey Shows Majority of Georgians Vacation Once a Year

Photo: Parents’ Magazine

BY THEA MORRISON

A

recent study conducted by Analysis & Consulting Team (ACT), a global research and consulting company covering the CIS countries and Eastern Europe with offices in Georgia, Azerbaijan & Kazakhstan, revealed that 43% of Georgians manage to go on vacation within the country only once a year. 20% of respondents stated they are unable to have a vacation within Georgia. Among that 20%, people 65+ represent the majority (46%). Lack of money (63%) is the main reason why people cannot have a vacation. The other reason is lack of time (37%), named by 35-44 year-old respondents (73%). “It is noteworthy that men (47%) are more likely not to go on holiday due to lack of time than women (30%), while the absence of money hinders women (69%) more than men (57%),” the survey reads. The remaining respondents who manage to vacation prefer seaside resorts (55%). Mountain resorts are almost as popular, visited by 44% of respond-

ents. 36% of the surveyed people visit friends' / relatives’ or their own houses in villages; with 65+ respondents doing so most often (60%). Summer is the most popular season for vacationers in Georgia, with 94% of people saying they prefer to take a vacation in summer. Around 41% of families spend from 500 ($203) to 1000 GEL ($406) during their vacations, while 500 GEL or less is enough for 28% of the surveyed families. Moreover, 55% of the respondents who travel within Georgia accumulate the budget throughout the whole year. 25% of the respondents do not need to save money for leisure (men – 33%, women – 20%), while 8% of holidaymakers need to take a bank loan or make an installment in order to collect the required amount. Georgia’s population is around 3,729,600 people. Almost 22% of them are under the absolute poverty line, shown by the latest data of 2017 poverty indicators published by the National Statistics Office of Georgia (Geostat). The average monthly income in Georgia was 1,016 GEL (about $413) in 2017, says the Geostat data. Last year the annual unemployment rate in Georgia declined by 0.1 percentage points and equaled 13.9%.

Georgia Wins EU4Energy Photo Competition BY SAMANTHA GUTHRIE

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he #EU4Energy photo competition was organized within the framework of the EU Sustainable Energy Week, which has June 4-11, 2018. Photographers from Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine were invited to submit photos, and there were more than 500 entries. The theme of the photo competition was “Sustainable Energy Around You.” Georgia’s Ioseb Dzamukashvili took first place in the competition with a photo (above) showing Ioseb and his friends in the Georgian countryside surrounded by wind turbines, which work to produce green energy in the background. “We should not spoil the planet to produce energy. Nature can provide lots of it without harming the environment. All we need is to encourage one other, go GREEN, and promote renewable energy!” says Ioseb. A jury selected a shortlist of 40 photos, with the winners chosen by public vote. Aside from the first prize of a video drone, 30 more prizes will go to contest participants in Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. You can have a look at Ioseb’s photo and the other winning pictures on the EU Neighbors East Flickr account.

Photo: Ioseb Dzamukashvili

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Launch of the TANAP Pipeline: Implications for the South Caucasus OP-ED BY BENYAMIN POGHOSYAN

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n June 12, the official launch ceremony of the TANAP pipeline was held in Turkey. TANAP is the key component of the Southern Gas Corridor, which should bring Azerbaijani gas to Europe, circumventing Russia. At the initial stage, annually 6 billion cubic meters of gas will be supplied to Turkey and another 10 billion to South Eastern Europe, mainly Italy. In later stages, the volume may be increased due to additional gas from the Azerbaijani Shah Deniz field, or potentially involving other gas sources such as Iraq and Turkmenistan. If the Southern Gas corridor is to be filled only by Azerbaijani gas, it will not have serious implications for European energy security. The maximum capacity of Azerbaijan export will not exceed 20 billion cubic meters annually. Given the fact that in 2017, Russian Gazprom exported approximately 194 billion cubic meters of gas to Europe (including Turkey), even 20 billion could not significantly decrease the Europe dependence on Russian gas. Moreover, the main consumers of Russian gas are Western European states, with Germany importing some 53.5 billion cubic meters in 2017. Thus, if Europe wants to make TANAP a real tool of energy independence from Russia, it also needs to involve other sources. However, the prospects for a Turkmenistan-Azerbaijan-Trans Caspian pipeline are dim due to the objections from Russia and Iran. Given

the instability in Iraq, even in the midterm perspective it would be difficult to bring Iraqi gas into TANAP and then further into Europe. Thus, the TANAP pipeline and southern gas project would have a limited impact on European energy security and geopolitics. However, the situation is not the same for the South Caucasus. The region is going through significant political transformations. The “Velvet Revolution” in Armenia, which resulted in the resignation of longtime leader Serzh Sargsyan and the significant weakening of the former ruling Republican Party position, alongside the resignation of Georgian Prime Minister Giorgi Kvirikashvili, are evidence of domestic instability and popular resentment against the stagnation in economy, widespread poverty and lack of good governance. The mass protests in Yerevan and Tbilisi, organized with large scale use of digital technologies and social media, have proved the growing influence of popular movements. The situation in Azerbaijan remains stable as President Aliyev enters his fourth seven-year presidential term. However, the continuing pressure on the opposition is a sign of concern among Azerbaijani leadership. The South Caucasus remains a hot spot of the competing interests of Russia, the West, Turkey and Iran. Russia makes efforts to solidify its control over the region, viewing it as a part of the Russian buffer zone which should hinder the Western encroachment into Russia. The West seeks to contain Russia in the Post-Soviet space, and the South Caucasus is part of this battle. The main ally of the West is Georgia,

however, despite being a CSTO and EAEU member, Armenia also keeps partner relations with the US, NATO and the EU, and Azerbaijan seeks to keep a balance, rejecting both the Association Agreement with the EU and membership of the Eurasian Economic Union. Turkish policy in the region is based on its strategic relationship with Azerbaijan and efforts to deepen Georgia’s involvement in the trilateral Azerbaijan – Georgia – Turkey alliance. However, Turkey is keen not to bother Russia too much. Iran’s main concern is not to allow the South Caucasus to be used as a launchpad against it by the US and Israel. Tehran is willing to accept Russian dominance over the region at least up to the moment when it may fundamentally normalize its relations with the West. In this context, the launch of TANAP strengthens the geopolitical and geoeconomic potential of Azerbaijan. It emphasizes the leading role of the country in the regional energy geopolitics.

The additional project linking Azerbaijan with Georgia and Turkey fosters the trilateral cooperation. Meanwhile, TANAP circumvents Armenia and bodes well for Azerbaijani efforts to isolate Yerevan. Azerbaijan successfully portraits itself as an energy and transportation hub for both the East - West and North – South corridors. The launch of Baku – Tbilisi – Kars railway and the railroad connecting Azerbaijan with Iran (Astara - Astara) are other key components of Azerbaijan strategy to be transformed into a regional hub. The TANAP pipeline is an asset for Georgia too. It supports the Georgian narrative of a stable transit state which has the necessary capacities to bring Caspian energy resources to Europe. The Azerbaijan – Georgia – Turkey deepening relations are significant leverage for Georgia in its interactions with Russia. Meanwhile, growing Azerbaijani and Turkish influence in Georgia could be a source of concern for authorities given the existence of a large

ethnic Azerbaijani minority. In this context, Georgia should be interested in fostering relations with Armenia as a potential balancing act against Azerbaijan and Turkey. The launch of the TANAP pipeline stresses the isolation of Armenia from the regional transit projects. However, Yerevan has its own trump cards. The “Velvet Revolution” has significantly increased the positive image of Armenia in the West. The improvements in the business environment may gradually bring additional FDI into the country. Meanwhile, Yerevan should pay more attention to any transit projects potentially involving Armenia. In this context, the launch of “Persian Gulf – Black Sea” multimodal transportation corridor connecting Iran with Europe via Armenia and Georgia serves both Armenian and Georgian interests. Armenia may break its infrastructure isolation, while Georgia can add a North – South route alongside the East – West corridor to its transit potential.


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VRium – Georgian Virtual Reality Startup Jam by Leap Motion. His team designed one of the most popular Georgian steam VR games ‘VRZ: torment.’ Collaboration with well-known game designer Mark Rein-Hagen brought more successful projects, including the creation of a large number of mobile games.

MEET THE TEAM

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t started with a dream of four Georgian friends (Irakli Kokrashvili, Mikheil Chkhartishvili, Gabriel Meliva & George Dalakishvili) to create something unbelievable. There was huge challenges ahead as they wanted to create something unique and give people a great experience: to inspire people’s imagination by crafting virtual reality, then bursting that reality by changing people’s perspectives. Their playground differs from that of their competitors. Four key elements make their product A* quality: spatial perception; original visual; original sound effects; unique gameplay. The tech team has 10+ years experience of working in the gaming sector. Lead developer Irakli Kokrashvili has been working in the gaming industry for 15

years, heading the creation of a number of award-winning products. A project led by him was as runner-up of the 3D

Our team is created by people passionate about technology and gaming. We believe in the power of teamwork, where each member is ready to walk the extra mile. We are sure that VR gives us an opportunity to more efficiently and sustainably change the public perception. VRium creates a fully immersive experience by combining physical and digital worlds. We are established in the VR

gaming and produce hardware and software which together build a completely new dimension. The VR experience allows audience members to feel like they are actually in another place and as if they have become another person. It is a 360 degree view of a new world - our first Hyper reality game “GENESIS” was recently launched in Tbilisi Mall, on the “VR House” territory. We work hard to inspire, create, and explore, introducing amazing possibilities of VR technology. We are sure VR will fundamentally change the entertainment world. VR technology is considered a cutting-edge technology holding endless possibilities in all fields of life, especially in the entertainment industry. We are at the forefront of VR game development. The market for VR software and hard-

ware has been steadily evolving: research shows growth from $3.7 billion in 2016 to $12.1 billion in 2018 with the prediction of growing up to $40.4 billion by 2020*. As one of the fastest growing industries, VR technology is in the spotlight with a potential of being among the leading tech industries in the coming years. VRium has entered the market with a strong product which is constantly developing. Currently, our company is at the Seed capital stage and we are actively working on finding new experienced investors in the VR field from around the world. The technology we create is world standard and is improving. For more information please visit our web page: www.vrium.zone

How Almaty Region Plans to Attract New Business ANALYSIS BY DIMITRI DOLABERIDZE

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his year it is planned to open 100 new business facilities in the Almaty region, Kazakhstan, creating 12,000 jobs, a vital fact for one of the most densely populated regions of the country. Companies of various scale will be presented - from individual entrepreneurships of the local population to launching plants together with foreign partners. Let’s take a look at what can attract businessmen to open production in the territory of Almaty region and the costs.

SOCIO-ECONOMIC DEVELOPMENT In May, Kazakh President Nursultan Nazarbayev paid a working visit to the Almaty region to inspect facilities, meet with local entrepreneurs and to outline areas that should be developed. In general, Nazarbayev positively assessed the socio-economic situation in the region. “The Almaty region, especially in the agrarian sector, is an example for all. The region's economy grew by 4.2%, which is higher than the national average. Agriculture and construction have grown and the volume of social facilities has increased,” he said. According to the Department of Statistics, growth is noted for all indicators. In January-May this year, the volume of industrial production was 324.8 billion Tenge ($956,536,000.00 ), 104.4% compared to January-May 2017. The volume of gross output of agricultural products (services) for the first five months of this year amounted to 124.9 billion Tenge ($367,830,500.00 ), 103.2% compared to January-May 2017: including livestock - 117.9 billion Tenge ($347,215,500.00), crop production - 7 billion Tenge ($20,615,000.00), services in agriculture - 0.04 billion Tenge ($117,800.00). The volume of freight

turnover amounted to 2.9 billion tkm (including an estimate of the volume of freight turnover of individual entrepreneurs involved in commercial transportation) and increased by 0.6% compared to January-May 2017. During the first five months of this year, the region's enterprises mastered 144,238.4 million Tenge ($424.9524 ) of investments in fixed assets, which amounted to 100.5% to the volume of 2017. The main share is accounted for by private ownership (69.5%), foreign ownership (12.9%), state ownership (17.6%). The largest volumes of investments in fixed assets were mastered by industrial enterprises by 25.1%. According to the Statistical Business Register, the largest number of operating individual entrepreneurs is concentrated in Almaty (13.9%), in South Kazakhstan (12.4%), in East Kazakhstan (7.8%), and Almaty areas (7.6%). At the same time, a significant number of operating peasant or farm enterprises were recorded in South Kazakhstan (36.3%) and Almaty regions (23.1%).

INFRASTRUCTURE The largest infrastructure project on the mechanism of public-private partnership - construction of the Big Almaty Ring Road (BAKAD) is being implemented on the territory of the Almaty region. The project cost is about 180 billion Tenge. The road will be open in 4 years. “Completion of the BAKAD will give an impetus to the development of the region's economy, because it will attract about 300 billion Tenge of investment. This will give a multiplier effect for small and medium-sized businesses, the development of roadside service, transport and logistics terminals along it, and access to markets for industrial enterprises will improve, especially given that in this area we have developed tourism, especially in summer and winter sports,” said Governor of Almaty region, Amandyk Batalov, at the start

of the project. The road to the Kolsai Lakes has been restored, the capital repair of the Usharal-Dostyk road has begun, and it is planned to repair the road to Lake Balkhash.

INVESTMENTS According to Kazakh Invest, in Kazakhstan in 2018, together with municipalities and state agencies, 15 projects with the participation of foreign investments amounting to $1.6 billion will begin and

23 projects will be commissioned for $3 billion. In the context of the regions, the largest number of investment projects planned for commissioning are accounted for by the Almaty region - 5 projects worth $179 million. Foreign investors are showing great interest in the Almaty region. The Russian company Lukoil intends to build a lubricant factory, the Italian Cremonini Group will start construction of meatpacking plant KAZAK-BEEF, Dutch company Farm Frites intends to build

a potato processing plant, while German company Baumann is to implement a project in the meat industry. Cooperation with companies from Switzerland, China, Poland has been established.

PROSPECTIVE DIRECTIONS The most promising areas in the Almaty region are agriculture (livestock, horticulture, vegetable growing) and the tourism industry. Also of interest there are the food and manufacturing industries.


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JUNE Agri Review: The Sector at a Glance

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here was 2.1% decrease in agricultural production in 2017 compared to the previous year. Production in the plant-growing sector declined by 0.4%, while animal production experienced a decrease of 3.8%. Lower production resulted in lower self-sufficiency ratios for most agricultural products. Revenue from the sale of agricultural products in 2017 also decreased compared to the period 2014-2017, both in percentage and absolute terms. Reduced production is the most likely reason for this. While revenue from selling agricultural products decreased in 2017, the level of commercialization in the sector has increased. This trend is particularly persistent in animal production, where its share in enterprises increased from 21% to 27%. Since in light of DCFTA, more food safety regulations will be adopted in the future, it is expected that the share of enterprises will grow even faster. As to plant growing, the share of enterprises in 2017 has increased as well, but there are no increasing trends observed in general, since the share keeps changing its direction from year to year.

PRICE HIGHLIGHTS In May 2018, prices in the group of oil and fats increased by 4.6%, compared to May 2017. According to Geostat data,

producers are not allowed to label product as “butter” if it contains vegetable or other kinds of oil.

the main drivers were butter and spread prices, which went up by 12%. As shown in the diagram, there were slight price hikes for walnuts (3%), mayonnaise (2%), and sunflower oil (1%). Meanwhile,

TRADE HIGHLIGHTS

prices slightly decreased for margarine (-1%). One explanation for increased butter prices might be the recent spike in international prices; according to the Global Trade Info, starting in January 2018, butter prices have been increasing compared to the previous year. The structural changes in the dairy sector might be putting additional upward pressure on butter prices. On July 1, 2017, changes in technical regulations for the dairy sector came into force, which probably increased the production costs of butter as producers must comply with stricter food safety regulations and standards. More specifically,

In May 2018, Georgia’s agricultural exports (including food) amounted to 68 mln USD, which is around 27% of total Georgian export value. This indicator is 39% higher than in May 2017. As to imports, in May 2018, Georgia’s agro imports stood at 100 mln USD, which constitutes 27% of total Georgian imports. Year over year (compared to May 2017), agricultural imports increased by 6%. In 2016, Georgia’s agricultural exports in EU countries (including Great Britain) increased by 5% compared to the previous year, while during 2017, a 38% decrease was observed compared to 2016. This change is mainly caused by a significant decrease (64%) in hazelnut exports. It is worth mentioning that main hazelnut export market is the EU countries. As of June 2018, agricultural exports in the EU amounts to 61 mln USD. In the last couple of years, Georgia’s agricultural exports to CIS countries

Source: MoF, 2018

are increasing; there was 2% increase in agro exports in 2016 compared to 2015, but a 37% increase in 2017 com-

pared to 2016. This was mainly caused by increased exports of alcoholic and n o n - a l co h o l i c beverages (wine by 61%, spirits by28%, mineral and aerated waters by 22%). As of June 2018, agricultural exports to CIS countries amount to 159 mln USD. As for imports from the EU and CIS countries, there are no significant changes on an annual basis and steady trends have not been observed for either EU or CIS countries. Imports from both regions decreased in 2016 compared to 2015, and increased in 2017. As of June 2018, agricultural imports from EU and CIS countries amounted to 109 and 230 mln USD, respectively.

NBG Finalist in the Global Inclusion Awards 2018 BY SHAWN WAYNE

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he National Bank of Georgia (NBG) is a finalist in the Global Inclusion Awards 2018 in the category of ‘Country Award’ for the second time, the NBG announced. The Global Inclusion Awards 2018 recognizes and honors those who achieve greatness in furthering the economic citizenship of children and youth at the national, regional and international level. The awardees demonstrate inno-

vation in financial, social and livelihoods, education, financial inclusion, and entrepreneurial support for children and youth. The NBG has been listed among the finalists of the awards in the category of ‘Country Award’ for activities carried out in 2017. This year’s Global Inclusion Awards Ceremony is organized by Child and Youth Finance International and Argentina's G20 Presidency and will take place on July 3, 2018. It will be held as part of the GPFI Forum: "Technological Trends in Digital Financial Inclusion" on 3-4 July at the RitzCarlton in Riyadh, Saudi Arabia.

Permits May Be Required for Street Performers BY SAMANTHA GUTHRIE

I Photo: Joy Generoso, fatmoments.com

n his election campaign, Mayor Kakha Kaladze promised that Tbilisi nightlife would undergo a revival. On April 20, City Hall presented a concept plan for developing a night economy in Tbilisi. The Night Economy Development Project is managed by Sergi Gvarjaladze, who spoke to Georgia Today about the Project last month. When asked about the aims of the project, Gvarjaladze said,

“The main goal of our project is to create new jobs and support the development of small and medium businesses, especially in the tourism and restaurant sectors. We want to position Tbilisi as a 24/7 city and organize cultural and sports events for a wider group of people.” Gvarjaladze said recently that street musicians may be subjected to certain regulations and be required to obtain permits. Gvarjaladze said that, while there are some very talented street musicians, there are also people who are not really

musicians, which "damages not only our citizens but leaves unpleasant impression on tourists... Most likely, street musicians will be required to have a certificate that will allow them to play in the street." Gvarjaladze said that by 2025, Georgia expects to be hosting around 11 million visitors per year and according to the current statistics, 50% of them will come to Tbilisi. The proposal raises questions about how City Hall would determine who is a real musician, or whether someone is talented enough to be acceptable for street performing.


BUSINESS

GEORGIA TODAY JUNE 26 - 28, 2018

The Future of Phage Therapy BY SHAWN WAYNE

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or five years, Patti Swearingen battled a urinary tract infection that refused to go away. Doctors prescribed round after round of antibiotics, but the infection kept coming back. Eventually, the microscopic war inside her body left Swearingen so weak and debilitated she could barely leave her living room couch. In March, she and her husband, Gary, decided modern drugs had failed them. Instead, they turned to a treatment from the past. They flew to Tbilisi where, in a small clinic, doctors had her drink live viruses twice a day for two weeks. Now Swearingen’s medical records confirm the outcome: She is cured. “I feel great,” said Swearingen, speaking from the sun-filled dining room of her house in Rowlett. “I honestly feel like I’ve gone from death to life in a few months.” The viruses she drank are called bacteriophages, or phages for short. Similar to probiotics, they permeate our guts and nasal passages and exist everywhere in nature, including in soil and drinking water. They are bacteria’s natural enemies. Similar parasites, they invade bacterial cells and use their machinery to replicate, destroying the bacteria in the process. Before penicillin was developed in the 1940s, doctors used phages to treat infections like strep throat and appendicitis. News reports from the ’20s and ’30s in magazines like Newsweek hailed phages as “nature’s G-men,” “infinitesimal friends of mankind” and “helpful little bodies.” Antibiotics, when they arrived, proved more potent, and phage therapy died out in the West. Doctors in Poland and in Georgia continued to use bacteriophages as alternatives to antibiotics. Now, as bacteria have become increasingly resistant to antibiotics, interest in phage therapy has grown. Recently, the University of California San Diego announced the opening of the first phage therapy center in North America. The Center for Innovative Phage Applications and Therapeutics will conduct clinical trials of phage therapy and help provide phages on an emergency basis to patients for whom other treatment options have run out. While case studies and anecdotal evidence suggest phages can be safe and effective, the treatment has not passed rigorous clinical trials in the United

Image Source: Dallas News

States. For that reason, the therapy has not been approved by the US Food and Drug Administration. “Phage therapy has long deserved this chance to be evaluated,” said Steffanie Strathdee, associate dean of global health sciences at UCSD and codirector of the new phage therapy center. “We want to answer once and for all if it’s something that deserves to get scaled up.” Their clinical trials will evaluate phages for use against lung infections in patients with cystic fibrosis, to treat infections in those with artificial joints and organ transplants, and for complex urinary tract infections like Swearingen’s. Swearingen, too, learned about phages after watching a TEDx video featuring Strathdee and contacting her for advice. She learned the path to acquiring phages for her condition in the US was long and uncertain. So she and her husband made the decision to fly to Tbilisi’s Phage Therapy Center. Georgia’s experience with phage therapy dates to the 1930s. The French-Canadian researcher who developed phage therapy befriended a Georgian bacteriologist when both worked at Paris’ Pasteur Institute. Together, they co-founded Tbilisi’s George Eliava Institute of Bacteriophages, Microbiology and Virology, which mixes most of the phages in use across Georgia today. Swearingen enjoyed her experience in Tbilisi and praised the doctors and microbiologists who cared for her. “Tbilisi is wonderful,” she said. “If you can go, go.”

Increased Bilateral Ties Between Georgia, Iran

BY SHAWN WAYNE

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n a meeting held on Sunday in Tehran, Iranian Minister of Economic Affairs and Finance (MEAF) Masoud Karbasian met with parliament members of Georgia. The two sides vowed to boost bilateral ties in various fields. Karbasian said that Iran and Georgia had previously inked suitable MOUs related to customs and tax, adding that Iran is ready to sign an agreement with Georgia in other areas as well. Touching on

the importance of expanding bilateral banking ties, the Iranian minister proposed that necessary grounds would be prepared so that Iranians and Georgians can use their ATM cards in both countries. Shalva Kiknavelidze, the Chief of the Georgian Parliament Friendship Group with the Parliament of the Islamic Republic of Iran, said that TehranTbilisi ties have entered a new phase. Establishing close relations with Iran is among the major foreign policies of Georgia, he said, adding that Tbilisi is ready to expand cooperation in various fields including economy and culture.

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Creating a Common Natural Gas Market for the Eurasian Economic Union BY DIMITRI DOLABERIDZE

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he participating countries of the Eurasian Economic Union are implementing an ambitious project to create a common market for natural gas by the EAEC by 2025. As of the end of 2016, the basic conditions for the future market were agreed and the concept for its creation adopted. The next stage of the "road map" for the formation of the regulatory and legal framework for gas integration will be the Program of Practical Actions for the implementation of the concept, which should be approved by the end of 2018. The formation of a common natural gas market in the EAEC will be successful if its participants can overcome the institutional heterogeneity of the current models of national natural gas markets and will be able by consensus to design the Target Model of the future common natural gas market. The national gas markets of the EAEC countries, on the basis of which a common market should be formed, are at different stages of evolutionary development and differ in the variety of functional models. The gas market of Belarus functions within the framework of the

public administration and planning system and in Kazakhstan the "main buyer" model is realized, characteristic for monopolistic types of market structures. In Russia, the market corresponds to the characteristics of monopoly competition, where, along with the dominant player, independent organizations operate. The markets of Armenia and Kyrgyzstan are at the initial stage of formation and have all the signs of a monopoly structure. All the countries of the Unified Energy System unite a high degree of state intervention in the functioning of markets, and sometimes see the direct involvement of the state in economic activities. Competition is poorly developed, and is often absent. There are high barriers for new players to enter the market. Regulation of gas prices is based on various methodologies for their calculation, price levels are largely dependent on the socio-economic and political goals pursued by national governments. As a consequence, prices are subsidized. Considering the differences in the starting conditions of the national gas markets of the EAEC member states, the twostage format of the movement towards the common market seems to be the most optimal. Ensuring the institutional homogeneity of models of national markets on agreed key criteria should be the

content of the first stage. In the future, the main focus should be shifted to the formation of institutions of supranational level that ensure coordination and regulation of the common gas market at its functional stage. The target model of the future common natural gas market of the EAEC should contain answers to key questions regarding the distribution of strategicregulatory competence between the EAGE authorities, which includes the structure of the common market, the availability of competition, the status of participants, the mechanisms of trade, the contract scheme, pricing principles and calculation of tariffs, regulation of access to infrastructures, markets and consumers, the structure of the external integration circuit and relations with third countries, regulate problems of gas exports to third countries which now are formally made out of the brackets of the EAEC integration agenda. Today, the EAEC states have all the initial prerequisites for implementing deep integration processes in the gas sector. These are a significant resource potential, the presence of a developed gas transport infrastructure, modern technologies and qualified personnel. The historical experience of the functioning of the gas industry as a part of a single economic complex, the common

goals of development and the coincidence of the positions of the EAEC countries on key issues of regional and

global geopolitics create an additional favorable background for deepening mutual integration.

OSCE Addresses Good Governance BY SHAWN WAYNE

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ollution, ocean acidification, climate change, deforestation, these are just a few of the environmental challenges that the world faces today. At the same time, poverty, corruption and inequality threaten our economic security and contribute to challenges such as migration and political instability. There is, however, a growing consensus that good governance has a tangible effect on environmental outcomes, as well as being of importance to poverty reduction and sustainable development. This approach is what is needed if not just for Georgia, but if global civilization is to effectively address the challenges of its time. At the Organization for Security and Co-operation in Europe, a comprehensive approach to security that links political and military affairs, democratic institutions and human rights, economics and the environment, and science and technology has always been the main focus. This multi-dimensional approach to security is rooted in the understanding that each dimension affects the other – that political stability is not possible

Statistics suggest that the risk of humans displaced through sudden natural disasters is 60% higher today than it was 40 years ago

without human rights, that security is not possible without a healthy environment and that prosperity is not possible without economic co-operation. In the OSCE’s founding document, the Helsinki Final Act of 1975, participating States recognized that observable “changes in climate” may be the result of human activity, and issued warnings about the effects of degradation of the environment on human health. Climate change that is “pushing civilization into uncharted territory,” such as rising sea levels, melting Arctic ice and record high temperatures, will be a focus point in the Parliamentary Assembly’s 27th Annual Session in Berlin early next month. Action and enhanced co-

operation among governments, including implementation through the landmark Paris Agreement on climate change, is what is needed. Participation at last November’s UN Climate Change Conference in Bonn by a coalition of more than 2,500 mayors, governors and others from across the United States who released the “America’s Pledge” report, outlining the scope of subnational climate action in the US, was a great encouragement following the Trump administration’s regrettable decision to withdraw from the Paris Agreement. Hopefully, the remaining signatory parties can still live up to the commitments made under the agreement.

For real progress to be made, the importance of fighting corruption and promoting good governance must be recognized. According to World Bank estimates, businesses and individuals pay an estimated $1.5 trillion in bribes each year, which is about 2% of the global GDP. In the fight against corruption, it is not enough to have a comprehensive legal framework. Worldwide effective implementation of anti-corruption provisions and monitoring is what is necessary, where there can be no exceptions. Today, civilization is at a record high of human mobility, displacement and migration. Natural disasters, with the help of climate change, have led to a significant increase in environmental

migration. Statistics suggest that the risk of human beings displaced through sudden natural disasters is 60% higher today than it was 40 years ago. It’s a very real threat that cannot be ignored. However, the global focus on migration due to these natural factors should not divert our attention from displacement as a result of conflicts and violence of a human nature. According to the Internal Displacement Monitoring Center’s 2017 Global Report, there are twice as many internally displaced people as refugees in the world, and that they may any day become international migrants, thereby adding to the already large movements of migrants and refugees. In Georgia, there are up to 300,000 internally displaced persons out of a population of 3.7 million – victims of ethnic cleansing and several waves of forcible displacement from Georgia’s occupied regions of Abkhazia and South Ossetia. A tragic component of warfare has been not only its impact on civilians, but also its destruction of the environment. This affects the resilience of countries and societies, including disruption to water supplies and disposal systems, which ultimately results in the discharge of pollutants into freshwater sources. After years of war, tainted natural environments and resources could become permanent. The ultimate goal of promoting international co-operation on economic and environmental issues is strengthening security and stability. When the Parliamentary Assembly meets in Berlin on July 7-11, readiness to work with governments in deepening partnerships to enhance co-operation on these vital issues will be the deciding factor on whether or not civilisation will continue a destructive way of life, or evolve into something better. The future of security in economics, environmental preservation, human dignity and ultimately civilisation, depends on the cooperation, partnerships and actions of global governance, setting an example for the average individual to follow.


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Georgia’s Breakaway Territories within the Regional Perspective Parliament May Adopt Draft on Energy Efficiency of Buildings BY THEA MORRISON

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he Ministry of Economy and Sustainable Development of Georgia has prepared a draft law which envisages promotion of energy efficiency, which will reduce greenhouse gas emissions and bring many other positive results, including new jobs in the construction sector, development and innovation of technology, reduction of air, water and soil pollution, reduction of taxes on

energy consumption and more. The law allows the use of high efficiency alternative systems in designing a new building or reconstruction of a building if it is functionally, ecologically and economically feasible. The main aim of the project is to increase the number of so-called zero-energy buildings in the country. According to the draft law, from 2029, all new buildings must meet the requirements of near zeroenergy buildings. The draft will be submitted to the parliament's bureau at the nearest sitting.

The perfect pairing of Business and Lunch! Amb assadori Club cordially invites you Georgia to Russia – Verkhniy Lars Border Crossing. Source: pineappleexplorer.com

ANALYSIS BY EMIL AVDALIANI

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his year marks 10th anniversary of the Russo-Georgian war of 2008 and the recognition by Moscow of Abkhazia and Samachablo (the so-called South Ossetia). A philosophical question is often always heard in the analytical community as to how Tbilisi would return the breakaway territories under its control. In international relations, it has always been about the balance of power. We should consider the issue of Georgia’s breakaway territories within the regional or even global picture. True, it is important what the minorities in Abkhazia and Samachablo think about their place in a reunited Georgia. However, their potential willingness to live within Georgia will be influenced by what is going on in the larger region overall; how the power balance shifts and what will happen in Russia, which serves as Sokhumi’s and Tskhinvali’s patron. Georgia is much stronger both economically and militarily than what it was decades ago, but Russia is stronger in almost every component. We could be more attractive in providing the Abkhazians and Ossetians free education, healthcare etc., but it is still very unlikely that Moscow’s influence will be significantly undermined in this way. What matters more is to understand in what direction Russia’s position is evolving in the Eurasian landmass. There are long-term indications that Russia is falling increasingly behind the European Union for the crucial land corridor from the Baltic to the Black Sea. Ukraine and its open antagonism towards Russia since 2014 is a primary example in this discussion. But it also matters that Moscow, in order to keep the borderlands under its geopolitical influence, facilitated numerous breakaway conflicts where Abkhazia, Samachablo, Transdnistria and the Donbas are indirectly supported. This became a whole web of statelets, the support for which has become strenuous. The financial brunt for Russia is important, but the ability to respond to so many theaters

simultaneously is a definite challenge. Take the example of Transdnistria. With Ukraine antagonized, Russian troops now no longer enjoy the ability to reach the breakaway land. Samachablo is yet another case. It is so much cut into the heart of Georgia, and therefore so open to potential military action, that the Russians will always have to think about reinforcements. For the Russians, the demarcation line in between Samachablo and the rest of Georgia poses a significant challenge as there are few geographic barriers the Russians could rely on to build a veritable defensive line. The fences in fact zigzag across low mountainous area and small rivers, making it uncomfortable to defend from a purely military posture. Yet, the problem is larger than that. Samachablo is separated from Russia by the Greater Caucasus mountains. Geographically, it will never be a part of Russia, nor connected to Russia economically. We might be worried as to what will happen to Tskhinvali and whether Ossetians want to be again with Tbilisi, but the geography dictates that this breakaway region cannot actually “be with” Russia. On a much higher geopolitical level, Russia is experiencing tough economic issues as well as significant western pressure. There is a certain possibility that this pressure will not abate in the long-run. Moreover, as I already wrote in previous editions for GT, Russia faces a far larger problem on its western borderlands than just the EU and US influence. Ukrainian nationalism could possibly isolate Russia from eastern Europe to the farthest spaces of the Eurasian continent. Thus, when one considers the problem of breakaway Abkhazia and Samachablo, we need to put the issue within the larger picture of Russia-West relations. The tilting balance of power towards the West might be a good indicator of the things to come, namely, the gradual decline of Russia’s influence across Eurasia. Seeing these trends from Tbilisi, the country’s road towards EU/NATO should remain unchanged. This is based not on the thinking that that Europe is just culturally closer to us, but on pure geopolitical calculations where the stronger wins, and that is West, not Russia.

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Profile for Georgia Today

Issue #1060 Business  

June 26 - 28, 2018

Issue #1060 Business  

June 26 - 28, 2018

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