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Issue no: 856/33
Source: BFI Film Academy 3, Autumn 2014, background photo by Tony Hanmer/GT
• JUNE 28 - 30, 2016
• PUBLISHED TWICE WEEKLY
FOCUS ON LOCATION
Georgia G eorgia looks to H Ho llywood for investment Hollywood
PAGE 3
PRICE: GEL 2.50
In this week’s issue... Tbilisi Airport to Get New Terminal in 2017 PAGE 2
Georgia to Introduce Strict Smoking Laws from July 1, 2017 PAGE 2
We Want to Take Our Countries Back, and We Will! ISET PAGE 4
Georgian Foreign Minister Pays First Official Visit to Liechtenstein
Brexit and Georgia
T
he Georgia Analysis is a twice monthly analysis of political and other major developments in Georgia. Lincoln Mitchell is a political development, research and strategic consultant who has worked extensively in the post-Soviet space. He has agreed to share some of his analyses exclusively with GEORGIA TODAY. Thursday’s vote in the UK, in which a slight majority voted for their country to leave the EU, will have substantial and immediate impacts on domestic politics in the UK as well as on the foreign policy, trade and economic future of that country. Continued on page 5
Cartoon: Dr Meddy. Source: www.Cartoonmovement.Com
OP-ED BY LINCOLN MITCHELL
PAGE 8
Georgia’s Location Both a Blessing and a Curse, Former US Ambassador Says
PAGE 13 Prepared for Georgia Today Business by
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48,41
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121,19
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805,87
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BUSINESS
GEORGIA TODAY
JUNE 28 - 30, 2016
Tbilisi Airport to Get New Terminal in 2017
BY NICHOLAS WALLER
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new USD 25 million terminal will be constructed at Tbilisi’s Shota Rustaveli International Airport as part of a major expansion project slated for completion in 2017, according to the airport’s managing company TAV Georgia. "In 2015, we signed a new contract with TAV Georgia, according to which the company made a commitment to begin constructing a new terminal capable of accommodating 2 million passengers per year. More than USD 25 million will be invested in the new terminal’s construction,” said Dimitry Kumsishvili, Georgia’s Minister of Economy and Sustainable Development, at the groundbreaking ceremony for the future terminal. The new terminal will cover more than 12,000
square meters and have the capacity to receive 3.25 million passengers per year. Roughly 500 people will be employed to build the terminal. The airport is currently implementing a costly and time-consuming project that aims to lengthen the runway, which will allow the airport to accommodate larger aircraft. The project has provoked the ire of many Tbilisi residents and visitors to Georgia’s capital as the expansion is carried out during daylight hours, which forces the airport to be completely closed to air traffic from early morning to late evening. Planners of the project have faced heavy criticism for having scheduled the expansion during the height of the country’s tourism season as it significantly hinders the airport’s ability to accommodate the flow of visitors. The runway’s expansion works are to conclude on July 1.
Georgia to Introduce Strict Smoking Laws from July 1, 2017 BY TATIA MEGENEISHVILI
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new draft law that amends Georgia’s Tobacco Control will fully or partially restrict smoking in all public places from July 1, 2017. According to the adopted amendments, a minimum of 50 percent of hotel rooms must be smoke-free, while cafes, bars, restaurants, casinos and beauty salons will be allowed to provide an absolute maximum of 20 percent of their total space to those who smoke. The e area must also be isolated, d, enclosed and include either er a window or an alternative ve form of ventilation. From January 1, 2018, all offices, factories, warehouses, es, terminals and other similar ilar buildings must also designate nate less than 20 percent of their total otal area for smoking. Stadiums and other sports venues will also be subject to a minimum 50 percent ban on smoking. oking. The new law also prohibits other forms of use or demonstration tion of tobacco- in mass media, print rint or electronic media, and in theater performances (unless the action takes place in open air and d has no live broadcasting). The new law will also strictly tly prohibit smoking on public transport, as well as tobacco advertisements and promotional campaigns that condone the use of tobacco or nicotine-related products.
Sites designated for the sale of tobacco products must also clearly display special health warnings regarding the risk of smoking and a special hot line number that people can call to quit their addiction to smoking. Health warnings must also cover 65 percent of the average cigarette packet. The tobacco companies and their local distributors will be required to provide carbon emission details at their expense.
Smoking will be restricted fully or partly in public places in Georgia from July 1, 2017. Photo: David Sillitoe / Guardian
BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
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Enticing Hollywood to Film in Georgia BY MERI TALIASHVILI & TAMAR SVANIDZE
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n the framework of the Georgian government program ‘Produce in Georgia,’ top Hollywood producers, who have worked on such famous films as The Hangover, Transformers, Captain America, The Town, Sicario, and Mission: Impossible, visited Georgia to discover its potential film locations. During a week the group visited Georgia’s most popular and ancient sites including Tbilisi, Rustavi, Kakheti, Mtskheta, the remote mountainous Kazbegi and Mestia, cave-city Uplistsikhe, Tsqaltubo, Zugdidi, and Black Sea resort town, Anaklia. Additionally, American filmmakers met their Georgian counterparts and various production company representatives to share their experiences, as well as to learn about Georgian cinema and the existing infrastructure, which offers an excellent opportunity for Georgia to become the Eastern European center for film sets. “The world is only now starting to appreciate what Georgia has to offer, and bringing a delegation of top location scouts from Hollywood was a very smart move,” American filmmaker Thomas Burns told GEORGIA TODAY. “The team behind the ‘Film in Georgia’ campaign has done a phenomenal job attracting the attention of foreign studios.”
Burns, who trained over a decade in Hollywood on feature films, television and commercials and who opened his own post-production studio Spectra Post in Tbilisi in December (see Georgia Today interview with him, April 7, 2016) accompanied the Hollywood delegation to advise American producers on what they can expect in Georgia and how to make the most of their shooting schedule here. “Foreign productions will use Georgian crews and equipment in their projects and this is an incredible opportunity for Georgian filmmakers to receive training, expand their networks, and stay current with the latest work practices. While filmmaking has existed in Georgia for 100 years, Georgia is only now emerging as a 21st-century film industry, and that’s exactly what is necessary to support robust development in this sector. Filmmaking in Georgia can’t exist on state subsidies alone––there must be private investment,” Burns said. Interest in the Film in Georgia program is high and the Enterprise Development Agency, which is carrying out the program, has seen three applications already submitted. As a result, 5,700.000 million GEL is set to be spent in Georgia. The Hollywood delegation was hosted by the Enterprise Development Agency and the Georgian National Film Center. On their return to the US, the experts will offer location recommendations to other US film directors and producers. Georgia started cooperating with the US film industry earlier this year after two Georgian agencies travelled to the
US and presented the new governmentfunded ‘Film in Georgia’ program, to encourage foreign film-makers in an attempt to attract small and big budget film producers to the country.
The program offers benefits to local and foreign companies who want to use Georgia as a production site for their films. The Georgian Government hopes that by introducing a cash rebate mech-
anism, major international film companies will be enticed to move their onlocation operations to Georgia if they are guaranteed a 25 percent reimbursement on their overall costs.
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BUSINESS
GEORGIA TODAY
JUNE 28 - 30, 2016
THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS
www.iset-pi.ge/blog
The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.
We Want to Take Our Countries Back, and We Will! BY ERIC LIVNY
F
or the likes of Boris Johnson, currently UK’s most popular politician and a leading figure of the Brexit revolt, “The European Union has become too remote, too opaque and not accountable enough to the people it is meant to serve.” But how about the UK itself? How close are 10 Downing Street or Westminster to the working class folks of England’s industrial north? How representative is Britain’s Eton-educated ‘political class’ of the people they are meant to serve? And if Boris Johnson is lauding the British people for deciding to take control of their own future, why not let the Scottish people do the same? Consider also this statement from Mr. Johnson: “There is simply no need in the 21st century to be part of a federal system of government based in Brussels that is imitated nowhere else on Earth”. Nowhere else? How about the federal system of government based in Washington DC? Haven’t we heard enough in recent months about “Washington politicians” not listening and being out of touch, failing to protect people’s jobs or health, building bridges to nowhere, lying about WMD as a pretext for funding CIA
covert operations and wars abroad? The truth is that Brexit, and Trump, and Bernie Sanders are symptoms of something more systematic than a bunch of nostalgic traditionalists in British “rural areas and market towns” forming a "Stop the world, I want to get off" movement, as Robin Oakley wrote in his CNN column last week. What we are facing today – in Europe and the US – is a twin crisis of the “nation-state” and of democracy in a globalizing world.
CITIZENS OF THE WORLD UNITE! Much of the Brexit rhetoric was about regaining control over national borders and reigning in migration from the Middle East and Africa. But the terms “nation” and “national,” given their genetic connotation, are becoming less and less convincing in the 21st century. Belgium, Spain and Switzerland may be extreme examples, but most European “nations” of today have their genetic roots in hundreds of tribes that once roamed across Eurasia. Moreover, white Europe is no longer all that white, having seriously compromised its racial purity through past colonial adventures and dependence on migrant workers. Even less convincing is the notion of “national borders” given our collective realization of their totally arbitrary nature. The elimination of (artificial) political
Donald Trump and Boris Johnson have more in common than just hairstyle. Source: Wikimedia/Commons
barriers to the movement of people and goods was probably one of the most welcome features of Pax Europaea. But, (colonial) borders are being increasingly questioned everywhere else, in the Middle East, Asia and Africa, destabilizing existing political regimes and unleashing waves of migration across borders. Having emerged in the 19th century, nation-states served a purpose – helping break the old royal and imperial order and providing an alternative narrative around which to organize societies and deliver law and order. Yet, being programmed to claim exclusive ancestral rights to territory and pursue ruthless linguistic and cultural homogenization, nation-states inevitably clashed with their own societies and each other, producing two world wars, innumerous attempts at ethnic cleansing, genocide, and hitherto unprecedented bloodshed. Starting with the League of Nations, the 20th century has seen several efforts to establish regional and global frameworks to resolve conflicts and promote cooperation among nation-states. Spearheaded by regional powers, multilateral organizations, philanthropists and corporations, these efforts rest on the premise that the nation-state has become TOO SMALL to handle any of the global challenges facing humanity in the 21st century - from war and conflict to climate change, to disease control, to innovation, to effective taxation (as vividly illustrated by the Panama papers), to business development and global migration. At the same time, and rather paradoxically, nation-states have become TOO BIG to be able to accommodate demands for cultural and economic autonomy
coming from regional groups, ethnic and religious minorities. Such local groups increasingly find themselves outnumbered and “not listened to” within existing nation-states, providing a strong impetus for independence movements, separatism, civil wars and frozen conflicts, and (mostly) unrecognized states. The sovereign nation-state paradigm is not yet dead, yet all signs point to the fact that it is living its last days. On the one hand, nation-states face ever increasing pressures to succumb to externally imposed rules of the games (financial, economic, environmental, etc.). On the other, they are strained (and, literally, torn apart) by internal demands for greater linguistic, cultural and economic autonomy, federalization and outright secession. Perhaps one of the greatest political challenges of the 21st century will be to engineer a smooth transition from the old system of fully sovereign nationstates (already proven to be ineffective) to a new political order allowing to maximize local freedoms subject to global constraints – related to e.g. wealth and income inequality gaps (the engine of mass migration), energy security and environmental degradation. And while the institutional intricacies of the emerging new political order are yet to be worked out, it is clear that it will draw its legitimacy from the ability to solve problems, not (imagined) common ancestry or God’s mandate.
IVOTE AND IDECIDE DEMOCRACY? As much as Brexit can be understood as an expression of voter anger against the EU bureaucracy, it was also an exercise
in direct democracy, a revolt against patronizing ‘experts’, traditional political parties, and, generally, Britain’s social and economic elites. The ‘anti-establishment’ and ‘antisystem’ sentiment is not confined to British politics. As argued by Elizabeth Drew in The Trumping of American Politics, “revulsion at government and traditional politicians” is a central theme of contemporary US politics, hitting the ongoing presidential contest “like a tornado”. This revulsion is very much evident in developed democracies, where political parties and professional politicians appear to represent nobody but themselves, creating demand for outsiders, such as Donald Trump and Bernie Sanders, who are ready to take on Washington (and London, and Brussels). The institutional machinery of representative democracy, once perceived to represent and reflect, now comes to be seen as standing in the way of, and distorting, the popular view (or views). Even in established electoral systems that have been designed to prevent the emergence of new parties (such as the US and UK), individual politicians find it profitable to directly appeal to the party base, actively ignoring the established “elites”. In new democracies, such as those in Eastern Europe, political parties have become a joke, and parliaments are the least trusted public institutions. Ad hoc parties come and go, change names and ideology, morph into ever shifting political alliances, not living long enough to develop a bureaucratic apparatus, membership, etc. etc. Continued on page 7
BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
Brexit and Georgia
Continued from page 1 Similarly, the EU could find itself in greater turmoil if other countries seek to follow Britain’s lead and try to exit the EU. Brexit also has many implications and raises numerous challenges for Georgia, making it necessary for Georgia’s leadership to think about their foreign policy in a very different light today. The most obvious way that Brexit will effect Georgia is that it raises the possibility that Georgia may be moving closer than ever to the EU at a time when the EU may be breaking apart. In this scenario, Georgia could finally achieve a longstanding and extremely important foreign policy goal only to find out that the prize itself is hollow. Even if this is not the case, and that an EU without the UK is able to move forward smoothly, there remains a possibility that the Georgian people will see the EU as a less dependable or valuable foreign policy goal and therefore the thus far reasonably resilient pro-European consensus in Georgia could be undermined. There are, of course, other challenges Brexit will raise for Georgia. The vote in the UK may be met with dismay in Brussels, Tbilisi, elsewhere in Europe as well as in Washington, but the view
from Moscow is different. Russia’s President Vladimir Putin will almost certainly see Brexit as good for Russia and perhaps a harbinger of further problems with, or departures from, the EU. This is likely to lead Moscow to continue its policy of involving itself in European politics, primarily by supporting far right political parties who, not coincidentally, are in most cases hostile to the EU but friendly to Russia. A Russia that is sufficiently emboldened by this victory that it will involve itself more in European politics and push more aggressively against western powers is precisely what Georgia does not need, but that is precisely what the voters of the UK have given Tbilisi. Less dramatically, another result of the Brexit vote will, at the very least, mean that the UK, one of Georgia’s staunchest supporters and advocates, will need to focus much of its attention on the fallout from Thursday’s vote. Things like negotiating trade and other agreements with the EU and other countries and determining, with regards to both big picture questions and specific issues related to countries such as Georgia, what their role in the world will be moving forward are among the issues that will consume the British political class in the next few months, and probably years. The sentiment that appeared to provide the foundation for the electoral support for the Brexit is one that is also not good for Georgia. While there were many positions that drove the Brexit victory, nationalism, opposition to immigration, and a desire to be less involved with the rest of the world were among the most significant. These opinions are on the rise, and the voices that have always supported these views are getting louder, throughout Europe and the US. The most extreme expression of this
may be the energy and passion among a segment of the American population that has contributed to the rise of Donald Trump as a political force. Trump’s appeal is drawn in substantial part from his celebrity personality, proud ignorance on any of the major issues facing the US or the world and ability to contradict himself with righteous pride, but he has also campaigned on racist and nativist themes that have resonated well. It is unfair to tar all of the Brexit voters with the Trump brush, but the two are related. The latter believe the US can wall itself off from Mexico and symbolically the rest of the world, while the former just voted, in a political sense, for the UK to turn the water surrounding their country into a moat to keep the rest of the world out. While Trump may be an American original, there are voters throughout Europe who share the hostility to immigration and suspicion of the outside world that contributed to the Brexit victory. It is also worth noting that Georgia is not immune to these types of political movements either. Georgian political parties that have expressed a preference for what they see as traditional Georgian values, a strong identity with the Georgian Orthodox Church and a wariness of further integration into the West are products of the same economic uncertainty and political frustration that fueled the successful Brexit effort. It may be that there are no countries in Europe where these voters can form a majority in the near future, but they will, at the very least, begin to make more demands on policy makers and vote for those politicians and parties who share these views. All of that is bad for Georgia. A Europe, and for that matter US, where internationalist policies and a welcoming
approach to immigrants are being challenged is one that creates many problems for Georgia. This is particularly true given that Georgia is well along on what has proven to be an agonizingly frustrating and slow path to visa liberalization with Europe. The arguments that Georgia has made to western powers regarding why further integration of Georgia into western institutions is good for Europe and the US will not even be listened to if voters in those countries are loudly demanding a different path. This has not yet come to pass, but represents perhaps the worst outcome for Georgia. While much can be made of voter sentiments, Putin’s machinations, and changing attitudes in Europe and the US, it is also true that while the EU without the UK is not going to automatically collapse, it will be significantly weaker. The UK has been one of the biggest, most prosperous and most militarily powerful states within the EU. In the probable case that Brexit is neither a fatal blow to, nor the beginning of the end for, the EU, the EU is still smaller, weaker and poorer without the UK. Therefore, the political entity that for over a decade has represented the sum of Georgia’s political and symbolic aspirations is not as powerful as it was even a week ago. Brexit’s impact on the EU will not, unless the dissolution of the EU occurs more quickly and decisively than most expect, force Georgia to immediately rethink its goals of further integration into western institutions, but it is a clear indicator both that there is now a strong political barrier to joining those institutions and that membership in the EU is less valuable than it once was. This puts Georgia, once again, in the position of both having to continue to pursue these goals while also further exploring, in the longer run, what further deterioration
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of the EU would mean for Georgia. Additionally, Georgia will, almost immediately, need to have significant discussions regarding trade and immigration with a longstanding ally, the UK, whose voters have just sent messages that cannot be pleasing for leaders in Georgia. Georgia is not alone in this as Ukraine, Moldova and other countries now face these challenges as well. There was no good time for Brexit, but this vote coming only a few weeks before the Warsaw NATO summit is particularly problematic for Georgia. Warsaw was already shaping up to be another summit from which Georgia would return not empty-handed, but also not with a MAP. The Georgian government should already have been trying to determine both what they would get from NATO as well as how to present it to the Georgian people as a reason to remain steadfast in their commitment to NATO. Now, that summit will occur in the shadow of Brexit, meaning that NATO may too begin to look inward more as the political sentiments behind Brexit, and kindred movements in other countries, begin to spill over into the reality of defense and security. This is unlikely to be a climate in which further expansion of NATO will get a particularly sympathetic hearing. After Brexit, the Georgian government now faces the parallel tasks of maintaining a solid relationship with a UK that is no longer in Europe, reinforcing a domestic consensus for membership in an EU that may be perceived as fraying, and trying to make the most of a NATO summit where Georgia has now been pushed further from the top of the agenda. This must be done in the context of a Russian regime that may see itself as having achieved a major political victory in Europe and is perhaps preparing to seek more victories. This would be a daunting task for any government, one that is made even more complex by an election that is now less than four months away. To read more analyses from Lincoln Mitchell, visit his site: lincolnmitchell.com
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BUSINESS
GEORGIA TODAY
JUNE 28 - 30, 2016
Gazprom Confident in Future Export of 165 billion M3 Gas Abroad
New $120 Million Cement Factory Under Construction in Western Georgia BY TAMAR SVANIDZE
BY DIMITRI DOLABERIDZE
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azprom has announced it intends to export at least 165 billion cubic meters of gas abroad in 2016, according to deputy chairman of the company, Alexander Medvedev. In 2015, Gazprom increased its gas exports to non-CIS countries to 159.4 billion cubic meters, which is 8% more than the previous year. Supply growth contributed to the reduction of its own production volumes in Europe, according to Chairman of the Board of Gazprom, Alexey Miller. “The increase of gas supply is a clear confirmation of the need to build gas pipeline ‘Nord
Stream-2,’ through which Russian gas will pass via the Baltic Sea directly to Germany, the UK, Netherlands, France, Denmark and other countries, bypassing Ukraine.” Nord Stream-2 will be an international collaboration between six major energy companies – PJSC Gazprom, the German companies Uniper and BASF SE/Wintershall Holding GmbH, the AngloDutch Royal Dutch Shell Plc, the Austrian OMV AG and the French Engie S.A. “Europe’s gas production is declining and its import needs rising, so Nord Stream-2 is in its best interests,” Shell CEO, Ben van Beurden, said June 7. “We believe Nord Stream-2 is a good project, as it provides infrastructure for importing much-needed gas to the EU and Russia is a major gas supplier to the EU.”
Russian gas is currently supplied to Europe through the OPAL pipeline, which is the challenger of gas pipeline ‘Nord Stream-1.’ The OPAL natural gas pipeline, with a capacity is 36 bln cubic meters, is a land extension of the offshore Nord Stream pipeline. However, the European Commission has put a limitation on Gazprom to use just 50% of its capacity: Gazprom (50%), Uniper (10%), Royal Dutch Shell (10%), OMV (10%), ENGIE (10%), Wintershall (10%). "We are seeing the first successes of the long-suffering threads of the OPAL gas pipeline, the decision on which was taken four years ago. Now the German regulator has sent a corresponding request to the European Commission. We expect a positive decision in the very near future," said Gazprom’s Medvedev.
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new USD 120 million high standard cement factory is to be built in Georgia’s western town of Senaki in Samegrelo region, the press office of the Georgian Prime Minister has announced. PM Giorgi Kvirikashvili launched construction of the Georgian-Chinese joint investment project on June 25. The facility, which covers 20 hectares of land in Senaki, western Georgia will produce 900,000 tonnes of clinker and 1.5 million tonnes of high quality cement annually. An agreement on undertaking investments and launching “The Black Sea Cement, Ltd” was signed by the AsianAfrican Business Management company Hualing Group and a Georgian construc-
tion company this April. Kvirikashvili emphasized that the modern enterprise will boost Georgia’s economy. “This is a great example of partnership between Georgia and China,” Kvirikashvili said during the launching ceremony of the construction. “Several hundred local residents will be employed here and income produced by this venture will be very important in terms of contributing to the state budget,” he emphasized. According to the Prime Minister, more than 500 local residents will be employed at the factory. He highlighted that the project will be based on principles of high efficiency, safety, environmental protection, and recycling and reuse of waste. The factory will be equipped with special noise reduction mechanisms which will minimize the level of noise and protect the local residents from production-related disturbance.
BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
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We Want to Take Our Countries Back, and We Will! Continued from page 4 Clearly, the migration debate has sharpened the differences in the political preferences between the ‘simple folks’ (who don’t see the benefits of globalization), and national political establishments and pundits (who claim to care about the ‘long term’ and the ‘big picture’ but fail to get their views across). Yet, the migration debate alone will not be able to explain the drawn out process of erosion in people’s trust of conventional democratic politics, political parties and professional politicians. Democracy draws its inspiration from ancient Roman and Greek texts, which present it as a system of government “for the people and by the people”. While democracy may be unattainable in its pure idealistic form, recent advances in communication technology make it much easier for the ‘simple folks’ to shop for information and actively engage in policy debates way beyond occasional voting. In other words, technology enables more direct forms of democracy and of democratic participation in state affairs. On the one hand, modern technology allows people to communicate with each other, find support for their ideas or interests, and get organized. In this way, it greatly reduces the role of intermediaries (professional politicians) in the
political process, enabling people to “take their countries back”, not only from Brussels and Washington, but from the political establishment as such. Naturally, the political class comes under the fiercest attack in the EU and US context where ‘democratic’ decisionmaking appears to be particularly far removed from individuals and communities, however, this is just the beginning. I believe that similar demands for autonomy and more direct democracy will be raised within existing nation-states. And, very importantly, this trend is irreversible. On the other hand, advances in technology greatly reduce the role of party organization in the political competition process. It no longer takes a massive grassroots machinery and party bureaucracy to start a new political movement and win votes. All it takes is a message, one impressive speaker, Facebook and Twitter accounts, a good crowdfunding platform, and a skilled campaign manager. Well, almost. Not all of this is good news. With the fixed cost of establishing a new party going down over time, the political market will see a lot more entry and cutthroat competition, resulting in the ‘simplification’ of political messages (xenophobic walls and borders, jobs, free healthcare and education for all).
Indeed, there is a danger that representative democracies, with their ability to filter, 'check and balance', will give way to illiberal direct democracies, suppressing minorities, building walls, etc. This danger is real and a lot of thought should go into developing a proper institutional response, as discussed, for instance, in Kenneth Rogoff’s Britain’s Democratic Failure. * * * While working on this article, I wrote to my former teacher, Ronald Beiner, whose Democratic Theory class I took back in 1991. This is what he wrote in response: “It's been a very bad week for those who complacently assume that things will necessarily get better if elites are humbled and direct-democracy energies get liberated. There's no guarantee that populist politics won't inflict atrocious things on the world, as they have in the past. Right now, things are looking pretty scary: Trumpism, Brexitism, the resurgence of the radical Right in Continental Europe. We have to have our eyes open to all those real dangers and think hard & seriously about effective institutional responses. I'm not sure what those might be, but I suspect that at the moment the political classes in Western democracies are also scratching their heads trying to figure it all out.”
Azeri Former Bank Exec Charged with Embezzling €125mln BY NICHOLAS WALLER
A
zerbaijan’s interior ministry has charged the former chairman of the state-owned International Bank of Azerbaijan (IBA), Jahangir Hajiyev, with embezzlement after an investigationconcludedthatheillegallytransferred up to EUR 125 million into bogus bank accounts set up for himself and his family members over a 14 year period. According to the investigation’s findings, IBA – Azerbaijan’s largest bank – had suffered through years of mismanagement during Hajiyev’s 2001-2015 tenure. The bank’s assets quickly turned to junk after the national currency – the Manat – was devalued in February 2015 on the back of falling energy prices. The Azeri government forced Hajiyev out shortly after the devaluation and began an inquiry into the bank’s insolvent loans. The APA news agency reported that many of the loans were handed out to some of Azerbaijan’s most prominent
businessmen, including Nizami Piriyev, the founder and former owner of stateowned energy giant SOCAR’s subsidiary Azmeco. Following Hajiyev’s ouster, the Azeri government’s internal audit of IBA found that up to EUR 5.9 billion in bank assets were made up of non-performing loans. The findings led to a subsequent purge of IBA’s executives and upper echelon management at its Georgian, Russian and Emirati branches, and the State was forced to inject EUR 1.8 billion into the bank, bne IntelliNews reported on June 24. The report also claimed that Baku plans to privatize IBA once its balance sheets are clear. The State’s investigation into Hajiyev’s activities while at the helm of IBA found that he abused his official powers by opening bank accounts for himself, his family members (including his wife Zamira Hajiyeva) and other associates with the purpose of transferring vast sums of money to the fake accounts. Zamira Hajiyeva is also facing embezzlement charges, though she has reportedly fled the country.
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BUSINESS
GEORGIA TODAY
JUNE 28 - 30, 2016
Georgian Foreign Minister Pays First Official Visit to Liechtenstein PREPARED BY KATIE RUTH DAVIES
T
he Minister of Foreign Affairs of Georgia, Mikheil Janelidze paid an official visit to the Principality of Liechtenstein where he held meetings with the Minister of Foreign Affairs, Justice and Culture of the Principality of Liechtenstein, Aurelia Frick, and the Hereditary Prince of Liechtenstein with governing powers, Alois. This is the first official visit to the Principality of Liechtenstein from Georgia. During the meetings held in Vaduz, the sides discussed various areas of bilateral relations highlighting the great potential
The Georgian Foreign Minister reaffirmed his readiness to host Liechtenstein’s business delegation in Tbilisi
of co-operation in economy, tourism, regional development and education. The Georgian Foreign Minister provided his colleague with information regarding the priority areas of the FourPoint Reform Plan initiated by the Prime Minister, and Georgia’s short-term objectives in this direction. Frick expressed her interest in sharing Liechtenstein’s experience with Georgia in many areas, including education, vocational training, and regional development. Liechtenstein’s Minister of Foreign Affairs, Justice and Culture highly appreciated the already implemented and ongoing reforms in Georgia, especially the introduction of electronic services – an innovative tool offered to the citizens of Georgia. The sides underlined the importance of economic co-operation, stating the belief that the Free Trade Agreement between Georgia and the European Free Trade Association due to be signed during the Georgian Prime Minister’s forthcoming visit to the Swiss Confederation will serve as an essential pre-requisite for the further deepening of this cooperation. The Georgian Foreign Minister reaffirmed his readiness to host Liechtenstein’s business delegation in Tbilisi. The Georgian delegation expressed its gratitude for Liechtenstein’s support for the sovereignty and territorial integrity of Georgia. Both sides reaffirmed the increasing level of positive co-operation within international multilateral formats. The sides spoke about the need to hold regular consultations between Georgia and Liechtenstein and the importance of exchanging high-level visits. Mikheil
The first official visit to the Principality of Liechtenstein from Georgia
Janelidze invited Minister Frick for an official visit to Georgia. As part of his visit to Vaduz, Mikheil Janelidze met the Governing Prince of Liechtenstein, Alois. Both expressed their readiness to contribute to the development of relations between Georgia and Liechtenstein. Diplomatic relations between Georgia and Liechtenstein were established in 1992. In 2015, the Government of Georgia and the Government of the Principality of Liechtenstein signed a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital.
Mikheil Janelidze, Minister of Foreign Affairs of Georgia, meets Aurelia Frick, Minister of Foreign Affairs, Justice and Culture of the Principality of Liechtenstein
BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
9
RETAIL FPI | Georgian Consumers Outsmarting Supermarket Managers?
S
easons change, and so do Georgian food prices. In the second week of June, Georgia’s major food retail networks (Carrefour, Goodwill, Fresco and SPAR) lowered their prices by an average of 3.9% y/y and 1.8% m/m. Compared to the end of May, prices moved the most for the following food items: eggplant (-21%), pasta (-10.3%) and coffee (-5.7%); wheat flour (+11%), buckwheat (+10.5%) and garlic (+6.8%).
THE LAW OF ONE PRICE … WHAT LAW? Why should exactly the same product sell at dramatically different prices in different shops? It shouldn’t. At least that’s what the economics “law of one
price” says. The reality – in Georgia and elsewhere – is, of course, different. Very different. Let’s take a quick look at some of the most common grocery items sold in major Tbilisi supermarkets: As is easy to see, there is very little difference in the prices of some items, say, Koda and Dila eggs, which sell at 30-32 tetri. Yet, how come one supermarket is offering exactly the same 1kg package of Makfa flour for 1.55 GEL while another is pricing it at 2.05GEL (a difference of more than 32%)? Makfa flour may be an extreme case, but there are significant differences, well above 10%, in the prices of most grocery items. One possible explanation is that supermarket managers don’t know what they
are doing and base their pricing decisions on greed rather than calculation. Greed, however, may be a poor guide for profit-making. Once bitten, consumers may get twice shy about shopping at greedy outlets. With competition among Georgian supermarket chains increasing all the time, greed and stupidity will be quickly punished. Another possibility is that some supermarket chains are better than others in securing low prices from their local and international suppliers. For instance, this is the reputation of the largest US retailer, Wal-Mart. If this is the case in Georgia, we should observe some supermarkets being consistently cheaper than others in most food categories. Finally, supermarket managers may be very smart guys who know how to lure consumers into their establishments.
One common trick is to use so-called “loss leaders” – the term for goods advertised or sold at or below cost price. As explained on thekrazycouponlady.com, “the objective behind having a few of these for a sale period is to “lead” customers into the store with the premise that, once inside the store, the customers will also purchase full-priced items, making up for the profit loss.” It is indeed quite common for shoppers to succumb to the impulse and fill up their shopping carts once they get into a store. But smart shoppers – hopefully, there are some of them in Georgia – can do much better!!! Why not hunt for “loss leaders” and stockpile items that are sold at rock bottom sale prices? Outsmart supermarket managers, buy cheap and avoid paying the full price every time you run out of a product!
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BUSINESS
GEORGIA TODAY
JUNE 28 - 30, 2016
Georgia Signs Free Trade Agreement with EFTA Member States Prime Minister of Georgia, Giorgi Kvirikashvili signed a Memorandum with the European Free Trade Association (EFTA) for future collaboration in Bern, Switzerland
BY DIMITRI DOLABERIDZE
O
n 27 June, 2016, in Bern (Switzerland), during a meeting of the ministers of the European Free Trade Association, Georgia signed a Memorandum with the European Free Trade Association (EFTA) for future collaboration. Present were the Prime Minister of Georgia, Giorgi Kvirikashvili, together with Vice-Premier Dimitry Kumsishvili and other Georgian representatives. The EFTA consists of four member states- Swit-
zerland, Lichtenshtein, Norway and Iceland. Through this Agreement, Georgia will be able to send Georgian-made products to EFTA’s market with an expected 14 mln GEL profit. The Agreement covers the following fields: goods trade, service trade, sanitary and phytosanitary measures; technical barriers in trade; regulations, trade facilitation and customs cooperation; investments; intellectual property rights; government procurement; competition; trade protection measures, and sustainable development. The talks between the parties began in September 2015 with negotiations successfully completed on 26 February, 2016. The agreement has entered into force upon signing by all parties.
Georgian Econ Minister Blames Brexit for Lari’s Sudden Decline BY NICHOLAS WALLER
G
eorgia’s Economy and Sustainable Development Minister, Dimitry Kumsishvili, on Monday said the sudden precipitous drop of the value of the Georgian Lari against the US dollar can be traced to the UK’s decision to withdraw formally from the European Union. In a referendum held on June 23, 52 percent of voters in the United Kingdom opted to end their formal membership in the EU and sent shockwaves around the world as the future of the EU and UK, itself, came into question. With UK voters opting to be the first to seek a formal divorce with the EU, Britain’s exit – or Brexit – from the European Union has sparked widespread panic on the world’s financial markets. Several of the world’s national currencies have gone into a tailspin as the value of the Euro slid against the Dollar, and the British Pound hit a 30-year low against the greenback. The Georgian National Bank set Monday’s Lari exchange rate against the Dollar at 2.2941 GEL/ USD 1, a sharp 2 percent drop from Friday’s closing rate. "This is most likely a one-off that is directly connected to the UK’s decision to quit the European
10 Galaktion Street
Union. This caused the Euro and Pound to weaken significantly and the Dollar to rise. Of course, this immediately affects our currency," Kumsishvili said in a televised interview with Georgian news agency Rustavi-2. The Lari had been experiencing a rebound in recent months after hitting an all-time low of 2.4998 on February 13. As recently as June 9, the Lari had strengthened by 15 percent to 2.1196 against the Dollar, its highest rate in nearly 18 months. Georgia’s National Bank maintains a policy of sharply appreciating the Lari by occasionally purchasing foreign currency at auctions. From MarchJune, the bank bought more than USD 298 million at 11 auctions. Due to the current market instability and the volatile fluctuation in the Lari rate, Kumsishvili advised the public to keep a close eye on the exchange and buy and sell foreign currency only when necessary.
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BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
11
Zurab Zhvania Georgian School of Public Administration Raising Civil Servant Competencies BY MAKHO JIGHAURISHVILI
Castello Mare Hotel Opens in Adjara Region BY TATIA MEGENEISHVILI
O
n June 25 yet another five star hotel joined the ranks of luxury accommodation possibilities in Georgia. Castello Mare, located just 17 kilometers away from Batumi city, was opened on the Black Sea coast, in Tsikhisdziri village. The complex, which consists of a hotel and wellness resort, is a USD 25 million investment project. The hotel, which has a conference hall, tennis court, billiards, bowling and diving school also offers something extra special to its guests- a trip directly down to the beach on modern elevators. There are 90 rooms of eight different categories available, all of which boast a sea view. Also available on the complex is a spa center, recreational zone with sports hall, a Jacuzzi, indoor and outdoor
pools, several types of sauna, cosmetic rooms, and a beauty salon with about 100 fitness and therapeutic procedures. Prime Minister of Georgia, Giorgi Kvirikashvili, attended the opening ceremony. In his speech Kvirikashvili underlined that the USD 25 million project will support the development of tourism in the region and create much-needed working places. "This is a beautiful and absolutely unique resort and recreational complex. The building perfectly fits into this beautiful and historic area, just like a chameleon. This is a complex which gives even more value to an already beautiful landscape,” said Kvirikashvili. He went on to underline that the investor Soso Orjonikidze, a Georgian born businessman, gained his capital aboard. “However, he decided to invest the money he earned in his home country. Besides this USD 25 million hotel, he has ambitious plans for developing the adjoining area as well,” the PM stated.
T
he Zurab Zhvania Georgian School of Public Administration hosted a media tour in Kutaisi at which the representatives of central and regional media were able to familiarize themselves with the school’s activities, core competences and ongoing processes. Director of the school, Ketevan Jakeli, and other representatives of the school shared the school’s recent accomplishments with the audience. The LEPL Zurab Zhvania School of Public Administration, operating under the Ministry of Education and Science of Georgia, was founded on June 10, 2005, on the basis of Presidential Decree N 476. The School aims to raise the professional level and qualification of civil servants employed in the public sector.
Civil servants are trained at the School within the framework of the Public Administration Program through specially designed educational programs. The School regularly carries out studies to better understand the needs of civil servants with the intention of implementing new programs for their further development. Civil servants are trained within the frame of two programs: ‘Public Administration’ and ‘State Language Training Program.’ The School focuses particularly on the representatives of ethnic minorities and supports their civic integration through educational programs. In parallel with the above programs in Kutaisi, a State Language Program is implemented in the eight regional centers of the School (in Dmanisi, Akhalkalaki, Ninotsminda, Tsalka, Bolnisi, Marneuli, Gardabani, Lambalo-Sagarejo municipality) for ethnic minorities. The aim of the State Language Program is to
train students in the basics of the State language, enabling them to write, read, prepare short messages, and create letters and documents in Georgian. The School’s strategic development document was elaborated in 2014 by the Ministry of Education and Science of Georgia. Structural changes were undertaken, and educational programs were updated to better fit the requirements and to meet the challenge of constantly having to re-train civil servants. The Zurab Zhvania School of Public Administration cooperates with other state and educational institutions that carry out various kinds of training and practical programs for professional development, raising qualifications, providing practical skills necessary for career development and theoretical knowledge, overcoming deficit of qualified employees and ensuring integration into the state system in ethnically mixed and high mountainous regions of Georgia.
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GEORGIA TODAY
JUNE 28 - 30, 2016
US-Georgia SPC Encourages Georgia’s Democratic Progress
SPC meeting at MFA Georgia, June 21, 2015
BY ZVIAD ADZINBAIA
T
he US-Georgia Strategic Partnership Commission's (SPC) Democracy and Governance Working Group reviewed progress following their November 2015 meeting in Washington DC. Following the meeting on June 21 in Tbilisi, the parties released a joint statement affirming the importance of strong, depoliticized government institutions and transparent and accountable governance. “The United States commended the progress made by Georgia in furthering its reform agenda.” The sides agreed that an open, pluralistic, and peaceful political environment is essential to Georgia's goal to make the October parliamentary elections a showcase of Georgia’s democratic progress. In addition, the ways of ensuring a level and competitive playing field for political parties and candidates through principled leadership and improvements to election administration, as well as a free and open media environment, were included in the discussion agenda. The US welcomed “the leadership of Prime Minister Kvirikashvili in discouraging political violence and intimidation.” The sides highlighted the crucial importance of the Prime Minister’s statement calling for the adoption of a code of conduct among political parties to ensure a free, fair and stable electoral environment. Among the other political and civic matters, the sides acknowledged the importance of a strong and independent judiciary. The US commended Georgia’s ongoing justice sector reforms, particularly of the Chief Prosecutor's Office. “The United States encouraged Georgia to continue its work in these key areas, and to go deeper and broader both in law and in practice to strengthen checks and balances, including at the Ministry of Internal Affairs.” Furthermore, the American side praised Georgia’s implementation of voluntary interviewing of wit-
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nesses urging its rapid expansion to all criminal cases. The issue of implementation of additional reforms that “will further strengthen Georgia’s democracy and contribute to Georgia's achievement of its European and Euro-Atlantic integration goals” was emphasized. The US working group welcomed Georgia's efforts to improve the capacity and reduce the politicization of Georgia's public servants through legislation that will take effect in January 2017. The Working Group also praised the great strides Georgia has made in addressing the issue of trafficking in persons. The Georgian delegation was led by co-chairs First Deputy Foreign Minister, David Zalkaliani, and First Deputy Minister of Justice, Alexander Baramidze. It also included a broad interagency delegation. The US delegation was led by Deputy Assistant Secretary of State for European and Eurasian Affairs, Bridget Brink; USAID Assistant Administrator for Europe and Eurasia, Thomas O. Melia; Deputy Assistant Secretary of State for Democracy, Human Rights and Labor, Rob Berschinski; Coordinator of US Assistance to Europe and Eurasia, Alina Romanowski; and Department of Justice Office of Overseas Prosecutorial Development Assistance and Training (OPDAT) Regional Director for Eurasia, Catherine Newcombe. The Strategic Partnership Commission is the primary mechanism for organizing and prioritizing the broad and deepening cooperation between the United States and Georgia. The Commission includes four bilateral working groups on priority areas identified in the Charter on Strategic Partnership: democracy and governance; defense and security; economics, trade, and energy; and peopleto-people and cultural exchanges. On November 2, 2015, a plenary session within the framework of the US-Georgia Strategic Partnership Charter was held in Washington DC. View the full text of the statement: http://www.state. gov/r/pa/prs/ps/2016/06/258986.htm
BUSINESS
GEORGIA TODAY JUNE 28 - 30, 2016
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Georgia’s Location Both a Blessing and a Curse, Former US Ambassador Says “Georgia is doing everything that any foreign policy specialist would recommend” BY IA MEURMISHVILI FOR VOICE OF AMERICA GEORGIAN SERVICE
F
ormer U.S. Ambassador to Georgia, Kenneth Yalowitz, sat down with us to talk Georgia’s foreign policy and the challenges ahead. While the former diplomat urges the West to send strong signals to Georgia, implying that it is not forgotten, he admits that the Georgian government also needs to take some measures itself.
YOU CLAIM THAT GEORGIA HAS A DIFFICULT PREDICAMENT DUE TO ITS LOCATION AT A STRATEGIC CROSSROADS. WHAT MAKES THIS LOCATION DIFFICULT? If you look back at the history, all three South Caucasus countries were parts of something else, except for a brief period before the Soviet Union, until 1991. The reality today is that these are three small countries. Russia is a declining power, but it is still a major country; Turkey is a very important country; and, obviously, Iran is an important country. Georgia is perched right in the center of that. This location is a blessing because of it being a strategic crossroads between east-west and north-south, but it’s also a bit of a curse, because it has always been an object of invasions. The situation today is the most concerning, particularly regarding Russiasince the war in 2008 and the occupation of Abkhazia and South Ossetia. What Georgia has done since 2008 is very important and very logical. While keep-
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ISTANBUL ATATURK AIRPORT - TBILISI TBILISI - ISTANBUL SABIHA GOKCEN AIRPORT ISTANBUL SABIHA GOKCEN AIRPORT - TBILISI BATUMI - ISTANBUL ISTANBUL - BATUMI
ing their principal part of the foreign policy to the West, the new government is trying to improve the relationship with Russia where possible. It’s a delicate balance that Georgia is trying to keep – to be sure that nobody else recognizes Abkhazia and South Ossetia and at the same time trying to deal with the Russians without giving up on their principal position on Abkhazia and South Ossetia.
CONSIDERING THE DIFFICULTIES YOU JUST DESCRIBED, DO YOU THINK GEORGIA IS A GOOD NEIGHBOR? Yes, I do. First of all, Georgia talks with both Armenia and Azerbaijan. Georgia also has a very good relationship with Turkey. Turkey has been a very big supporter of Georgia since its independence. Further, Georgia has a good relationship with Iran. As long as that stays within the boundaries we have all set in terms of dealing with Iran, I think that it’s very much a relationship to be welcomed. Georgia also has good relations with Ukraine, also very important, because both countries are dealing with difficult issues because of Russia. The Russian relationship is very difficult. I think that’s where the United States and the EU come in. Georgia has very solid people conducting its foreign policy and they realize that to balance a great power to the north you need good relations with the European Union and with the United States. When you look at Georgian foreign policy right now, Georgia is doing everything that any foreign policy specialist would recommend.
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I don’t think so. Georgia has been promised membership [to NATO]. It's not a question of if, it's a question of when. When Georgia becomes a member of NATO, it will be decided by all member states that Georgia is a plus and can contribute to the overall security of the region. I wouldn’t hold up hopes that this is going to happen immediately. If a MAP is not given to Georgia, which seems likely at this point, there should be a very strong expression of support for Georgia. I think this is very important. There’s a lot of Russian-inspired propaganda that the West does not like Georgia, and the West will never make a home for Georgia. This is false. I think I can understand why people in Georgia may be wondering something along the lines of ‘what do you really think of us?’ This is why I believe that at the summit there should offer a very strong signal of support. I also argue that the Secretary of State and other leading figures should visit Georgia soon! These kinds of things will underscore that this is a valued relationship and valued friendship and that we appreciate the military support Georgia gives
Former U.S. Ambassador to Georgia, Kenneth Yalowitz
to what we do in Afghanistan and Iraq. Georgia deserves acknowledgment for what it's doing.
YOU ARGUE THAT THE WESTERN GOVERNMENTS SHOULD SHOW SUPPORT FOR GEORGIA AND SIGNAL TO TBILISI THAT IT IS NOT FORGOTTEN. WHAT DO YOU THINK THE GEORGIAN GOVERNMENT SHOULD DO TO SOLICIT SUCH SUPPORT FROM THE WEST? When I was an ambassador to Georgia, there was a tendency by some to blame Russians for everything that went wrong. I’d agree with some of that, but I would also say that in the end, the Georgians are the ones who need to make corrections, build solid state institutions, get rid of corruption. There is a lot the Georgian government and the people can do. First and most important is the October parliamentary elections. The fact that Georgia had two very good elections is terrific, but what everyone wants to see is that it can now have elections without there being a question about how open, free and fair the elections were.
Another thing is the military modernization. I know that Georgia is purchasing an air defense system from France. Developing and improving defense capabilities is excellent, and also very important. However, I still hear that from the stand point of modernization and organization of the Georgian military, there is still a lot that needs to be done in terms of being interoperable with NATO. Hopefully, having the NATO training center will help in this regard. The third issue is the economy. Georgia – statistically – is not a rich country. Prime Minister Kvirikashvili has a number of ideas to stimulate economic growth. That is absolutely crucial along with all these other things. Georgia must have a strong functioning economy. The best way Georgia is going to attract Abkhazia and South Ossetia back is not through military means but through the strength of its economy. Going through with the EU Association Agreement is vital. There’s going to be short term pain; adjustments that may hurt some industries. But every country that has joined the European Union has benefited. There may be a hard transition but Georgia will ultimately benefit from it greatly.
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