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BUSINESS WEEK November 10, 2014 #75

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November 10, 2014, Issue 75

BE INFORMED, DO BUSINESS

GEORGIA POSSIBLE INCREASE IN EXCISE TAX

GEORGIAN GOVERNMENT’S MANAGEMENT QUALITY

tarting January 1st tobacco and alcohol excise tax will increase. Growth of the excise tax will raise the state budget revenue by 40 million laris. Pg. 2

(International Final Expertise)

AZERBAIJAN AZERBAIJAN’S CURRENCY MARKET STARTED TO GROW FOR THE FIRST TIME IN 2014

NEIGHBORHOOD CLOSED TALKS OVER ABKHAZIAN RAILWAY’S RE-OPERATION UNDER WAY – ARMENIAN OFFICIAL

WORLD NEWS WHAT CAN ALTERNATIVE FINANCE MODELS OFFER TO YOUNG INVESTORS?

CA regulations state that retail investors may pump no less than 10% of their investible assets into equity crowdfunding. Pg. 13

Pg. 2

Director of National Wine Agency Appointed as Deputy Minister of Agriculture

or Jan-Sep 2014 the Azerbaijani banks reduced the surplus on foreign currency conversion transactions by 8.2% amid 2.3% growth in the market. Pg. 10

n an interview with Tert.am, a deputy minister of finance admitted that closed negotiations are now under way over the relaunch of the Abkhazian railway, with Armenia being directly involved and actively inerested in the process. Pg. 4

President: Georgia is Eurasia’s Key Transit Country

Pg. 2

NBG’S DUE POLICY - THE NATIONAL BANK BANS COMMERCIAL BANKS TO HOLD Pg. 6 NON-CORE ASSETS LEGATUM PROSPERITY INDEX: A LOOK Pg. 7 AT GEORGIA’S ECONOMIC PROFILE

ProCredit Bank: Bankers should Engage in the Banking Activities ASMUS ROTNE General Director of ProCredit Bank Pg. 4

TBC LEASING TO FINANCE SMALL AND MEDIUM-SIZED BUSINESSES BY 4 MILLION USD LOAN

Pg. 9

NATAKHTARI FUND ANNOUNCED AS THE BEST SOCIAL PROJECT AT MARKETING BRILLIANCE AWARDS 2014 Pg. 8

GYM 1: AN EXCLUSIVE FITNESS CLUB WITH INNOVATIVE Pg. 12 TECHNOLOGY WWF TO HOLD INFOTOUR IN JAVAKHETI PROTECTED AREAS Pg. 8

PRODUCTS OF MARNEULI FOOD FACTORY AND HEALTHY WATER AT THE EXHIBITION HELD IN Pg. 8 SICHUAN PROVINCE

TOYOTA TO CONVEY AUTMOBILES WITH EURO4 STANDARD DIESEL ENGINE TO GEORGIA

Pg. 14

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MAIN EVENTS AIR CAIRO LAUNCHES DIRECT FLIGHTS TO TBILISI

Top Story POSSIBLE INCREASE IN EXCISE TAX

tarting January 1st tobacco and alcohol excise tax will increase. Growth of the excise tax will raise the state budget revenue by 40 million laris. The imposed tax will raise the cost of both locally produced and imported filtered cigarettes by 15 tetri. The price of non-filtered cigarettes will in turn increase by 5 tetris. In comparison with 2013, this index has increased by 11.9%. In 2012 excise taxes made 2.5% of the GDP; in 2013 – 2.7%, in 2015 the tax is expected to constitute 2.5% of the country’s GDP. Within the past 8 months of this year the budget revenues made from the excise tax amounted to 516.5 million lari -- that is, 11.1% more than in the same period of the year 2013. In the given January-August period of 2014 the revenues from excise taxes constituted 69.9% of the annual plan. By the end of this year the excise tax revenue total is expected to rise to 739 million laris. An even larger increase in excise tax is expected by January 2015.

TEMUR CHKONIA, founder of Castel Georgia anticipates the growing rate of the excise tax to affect the beer business negatively. He notes that the business is already at a considerable loss since the implementation of the ban on consuming alcohol in public spaces. The company will need to have a look at their investment plans carefully after the increase of excise tax rate. Chkonia expects the alcohol prices to grow considerably. In contrast, GOGI TOPADZE, the owner and founder of company Kazbegi, says that the growth in excise tax sees the increase in excise tax in any kind of product is an everyday occurrence. In his view the changing rate of taxes is not going to affect the business sector drastically.

PRESIDENT: GEORGIA IS EURASIA’S KEY TRANSIT COUNTRY

eorgia is the main transit country connecting central Asian resources to the European market and vice versa and Russian occupation poses a danger to this, says President Giorgi Margvelashvili. The Georgian President made his opinion heard when he spoke alongside the United Nations (UN) Secretary General, the President of Montenegro, the Swedish International Development Minister and the UN Development Program Administrator at a round table within the UN conference on Landlocked Developing Countries (LLDCs) being held in Vienna, Austria. Margvelashvili said although Georgia was a coastal country, it was very tightly connected to landlocked states in the region. “We are here as the most important transit state for such countries,” President Margvelashvili said. He stressed eight of 14 developing states on the Eurasia continent – Afghanistan, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Turkmenistan, Tajikistan and Kyrgyzstan – used Georgia’s transit function to have access to the sea. “With seven of these eight countries we have a free trade regime,” Margvelashvili said. “Since we regained our independence, our strategic direction was to connect central Asian resources with the European market and vice versa. Our country is open to transit both energy resources and other trade products.”

In this context, the Georgian President highlighted the danger that threatened these countries because of Russian occupation. Margvelashvili said peace and stability were crucial for the region to develop and reach its goals. While talking about the threats to Black Sea basin countries, Margvelashvili stressed Russia’s annexation of Crimea as well as Russia’s attempt to annex Georgia’s occupied regions. He called on the international community to be actively involved in the peace-building process in the region. Earlier, President Margvelashvili met President of Montenegro Filip Vujanovic. The sides discussed bilateral relations and Montenegro reaffirmed its full support towards Georgia’s territorial integrity. The Georgian President invited Vujanovic to Georgia, to which the Montenegro leader accepted. He said he would soon begin to prepare for the visit and suggested to hold a Georgia-Montenegro business forum during his trip. Meanwhile, President Margvelashvili also met UN Food and Agriculture Organisation Director General Jose Graziano da Silva. The parties talked about the importance of the UN’s support toward Georgian as well as the necessity for Georgia to make its agricultural products meet European standards after it signed the Association Agreement and the Deep and Comprehensive Free Trade Area (DCFTA) deal with the European Union earlier this year.

Similarly to Temur Chkonia, the economist and expert from Infrastructure Projects Initiative of Georgia, LEVAN KALANDADZE presumes that as a result of the raised excised tax, companies will face declining investment activities. According to the National Statistics Office of Georgia, the import of cigarettes in the period from January to August of 2014 brought 65.2 million laris to the country’s budget. This sum is 7.1% smaller than the corresponding sum made in 2013 by tobacco import. Imports of tobacco products amounts to 1.2% of the total volume of imports and is ranked 9th on the list of imported goods of Georgia. The International Monetary Fund also raised the issue of the tobacco tax in its recent report. The IMF experts stated that the government could use a variety of mechanisms, such as the increase of excise duties, in order to reduce the budget deficit in GDP. It should be noted that the government considers an increase in excise taxes not so much a fiscal measure, but rather a method of a large-scale anti-smoking campaign. NUTSA GALUMASHVILI

November 10, 2014 #75

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RMG GOLD INITIATED AND ORGANIZED SPECIAL TOUR IN SAKDRISSI-KACHAGIANI

n November 1, on Saturday, the company RMG Metal Group’s Public Relations Department initiated and organized special tour for experts and representatives of various professions. The event was organized because of high public interest around Kachagiani

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object and in order to satisfy the company’s new media strategy. The company “RMG Metal Groups” is a new vision of communication strategy that opens communication and dialogue between different social groups, as Sakdrissi-Kachagiani gold, as well as other interesting topics.

gyptian low fare airline Air Cairo is expanding its global route network and launching a new regular flight service to Georgia’s capital city Tbilisi. The first flight departed from Tbilisi International Airport to Sharm-el-Sheikh last night. Flights from Sharm-el-Sheikh to Tbilisi will be scheduled three times a week on Tuesdays, Thursdays and Sundays. Passengers travelling between Sharm-el-Sheikh and Tbilisi will be able to fly twice a week. From January 9, 2015, this service will increase to three times per week. Sharm-el-Sheikh is a resort area located on the southern tip of the Sanai peninsula on the Red Sea coast. Until now there were not regular flights between Georgia and Egypt and travellers had to fly to Egypt on a charter flight. Georgia’s Civil Aviation Agency, which is responsible for the monitoring and development aviation in the country, believed the new flight service would increase the number of travellers moving between the two countries. Air Cairo, founded in 2003, operates passenger and freight services to more than 75 destinations in the Middle East, Europe, Africa, Asia and the Americas.

DIRECTOR OF NATIONAL WINE AGENCY APPOINTED AS DEPUTY MINISTER OF AGRICULTURE

evan Davitashvili, Chairman of the National Wine Agency, has been appointed as a Deputy Minister of Agriculture. The Prime Minister’s decree has been published on the government administration’s website. In addition, Deputy Agriculture Minister Nodar Kereselidze has been appointed as the Principal Deputy Minister of Agriculture. The Agriculture Minister has 5 deputies in total.

The weekly is distributed to top companies, banks, embassies, state sector, Tbilisi and Batumi hotels, Tbilisi, Batumi and Kutaisi Airports, as well as in the town of Marneuli. The newspaper will also penetrate Azerbaijan in the near future

Editori-in-Chief: Evgeni Mikeladze Reporters: Nutsa Galumashvili; Nino Gojiashvili

Source: www.commersant.ge, www.bpi.ge, www.gbc.ge

PUBLICITY November 10, 2014 #75

According to the GOEuroâ&#x20AC;&#x2122;s 2014 research, Georgia ranks second worldwide in terms of cheapest train tickets. Only South Africa is recorded ahead of Georgia. GOEuro is one of the major multifunctional research companies in the travel sector. The company compares and calculates prices for travel by train, bus and airplanes. GOEuro published the report in August 2014.

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INTERVIEW November 10, 2014 #75

caucasian business week

“PROCREDIT BANK”: BANKERS SHOULD ENGAGE IN THE BANKING ACTIVITIES An interview with General Director of ProCredit Bank Asmus Rotne

- “ProCredit Bank” is considered one of the most stable financial institutions in Georgia. What are the main factors predetermining it? - In comparison with the other players in the financial market of the country, our bank is conservative in matters of lending. It’s part of our policy, and I can confidently say that it has justified itself. If we look at performance of other Georgian banks, after the crisis of 2008 even the strongest banks had very poor financial performance for 2 years, and only “ProCredit Bank” continued to work for profit – it was due to a conservative approach. We are also very attentive to the choice of priorities. For example, we are gradually and consistently coming out of the microfinance sector in which we started our activity in Georgia. At that time the emphasis on microlending was a conscious choice, because in that period this segment was needed for the development of the economy. We have many examples when our clients started

with a small business, developed with our help and today have medium or large business. Today the competition is at a very different level and damand has changed. Over time, the demand for micro-lending has reduced, so we are leaving this market. - If the demand for micro-lending is reduced, then what caused the boom of online lending and various microfinance institutions whose number is constantly growing? - It’s all very unstable, as people often take expensive microcredits and then cannot pay them, and they face very serious problems. This may continue for a long time, but not forever. It’s very easy to analyze the situation and come to the conclusion that this instability will sooner or later lead to negative results, especially for the borrowers, and ultimately for the entire microfinance sector. - Consumer loans, installment and credit cards have never been a priority for “ProCredit Bank”. Given that most large Georgian banks are actively working in this direction.How can you explain your position in this regard? - We deal with these types of services, but they do not take a great share in our loan portfolio. And here we follow a conservative approach, as these sectors of lending are associated with greater risk and, accordingly, are not included in the list of the cheap banking products. It is often said that the “credit trap” is the fault of the debtor, but I do not agree with this approach. The financial institution should not be interested in the client’s crippling debt, as in the event of

the first problems, he will take on more debts at higher interest rates, and in the end all will suffer – both a client and financial institutions. With specific regard to us, we issue consumer loans only to those who have an account in our bank, and in whose solvency we’re sure. - “ProCredit Bank” has a great experience in agro-lending, which despite of a number of governmental programs, still occupies a very small share in the volume of lending. Why is that? - The biggest problem is a large number of small households with a very low profitability, as the cost of products is higher than at large farms. That is why the financial institutions do not have a particular interest in their lending. A process of consolidation of farms should start in villages, as well as the promotion of cooperation, otherwise, modern agricultural technologies will not be introduced, respectively, funding and agricultural insurance will remains problematic. The main challenge is to create agribusiness which lending would be attractive to financial institutions. Lending to small farms is unprofitable and very inconvenient for the banks. We focus on lending to large and modern agro-complexes. Currently agri-lending amounts to GEL 45 million that is 8% of the total loan portfolio. - How do you feel about the National Bank’s decision to ban banks to own non-core assets? - Banks should engage in banking activities. If tomorrow we start to build the buildings, open supermarkets, work in insurance, then, of course, we will have less time and opportunity for a prop-

er banking. The fact that we don’t have non-core assets is our advantage, since customers have more confidence in us because they know that we don’t engage in business. They know that the bank will not be their competitor and they will not create problems associated with this. So, I think the National Bank’s respond is correct. - “ProCredit Bank” is working in Georgia for many years at different times and in the conditions of different economic reality. How do you assess the situation now? - Quality of Georgia’s economic development gives grounds for optimism. Compared with neighboring Armenia, where the GDP growth is about the same but economy is developed at the expense of several major companies associated with the government while other areas are developing quite weak, in Georgia happens quite the opposite. And this is certainly a positive fact. Of course, in Georgia there are also cases when business is associated with government officials, but there is much more space for small and medium businesses here. Nobody prevents entrepreneurs todevelop; no one takes illegal actions against them both administrative and mafia. I heard that it is unprofitable to create small and medium businesses in Armenia, as it can get in the sphere of interests of big business, then the entrepreneur may lose everything. In Georgia, this could be heard many years ago, and I think that the country will never return to this situation.

ADB: GEORGIA’S ECONOMY WILL GROW FASTER IF GOVERNMENT CARRIES OUT REFORMS, CARES OF MACROECONOMIC STABILITY An interview with Zhang Wenchai, Vice-President of the Asian Development Bank (ADB)

eorgia’s economy will grow faster if the government carries out reforms, cares of macroeconomic stability and learns to finish the projects in time. This is an opinion of Vice President of the largest donor the Asian Development Bank (ADB). How he evaluates the country’s business environment and prospects, we’ll learn from his interview. - First of all, let’s talk about your visit; you organized an investment forum which took place in Tbilisi the other days. What results did you expect and whether your hopes have justified? - This forum is really a very important event for us. It was organized jointly with the Georgian government, especially the Ministry of Economy and achieved the goals. Forum was held at a high

level and was attended by the largest businessmen from various countries as well as representatives of government and international financial institutions. We’ll see the first results from Asia, where the interest in the region is high enough, in a short time. - How would you assess the economic situation and business environment in Georgia? - Although, Georgia’s economic growth was low in 2013 , now growth started to gather pace and our forecast growth will reach 5.5 % this year. In the following years, the country has great potential for economic growth, if it really implements reforms, takes care of macroeconomic stability, which in turn is based not only on consumption, but investing in the private sector and exports growth. - In the past ten years, Georgia has spent much effort to improve the business climate for small

enterprises? - In general, USD 125 million was allocated for the private sector, including financial intermediaries and two banks, our organization’s strategy in the current five years is to support the country’s sustainable economic growth, especially companies established on the basis of the private and public partnership, we will also support the government to carry out reforms in the public sector. - Whether the specific details are known about their duration and the value? - In the first stage, I think we’ll help Georgia in terms of costs and revenues in public administration and financial management . The next two credit lines will focus on the pension system and capital market formation. We are in a process of developing and do not have detailed information.

The project duration is 3 years, but it will take several years to create it, the overall cost will reach USD 75 million. - How many projects did you fund and how much was allocated for this purpose? - Over the past seven years, the Asian Development Bank approved a loan worth USD 1.4 billion for Georgia, we are providing financial support to many projects, including rehabilitation of roads and communications. - Mainly infrastructural projects? - Yes, we are funding development of urban water supply and transport as well as regional projects that will connect Georgia with the neighboring countries. Energy export requires construction of roads and infrastructure, we are lending to the private sector, including small and medium-sized businesses.

CLOSED TALKS OVER ABKHAZIAN RAILWAY’S RE-OPERATION UNDER WAY – ARMENIAN OFFICIAL In an interview with Tert.am, a deputy minister of finance admitted that closed negotiations are now under way over the relaunch of the Abkhazian railway, with Armenia being directly involved and actively inerested in the process. ARTHUR ARAKELYAN said he finds that the question pursues more political rather than economic interests, adding that the recent developments inspire positive hopes for progress.

- Mr Arakelyan, rumors on the re-operation of the Abkhazian railways have been quite active recently. At what stage is the process now? - Yes, both the Armenian side and the Russians and Georgians strongly emphasize the importance of implementing this project, the re-establishment

of the railway connection with the Abkhazian section. There have recently been greater chances for reassuring statements, particularly positive signals by CEO of Russian Railways [Vladimir] Yakunin. Because the negotiations are closed, i.e. – the issue is more political than economic, the problem here has to do with agreements between the Georgian and Abkhazzian authorities. So you probably understand that it is an intricate tangle. Armenia’s Ministry of Transport and Communication too, is involved in those processes, and we are hopeful that we will be able to issue a statement for our society soon. - Opinions are heard that the Abkhazian side is more opposed to the railway’s re-opening, with the Georgian side being more inclined to a rapid solution. - You know, there are two very contradictory positions here in terms of the border crossing – where that border’s crossing point is and where the stamp is put. But I repeat that the topic is sen-

sitive for either side, both the Georgians and the Abkhazians, and there are numerous other problems as well. - Are there any estimates as to the sum required for the re-operation? - Sums will be required, of course, as it [the railway]has stood idle for over 20 years now and has many damaged sections, but I am confident that there will be no problems in case they offer a solution. There are available estimates, but they strictly differ. No specific planning activities have been carried out; hence we do not have final calculations. But I repeat again, we still refrain from statements not to harm the positive processes. We are hopeful, however, that it will be possible as the presidents of all our countries – Russia, Armenia and Georgia – attach a major importance to the project. - Have the economic benefits for Armenia been estimated? - That’s naturally about considerable benefits, as

we know today that the railway communication with Russia is very complicated. A ferry boat is used for shipping the cargo to the territory Russian which raises the prices in a very unprecedented manner. So there will be a very interesting project should the Russian railway operate in such circumstances. - And what accounts for the other side’s interest. - Of course, all the sides have their own interests. Georgia will become a transit country, benefiting from considerable advantages. But I mention again that exclusively political factors are an obstacle here. - And when do you think are the estimated timeframes? - I am not used to making predictions of the kind; once everything is clear, we’ll make a statement about it. In technical terms - in case an assessment is needed – that’s a matter of a very short period.

QUALITY OF GOVERNMENT November 10, 2014 #75

caucasian business week

GEORGIAN GOVERNMENT’S MANAGEMENT QUALITY (INTERNATIONAL FINAL EXPERTISE)

n October 23 Ivane Javakhishvili Tbilisi State University hosted the forum of Georgian Government’s Management Quality – International Final Expertise (Problems and Challenges). The forum was organized by the TSU Center for Analysis and Prognosis. The forum discussed a governments assessment report prepared under the World Bank’s project Worldwide Governance Indicators (WGI). Totally the report covers the 1996 to 2013 period and unites six aggregates for evaluation of Governments in about 200 countries and territories worldwide. These aggregates are: 1. Voice and Accountability, 2. Political Stability and Absence of Violence, 3. Government Effectiveness, 4. Regulatory Quality, 5. Rule of Law, and 6. Control of Corruption Under the report, in 2013 the Georgian government improved action quality in four aggregates of the above six ones compared to 2012, while the Georgian government’s action quality in the remaining three directions (Voice and Accountability; Political Stability and Absence of Violence; Control of Corruption) has been valued as a new historical maximum level. A WGI report is developed on the ground of expertise conclusions of about 30 leading international organizations such as: ADB African Development Bank Country Policy and Institutional Assessments AFR Afrobarometer ASD Asian Development Bank Country Policy and Institutional Assessments BPS Business Enterprise Environment Survey BTI Bertelsmann Transformation Index CCR Freedom House Countries at the Crossroads EBR European Bank for Reconstruction and Development Transition Report EIU Economist Intelligence Unit Riskwire & Democracy Index FRH Freedom House GCB Transparency International Global Corruption Barometer Survey GCS World Economic Forum Global Competitiveness Report GII Global Integrity Index GWP Gallup World Poll HER Heritage Foundation Index of Economic Freedom HUM Cingranelli Richards Human Rights Database and Political Terror Scale IFD IFAD Rural Sector Performance Assessments IJT iJET Country Security Risk Ratings IPD Institutional Profiles Database IRP IREEP African Electoral Index LBO Latinobarometro MSI International Research and Exchanges Board Media Sustainability Index OBI International Budget Project Open Budget Index PIA World Bank Country Policy and Institutional Assessments PRC Political Economic Risk Consultancy Corruption in Asia Survey PRS Political Risk Services International Country Risk Guide RSF Reporters Without Borders Press Freedom Index TPR US State Department Trafficking in People report VAB Vanderbilt University Americas Barometer WCY Institute for Management and Development World Competitiveness Yearbook WJP World Justice Project Rule of Law Index WMO Global Insight Business Conditions and Risk Indicators

Voice and Accountability

Voice and Accountability : „Reflects perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media.“ Under the WGI report, Georgia’s Voice and Accountability indicator for 2013 significantly exceeds the averaged indicator of the previous 9 years (2004 to 2012). According the to WGI, in 2012, when three quarters of the year were controlled by the United National Movement and the last one was controlled by the Georgian Dream, the Voice and Accountability indicator stood at 49.76%, down 4.74% compared to the 2013 indicator. According to the WGI, Georgia’s Accountability indicator in 2013 is up 27.6% compared to the same period of 2011 (when the United National Movement controlled Georgia for all four quarters for the last time), that is up by 11.78 percentage point. Under the 2013 Accountability indicator, Georgia runs ahead of all countries in the Region (Russia, Turkey, Armenia, Azerbaijan, and Ukraine). The comparison of Accountability Indicators of the neighboring countries and Ukraine is given in the table below. According to the WGI, in 2013 the first ten top countries due to the volume of the mentioned indicator are as follows:

Georgia occupies 97th place in the rating, but remains at a little distance from such countries of the European Union as Bulgaria and Romania.

Political Stability and Absence of Violence

Political Stability and Absence of Violence : „Reflects perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.“ According to the WGI project, in 2013 Georgia’s Political Stability and Absence of Violence indicator exceeds the averaged indicator of the previous 9 years (2004 to2012) by 8.62% and stands at 30.81%.

According to the WGI, the indicator stood at 24.64% in 2012, when the three quarters of the year were controlled by the United National Movement and the last one was controlled by the Georgian Dream. The figure is down 6.16% compared to 2013. According to the WGI report, Georgia’s Political Stability and Absence of Violence indicator in 2013 exceeds the 2011 same indicator (when the country was entirely rued by the National Movement for the last time) by 3.92%. In 2013 Georgia runs ahead of all countries in the Region in terms of Political Stability and Absence of Violence (Russia, Turkey and Ukraine), except Armenia and Azerbaijan. According to the WGI, in 2013 the first ten top countries due to the mentioned indicator are as follows:

Georgia occupies the 56th place in the rating and runs ahead of such EU member states as Greece, Romania, Bulgaria, Croatia and Slovenia and with small percentage it falls behind Italy, Portugal and Hungary.

Rule of Law

Rule of Law : „Reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.“ According to the World Bank’s project WGI, in 2013 Georgia’s Rule of Law indicator exceeds the 9 years’ averaged indicator (2004 to 2012) by 9.09% and stands at 53.55%. According to the WGI, for the last 10 years Georgia’s highest Rule of Law indicator was recorded in 2012, when three quarters of the year were controlled by the United National Movement and the last one was controlled by the Georgian Dream. According to the WGI report, Georgia’s 2013 indicator exceeds indicators of all previous years, except 2012, while the 2013 indicator exceeds the 2011 indicator (when the country was entirely ruled by the United National Movement) by 2.38%. Georgia runs ahead of all countries in the region, except Turkey, in terms of Rule of Law indicator (Russia, Armenia, Azerbaijan and Ukraine). It should be also noted Turkey runs ahead of Georgia by only 2.37%. The table shows Georgia’s 72% significant upturn since 2004 in terms of Rule of Law indicator compared to the other countries. According to the WGI, the ten top countries due to the volume of the Rule of Law indicator in 2013 are as follows:

Because of the last political unrest, Georgia ranks 147th in the rating, but it should be noted this indicator shows growth tendency by 56% upturn since 2004.

Government effectiveness

Government Effectiveness: „Reflects perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.“ According to the WGI project, in 2013 Georgia’s Government Effectiveness indicator exceeds the 9 years’ averaged indicator (2004 to 2012) by 12.32% and stands at 69.38%. According to the WGI, the indicator stood at 69.86% in 2012, when three quarters of the year were controlled by the United National Movement and the last one was controlled by the Georgian Dream, up by about 1% compared to 2013. According to the WGI reports, Georgia’s Government Effectiveness indicator for 2013 exceeds the indicators of all previous years, except 2012, while the indicator exceeds the 2011 one (when the country was entirely ruled by the United National Movement for the last time) by 0.27%. In 2013 Georgia is ahead of the regional countries in terms of Government Effectiveness (Turkey, Russia, Armenia, Azerbaijan, and Ukraine). Moreover, the country runs ahead of several European Union member countries due to the same indictor, including Italy, Romania and Bulgaria. The table below demonstrates Georgia’s Government Effectiveness for 2013 runs ahead of all the regional countries. Moreover, since 2004 Georgia has shown major upturn in Government Effectiveness (the figure has nearly doubled) compared to the neighboring countries. According to the WGI, the first ten top countries due to volume of the mentioned indicator are as follows:

Georgia occupies the 99th place in the rating and runs ahead of Bulgaria, one of the leading EU member states, but comes a little behind Romania, Croatia and Italy.

Control of Corruption

Control of Corruption: „Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests.“ According to the World Bank’s project WGI, in 2013 Georgia’s Control of Corruption indicator exceeds the 9 years’ averaged indicator (2004 to 2012) by 14.97% and stands at 66.51%. It should be noted the indicator marked 64.11% in 2012, when three quarters of the year were controlled by the United National Movement and the last one was controlled by Georgian Dream, down 2.39% compared to 2013. According to the WGI report, the 2013 indicator exceeds the 2011 one (when the country was ruled entirely by National Movement) by 9.64%. Georgian government runs ahead of all counties in the Region in terms of the 2013 Control of corruption indictor (Turkey, Russia, Armenia, Azerbaijan and Ukraine). The table demonstrates Georgia’s significant upturn in the indicator since 2004 (doubled or tripled) compared to the other countries. According to WGI, the ten top countries due to the volume of the mentioned indicator of 2013 are as follows:

Georgia ranks 65th in the rating and is ahead of such EU member counties as Italy, Greece, Romania and Bulgaria, and with small percentage it falls behind Hungary, Croatia, Poland, Slovakia and Lithuania.

Regulatory Quality

Regulatory Quality : „Reflects perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.“ According to the World Bank’s project WGI, in 2013 Georgia’s Regulatory Quality indicator exceeds the 9 years’ averaged indicator (2004 to 2012) by 14.65% and stands at 73.68%. Georgia runs ahead of all countries in the Region (Turkey, Russia, Armenia, Azerbaijan and Ukraine) in terms of the 2013 Regulatory Quality indicator. According to the WGI, the ten top countries due to the volume of the mentioned indicator in are as follows:

Georgia occupies the 71st place in the rating, and runs ahead of such member states of the European Union as Italy, Greece, Romania, Bulgaria, Croatia, Hungary, Latvia, Czech Republic and Slovakia and with small percentage it falls behind Lithuania and Poland.

BUSINESS November 10, 2014 #75

caucasian business week

Tamar Kakabadze

NBG’S DUE POLICY - THE NATIONAL BANK BANS COMMERCIAL BANKS TO HOLD NON-CORE ASSETS LEVAN KALANDADZE Expert of Economy, Head of the Georgian Initiative for Infrastructure Projects

he decision is to improve the business environment and to form competitive and favorable environment for business development. The problem is that the right for unrestricted implementation of non-core activities gives commercial banks and their subsidiaries a certain dominant position in concrete business sectors and companies founded by commercial banks may become monopolists in these sectors. As a result, development process may be artificially thwarted and competition environment may be restricted to the companies operating in those business sectors. Similar problems are registered in the construction sector, development business, hospital sector, retailing sector, insurance industry, higher education sector and so on. Naturally, the ratio of non-core assets in total assets is not considerable, but problems may arise from high paces of growth in the volume of those assets. We are facing real threat as companies founded by commercial banks my turn out monopolists and only irreplaceable players in this or that business sector. Thus, the NBG decision on separating commercial banks from non-core assets is a one correct and timely decision. The strategy and tactics the NBG has followed for the problems resolution is also very important. To spare the time, each bank was sent writing instructions on the mentioned restriction and commercial banks have been given a 30 day term for developing a non-core assets restructuring plan and submitting it to the NBG. Commercial banks are obliged to fulfill writing instructions of NBG (Georgian law on commercial Banks, article 30, paragraph 2). Therefore we can say the process is underway. Commercial banks have to get rid of non-core assets by the end of 2015 and this is a reasonable term. At the same time, NBG plans to develop a package of legislative amendments so as the legislation reflect new regulations. Naturally, this process requires hard work and much time and many technical and financial details should be specified.

he National Bank of Georgia (NBG) has banned commercial banks to hold non-core assets. The decision was published on the NBG official website on 30 October, 2014. Commercial banks will provide only traditional financial services. The commercial banks, which own non-core assets, have to submit a detailed strategy for a phased withdrawal from the non-financial sector to the National Bank within 30 days. Banks should give up non-core business until December 31, 2015. In addition, the central bank claims that such a practice raises the risk of

IRAKLI LEKVINADZE Expert of Economy

a conflict of interests. Avoidance of adverse impacts on competition in the real sector of economy is named an additional argument. According to the NBG, the decision was adopted after meetings with the representatives of various business sectors and reviewing the international practices. Development companies met the NBG’s initiative to restrict non-core assets positively. Most of them were in favor of banning the ownership of non-core assets. According to President of the Association of Banks of Georgia, the decision of the National Bank is mainly designed for the future. In his words, it is rather a preventive measure.

he decision the National Bank of Georgia (NBG) has taken to ban commercial banks of holding non-core assets is an adequate decision amid the current market realities in Georgia. The issue has become relevant because of various business cases, when conflict of interests was registered in some occasions. I believe restriction on non-core assets will result in creating equal conditions and subsidiaries of the strongest financial organizations will have no preferential conditions on the market. In whole, the ratio of non-core assets in total assets of commercial banks is very small, but the decision meet the market realities and needs. Today commercial banks show interest in all profitable business sectors, including insurance, housing, retailing, hospital, education sectors. I believe the NBG decision will bring considerable results to guarantee comeptitive environment on the market.

RUSTAVI AZOTH CAPITAL GROWS BY 3.7 MILLION USD 100% shareholder of the company Agrochem SA has already made the decision. According to the decision, company’s capital equals to $33,7 million. Management of Rustavi Azot does not specify for what will be spent increased capital. The company does not comment about it. It’s noteworthy that in August and September export of nitrogenous fertilizers sharply reduced. During first 7 months of the year export was increasing. The company doe not comment about the export reduction. According to Geostat data, in August 18,78 tons of nitrogenous fertilizers were exported in August. The data is 4 times less than in August

2013 (80,78 thousand tons in 2013). In September 18,8 tons are exported. Reduction in comparison to September of last year equals to 63%. As for 9 months data, 314,1 thousand tons of nitrogenous fertilizers of $93,4 million value were exported. It’s $5,5 million less than in 9 months of 2013. It’s noteworthy tat Rustavi Azot is the only producer of nitrogenous fertilizers in Georgia and South Caucasus. Reminding that in June director general of the company was changed. Levan Burdiladze changed Mark Katznelson on the position.

GEORGE PARESISHVILI PRESENTED AS A NEW DIRECTOR GENERAL OF STOCK EXCHANGE

eorge Paresishvili is a former independent member of the supervision board of the Stock Exchange and former deputy chairman George Bachiashivili. Various time he worked in Liberty Bank, Bank Republic and broker company (G&T) of Bank of Georgia. New management of the Stock Exchange announces about reform of the trade square and offers of attractive stock trade conditions to the

companies. The companies, which are in the listing of the stock exchange, should have opportunity to expand trade. Paresashvili informs that some changes have already been made in the trade system and trade rules. Currently 128 companies are listed on the stock exchange, with total capitalization - 1,2 billion GEL. Meanwhile, securities of several companies are traded. Average daily turnover does not exceed 6 000 GEL.

SOCAR TO SUPPLY FREE GAS TO RELIGIOUS ENTITIES IN GEORGIA

il company SOCAR will provide natural gas to monasteries and churches in Georgia free of charge. Patriarchate of Georgia and SOCAR signed a year-long memorandum, according to which up to four hundred monasteries and churches based in Georgia will be getting free natural gas supplies. Catholicos-Patriarch of All Georgia Illia II and SOCAR Energy Georgia’s Executive Director Mahir Mamedov attended the official signing of the memorandum. The contract was signed by Mr. Mamedov and the Patriarch’s Chorbishop Jacob. The Georgian Patriarch thanked the company SOCAR’s representatives in the name of the Georgian clergy and the synod. Ilia II noted that he was very grateful for the help that the company provided to the Georgian Church and other religious institutions: “I want to express my gratitude for the help that

your organization provides not only for the Georgian Church but also for the Catholic, Muslim and other religious entities. I thank the company SOCAR in the name of all the other organizations you have assisted. We appreciate the help and hope that it will continue in the future as well,” Patriarch Illia II said. In his turn SOCAR Energy Georgia’s Executive Director thanked the Georgian Patriarch for the support he expressed toward the Georgian-Azerbaijani friendly relations. Mahir Mamedov evaded the question as to what type of oil the Patriarchy will be getting. He noted that the sum in question is a very serious one, but he would not wish to disclose it. He also noted that there are many individuals and organizations in the private sector in Georgia that would be able to provide this type of assistance to the Patriarchate, however the Patriarch chose SOCAR over those organizations and Mr. Mamedov was grateful for the trust and recognition.

ECONOMY November 10, 2014 #75

caucasian business week

LEGATUM PROSPERITY INDEX: A LOOK AT GEORGIA’S ECONOMIC PROFILE

eorgia ranked 80th among 142 countries on a UAE-based thinktank Legatum Institute’s Prosperity Index. The country moved up four points compared to the last year’s ranking. Georgia is preceded by Azerbaijan occupying 79th place, and followed by South Africa, ranking 81st. Legatum’s Prosperity Index is an annual ranking of 142 countries assessing prosperity beyond the dry macro-economic indicators. The organization suggests a more subjective look to an economic analysis of a country – they approach economics from an individual’s point of view. How much does one trust the government elections in the country? How comfortable/uncomfortable does an individual feel searching for a job at the moment? How much of a social support network does one in the selected country have? The institute’s outlook is the following: “Most people would agree that prosperity is more than

lation only 32% are employed when the global mean is 54%. Only 28% of the population of the country is satisfied with living standards, as opposed to the 59% of global citizens who are happy with the material well-being they can afford in their countries. Intimately tied with the above figures of unemployment is the country’s ranking in the ‘Entrepreneurship and Opportunity’ category. Meaning, how much leeway is there for a citizen to improve his or her current social status. How much economic mobility can a Georgian citizen experience through applying their entrepreneur self? Considering that Georgia was recently ranked 15th by World Bank in the ‘Doing Business’ category, the picture should be a hopeful one. Accordingly, Georgia has a fairly good score on the global scale: 70. The majority of the population, 73% thinks that one can ‘get ahead’ by working hard. This hope is justified by the country’s position in the ‘Entrepreneurship and Opportunity’ category. The big picture that one gets by looking at Georgia’s profile created by Legatum Institute is that the small South Caucasian country is a politically optimistic state with a rather high unemployment rate and tangible entrepreneurial opportunities. Having looked at a short overview of what categories constitute the Legatum Prosperity Index, an educated reader should recognize Georgia’s move up by four places as a significant shift in the country’s economic well-being. It is definitely a figure that a person interested in the country’s economic development should not overlook. NINO GOJIASHVILI just the accumulation of material wealth, it is also the joy of everyday life and the prospect of being able to build an even better life in the future.” To asses these quite subjective social matters the Legatum Institute introduces such “Prosperity Principles” into their equation as: Personal Freedom, Entrepreneurship and Opportunity, Safety and Security, etc. So how does Georgia rank compared to other countries? What are our country’s strong social points? Turns out, we are in the middle to high range on the spectrum of the selected 142 countries. Occupying the 80th place, Georgian population demonstrates strong trust in the government sector – 69,9% -- when the global average percentage stands at 49.9%. Presented is the data analyzing the people’s attitude in the year 2013. Georgia has moved up 11 points in this category since the year 2012. Considering the country’s political transition in this period – the change from the United National Movement to the Geor-

gian Dream Coaliton – it seems the people of the South Caucasian country were significantly confident in the political shift taking place on the political arena. This trend, perhaps, can also be observed in the move by 23 points in the ‘Personal Freedom’ category, from 79th in 2012 to 56th today. Surprisingly for such a collective society that Georgia is, where individuals have very close ties with their relatives and rely on nepotism as a driving force of the labor market, the country scored lowest on its “Social Capital” index: 132nd. This category of the Legatum Institute’s survey is determined by such questions as: “Can you rely on a friend and family for help? Are you married? Do you think that most people can be trusted?” More importantly: “Have you volunteered your time in past month? Donated money to charity in past month?” Georgia scored the lowest in the latter: 4% compared to the global average of 28.9%. Turns out, that the social atmosphere of the country is not just determined by how many friends or relatives one has, but also by how generous the population of a country is toward the less well-off individuals of the society. ‘Economy’ ranking 91, and ‘Health’ at 92 follow right after ‘Social Capital ’ in terms of the scores. It is no surprise that a developing country should score low on these categories. However, a considerable increase, up by 41 points, in ‘Economy’ from 132nd place in 2012 to 91st in 2013 should be noted. The 5-year GDP per capita growth rate of Georgia is 3.1% as opposed to the global 1.8%. Perhaps, Georgia owes its drastic improvement this year in the ‘Economy’ category to this figure. Although the dreary facts of the Georgian society still remain unchanged: out of Georgia’s popu-

BUSINESS caucasian business week

November 10, 2014 #75

NATAKHTARI FUND ANNOUNCED AS THE BEST SOCIAL PROJECT AT MARKETING BRILLIANCE AWARDS 2014

n October 25 Tbilisi hosted the biggest business awards ceremony - Marketing Brilliance Awards 2014 aimed at selection of the most innovative projects and recognition of the best. The event was organized by British Company BOC – Global Events Group. Natakhtari Fund was announced as a winner in the nomination of the best social project at Marketing Brilliance Awards 2014. It is noteworthy that the event organizers nominated the Natakhtari Fund themselves among the other social projects, while the Jury and the experts recognized it as the best on the basis of the Fund’s activities and results. „We feel proud ourselves since the competent jury distinguished our project among many other interesting ones. It is important that social projects were addressed for the first time this year. Also, the organizers nominated the Natakhtari Fund among the other social projects so that we knew nothing about it. The international jury announced us as winners based on the fund activities and results. We would like to express our gratitude for such recognition. This award is an additional incentive not only for the Natakhtari Company but also for psychologists, teachers, social workers

and everyone who were involved in the project implementation. I would like to thank all who contributed to the project and especially those who selected Natakhtari Fund” – said Tornike Nikolaishvili, Marketing Director of Natakhtari Company. “Natakhtari deservedly became the winner of Brilliance awards in CSR. It positively changes lives of adolescents deprived of parental care and gives the best example to the other large corporations. BOC congratulates Natakhtari on this award and wishes it further success in its activities”, - said Maka Kuparadze, Marketing Director of BOC - Global Events Group. Natakhtari Fund has been assisting children deprived of parental care in getting ready for independent life since 2011. The amount is being collected from November through February. More than GEL 420,000 got accumulated during three years. 159 beneficiaries are using the following ser-

vices provided by the Fund: psychological consultations, training in certain subjects, acquiring vocational education and driving license, purchase of tools/materials needed for acquiring an occupation, scholarship (rent, food, transport costs). It should be noted that the amount for each beneficiary is being allocated on an individual needs basis The Project is being implemented by Association Our Home –Georgia with the support and blessings of Ilia II the Patriarch of All Georgia. It is to be noted that the transparency of spending was certified by the international audit firm PricewaterHouse Coopers.

WWF TO HOLD INFOTOUR IN JAVAKHETI PROTECTED AREAS

n October 31, 2014, a Information Tour to Javakheti Protected Areas was organized. Representatives of media, tour operators, governmental and non-governmental organizations participated. They visited the lakes on Javakheti Protected Areas, tourist infrastructure available there and visitors’ center of Javakheti National Park. The tour participants were provided with comprehensive information on implemented activities and outcomes of the Javakheti National Park Establishment project, as well as information on the above mentioned territory, its significance and potential for tourism development. The tour was organized within the framework of the project Development of Ecotourism in the Javakheti National Park Support Zone implemented by the Biologi-

cal Farming Association Elkana. The Ecotourism Development project is a part of the Javakheti National Park Establishment project which has been funded by the Reconstruction Credit Bank KfW and implemented by WWF in cooperation with the Agency of Protected Areas of the Ministry of Environment and Natural Resources Protection of Georgia since 2009. Javakheti Protected Areas consisting of Javakheti National Park and five Sanctuaries, as well as tourism and ad-

ministrative infrastructure have been developed as a result of the Javakheti National Park Establishment project. Javakheti Protected Areas will be ready to host the visitors from spring 2015.

PRODUCTS OF MARNEULI FOOD FACTORY AND HEALTHY WATER AT THE EXHIBITION HELD IN SICHUAN PROVINCE

eorgian companies participate in the 15th Western China International Fair of Beverages and Food opened today, on October 24 in Chengdu, Sichuan Province. “Main purpose of Chengdu exhibition is to stress the economic and tourism opportunities for each participant country. The event allows to establish contacts with local buyers and popularize Georgian products on a larger scale”- noted representatives of the Ministry of Agriculture. More than 4,000 companies from 72 countries take part in the 15th Western China International Fair and the number of visitors exceeds 400,000 including more than 20,000 professional traders. Georgian companies producing wine, juices, water and food were presented at the Georgian stand with the support of the National Wine Agency of the Ministry of Agriculture and the Business Development Agency of the Ministry of Economy, within the framework of the export promotion program.

Apart from Marneuli Food Factory and Healthy Water the other Georgian enterprises such as Kula, Khareba Winery, Kakheti Traditional Winery, Chateau Mukhrani, JSC Bagrationi 1882, Kakheti Wine Cellar, Kindzmarauli Cellar and Kimerioni exhibited their products. „Participation in such a significant commercial-economic event as the Western China International Fair is important for Healthy Water. Through this exhibition we will have the opportunity to present our products to over 400,000 visitors including more than 20,000 professional traders. Respectively, a larger audience can evaluate quality and flavor of naturally distinguished Georgian mineral water. We would like to thank the Business Development Agency and the Ministry of Economy

for this opportunity. This is a wise approach for promotion of Georgian products abroad and their popularization, We hope that this cooperation will continue in the future as well”- said Victoria Zhizhko, Public Relations Manager of the Company.

BANKING NEWS November 10, 2014 #75

caucasian business week

PRIME MINISTER MET WITH VICE PRESIDENT OF WORLD BANK

n Thursday Prime Minister Irakli Garibashvili and vice president of World Bank Laura Tuck discussed cooperation of World Bank with Georgia, existing investment environment in the country and ongoing economic reforms.

Prime Minister’s office informed that head of Georgian government expressed gratitude to Vice President of Word Bank about the projects implemented on roads, municipal infrastructure, agricultural and energy spheres. He mentioned that the government also gives great importance to budget support program.

TBC LEASING TO FINANCE SMALL AND MEDIUM-SIZED BUSINESSES BY 4 MILLION USD LOAN

n November 6th, 2014 an agreement between TBC leasing and Black Sea Trade and Development Bank was signed. TBC leasing will increase financing of private businesses in Georgia with a USD 4 million loan. The loan will be used to finance leases of production equipment and commercial vehicles to smalland medium-sized local companies (SMEs). The contract was signed by TBC Bank CEO, Mr. Vakhtang Butskhirkidze, TBC Leasing CEO, Mrs. Nana Mikashavidze and BSTDB President and chairman of board of governors, Mr. Ihsan Ugur Delikanli. This was Mr. Delikanli’s first visit to Georgia. CEO of JSC TBC Leasing, Ms. Nana Mikashavidze highlighted the importance of the agreement both for the company and the economic growth of Georgia over all: “The new loan extended by BSTDB to TBC Leasing serves for increasing access to finance for Georgian SME’s

through development of non-banking finance sector in Georgia. Leasing as a tool for investment in equipment promotes economic growth leading in turn to the creation of employment which is very important to the whole country.” Commenting on the agreement at the signing ceremony in Tbilisi, Ihsan Ugur Deliaknli, BSTDB President noted: “BSTDB remains committed to supporting small business development in Georgia and in the Black Sea region, which is a backbone of market economy. The strengthened leasing sector will benefit Georgia’s economic growth by supporting the SME sector development by providing easier and cheaper access to production facilities. The new loan to TBC Leasing complements the BSTDB special SME credit lines provided to Georgian banks”. This is the third leasing facility extended by BSTDB to TBC Leasing, bringing the total amount to USD 10 million. The previous two successfully utilized facilities were provided in 2007 and 2011.

FINCA OFFERS NEW CREDITING TERMS TO SMALL AND MEDIUM BUSINESS SECTORS EBRD, FMO AND GGF TO FINANCE DARIALI HPP CONSTRUCTION BY 80 MILLION USD

uropean Bank for Reconstruction and Development (EBRD) announced about increased interest to the renewable energy in Georgia and allocation of funds for the construction of new Dariali power plant on the river Tergi. The European bank will allocate $80 million as a syndicated credit for Dariali Energy, which should provide development, construction and operation of one of the rare, private and Greenfield-type hydro power plant concept. According to press release of EBRD, it is the first hydropower project in Georgia funded by long-term A/B credit. It will have a syndicated structure. Within this initiative the European Bank will allocate credit of A-type - amount of $40 million, Credit of B-type will be divided in this way: Netherlands Development Bank (FMO) will assign $30 million, German Fund For Green Growth (GGF) - $10 million. “It is considered that the most unutilized hydropower resources are in Georgia. Currently less than 20% of the potential is used. The investment will support attempts for development of the potential and introduction to green policy in the country. Strategic location of the country, also advantage of connection of South Caucasus to Europe and Turkey will be used. It will help Georgia in the strengthening not only national, but also regional energy security”, - EBRD regional director in the Caucasus, Moldova and Belorussia Bruno Balvanera stated. Dariali Energy will complete construction and installation works of the energy generation station.

Installed capacity of the power plant will be 108 MW, expected annual output - 510 GW. “All these will help generation of electricity on the basis of carbon and also will reduce dependence on the imported fuel during winter months. Imbalance of generation segment in Georgian energy sector is important, because 2/3 of the country’s energy resources are located in the North West of the country, 2/3 of the local demand comes from the East. In the peak periods it determines network instability. Dariali hydro power plant will increase stability of the transmission network due to its location”, - says EBRD press release. Dariali Energy enterprise consists of the following members: Georgian companies LTD Perry and LTD Energy, also Robins Company registered in the United States (focus area: difficult excavations of the land cover) and Georgian Energy Development Fund (GEDP) founded by government of Georgia. Dariali power plant will be construction in accordance with the EU environmental protection requirements and instructions of International Association for Hydro Energy determined for sustainable development sphere. The investment is the first energy project in Georgia to provide carbon-neutral construction, which means restoration of the forest cover after the construction works. Director of Dariali Energy Zurab Alavidze and head of energy direction of EBRD - Nandita Farshad signed contract on Thursday in Tbilisi. Construction of Dariali power plant started in 2012 and will be completed in December 2015.

inca Bank announced about new conditions for small and medium business. The loan can be received for any target and interest will be paid with in a new rate. It starts from 15,95% (effective - from 17,95%).

Finca Bank issues loans without bail to $10 000, without bail and guarantors - to 5 000 GEL. Finca is represented in almost all regions. It serves to over 55 000 consumers through 39 service centers. Soon the bank plans expansions and offer of the new products.

BASISBANK LOWERS MORTGAGE LOAN’S INTEREST RATE

asis Bank stareted a promo, in the framework of which annual rate of the mortgae loan will start from 9,25% (effective - 10,23%). Amount is up to $200 000, term - to 20 years. Basis Bank’s offer also includes porting. During the promo the loan is issued with simplified procedure as well.

LIBERTY BANK PROFITS EXCEED 17 MILLION GEL IN 9 MONTHS

iberty Bank completed 3 quarters with 17,4 million GEL profit (01/07/14 9,999 millions). By October 1 clients’ deposits equal to 1,4 billion GEL, credit portfolio - 760,7 million GEL

(01/07/14 - 746 millions)/ Overall obligations are 1,4 billion GEL. Bank’s actives equal to 1,6 billion GEL, market share - 8,4%. At the end of the Q2 it was 1,5 billion (8,7%). Stock capital of the bank is 169 million GEL (01/07/14 - 161,6 million).

SEPTEMBER RECORDS GROWTH IN OUTPUT OF COMMERCIAL BANKS, DOWNTURN FOR NATIONAL BANK

ompared to previous month, output of commercial banks increased, for National Bank - reduced. According to Geostat data, total output of the sector equaled to 93,9 million GEL. Besides, total output of 21 commercial banks equaled to 89,5 million GEL in September, which is 3,6 million more than in August.

Besides, it’s 8,7 millions more then in the same period of last year. As for output of National Bank, compared to August it reduced by 1,6 million GEL, to 4,4 million GEL. In September of last year output of the regulator equaled to 7,2 million GEL. In August total output of the banking sector was 91,9 million GEL.

AZERBAIJAN caucasian business week

November 10, 2014 #75

IMPORT-SUBSTITUTING INDUSTRIALIZATION KEEPS PRIORITY FOR AZERBAIJAN

GEORGE KVIRIKASHVILI BECOMES HONORARY MEMBER OF CASPIAN EUROPEAN CLUB

eetings with representatives of the Administration of the President and Government members of Georgia as well as with representatives of large and medium business of Georgia were held during the visit paid by the delegation of the Caspian European Club to Georgia and headed by the Chief Executive Officer Telman Aliyev. According to CEIBC, prospects of development of the business-to-government dialogue, exchange of information about investment opportunities of the two countries were discussed during the meetings. It was noted that Tbilisi would host the II International Caspian Energy Forum – 2014 in November. The conference has a one-day agenda consisting of three parts. The first part will cover the development of the oil-gas, energy and ecological sectors. The Caspian European Forum, dedicated to the development of the non-oil sector, will take

place within the framework of the second part. Presentation of international prize Caspian Energy Award will be held within the framework of the gala-reception on the same day. Administration of President of Georgia, Ministry of Energy of Georgia, Ministry of Economy and Sustainable Development of Georgia, SOCAR Energy Georgia, Georgian Oil and Gas Corporation and Caspian European Club are providing official support to the Forum. Golden sponsors of the forum are Pasha Bank Georgia LLC and Cross Caspian Oil&Gas Logistics LLC; silver sponsor is Сaspian Well Services Georgia LTD; bronze sponsors are SNF Vostok LLC, Azertexnolayn LLC, Murphy Shipping and Commercial Services and Improtex Travel Tours&Conferences. The honorary membership certificate of the Caspian European Club was presented to Vice Prime Minister, Minister of Economy and Sustainable Development of Georgia George Kvirikashvili in Tbilisi.

AZERBAIJAN’S CURRENCY MARKET STARTED TO GROW FOR THE FIRST TIME IN 2014

or Jan-Sep 2014 the Azerbaijani banks reduced the surplus on foreign currency conversion transactions by 8.2% amid 2.3% growth in the market. In September currency market grew for the first time this year: its indexes demonstrated decline over 8 months year-on-year. The Central Bank of Azerbaijan informs that over Jan-Sep the turnover of cash foreign currency (exchange transactions of banks) amounted to AZN 11.671 bn versus AZN 11.411 bn a year earlier that provided fall-off of the cash currency market by 2.27%. At that, the volume of foreign currency sales by banks decreased by 1.59% - from AZN 8.287 bn to AZN 8.156 million and purchases grew by 9.32% from AZN 3.123 bn up to AZN 3.414 bn. As a result, banks’ net surplus on the conversion

of foreign cash fell for Jan-Sep to AZN 4.741 bn against AZN 5.164 bn a year earlier. Over JanSep the foreign currency market was equal to 26.44% of Azerbaijan GDP (AZN 44.145 bn). In 2013 the turnover of cash foreign currency (exchange transactions of banks) amounted to AZN 16.445 bn versus AZN 14.241 bn a year earlier that ensured growth of cash currency market by 15.5%. At that, the volume of sales of foreign currency by banks increased by 6.05% - from AZN 10.678 bn up to AZN 11.222 bn and purchases - by 18.5% from AZN 3.563 bn up to AZN 4.222 bn. As a result, banks’ net surplus on the conversion of foreign cash dropped in 2013 to AZN 6.999 bn against AZN 7.115 bn a year earlier. In 2013 the foreign currency market was equal to 31.6% of Azerbaijan GDP (AZN 52.072 bn).

AZERBAIJAN TO RESTORE GAS SUPPLIES TO RUSSIA IN 2015

OCAR (State Oil Company of Azerbaijan) will restore gas exports to Russia in 2015, SOCAR head Rovnag Abdullayev told reporters Nov. 5. Earlier, SOCAR stopped supplying gas to Russia in connection with the construction of the remaining section of the highway BakuQuba-Russian border and maintenance work on the gas transport infrastructure. “The work is underway,” he said. “The gas supplies are likely to be resumed in 2015.” Azerbaijani gas is supplied to Russia on the basis of the contract on the purchase and sale of Azerbaijani gas with a possibility of extension. The deal was signed between SOCAR and Russia’s Gazprom in Baku on October 14, 2009. The contract between SOCAR and Russian Gazprom allows suspending and resuming gas supplies at any time. SOCAR exported about 100 million cubic meters of gas to Russia in the first half of 2014 compared

to 876 million cubic meters in the same period of 2013. The decline in export volumes is connected with the previous repair on the gas pipeline stretching from Azerbaijan to Russia. Gas supplies were suspended in January and restored in June 2014. It was announced about the temporary suspension of gas supplies in early September. SOCAR exported 1.37 billion cubic meters of gas to Russia in 2013. Gazprom was to receive two billion cubic meters of gas in 2011 and over two billion cubic meters in 2012, in accordance with a 2010 supplement to the contract. However, the Russian side did not get the full amount of the planned volume as of 2012. The additional agreement to double the volume of Azerbaijani gas purchased by Russia, from 1.5 billion cubic meters to 3 billion cubic meters, was signed by both sides in Sochi on January 24, 2012.

zerbaijan has entered a qualitatively new stage of industrialization and the import-substituting industrialization is an important issue for the government. The main focus of the import substitution is that money circulates within the region when money earned locally is spent locally. Azerbaijan has announced 2014 as the Year of the Industry. During the year, a number of measures have been adopted aimed to strengthening the industrial capacity, improving competitiveness and human resource capacity and upgrading the regulatory framework. Also a state program was approved for the development of industry in 2015-2020 based on the provisions of the Concept of “Azerbaijan 2020: Look into the Future.” The total volume of capital investments in Azerbaijan’s industrial sector amounted to 5.35 billion manats in January-September 2014, which is 5.4 percent more than in the same period of 2013. The total volume of capital investments in Azerbaijan’s industrial sector stood at 7.08 billion manats in 2013, which is 16.4 percent more than in 2012. FOOD The country provides itself with staple foods to the highest extent, except for grain. This, of course, is a very important factor in ensuring food security. The volume of agricultural production has increased by 3.4 times in Azerbaijan over the past ten years. The volume of investments made in Azerbaijan’s agriculture in the mentioned period increased by 15 times. Azerbaijan’s Agriculture Minister Heydar Asadov has recently announced that the volume of fruits and vegetable supplies, which are the basis of Azerbaijan’s agricultural export, has increased by 34.3 percent since early 2014 compared to the same period of 2013. Asadov said the level of self-sufficiency in meat and dairy products is currently 92 percent and 76 percent, respectively. “Earlier Azerbaijan imported a several tons of potatoes to meet the domestic needs but today the country annually exports over 50,000 tons of fresh potatoes. Also, the volume of export of fruits and vegetables, traditionally supplied by Azerbaijan to foreign markets increases year by year,” Asadov said. Azerbaijan now meets the population’s demands for meat products by 90 percent, poultry meat by 81 percent, eggs by 80 percent, dairy products by 75 percent, vegetable oil by 65 percent, and butter by 50 percent through local production. Over the past ten years, as a result of measures adopted in Azerbaijan to ensure food security, the production of husbandry goods has increased by 3.1 times, cattle-breeding by 3.4 times, meat production by 1.6 times, and grain production by 1.4 times. HEAVY INDUSTRY The import substation can also be viewed in regard to the industrial products. This will be effective in view of goods, the production of which is not so expensive, and which can be produced in Azerbaijan. The production of matches can be a good example. Today, Azerbaijan imports matches, although the country has enough opportunities for the production of this product. Addressing the recent Cabinet meeting, President Ilham Aliyev noted that the approach followed in ensuring food security and becoming selfsufficient should be used in relation to building materials “Great developments have been made in this field,” the president said. “We have already provided ourselves with cement by 100 per cent. We need to provide ourselves and arrange exports to the maximum extent possible. Here we have in mind the development of aluminum, steel and metallurgy.” During this period, Azerbaijan was leading the former Soviet states in terms of the production of petroleum products, oilfield equipment, steel pipes, non-ferrous metals, synthetic rubber, electric motors, construction materials, household air conditioners, car parts, fertilizer, porcelain and pottery, carpets and rugs. The country manufactured 350 kinds of products and exported to 65 countries worldwide.

Azerbaijan, like many other post-Soviet states, in the 90s of the 20th century has experienced massive deindustrialization. After gaining its independence, the country began to fuel up the industry. Bulk of the capital investment was directed to this sphere. If in 1990, the mining sector accounted for 5.3 percent of total industrial production in the country, in 2013, the share rose to 77.2 percent. As a result, the share of processing industry decreased from 90.1 percent to 16.5 percent. Meanwhile, the number of enterprises operating in the mining sector increased from 88 in 1995 to 318 in 2013, from 1,844 to 2,149 in 2008 in the manufacturing sector and dropped to 1,764 units by late 2013. Thanks to the “open doors” policy persuaded by the government, the number of foreign and joint industrial enterprises operating in the country grew significantly: from 1998 to 2013 the increase was 2.5 times, or up to 233 enterprises. The Economy and Industry Ministry forecasted that more than 500 new industrial enterprises will appear in Azerbaijan in the next 10 years. Azerbaijan is the most perspective metallurgical country in the region. The country is rich in terms of raw materials, natural resources, and metal industry and construction sectors on one hand and enjoys an experienced personnel open to a range of opportunities for development of heavy industry including metallurgical industry on the other hand. The fundamentally new mechanisms observed in the modernization of the industrial sector of Azerbaijan bears its fruits, as the country has formed several different profiles of industrial parks and business incubators Azerbaijan actively creates industrial parks, and has already opened Sumgayit and Balakhan industrial parks, as well as Hi-Tech Park. The main advantage of the industrial districts is that the entrepreneur does not waste money on infrastructure for enterprise. External and internal infrastructures are available on the industrial districts. LIGHT INDUSTRY Light industry has a sustained tradition in Azerbaijan and includes production, spinning and weaving of cotton and silk. The main raw materials for the domestic textile industry are cotton, wool, silk cocoons, leather and synthetic fiber. Azerbaijan had a large share of silk production among the republics of former USSR. Following the crisis period in the mid1990s, cotton cultivation increased in the country. This indicator was 44,800 tons of raw cotton in 2013. The overall potential production of cotton in Azerbaijan is as much as 800,000 tons from approximately 280,000 hectares. , Other raw materials that are also important for the weaving industry of Azerbaijan are wool and silk cocoons. There is a capacity to produce over 9,000 tons of silk cocoons annually by increasing the area of mulberry plantations to 25,000 hectares. There are also opportunities for leather production and processing in Azerbaijan as livestockbreeding has been growing rapidly for the last few years. Markets for Azerbaijan’s textiles, in addition to the local market, include Russia, Central Asia and Iran. No export duty is payable on such products. Textile products exported to the EU are free of quotas and permits, and only the import customs duty is payable. Azerbaijan’s future development could be associated with the industrial development and the country will gain a lot because of its rich natural resources and diversified economy.

NEIGHBORHOOD November 10, 2014 #75

caucasian business week

EU TO PROVIDE ARMENIA WITH FRESH AID

he European Union has pledged to provide between 140 million and 170 million euros to Armenia for private-sector, public administration, and justice reforms over the next three years. The commitment is contained in a memorandum of understanding launching the Single Support Framework for EU support to Yerevan that was signed in Brussels on November 3 by newly appointed Commissioner for European Neighborhood Policy and Enlargement Negotiations Johannes Hahn and Armenian Economy Minister Karen Chshmaritian. “The EU and Armenia are committed to continuing cooperation in areas of mutual interest based on shared values,” Hahn said, on his first official working day as commissioner. “We support the country’s modernization efforts and we will continue encouraging necessary reforms in Armenia.” The deal represents the most significant agreement between the European Union and Armenia since Yerevan decided to join the Russian-led Eurasian Economic Union. That decision, announced by Armenian President Serzh Sarkisian in Moscow in September 2013, effectively put an end to years of negotiations between Yerevan and Brussels to conclude an Association Agreement and its Deep and Comprehensive Free Trade Area (DCFTA) component. He also announced the first package of EU assistance for 2014 under the new Single Support Framework. The fresh funding of 19 million euros (about $23.8 million) will focus on small businesses and human rights protection in Armenia. “Supporting businesses and innovative start-ups can, in a longer run, boost more job opportunities, increase the economic competitiveness, and enhance the overall progress of the private sector of Armenia. In the field of human rights protec-

tion, the new program will help improve relevant legislation in the areas of right to free elections, torture prevention, anti-discrimination, gender equality and child protection,” a European Commission press release said. Pledging to continue to support reforms in Armenia, the European Union at the same time emphasized that the figures of allocations are indicative: final allocations will depend on the country’s needs and commitment to reforms. Aside from those agreements, the EU commissioner and the Armenian economy minister also signed a document under which 25 million euros will be provided to Armenia for agriculture and rural development. “I welcome this agreement and hope that there will be a lot of further agreements and that will be certainly a very close cooperation between Armenia and the European Union,” Hahn said. Chshmaritian expressed Armenia’s gratitude to the EU for understanding the position of Armenia, stressing that Yerevan wants to continue cooperation in trade and investments, implementing reforms in all sectors of the economy. “We want to have a more attractive investment and business climate for our European partners,” he said. Asked by RFE/RL Brussels correspondent Rikard Jozwiak whether it was still possible for Armenia to sign the political component of the Association Agreement with the European Union without the DCFTA part, Hahn acknowledged that the Russian-led customs group presented an obstacle. “Tomorrow [November 4] there will be the first reflection process on this issue, a brainstorm meeting where both the Armenian side and the European Union will be sitting together and identifying areas of future cooperation and what this membership in the Customs Union implies for the relationship with the European Union,” Hahn said.

GROWTH IN CAUCASUS, CENTRAL ASIA EXPECTED TO DECLINE: IMF

rowth in the Caucasus and Central Asia is expected to decline by about one percentage point of GDP in response to the slowdown in Russia, says the latest regional forecast by IMF staff. The Regional Economic Outlook for the Middle East and Central Asia, released on Tuesday, Nov 4, projects that growth will fall to about 5.5 percent this year and next, in part owing to the region’s close ties with its economically struggling neighbor. “Weaker growth in the CCA region stems from the economic slowdown and increased geopolitical risks in Russia, coupled with weaker domestic demand in a number of countries due to fiscal tightening and flat oil production in some countries,” Juha Kähkönen, Deputy Director of the IMF’s Middle East and Central Asia Department, told reporters in Almaty, Kazakhstan. Economic developments in Russia significantly affect the growth prospects of the CCA region through a number of channels, mainly trade, remittances and investments. A protracted period of slower growth in other trading partners, particularly Europe or China, could also have a negative impact over a longer time horizon, the report cautioned. The CCA’s oil exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—are expected to see growth soften to 5.6 percent this year from 6.8 percent in 2013. These countries

are shielded to some extent from Russia’s slowdown, thanks to diversified export markets and the high oil prices of recent years, which allowed large fiscal cushions to be built up. Non-oil growth in the oil-exporting countries is nonetheless forecast to decline by about 1 percentage point, because of slower consumer lending, increased investor caution, and higher geopolitical risk related to the conflict between Russia and Ukraine, the IMF staff said. Growth in the CCA’s oil importers—Armenia, Georgia, Kyrgyz Republic, and Tajikistan—is forecast to slow by a full percentage point this year, to 4.6 percent of GDP. Because these countries have close trade and remittance linkages with Russia—as well as limited fiscal cushions— they will see a greater impact from Russia’s slowdown than the CCA’s oil-exporting countries, the IMF staff’s report said. Lower remittances from Russia, in particular, will cause the current account deficit of these countries to widen to more than 8 percent of GDP in 2014-15 from 7 percent in 2013 (except in Armenia, where remittances have remained resilient). Fiscal deficits are likewise expected to worsen this year. For countries such as Armenia and Georgia, though, a pause in fiscal consolidation may be warranted to allow growth to take hold, the report notes. A return to gradual consolidation over the medium term would be essential to build up buffers and place public debt on a declining path, the report said.

MORE CRISIS IN UKRAINE AFTER CONTROVERSIAL ELECTIONS

krainian President Petro Poroshenko called an emergency meeting of his security chiefs for Tuesday to discuss new ways of dealing with the separatist challenge in the east after rebel elections that were denounced by Kiev and the West. The rogue votes, which Kiev says Russia encouraged, could create a new “frozen conflict” in post-Soviet Europe and further threaten the territorial unity of Ukraine, which lost control of its Crimean peninsula in March when it was annexed by Russia. Organizers of the twin ballots said insurgent leaders had emerged victorious in both Donetsk and Luhansk -- two Russian speaking areas of eastern Ukraine -- throwing down the gauntlet to Poroshenko, who vehemently opposed the election. In a statement, the Ukrainian president denounced the vote as an “electoral farce”, repeating that it violated a bedrock deal struck in the Belarusian capital Minsk on Sept. 5 intended to pave the way for a settlement of the separatist problem. His sentiments were echoed by the White House, which condemned what it called “illegitimate, so-called ‘elections’” and warned economic penalties on Russia “will rise” if Moscow continues to violate the Minsk deal. “We are concerned by a Russian Foreign Ministry statement today that seeks to legitimize these sham ‘elections,’”Bernadette Meehan, spokeswoman for the White House National Security Council, said in a statement on Monday. Calling for “adjustments” to be made in the way he handled the east, Poroshenko said he intended to scrap a law that would have offered “special status” to areas in the east including those controlled by the rebels. This would be among points to be discussed on Tuesday in a meeting of Ukraine’s security and defense council, he said. The “special status” law envisaged allowing the Donetsk and Luhansk regions to run their own affairs and also offered separatist fighters freedom from prosecution. Kiev says the Minsk agreement provided only for election of local officials under Ukrainian law, and not for separatist ballots aimed at bringing in leaders of breakaway entities who seek close association or even union withRussia. Instead, Alexander Zakharchenko, a 38-year-old former mining electrician, easily won election as head of the “Donetsk People’s Republic”, an entity proclaimed by armed rebels last April. In a similar vote in Luhansk, a smaller selfproclaimed pro-Russian entity further east, Igor Plotnisky won more than 63 percent of the vote, a rebel representative said. Kiev and the West will now be looking to see if Russian President Vladimir Putin will formally recognize the validity of the election, despite their entreaties to him not to do so. A Russian deputy foreign minister, Grigory Karasin, made no mention of formal recognition but said the newly elected leadership in eastern Ukraine now had a mandate to negotiate with Kiev. Up to now, Kiev’s leaders have refused to hold direct talks with the separatists, whom they refer to as “terrorists” and “bandits”. But the options have clearly narrowed for Po-

roshenko too. Poroshenko committed to a ceasefire from Sept. 5 to give chances of a settlement, involving Russia and the separatist leaders, to be worked out. He has ruled out trying to take back the region by force after big battlefield losses in August. But after a parliamentary election on Oct. 26, he is now supported by a pro-Western power structure, determined to stop the break-up of Ukraine, and he may come under pressure to take a firmer line. One big question is what the next diplomatic step will be to resolve the crisis with the apparent collapse of the Minskagreement which brought together the Organization for Security and Cooperation in Europe (OSCE), Russia andUkraine. PUTIN’S FIRST WORD? Putin’s first word on the weekend election could come on Tuesday when he is due to appear at a Red Square ceremony in Moscow marking National Unity day. “The central election commission deems Alexander Zakharchenko to be the elected head of the Donetsk People’s Republic,” an election official, Roman Lyagin, told journalists in Donetsk, the separatists’ stronghold. Numbers of ballots cast for him appeared to show he had won 79 percent of the vote. “Plotnitsky got the majority of the votes in the Luhansk People’s Republic elections,” a spokesman said. The elections were the latest twist in a geopolitical crisis that began with the popular overthrow of Ukraine’sMoscow-backed leader, Viktor Yanukovich last February. Russia denounced Yanukovich’s ousting as a coup by a “fascist junta” and the following month annexed Crimea and subsequently backed the separatist rebellions that sprang up in the east. Kiev says that only direct intervention by Russian troops stopped Ukrainian government forces routing the separatists, though Russia, despite what the West says is incontrovertible proof, denies sending troops across the border. More than 4,000 people have been killed in the conflict, which has led to U.S. and European Union sanctions against Russia. Chancellor Angela Merkel’s spokesman said on Monday Germany found it incomprehensible that “official Russian voices” were talking of recognizing the election in eastern Ukraine. Current developments in east Ukraine ruled out any premature lifting of EU economic sanctions against Russia and if the situation worsened, further sanctions may be necessary, spokesman Steffen Seibert said. The Sept. 5 ceasefire has brought an end to fullscale clashes between government forces and the separatists, though sporadic shelling particularly in the airport area of Donetsk, continues to exert pressure on the truce. Though the city was generally quiet early on Monday, artillery fire from the direction of the airport began to pick up later in the day. The OSCE said that one of its four drones operating on observation missions in the south-east had been fired on by separatists using an anti-aircraft gun near the port of Mariupol on Sunday. It was not hit and returned to base intact.

PUBLICITY caucasian business week

November 10, 2014 #75

GYM 1: AN EXCLUSIVE FITNESS CLUB WITH INNOVATIVE TECHNOLOGY

highest quality fitness club GYM1 opened in Tbilisi on Sanapiro Street, 8. The gym is equipped with Technogym machines, an Italian company which has been an official supplier for athletic training equipment for a number of the Olympic Games, including Beijing in 2008 and London in 2012. Along with the innovative technology the fitness club offers personal work out programs with highly qualified trainers. CBW met with GYM 1’s PR Manager DAVID KATSARAVA and discussed the new club’s role on the Georgian market. “More and more Georgians are starting to lead healthy lifestyles. People are starting to realize that they should spend more time exercising rather than eating at restaurants,” says David Katsarava. The increasing popularity of healthy living can be seen in the large number of different fitness clubs that have opened in Tbilisi recently: “The competition on the market is already very

high. This is creating an incentive for the fitness businesses to compete for a better quality. The growing quality of this business indicates that the society overall is on the path to becoming healthier.” GYM1 occupies its own niche on the Georgian market. The fitness club’s target clients are representatives of middle and higher socio-economic background. This can be in the specific benefits that the club provides. David Katsarava spoke about the opportunities that one gets by becoming a member of GYM1: “We want to create a so-called “club system,” in which the members eventually become one big family with exclusive privileges.” The most privileged package at GYM1 is quite pricey for the Georgian market. The 2000 lari ‘VIP package’ consists of a monthlong individual training program with the world-class personal trainer Ray. He is an Italian of Russian origin who is unique to Georgia because of his rich experience in cross-fit, a multi-functional exercise that yields results much faster than a regular work out. This program is geared toward celebrities and profes-

sional athletes. However, GYM1 opens its doors not only to a very select group of people able to afford the exclusive package. The fitness club aims at diversifying its services and offers packages with varying prices, from a 100 to 200 laris. These are month-long membership fees that include a limited access of twelve passes per month and a thirty-day unlimited pass. David Katsarava himself supports the idea of owning a limited pass. “It’s a psychological trick,” he says, “When you have an opportunity

to go to the gym every day you become lazier as opposed to when you are limited to only three or four passes a weak. In today’s busy environment most of the people are only able to go to the gym three times a week anyway.” By offering a more affordable package GYM1 combines the best technology in the fitness industry with better prices and makes it possible for the Georgian consumer to try out the best product on the market. NINO GOJIASHVILI NUTSA GALUMASHVILI

WORLD NEWS November 10, 2014 #75

caucasian business week

FORBES NAMES VLADIMIR PUTIN MOST POWERFUL PERSON OF THE YEAR

EU FINANCE CHIEF TO ANNOUNCE CAPITAL MARKET PLAN IN 2015

he EU’s new financial services chief will set out his plans for a pan-European capital market by the middle of next year, aiming to reduce companies’ reliance on banks and help revive the bloc’s fragile economy. Jonathan Hill, the European Commissioner for financial services, said on Thursday he was seeking to create an integrated market for raising money through bonds, shares and other financial instruments over the next five years and would develop a plan by next summer following a consultation of banks, lawmakers and non-governmental organizations (NGOs). “We still do not have a fully functioning single market for capital,” Hill told a conference of EU officials and business leaders. “I will be bringing forward proposals to deliver a capital markets union; a project for all 28 EU Member States.” Channeling more money into small companies is seen as crucial for Europe’s efforts to avoid economic stagnation because small and medium enterprises provide two out of every three privatesector jobs in the European Union. Following the worst financial crisis in a generation, banks are reducing riskier lending to build up capital buffers, a problem in a continent where banks account for 80 percent of corporate loans. Officials say a capital markets union would also mean the EU moving beyond public subsidies and loans to coordinate financing for companies and infrastructure through project bonds, publicprivate partnerships and infrastructure funds. Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers, said the capital markets union would need a single European supervisor and the creation of a pan-European insolvency law that would replace national laws. “This is crucial to create the market that we so badly need in parallel to the bank lending system,” he said.

CULTURAL HURDLE However, Deutsche Bank co-CEO Juergen Fitschen said that emulating the United States, where capital markets’ funding is far greater than in Europe, would require a shift that Europeans may not be ready for. Mid-sized companies in the United States obtain about five times more funding from capital markets than their counterparts in the European Union, the Commission, the EU executive, says. The obstacle for smaller companies on capital markets is the challenge of providing continual information to investors, Fitschen said. “The biggest hurdle is the culture of the European entrepreneur,” he told the conference. “He is not ready for capital markets because he is not used to answering all these questions.” The EU is likely to try to support companies by providing such services to investors, although it is not immediately clear how this would work in practice, or who would pay for it. One idea is a pan-European system of information providers that could specialize in collecting, classifying and analyzing data on small- and medium-sized companies for investors, including the size of companies’ outstanding loans. Hill said his first steps would be to push a proposal for European long-term investment funds for infrastructure and businesses, to develop a framework for securitization and to carry out analysis of private placements -- the sale of securities to a small number of chosen institutional investors. “I am interested in ideas for more market finance instruments -- but not just in safe short-term debt, but in longer term stable debt that encourages long-term investment, and in real risk capital that encourages innovation.” The European Central Bank is at the heart of wider efforts to create a capital markets union by trying to revive securitization, or the bundling of loans into bonds to raise cash for companies to invest.

XIAOMI, THE CHINESE SMARTPHONE COMPANY THAT’S CRUSHING EVERYONE, IS EARNING A LOT MORE MONEY THAN PEOPLE REALIZE

iaomi, the Chinese smartphone company that came from nowhere to be a juggernaut, is on pace to do $1 billion in profits this year, according to The Wall Street Journal. Xiaomi is currently trying to raise $1 billion in funding, the Journal reports. As part of the fund raise, it has a document detailing its financial performance. The Journal saw that document, and it reports the following: A table in the document showed that Xiaomi’s net profit last year rose 84% to 3.46 billion yuan ($566 million) from 1.9 billion yuan in 2012, while its revenue more than doubled to 27 billion

yuan. Another table included a forecast of a 75% net profit increase this year. If these numbers are accurate, and Xiaomi really is earning a profit, it’s impressive. Many other smartphone companies are losing money — Blackberry, Sony, HTC, etc. Xiaomi is the fourth biggest smartphone seller in the world thanks to its strong brand in China, and its low prices. It sells Android-based phones that are as good as Samsung’s Android-based phones, but cost half the price. Smartphone sales account for 94% of Xiaomi’s revenue. The rest comes from other products like software and services. Most people assume that Xiaomi is losing money on every phone it sells since its prices are so low. Xiaomi can earn a profit because it spends very little on marketing. Most of its sales come from word of mouth buzz. This is tiny compared to Apple, which did $37.5 billion in profits last year. But that doesn’t matter. Not every company has to earn insane amounts of money. Plus, Xiaomi is only in its fourth year of existence. Xiaomi is looking to raise money at a $40-$50 billion valuation which would make it the second most valuable Android phone company after Samsung.

or the second year in a row, Russian President Vladimir Putin has topped the annual rating of the most powerful people in the world, according to U.S. publication Forbes Magazine, which posted the announcement on its official website. American President Barack Obama is in second place, while Chinese President Xi Jinpin is in third. PUTIN IN THE FORBES RATING The top three has not changed since last year: One year ago the Russian leader also came in first, and his American and Chinese colleagues second and third, respectively. According to the magazine, the Russian leader also featured in the top three places in 2011 and 2012. In 2011 he came in second as Prime Minister and in 2012 was pushed into third place by German Chancellor Angela Merkel. At the beginning of last September, Forbes remarked that the Russian president’s reputation would significantly strengthen, regardless of the outcome of the Ukrainian crisis. As for the American leader’s rating, the magazine’s journalists believe that the problem is not in Obama’s personal qualities, but in the United States, which in the last 30-60 years has lost almost all its advantages in forming the global diplomatic agenda. “America has thrown away almost all the once

vast leverage it enjoyed to set the global diplomatic agenda,” writes the magazine. “In doing so, it acted in the name of an idealistic cause, globalism, but at the end of the day its idealism has not been reciprocated.” PUTIN IN OTHER RATINGS In April, Time Magazine published a list of the 100 most influential people in the world. Vladimir Putin was the only Russian to make the rating. In December 2013 the British daily The Times named the Russian president Man of the Year.

WHAT CAN ALTERNATIVE FINANCE MODELS OFFER TO YOUNG INVESTORS?

am well aware that the vast majority of 18-25 years olds are unlikely to have much spare cash lying around, and that with limited funds they would have to be rather disillusioned with mainstream savings products to consider branching out into the world of investment, alternative finance-based or otherwise. But equally, there absolutely will be some adventurous young sorts who start searching for a little extra bang to their fairly limited bucks. So, onto the options. In equity crowdfunding there is some scope to involve young investors due to the extremely low minimum investment amounts. To acquire a slice of a growing business through the Crowdcube platform for example, you only need to put up £10. But startup investing is intrinsically risky and equity investments offer no guarantee of return on an investment, or even of the recovery of principle. Investors have to be prepared for the worst to happen. FCA regulations state that retail investors may pump no less than 10% of their investible assets into equity crowdfunding. If you’re tempted to have a punt, I’d suggest that the limit under-25s should impose upon themselves should be even lower – with an uppermost cap of 5%. And then we come to peer-to-peer (P2P) lending. On the investor side, this sector represents the most enticing opportunity for young people. The key distinction is that allocating your money to a peer-to-peer lending platform is not the same as putting your money into a deposit account with a bank. You are not FSCS protected and there is a risk that you could lose all of your money. But, of course conversely, there are gains to be made. For example, Tom Reeve, 23, has a significant amount of money invested with the lending platform RateSetter. Tom inherited some money and was turned off by the interest rates offered by banks. After trawling a number of money saving forums, he found RateSetter, and tested the water by investing £100. Having since invested a great deal more through the platform, Tom pointed to the ease of RateSetter’s auto-invest tool. His maximum exposure to any individual loan is just £10. Tom likes the idea that he’s lending directly to other people, but for him the social element is just an added perk. The major UK platforms generally boast a decent track record in terms of default rates. As far as I’m aware, none of the P2P Finance Association

(P2PFA) member platforms have higher than a 3% default rate. A number of platforms – like RateSetter, Zopa, and Wellesley – have provision funds in place so if an underlying borrower defaults, the platform can dip into their contingency fund in order to recoup the losses. Up to now, no investor has ever lost any money at all by using RateSetter. But that does not guarantee that you won’t. There are two major factors to be considered: the maturity of the platform’s portfolios and the benign state of the economy at present. As Rupert Taylor (director of AltFi) recently explained, younger loans are less likely to default, so it’s hard to gauge the quality of a particular platform’s lending with absolute certainty until they are more mature. And, none of the UK platforms – with the sole exception of Zopa – have yet been through a period of economic downturn. Contingency funds may not be able to hold up as well under the stress of a recession, when the underlying quality of a platform’s lending becomes all the more important. Peer-to-peer lending offers young investors returns that vastly out-perform those of a standard deposit account – somewhere between 3% and 15% per annum, depending on the platform. There is certainly a level of risk involved with all P2P platforms, but the return more often than not justifies that risk. 2014 has been a year of unprecedented growth for the industry. According to AltFi Data, the UK P2P and online invoice finance sectors have now supplied close to £2bn for businesses and individuals. The growth trajectory for the space is exponential – potentially reaching £3bn by the year’s end. With ISA and SIPP inclusion for P2P confirmed, a specific FCA regulatory regime in place, the emergence of dedicated peer-to-peer funds (P2P Global Investments), and a swell of government support, alternative finance represents an increasingly legitimate asset class, and that makes it pertinent for a whole new stratum of young people who are working or will work within the world of finance. It’s important for younger people to be armed with an appropriate blend of information and caution about the alternative finance industry. The overarching point is that whilst alternative finance is currently buttressed chiefly by the middle-aged, there are ways for young people to interact with the space that are worth consideration, and that are undoubtedly worth being aware of.

PUBLICITY caucasian business week

November 10, 2014 #75

TOYOTA TO CONVEY AUTMOBILES WITH EURO4 STANDARD DIESEL ENGINE TO GEORGIA

oyota cares for ecology protection and offers more ecologically refined automobiles. Georgian customers will be soon able to buy ecologically cleaner, acceptable and refined RAV4 and Corolla auitomobiles with diesel engine. Official sales of the models will start in Georgia in the near future. New Models of Toyota fully meats European Standards for emissions and they are successfully sold and are very popular in the EU countries. “Care for Ecology becomes more and more relevant worldwide, as well as in Georgia. Therefore, Toyota has introduced ecologically clean automobiles with EURO4 stadnard diesel engines. Our country follows western values and we believe it is very important to take into account and establish all details of this course”, the company representatives noted. The 2013 models of Corolla dn RAV4 have become market leaders in the due segment. They 2014 automobiles RAV4 2wd and Corolla with new components and best characteristics have further strengthened the leading positions. New Toyota Models of Corolla and RAV4 work on diesel engine and this is very economical compared to petrol. “Despite Toyota petrol-driven automobiles are economical, diesel engines save more fuel compared to the petrol engine with the same displacement volume”, the company says. Specialists assert Toyota automobiles with diesel engine have got improved accelerator and twisting force compared to a petrol driven engine with the same displacement volume. Unlike petrol engines, diesel engine ensures faster acceleration and makes the driving more dynamical. Diesel engine of RAV4 is so strong that it resembles the PRADO power and these models have got better accelerator compared to a 2.0 liter models with petrol engine. Only a limited quantity of RAV4 with diesel engine will be conveyed to Georgia and Georgian customers will be able to buy the product until the fourth quarter of 2015.

TBILISI GUIDE November 10, 2014 #75

Embassy United States of America Embassy 11 Balanchivadze St., Dighomi Dstr., Tbilisi Tel: 27-70-00, 53-23-34 E-mail: tbilisivisa@state.gov; askconsultbilisi@state.gov United Kingdom of Great Britain and Northern Ireland Embassy 51 Krtsanisi Str., Tbilisi, Tel: 227-47-47 E-mail: british.embassy.tbilisi@fco.gov.uk Republic of France Embassy 49, Krtsanisi Str. Tbilisi, Tel: 272 14 90 E-mail: ambafrance@access.sanet.ge Web-site: www.ambafrance-ge.org Federal Republic of Germany Embassy 20 Telavi St. Tbilisi Tel: 44 73 00, Fax: 44 73 64 Italian RepublicEmbassy 3a Chitadze St, Tbilisi, Tel: 299-64-18, 292-14-62, 292-18-54 E-mail: embassy.tbilisi@esteri.it Republic of Estonia Embassy 4 Likhauri St., Tbilisi, Tel: 236-51-40 E-mail: tbilisisaatkond@mfa.ee Republic of Lithuania Embassy 25 Tengiz Abuladze St, Tbilisi Tel: 291-29-33 E-mail: amb.ge@urm.lt Republic of Latvia Embassy 16 Akhmeta Str., Avlabari, 0144 Tbilisi. E-mail: embassy.georgia@mfa.gov.lv Greece Republic Embassy 37. Tabidze St. Tbilisi Tel: 91 49 70, 91 49 71, 91 49 72 Czech RepublicEmbassy 37 Chavchavadze St. Tbilisi ;Tel: 291-67-40/41/42 E-mail: czechembassy@gol.ge Web-sait: www.mzv.cz Japan Embassy 7 Krtsanisi St. Tbilisi Tel: +995 32 2 75 21 11, Fax: +995 32 2 75 21 20 Kingdom of Sweden Embassy 15 Kipshidze St. Tbilisi Tel: +995 32 2 55 03 20 , Fax: +995 32 2 22 48 90 Kingdom of the Netherlands Embassy 20 Telavi St. Tbilisi Tel: 27 62 00, Fax: 27 62 32 People’s Republic of China Embassy 52 Barnov St. Tbilisi Tel: 225-22-86, 225-21-75, 225-26-70 E-mail: zhangling@access.sanet.ge Republic of Bulgaria Embassy 15 Gorgasali Exit, 0105 Tbilisi, Georgia Tel: +995 32 291 01 94; +995 32 291 01 95 Fax: +99 532 291 02 70 Republic of Hungary Embassy 83 Lvovi Street, Tbilisi Tel: 39 90 08; E-mail: hunembtbs@gmail.com State of Israel Embassy 61 Agmashenebeli Ave. Tbilisi Tel: 95 17 09, 94 27 05 Embassy of Swiss Confederation’s Russian Federation Interests Section Embassy 51 Chavchavadze Av., Tbilisi Tel: 291-26-45, 291-24-06, 225-28-03 E-mail: RussianEmbassy@Caucasus.net Ukraine Embassy 75, Oniashvili St., Tbilisi Tel: 231-11-61, 231-12-02, 231-14-54 E-mail: ukraina_pu@wanex.net; emb_ge@mfa.gov.ua Consular Agency: 71, Melikishvili St., Batumi Tel: (8-88-222) 3-16-00/ 3-14-78 Republic of Turkey Embassy 35 Chavchavadze Av., Tbilisi Tel: 225-20-72/73/74/76 E-mail: turkemb.tbilisi@mfa.gov.tr Address: 8, M. Abashidze str. Batumi, Georgia; tel: (8-88-222) 7 47 90 Republic of Azerbaijan Embassy Kipshidze II-bl . N1., Tbilisi Tel: 225-26-39, 225-35-26/27/28 E-mail: tbilisi@mission.mfa.gov.az Address: Dumbadze str. 14, Batumi Tel: 222-7-67-00 Fax: 222-7-34-43 Republic of Armenia Embassy 4 Tetelashvili St. Tbilisi Tel: 95-94-43, 95-17-23, 95-44-08 E-mail: armemb@caucasus.net Web: www.armenianembassy.ge Consulate General, Batumi Address: Batumi, Gogebashvili str. 32, Apt. 16 Kingdom of Spain Embassy Rustaveli Ave. 24, I floor, Tbilisi Tel: 230-54-64 E-mail: emb.tiflis@maec.es Romania Embassy

caucasian business week 7 Kushitashvili St., Tbilisi Tel: 38-53-10; 25-00-98/97 E-mail: ambasada@caucasus.net Republic of Poland Embassy 19 Brothers Zubalashvili St., Tbilisi Tel: 292-03-98 Email:tbilisi.amb.sekretariat@msz.gov.pl Web-site: www.tbilisi.polemb.net Republic of Iraq Embassy Kobuleti str. 16, Tbilisi Tel: 291 35 96; 229 07 93 E-mail: iraqiageoemb@yahoo.com Federative Republic of Brazil Embassy Chanturia street 6/2, Tbilisi Tel.: +995-32-293-2419 Fax.: +995-32-293-2416 Islamic Republic of Iran Embassy 80, I.Chavchavadze St. Tbilisi, Tel: 291-36-56, 291-36-58, 291-36-59, 291-36-60; Fax: 291-36-28 E-mail: iranemb@geo.net.ge United Nations Office Address: 9 Eristavi St. Tbilisi Tel: 225-11-26/28, 225-11-29/31 Fax: 225-02-71/72 E-mail: registry.geo@undp.org Web-site: www.undp.org International Monetary Fund Office Address : 4 Freedom Sq., GMT Plaza, Tbilisi Tel: 292-04-32/33/34 E-mail: kdanelia@imf.org Web-site: www.imf.ge Asian Development Bank Georgian Resident Mission Address: 1, G. Tabidze Street

Freedom Square 0114 Tbilisi, Georgia Tel: +995 32 225 06 19 E-mail: adbgrm@adb.org; Web-site: www.adb.org World Bank Office Address : 5a Chavchavadze Av., lane-I, Tbilisi, Georgia ; Tel: 291-30-96, 291-26-89/59 Web-site: www.worldbank.org.ge Regional Office of European Bank for Reconstruction and Development Address: 6 Marjanishvili St. Tbilisi Tel: 244 74 00, 292 05 13, 292 05 14 Web-site: www.ebrd.com Representation of the Council of Europe in Georgia Address : 26 Br. Kakabadze, Tbilisi Tel: 995 32 291 38 70/71/72/73 Fax: 995 32 291 38 74 Web-site: www.coe.ge Embassy of the Slovak Republic Address: Chancery: 85 Irakli Abashidze St. Tbilisi, 0162 Georgia Consular Office: 38 Nino Chkheidze St. Tbilisi, 0102 Georgia Phone: 2 222 4437, 2 296 1913 e-mail: emb.tbilisi@mzv.sk

Hotels in Georgia TBILISI MARRIOTT Tbilisi , 13 Rustaveli Ave. Tel: 77 92 00, www.marriott.com COURTYARD MARRIOTT Tbilisi , 4 Freedom Sq. Tel: 77 91 00 www.marriott.com RADISSON BLU HOTEL, TBILISI Rose Revolution Square 1 0108, Tbilisi Tel: +995 32 402200 radissonblu.com/hotel-tbilisi RADISSON BLU HOTEL, BATUMI Ninoshvili Str. 1, 6000 Bat’umi, Georgia Tel: 8 422255555 http://radissonblu.com/hotel-batumi SHERATON METECHI PALACE Tbilisi , 20 Telavi St. Tel: 77 20 20, www.starwoodhotels.com SHERATON BATUMI 28 Rustaveli Street • Batumi Tel: (995)(422) 229000 www.sheratonbatumi.com HOLIDAY INN TBILISI Business hotel Addr: 1, 26 May Square Tel: +995 32 230 00 99 E-mail: info@hi-tbilisi.com Website: http://www.hi-tbilisi.com BETSY’S HOTEL With Marvellous Tbilisi Views Addr: 32/34 Makashvili St. Tbilisi Tel: +995 32 293 14 04; +995 32 292 39 96 Fax: +995 32 99 93 11 E-mail: info@betsyshotel.com Website: http://www.betsyshotel.com

Restaurants RESTAURANT BARAKONI Restaurant with healthy food. Georgian-European Cuisine Agmashenebeli Alley 13th Phone: 555 77 33 77 www.barakoni.com CHARDIN 12 Tbilisi , 12 Chardin St. , Tel: 92 32 38 CAFE 78 Best of the East and the West Lado Asatiani 33, SOLOLAKI 032 2305785; 574736290 BREAD HOUSE Tbilisi , 7 Gorgasali St. , Tel: 30 30 30 BUFETTI - ITALIAN RESTAURANT Tbilisi , 31 I. Abashidze St. , Tel: 22 49 61 DZVELI SAKHLI Tbilisi , 3 Right embankment , Tel: 92 34 97, 36 53 65, Fax: 98 27 81 IN THE SHADOW OF METEKHI Tbilisi , 29a Tsamebuli Ave. , Tel: 77 93 83, Fax: 77 93 83 PICASSO Tbilisi , 4 Miminoshvili St. , Tel: 98 90 86 SAKURA - JAPANESE RESTAURANT Tbilisi , 29 I. Abashidze St. , Tel: 29 31 08, Fax: 29 31 08 SIANGAN - CHINESE RESTAURANT Tbilisi , 41 Peking St , Tel: 37 96 88 VERA STEAK HOUSE Tbilisi , 37a Kostava St , Tel: 98 37 67 BELLE DE JOUR 29 I. Abashidze str, Tbilisi; Tel: (+995 32) 230 30 30 VONG 31 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 BRASSERIE L’EXPRESS 14 Chardin str, Tbilisi Tel: (+995 32) 230 30 30 TWO SIDE PARTY CLUB 7 Bambis Rigi, Tbilisi Tel: (+995 32) 230 30 30

SH. RUSTAVELI STATE THEATRE Tbilisi. 17 Rustaveli Ave. Tel: 93 65 83, Fax: 99 63 73 TBILISI STATE MARIONETTE THEATRE Tbilisi. 26 Shavteli St. Tel: 98 65 89, Fax: 98 65 89 THEATRE OF PANTOMIME Tbilisi. 37 Rustaveli Ave. Tel: 99 63 14, (77) 41 41 50 Z. PALIASHVILI TBILISI STATE THEATRE OF OPERA AND BALLET Tbilisi. 25 Rustaveli Ave. Tel: 98 32 49, Fax: 98 32 50

Galleries ART GALLERY LINE Tbilisi. 44 Leselidze St. BAIA GALLERY Tbilisi. 10 Chardin St. Tel: 75 45 10 GALLERY Tbilisi. 12 Erekle II St. Tel: 93 12 89

Akhvledianis Khevi N13, Tbilisi, GE. +995322958377; +995599265432

Cinemas AKHMETELI Tbilisi. “Akhmeteli” Subway Station Tel: 58 66 69 AMIRANI Tbilisi. 36 Kostava St. Tel: 99 99 55, RUSTAVELI Tbilisi. 5 Rustaveli Ave. Tel: 92 03 57, 92 02 85, SAKARTVELO Tbilisi. 2/9 Guramishvili Ave. Tel: 8 322308080,

Theatres A. GRIBOEDOV RUSSIAN STATE DRAMA THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 93 58 11, Fax: 93 31 15 INDEPENDENT THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 98 58 21, Fax: 93 31 15 K. MARJANISHVILI STATE ACADEMIC THEATRE Tbilisi. 8 Marjanishvili St. Tel: 95 35 82, Fax: 95 40 01 M. TUMANISHVILI CINEMA ACTORS THEATRE Tbilisi. 164 Agmashenebeli Ave. Tel: 35 31 52, 34 28 99, Fax: 35 01 94 METEKHI – THEATRE OF GEORGIAN NATIONAL BALLET Tbilisi. 69 Balanchivadze St. Tel: (99) 20 22 10 MUSIC AND DRAMATIC STATE THEATRE Tbilisi. 182 Agmashenebeli Ave. Tel: 34 80 90, Fax: 34 80 90 NABADI - GEORGIAN FOLKLORE THEATRE Tbilisi. 19 Rustaveli Ave. Tel: 98 99 91 S. AKHMETELI STATE DRAMATIC THEATRE Tbilisi. 8 I. Vekua St. Tel: 62 59 73

THE BEST GEORGIAN HONEY OF CHESTNUTS,ACACIA AND LIME FLOWERS FROM THE VERY HART OF ADJARA MATCHAKHELA GORGE IN THE NETWORK OF GOODWILL, NIKORA AND SMART

PUBLICITY caucasian business week

November 10, 2014 #75