Caucasus Business Week #265

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December 17, 2018 - www.cbw.ge

#265

WEEK

Georgia’s New Progress in Doing Business Rating

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Ivane Lekishvili: "The capacity of Kutaisi International Airport will Be Tripled upon the Completion of Construction of the new Terminal"

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Member of the European Parliament: “Georgian Tobacco Control Law is inconsistent with the EU Tobacco Directives”

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Welcome to Georgia! National Tourism Awards Joint Press Conference with Bank of Georgia

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Georgian Teacher is among 50 Best Teachers of the World

Reinvestments Ratio in FDI is 50% in Georgia

Lado Apkhazava, a teacher in Chibati, the village of Guria is among the 50 best teachers of the world.

The information is published by “Teacher’s Global Awards” site.

According to the preliminary report

by Geostat, the national statistics service of Georgia, in January-September 2018, reinvestments in Georgia made up 504 million USD and the reinvestments ratio in total investments amounted to 50%.

Georgia’s Approach to Gas Market Set to Change

Nikoloz Khundzakishvili: Beer Market Shrank by 3% in 2018

Georgia is getting ready to reform its gas market by putting in new energy legislation. The demand for natural gas is increasing each year and Georgia’s gas contracts are expiring. Geopolitics make Georgia’s energy security even more vulnerable, given that the country doesn’t have enough local gas resources to satisfy its needs. Currently, only a few companies operate in the Georgian gas market.

In 2018 Georgia beer market declined by 3%, Nikoloz Khundzakishvili, director for Natakhtari corporate affairs told Business Morning program.

New Project to Provide Technical Support for New and Safer Roads Construction Representatives of the EU and the European Investment Bank (EIB) have signed a new project to assist the development of newer and safer roads in Georgia.

George Kobulia: Developing Business and Economy in the Mountain Regions is our Utmost Priority “Mountain development, developing business and economy in the mountain regions is our utmost priority,” – the Minister of Economy and Sustainable Development of Georgia, George Kobulia at the event dedicated to the International Mountain Day held at Expo-Georgia.

Foreign Persons are no Longer Prohibited to Purchase Agricultural Lands The constitutional court held the moratorium prohibiting foreign persons from purchasing agricultural land unconstitutional.

TBC Group Develops Electronic Commerce TBC Group is starting to develop e-commerce in Georgia. Soon the new digital trading platform Vendoo will be added to the market, which will enable users to purchase product comfortable, faster and without leaving home. Small and medium entrepreneurs will be able to supply their products to the Georgian population.

Liberty Awarded Winners of Conference of Educational Technologies On December 8-9, the Teacher Professional Development Center hosted a fifth Educational Technological Conference, supported by Microsoft and Liberty, aiming to develop and implement new strategies for technology use.

Bank of Georgia CEO to Step Down Bank of Georgia Group Plc’s Chief Executive Officer Kaha Kiknavelidze will step down from the role, the London-listed lender said on Monday.

The Editorial Board Follows Press Freedom Principles Publisher: LLC Caucasian Business Week - CBW Director: Levan Beglarishvili WWW.CBW.GE Address: Aleksidze Street 1 Sales: Mob: +995 591 01 39 36 Email: caucasianbusiness@gmail.com Editor: Nutsa Galumashvili. Mobile phone: 595 380382 Copy Editor: Ellie Rambo Reporters: Nina Gomarteli; Mariam Kopaliani; Merab Janiashvili, Economic columnist: Andria Gvidiani; Technical Assistant: Giorgi Kheladze;

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Georgia’s New Progress in Doing Business Rating Georgia Advances to 6th Position in Doing Business 2019 Rating Georgia has improved its positions in the World Bank’s Doing Business 2019 rating, gained 3 other positions and currently ranks 6th among 190 countries. In the rating the country has improved its rating point by 0.48 point compared to the 2017 indicator. As a result, the country has recorded its historical maximum of 83.28 points for 2019.

For the first time, Georgia has improved 7 indicators of 10 ones, while the remaining 3 indicators have not changed. Moreover, Georgia has gained 99.34 points of 100 ones in the category of starting a business. According to the 2019 report, Georgia was named as a leading country in terms of implemented reforms. Starting 2003 Georgia is a top reformer country – the country has implemented 50 reforms in terms of improving institutional and regulatory environment.

Georgia is reported among top 10 countries due to 4 indicators: starting a business (2nd place), protection of the rights of minority stakeholders (2nd place), property registration (4th place) and enforcement of contracts (8th position).

Georgia has improved positions in the following four indicators: 1) starting a business (99.34 points), up 2 positions to the 2nd place from the 4th position; 2) construction licensing (77.61 points), up 2 positions from 29th place to the 27th place; 3) tax payments (89.03 points) – progress in 6 positions from the 22nd place to the 16th place; 4) cross-border trading (90.03 points), progress in 19 positions from 62nd place to 43rd place.

Georgia’s rating has not changed in 3 indicators: • Property registration (92.86 points) – Georgia ranks 4th; • Crediting (85.00 points) – the 12th position; • Protection of rights of minority stakeholders (81.67 points) – the 2nd place.

„Similar progress signifies a serious step forward in terms of integration of our country in the global economy. This confirms the reforms implemented by Government of Georgia successfully promote the development of our economy and naturally, we are happy when the world’s most influential organizations prioritize Georgia in such and, I would say, the most prestigious international ratings.

The year to year improvement of ratings and Georgia’s progress is the precondition of making our country an unconditional leader in not only the Caucasus, but also in wider regional spaces in terms of economy and doing business.

Georgia is one of the reliable countries worldwide and we plan to further improve our results.

You know the vision of our government - Georgia should be among top five countries in all international ratings in several years.

And the current indicators prove these aspirations. We have the potential to further advance positions of our country.

We have a lot of economic challenges in Georgia, but the poverty is the most challenging problem.

Ultimately, the mentioned progress will strengthen Georgian economy and transform the country into regional economic center to defeat poverty finally”, Prime Minister of Georgia Mamuka Bakhtadze noted.

The World Bank has positively assessed the taxation reform implemented by Government of Georgia. Namely, according to amendments to the tax code enforced on January 1, 2017, undivided profits was exempted from taxation and the business sector has gained a source of reinvestments. As a result of the mentioned reforms, the whole taxation burden was essentially reduced in total profits to 9.9%, down 6.5% year on year. Georgia is recorded among top three countries worldwide in terms of minimum tax rate. The tax payment time has also decreased.

Consequently, the tax payment

time has declined by 49 hours to 220 hours from 269 hours. As a result, Georgia ranks 16th in terms of tax payment indicator.

It is noteworthy that Georgia has, for the first timer, surpassed such leading countries as Norway (7th position), the USA (8), and Gret Britain (th position). The rating of other countries is as follows: Macedonia (10th position0, Lithuiania (14th positon), Estonia (16th position), Latvia (19th position), Canada (22nd position), Ireland (23rd position), Germany (24th position), Azerbiajan (25th position), Russia (31st position), France (32nd position), Poland (33rd position), Czech Republic (35th position), Netherlands (36th position), Belarus (37th position), Switzerland (38th position), Japan (39th position), Armenia (41st position), Slovakia (42nd position), Turkey (43rd position), Moldova (47th position), Serbia 948th position), Ukraine (71st position) and so on.

The Doing Business rating also reflects the level of bureaucracy, simplicity of business registration procedures and the burden of state regulations on entrepreneurs.

However, the rating is not comprehensive and it lacks for such components as: education level, workforce qualifications, rule of law, competition quality, access to finances and so on. Consequently, this rating causes uncertainty in the society why the leading position in Doing Business component does not bring benefits to the whole economy. Doing business is a complex process and it does not depend only on deficiency of state barriers required for starting a business. Anyway, we should welcome Georgia’s progress in this rating.

By Merab Janiashvili

Ivane Lekishvili:The capacity of Kutaisi International Airport will be tripled upon the completion of construction of the new terminal

The construction works of the new terminal of Kutaisi International Airport are in active phase.

Concrete works are almost complete and the renewed terminal will be opened after completion of the full rehabilitation of the airport.

This new terminal will be able to serve three times more passengers than now, - acting director of United Airports of Georgia Ivane Lekishvili said.

The new terminal will cover 24 176 square meters.

The capacity of the Kutaisi

International Airport will be tripled upon the completion of construction of the new terminal.

“At this point, the airport now serves up to 300 passengers an hour while after the new terminal will be launched, the terminal will have 7 gates and the flow in an hour will be increased 1000-1100 passengers. The terminal was designed by Dutch architecture company UN Studio, while development analysis was prepared

by IATA Consulting. The

analysis determines all standards of services that an airport must satisfy,- Acting director of United Airports of Georgia Ivane Lekishvili said.

At this stage,90 % of steel structure installation is completed. Several weeks ago tender for 19, 983 mln GEL was announced for new expansion works for David the Builder Kutaisi international airport.

“The existing terminal, with its ‘umbrella’ like lobby and its intimate external courtyard, is transformed to become the Departure hall. The Arrivals hall is situated on the other end of the new terminal and has a formal functional approach with maximum area for underground luggage handling and customs service. The goal of UN Studio is to maintain a user-orientated experience.

The health and comfort of every single passenger is serviced through the correct

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application of architecture and spatial design,”- Ivane Lekishvili said.

Georgia is rapidly becoming one of the new tourist hotspots in the region and Kutaisi has become the gate to access the country.

Visitors are entering this fascinating and hospitable country from all directions and United Airports of Georgia wants to make sure that they are serviced in the most efficient way - but also with a local touch.

“Now the number of employees at the airport equals to 580 people and after the terminal becomes operational, it will employ even more people thus providing the new opportunities in the region”,-Ivane Lekishvili said.

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“Georgian Tobacco Control Law is inconsistent with the EU Tobacco Directives”

Since the introduction of new regulations on tobacco control in Georgia, the discussion has not yet been suspended and presumably it will last for a long time. Even now the Parliament is considering amendments to the new law, and almost every time it has to adjust to newly appointed "unfulfilled articles".

At the initial stage it was mentioned that, the amendments should have been interpreted in a manner consistent with EU directives, however the media and the part of the specialists noted that Some of the articles of Georgian Tobacco control law do not correspond to EU Directives.

CBW had an interview with the member of European Parliament, Andrejs Mamikins regarding the Law of Georgia on Tobacco Control.

How would you assess the implementation of the EU-Georgia Association Agreement?

What are the key achievements? Challenges that need to be addressed by the Georgian Authorities?

The implementation of the AA in Georgia has shown much better results than in other associated countries. Georgia has undertaken substantial reforms for the successful implementation of AA, and has significantly approached the acquis of the EU. European path is now even enshrined in the Constitution, and I believe this will allow us strengthen cooperation on many issues. Georgia has shown good capacity of EU funds absorption. I positively assess the ministerial reforms in Georgia and the gradual introduction of fully-proportionate parliamentary elections system.

Some challenges related to the reform of judiciary and human rights standards still have to be addressed. The Association Agenda inevitably has to take account of the legacy of the previous governments Georgia has had since its independence in 1991.

Georgia still has to complete the institutional capacity-building to have at the same time strong and flexible administration.

Therefore, this Report does not only contain the assessment of the achievements, but provides concrete recommendations for further work. To keep good path in the

matter of association I took care that the report contains the call to provide more expertise assistance to Georgia in the following years.

Furthermore, We would like to draw your attention to the new Tobacco Control Law of Georgia. According to the Article 356 of the EU-Georgia Association Agreement, Georgia undertakes the responsibility to approximate its legislation to the EU legislation and international health agreements. According to the study, that was prepared by the NGOs and Business Association, Tobacco Control Law (TCL) that entered info force on May 1, 2018 is not in line with the EU TPD. Moreover, according to experts, out of 41 articles of the TCL, 36 (Articles) do not correspond to the EU TPD. Could you please share with us your opinion? Should Georgia harmonize its TCL with the EU TPD? In my opinion, health and safety issues should be among top priorities for Georgia as a part of its engagement in strengthening the well-being of people.

Georgia became part of the WHO Framework Convention on Tobacco Control on 15 May 2006. Since then, the process of legislative improvement in this field had been quite slow, until 1 of May 2018 when Georgia started to introduce the new comprehensive tobacco control law which was welcomed by the WTO Convention Secretariat. In addition, Georgia is one of the 15 countries participating in FCTC 2030 project. Even though some provisions of the new law in Georgia were postponed till 2022, I believe that this has been a real quality leap for Georgia in this field.

In its attempt of legislative harmonization with the EU, Georgia needs to take the measures to comply with both EU’s Tobacco Product Directive and Tobacco Tax Directive.

While there is good progress on compliance with the latest, the first Directive should be

better transposed into Georgian legislative system.

Does the EU TPD stipulates the differentiation of regulatory approach of electronic cigarettes versus regular cigarettes and novel tobacco products?

EU Tobacco Product Directive makes clear definitions of both products that Georgia also would need to consider. In my view, the definitions are the starting point of a correct application of law, and they should correspond to the new market realities. Electronic cigarettes should not be considered the same way as tobacco products, since e-cigarettes represent completely new product and therefore, require different definition. Currently, nicotine-delivery devices are classified and regulated as tobacco products in accordance with the Law of Georgia on Tobacco Control.

They should be subject to the same control and restriction provisions, however their sale should be regulated in a different ways, in accordance with the EU TPD. According to the Official Statistical information of the Revenue Service of Georgia, illicit trade has been increased significantly during last two years. What would be your suggestion to Georgian Authorities in regard with introducing effective mechanisms in the fight against illicit trade?

Georgia would need to increase the efficiency of implementation of the current law and fight the phenomenon of tobacco black market that can disturb fair competition and lead to enormous costs to the state in terms of health issues. Georgian authorities would need to increase control of the shops and platforms that make available tobacco products. This is one of the elements of fighting corruption and counterfeiting that make Georgian economy lose important economic benefits.

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European Company Enters Georgian Insurance Market – IC Group Joins EUROINS Group IC Group insurance company has joined the team of EuroinsGroup company to continue operation on the market under the brand name of Euroins. The rebranding process will be finished in the near future and the company will meet the New Year with a redesigned logo.

Live Branding company has worked on adaptation of blue-colored logo, which is a Georgian version of the logo that Euroins employs in all its companies.

The structure of stakeholders will also change. Euroins Group will hold a 51% stake, while the Georgian party will hold a 49% stake.

Euroins Group members will occupy positions in the company supervisory board and the board of directors.

Georgi Merkov, deputy executive director of one of the major eastern European groups, believes that the Georgian insurance industry has good perspectives for development. The company has the team of reliable partners, is ready for changes, hires knowledge-oriented staff and promotes the existing business environment.

“Our objective is to develop insurance sector and insurance products in Georgia through improving the service quality, satisfying the customer expectations and gaining high-level confidence”, Georgi Markov said.

Markov does not name an exact amount of

investments and does not unveil details of the deal. He only says that the deal’s value is several millions of GEL. Euroins director general Tengiz Mezurnishvili says that over the past period the company’s authorized capital rose to 7 million GEL from 2.2 million GEL. Membership of the European family will bring benefits to the customers, because Euroins will introduce European-standard products on the market, he added.

Joint plans imply an expansion of service centers, introduction of new products in the health sector, minimizing exclusions in the insurance product, insuring the responsibility of automobile owners and developing other directions.

An innovative online service of paying compensations and several other innovations will be introduced in 2019.

We also plan to carry out rotation of the company staff at the insurance companies and training centers united in Euroins Group in various European countries. We plan to invite foreign specialists to enable the company to share knowledge and experience.

Euroins is one of the major insurance companies and it operates on the market of central and southeast Europe. The company was founded in Bulgaria and it operates in 8 countries of Europe and

owns subsidiaries in Bulgaria, Romania, Macedonia and Ukraine. In 2014 Euroins Group launched operation in Greece. The company employs about 1600 persons and serves about 2.5 million consumers. The company’s annual turnover constitutes 0.5 billion EUR. Fitch, the international credit rating agency conferred the BB-rating of the Insurers Financial Strength (IFS) to Euroins Romania, the major subsidiary of EuroinsGroup. EuroinsGrouep is a subsidiary of EuroHold Bulgaria and its shares are placed at BSE-Sofia and WSE stock exchange. Eurohold Bulgaria is oriented on management of nonbanking financial services and assets.

IC Group was founded on November 10, 2005 and it offers a full package of insurance services. The company is actively involved in developing legislative regulations for the insurance sector. It is member of the chamber of commerce and industry (France, Georgia), Georgian Business Association and Georgian Insurance Association. At this stage, the company employs more than 100 highqualified professionals and some of them have got more than 20 years of experience of working in the insurance industry.

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HORECA Management Group – Comprehensive Consulting for Hotel and Restaurant Business for all Stages of Project Development

„Seasonal Taxes will Develop Business and Cheapen Suite Tariffs” When HORECA Management Group was founded and what is the key field of your business?

HORECA Management Group was founded in 2014 and it unites professional staff operating in the hospitality sector. In that period the tourism industry was a growing sector in Georgia and the demand for hotels was growing on annual basis. Consequently, the rising demands brought the need of professional staff and this factor has stimulated to establish this company.

We provide consulting services to new, beginner hotels, teach them how hotels should meet any stage of the project development: starting from development of the asset concept ending with commercial exploitation of the hotel and its further management. We teach its valuable designing, valuable equipment, how to hire and train the staff. We prepare hotels for inauguration, we keep all departments in order so as they could host guests and satisfy their expectations.

However, besides the recently opened hotels, we provide consulting services for the existing hotels too. For example, we have provided our services to such hotels as Marco Polo in Gudauri, Lopota SPA Resort in Kakheti and so on. We have assisted them in training the staff of various departments, conducted trainings and refined the working process due to the international standards.

Naturally, we provide intense job in this direction too and the demand for our services grow.

What projects has HORECA Management Group implemented since 2014 and what projects are you implementing now?

Our portfolio consists of about 20 diverse and interesting projects implemented for 4 years. We cooperate with such hotels as Colosseum Marina Hotel, Golden Palace Batumi Hotel & Casino, Hotel Borjomi Palace & Spa, Lopota Lake Resort & Spa, Snow plaza Hotel, Gonio Inn, Corner Inn and so on.

At this stage, we have 5 ongoing projects both in Tbilisi and outside. We plan to open a recreational complex in Saguramo, a new hotel in Kvishkheti with focus on children, even more so the location enables that parents and their children arrive in summer period, spend holidays at old resort zone.

We have 2 ongoing projects in Tbilisi. We manage one project in Vake – hotel Atlas

Abashize and we are also representatives of Swiss Belhotel International, the international hotel brand, which unites about 150 hotels worldwide. We have become their exclusive representative in the South Caucasus and we plan to develop in this direction too. Consequently, several other hotels will open under the mentioned brand.

We have been also implementing a project in Kakheti, near Telavi, which will open in 2012 with 80 suites.

Why HORECA Management Group, what advantages will hotels and restaurants get in case of cooperation with you?

The advantage of HORECA Management Group is that we can offer a full range of services to the customer – starting from a hotel concept development, its inauguration and further management. We are very flexible, are not confined with only capital city. We have implemented projects in eastern and western Georgia. We are represented almost in all regions. We remain absolutely open in the working process.

Consequently, it is simple to communicate with us. We offer a full range of services to the customer, a full cycle of services, through which the customer is able to receive such ready product that will bring impressive incomes and profits through the years.

As known HORECA Management opened Atlas Abashidze hotel recently. What category of hotel is it and what makes it special compared to other Tbilisi hotels?

Atlas Abashidze hotel was recently opened, 3 months ago. It is maximally adapted to businessmen. Our visitors mainly arrive for business meetings. The hotel comprises 17 comfortable suites meeting all international standards. The hotel also has its own conference hall, canteen space, which works in the evening as a bar.

In the near future we will launch construction of a new hotel near Opera, on Chavchavadze Street, which will open in summer 2019. This will be a small hotel due to the quantity of its suites, but with special design, location and quality of services.

It is widely stated that in Georgia services and prices are incommensurate. Despite growing number of tourists, they are not offered European-standard services anyway. What is the reason and how can we comply services with prices?

Georgia is a pioneer in the tourism sector, in practice, and we are taking first steps in this direction. We are learning the secrets of services, how to match services with tariffs.

Therefore, the market defects are absolutely logical, but they should be improved in the course of time.

We have been working on this direction and a lot of managers have been involved in this process from both our company and other hotels. Eventually, managers or owners of all hotels try to improve their services. Naturally, generations should change to completely improve the situation.

Services cannot be improved without new generations. It is noteworthy that our people have realized this field has huge perspectives and young people show growing interest and intention to work in the hospitality sector on various positions.

We will be able to get closer to European standards in several years, European services and we will manage to offer better services and more comfort to our clients.

How does the Government foster the hotel business and what further support and assistance is required in this field?

The Government genuinely provides overall support, but it will be wonderful to revise taxes, which burdens the hotel business. We know that hotels in Georgia basically depend on seasonal opportunities and in offseason period they have to pay a full package of taxes anyway, while the market lacks for tourists. This is serious burden for the hotel business. Therefore, prices on suites grow and finally, prices are inadequate with services. Therefore, if the Goverbment revises the tax policy and alleviates it, naturally, we will receive better results and foster the business sector development. As to the tourism administration, they have valuably engaged in popularization of our country and I would like to express my gratitude to them in the name of our group. We keep close communication with them and jointly participate in many events.

Representatives of both the Government and business sector frequently stress that we have 5-star luxury hotels in the country, but we lack for 3-4 star hotels. What is the reason and solution?

Cheap money is required to develop this segment, that is, cheap loans and maximum promotion. If people today start with 5-ster Guesthouses, it would be better that they be able to open 40-suite hotels initially. Cheap

money will assist to get as many 3-4 star hotels as possible. Moreover, at this stage, there are many apartments being hired in Tbilisi and various cities of Georgia. In Batumi the number of apartments has hit its peak and 7000 new apartments will be added by 2021. This process will be badly reflected on the hotel incomes. When tourists prefer cheaper options, this detrimental tendency badly hits the hotel sector, but brings benefits for our population.

It is widely stated that the country lacks for rich tourists, that is, tourists who spend much money and choose hotels for accommodation. What steps the country should take to attract high-income tourists?

To attract high-income tourists, we should first of all develop infrastructure. To this end, it is not sufficient to open only 5-star hotels. We should develop the existing resources in the country and this will be interesting for both high-income and medium-class foreign tourists. We should offer as many entertainments as possible.

They should be able to see more diversity in our country.

We have good wines in Georgia, winemaking traditions. We have interesting history, we can introduce a lot of historical monuments, churches to tourists, but this is not sufficient to attract high-income tourists.

We should inspire them to spend money.

We will not get desirable results without arranging respective infrastructure.

Serious criticism is staged on such programs as Check in Georgia, various festivals, sports events and budget funds spent on similar activities. How important is it for our country to hold similar events and how does it attract tourists?

I personally welcome the initiative by Check in Georgia. Foreign citizens may be interested in it. We should conduct as many festivals as possible to attract as many tourists as possible. Everybody remembers the concert by Elton John and even foreign citizens arrived to Georgia to attend the concert. Similar concerts, festivals and sport events are necessary for tourism development and the government should continue its support and funding in this respect.

It is also important to preliminarily compose the schedule of coming events to actively popularize them outside of Georgia. This practice will further increase the tourists inflow.

By Giorgi Kapanadze

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Why Food Prices Declining Worldwide, but Rising in Georgia?

The global market is seeing a downturn in the food prices, but in Georgia the same products are rising in price.

According to UN Food and Agriculture Organization (FAO), in November prices of 5 key items of the consumer basket such as milk, cereals, vegetable oil, sugar and meat, declined. However, the same products rose in price in Georgia.

Despite our population complain about growing food product prices, Geostat, the national statistics service of Georgia, assures that product prices have slightly changed.

According to official indicators, in November 2018, as compared to the previous month, the inflation level in Georgia made up 0.7%, while the annual inflation level marked 1.9%.

Price changes in the following groups have made influence on shaping the monthly inflation indicator: Food and soft drinks: The group recorded a 1.4% upturn in prices with 0.41% effect on the whole inflation indicator. Prices rose on the following subgroups: Vegetables and garden plants – 5.7% Milk, cheese and egg – 3.3% Fish – 2.1% Meat and meat products – 1.8% At the same time, prices declined on fruit and grapes (8.3%); furniture, household things, housekeeping tariffs rose by 1.8%.

Consequently, the group’s effect on the whole inflation indicator made up 0.12%. Prices rose on the subgroup of key electronic or nonelectronic household appliances (3.8%).

Strong drinks, tobacco: Prices rose by 4.6% with 0.31% effect on the whole index growth.

Prices rose on tobacco products (8.5%); apartments, water, electricity, gas – prices rose by 3.6%. Consequently, the group’s effect on the annual inflation made up 0.3%. Prices have also risen on water supply and other services related to apartments (+7.7%), electricity, gas and other types of heating (+3.5%), housekeeping and maintenance (+2.2%).

The Caucasus Business Week (CBW) has inquired why the products rising in price in Georgia are declining on the global market.

Anzor Khinikadze, one of the directors of Lkhino dairy products manufacturing company, explains that the lack of raw milk is a key reason why milk and milk products cannot be cheapened. Namely, there is heavy social and economic environment in the country and the population gives preferences to cheap products made up of milk powder. Since the prime costs of raw milk is high, entrepreneurs have no interest to produce it and prefer to manufacture products of milk powder, which are sold much easier.

Farm economy has not developed in Georgia and it cannot satisfy the market requirements, Khinikadze noted.

A lot of companies were established over the past period, but 70% of them employ milk powder. Raw milk maintains its attractiveness anyway and it has no competitor.

If nor regulation is introduced regarding the restored milk production (product of milk powder), the same problem will

run for the raw milk. Huge job and marketing approaches are required for its production and only several entrepreneurs produce it. The grave social environment stimulates similar tendencies, because production of restored milk is cheaper and the selling prices is also lower. If the milk resources were much, the products would be cheap. This is the whole chain”, Khinikadze said.

The Government should promote raw milk production, otherwise problem will not be resolved, he said.

Kakha Kobalia, head of LLC Akhali Khortsi (Fresh Meat) company, says that the lack of meat is a key reason for high prices. The Government does not promote the domestic production valuably and the domestic production is not interesting. Consequently, when the demand surpasses the supply, prices hike, he said.

The Government should introduce the program for issuing lowinterest loans. Otherwise, neither business nor economy will be developed, Kobalia noted.

Nodar Kavelashvili, head of LLC Ukhvi meat production company, explains that GEL exchange rate depreciation is the reason why meat is not cheapened in Georgia.

This factor especially effects imported products. “Meat may be bought at low tariffs on the international market, while the GEL exchange rate volatility and transportation expenses raise the final price of products”, Kavelashvili noted.

As known, FAO food price index, which reflects changes in international prices of 5 key products of the consumer basket

(milk, cereals, vegetable oil, sugar, meat) declined in November too. Prices decreased because of redundant reserves of food products, on the one hand, and essential reduction in prices of palm and vegetable oils.

The FAO food prices index has fallen to the bottom since May 2016 and the index made up 160.1 on average in November, down 1.3% as compared to October and down 8.5% as compared to the same period of 2017.

Over the past 12 months, the vegetable oil price fell to the bottom. The index declined by 5.7% compared to October. Key factor for the index downturn is related to redundant reserves of soya and sunflower oil.

The FAO cereals price index has also declined. This index comprises grain, cereals and rice. The 1.1% downturn was preconditioned by redundant reserves of the mentioned cultures and growing competition on new harvest of maize and rice.

The FAO milk price index is also declining over the past 6 months.

The index decreased by 3.3% after October. Growing supply of milk and dairy products from New Zealand made the price decline on butter cheese and milk powder.

The FAO meat price index has also slightly declined. The index has only increased on beef.

Sugar is an only product among the food basket products with 4.4% price growth, compared to October 2018, as a result of reduced sugar imports from Brazil.

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Anano Gomarteli: "PR Manager Should never Think She’s Good Enough" Interview with Business Association of Georgia Advisor to CEO for Public Relations Anano Gomarteli. ly. Any person working in direction of communications, has chosen her own way and follows it. Although, there are some nuances which helps your case run. I would name: constant self-development, maximum number of contacts, and a skill to work under undefined schedule.

Describe your typical week.

I spend most of my time at work, daily works, new cases, receiving and sharing information. I try to make weeks more diverse and different from each other.

What has changed in PR industry over 5 years?

Why did you decide to enter this field and what kinds of opportunities does it give in terms of career growth?

I chose this field, even back then, 15 years ago when it was not so popular in Georgia. As for career growth, if you are being intuitive and passionate at what you do, you will achieve success.

What is it necessary to create successful branding and creative concept, what are the stages of this process?

First of all, it depends what kind of branding and concept we discuss. All companies and products need an appropriate direction. It’s important to define the aim and ultimate outcome. Correctly chosen branding is a key your audience to receive your message correspondingly.

What three tips would you offer someone just starting out in PR? This profession isn’t based on precise sciences, besides trends are changing constant-

The main instrument of PR has been television and print media, until digitalization has gradually started. I can’t say it boldly, that it has fully been replaced, it depends on directions, for instance, political PR is still actual on television format.

Pros of using online platform is that it gives more opportunities in terms of creativity and communication with public, it lets us hold direct communication with customers.

How would you go about finding relevant contacts and sources?

Existing contacts. Wider range of contacts you have, it gets easier to reach new ones.

What are the skills required for successful PR Manager?

Not only professional, but general education, constant self-growth and most importantly precise feeling of your

company’s audience. Crisis management is also quite crucial. I guess, once you think you are good enough, that’s where your career ends.

What are some of the growing trends in the public relations industry?

Trends change in any field, although it never comes back in this field. As mentioned above, everything goes to digital media direction. There are some subtrends too, in terms of commercial brands - communication through influencers, that might not be as trendy some day. More simple, available and user friendly the brend is, more loyal is its customer.

What are your predictions about PR industry, what challenges will it face in 5-10 years?

I would implement it myself, if I could make predictions.

All I can say is that this field is always trendy, growing and important for everyone.

How do you create customized branding for multichannel marketing campaign, when most of the companies are focused on customer nowadays?

Large team and a lot of work stands behind. It’s defined based on our existing or potential clients by statistics, researchs, user bases, their behaviour, feedback and so on.

13 December 17, 2018 #265

Business News ProductTank Meetup Held at Technopark

Fashion Council in partnership with Swarovski, took place at London’s Royal Albert Hall—recognising models, designers, brands and business leaders for their positive contributions to the industry over the course of the last 12 months.

ProductTank is an informal meetup that brings together the local product community – Startup Founders, Product Managers, Designers, and Developers – to share their experience. Founded in 2010 in London, today ProductTank spans over 155 cities.

AI Laboratory Opened in BTU may Connect to Leading Hubs in Madrid with help of Giorgi Chakhnashvili Giorgi Chakhnashvili, the creator of the artificial intelligence, Digital Mind, met with leading companies in Madrid, including banking and communications.

opens in Rustavi. Space will host electronic music lovers once a week starting from December 21st.

Produce in Georgia Initiative Supported 5313 Region Projects So Far “Produce in Georgia program has supported 5 313 regional projects with a total investment value of 50 million GEL so far” noted Mamuka Bakhtadze, Prime Minister of Georgia at the Press Briefing held prior to the Executive Government Meeting today.

Automating Construction, Development & Engineering Industry in SAP Business One Busting the myths on 14th of December – BDO Solutions with SAP is hosting the conference: Construction, Engineering & Development company’s business process automation with SAP Business One. Speakers covered the challenges this kind of companies face and demonstrate how to handle them in the ERP system, perfectly suited for the industry specifics.

GPI Holding’s General Director is a Key Speaker at Women’s Economic Strengthening in Business Event Paata Lomadze, Director General of GPI Holding, was one of the key speakers at the event – “Business Leadership for Women’s Strengthening in Georgia”.

Winter Season Opening – Resort Gudauri is 30 Years Old On December 15, resort Gudauri will become 30 years old. On the same day, the winter season of Gudauri will be opened, The National Tourism Administration reports about it.

Styx Represents Georgia at Entrepreneurship Forum For Emerging Markets in CEE After hosting competitions in ten countries in Europe and Central Asia in only five months, Seedstars World already identified ten of the most promising startups in each country, highlighting their local startup ecosystems. STYX, a tech-enabled logistic company which through the patent-pending mobile app and SAAS platform instantly connects shippers with carriers, will represent Georgia. Only the Ukrainian finalist is yet to be found.

METALURGIA – First Underground Club Opens in Rustavi First underground club – METALURGIA

Demna Gvasalia Became Accessories Designer of the Year at Fashion Awards 2018 The Fashion Awards, hosted by the British

Documentary Film on Georgian Wine Was Screened in Poland The documentary film “WINE IS OUR BLOOD” on 8-thousand-year history and traditions of Georgian winemaking was screened in Krakow, Poland. The event was organized by the National Wine Agency contractor publishing company Vinisfera.Pl.

14 December 17, 2018 #265

Currency Depreciation Currency depreciation is a fall in the value of a currency in a floating exchange rate system. Currency depreciation can occur due to any number of reasons – economic fundamentals, interest rate differentials, political instability, risk aversion among investors and so on.

Exchange rates are determined by different factors, such as: One factor is Inflation. Inflation is an increase in prices over time, causing a reduction in the value of money. Countries with a relatively low inflation rate tend to have a currency appreciation. For example, if the Inflation rate in the UK is lower than in other countries the demand for exported goods will increase. Since the foreign goods will be less competitive, UK citizens will buy fewer imports.

Another factor is Interest Rates.

Higher interest rates cause a currency appreciation, while cutting interest rates resolves in a depreciation. If the interest rates in the UK tend to increase in comparison to other countries, it will become more attractive to deposit money in the UK. People are getting a better rate of return and therefore the demand for Sterling will increase, which resolves in a currency appreciation in the UK. Speculation is also an important factor which determines exchange rates. For example, if speculators think the sterling is going to increase in the future, they will demand more right now to make profit, which will result in an increase of value. Therefore, exchange rates are not only dependent on environmental fundamentals, but also on the opinions of the financial markets.

Furthermore, the Relative Strength of other Currencies represents another important factor. In the years 2010 and 2011 the markets were concerned with all the major economies (US and EU). Because of that concerns, the value of the Japanese Yen and Swiss Franc increased. Even though they were having low-interest rates and low growth in Japan, the Yen kept appreciating.

The Balance of payments is also a very important factor when it comes to exchange rates. If a country struggles to finance a deficit on the current account, which means that the value of imports (goods and services) is greater than the value of exports, that means that the currency is most likely to depreciate.

Government debt could also

influence the exchange rates under certain circumstances. For example, if the markets fear the government may default on its debts, investors will most likely sell their bonds, causing currency depreciation.

Economic growth or recession will also influence the exchange rates. During a recession interest rates usually drop therefore a recession may result in a currency depreciation. However there are no specific rules, it also depends on various factors.

Exchange rates effect on Germany Companies that have their production abroad do not only have the low production costs in mind but follow a certain strategy, to produce as close as possible to the sales market. In the field of mechanical engineering for example it is common that all the individual parts are being produced abroad and are only assembled in Germany. If the euro is strong, those individual parts, coming from non-euro-countries, can be bought very cheap. In the business jargon this is called “Natural Hedging”.

It’s the strategy of companies, to secure currency effects not through complicated financial transaction, but through the establishment of the company: Things being sold in Dollar should also be produced in Dollar and reverse. As a result, foreign exchange effects from a profitable business cannot suddenly be a loss-maker. Besides Natural Hedging especially global companies still rely on financial transaction to be protected against currency fluctuations. Daimler for example said in their annual report in 2013 that for the year 2014, they hedged well over half of the exchange rate risks by mid-February. Those hedging transactions give the companies planning securities, but they are expensive and tend to be more expensive when the euro is strong.

The German export industry is used to the fact that the euro is getting more expensive in comparison to the US Dollar, which has been like that since the year 1995 with just a few exceptions. Nevertheless, the export to the US has not suffered, the exact opposite was the case, in 2013 the USA was still Germany`s second most important trading partner for exports. Exporting companies do react to the currency trends, like expanding business relationships in different countries and protecting themselves with

financial transactions, but they don’t stop or minimize exports. Therefore, they are not as worried with longterm currency trends as they are with short and strong currency changes.

For example, in the year 2015 China`s stock market declined rapidly, which resulted in the production- and sales figures of the automobile industry to fall compared to the previous month and the previous year. Companies like Volkswagen, Audi and BMW were affected because of their production locations in China.

Nearly 90 percent of retailers were in the first half year in the red, 30 percent of them were threatened by bankruptcy. Beijing responded immediately, the state cut taxes on cars under 1,6 litters, which was part of his gigantic four trillion yuan investment injection in China`s economy to boost the economy. This worked very well for the companies, especially Volkswagen, who was able to change their model range just in time to restart in China.

Exchange rates effect on Georgia The Lari depreciation did not bring positive results for exporting companies, since they are largely dependent on imported goods, like raw material. Imports exceed exports by about three times.

Business loans are also mainly taken in dollars.

The Government has launched several initiatives to stimulate agriculture, the industry, infrastructure, the IT industry and tourism. The last one is one of the main drivers of economic growth and one of the main sources of foreign currency inflow in Georgia, together with Foreign Direct Investments, Exports and Remittances. The total export of tourism services in 2017 was higher than the total export of goods. Tourism is one of the most important sectors in Georgian economy which was positively affected by currency depreciation, since tourists tend to spend more money in Georgia. But it also true the biggest part of this income is going back abroad, since Georgia is serving its tourists mainly by imported products.

Comparison and Conclusion The way Germany`s and Georgia`s industries are affected by currency depreciation depends most on the number of exports/imports but also on the main focus of industry in

each country.

While Germany is the number 3 of the leading world exporters with different goods in the industry of vehicles, machinery, pharmaceuticals and so on, Georgia is importing three times more goods than they are exporting. Also, the main industry is here tourism and construction as well. These industries are very dependent on the current exchange rates which may have a positive effect but still while the Lari is depreciating the imported goods are getting more and more expensive.

Germany is therefore not as much affected since the industries try to produce their goods global but also big companies are implementing hedging transactions, that gives the companies planning securities, but they are expensive. Also, they protect themselves through expanding business relationships in different countries and financial transactions.

Overall there are many different factors and situations to evaluate when looking at the effects currency depreciation has on different companies in different counties.

Every country and company has also specific strategies to be protected from currency changes.

Still most counties are used to certain currency changes by now, which happened over the decade.

They can react very well on long-term changes, but they still struggle a lot with short and strong currency changes, which are almost impossible to react and plan in advance.

By Corinna Heitzer

15 December 17, 2018 #265

The Welcome to Georgia!

National Tourism Awards Holds Press Conference On December 13, the Headquarters of the Bank of Georgia hosted a press conference regarding the Welcome to Georgia! National Tourism Awards.

The press conference was attended by the Founder of Welcome to Georgia!

National Tourism Awards, Maryna Chayka; Deputy Head of the Georgian National Tourism Administration, Medea Janiashvili; Head of the Municipal Department of Economic Development of Tbilisi City Hall, Andria Basilaia; Partner of BDO Georgia, Maia Khachidze; and Head of Retail Business Banking Department of Bank of Georgia, Zurab Masurashvili.

Zurab Masurashvili focused on

the developing trend of tourism in Georgia and expansion of varieties of tourist services in the country. He also underlined the significance of improvement seen in the quality of services.

Maryna Chayka spoke about the Award Ceremony and announced that this year the format will be modified, with a number of categories added to the list.

She also mentioned that the guests of the event will be delivered information about the present statistics of the tourism industry and the perspectives of its development. Chayka intrigued the audience by announcing a surprise which will be revealed on December 17, the day of the Awards, to be held in Rustaveli Theater. The winners of 20 nominations among more 350 participants will be revealed at the event.

The Award ceremony is a closed event to be attended by more than 800 guests: the project nominees and partners, representatives of the government and business sectors, and international and local media.

Each nominee has been assessed using an internationally recognized method by the Awards’ independent jury, comprised of international and domestic tourism and hospitality professionals. This is the 4th year the transparency and impartiality of the assessing process for all the nominees has been guaranteed by the independent audit of BDO Georgia.

BDO Georgia is also to reveal the winners of each nomination.

For the past two years, Bank of Georgia has been the official sponsor of the project and this year carries the status of the co-organizer of the project.

Within the scope of the partnership, Bank of Georgia has outlined three special categories: ‘The Best Woman Entrepreneur in the Tourism Industry,’ ‘ICREATE – the Most Successful Georgian Brand in the Tourism Industry’ and ‘The Fastest Growing Company of the Year in SME Segment’.

The winners of these categories will be awarded special prizes by Bank of Georgia.

The ceremony is to be held for the fourth time with the co-organization of the Ministry of Economy and Sustainable Development of Georgia and the Georgian National Tourism Administration. Official supporters of the event are Tbilisi City Hall and the Partnership Fund. The co-organizer of the project is Bank of Georgia. The Independent audit – BDO Georgia.

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