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December 29, 2014 #82

December 29, 2014, Issue 82

GEORGIA GOV’T RAISES FINANCIAL AID FOR DISABLED CHILDREN IN 2015

hildren with disabilities and special needs living in Georgia will receive increased financial aid and special services next year. Pg. 2

BE INFORMED, DO BUSINESS

BANKING 2014-2015

Bank Sector: Performed Job and Plans Pg. 8-9

AFTER A 30-YEAR HIATUS, CRUISE SHIP SAILS OUT OF THE PORT OF BATUMI

or the first time in 30 years a cruise ship will sail out of port Batumi. Sochi-Istanbul-Batumi is a route operated by the ship “Isabella 1”. Pg. 4

IMF APPROVES $58M DISBURSEMENT FOR GEORGIA

he International Monetary Fund (IMF) approved $58.1 million USD assistance package to Georgia with bringing total disbursements. Pg. 9

RETURN OF KAZAKH MANAGEMENT TO KAZTRANSGAS –TBILISI POSTPONED

he Kazakh management is expected not to return to KazTransGas -Tbilisi until April. Mariam Valishvili, Deputy Energy Minister, states. Pg. 4

caucasian1

FUEL MARKET 2014-2015 The Georgian fuel market innovations in 2014 and the New Year plans

Pg. 6

Prime Minister plans major reforms in law enforcement agencies

Pg. 2

Narmania Begins Fulfilling his Campaign Promises The 2015 City Budget will be socially oriented Pg. 4

POWER SYSTEM 2014-2015 Archievements and challenges of energy system

SIMPLE WAY FOR ENVIRONMENT TRANSFORMATION his perception expressed by Tomas Gad may deepen when visiting Tbilisi’s new district of DIRSI. The environment between the river Mtkvari and Cholokashvili Street. Pg. 15

Pg. 7

INSURANCE 2014-2015 Experts and companies of the insurance sector assessing the past year and looking ahead toward 2015

Pg. 5

REAL ESTATE 2014-2015 Currency

Pg. 16

Georgian Real Estate business,remarkable increases and innovative trends for 2014-2015

FROM SUCCESSFUL START TO FAILED FINISH

Pg. 12-13

Pg. 17

WINE MARKET 2014-2015

GEL’s Monthly Slip after 11-month Stability

Growth in Wine Exports on Russian Market will Be less Relevant in 2015

HOLIDAY SEASON TO RESTRICT BIG-MOVES IN THE FOREX MARKET

Pg. 10

TELECOMMUNICATIONS 2014-2015 New Age – Challenge on Georgian Telecommunications Market

TOURISM 2014-2015 Pg. 14

Pg. 15

Research

FACTORS CONSTRAINING BUSINESS DEVELOPMENT IN GEORGIA EORGIA

2 MAIN EVENTS PRIME MINISTER: BUDGET IS NOT 100% FULFILLED IN ANY COUNTRY IN THE WORLD

GOVERNMENT NEWS caucasian business week

PRIME MINISTER PLANS MAJOR REFORMS IN LAW ENFORCEMENT AGENCIES

n the end of the year the Government of Georgia has not adjusted the budget, as it was often done by the previous government - Prime Minister Irakli Garibashvili said at the press conference.

NEARLY 900 MLN GEL SPENT ON INFRASTRUCTURAL PROJECTS IN 2014

inistry of Regional Development and Infrastructure has presented a two-year activity report at the Hotel Holiday Inn on December 24th.

GOVERNMENT DISCUSSED SECOND STAGE OF VISA LIBERALISATION ACTION PLAN

he sustainable implementation of the second stage of Visa Liberalisation Action Plan, a set of detailed requirements that Georgia should meet in order to be granted by the EU short-term visa-free regime has been discussed at the Foreign Affairs Ministry.

FOUR RELIGIOUS CONFESSIONS TO RECEIVE DOUBLE FUNDING IN 2015

our religious confessions, other than Orthodoxy, will receive financial support by Georgia’s Government as a compensation of damages suffered from the Soviet regime.

PM: TERMINATION OF MINING WORKS IN SAKDRISI WILL LEAVE 3,000 FAMILIES UNEMPLOYED

eaving 3,000 families without a job in the current situation in Georgia is a very big irresponsibility, Prime Minister Irakli Garibashvili today said while commenting the developments around the controversial Sakdrisi Gold Mine.

PARLIAMENT FAILS TO ELECT NEW MEMBER OF CONSTITUTIONAL COURT

arliament was not able to elect a new member of the Constitutional Court after a candidate, nominated by the Georgian Dream-Democratic Georgia faction of the parliamentary majority group, Merab Turava, failed.

ONE NEW MEMBER OF CEC APPOINTED

arliament endorsed Dimitri Javakhadze as a new member of Central Election Commission, who was nominated by President Giorgi Margvelashvili.

TAX-FREE MINIMUM NOT TO BE CANCELED

arliament rejected the initiative of the Government to abolish the tax-free minimum. Yesterday they did not support the amendments to the “Tax Code”, which concerned the abolition of tax-free minimum.

GOV’T NOT ABANDONS AN IDEA OF CREATING DEVELOPMENT FINANCE CORPORATION AND IDENTIFIES PRIORITIES

fter months of discussions and postponement of the bill submitted to the Parliament, the government does not give up an idea of the creation of the Development Corporation and is working on the development of the corporation system and structure.

PARLIAMENT TO TRY TO SOLVE A PROBLEM OF MORTGAGE LOANS BY DEVELOPING A PREVENTION MECHANISM

BW reports that the Legal Affairs Committee, along with the Association of Banks of Georgia and other government agencies, is working on tackling the problem of mortgage loans. Parliament is going to solve the mortgage problem by developing a prevention mechanism.

December 29, 2014 #82

e are planning major changes in some very important fields of our country, Georgian Prime Minister Irakli Garibashvili said on the annual press-conference today. On the meeting with journalists in Expo Georgia, Garibashvili summarised past year and talked about the reforms the Government was planning to implement and the ongoing political situation in the country. Prime Minister noted that a solid foundation and stable political situation was needed before the changes took place and certain amount of time was spent on this. “Currently the political situation has stabilised and we are already planning to start whole new series of reforms. We are going to implement reforms in the Ministry of Internal Affairs, Prosecution and Penitentiary system. These reforms will bring systematic changes, which are necessary for strengthening our state,” he said. The Prime Minister noted that the Ministry of Internal Affairs would be transformed into a civil service institution. State Security Service would be

separated from the Ministry and a new, independent security service agency would be established, with brand new content, structure and form. Garibashvili also talked about the reformation of the Prosecutor’s Office and noted that an institutionally balanced model should be worked out, under which the neutrality of prosecutors and the principle of accountability would be protected. “When we came to power, we found the most difficult situation in the penitentiary system, so the changes that we already implemented are better seen in this field. We have improved the conditions of serving the sentence in prisons,” Garibashvili noted. He noted that previously people were killed, raped and human rights were massively violated in prisons, which did not happen anymore. The Prime Minister also outlined the improved healthcare conditions in the prisons and stressed the importance of Hepatitis C program, which was free for the prisoners. “To date, 6400 prisoners were examined, out of which 173 people were cured. Important treatment was also provided for the prisoners with tuberculosis and their number has been significantly reduced. In addition, a very important suicide prevention program is being carried out,” he said. PM also talked about the healthcare field and outlined several successful reforms in this field. “I want to specially emphasize the beginning of the new Hepatitis C program. Only two years ago, treatment of this sickness was considered as an unsolved problem in Georgia. Today Healthcare Ministry has an action plan, with which Georgia will become a country where Hepatitis C, as an illness, will be completely overcome,” he said. “According to this plan, a medicine which provides 90-percent chance of curing Hepatitis C will become accessible to the patients. This is an incredible achievement,” Garibashvili noted.

The Head of Georgian Government also positively evaluated the activities of the Solidarity Fund and noted that thousands of people united around this idea. “With our joint efforts, complete funding of the treatment of 48 seriously ill children became possible. I want to thank each person who participated in this noble endeavor,” he said. The Prime Minister then talked about the current economic environment in the country and noted that despite the difficult situation in the region and in the whole world, Georgia managed to show an economic growth up to 5% this year. However, the Government had to work harder in order to develop the economy and create new jobs. “Today Government has created a desired environment for the correct and long-term development of private sector. Throughout two years, more than 46,000 new business subjects have been registered. We are confident that in next two years new jobs will be created intensively. In this regard, I want to highlight the program ‘Produce in Georgia,’ as 25,000 new enterprises have already been financed within this program.” He said. In addition, the PM talked about the agricultural sector and noted that with the support of the Government many new enterprises have opened this year. “We are helping small-land farmers and already spent 300 million GEL on this. A preferential agricultural credit with a total cost of 700 million GEL has also started. With the support of these two projects and the program Produce in Georgia, already 105 enterprises have been financed,” he said. The Prime Minister also highlighted achievements in the energy sector and noted that two years ago Georgia had 28 villages without light. “Within our project “Light to Every Village” not a single town will be left without electricity. We have already illuminated several villages, which had not seen light for more than 20 years,” Garibashvili said.

GOV’T RAISES FINANCIAL AID FOR DISABLED CHILDREN IN 2015

hildren with disabilities and special needs living in Georgia will receive increased financial aid and special services next year. At the annual meeting with journalists, Georgia’s Prime Minister Irakli Garibashvili highlighted that social projects were Government’s main priorities. “These projects are important for people, who mostly needed attention and support. In September, 2015 pension of the children with disabilities will rise and will be equal to the minimum subsistence level in Georgia and we are going to offer them special services,” Garibashvili said.

As Head of the Government announced, almost 10,000 children with disabilities in Georgia would receive these benefits for the next year. The program was intended for children with disabilities from the age of seven to 18. PM noted that in the summer of 2015, social program would launch for children with syndrome of autism, as well as for children with intellectual disabilities. The Government planned to set up a home care program, which would provide home care services to improve the quality of life of the disabled children. The program would be directed towards helping them with social integration and prevent

their rejection in society and families. “At the beginning of the year, with the help of donors, specialists will be trained and the program will begin in September 2015” Garibashvili said. Meanwhile, Prime Minster remembered Government’s another promise to citizens about housing issues of refugees. “More then 10,500 Internally Displaced Persons (IDPs) in Georgia already have their own personal property. Nearly 4,000 refugee families received homes as a private property for symbolic 1 Gel. Everything goes according to the plan and this project will be completed in 2016.” Garibashvili said.

GARIBASHVILI READY TO NEGOTIATE WITH RUSSIA, BUT “UNCOMPROMISING” ON TERRITORIAL INTEGRITY

eorgian Government has a firm position on the issues of Georgia’s occupied territories, Prime Minister Irakli Garibashvili said at the annual meeting with jour-

nalists today. At the Press Conference with media representatives, Garibashvili noted that the so-called ‘Alliance and Integration’ treaty signed between Russia and Georgia’s breakaway region Abkhazia and the same kind of document to be signed with Tskhinvali region (South Ossetia) was a ‘very bad signal and will not have a positive effect on our [Georgia-Russia] bilateral relations.’ He emphasized that the so-called treaty fostered further annexation of Georgia’s territories by Russia and this would be negatively reflected on the region and Georgia-Russia relations. “Despite our constructive policy towards Russia, signing of the so-called deal with Abkhazia was an inadequate step by Russian authorities. Within

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two years we have done our best to put on normal footing relations with Russia. But we are not going to make any compromises in return of our territories”, Garibashvili said. Prime Minister also announced that the Georgian government was ready to meet Russia’s President Vladimir Putin, however such meeting needed to be planned and prepared well. “We believe that a meeting just to meet is useless. It is still early to speak about the time and the format of the meeting. We are ready, but for fruitful results we need to prepare well,” Garibashvili said. Meanwhile, Head of Georgia’s Government Irakli Garibashvili has once again congratulated Georgia on the ratification of the Association Agreement (AA) with European Union (EU). Georgia’s Association Agreement (AA) with the EU was approved on December 18 in Strasbourg. Members of European Parliament backed the AA by 490 votes in favour to 76 against, with 57 ab-

stentions. Prime Minister emphasized that ratification of the ‘landmark deal’ was a huge accomplishment for Georgia and the Georgian people. “The Agreement is historical deal which deepens our relations with Europe. This Agreement is also our Government’s action plan on how to get closer to the EU”, Garibashvili said. In addition, Garibashvili said that in May of the next year, on the Eastern Partnership Summit in Riga, the issue of Georgia’s visa-free regime with EU would also be discussed. The AA deals were signed by Georgia, Ukraine and Moldova and EU representatives in Brussels on June 27. The EU association deals need to be ratified by all 28 EU member countries and the European Parliament before they can be fully implemented. Georgia’s EU deal has been ratified by five EU countries. www.agenda.ge

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Editor-in-Chief: Nino Gojiashvili Reporters: Nutsa Galumashvili; Tamar Kakabadze, Lazare Gvimradze

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PUBLICITY December 29, 2014 #82

caucasian business week

4 HEADLINES GEORGIAN AND RUSSIAN AVIATION AUTHORITIES REACH NO AGREEMENT

he technical consultations between the representatives of the aviation authorities of Georgia and Russia were held in Tbilisi on December 24-25. The representatives of the Georgian foreign ministry and the embassy of the Swiss Confederation in Georgia attended the meeting, the Georgian foreign ministry told Trend.

FIRST WIND FARM TO BE BUILT IN GEORGIA’S NORTH

eorgian Energy Ministry will construct wind farms in Gori (Shida Kartli region, eastern Georgia) jointly with the country’s Energy Development Fund. The plants will be built as part of the plans for the development of alternative energy sources in Georgia. Initially, the project for the construction of the first wind farm with the installed capacity of 20 megawatt in the country will be implemented. Its capacity can increase to 300 megawatt in the future.

ENTIRE INTERNET COVERAGE OF GEORGIA MEMORANDUM WAS SIGNED

ith the iniciative of Ministry of Economy and Sustainable Development of georgia fiber-optic lines will cover the entire territory of Georgia in the near future.

GERMANY TO ALLOCATE PREFERENTIAL LOAN TO GEORGIA

ermany decided to allocate to Georgia a preferential loan of 20 million euros, the ministry of finance of Georgia said. The loan will be used to finance a new project “The program of safe infrastructure for climate”. The head of the Economic Cooperation of the German Embassy in Georgia Katharina Derkorn handed over an official notice of this fact to the Finance Minister Nodar Khaduri.

GEORGIAN WINE EXPORTS ON UPWARD TREND

ore Georgian wine is continuing to be exported to foreign countries, resulting in being exported highest volume of wine in 2014 in comparison to the past 20 years.

KOREAN K WATER TO FINANCE NENSKRA HYDROPOWER PLANT IN GEORGIA

he Korea Water Resources Corporation (K Water) and Georgian Partnership Fund (PF) are stepping up support for developing the energy sector in Georgia and financing the construction of Nenskra Hydro-electric Power Plant (HPP) in Svaneti, the northern part of the country.

GEORGIA’S FOREIGN TRADE TURNOVER GROWS 7% IN 2014

eorgia’s foreign trade turnover saw positive movement in the first 11 months of the year and has increased by 7 percent year-on-year (y/y) to $10.3 billion USD.

GOV’T OFFERS FINANCIAL SUPPORT TO MANDARIN INDUSTRY

he Government of Georgia is subsidising the cost of mandarins as a way to support fruit growers and processing companies.

OPIC TO FINANCE RADISSON HOTEL CONSTRUCTION

he hotel will have 104 rooms, the cost of the project which will be carried out by the Georgian company Silk Road Group makes $ 10 million. Construction is expected to be completed by the end of 2016, the object will be managed by Carlson Rezidor Hotel Groups.

IVANISHVILI CONSTRUCTS A HOTEL IN UREKI

ow I am constructing a new hotel in Ureki. There I will have larger aquarium and bigger sharks, - Bidzina Ivanishvili stated. He mentioned that in Tbilisi business centerr he has smaller aquarium and small sharks.

ECONOMIX December 29, 2014 #82

caucasian business week

NARMANIA BEGINS FULFILLING HIS CAMPAIGN PROMISES

he 2015 City Budget will be socially oriented. The City Council Budget and Finance Committee Chairman Jaba Samushia told “Commersant”. He says funding for social policy will be significantly increased as well as for a current social package. He notes that the issue of free travel for students and vulnerable will be also reviewed. The particular form has not yet been established, however, this issue will be included in the 2015 budget. Narmania’s main election promises touch on social sphere. In particular, Narmania vows to spend more than GEL 800 million on health and welfare within 4 years. Narmania plans to fund this type of health care that is not included in the health insurance. A program presented by Tbilisi Mayoral candidate

of Georgian Dream coalition also takes into account funding of Tbilisi residents’ treatment abroad if necessary. The vulnerable families will get vouchers valued at GEL 500 instead of GEL 250 during the year to cover utility fee. Narmania promises the vulnerable citizens and students a free travel. According to Narmania’s program, vulnerable families will receive an allowance of GEL 800 for a third child, GEL 1 000 fort a fourth child and GEL 1 500 for a fifth and more children. The homeless and those without a breadwinner will also receive compensation from the municipality. Families of this category will receive 500 -GEL voucher for each born child, which will be used to buy necessities for a newborn.

RETURN OF KAZAKH MANAGEMENT TO KAZTRANSGAS –TBILISI POSTPONED

he Kazakh management is expected not to return to KazTransGas -Tbilisi until April. Mariam Valishvili, Deputy Energy Minister, states. The CEO of the Kazakh company Sanzhar Shokataev, which is distinguished by good communication with the media, does not answer our calls. Yesterday, at the public hearing the Georgian National Energy and Water Regulatory Commission (GNERC) extended the term of office for a special manager Gia Benashvili until April of 2015. Answering “Commersant” question whether this decision means that the Kazakh management will not return to the company until April 1, Deputy Minister of Energy says that an issue with a debt should be resolved but adds that these procedures are likely to take a period until April 1. At the same time, Valishvili notes that a principle

decision has been made about the Kazakh government’s return. Recall that the Energy Minister Kakha Kaladze some time ago announced about the possibility of returning the company to the Kazakh side. A few weeks ago Director General of KazTransGas -Tbilisi Sanzhar Shokataev told commersant. ge that unlike previous years the progress in the negotiation was evident. According to him, representatives of the KazTransGas head office visited Tbilisi in October, while in November Prime Minister Irakli Garibashvili paid a working visit to Kazakhstan in the frames of which an agreement on the KazTransGas return under the Kazakh management was reached. Today, Deputy Energy Minister Mariam Valishvili states that work is underway. Negotiations were held during the Prime Minister’s visit and

now the relevant documents are being prepared for the return of the Kazakh management. Several months ago, the government of Kazakhstan announced about KazTransGas privatization plans in 2015. The Kazakh state company KazTransGas acquired Tbilisi gas distribution company “Tbilgas” for USD 12. 5 million in 2006. By 2009, the company has accumulated a debt of 80 million GEL. Some 68 million of this amount amounted to Georgian Oil and Gas Corporation. In order to deal with the debts, in 2009 the corporation appointed a special manager. After the change of power, the Kazakh side hoped to return to the management of the company, but almost two years have passed, and the government of Georgia states that “KazTransGas” has not paid the debt, that’s why the company is still under state control.

AFTER A 30-YEAR HIATUS, CRUISE SHIP SAILS OUT OF THE PORT OF BATUMI

or the first time in 30 years a cruise ship will sail out of port Batumi. Sochi-Istanbul-Batumi is a route operated by the ship “Isabella 1”. The first flight will be attended by government officials, representatives of business companies and mass media. A 6-day voyage is organized by the Russian-German company “Paradise Cruise” and its exclusive representa-

tive in Georgia the company “Gemini”. “I think it’s a good opportunity for those young people who have not seen Sochi. One of the advantages of this tour is that the citizens of Georgia will be able to visit the Russian seaside resort without a visa, “- Vazha Tevdoradze, general manager of “Gemini”, notes. Capacity of the liner “Isabella 1” is 1 100 people. The vessel includes 320 cabins of various classes.

Their cost ranges from USD 216 to USD 2 800 per flight. Parking for 350 cars is located on the lower decks of the ship, a parking fee is $ 50 per flight. Restaurants, bars and casinos also offer their services to the customers. In total 120 residents of Batumi are currently employed at the 9-storey ship. From March 2015 Odessa will be also added to an existing route.

KVIRIKASHVILI AND PRIME MINISTER OF ARMENIA DISCUSSED TRADE RELATIONS BETWEEN HE COUNTRIES

ice Premier, Minister of Economy and Sustainable Development George Kvirikashvili and Minister of Transport and Communication of Armenia Gagik Beglarian signed agreement about construction of the joint bridge at Sadakhlo-Bagratasheni border checkpoint. Prime Ministers of bother countries Initialed agreement on Bridge of Friendship on December 11-12, during the official visit of Prime Minister of Armenia in Tbilisi. After the signing agreement Kvirikashvili met with Prime Minister of Armenia Ovik Abramian. “During the business visit in Armenia meeting with Prime Minister of Armenia was held. With Minister of Transport and Communication of Armenia we signed the agreement, which considers joint construction

of Sadakhlo-Bagratasheni Bridge. Prime Ministers of both countries initialed the agreement during the official visit of Prime Minister of Armenia. Also meeting about trade-economic cooperation issues was held between Georgian and Armenian working groups. The participants discussed issues of bilateral trade and how should we act after new regulations and procedures enters into force in Armenia as a result of membership of Customs Union on January 1, 2015. We agreed to do our best not to damage trade relations between two countries. Maintenance of the foreign trade turnover of Georgia and Armenia is important for the economies for both countries”, George Kvirikashvili stated. On the meeting the sides also discussed cooperation issues in various directions: agriculture, improvement of infrastructure at the cus-

toms checkpoints and so on. “We consider that despite membership of Armenia in the Customs Union and ratification of the issue, also despite Georgia is on the way to Association with EU, we will manage to make compatible these

regimes to each other and not to damage trade-economic relations between two countries”, - George Kvirikashvili stated. One-day visit of Georgian delegation in Armenia guided by George Kvirikashvili was over.

INSURANCE 20142015 December 29, 2014 #82

caucasian business week

STATE HEALTH INSURANCE, MOTOR THIRD PARTY LIABILITY, AND AGRO INSURANCE IN GEORGIA Experts and companies of the insurance sector assessing the past year and looking ahead toward 2015

GEORGE GIGOLASHVILI, President of NGO Georgian Insurance Institute

State medical insurance stopped its activity this year. The covers and risks of this program were gradually conveyed to the general healthcare program. Population and the healthcare system have gotten three results out of this: (i) general healthcare parameters (waiting period, procedures) are better than those of the state health insurance system for the beneficiaries in several directions, (ii) Insurance companies no longer have to have unprofitable programs, (iii) Increased competition in the healthcare insurance industry pushed companies towards corporate and retail products, and this in turn will increase service for customers over time. State insurance regulating body is working on the mandatory third party liability insurance project for vehicle owners. Insurance tariffs are calculated by professional actuators (insurance mathematicians). This is the first ever case of professional calculation of tariffs for state and

mandatory insurance in Georgia. New pension insurance system is in works, which will take into consideration individual parameters of those insured (work experience, the value of contribution, models of pension). This will strengthen underdeveloped pension insurance in the long run. The State started its pilot program of insuring of agricultural risks. This is very timely, given availability of financing in agricultural sector. This is the very first case in Georgia that the State initiates cover agricultural risks (which is common in countries with strong agrarian sector), the evaluation of results of this project will strengthen both insurance and agrarian sectors. Profits of insurance sector for 9 months of 2014 are approximately 32M GEL, and the same period of 2013 ended with losses. Turning into profitability is the sign of financial strengthening and stability of the sector.

The June 2014 Association Agreement between The EU and Georgia makes mandatory that insurance regulations of Georgia come close to those of the EU. This considers the following: - Life and Non-Life insurance provider companies have to be separated (today the same company may act in both directions) - Gradual increase of share capital (from 1M GEL today to roughly 2M EUR) - Implementation of new standards in solvency of insurance companies and its control mechanisms - Introduction of vehicle owners mandatory civil insurance towards third parties - Improvement of regulations for insurance intermediaries These are key issues for the Georgian insurance system and their implementation will dramatically increase the quality of the business practice of the sector

DEVI KHECHINASHVILI, President of Insurance Association - Assessing development of insurance sphere in 2014: This past year was a year in which the insurance industry almost entirely lost its main driving force for acquiring bonuses and the momentum for development. What I have in mind are the state

funded insurance programs. Precisely these programs contributed to popularizing insurance and raising social awareness around it. This matters especially since there is no “classic” driving force of the insurance industry in Georgia – obligatory insurance. There are numerous such insurances in developed countries. Obligatory insurance in these countries is the main tool of risk management. For instance, Great Britain passed a law that made flood insurance obligatory. Ever since that law was adopted every real estate owner in the UK makes his or her compensation toward restoring flood damage made in the country. Yet, in Georgia, such simple matters as protecting our citizens from the major harm inflicted by intensive state of auto-transportation are not settled. We do not have a tool that would ensure reimbursements of individuals who are victims of frequent car accidents. This is unfortunate, since such mechanisms exist in every sound country. As of today, corporate insurance is still the driving force of Georgia’s insurance industry. Insur-

ance companies are losing a great share of products that potentially could exist on the market. This causes degradation inside the companies. They are not exercising the skills that are essential for the industry’s successful development. However, significant developments can be observed within the corporate insurance itself – the field is gaining new directions. For instance, a huge step forward is the development of the government-subsidized agro insurance in Georgia. Development of this sphere is very important for the country. It is one of the bigger stimulants for agricultural production in Georgia. - What is planned in the insurance sector in 2015? There is no evident plan for the year 2015 to be seen yet. Unfortunately, there is no significant progress expected in the development of obligatory insurance this upcoming year either. It looks like the government is not planning to address this mechanism quiet yet. We are looking forward to seeing developments

in the agro insurance sector. I hope that we will use 2015 efficiently in order to better the regulatory side of this sphere. A revision of the existing insurance law should take place. In 2015 we also await solvency system to be incorporated in the Georgian insurance market. - What would be your prognosis for 2015? Whether or not there is going to be tangible development toward the implementation of obligatory insurance in 2015 highly depends on legislative and regulatory reforms. A very important issue for Georgia is the third phase of the health insurance reform, its specific nature. How is the public health insurance going to develop? This is a question that is still open. It is yet unknown if such insurance will be available for every citizen. It is also unknown what range of services would state health insurance cover – whether or not a large portion of services would still be up to the private sector. All of these issues are extremely important for the development of the state health insurance policy.

MICHAEL JAPARIDZE, ARDI, Business Development Director - How would your company assess the past year? As expected 2014, was pretty tough. After ARDI’s tremendous growth in 2013 (nearly 300%), 2014 was planned carefully - approximately 15-20% of growth. In 2014 social government programs totally went back to the newly established State Overall Healthcare Fund and, as a result, market lost nearly 50% of its capacity. For ARDI this was not decisive, because we did not participate in these programs, although it had a big effect on the insurance industry. Competition became much more severe and sometimes desperate. Market still seeks its equilibrium point. This is due to many reasons: low awareness from the clients (private, as well as, corporate), bad risk management, lack of proper pricing strategies based on underwriting, absence of obliga-

tory insurances, etc. 2014 showed that companies must operate with full understanding of proper risk management. This is an intellectual business and also a very sensitive one. This business is not about policies you issue, it’s about promises that you keep. So we try to build up pure insurance company as accurately as possible considering features of the Georgian environment. - What does ARDI plan in 2015? We expected mandatory MTPL (Motor Third Party Liability) to be initiated starting 2015, but at this stage we still do not know whether it’s going to happen. Without mandatory insurances it is almost impossible to have a strong insurance industry. In Western countries there are up to 50 types of obligatory insurance regulations, even our neighbors in the region have such incentives, but we don’t. Insurance, as one of the major parts of the financial sector, needs adequate funds to participate properly in the country’s sustainability. We manage portfolios of risks and if the portfolio is small, the rate is higher. I hope 2015 will bring new opportunities for the insurance sector. As for ARDI, we plan to develop several directions very accurately and to embed new service parameters to enhance the service quality. - What is ARDI’s prognosis for 2015? If there is be no mandatory insurance (especially

MTPL) introduced in 2015, market will continue growing at a very slow rate. Companies have to strengthen their risk management policies. They must take under consideration every detail of the risk involved. So far, the competition is mainly based on rates, but this will come to an end soon. Companies will settle in their segments and operate according to the company’s strategic plan. For the market in general, I think, 2015 won’t be something special, if MTPL is not introduced – just another year of slow, mechanic growth. Let’s see what happens.

it increased activity in the direction of non-life insurance products, such as car, property insurance etc. Insurance companies spend quite big resources for popularization of car insurance, especially taking into consideration the fact that penetration level of this market is roughly 5%, or around 50,000 vehicles. As for the health insurance, companies try to develop corporate and retail segments. As for Irao, the member of leading Central and Eastern European insurance group (Vienna Insurance Group), the company firmly shares its founder’s corporate vision and values. The company tends not to follow short-living trends that are typical for the local insurance market. Instead, we offer our users specific insurance service of the European type, which aims at social happiness of customers and long-term partnerships. - Industry projections for year 2015 Insurance industry is becoming more and more popular in Georgia. There is a trend on the market moving insurance products from a “luxury” item to the “daily necessity” category. Automobile and other property insurance have growth potential. EU-Georgia DCFTA requires that third party liability car insurance has to become mandatory, and this, in its turn, has its significant influence.

NANA SHONIA, IRAO, PR Manager Assessing 2014: The initiation of the general healthcare insurance program by the government in 2013-2014 excluded participation of private companies in this program. However, this initiative caused significant changes on the market. In particular,

FUEL MARKET 20142015 6 THE GEORGIAN FUEL MARKET INNOVATIONS IN 2014 AND THE NEW YEAR PLANS

December 29, 2014 #82

caucasian business week

Heads of oil products importer companies, as well as the head of their association talk about these issues with the Caucasian Business Week

aking investments in enlargement of networks of filling stations was a main tendency on the Georgian oil market in 2014, VANO MTVRALASHVILI, a head of the Union of Oil Importers, says. As a result, the existing fueling stations have been modernized and new ones have been built. Mtvralashvili also makes focus on the trend of expansion of networks of gas filling stations: “Many companies have taken active steps in this direction, particularly SOCAR and Wissol”, he added. The current year has recorded a growth in oil products imports. As a result, the budget revenues have also increased. However, Vano Mtvralashvili abstains to specify figures prior to the annual report introduction. In 2014 the Georgian fuel market has recorded another tendency: a plunge in prices on global and Georgian retail markets. As to the 2015 plans, Mtvralashvili named the introduction of EURO 4 standard that implies a reduction of sulfur content in petrol. “Petrol quality standards are being improved for the last years and these standards are brought closer to EURO5. This signifies networks will trade in only high-quality fuel”, Mtvralashvili said. In 2015 the infrastructure will be improved and a priority will be given to

eads of several companies have talked about their achievements and future plans, as well as about Georgia’s economic development expectations to CBW.

SHAVLEG MISHVELADZE, a Lukoil deputy director general: The year of 2014 was very difficult and this is evident for everyone – the developments concerning the fuel prices have made us carefully determine tariffs, as this country completely depends on global market prices. As to main achievements of our company, we have maintained positions on the Georgian market amid growing competition. At the same time, we have introduced the so-called system of chips to control fuel consumption. The system ensures managing the installed chips in vehicles through AGA system (setting or change of the type of a limit, establishing or changing the volume of a limit, supervision and calculation of the fuel consumption volume). I would also like to note our company has taken part in the consolidated tender. We supply top standard European fuel to the Georgian market. Next year we plan to enlarge the network and take certain marketing steps. At this stage, I prefer to keep silent on the issue. As to our expectations, in general, I wish economic growth, stability and closer communication of the government with the business sector so as the business plans and wishes for consumer interests be taken into account.

SOSO PKHAKADZE, a Wissol Group supervisory board chairman: The year of 2014 turned out particularly interesting for Wissol Group. This year we have implemented many interesting projects. After an introduction of international brands of Eco, Wendy’s, Chevron, Vianor, Pirelli, in 2014 Wissol Group concluded long-term exclusive agreements with Dunkin Brand. As a result the company will open 35 restaurants of Dunkin Donuts in Georgia, the world’s leading American restaurants network. We have taken into account the consumer appraisals, under which Eco is considered to be Georgia’s top quality fuel ever and in February 2014 Wissol launched sales of Eco products in Georgia exclusively and today Eco Super 100, Eco Super, Eco Premium, Eco Diesel and Eco Regular are sold in the largest network of Wissol fueling stations. In the near future we will also sell Diesel Avio – Eco Diesel refined by the modrem technology (aviation filter). Instable dynamics of change in fuel prices on in-

developing the network of gas filling stations, because gas becomes stronger competitor on the fuel market. The reason is clear: the price of gas is lower compared to petrol and the demand is growing. Mtvralashvili says the time will come soon when diesel-driven motorcars will work on gas. In 2015 the companies will also introduce various products for loyal customers, he added. The government should maintain the existing course of less interference in the business sector, as the more liberal the business environment, the easier the business sector will develop, Mtvralashvili noted. “Many transnational oil companies operate in Georgia with head offices abroad. It is important that they see “from outside” the government does not interfere in the business process and it remains an unbiased player on the market”, Vano Mtvralashvili said. The market is oversaturated and no new players are expected to enter Georgia, Mtvralashvili said and added a new company may appear if the existing network is sold. The current companies, though, have been operating for many years and they have created strong positions on the market and it would be difficult for new players to penetrate the market, Mtvralashvili explained.

ternational market results in permanent growth in demand for economy and ecologically clean engine gas. Consequently, the European Bank for Reconstruction and Development (EBRD) in 2014 allotted a 65 million USD syndicated loan to Wissol Petroleum Georgia for developing the network of gas refueling stations. On April 22, 2014 Wissol received an award for Green Campaigns from the Georgian Ministry of Environment and Natural Resources at the Georgian Green Business Award ceremony. The main thing is that the motto of Wissol is: Quality I Trust; the motto of Smart is: Quality in Details; the motto of Wendy’s is: Quality is Our Recipe; Thus, quality is a cornerstone of our business production. This main philosophy guides 5000 our employees every day that are united in Wissol Group’s big family.

DAVID ZUBITASHVILI, a SOCAR Georgia Petroleum director: In 2014 SOCAR Georgia Petroleum made focus on constructing gas filing stations. This year a total of 18 new filling stations opened in Georgia, including 15 gas filling stations. The company employed 1465 new employees and remitted 130 000 000 GEL to the state budget in 2014. As to the 2015, the company plans to unveil 18 fuelling stations, including 14 gas filling stations and 4 combined filling stations. As to Georgia’s economic development, the economic development strategy depends on business development and we wish that all bureaucratic barriers that hampers the business development and drawing investments to Georgia be removed at all levels of the state structures. I will also briefly name all achievements SOCAR has made in Georgia in 2006 to 2014: Georgia was the fist country where SOCAR opened its representation. At this stage, the company maintains the status of one of the major taxpayers in Georgia. The company has transferred over 1 billion GEL to the state budget. The company has implemented many social projects for 8 years since the inception. It is the second year SOCAR has been supplying free natural gas to all assets of all religions groups in Georgia. This unprecedented charity project was proposed by SOCAR President Rovnag Abdullayev. The project value is over 800 000 USD. The company fully covers education fee to over 1200 Azerbaijani students living in Georgia and pays additional scholarships to the 30 best students. This project is valued at 3.5 million USD. Moreover, the company has financed a treatment of 120 individuals with 350 000 USD. SOCAR is also developing infrastructure (secondary schools, hospitals, road rehabilitation, mini stadiums). The company has spent over 8 million USD on infrastructure rehabilitation projects. The company has also rehabilitated H. Alyiev Park in Tbilisi. The company has spent over 1.2

million USD in culture and education projects, over 830 000 USD on civil society projects (culture centers, international organizations). In 2010 the company unveiled Tea House, an education center in Marneuli, where various educational groups were organized for Azerbaijani nationals residing in Georgia. It should be noted in 2013 the Tea House won in the nomination of Best Architecture of Public Office at London’s competition EUROPEAN PROPERTY AWARDS ARCHITECTURE 2013-2014. SOCAR has also spent over 200 000 USD on public utilizes of orphanages. Since 2009 SOCAR has been a general sponsor for Chess Federation of Georgia, since 2011 a general sponsor for the Georgian Football Federation and since 2012 an official partner for the Georgian Olympic Committee. The company has been a sponsor for intellectual TV program: What? Where? When? SOCAR has spent 35 million USD on various social projects in Georgia by 2014.

HRISTO IVANCHEV, Chief Commercial Officer of Gulf Georgia Gulf Georgia congratulates its customers with the upcoming New Year by offering a very special and unique product – G-Force Euro diesel developed specially for winter. Besides, the company offers discounts on fuel for Gulf Club members. Not only during the New Year’s, but also throughout 2015, Gulf Georgia will create very positive emotions for

their customers and will make their life more exiting by offering new products and excellent service. “Our policy and strategy is to always create something exciting for our customers,” – Hristo Ivanchev, Chief Commercial Officer of Gulf Georgia. Gulf Georgia has recently started issuing a premium segment fuel - G-Force, which decreases friction and cleans engine deposits. The new product has increased the sales of Gulf fuel and led to the company’s increased market share. “After a month of offering G-Force we saw a significant increase in sales – about 20 percent. G-Force gives you greater and improved power than ordinary fuel. You feel the difference extremely quickly, from the very first time you fill your tank with it. It keeps your engine in a better condition because it cleans all the deposits. It reduces the friction in the metal part of the engine. These are important things. So, if you care about your car, would like better performance and to be able to feel a difference, then I would recommend this product to you. From my own experience I know exactly what this product achieves. As this product turned out to be very successful we decided to bring other new premium products in 2015 as well,” Ivanchev explained. Mr Ivanchev assessing Gulf’s work for the past year: “In the beginning of 2014 there was decrease in sales of oil compared to the same period of 2013, but in the last quarter of 2014 we have increase compared to last quarter of 2013. Year on year we have almost the same sales, but the trend is very positive. From different sources we have the highest market share which is around 24 percent in gasoline and diesel segment, without gas. The auto-gas market doubled in 2014 compared to 2013. It is developing very fast. There are some areas in Georgia where demand is higher than supply in terms of the number of stations. Natural gas is cheaper than gasoline and that attracts the customers. I guess auto-gas market will develop faster than gasoline market in 2015 as well. This trend will continue in Georgia. We have invested around USD 7 million in renovation of our terminals to make them look better and be safer. We have opened 12 new Gulf stores all over Georgia.”

POWER SYSTEM 20142015 December 29, 2014 #82

caucasian business week

ARCHIEVEMENTS AND CHALLENGES OF ENERGY SYSTEM

he Energy Ministry keeps electrifying villages. In 2013 a total of 7 villages were electrified in Georgia, the process continued in 2014 too and 15 other villages were electrified. “The Light to All Villages” project will end in 2015. Electrification works are being projected for the village of Mutso. The project calls for constructing small HPPs and creating an electricity supply network. Moreover, in March 2014 a gasification project of villages along with the occupation line in the conflict zones started. The works will be finished soon and 13 000 families in 58 villages will receive natural gas. To this end the Georgian government has allotted 19 million GEL from the state budget. Rational use of hydro resources represents one of the main directions for improving the energy security level. A total of 4 new HPPs were put into exploitation in 2014.

PARTNERSHIP FUND The year of 2014 was very important for the Partnership Fund. It launched implementation of unprecedented power project of Gardabani Mixed Cycle Steam Power Plant. The station will be put into exploitation in 2015 and will generate 1.8 billion kilowatt-hours a year. The project value is 220 million USD and the Fund finances the project jointly with its subsidiary Georgian Oil and Gas Corporation (GOGC). The installed generation of the steam power plant is 230 megawatts and its energy efficiency will be higher by 50% compared to other steam power plants in Georgia. As to generated electricity, it will be fully directed to the domestic market, replenish the autumn-winter deficit and ensure continuous electricity supply in shortest period if any problems arise in the power system of Georgia. The most modern turbines of General Electric have been already installed in the station. At this stage, heat recovery steam generators (HRSG) are being installed. This is the first HRSG in Georgia that transforms combusted gases from gas turbines into steam to bring steam turbines into operation. HRSGs are made by Nooter/Eriksen. Another major project in the power system is 280 megawatt Nenskra HPP on the river Enguri tributary in Svaneti. Its potential generation is 1.2 billion kilowatt-hours, Total value of the project is about 1 billion USD. On December 22, 2014 the Partnership Fund and Korean K Water concluded agreement on jointly developing the project. The HPP construction will start in the second half of 2015. The HPP will be put into exploitation at the end of 2020 and it will fully replace electricity imports in winter and autumn periods. GEORGIAN STATE ELECTROSYSTEM (GSE) Georgian State Electrosystem (GSE) has moved to a new stage of development. I would like to stress the Black Sea Transmission Network project has no analogy in the Caucasus. The very project has stimulated the inflow of investments to Georgia: 7 new HPPs have been constructed, 16 ones are being constructed. We have already started constructing a new 230 megawatt steam power plant with a combined cycle in Gardabani, the Kvemo Kartli Region. The construction of 82 HPPs are at various stages on the ground of concluded memorandums. The significant job performed by GSE has stimulated the current construction projects. We have constructed a new 500-kilowatt/hour transmission line that will improve energy security of

KAKHA KALADZE Energy Minister

Paravani HPP - Paravani HPP is the first powerful HPP that has been put into exploitation for the last 35 years in Georgia. The project’s investment value is 200 million USD, the installed generation makes up 87 megawatts and annual generation is 400 million kilowatt-hours. Kazbegi HPP - The investment value of Kazbegi HPP is 3 million USD, the installed generation is 6 megawatts and annual generation makes up 30 million kilowatt-hours. Akhmeta HPP - The investment value of Akhmeta HPP is 9.8 million USD. The installed generation is 9.4 megawatts. Supposed annual generation makes up 50 million kilowatt-hours. Aragvi HPP - The investment value of Aragvi HPP is 13million USD. The installed generation is 8 megawatts. Annual generation is 50million kilowatt-hours. Construction works of two HPPs have also started: • Kintrisha HPP – installed capacity – 6MW, annual output – 38

two countries and stability of energy supply. We also plan to construct the142 km long Akhaltsikhe-Batumi 220 kilovolt transmission line. This project will considerably improve Batumi electricity supply, increase reliability of Georgian power system and excessive electricity will be exported to Turkey and other potential markets. Construction of a new 500/220 kilowatt substation and a new transmission line of about 70 kilometer long is underway in Jvari, the Samegrelo Region. This project represents one of the major investments priorities for GSE. The project implementation will ensure delivery of electricity from HPPs in the northwestern part of Georgia to western Georgia, the Poti free industrial zone and Turkey. As a result, electricity supply to eastern Georgia will also intensify. With a financial support of the Reconstruction Credit Institute of Germany (KfW), the Ksani-Stepantsminda 500 kilowatt transmission line is being constructed. The line will connect new HPPs under construction with the joint power system and Georgia, as electricity transit corridor, will serve the northern-southern direction. The line will also improve electricity supply to the Mtskheta-Mtianeti region and the increased demand for electricity will be satisfied both in the region, the future resort zone. On May 23, 2014 GSE and USAID concluded an agreement under which USAID will finance a purchase of 35/10/6 kilowatt distribution device for a GSE substation. USAID will also finance rehabilitation of protection and management systems of all GSE substations. Under the tariff identification methodology introduced by the Georgian National Energy and Water Supply Regulatory Commission (GNERC), negotiations are underway on revision of electricity tariffs for our company. If the adequate tariff is not set to GSE, the company will face serious financial difficulties in 2015, while financial stability is our main task. Moreover, we have developed a ten-year development plan that represents scheduled program for transmission system infrastructure enhancement and it is based on a number of technical and economical calculations. JSC TELASI JSC TELASI has finished preparatory works for the 2014-2015 autumn-winter seasons. The company is ready to work in heavy meteorological conditions. Under the plan, TELASI has carried out rehabilitation and preventive works on distributor devices of 110/35 and10(6) kilovolt substations, modernization works on electronic devices of transformation substations; rehabilitation and preventive works have been made to 110 and 35 kilovolt transmission lines, outdated air and cable transmission lines of 35/10/6 kilovolt have been replaced and so on.

million kilowatt hours. Construction will be completed in 2016. Estimated investment value is over 10 million EUR. • Khobi2 HPP – installed capacity – 55 MW, annual output – 260 million kilowatt hours. Construction will be competed in 2017. BY 2015: 1. Rehabilitation projects for Vardnili and Enguri HPPs will be finished in 2015; 2. A 230 megawatt combined steam power plant of Gardabani will be put into exploitation. 3. The Georgian government and the Energy Ministry prioritize a growth in public access to energy resources. Installation of individual electricity consumption meters and gasification process will be continued. 4. Gasification project will be completed in the villages along with the occupation line in the conflict zones and 13 000 families in 58 villages will receive natural gas.

During these works we had to temporarily limit electricity supply to a number of subscribers and our clients felt discomfort and discontent, but, unfortunately, this is specifics of our job. We cannot carry out due works without electricity supply restrictions. The company brings apologies in this respect. A total value of investments on Tbilisi electricity network reconstruction and modernization and expansion is over 27 million GEL in 2014. We should also talk about problems. Namely, the issue is of electricity network owned by various companies. The profile of their activities does not envisage carrying out rehabilitation, reconstruction and modernization works. At this stage, TELASI does not own about 46% of Tbilisi-based transformation assets. To improve the service quality JSC TELASI continues the 2013 project for opening modern standard business centers in various districts in Tbilisi. This year we have unveiled two new business centers – Mtatsminda-Krtsanisi and Vera-Vake. At this stage a total of 10 business centers operate in Tbilisi. Subscribers are able to receive information there on electricity supply and tariffs payments and receive any technical support timely. As to the future plans, the company will direct its work to improving and developing the distribution network, improving service quality and ensuring reliable electricity supply. The company annually spends 25-30 million GEL on implementing electricity network reconstruction, modernization and expansion programs. A total value of investments in the company development from 2003 through 2013 makes up about 300 million USD. TRANS ELECTRICA GEORGIA

Professor DAVID MIRTSKHUALAVA, Doctor of Technical Sciences, Technical Director for Trans Electrica Georgia In 2014 several important moments were recorded in the Georgian power system: construction of unique high-voltage transmission line connecting Akhaltsikhe with Borchka, Turkey has been completed; construction of several small and mediumsized HPPs has been also completed, including 87 megawatt Paravani HPP near Aspindza, South Georgia. The HPP has been put into exploitation. This asset is a genuinely special HPP in the Georgian history thanks to its engineering decisions, high quality of construction works and installed electricitymechanical devices, high-voltage and 410 million kilowatt-hour generation. GNERC has introduced a new modern methodology for calculating tariffs and this is also very important for the Georgian power system development. One of the special moments in 2014 was the fact, for the first time in the Georgian power system, a private US investment fund Schulz

Global entered Georgia that makes focus on constructing small and medium-sized HPPs. The 2015 Planned Projects: In 2015 we plan to take an environmental and construction works permit for 702 megawatt Khudoni HPP and start preparatory construction works at the end of 2015. In 2015 the construction of Nenskra HPP will also start. The construction of a 230 megawatt combined steam power plant will be finished in Gardabani and the asset will be put into exploitation too. Efficiency parameters of this station considerably exceed all existing steam power plants in Georgia. I hope the hydro power system will maintain high paces of drawing investments, as well as work on renewable energy sources will be continued. It is worth noting GOGC plans to revitalize underground gas reservoir project and develop feasibility studies on the southern arch field of Samgori. The gas reservoir construction will add a strategic asset to Georgia and energy security level of the country will considerably increase. The 2015 Economic Expectations - The year of 2015 will bring many economic difficulties to Georgia because of the developments in the global economy and our region. Anyway, if the government and each official demonstrate professionalism and provides efficient job, the country will be able to overcome these challenges. It is vitally important that in many fields, including the power system, to implement fundamental reforms, because this is the requirement of the time! LARSI HPP Larsi HPP construction in the Dariali Gorge started in 2011 and ended in January 2014. Energy company has invested 20 million USD in constructing the 20 megawatt HPP in the Kazbegi Region. The HPP will generate 98 million kilowatt-hours a year. The project had employed 120 persons, mainly local residents. A major part of them continues working at the asset even today. Under the memorandum concluded with the government, for 10 years the state will purchase our electricity. This signifies electricity generated by Energy company will be fully supplied to the GSE. The company also owns 5 megawatt Shilda HPP in the Kvareli District. In 2014 the company purchased a stake in 108 megawatt Dariali HPP in the Kazbegi Region and made a due investment. It should be noted Dariali HPP construction works will end in 2015. Therefore, the company will have to perform a major job in 2015. It is important to use rich water resources of Georgia for further development of the country, especially, when a major part of the electricity is imported from foreign countries. It is impossible to develop the country without energy independence. Therefore, each new HPP makes significant contribution to this direction. Consequently, we hope the problem with electricity supply will be resolved, Energy company director David Ugrelidze noted.

BANKING 20142015 8 BANK SECTOR: PERFORMED JOB AND PLANS

December 29, 2014 #82

caucasian business week

The Georgian bank sector has showed satisfactory indicators in 2014. Commercial banks have deserved higher public confidence. Georgian citizens intensified cooperation with commercial banks. A growth in volume of nonblank deposits, stock capital and number of credit products is a proof for this consideration

T ZURAB GVASALIA, a head for the Association of Banks of Georgia:

VAKHTANG BUTSKHRIKIDZE, a TBC Bank vice president: “The bank sector has considerably increased by about 20% in January to September 2014. At this stage, we have not got a final report, but I believe this figure will close the current year. The year of 2014 has been one of the successful periods for the Georgian bank sector in comparison with our neighboring countries. As to TBC Bank, the year of 2014 has gained a historical significance for us. In June TBC Bank became a Public Company and we have placed our assets at London Stock Exchange. As a result, the number of our investors has increased from 10-12 ones to over 100 ones. Our capital has also considerably enlarged and TBC Bank has become the biggest commercial bank on Georgia’s deposits market. At the end of September TBC Bank was a major body in terms of financing small and mediumsized business sectors, as well as individuals. We also pay due attention to technological development. For example, TBC Bank has already unveiled over 3000 new terminals that enable to keep closer contact with our clients. TBC Bank has drawn a major number of mobile banking and internet banking users. Previously, we used these technologies to enable our clients to check their accounts and make transactions, but now we have started sales of bank products through these technologies. In the near future we will launch sales of loan products too. The bank will introduce a special software for clients. We have purchased the software from Oracle Siebel and it is one of the best programs worldwide that enables to determine the demands and interests of clients. As to the year of 2015, TBC Bank will continue growth and we suppose this growth will reach 20%, as we have completed the process of a merger with Constanta Bank and next year Constanta Bank branches that are mainly located in regions will sell our products. We will make focus on financing physical bodies. International editions have named TBC Bank as Georgia’s best bank in 2014 and we have deserved a major number of awards, including it is important the world’s one of the most influential editions the Financial Times and the Banker have named TBC Bank as Georgia’s best bank in 2014. We have also deserved an award the Best Personal Bank Service in Georgia in 2014. This award was set by the world’s leading magazines the Banker and the Professional Wealth Magazine. We believe this success has been brought by TBC Bank IPO.

he year of 2014 has turned out successful for the Georgian bank sector, first of all, in terms of public confidence and this is a significant factor for commercial banks. Unlike nonbank credit institutions, commercial banks represent an important sector for deposit liabilities. A growth in nonbank deposits placed in commercial banks proves this consideration. The figure surpassed 9 billion GEL in 2014 and reached 11 billion GEL. It should be noted the deposits dollarization coefficient has declined by 14% compared to 2012. The fact signifies the National Bank of Georgia (NBG) has carried out target dedollarization policy. Along with a growth in the deposits market that represents a considerable source for financing credit investments, the crediting volume of commercial banks in terms of net loans (including loans issued to nonresident bodies) have grown by 24% that is by 2 billion GEL year on year and this is a quite high indicator. Such a growth in credit portfolios points to economic recovery. Commercial banks have also considerably increased stock capitals to 800 million GEL compared to 2013. This is a positive tendency, because in previous years commercial banks used to increase assets through enlargement of drawing financial resources. Interest rates have fallen on credit resources this year. In 2013 an averaged interest rate on all loans accounted for 17%, while the figure dropped to 13% in 2014.Georgia is one of the leading countries

NATO KHAINDRAVA, a deputy director general for Cartu Bank: We have set no major plans. We will maintain our focus on the same segment, but it is clear we will activate our work to a certain extent. We are closing the year of 2014 in profits. Our profits are about 26 million GEL and this is normal. The year of 2014 was important for the bank sector, but nothing special has happened for Cartu Bank. We have not introduced any new products on the corporate market. We plan to unveil new branches in regions.

ARCHIL KONTSELIDZE, a VTB Bank director general: “The year of 2014 was important for VTB Bank. We have significantly expanded our network to 27 assets. For the next 3 years we will double this figure and open 7 new ones in 2015, including in Akhaltsikhe, Zugdidi and Tbilisi. We expect our assets to record an about 24% growth at the end of 2014. The bank’s assets have increased by 200 million GEL and exceeded 1 billion GEL. The bank’s profits are quite high and return on capital is supposed to mark 20%. The year of 2014 was successful for the bank sector, especially, in relation to state projects. VTB Bank has issued considerable credits for the agriculture sectors as part of the very successful state program of the Produce in Georgia. Previously, the bank sector had no interest in this sector because of certain risks factors. The ratio of agriculture sector in total credit portfolio was only 6%, but now commercial banks have gained enough experience and they will finance many important startups.

NIKOLOZ GEGUCHADZE, a Halyk Bank director general: “The year of 2014 was very important for Halyk Bank. Despite the GEL exchange rate fluctua-

in the region in terms of low interest rates. Besides traditional bank products, the quantity of internet banking users has also increased. Development of internet services and access to this service of information technologies will further lower the ratio of cash payments in the part of bank operations and consequently, this will increase the ratio of cashless payments. In the end, this process will bring useful results for the state economy in terms of registry of money flows. Through a growth in remote bank services and introduction of new innovative products commercial banks have actively used a practice of issuing online loans in 2014 to lower expenditures on noninterest rates and improve the service efficiency, quality and comfort. It is worth noting an introduction of government-proposed foundations have made financial resources more attainable for small and medium-sized business sectors. The Produce in Georgia project have already approved 37 projects in the agriculture and industry sectors; the Preferable AgroCredit program has already issued about 600 million GEL loans to several thousands of citizens. These moves have influenced the structure of credit portfolios too and the ratio of agro loans in the bank sector’s credit portfolio has almost tripled. The activity of commercial banks prove the sector has overcome a certain passive trend in 2013 and we hope this tendency will be maintained in 2015 too”, Gvasalia noted.

tions, we have fulfilled all planned parameters in excess. We have unveiled new service centers in Batumi, drawn more clients and expanded service packages and products. In 2014 we became plenipotentiary partners for VISA and MasterCard payment systems, developed digital banking service. I believe the year of 2014 was important and interesting and we have got a development plan for 2015, namely we plan to expand the network of service centers, draw new investments from abroad. In 2015 we will start elaborating a threeyear development strategy. Next year we will expand our network and upgrade public awareness and perception and offer new credit products to clients. I cannot name any incorrect steps taken by either the government or the regulator. On the contrary, both institutions have been doing their best to develop the bank sector. LEVAN GARDAPKHADZE, a Basisbank retail department director: “The year of 2014 was one of the successful and active years in the history of Basisbank. We have got real grounds to take pride in the achieved results. After Hualing Group entered the bank’s capital, the company has sensibly increased the number of clients, improved the service quality. Moreover, Basisbank was named as winner in several nominations at a joint event of Tbilisi City Hall, Finance Ministry, the US Chamber of Commerce, the Business Association of Georgia, the Georgian Times media holding and GORDBI marketing research association. Namely, our bank has been found the best in nominations of

Stability of Operation, Investment Attractiveness and Support of Small and Medium-sized Business Companies. We have actively introduced new products and projects in both corporate and retail sectors. I would like to stress the importance of new projects of Basisbank’s business club for small and medium sized business support. There is no analogy on the market. Representatives of the small and medium-sized business sectors are enabled to join the Basisbank business club, receive business credit card and access to the bank’s business portal. This is a unique opportunity for companies to set new partnership relations, expand network of sales and use exclusive terms on various services and commodities. A special business credit card has been developed for the club members for both cash and cashless payments. Besides Georgian companies, the Business Club will also involve Chinese companies too in the future.

As to the year of 2015, our main priority is related to developing agro and SME loans. Basisbank is ready to put considerable investments and expand the network of service centers in regions with considerable demand for agro loans. At the same time, Basisbank remains a unique financial institution that offers a full package of bank services to the retail and corporate segments.

LASHA KHOPERIA, a Capital Bank director general: “Capital Bank finds the year of 2014 to be very significant. We have replaced the management and stakeholders, implemented a rebranding project, replaced corporate style and renewed products. The bank has gained international acknowledgement from international bank and finance organizations such as the Best Re-Engineering & Re-Branding Bank of the International Finance Magazine and the Best E-commerce Bank Georgia 2014 of the Global Banking & Finance Review. We provide universal services and offer various products to retail and corporate sectors. The development of digital commerce is one of the main directions of the bank. We are members of VISA, MasterCard and UNIONPAY INTERNATIONAL payments systems, we have got a processing center integrated into our structure and informational channels and this gives us much potential to draw clients and develop the business. Our bank will introduce many innovations and new plans in 2015. We plan to expand the network in both Tbilisi and regions and offer projects tailored to concrete groups of clients. We also plan to increase capital to further develop products and credit portfolio.

GIORGI ARVELADZE, a Liberty Bank director general: “Many positive and significant events have taken place in the Bank in 2014, including the most important fact was a conclusion of agreement with Agriculture Projects Management Agency. As a result, we provide services to over 800 000 farmers. This year we have also created a Liberty Bank club, won a tender of the social service agency and obtained the right for issuing social dues and allowances up to December 31, 2019. Moreover, Fitch Rating global rating company has upgraded our forecast rate from Stable to Positive. See Pg. 9

BANKING 20142015 December 29, 2014 #82

caucasian business week

BANK SECTOR: PERFORMED JOB AND PLANS From Pg. 8

As to the next year, we plan to optimize the service network and continue modernization project. We plan to further develop and improve channels of digital services. We keep offering improved services and products to our clients and we will try to further increase the bank’s profitability in 2015.

VUSAL VERDIYEV, a Finca Bank Chief Executive Officer: “The year 2014 has been successful for FINCA Bank Georgia. As recently licensed commercial bank (former MFI) FINCA Bank Georgia has introduced new banking services and continued expansion of the network of service centers in Georgia, particularly, in Tbilisi. A total number of the service centers is over 40 ones. The number of borrowers has grown by over 15%. Thanks to dynamic growth, the bank has employed additional staff and the company currently employs over 750 persons. FINCA Bank Georgia identifies, pilots, and partners with other service providers to bring new life-enhancement services to clients, and funds cutting-edge research to track the benefits to clients allowing FINCA to better serve them. The year 2015 promises to be very productive, as well as challenging year. FINCA Bank Georgia also plans to introduce a series of interesting loan and deposit products meeting the needs and interests of customers. Expansion of the branch network will also continue, particularly in the major urban areas.

ALEX MATUA, a head for the ProCredit Bank’s Business Clients Departments: “2014 was one of the most successful years for ProCredit Bank in terms of important projects implemented and results achieved during the year. It is noteworthy that the bank has finally refused to finance segments with no prospects for business development and redirected all of its resources towards financing small and medium business sectors, as we believe these segments are major drivers of economic growth in the country. Another important event in 2014 was an introduction of a wide range of effective remote services to clients. In 2014, in active co-operation with the National Bank, ProCredit Bank offered clients an electronic signature system, sign pad - an innovation for the Georgian banking sector. ProCredit Bank was the first bank to implement this project offering its clients a new and modern way of signing documents. Most importantly, this year, too, the key factor behind the bank’s efficiency was financial performance. ProCredit Bank’s profits in 2014 is likely to be much higher than in 2013. Looking forward in 2015, the bank will continue to focus on supporting small and medium businesses, offering them high-quality services and better conditions. The bank is planning to increase its market share, which is a sound ambition in light of the bank’s target segment. One of the strategies for 2015 is to expand selfservice areas and offer a greater variety of services to clients. For this purpose, the bank will continue to invest in the technological development. The plans for 2015 include increasing customer funds in the business segment, expanding the loan portfolio and improving its quality. Today, the quality of ProCredit Bank’s loan portfolio is the best in the Georgian banking sector. In 2015, ProCredit Bank will offer innovative banking services to customers. The work on this project is already underway. 2015 is expected to be a more fruitful, successful and favorable year for ProCredit Bank in light of the bank’s existing achievements and projects planned.

GOGA JAPARIDZE, a Pasha Bank commercial director: “2014 has been the first full year of operations for Pasha Bank in Georgia making the passing year unique by itself. The year has been formative in many respects ranging from meeting the business plan targets for the very first time to finalizing the brand platform localization process and completing various operational requirements for 2015. Our objective going into 2014 was to lay the groundwork for the long-term sustainable growth while keeping an emphasize on complying with operational and financial targets from day one. Balancing these two objectives, especially at the start up stage of an organization’s development isn’t always easy but at the end of the day long term success is always built on the foundation of achieved goals and met targets defined for the given period. There were setbacks and disappointments along the way, there were successes and achievements, mistakes as well as right choices and decisions were made. Looking back we feel that on balance the Bank has achieved its key objective of finding our niche and positioning ourselves for profitable growth for the years to come. Key challenge for 2015 is to drive the further growth of our core lending and deposit operations while taking a hard look at other business lines that can contribute to growth and where we feel to have certain institutional strengths and competences that we can capitalize on. Pasha Bank in Georgia is focused on solely corporate banking for medium and large enterprises. Our SME lending and private banking as well as securities underwriting operations are gaining momentum in Azerbaijan. We have accumulated a wealth of institutional experience in those areas albeit that is still restricted to our original Azerbaijani market. We have to explore ways of replicating success for these business lines in Georgia and later on in Turkey as well. As a Baku-based regional bank we have to realize that our target markets differ widely in terms of scale and maturity. As we expand regionally, certain product and process modifications are called for to account for peculiarities of individual markets while maintaining and strengthening our key value proposition of providing premium corporate banking services to large corporates doing business regionally.

SOPO BALAVADZE, a Bank of Georgia PR Head: “Over the last few years Bank of Georgia has made strong progress in delivering growth in its core retail banking, corporate banking and investment management businesses. This growth has been combined with maintaining a solid capital and liquidity position and consistently high returns on shareholder equity, delivering dividends that have more than quadrupled over the last three years and an excellent total return to shareholders. Georgia’s economic development has remained robust and the Bank expects this progress to be maintained in the future. The banking sector in Georgia remains relatively underpenetrated and we expect our recent strong customer lending growth, particularly in the retail bank, to continue.

The main events of 2014 were: placing of 3,590,937 new ordinary shares with existing and new institutional investors, raising gross proceeds of approximately US$114 million (before expenses). The Placing Shares being issued represent approximately 9.99 per cent of the issued ordinary share capital of Bank of Georgia Holding plc. prior to the Placing; acquisition of JSC Privatbank, the 9th largest bank in Georgia by total assets with a focus on retail banking. The acquisition will expand Bank of Georgia’s core banking business and distribution network, enhancing its market leading position in Georgian financial services; As National Bank of Georgia announced in fall 2014 that it intends to regulate banks on a standalone basis and thereby restrict, from a regulatory perspective, investments in non-banking businesses by locally regulated banking entities, Bank of Georgia intends to undertake a legal entity restructuring that will involve the transfer of ownership and separation of the banking and non-banking businesses from Bank of Georgia to a Georgian holding company, which will be 100% owned by BGH. The corporate restructuring and transfer of these businesses – in particular the Group’s healthcare and real estate subsidiaries – is expected to take place during the middle of 2015. As a result of these changes, the Bank adopted a revised management structure: there will be no changes in the management structure of Bank of Georgia Holdings PLC, where Irakli Gilauri will continue as Chief Executive Officer and Neil Janin will remain Chairman of the Board of Directors. Murtaz Kikoria, former CEO of Georgia Healthcare Group, became Chief Financial Officer of Bank of Georgia, before assuming the role of CEO, Bank of Georgia in June 2015. Irakli Gilauri will become Chairman of JSC Bank of Georgia.

SAMIR VALIYEV, General Director of JSC “IBA-Georgia”: “The year of 2014 has turned out a new stage of sustainable development for International Bank of Azerbaijan – Georgia (IBA-Georgia). Amid the sharp competition the bank determined to make focus on client interests as one of the main priority directions in 2014. The bank has earned very positive indicators in 2014. The company has achieved all planned goals, while priority directions have even surpassed the initial plan. As a result, IBA-Georgia has earned considerable profits and made significant advancements for further development. All these results prove correctness of the chosen course and the fact the bank’s staff has performed well-organized job. In 2014 IBA-Georgia developed a new strategy that determines future key trends for further development. In 2015 the bank will make focus on growth in revenues and drawing new clients. The refurbished strategy sets more ambitious financial targets for 2015. The current plans in this direction are being fulfilled in excess. The most important direction for the bank’s development in 2015 implies a work with medium and small-sized business companies. The bank plans to make a new success by introducing a full package of bank products on affordable conditions, improving internal procedures to reach maximum of efficiency, developing credit and payment products tailored to clients, employing most modern technologies to ensure the convenience of payments. We are sure professionalism of IBAGeorgia staff will enable us to attain these goals. At the beginning of 2015 IBA-Georgia plans to move to a new head office to enlarge the scales of bank activities.

IMF APPROVES $58M DISBURSEMENT FOR GEORGIA

he International Monetary Fund (IMF) approved $58.1 million USD assistance package to Georgia with bringing total disbursements. In July, the Executive Board of the IMF approved a 36-month $154 million USD Stand-By Arrangement (SBA) with Georgia to support the country’s economic program. The Board’s decision was made today after completed the first review of Georgia’s economic performance under the three-year Stand-By Arrangement. IMF’s Executive Board said that despite a challenging external environment, macroeconomic developments in 2014, Georgia continue to be in line with the program. However, they highlighted those factors that enabled them to approve the finance. “Growth of 5 percent is expected, helped by strong domestic demand and the fiscal expansion. Inflation has gradually increased but remains below the target of 6 percent for 2014. The current account deficit has widened to 8.5 percent of GDP as expected with this year’s economic recovery. Although fiscal policy remains supportive to growth, the fiscal deficit is expected to come in lower than the 3.7 percent of GDP projected in the program,” read the press release of IMF. However, IMF officials focused that the study of possible obstacles to access to finance was not completed by September as expected under the program. “It will instead be completed in 2015, to allow more time to incorporate inputs from key development partners and to make a deeper assessment,” it said. IMF was confident that although there was downside risks including the recent fall in oil prices which could boost growth and reduce the current account deficit.

WHAT ARE THE TERMS ON WHICH GEORGIAN CITIZENS ARE TAKING ONLINE LOANS?

n recent years, in Georgia the number of companies issuing online loans has increased. The first loan issued by them is interest-free and they actively advertise this fact, although they do not say what percentage will be in the second or third time. Online credit service organizations give shortterm loans without any collateral, only on the basis of the identity card. It takes from 15 minutes to 1 hour to approve a loan. The minimum age of customers is 20. While the first interest-free loan is offered only in some organizations, the rest do not even have that advantage. The main thing potential customers need to know is that they are the most expensive loans from all possible - their actual percentage may exceed 1 000% per year, which is incredibly expensive even for Georgia. For example, a client takes GEL 300 for 30 days. If GEL 300 are returned within one month, the percentage will be GEL 90. In this case, the discount in the amount of GEL 10 is provided . Accordingly, during the month the amount grows to GEL 380. Aaccording to the National Bank’s calculator on effective loans, within a year the interest rate will increase to 18955%. As it is known, the effective interest rate is a real cost of credit, which is calculated from all payments that are used to repay the loan. Very often banks and microfinance institutions and even more online organizations, announce that a loan is interest-free, but take a commission fee, which is essentially the same thing. These and other factors are taken into account when calculating the effective interest rate. It should be borne in mind that these calculations are done in the best case - when the customer pays a loan in a timely manner, without delays. If a client fails to pay in time, then he will have to pay additional fees, and accordingly, the real interest rate will be even higher.

WINE MARKET 20142015 caucasian business week

December 29, 2014 #82

GIORGI SAMANISHVILI: GROWTH IN WINE EXPORTS ON RUSSIAN MARKET WILL BE LESS RELEVANT IN 2015

GIORGI SAMANISHVILI, head of the National Wine Agency

n prioritized wine markets for 2015: “In the years 2013-2014 the national agency of wine developed a strategic plan in collaboration with the private sector, and subsequently chose strategic markets. We will continue to work according to this strategic plan. The primary activity will be concentrated on the following markets – The United States of America, China, Great Britain, Poland, and counties in the Baltics. Apart from this, in 2015 Georgia will take part in virtually every prestigious wine exhibition and event. Such are certain organized exhibitions in France, Italy, Germany, etc. Various other activities are planned on practically every Georgian wine market.” On growth of financing marketing expenses in 2015 as opposed to 2014: “there’s a slight increase. The budget allocated for popularizing

wine in 2014 has been increased from 4.5 million GEL to 5 million GEL.” On the planned 15% growth in Georgia’s entire internal product export from 2014 to 2020, as well as the commonplace expert opinion that this will primary come at the expense of wine: “the resource to initialize growth of Georgian wine export is present in practically any country with export. Although there’s a chance that Russia’s and Ukraine’s ongoing processes might cause a drop in export growth in those countries. It might even cause the growth to tip over into decrease. It’s difficult to say beforehand, overall the export is experiencing growth and it’s safe to say it’s a growth we will maintain, although this might not be as important from now on as it was this past year, for example.” On his predecessor, Levan Davitashvili’s plans to move into the Chinese market and the feasibility of those plans today: “China is a large and interesting market. We are actively working on the Chinese market, and the Georgian wine sales are growing there. We hope that the coming year will maintain the same growth in sales we saw this past year.” On the price drops on wine in Russian market, and the possibility for them to cause a price spike in exported wines: “Georgian products are indeed experiencing a markup in local currency pricings in Russia due to inflation. As a result, the export prices need to be decreased. These are rules of economics; respectively, the exporting country and the importing country then renegotiate on a new price. Some instances see the prices drop, or in other cases the exporting company might have a look over the export quantities and redirect the wine towards markets which promise more profit.

This is precisely why we think that the growth of wine export on the Russian market won’t be of as much importance as it was in 2014.” On alcohol beverage producers requesting more attention from the government and claiming that winemakers receive more help and assistance in event planning and so forth: “when we talk about wine, we refer to is as wine. However, this includes all grape-originated beverages, which in turn include alcoholic beverages – be it wine brandy or the Chacha vodka. The marketing events in question will be relevant to all these products, to both wine and all other alcoholic beverages. Usually the same companies are responsible for the production of wine and grapeoriginated alcoholic beverages, so accordingly all activities geared towards popularizing wine will also touch said beverages and drinks. Other types - the wheat vodka for example - are not included in the competence of the National Wine Agency. On talks of popularizing Chacha during his predecessor, and plans to work in this direction for the future: “As we already said, activities for popularizing wine and the Chacha vodka were happening in 2014 and will continue in 2015, as well. However, popularizing the traditional Georgian drink – Chacha – will indeed gain more emphasis in the coming year, and events pertaining to the beverage will be singled out in the action plan.” On the involvement of America’s National Aeronautics and Space Administration (NASA) in the research and development project for Georgian vineries and wine culture, and even having received samples with no results yet: “the goal of the project researching Georgian vineries and the wine culture as a whole is to facilitate studies regarding the Georgian viticulture and its ancient

history and culture. It also serves to scientifically popularize Georgia as one of the oldest known origins of cultural wine-making and viticulture. In frames of the project, completed analyses will be systematized and new studies will be conducted. Scientists from different countries are involved in this project, with certain parts of the research being held in NASA laboratories, as well.” On the final verdict regarding Georgia’s induction as the motherland of wine, and general information on this topic: “The studies on the history and culture of Georgian viticulture and winemaking will carry on through 2015, and quite possibly beyond into the following years, as well. Researching and studying something is an ongoing process and their results will reinforce the opinions already circulating in scientists today – that it was in our region that cultural viticulture and winemaking has its roots.” On the National Agency of Wine’s efforts to combat wine falsification abroad and specific cases similar to fake “Khvanchkara” wines still having a chance of happening: “Khvanchkara”, “Mukuzani”, “Kindzmarauli” and other localbornnamed wines are already protected in Georgia and a large number of foreign countries, for example the states in the European Union, as well as other wine markets. In countries where this protection is not yet in place, the national center for intellectual properties “Sakpatenti” is currently registering these names there. Other agencies apart from ours are actively involved in this process. On new localborn-named wines becoming part of the list: “our agency, Sakpatenti and the private sector are all working on these matters. We theorize that several new geographic indexes will be registered and protected.

Notable Events from the Wine Industry in 2014

eorgian kvevri method on World Heritage List: the December of last year marks an important milestone for the wine industry: at its 8th session (held in Baku from the 2nd to the 7th of December 2013), the UNESCO Intergovernmental Committee for the Protection of Non-Material Cultural Heritage adopted a decision to place the Georgian traditional method of making wine in ‘kvevri’ (large earthenware vessels) on the World Heritage list. A Georgian delegation led by the Minister for Culture and Monument Protection, Mr Guram Odisharia, took part in the work of the Committee; the delegation included representatives of the Georgian Foreign Ministry, the Georgian Wine Association and the National Agency for Cultural Heritage Preservation. The nomination was originally prepared by the Georgian Ministry for Culture and Monument Protection, the Ministry of Foreign Affairs, the Secretariat of the National Commission of Georgia for UNESCO and experts belonging to various other organizations. The Intergovernmental Committee unanimously supported Georgia’s proposal for nomination, considering it to fully meet all the criteria of the Convention for the Safeguarding of Intangible Cultural Heritage. The placing of Georgia’s national ‘kvevri’ winemaking technique on the World Heritage List is proof of the uniqueness, global importance and cultural and social value of this method. Twins Wine Cellar opens new online shop and catalogue: the Twins Wine Cellar announced on February 18th that it now had an operational online shop and an online catalogue on its website (www.cellar.ge). The online shop gives internet users the ability to browse through a wide assortment of wines and make customized purchases. The shop has various types and sizes to choose from; The “Kakhetian Sun from Kvevri”, “European Sun from Kvevri” and “Saperavi Sun from Kvevri” can be purchased through the shop in 0.75, 1, 2, and 5 liter containers. The shop also offers a courier service, which delivers wines straight to buyers’ homes. Wine Tourism Conference Held in Tbilisi: Organized by the National Truism Administration of Georgia and the National Agency of Wine, the

hotel “Tbilisi Marriott” hosted the sixth international Wine Tourism Conference, which was one of the most important events in the wine sector in 2014. The conference was attended by professionals in the winery field, experts on wine, representatives from large media and tourism agencies, wine importers from various foreign countries (Canada, France, Russia, Italy, Ukraine, Sweden, Singapore, the Czech Republic Poland, Slovakia, Germany, Great Britain, and The United States of America). They discussed ongoing matters in the wine tourism field, as well tendencies and news. The conference program span a wide range of topics; speeches on the matter of wine tourism were held, degustation sessions were held, work meetings took place and tours were put together between organizations working on wine tourism in various Georgian regions. The international wine tourism conference was held for the first time in Georgia, with the previous hosting countries of the event being Italy,

Spain, Portugal, and Croatia. The New Wine Festival: the festival, which sees its roots in the year 2010 and was first held in Tbilisi’s Ethnographic Museum, saw its fifth iteration this year. On May 24th the new Wine Festival was attended by thousands of enthusiasts and connoisseurs, who, traditionally, had the ability to sample a wide number of wines from large-name companies and family-run wine cellars for free. This year saw numerous surprises for the visitors, including various raffles and entertainment events. Lucky winners received samples of the finest Georgian wine. The festival’s supporters were the National Agency of Wine, the Tbilisi City Hall, the Georgian National Tourism Administration, and Sakpatenti. The tradition-turned annual event is planned to be held in May 2015, as well. Georgian Wine Evening in Berlin: on August 7th, the European Cultures Museum of Berlin hosted the Georgian Wine Evening, which was led

by the Georgian Wine Club president, Malkhaz Kharbedia. The evening was held in frames of the “Culture Days”, which began on July 31rd and ended on August the 30th. Organized by Georgia’s embassy in Germany, the evening was also officially supported by the Georgian National Agency of Wine. The evening begun by Mr. Kharbedia’s speech on Georgian wine, spanning a trip down history and ending with Georgian-named wines. He touched on the subject of ancient wine-making and viticulture traces found on Georgia’s territory, which made Georgia the cradle of wine back in its day. Discussions touched Georgia’s wine regions, the state of contemporary Georgian wine-making and, most notably, the kvevri method of winemaking, which took up the bulk of the speech. Following the speech, attendees had a chance to sample 12 exceptional Georgian wines, form which the kvevri-made examples favored the largest attention and sparked interested in the methodology and taste.

INTERVIEW December 29, 2014 #82

caucasian business week

IRINA GAPRINDASHVILI: “MAIN OBJECTIVE OF MARNEULI FOOD FACTORY IS TO REPLACE IMPORTED PRODUCTS” In 2015 the Company Plans to Produce Various Products Made According to Traditional Recipes . Products marked with “M” sign have been recognized by consumers for a long time now. Delicious pickles, sweets, sauces and the other tomato products are special in a way that they are made of only local raw materials. The main supplier is Marneuli Agro, where the state-of-the –art technologies are being implemented every year. It is noteworthy that 100% Georgian products already have replaced import. The factory, equipped with the European quality machinery, produces over 50 natural and tasty jarred products made of Georgian raw materials. “Agriculture is a complex and specific industry, which requires gradual development, sharing European experience and making continuous investments. Without consideration of innovative approach of developed countries the potential, which still exists in the country will disappear. Six-year experience of Marneuli Food factory and Marneuli Agro showed this clearly” - noted Irina Gaprindashvili, Director of Marneuli Food Factory. The year 2014 has been distinguished for Marneuli Food Factory. The production capacity increased, as evidenced by growing volumes of goods sold. The company, along with pickled cucumber and tomato pastes, started production of stewed fruits (“Kompot”). “ Since the first day of Company’s establishing our goal was replacement of imported food with Georgian products. We offer consumers 100% Georgian products. Currently the factory produces over 50 types of food products. In 2014, sales increased by 15%, respectively production got expanded. Compared to the previous year, Marneuli Food Factory also increased quantity of cucumber pickles and tomato paste in the retail chain. It is significant that the company’s tomato paste occupies 35% of the Georgian market,” – explained head of the enterprise. - Ms. Gaprindashvili, as you noted the purpose of Marneuli Food Factory was to replace imported products with Georgian ones. For this purpose production capacity needs to be increased, what would you say about the year 2014 in this regard? - We will completely replace imported products shortly, this is achievable. The Company’s sales are increasing on a daily basis and we are expanding the assortment. Marneuli Food Factory constantly offers its consumers new products. We would like to remind you that since 2012 they are able to taste Lecho, a new product made by Marneuli Food Factory. This year its production increased as well. In 2013 the company started to produce stewed fruits (“Kompot”). We have not introduced any changes to the assortment in 2014, since accents were focused on the most demanded products. However, we are trying to offer our consumers new products every year and in 2014 we tried to conduct experiments in various directions. For the future, consumers can expect surprises from Marneuli Food Factory. It should be noted that we replaced our share of import. The more Georgian companies are in the country, the higher will be share of Georgian products on the market. Every year, we are trying to increase the crop capacity and factory production at maximum extent. Cucumber yield increased by 45% compared to the previous year, respectively the production increased. Also, the tomato yield doubled. It can be noted that our goal is achieved at some extent, imported products are partly replaced. Consumers give preference to local products and this is a great incentive for us. Despite growing figures, replacement of imported goods is a long-term and complicated process. Currently 85% of tinned food is imported to the

country and local production accounts only for 15%, therefore we believe that the national product has big future on the Georgian market. - Your products were exported in 2013, so the company started operations on foreign markets by strengthening its positions in London? Was the year 2014 distinguished in this regard? - Currently Marneuli Food Factory is focused on local market. Therefore, the 2014 was not special in this regard, however we are working in the exports direction. Examples of this are those international exhibitions in which we took part. This is a unique opportunity that thousands of foreigners taste Georgian products. In 2014 we took part in three important exhibitions. In February, we visited Dubai and took part in the international exhibition Gulford 2014. Products of Holding companies Marneuli Food Factory and Healthy Water were presented at the exhibition. Gulfood is the largest exhibition in the area of food industry, which is being held at United Arab Emirates annually, during five days. Over 20,000 brands from more than 4,500 companies of various countries were presented at the exhibition. Number of visitors usually reaches 80,000. Our companies attended this exhibition for the first time with their own stand, where the interested visitors could taste Marneuli and Healthy Water products. The exhibition turned out to be successful for both Marneuli Food Factory and Healthy Water. Meetings were held with a large commercial networks and international distribution companies. In September we went to Latvia to RigaFood 2014, which is the largest food exhibition in food industry in Baltic states. Latvia is post-soviet country, local people still remember Georgian products and there is demand for – Tkemali, Sauces, Ajika and Preserves. In October, we took

part in the 15th Western China International Fair in Chengdu (Sichuan Province). Main purpose of Chengdu exhibition is to expose economic and tourism potential of each participant country. This event allows to establish contact with local buyers and popularize Georgian products on a large scale. It is important to participate in such an important commercial – economic event as Western China International fair. We will be able to introduce our products to over 400,000 visitors, of which professional traders are more than 20,000. Respectively, larger audience is given the opportunity to evaluate product quality and taste naturally distinguished Georgian products. - As regards production, in 2013, Marneuli Food Factory reached record in production of cucumber pickles in 2013 - 2 million pickle jars per season… how would you assess production output for 2014? - This year, compared to the previous one the volume of received raw materials and factory capacity increased. This year we focused special attention on cucumber production. Tkemali turned out to be a very interesting product and its production increased. The factory received raw materials from 150 local farmers and its own farm Marneuli Agro. The latter is a part of Margebeli Holding, which represents one of the leading companies in Agricultural industry. The company holds land property and nurseries for growing plantlets in Gardabani and Marneuli. Marneuli agro grows vegetables and provides Marneuli Food Factory with raw materials. This is the guarantee that each product placed in a jar is grown on the Georgian land. Our policy is such – the products are to be supplied from our plots. We think that production on the basis of local raw materials will contribute, first of all, to strengthening the economy. The consumers have

the opportunity to acquire 100% natural Georgian products. - How was the year 2014 distinguished by important visits? -Ambassadors of various countries visited Marneuli Food factory . In the beginning of 2014, Youval Fuchs, Extraordinary and Plenipotentiary Ambassador of Israel to Georgia visited the factory. The guest got acquainted with the operations and situation in the factory on-site and tasted local products. Such visits are very important for us. There were several important visits from Dutch Embassy. During the year the delegation of Swiss embassy headed by the Ambassador visited the factory a few times. Agricultural tours continued in 2014. The consumer has the opportunity to watch the production process from land to jars. - Pickle and Preserve Festival was held in the country in 2013 for the first time, in this regard, this year was special, since you visited regions also… - Indeed this was the first time when the Pickle and Preserve Festival was held in the capital. The guests had the opportunity to taste Margebeli Holding products. This year the festival was held in 12 largest cities and ended at Tbilisoba celebration in the capital. Our main goal was to reach the consumer and show that our products are made of 100% Georgian raw materials. This festival became tradition and will continue in 2015 as well. - What are your plans for 2015? - We are planning to increase volume of received raw materials and the production output for the next year in order to ensure the possibility of expanding the assortment and stable supply. In 2015 the exports potential will grow and, what is the most important, production of various products according to traditional recipes is planned.

FROM NOW ON CHRISTMAS HAS ITS OWN FLAVOR

FOODPANDA GROUP ANNOUNCES SERIES OF ACQUISITIONS IN EUROPE

fter acquiring businesses in India and Mexico, foodpanda takes over multiple food delivery companies in Central Eastern Europe Berlin, 17th December 2014: Global online food delivery marketplace foodpanda today announces another series of acquisitions in Serbia, Bosnia & Herzegovina, Montenegro, Croatia and Hungary. Just weeks after consolidating the market in India and Mexico, through the acquisitions of TastyKhana and PedidosYa, foodpanda also targets market leadership in Central Eastern Europe. The region plays an important role in foodpanda’s global strategy. In Serbia, Montenegro and Bosnia & Herzegovina, foodpanda takes over Donesi.com. foodpanda will merge operations under the Donesi brand and customers will have access to an increased

number of over 550 restaurants. Moreover, foodpanda has acquired the online food delivery company Pauza.hr in Croatia offering food delivery and take away from hundreds of restaurants. Pauza was founded in 2008 and will continue to operate under its own brand. Through the acquisition of NetPincer.hu, foodpanda also ensures market leadership in Hungary. NetPincer has been in the market since 1999, partnering with over 550 restaurants in all major cities in Hungary. Ralf Wenzel, Co-Founder and Managing Director of foodpanda group: “foodpanda has always been focusing on Central Eastern Europe as one of the most important food delivery markets. The recent acquisitions strengthen our leading position and will allow for an even better and more comprehensive offering to our customers”.

Goodwill’s Inovatove marketing tool will be avalable in Georgia

he fragrance was especially created for Goodwill Italian marketing company Olfaction within the framework of Goodwill’s new campaign “Christmas flavor”. „Feel flavor of novelty and Christmas!“ – such is slogan of the fragrance, which has occupied the whole city. For making the Christmas holiday last longer Goodwill has enclosed its flavor in a new fragrance, which will make its owner feel coziness and flavor of Christmas and New Year. “Goodwill’s” Corporate fragrance is brand’s message of wish of creating novelty and comfort to its devoted customers. Goodwill” is one of the supermarket networks owing 2 hypermarkets and 5 supermarkets within Georgia. “Goodwill’s” New Year campaign is based on novelties and innovations. Current project has been elaborated by marketing group of Italian company Olfaction which has created corporate flavor and fragrance especially for “Goodwill”. Apart from that “Goodwill” has other novelties. • “Goodwill” application for smart phones • 50 GEL gift cards, which will be distributed in Tbilisi by promo girls. Customer can use the card in case of spending over 200 GEL and first 1000

customers will receive discounts. • “Goodwill” branded cars, the so-called “Street Food”, are holding New year Street trade and in New Year’s days it will be possible to buy “Goodwill’s” production within the scale of the whole city.

REAL ESTATE 20142015 12 GEORGIAN REAL ESTATE BUSINESS,REMARKABLE INCREASES AND INNOVATIVE TRENDS FOR 2014-2015 caucasian business week

RETAIL MARKET The total amount of retail space in the three main Georgian cities amounts to around 1.1 million sqm, out of which 80% is concentrated in Tbilisi. During the last two years the total volume of shopping centre supply in Georgia grew by 28% approximately and currently amounts to 292,000 sqm. Growth has mainly been driven by developments in the capital, Tbilisi. After the opening of the country’s first large modern mall in 2012 (Tbilisi Mall), the next major scheme (East Point) will start operations at the beginning of next year. The prime high street rent in Tbilisi is around USD 60 per sqm, which exceeds several Eastern European cities (Tallinn, Riga, Sofia, Tirana, Vilnius, Bratislava), but is 27% less than the average CEE figure. The estimated prime retail yield in Tbilisi is 13% for shopping centres and 12% for street retail, which exceeds average CEE figures (8.6%-9.1%) significantly. OFFICE MARKET The total amount of office space in five Georgian cities amounts to around 1.05 million sqm, out of which 85% is concentrated in Tbilisi, and the rest in regional business cities. During the last few years the total volume of business centre supply in Tbilisi has grown by 15% and currently amounts to 183,312 sqm. The prime rent in Tbilisi is around USD 21 per sqm, which is the least of Eastern European cities and equals the average CEE figure. By 2014 the average modern business centre vacancy rate in Tbilisi stands at around 7%, which has been declining gradually after the highest rate in 2010 (25%). Total modern stock in Tbilisi accounts for 334,800 sqm of which 151,486 sqm (45%) is owner-occupied. Big companies in Tbilisi prefer to build office buildings for themselves, which are fitted to their needs, rather than rent one in a business centre. HOTEL MARKET During the last three years the number of non-resident visitors in Georgia increased annually by 40% on average. At the same time, the number of international tourists1 experienced an average annual growth of 25%. These figures peaked in 2013 reaching 5.4 million of total international visitors and 2.1 million of international tourists2. Fast growth in demand, coupled with slower hotel room growth (12% annually), resulted in increased occupancy rates, especially in Tbilisi, where brand hotels are now achieving an average occupancy of 75%. In June of 2014, the Association Agreement between Georgia and the European Union was signed. This agreement aims to expand political and economic relations between Georgia and the European Union, and to gradually integrate Georgia into the European Union’s Internal Market. The Association Agreement includes the set up of a Deep and Comprehensive Free Trade Area (DCFTA), which is a core part of the accord. During the next few years we expect significant growth in the MICE segment, while numerous workshops and conferences will be organized in the framework to implement the Association Agreement. As of the first half of 2014, seven international hotel brands (Sheraton, Radisson, Marriott, Courtyard by Marriott, Holliday Inn, Citadines apart hotel and Best Western) are represented in the Tbilisi hotel market. The share of international upscale brand hotel rooms in Tbilisi is only 11% and international midscale brands occupy 17% of total supply. 2011 and 2012 years showed a dramatic y-o-y increase in international visitors who stayed in Georgia 24 hours and more - 24% and 36% respectively. In 2013, the growth rate declined to 15% and the total number of travelers amounted to just over two million. During the first eight months of 2014, 1,56 million non-resident travelers arrived in Georgia (12% more than same figure in 2013). As ADR is not expected to change significantly, we see an opportunity to develop middle class brand hotels in Tbilisi, which will compete with local non-brand hotels and also make competition among existing international brand hotels tougher. According to UNWTO, Georgia has one of the highest growth rates of international tourist arrivals during last three years among European countries. Georgia was the fourth country in Europe by the growth rate of international tourist arrivals in 2013 after Iceland, Bosnia & Herzegovina and Greece. In 2012 Georgia occupied the first position in the region, amounting 35.7% annual growth. Although Georgia has one of the lowest figures for international tourism receipts per capita among selected countries, it has the highest growth rate during recent years. The average y-o-y growth rate in Georgia amounted 28% during 2010-2013. Middle class hotels3 in Tbilisi have better performance indicators than several eastern European cities like Riga, Bucharest, Vilnius and Zagreb, where average daily rate and average

occupancy rates for selected cities are respectively 10% and 8% less than the same figures for Tbilisi. RESIDENTIAL MARKET During 2010 – 2011, the growth rate of mortgage lending amounted 39% and the volume of issued loans reached USD 314 million. In 2012 a 34% decrease was observed in comparison with the previous year. In 2013, due to the marketing campaigns of commercial banks and reduced interest rates the volume amounted USD 416 million. Comparing the first nine months of 2014 to the same period in 2013, the growth rate stands at 68%. Ongoing and pipeline residential project in Tbilisi amounts almost 2.9 million sq. m. under construction. During next two years supply will rise by 16,000 dwelling units and amount 360,000 sqm. In the last two years, strong demand has resulted in stalled projects being resumed. Registered purchase transactions are following a positive trend in Tbilisi. The average growth rate of selling transactions during last two years was 9% in Tbilisi. The volume of registered transactions amounted USD 829 million. The average growth rate was 10%. 2014 is expected to see an increase in transaction volume of 4% in Tbilisi (USD 860 million). The average residential real estate selling price in Tbilisi grew from USD 826 per sqm in Q1 2012 to USD 835 per sqm in Q3 2014. Compared to the same figure in Q3 2013, the average selling price in Tbilisi remained unchanged. WAREHOUSE MARKET The total volume of warehouse space in Georgia amounts to around 1.8 million square metres, of which around 1.2 million square metres is owner-occupied and the remainder is leasable. The largest share of total leasable space is located in Tbilisi - 61%. From the 627,000 square metres of leasable warehouse supply, 89% is dry storage and 11% cold storage. The total capacity of cold storage amounts to 243,700 tons. The broad categories with the highest occupied space are food and beverage, representing 42% of occupied space in listed warehouses and building materials - occupying 14% of stock. Transport companies take up to 13% of space. The warehouse market in Tbilisi is more developed than in other Georgian cities. The only A class warehouse storage in Georgia with a leasable area of 10,000 square metres is the recently developed facility by Gebrüder Weiss near Tbilisi Airport, which was fully occupied at the date of this research. The company plans to develop an additional 37,000 square metres as a second phase of development. ENTERTAINMENT MARKET The government is actively supporting the development of the gambling industry, which gives Tbilisi a competitive advantage in the region. The gambling industry accounts for about 70% of the entertainment industry’s total turnover, which equalled 1.2 billion GEL in 2013. During the next two years several new projects will be completed around the country, Tbilisi Fine Art Museum and the refurbishment of the Tbilisi Opera house are the major planned projects. The Government of Georgia is actively seeking to hold international sports tournaments in the country and some of them are already planned, such as The Youth Olympic Games 2015 and the UEFA Super Cup 2015. The country’s main stadiums and sports complexes are concentrated in the capital Tbilisi (Boris Paichadze Tbilisi Dinamo Arena, Mikheil Meskhi Stadium and Tbilisi Sports Palace) which will see the development of new sport facilities, such as the new rugby stadium and a new tennis complex. The water entertainment industry (Aqua Park and swimming pools) is actively developing in Georgia. The recently opened Gino Paradise and the Euro Park are main players in the country. Completion of a new swimming pool for the Youth Olympic Games 2015 is planned next year. Health and well-being becomes more popular in Georgia, especially in Tbilisi. Aspria Fitness is actively expanding its chain. The major amusement parks of the city is Mtatsminda Park. Tbilisi also offers botanical garden, zoo and several recreation parks. The relocation/expansion of the Tbilisi Zoo and renovation of Park Mziuri are the major planned projects in the near future. Tbilisi is one of the visited destination of the county. Red-tiled roofs, narrow streets and ancient buildings as well as modern architecture buildings impress visitors from around the world. Tbilisi offers visitors unique cuisine, gambling, sports and leisure opportunities. The restaurant market is the most developed sector of the Gastronomic industry in Tbilisi. The Modern CaféBars, night clubs and international cuisine market is growing fast. See Pg. 13

December 29, 2014 #82

REAL ESTATE 20142015 December 29, 2014 #82

caucasian business week

GEORGIAN REAL ESTATE 2014-2015

From Pg. 12

MANAGEMENT OF DIRSI RESIDENTAL COMPLEX The year of 2014 can unquestionably be considered as a successful year for construction. Signs for this were seen in the construction market, several new projects were launched, while the older construction projects were actively modified and revived. 2014 turned out to be an exceptionally remarkable year for the company AS Georgia, which had a grand opening of the fist stage of housing complex Dirsi on November 29 The fist stage of Dirsi awaits its future residents with 11 completed blocks, renovated and completed apartments, children playgrounds, furnished courtyards, parking zones, boulevard near Mtkvari, kindergarten, school, stadiums. At this point, first residents are moving to Dirsi and are to celebrate New Year at their new homes. In fact, a new modern city we have built during two years is just one part of the large-scale Dirsi project. This project is held by the Azerbaijan Investment Holding AS Group Investment. The company’s good performance on the Georgian market has led to the fact, that during the opening of Dirsi complex, the launch of many other projects in 2015 was announced. Therefore, this means attracting a lot of investors to Tbilisi. In particular, this concerns building the new Italian -style shopping center and a 3 star hotel in the Dirsi neighborhood. Trends in Georgian construction market are favorable and acceptable for us - noticeably the public kept up the pace with the new construction trend, meaning construction of complexes. Rather than single buildings, the tenants choose to live in complex type housings. We are pleased that this tendency was first implemented in Georgia by Dirsi, which makes us innovators. The real estate market is very active, new projects and a variety of offers make the environment more competitive, which as a result creates more flexible payment mechanisms for the customers, who get to receive user -friendly mortgage loans and high-quality product. As of the future, Dirsi also has grand plans. Next year of 2015 can be believed to be more successful for the company. First of all, we launch the second phase of the construction, develop and expand Dirsi in residential and commercial areas. 9 apartment buildings will be added to the housing complex, together with infrastructure facilities, shopping center and a hotel. The implementation of additional capital in Dirsi is also a part of the plan. We will always try to stay innovators in the real estate market, pamper our clients by offering them the best product for the best favorable terms.

IRAKLI BURDILADZE Chairman of supervisory board of m2. Demand for residential real estate in 2014 has increased as compared to 2013. Numerous transactions that took place in Tbilisi this year stand as a proof to this. We predict that next year this figure will exceed last year’s by 5%. It is also worth noting that growth of Georgia’s GDP amounted to 5,9% this year — real estate was a significant contributing factor to this figure. In the third quarter of 2014, foreign direct investment (FDI) constituted 507 million US dollars. A significant part of this money was directed toward the real

estate sector. Specifically, 32% was invested in the construction sector; 12% in the real estate sector. The boosted activity of the real estate sector in Georgia is a result of these investments for the major part as well. In 2014, the company launched a new product, Optima. It represents apartments gained by effective planning strategy, the prices of which are significantly lower than those offered by our company before, and are geared towards a wider segment of the population. For example, fully renovated two-room apartments start from an equivalent to $29,000, which is a very attractive offer to our consumers. Optima’s projects successful sales are a proof of this. We started the project at the end of September, and by today we managed to sell 44% of all the apartments. Now the company is actively involved in the preparation of some projects. We intend to offer a new residential complexes in different parts of the city. Saburtalo remains a priority for our concentration. We believe that in 2014 at least 2 exciting new project will start. Since the crisis in 2008, the real estate market in Georgia and Tbilisi specifically has been experiencing a dynamic growth. Contract numbers grew annually. For example, on an average basis, Tbilisi had 13,000 to 14,000 contracts in the real estate sector in 2007-2008. According to our estimations, this index is currently increasing, and passing the 20,000 mark. As to the rate of the price growth, it’s not high. During the last several years, we have only dealt with a 10% growth. By our forecasts, the positive tendency will carry on in 2015, as well. We think that the number of carried out contracts on the real estate market will slightly increase compared to 2014. As to the prices, we’re not waiting for big changes there.

ARCHI GROUP Real estate business developed quite sizably in 2014, although considerable price growth was not recorded. As long as demand remained very high, supply increased adequately, which did not cause dramatic price growth. We can say that prices rose by only 5-10%. Customers became more cognizant, they already pay attention to reliability, quality, and look for legal issues very carefully. There is a trend of selling renovated apartments, so we are approaching standards of EU market, our motto is “Your European home”. Archi Group is among one of the first companies to take quality construction and ecology seriously. We offer our clients European quality apartments and all of the following projects will be fully finished with complete renovations. Every leading developer company, including ours, tries to use energy-efficient materials during construction. We use German energy-efficient blocks - Ytong - which are ecologically clean and with their energy efficient features, they reduce energy costs by 40%. We will start no less than three projects in 2015, large scale constructions are starting in Saburtalo and Didi Dighomi. Archi Group implements construction projects in almost all districts of Tbilisi. Large-scale projects are underway in the center of the capital. Total coverage area will be 60 000 square meters. “I think constructions will rise in near future, but prices will remain the same. As for the consumer segment, according to the political situation in Russia and Ukraine, residents of these countries will refrain from buying houses. I think the political situation will soon stabilize and consumers will come back to the Georgian developer market.

SIMPLE WAY FOR ENVIRONMENT TRANSFORMATION “The world is nothing, but environment we perceive and the doubt something other may exist beyond our perception”

his perception expressed by Tomas Gad may deepen when visiting Tbilisi’s new district of DIRSI. The environment between the river Mtkvari and Cholokashvili Street is radically different from the obvious reality in Tbilisi. This is a small European-style residential complex without emissions and dust. Yards are crossed with cycling paths, color amusements for children, tennis courts, basketball and football playgrounds for adults. On looking at buildings upwards you remove from Europe to the USA suddenly, because these skyscraper buildings are genuinely strange for Europe, especially for Tbilisi. The DISRI complex unites 11 buildings with 18, 20 and 26 floors. Briefly, if you have not visited the territory adjacent to Ortachala and Isani on the river Mtkvari embankment for the last two years, we will witness everything has changed and transformed there. Tbilisi has acquired a new district in the form of DIRSI with nursery schools, commercial assets, secondary schools and shopping malls. Being impressed by the complex, we expect you to show interest in prices too. We have visited AS Georgia director Andrey Patrakov to receive information on prices and payment terms and asked him to specify the details. -DIRSI complex is a popular theme of discussions in Tbilisi. The residential complex has become very popular. We are interested whether the apartments affordable for your clients? -DIRSI genuinely provides the environment Tbilisi lacked of previously – complete, accomplished apartments with lined and greened yards. Everything is so large-scale and pompous and you may think this is an elite-class residential complex and ordinary citizens cannot afford to buy apartments here. This is an erroneous opinion. The price of a square meter in DIRSI makes up 900 USD. Naturally, we plan to increase the price after the New Year, because this price is really very low for the accomplished real estate, but besides price, our complex offers many interesting campaigns that enable clients to simpler purchase desirable apartments.

We planned to introduce flexible and favorable payment system for sales of apartments. To this end we have implemented one of the mortgage projects and concluded agreement with VTB Bank. The project has justified itself. The bank issues a mortgage loan with an about 10 year maturity period and 11%-13% interest rates. Initially, minimum primary payment is 30%. This offer, however, is special, because it enables everyone to take a loan and buy an apartment. Clients should just wish to buy our apartments, bring ID card and pay the minimum primary payment of 30% of the total value and the apartment is yours. The main thing is all apartments are accomplished: This is a main advantage of DIRSI clients. -We know you have made the Mortgage without ID Card offer more flexible and favorable. Would you specify the additional advantages? - We wanted to offer something special to our clients by the coming New Year, not standard and ordinary campaigns. Indeed, simple mortgage without ID card is an excellent offer in itself, but we offer additional advantages to the clients that cannot pay the 30% primary payment – they are able to buy a real estate in the DIRSI complex at the lowest price – 900 USD per square meter without primary payment (0%), they should sign a contract agreement and charge it with VTB Bank simple mortgage loan after six months. In reality, residents are able to book the apartment at the lowest price and accumulate the 30% primary payment for six months. The campaign will last up to January 20. -We know besides this New Year campaign you also offer other payment systems too. -Naturally, we offer other payments systems too for sales of our apartments. Namely we offer internal installment schemes with a one year maturity period and Bank Republic’s 15 year mortgage loan. In this case, the mortgage loan is issued through analysis of incomes and ordinary procedures, but the minimum primary payment is only 20% and the annual interest rate ranges from 9% to 11%. The project is very popular among our clients.

TOURISM 20142015 caucasian business week

December 29, 2014 #82

CHANGES IN TOURISM SECTOR AND GREAT PLANS FOR 2015 GIORGI CHOGOVADZE The Head of National Tourism Administration

CAUCASIAN TRAVEL AGENCY Caucasus Travel has been a leading incoming tour operator specialized in Cultural, adventurous and tailor-made tours for Groups and Independent Travelers to South Caucasus countries: Georgia, Armenia and Azerbaijan since 1991. We can say that for our company 2014 was stable. In comparison to 2013,when average annual growth approached 20-30%,growth this year was approximatley 8-10%. In 2015 the company will continue to work actively in international marketing.During the year we will be represented on interneational exibition and also will work on itroductory tours for tour-operators and agencies from targeted markets. According to preliminary estimates, we do not expect big leaps in 2015. We believe that the growth trend will continue and will increase up to 10-15% compared to 2014. Caucasus Travel is a company of choice for more than 200 tour operators, travel agencies, incentive houses, conference organizers and professional associations all over the world. High professionalism of staff, reliability, innovation, perfection of product and high quality services have always been the basis and guarantee of numerous clients satisfaction. DISCOVERY TRAVEL AGENCY

eorgia received 1 944 233 travelers in 2014 Q3,that was 2% higher than the datas from last year. In 2015, our department’s budget will be GEL 17.1 million that is 4 million more than in 2014. In terms of innovation, the most important steps will be aimed at studying the resort potential of various regions of the country. Both state structures of Georgia and foreign experts will be actively involved in it. We are going to interest both local and foreign investors to invest in the construction of hotels. In general, support for the private sector is very important for the development of tourism and resorts. This will be one of the priorities in the work of our department. In addition, we are already working on a tourism development which will be ready by spring. At this stage, we already have a preliminary document on which we are now actively working with the support of the World Bank. The strategy will be the main document that defines the main directions for tourism development and will give us the opportunity to carry out deliberate and consistent steps. It is also important that with the support of the state and the World Bank infrastructure and utility rehabilitation has already begun in the two regions of eastern Georgia which have great prospects in terms of tourism development. It should be noted that the new visa regulations did not affect the countries supplying the largest number of tourists - it’s basically the neighboring and the EU countries. According to data for 11 months in 2014, neighboring countries accounted for 88% of revenues derived from tourists, and the EU citizens- 4%. Overall, 92% of tourists are from the countries with which visa-free travel is maintained even after the introduction of regulations. However, visa regulations undoubtedly affected the flow of tourists from certain countries. On this basis, the Ministry of Foreign Affairs is currently working on the introduction of electronic visas, which will give the opportunity to fill the application and get a visa in electronic form. We intend to promote Georgia’s tourism potential on existing and new markets. In 2015 it is planned to carry out a marketing campaign in Armenia, Azerbaijan, Turkey, and Russia, which are our main tourist partners as well as in Hungary, Israel, the Baltic States, Belarus, Ukraine, Poland, and Kazahastane. Apart from that, in 2015 we will take part in several major tourism fairs - in Hungerexpo 2015 that will be held in Hungary, Top Resa 2015- in France, TT Warsaw 2015- in Poland. We also intend to intensify the ad campaign in social networks - this is very important considering the role of the Internet in our time.

2014 Year • Number of international travelers: 5 059 832 • The same period last year: 4 999 675 • Increase over the same period last year: 1.2% • Top 5 countries by the number of arrivals: Turkey (1 338 397), Armenia (1 177 071), Azerbaijan (1 172 461), Russia (759 239), Ukraine (134 529)

Discovery group is a company,oriented on growth and advance. Discovery Group is a trustworthy partner in the field of tourism in Georgia! Our Company is open for either new partnership or offering all kind of tourist services and products. our high qualified team is very successful in this field as well Simultaneously we are always looking for more innovate ways to improve our services, be flexible and offer more convenient product for our customers. The cycle of the tourism department has grown in 2014 compared to the previous year – there has been notable increase in demand for both internal Georgian tours by foreign visitors, as well as for international tours from our own residents. It’s also worth noting that apart from mass-scale travel points (such as Turkey, Egypt, Dubai…), a lot of other countries have gained popularity in demand as well, including Europe, Israel, Indonesia, Morocco, Thailand. Interestingly, to-be travelers order full packets of the service, which includes flight plans, transfers, lodging, internal transportations and excursions, making our work process that much more interesting. We hope that 2015 will be quite successful for us. The quality of our service defines trustworthiness and publicity, which we consider the best way to

ensure the company’s objective advertisement and progress. We believe that, on one hand, the new leadership of the Georgian National Tourism Agency will greatly contribute in showcasing Georgia’s touristic potential in various foreign countries, which in turn will increase visitor numbers in our country. And on the other, the policy of the Ministry of External Affairs, which is geared towards ensuring our residents’ Visa-free travel in countries of the European Union, will benefit the development of Georgia’s tourism sector. INFO-TBILISI TRAVEL AGENCY Info-Tbilisi Travel operates from 2003 in Georgia, and we provide a full of range of the higest quality services. With the working experience of eleven years, we now can say that 2014 was a quite successful year, as new targeted groups and places were identified. Statistically, the number of tourists did not exceed their number from the past two years, no increase was observed. In the recent years new facilities are appearing in the tourism industry, which we are using and actively offering in our travel packages. In 2014 we paid a special attention to popularization of eco-tourism. This type of tourism is aimed at preserving local culture and promoting sustainable development, which is significant for both the business enviroment and state. There is a growing demand on so-called MICE tours (a type of tourism in which large groups, usually planned well in advance. MICE stands for Meetings, Incentives, Conferences, and Exhibitions). Info Tbilisi travel hosted a number of large companies and events. This type of tourism direction is quite successful and profitable. The company plans to maintain well-known existing tours, and in addition, we plan to offer and promote innovative tours such as eco-tourism and MICE, as mentioned above. The company has its own autopark. It has its own nische on the tourism market via so-called Jeep Tours, and is actively working towards this direction. The company is oriented towards novelties, so facilitating new routes and new tourist offers are being planned. This is caused by the old routes interfering with tours as the industry develops, creating the need for new visions and new ideas. For 2015, we’re expecting a growth in publicity on the international touristic market. Traveling in Georgia will gain interest and this will be directly proportionate to the rate of growth in tourist numbers. Gaining new partners on touristic exhibitions and an interesting new plan for the future from the tourism administration gives us cause for optimistic prospects.

TELECOMMUNICATIONS December 29, 2014 #82

caucasian business week

NEW AGE – CHALLENGE ON GEORGIAN TELECOMMUNICATIONS MARKET

In 2015 the Georgian telecommunications market will face new challenges. 4G technologies will be introduced. In June 2015 Georgian citizens will get access to digital broadcasting. Over 0.5 billion GEL is required to install these technologies. Georgia-based companies are ready to spend these sums. The Georgian National Communications Commission (GNCC) says Georgia’s telecommunications market grows quickly and the market value is about 1.5 billion GEL. VAKHTANG ABASHIDZE, a GNCC Chairman: “4G and digital broadcasting were very relevant issues in 2014 and this relevance will be maintained in the future too. Unfortunately, Georgia is behind many European countries in terms of development of new technologies. I mean 4G broadband services. In 2014 we created precondition to remove this gap and to make technological advancement: a legislative bill was developed and its adoption enabled the regulator to take decision in the shortest period. The auction will be held on December 29 to sell a license on 800 megahertz frequency. In late January we will complete modifying a new neutral frequency on other frequency (800/900/1800/2100). This license will enable companies to supply 4G services to the subscribers. To resolve this problem 4 factors were to be tackled – legislative, technological, financial and obligations. The legislative part has been resolved. The value of the 10 megahertz license is 48 million GEL. The bid is 2.5 million GEL and the winner must pay this sum. In Late January we will complete the modification of the remaining frequencies. The collected funds will be remitted to the state budget fully. In 2-3 years the companies will have to pay about 300 million GEL to the state budget. The companies have to spend considerable funds to arrange these structures. Consequently, in spring they are expected to launch supply

LIKA METREVELI, a Geocell corporate communications manager: “TeliaSonera member company permanently offers innovations to the consumer. Opening new-concept stores is one of the directions and it unites several components: a wide range of mobile phones at the best prices, the most favorable offers, a group of qualified experts, huge potential of mobile internet, special environment – Geocell accumulates all these opportunities in one space and invites everyone to become participants of the world of mobile technology achievements. In 2014 the company offered many favorable packages to the consumer and made the mobile communications efficient and comfortable. This is a unique synthesis of talking time, SMS and mobile internet and this implies flexible prices, simple form of payment and prevention of unexpected costs. New-concept stores of Geocell provide friendly and warm environment for all guests. Our stores offer a unique synthesis of Geocell favorable offers and achievements of mobile technologies. All visitors are able to receive comprehensive information from mobile terminal experts on modern mobile technologies in one space, choose desirable mobile phones and use Geocell package for efficient employment of these devices. All visitors are able to receive information on this or that innovation on the technological stand and make sure of its advantages. We also offer a special presentation space, Geocell-hub, where cognitive activities are held permanently on achievements of modern technologies and flexible installment schemes that were introduced by the initiative of Geocell in both the capital city and various regions of Georgia. In terms of social responsibility Geocell traditionally carries out various projects to integrate socially vulnerable citizens into the society and upgrade public awareness in this respect, as well as to protect culture heritage and promote educational programs. Geocell is member of TeliaSonera international group that was the first worldwide to introduce many technological innovations, including 4G technologies. In this respect Geocell is carrying out active preparatory works so as the company meet the 4G commercial introduction maximally prepared. We have developed a special website www.4g.ge so as our subscribers receive due information on this technology. Geocell follows the global technological devel-

opment tendencies and on the ground of international experience our company permanently establishes global innovations in Georgia. All these projects fundamentally change and simplify our everyday life. In this respect Geocell will offer many innovations to our society again.

TEONA BAGHDAVADZE, a Beeline PR Service Head: “The year of 2014 was very important for Beeline. Throughout the year we have worked to supply 4G internet to our subscribers at affordable tariffs as soon as possible. The results turned out impressive. On December 19, 2014 the government announced auction in which Beeline will take part. We would like to make the year of 2015 special for our subscribers thanks to dynamic and positive innovations. We are also getting prepared to supply the fastes internet services to our subscribers at affordable tariffs.

NINO SURGULADZE, a Magticom PR Department Director: “Today Magticom unites 5 brands. It is an only telecommunications market in Georgia that offers landline telephone, internet and satellite television broadcasting to over 3 million subscribers. Magticom provides permanent efforts for introduction of innovative technologies. Along with the world’s leading telecommunications companies, Magticom always offers the cuttingedge services to its devoted subscribers. In 2014 Magticom has prioritized to prepare a network infrastructure for the 4G connection. The project has been implemented successfully. In 2015 Georgia will receive 4G high quality internet services via Magticom”.

of new services. These new technologies are especially important for residents of districts and villages. The optical-fiber network in the city enables to provide high quality internet connection, but this is impossible in regions. Thus, new technologies will fully tackle this problem all over Georgia and the whole country will be covered by high-quality internet signal. Serious projects will be implemented in 2015. Another competition will be announced to ensure a full internetization of Georgia. We are obligated that Georgia move to digital broadcasting in June 2015. To this end several projects are being implemented and a state project is one of them that is controlled by the Economy Ministry and that calls for arranging due infrastructure in the Georgian Public Broadcaster. The company that won competition in summer took obligation to arrange analogical technologies for commercial and private companies infrastructure. At the same time, legislative amendments are being developed for the broadcasting law and the parliament is expected to adopt the bill until March 1. Having concluded an associated membership agreement with EU, the country assumed obligation to adjust the national legislation in telecommunications part to the European legislation. It is also important that we promote competition and development on the telecommunications market.

ILIA ENUQASHVILI, a Silknet strategic development director: “The year of 2014 was very important for the company in terms of introduction of new products. The company has responded to the market demands to improve access to the internet and offered new service of Silk LTE 4G to the districts of Tbilisi, where the telecommunications network could not satisfy due requirements. At this stage, we supply Silk LTE service via WiFi modem to the settlement of MetroMsheni, the district of Nadzaladevi, 5 December Street, Avchala, the village of Dighomi, Elia, Svaneti Ubani and Lotkini settlement. The 5G high-speed internet provides 50 megabyte/second connection. This year our company has created Silk Up mobile application jointly with Georgian developers to provide free connection in Georgia and abroad. Having downloaded the application, the subscribers get a city phone number with prefix of 0322. Mobile smartphone is able to download and apply this application on both iOS and Android system mobile phones. We have also developed Silk TV application for mobile phones and tablets with Android and iOS operation systems. Consumers are able to watch TV programs on a personal computer thanks to the pause and reverse regimes. We have also developed an online service center with self-service functions my.silknet.com to enable subscribers to manage services, change packages, make payments, cancel or suspend products. According to the 2014 reports, Silknet serves 450 000 subscribers, including 227 000 internet users and over 93 000 TV subscribers. The company employs over 3 000 specialists. We will continue Silk LTE 4G project in regions. We are also putitng optical-fiber network in big cities. We suppose to supply about 80% of Georgian citizens with Silk optical, DSL and Silk LTE technologies all over Georgia.

NIKOLAI TCHIAURELI, a Caucasus Online director general: “The year of 2014 was decisive and very important for Caucasus Online. At the end of 2013 we launched re-branding process and activated the project in 2014. The project was intensified throughout the year and it ended logically at the end of 2014. I mean a big marketing campaign that has intensified for the last two months. Besides popularization of a new product, the campaign aims to completing the re-branding process. We started internetization process in parks. We organized and continue organizing WiFi spaces in Tbilisi parks and recreation zones where citizens are able to use internet. Special functional laptop-form benches are installed in these parks and they also provide charging functions. We have rebranded Caucasus TV and make it attainable to users. The TV has become faster, more flexible and convenient. The renewed TV has been maximally tailored to the users, with renewed functions and interesting channels. We take pride in the outdoor part of our company. Tbilisi’s seemingly boring wall has been transformed into attractive place through stencils and graffiti and no one remains indifferent to this place; Our AD clip dedicated to our renewed TV and Facebook game Ping have drawn an unprecedented number of users. In 2014 the company continued regional expansion plan implementation and it is the result of huge job of our team. Caucasus Online services are accessible in Rustavi, Poti, Zugdidi, besides Tbilisi. As to 2015, our company will continue the development way, regional expansion projects will become more relevant and we will penetrate several new cities. Indeed, we plan to follow technological development process and remain interesting for our users, maintain high quality of services we have always provided, offer new products, services and campaigns to our subscribers.

CURRENCY 16 FROM SUCCESSFUL START TO FAILED FINISH GEL’s Monthly Slip after 11-month Stability caucasian business week

he year of 2014 has come to its finish-line and many issues that seemed insensitive throughout the year have been actualized now. The GEL exchange rate is one of the similar issues. The national currency that was stable throughout the year was badly affected by some factors and this issue has become the most relevant by the end of 2014. There is no final and substantiated report yet on the main question: What has happened to the GEL? The GEL exchange rate was fluctuating from 1.72 point to 1.76 point since January 2014. Starting November 20 the GEL exchange rate started extreme depreciation and on December 7 the rate saw its bottom of 1.95 point. The decline constituted about 11% in practice. In few days the GEL started extreme upturn and reached 1.84 point in four days as a result of 6% growth. The GEL exchange rate fluctuation, however, continued and in several days the rate dropped to 1.91 point by 4%. At this stage, the Georgian national currency seems to be trying to return lost positions step by step and today the official exchange rate is under the 1.90 point. What factors result in change in the GEL exchange rate? In simply, the exchange rate depends on the demand and supply of foreign currency, in other words on correlation of USD and GEL on the currency market. Therefore, we should analyze the factors that have changed the correlation between USD and GEL to explain reasons the national currency has depreciated. Let’s start with the most popular factor – influence of the Finance Ministry, to be precise, fiscal policy on the GEL exchange rate decline. Part of experts and politicians noted the national cur-

hen the Federal Reserve fuelled expectations of a possible rate-hike in the middle of 2015, the overall US Dollar Index (I.USDX) climbed to a fresh multi-year high. The central bank twisted its language by dropping the promise to keep interest rates lower for a “considerable time” and adding that it can be “patient” before raising rates. The changed language indicated central bank’s readiness to raise interest rates by the middle or 2015 or possibly even earlier. Going forward in a Christmas-shortened trading week, there are few catalysts, in term of major economic releases, that could possibly move the marked significantly before the end of the year. Third-quarter Final GDP print from the US and UK along with durable goods orders and new home sales data from the US and UK third-quarter current account balance are the key highlights from Forex calendar. Let’s have a brief overview on major market moving releases scheduled. From the US housing sector, fresh readings on existing and new home sales for the month of November are scheduled for release and would assist investors to gauge the strength of the sector. Existing home sales are expected to continue the positive momentum and print above 5.00 million annualized rate for sixth consecutive month. New

rency rate fell because of unequal spendings of the state budget, but no similar fact has been registered by December 22 and therefore, the role of the state budget in this process is ruled out. Another factor is related to the National Bank of Georgia (NBG). In this case various appraisals are made too. Part of experts says NBG has no relation to the GEL depreciation, but I would not entirely refuse the NBG role in this process. Namely, in 2011 the inflation marked 15% and NBG had to set quite heavy restrictions to the state economy to curb the inflation. NBG rose the monetary policy rate to 8%, as well as the norm of foreign currency reserves. In one word, NBG restricted a money supply to the economy and the inflation indicators started decline. Later this process, however, was radically changed and two-digit inflation grew into deflation for over 2 years (by the end of 2013) and this is as dangerous as high inflation. To deal with this problem, NBG maximally smoothed the monetary policy, lowered the rate to 3.75%. As a result, the economy crediting was boosted, especially in the national currency. The results are evident. The last two years have recorded a 71% growth in GEL denominated loans and a 20% upturn in USD denominated loans. The question is whether this tendency affects the GEL depreciation. Indeed, it does. It is clear only these two factors do not suffice for full analysis. The exchange rate is largely deter-

mined by the exports and imports dynamics. What has happened in this respect for the last year? In January to November 2014 the exports grew by 0.5%, while the imports increased by 9% that is the trade balance deficit very worsened. This signifies in the part of foreign trade more currency was withdrawn from the country compared to inflows. This tendency has generated misbalance on the domestic currency market. Thus, this factor represents an important reason for the GEL rate devaluation. This failure, however, was balanced from other sources. Namely, 3Q12 has recorded an inflow of 924 million USD foreign direct investments (FDI) and 209 million USD portfolio investments (in two quarters). The reporting period has recorded a 30% growth in investments, while the portfolio marked 127 million USD outflow in 2013. This signifies considerable foreign resources were drawn in the part of investments and this factor was to strengthen the GEL exchange rate. Money transfers also largely ensure the GEL exchange rate stability. In this respect November has recorded an important slip in inflows; this signifies no serious failure was registered in terms of money transfers to Georgia. Moreover, in January to June 2014 additional 170 million USD were remitted to Georgia and this factor also plays a considerable role in replenishing the foreign trade deficit gap. Thus, all the macroeconomic parameters that

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make less or more affect on the GEL exchange rate annul each other in practice. In this situation only two factors remain that have influenced the GEL rate, first of all, the USD strengthening on the global market and an artificial factor. As to the first factor, all currency depreciated in the world. For example, EUR rate fell by 13% year on year, Japanese Yen fell by 19%, Turkish Lira went down by 10%, GBP by 5%, Armenian Dram by 10%. It is natural Georgia could not be exception. These factors generate grounded doubts that the GEL exchange rate extreme fluctuations took place not because of the current situation in the economy, but artificially. This doubt strengthens because of the mechanism through which the GEL exchange rate is determined. Namely, the GEL exchange rate against USD was determined at the interbank currency exchange. Only commercial banks and NBG are authorized to take part in the currency auctions. All other economic agents are banned either participate or event supervise the process. Consequently, the GEL exchange rate is determined by not economic developments, but the bargains commercial banks made with each other. This signifies, in practice, the bank sector owns exclusive rights for determining the currency rate. On the ground of these factors and analysis of macroeconomic parameters, the version of artificial depreciation of the GEL exchange rate seems to be very logic. Last days, however, are demonstrating the GEL exchange rate stabilization tendency. GEL seems to have overcome Black Days, because the national currency has been considerably strengthened compared to the depreciation peak and the trend keeps moving to the strengthening direction.

HOLIDAY SEASON TO RESTRICT BIG-MOVES IN THE FOREX MARKET home sales has been quite erratic this year, but is anticipate to slightly better 458,000 units recorded in October and reach seasonally adjusted annual pace of 461,000 units in November. Investors will also have a look at the performance of US manufacturing sector with the release of durable goods orders. Following an unexpected drop in October for core durable goods orders, which excludes transportation items, analyst expect an up-tick of 1.1%, while orders including transportation items is expected to surge by 3%. The key highlight from US economic calendar is the final version of the third quarter US GDP growth rate. According to the Commerce Department’s Preliminary estimates (second estimate), the US economy grew by 3.9% annualized pace in the third-quarter of 2014 but economists this time are expecting the figure to be revised higher, with the consensus estimating the data to show an annualized growth of 4.3%. However, a minor blip from the initially reported growth is unlikely to disturb the steady growth trajectory, which seems more likely to continue in the last quarter of 2014. Strong third-quarter growth, followed by robust second-quarter, would re-affirm that the US economic recovery remains on strong footing, which eventually would boost prospects of the Fed raising interest rates in mid-2015. This might lead to a broad based rally for the US Dollar in medium to long-term.

From the UK, third-quarter current account deficit and final GDP print are the key releases to watch for. After ballooning to -23.1 Billion Pounds in the second-quarter, current account deficit, scheduled for release, is estimated to come-in at -21.1 Billion Pounds for the third-quarter of 2014. An unexpected reading, especially higherthan-expected deficit, would seriously deteriorate demand from GBP and have a significant impact on GBP pairs. The final UK GDP print for the

third-quarter of 2014, also scheduled for release, is expected to remain stable at 0.7%. Traditionally volumes, during the year-end holiday season, drop significantly and with very little in terms of fresh economic triggers, the Forex market could possibly witness some lacklustre movement. HARESH MENGHANI Senior Market Analyst Admiral Markets

RESEARCH December 29, 2014 #82

caucasian business week

NEIGHBORHOOD WORLD NEWS FACTORS CONSTRAINING BUSINESS Azerbaijan prepares to World Bank cuts Turkey’s DEVELOPMENT IN borrowings on local, growth forecast for 2014 he World Bank has cut Turkey’s 2014 international capital markets GEORGIA growth forecast while keeping 2015 estin 2015, the ministry of finance of Azerbain September 2014 ARC conducted a survey to reveal the constraints to business development. 500 companies representing small and medium businesses participated in the survey. 75% of respondents named cost of finances as the key constraint followed by tax rates and availability of finances. Respondents think that crime (2%), corruption (5%) and tax rebates (6%) are the least constraints.

jan intends to explore the conjuncture on the domestic and international financial markets for placement of government bonds with facevalue in foreign and local currencies. Azerbaijani President Ilham Aliyev gave relevant instruction in the decree on the application of the law “On State Budget for 2015” signed Dec.22. The ministry of finance was instructed to determine the amount, terms of circulation and other options for the release of government bonds, depending on market conditions. The Finance Minister Samir Sharifov previously said that the Azerbaijani government may consider the possibility of issuing sovereign bonds in euros. “We can consider the issue of placement of Eurobonds on the international capital market, which will depend on the situation on the market,” said Sharifov. “It will also become a benchmark for the private sector in Azerbaijan.”

VTB wants to invest in Azerbaijan Railways

Compared to regional companies, Tbilisi-based companies are more concerned about inadequately educated workforce (39% vs. 28%), customs and trade regulations (24% vs. 16%) and tax administration inspections (17% vs. 7%). Access to land is the constraint mostly faced by regional companies rather than by Tbilisi-based companies (19% vs. 11%).

ank VTB (Azerbaijan) strives to enter into the market of project investment. Today in Baku Bank’s chairman of board Yury Yakovlev has stated that VTB is considering the options for participation in the modernization of the railway infrastructure in Azerbaijan and realization of other infrastructure projects. “We’re negotiating with the Ministry of Energy of Azerbaijan about the start of financing the projects for production of solar batteries and lending their purchase by the population. Consultations are under way with the Ministry of Transport on the integration within the system of transport payments,” Yakovlev said. Bank VTB (Azerbaijan) is the joint business of Russian Bank VTB and Azerbaijan’s Ata Holding.

PASHA Bank wins two international awards

The differences between small and medium businesses are very interesting: availability of finance (64% vs. 55%) and telecommunications (22% vs. 17%) is the constraint mostly faced by small business rather than by medium business. Inadequately educated workforce, customs and trade regulations and tax administration inspections are the constraints mostly faced by medium business rather than by small business.

he official ceremony of prestigious Financial Awards 2014 on the version of International Finance Magazine (IFM) has been held in London. PASHA Bank reports that this year it has been awarded the titles of The Best Investment Bank and The Best SME Bank. In this connection, PASHA Bank’s board member and Chief Investment Director Taleh Kazimov stated: “We’re very pleased that this is not the first time when our services in the sphere of investment banking and innovations in capital markets are highly appreciated abroad. “By our actions we have provided our clients the opportunity to enjoy all the benefits of the capital market, and also made a significant contribution to the development of the market. Also, in 2014 PASHA Bank held an active position in support of small and medium enterprises (SME): for the first time in Azerbaijan the Bank has opened offices specializing in the provision of services to this sector. Aiming to become even closer to the SME sector, the Bank provides products and services in accordance with their wishes and needs. I thank all of our customers, partners and shareholders, who are constantly supporting us,” Kazimov said.

IBA-Moscow Bank fully repaid bonded debt in amount of 2.96 bn rubles

BA-Moscow Bank has fully met its obligations on repurchase of bonds presented for payment. According to the International Bank of Azerbaijan OJSC, its subsidiary repurchased the bond issue placed at Moscow exchange on June 20, 2013 in amount of 2,956,575 bonds for the total sum of 2.963 bn rubles including accumulated coupon yield. The bank repurchased documentary interest-bearing nonconvertible bearer bonds with possibility of early repayment upon request of owners. The state security identification number is 40103395В (registered on December 19, 2012). The organizers of the issue placement were URALSIB Capital, VTB Capital. ROSBANK and FinService were underwriters of the placement.

mates unchanged according to new data from the financial institution yesterday. “The World Bank lowered the 2014 growth estimate to 3.1 percent, but is keeping the 2015 forecast unchanged at 3.5 percent against the backdrop of improving external balances and persistent market volatility,” read a statement released by the bank. The organization expects Turkey to significantly benefit from the sharp decline in oil prices as the outlooks for inflation and the current account have improved substantially due to this development. However, the World Bank cautioned Turkey about changes in investor sentiment in which the country has limited room to maneuver regarding monetary policy. “While private consumption is expected to return to being the main driver of growth, political uncertainty and the volatility in global markets will continue to weigh on investor sentiment,” the statement added. Country Director Martin Raiser said that Turkey’s growth performance would be largely based on the recovery of private investment and a resumption of productivity growth, stressing that the implementation of new reforms would play a crucial role.

$20 oil wouldn’t force production cut – Saudi oil minister

audi Arabia’s oil minister said OPEC wouldn’t budge on its decision not cut production, even if oil hits $20 a barrel. He also said the world may never see $100 a barrel ever again. “It is not in the interest of OPEC producers to cut their production, whatever the price is,” Ali al-Naimi told the Middle East Economic Survey, a weekly oil and gas publication. Naimi added, “Whether it goes down to $20, $40, $50, $60, it is irrelevant.” Saudi Arabia is the world’s largest oil producer, and is also the most dominant force in the Organization of the Petroleum Exporting Countries (OPEC). “We have entered a scary time for the oil market and for the next several years we are going to be dealing with a lot of volatility,” Naimi said. “Just about everything will be touched by this.”

Nicaragua starts work on $50bn canal between two oceans

he Nicaraguan alternative to the Panama Canal will be a waterway connecting the Atlantic and the Pacific oceans and is to be the most ambitious construction project in Latin America. On Monday Nicaragua officially began work on a canal which will be a competitor to the Panama Canal 600 kilometers south. The Nicaragua canal will be capable of handling the super-heavy class ships with the capacity of up to 400,000 tons. It will be 278 kilometers long and 30 meters deep, which makes it wider and deeper that the century old Panama Canal. It is expected to be completed and operational by 2019. The canal will reduce the cost of transporting goods via sea between America, Europe and Asia by about 30 percent. Experts believe it will be able to handle more than 5,000 high tonnage vessels a year.

Oil slides, Brent tests $60 as data shows glut building

lobal oil markets fell again on Wednesday in holiday-thin trade, extending more than a week of see-saw volatility as traders jousted over whether a growing supply glut had been fully priced in. Oil whipped lower early in the day and tested new lows after U.S. data showed crude inventories unexpectedly rose by 7.3 million barrels last week to their highest December level on record. Analysts had expected a seasonal draw. “It’s a Christmas flood of oil at a time when refiners and producers usually are letting inventories get lower for end-of-year tax reasons,” said Phil Flynn, analyst at Price Futures Group in Chicago. “But with this flood of supply there’s no place to put it.”

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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TBILISI GUIDE December 29, 2014 #82

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

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