CAUCASIAN BUSINESS WEEK #83 by Caucasian Business Week

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January 19, 2015 #83

January 19, 2015, Issue 83 GEORGIA GEORGIA INCREASES TRADE VOLUME WITH EU

he Association Agreement (AA) Georgia signed with the European Union (EU) in June last year will have immense benefits for the country and its people Pg. 5

caucasian1

BE INFORMED, DO BUSINESS

Irakli Garibashvili: Georgia can play an important role in connecting Europe and Asia Pg. 4

WINTER RESORTS HOTEL MARKET OVERVIEW BY COLLIERS INTERNATIONAL

FIVE NEW ENTERPRISES TO OPEN IN GEORGIA IN TWO YEARS

Giorgi Kvirikashvili: Government will be less Bureaucratic

ive new enterprises will be opened in Rustavi, Khobi, Vani and Abasha municipalities. Pg. 2

GEORGIA’S FOREIGN DIRECT INVESTMENTS (FDI)

eorgia’s foreign direct investments (FDI) dynamics shows foreign investors have been demonstrating growing interest in Georgia’s various fields. Pg. 7

RIXOS OPENS FIRST HOTEL IN GEORGIA

Pg. 8

CHARITY TERMS BY BANK REPUBLIC – STUDENTS LOAN WITH 52.51% ANNUAL INTEREST RATE

ixos first hotel in Georgia located in a 5-star hotel complex in Likani will be opened by Georgia’s PM. Pg. 7

IMPACT OF GLOBAL UNCERTAINTY ON BUSINESS CONFIDENCE IN GEORGIA AND THE REGION

ew research from the Grant Thornton International Business Report (IBR) reveals that while business confidence in 2014 climbed to levels not seen since before the Pg. 10 financial crisis.

NEIGHBORHOOD RUSSIA REVEALS HUGE COST OF SUPPORTING THE ROUBLE

he Russian central bank has revealed the huge cost of trying to prop up the value of the rouble. In the past year. Pg. 13

WORLD NEWS FACEBOOK AT WORK HITS APP STORES

smartphone app called Facebook At Work will hit app stores Wednesday, the company announced, as the billion-user social network expands into new territory: the office. Pg. 13

Currency

Pg. 11

EXCHANGE RATE MONITORING GEL Exchange Rate Depreciates Step by Step

FUEL VOLATILITY IN THE FOREX Pg. 12 MARKET

Pg. 5

ECONOMY IN 2015 Pg. 6

LEVAN KALANDADZE IRAKLI LEQVINADZE EMZAR JGERENAIA ZURAB JAPARIDZE MIKHEIL DUNDUA NODAR CHICHINADZE

GOVERNMENT STARTS DISCUSSIONS OVER BANNING ONLINE GAMBLING GAMES

Pg. 4

Givi Korinteli: The Year of 2015 is the Most Favorable Period to Buy Real Estate

Pg. 4

Olzhas Khudaibergenov: Georgia should not Expect New Investments from Kazakhstan at this stage Pg. 8 Nikoloz Chkhetiani: Building a new Technological University in Tbilisi will take several years Pg. 13

Pg. 8

Research

SURVEY: HOW GEORGIANS CELEBRATED NEW YEAR’S THIS HIS YEAR

Current Regulations Contain Risks of Uncontrolled Involvement of Adolescents in Online Gambling Games and Money Laundering Pg. 5

The 9th of February Special Issue, Georgia’s Investments Potential, Specially for the Wealth Pro Conference, Introduce Your Company to the World’s Wealthiest Investors. For Additional Information, please, contact the CBW editorial board.

GOVERNMENT NEWS

2 MAIN EVENTS TBILISI DENIES TALKS WITH SOKHUMI OVER ENGURI HPP

FIVE NEW ENTERPRISES TO OPEN IN GEORGIA IN TWO YEARS

he Georgian Ministry of Energy has “strongly” denied remarks by head of the energy company in breakaway Abkhazia about having talks over Enguri hydro power plant with Tbilisi.

EU NEIGHBOURHOOD COMMISSIONER MEETS PM, FM

uropean Commissioner for European Neighbourhood Policy and Enlargement Negotiations, Johannes Hahn, said on January 15 in Tbilisi he hopes there “will be a very positive outcome” when the EU makes assessment of implementation of second phase of Georgia’s visa liberalization action plan in March.

PRESIDENT MEETS NGOS AS HE LAUNCHES CONSULTATIONS OVER NEW CHAIR OF SUPREME COURT

resident Giorgi Margvelashvili met representatives of non-governmental organizations, who are united in Coalition for Independent and Transparent Judiciary, on January 15 as he has launched consultations for nomination of new chairperson of Supreme Court.

EU COMMISSIONER CALLS ON GEORGIA TO FOCUS ON AA IMPLEMENTATION

uropean Commissioner for European Neighbourhood Policy and Enlargement Negotiations, Johannes Hahn, said it is important for Georgia to remain focused on full implementation of the Association Agreement with the European Union.

ive new enterprises will be opened in Rustavi, Khobi, Vani and Abasha municipalities. The enterprises will start operations in two years from approval of the projects within the framework of the governmental program Produce

in Georgia. The projects have been approved today at the Government meeting, reported Georgia’s Minister of Economy and Sustainable Development Giorgi Kvirikashvili. Manufactured products will be sold at local as well as export markets. “We have made some changes in the

eorgian Government is ready to work more actively in order donor-assisted projects to contribute more to the development and grow of Georgian economy, said Georgia’s Finance Minister Nodar Khaduri at the meeting with the USAID Mission Director Stephan Heiken. There was discussed the future cooperation opportunities between the Georgian Government and United States Agency for International Development (USAID). The sides also summarized the projects supported by USAID including G4G (Governing for Growth). The purpose of the Governing for Growth in Georgia (G4G) activity is to improve Georgia’s economic governance and leadership, particularly in the areas of: (1) weak enforcement of the legal and regulatory framework and its negative impact on small- and medium-sized enterprises;

igning the Association Agreement (AA) with European Union (EU) and adoption of the NATO Substantial Package are among the top achievements of the Foreign Ministry in the last two years according to the Foreign Minister Tamar Beruchashvili.

OSCE PARLIAMENT SECRETARY GENERAL VISITS GEORGIA

ecretary General of the Organization for Security and Co-operation in Europe (OSCE) Parliamentary Assembly Spencer Oliver is on his way to Georgia for a four day official visit.

TOUGHER PENALTIES FOR LITTERING COME INTO FORCE eople who throw litter from cars and other vehicles face fines of up to 120 Gel ($63 USD) under new law aimed at curbing roadside rubbish.

GEORGIAN GOVERNMENT TO PURCHASE MICROSOFT’S GENUINE OS LICENSING AND ENTERPRISE LICENSING eorgian Government will purchase Microsoft’s Genuine OS Licensing and Enterprise Licensing from the official representatives of Microsoft Company to Georgia, announced Georgia’s Finance Minister Nodar Khaduri.

GEORGIAN GOV’T APPROVES 5 NEW BUSINESSES TO BOOST ECONOMY ive new businesses will open in Georgia’s regional areas under the ‘Produce in Georgia’ scheme to help boost the Georgian economy.

GOVERNMENT TO DEVELOP NEW METHODOLOGY FOR COST OF LIVING CALCULATION

he government is working on a new methodology for calculating the subsistence minimum. David Sergeenko, Minister of Health, announced before the Cabinet meeting that the minimum wage recalculation would give unrealistic picture.

CBC, which will establish a household waste collection metal containers enterprise. For the first time in Georgia there will be opened a hot-dip galvanization enterprise as well. Ltd. Georgian Laurel will take care on building a bay leaf producing enterprise for which the company will invest 247 200 GEL. The enterprise will be built in the village Bzvani, which is located in Vani Municipality. The production is planned to be exported in China, Turkey, Korea, Bulgaria, Viet-Nam and Poland. Milk factory will be built in Abasha Municipality by Ltd. Abasha Milk Factory. The company will implement 2 529 600 million investment and employ 150 people. The production will be exported to Russia, Azerbaijan, Armenia and Turkey. Building materials factory will be opened in Rustavi by Ltd. Reabas, for which it will implement 1 444 136 million GEL investment and employ minimum 10 people. The production will be sold on local as well as international markets.

(2) unregulated use of water resources and the resulting threat to the quality and quantity of water available for long-term economic growth and resource-based conflict; and (3) the lack of an energy trading mechanism between Georgia and neighboring countries that severely inhibits new foreign and domestic investment into hydropower production. G4G will strengthen the capacity of Government of Georgia (GOG) institutions to develop, implement, and enforce reforms, and develop the capacity of private sector and civil society actors to engage the GOG on the development, implementation, and enforcement of reforms. Key to the success of G4G will be supporting inclusive and constructive dialogue among government, private sector, and civil society stakeholders. Heiken mentioned that Georgia is a special partner country of USAID and the bilateral cooperation will be continued in the future as well.

GEORGIA DECLARES 2015 AS THE YEAR OF FIGHTING AGAINST HEPATITIS C

parameters of Produce in Georgia. From now on the State’s share in the mortgaging guarantee, which is required by the banking institutions for their approved projects, will be 50% instead of 30%. This decision is very important for the representatives of small and medium business to be involved in our program, Produce in Georgia,” Kvirikashvili said. Out of five enterprises Ltd. Pigaro will get 32130 sq. m. non-agricultural land in Khobi ( a town in western Georgia) at a symbolic price. The company is obliged to establish the enterprise which will produce construction materials and plastic production. Ltd. Pigaro will invest 1 660 000 GEL in implementing this project and will employ 30-50 people. The production will be sold on local market. Within the framework of the program Produce in Georgia TBC Bank has approved preferential loan worth of five million USD for Ltd.

DONOR-FUNDED PROJECTS FOR BETTER ECONOMY IN GEORGIA

GEORGIAN FOREIGN MINISTRY SUMS UP PAST TWO YEARS

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he Georgian Government declared 2015 as the year of fighting against hepatitis C, Prime Minister of Georgia Irakli Garibashvili said on the Government Meeting today. Garibashvili spoke about the new medicine of hepatitis C, which would soon enter Georgian market from USA and would almost completely eliminate the infectious disease in the country. “As you know, throughout many years this was an unresolved issue not only in Georgia, but in all countries. However today, by efforts of the Min-

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istry of Health and very active work of the Minister himself, our biggest challenge this year is to completely overcome the hepatitis C disease, that is why I declare 2015 as the year of fighting against hepatitis C,” Garibashvili announced. Garibashvili stressed that an unprecedented project would begin soon, which would not only provide people with drugs, but with correct diagnostics and treatment as well. The PM also noted that every citizen would be able to receive the treatment of the hepatitis C, including the prisoners. “The Ministry of Health will tighten regulations and control in order to prevent the disease. I am confident that the hard work we all put in this job, especially the Ministry of Health and Minister Sergeenko, will bring a positive result and this will become an important project for our citizens,” he said. Garibashvili called on everyone to engage in the campaign against hepatitis C and once again thanked Minister Sergeenko for his work. David Sergeenko himself held a press-conference yesterday and talked about the details of the new campaign. He noted that the agreement about the import of

new medicine would be probably signed at the end of the February and the project would be launched in its entire capacity throughout the year 2015. “This project is not only a discount on the hepatitis C medicine, but a complete public health project, which aims to provide everyone in Georgia with quality treatment and, on the other hand, to minimise the emergence of new cases,” he said. “In order to accomplish this, massive prevention of the new cases is needed. For this, a broad participation is essential. The society should be informed about the main parameters of this project and it is also important that the people share their ideas with us,” Sergeenko noted. The Minister also said that the exact price of the new medicine was not known until the contract would be signed, but he underlined that it would be affordable for any social group. “In all ten regions of Georgia, we have already acquired modern equipment. In addition, a few dozen doctors will be trained for controlling this disease. We think that within three years, our goal will be reached, if the project is implemented according to the plan, which widely depends on the support from the society,” The Minister said.

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Editor-in-Chief: Nino Gojiashvili. Mobile phone: 595 050404 Reporters: Nutsa Galumashvili; Tamar Kakabadze, Lazare Gvimradze

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January 19, 2015 #83

PUBLICITY

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INTERVIEW

4 HEADLINES EU TO ALLOCATE 44M EURO TO GEORGIA

U will deliver a grant worth 44 million euros to Georgia, Georgian Prime Minister Irakli Garibashvili said at a joint briefing with EU Commissioner for European Neighbourhood Policy and Enlargement Negotiations Johannes Hahn.

IRAKLI GARIBASHVILI: GEORGIA CAN PLAY AN IMPORTANT ROLE IN CONNECTING EUROPE AND ASIA An excerpt from Georgian PM’s interview with a LEADERS, an American publication that presents the broad range of leadership thoughts and visions of the world’s most influential people. In his interview with the LEADERS’s president, David Schner, Irakli Garibashvili stressed Georgia’s western aspirations – political, as well as economic.

TURKISH AIRLINES CONTROLS 22% OF GEORGIAN AVIATION MARKET

he leader of the Georgian aviation market is the Turkish Airlines. Turkish Airlines is in the lead on the Georgian aviation market in 2014 as in previous years, the civil aviation agency’s statistics says. As of 2014, the airline controls 22 percent of the market. The matter rests in the number of passengers transported by regular flights. Airzena national airline ranks second. It covered 11 percent of the market in 2014.

CONSTRUCTION OF MAIN GAS PIPELINE IN GEORGIA TO BE COMPLETED IN FEBRUARY

onstruction of main gas pipeline in Georgiork is underway on the 25-kilometerslong Red Bridge – Marneuli section of a main gas pipeline in Georgia. To date, 57.8 percent of the work has already been completed. The construction work carried out by ‘Komfortmshen 21’ company, the winner of the tender, started in September 2014 and will be completed in February 2015a to be completed in February.

GEORGIA, ESTONIA INK AGREEMENT ON INTERNATIONAL TRANSPORTATIONS

eorgia and Estonia signed, during the Georgian-Estonian business forum, several agreements, in particular, the agreement “On international transportations of passengers and goods.” The forum was held during the Estonian Prime Minister Taavi Roivas’s visit to Georgia.

- Are there strong opportunities available today for foreign investment and does the outside world understand what Georgia offers? - Georgia has a unique strategic location and I want to restore the historical role that this corridor previously played. We’re talking about developing the new Silk Road, a concept in which the Chinese President has openly expressed interest. Georgia

he European Bank for Reconstruction and Development (EBRD) and the European Union (EU) are stepping up their efforts to support small and medium-sized enterprises (SMEs) in Georgia, Ukraine and Moldova: a joint programme will help local SMEs get loans needed to upgrade their production facilities and seize new trade opportunities with the EU.

GEORGIA’S TOTAL DEBTS SHRINK BY 66 MILLION GEL

RUSSIA REMAINS LEADER OF REMITTANCES TO GEORGIA

n December 2014, the volume of money transferred from abroad constituted $116.1 million USD (218.8 million GEL), which was 25 percent ($38.5 million USD or 72.5 million GEL) less than the amount in December 2013.

GEORGIAN PRODUCTS TO BE GRANTED GEOGRAPHICAL INDICATORS

he National Intellectual Property Centre Sakpatenti and the Ministry of Agriculture of Georgia have signed an agreement that will support the development of protected geographical indicators for Georgian products.

NEW MULTI-MILLION TOURIST COMPLEX FOR SOUTHERN GEORGIA

eorgia will soon have one more tourist destination for tourists to visit - a large-scale tourist complex is planned to be built in the country’s south.

can play an important role in connecting Europe and Asia. Georgia’s role in facilitating trade between these regions is extremely important and will become even more so in the years to come. As far as business opportunities, the agricultural sector is one of the fastest growing and most interesting sectors in Georgia due to our land’s ample opportunities. Hydropower is another area of opportunity. Georgia is using only 18 or 20 percent of its hydropower resources. As a nation, we have 26,000 rivers, so there is a huge opportunity to produce clean energy not only for our own consumption but also to export clean energy to Turkey over the high-voltage transmission lines we are currently building. This will enable us to export our electricity and clean energy to Turkey and, via Turkey, to Europe. Tourism is also one of the fastest-growing sectors because Georgia offers a mountain-zone climate, as well as subtropical and continental areas. There are beautiful mountains, ski resorts which are growing fast, and a demand for three- to fivestar hotels. In terms of manufacturing and transport, we have expressed an interest in building a deep-sea port, which will enable us to receive large vessels. This is important in the restoration of Silk Road, because the Chinese routes will come through Georgia and will pass through this corridor. We need a deep sea port so these vessels can be loaded here and go on to Romania and Europe. This will only

take 17 days, which makes it the quickest route between China and Europe. We have just started working closely with the Chinese government on these matters, but this port will shorten routes, save money and time, and bring more energy and interest to the corridor. I also want to mention the importance of peace and stability in our region. We completely changed our approach towards our neighbors, including Russia. We chose to adopt pragmatic, rational, and constructive policies towards them. We did this because we want to de-escalate the tension and to prevent another new conflict. This is very important for attracting investors from other countries. We must persuade them that we are a reliable, predicable government with steady leaders who want peace and stability. In Georgia, if there is no peace, there won’t be peace in the Caucasus region, which will create serious problems for the world. Recently, I was in Azerbaijan to see the first segment of the Shah Deniz Phase 2 pipeline project. This is a $45-billion project that will supply 16-billion cubic meters of gas to Europe and to Turkey. Georgia will also benefit from this project and is one of the most important countries involved with this project, which is an incentive to maintain a stable environment. Georgia remains a reliable transit capital. The Baku-Tbilisi-Ceyhan (BTC) pipeline was our first project. This one is a bigger project involving other European countries, BP, and many other entities.

GIORGI KVIRIKASHVILI: GOVERNMENT WILL BE LESS BUREAUCRATIC

EBRD AND EU STEP UP SUPPORT FOR SMALL BUSINESSES IN GEORGIA

eorgia’s total debt is 66 million GEL less than it was planned in 2014, announced Head of the Treasury Service Tsotne Kavlashvili at the press conference where he presented the state budget performance report of 2014 to the media.

January 19, 2015 #83

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he Prime Minister called on the government to make quick decisions regarding investments. According to Ministry of Economy and Sustainable Development Gior-

gi Kvirikashvili, the management in the government will be very less bureaucratic next year. As for the country’s future economic situation, the Minister notes that it is very difficult to predict in the current situation because the economic situation around Georgia is not favorable. In the words of the Minister, a lot of things have been improved in the direction and the Minister claims there will not be any problems in the management inside the country and its openness to investment. “The only thing I can say is that the government is mobilized, coordination in the government is at the highest level and there will be no problems in this regard, the situation will be viewed from the outside “, - says the Minister. FDI 2014 removed the 6-year record in the third quarter and the biggest volume of investment in the last 6 years was recorded in one quarter. The Prime Minister of Georgia Irakli Garibashvili offers the most comfortable conditions for investors. Irakli Garibashvili announced at the GeorgiaEstonia Business Forum that the state foundation

for the promotion of business in Georgia was formed. “It successfully cooperates with foreign partners. Also, I want to mention a private equity fund that was created in our country. This is a private foundation with a budget of 6 billion. The Fund is focused on investing in the energy, tourism, agriculture and industry that allows significantly reduce business risks for foreign investors during the implementation of projects in Georgia,” – Irakli Garibashvili states. According to him, doing business in Georgia has a lot of advantages. “I would summarize the advantages which our country offers for doing business and its development - a stable macroeconomic environment, solid sovereign balance and a strong, conservative banking sector; liberal tax system with six fixed types of low taxes; developed and constantly growing transport infrastructure for trade, logistics and production, which includes multimodal land, sea and air communications, energy sources provided stable and competitive rates; skilled and competitive workforce, “- the head of government underlined.

GIVI KORINTELI: THE YEAR OF 2015 IS THE MOST FAVORABLE PERIOD TO BUY REAL ESTATE

n 2015, the real estate market is expected to become more active - Givi Korinteli, the CEO at the First Credit Union, said in the air of radio “Commersant”. According to him, the current year is the most favorable time to buy real estate. This prediction is based on two factors: first, a bank competition and reduction in interest rates on mortgage loans. Korinteli suggests this process will continue and may result in very favorable conditions; another factor is a fierce competition between the companies. In the words of Givi Korinteli, a cus-

tomer can make a very profitable investment in the real estate by hybridizing these two parameters but he must be careful because “selling air” trends are still observed on the market. In these circumstances, Korinteli recommends the user to ensure that the bank has the full support of the project in which he plans to buy an apartment. On the question of what caused the return of “selling air” trend back on the market, Givi Korinteli says that psychological moment is decisive here, because people follow the optimistic trends and when the situation improves think that bad

tendencies will not be repeated. As for the insurance mechanism against “air” purchase, the head of the First Credit Union advises the user to consult with a lawyer that people are often too lazy to do. As for the Union’s achievements in 2014, it suffered a 20% increase last year and added non-resident individuals to its members. This, Korinteli thinks, is the Union’s structure merit, the American antibanking Occupy Wall Street movement aroused foreigners’ interest in the Georgian Credit Union. Foreigners are represented in the First Credit Union as depositories.

January 19, 2015 #83

ECONOMIX

caucasian business week

CHARITY TERMS BY BANK REPUBLIC – STUDENTS LOAN WITH 52.51% ANNUAL INTEREST RATE

TOP STORY

Bank’s Discriminating Policy against Students of University of Georgia

major part of Georgia’s leading commercial banks issues students loans with different terms, but with the almost same interest rates. It is interesting whether Georgian students find the interest rates and terms affordable. Today’s article covers Bank Republic’s students loan terms. The product’s terms for BA students are as follows: -Currency: GEL, USD; -Maximum Amount of Loan: 10 000 GEL or the same amount in USD; -Annual interest rate: from 19%; -Annual Effective Interest Rate: 25%; -Maximum maturity period: 12 months; -Bottom incomes requirement for a borrower: 200 GE:; -Bottom total incomes for two co-borrowers: 400 GEL; Interest rates draw the major interest among the above components. We will discuss concrete

samples to clarify whether the annual effective interest rate genuinely starts from 25% as it is reported on the Bank Republic’s official website. If students take a 2500 GEL loan with a 12 month maturity period and with a 19% interest rate, they will have to pay 247 GEL a month. The bank assures the effective annual interest rate starts from 25% and this is partly true, because if we use the NBG’s effective interest rate calculator, the annual effective interest rate will make up 52.51%. This signifies the bank does not cheat assuring the annual effective interest rates start from 25%. At the same time, the bank does not specify the top verge of the interest rate above 25%. The analysis shows the effective interest rate is not favourable in reality. As to the nominal interest rate (19%), we should refer to the European samples to make sure whether the 19% interest rate is adequate for Georgian students from the standpoint of their living conditions. For example, in the United Kingdom students loans are not

issued for making direct commercial profits and the interest rates depend on the inflation level so as students return the same amount of the loan they have borrowed for education fee payments. Moreover, commercial banks issue loans for covering expenditures on library, laboratory, books and computers. Students are to start repaying the debt in six months after the university graduation. This period is called as a grace period and the loan is covered from a 5 to 10 year period, while our Bank Republic issues loans with a grace period to only those students who have enrolled in the MA level studies abroad. According to the Georgian Ministry of Education and Sciences, a total of 51 accredited universities operate in Georgia, and Bank Republic issues students loans to students of only 10 ones. It is unclear why Bank Republic does not issue loans to students of other universities?! It is interesting what interest rates work in the United Kingdom. From 1990 to 2014 an averaged interest rate on students loans makes up 3.8% and this is very low yield compared to the Georgian reality. These pretences do not refer to only Bank Republic. This is the result of the ugly system that was formed after a rush move to the market economy and grating maximum of freedom to commercial banks. The reader will make conclusion whether the bank products designed for students can be genuinely called as a students loan with preferential terms and whether the annual interest rate of 52.51% can be genuinely preferential for poor students.

GOVERNMENT STARTS DISCUSSIONS OVER BANNING ONLINE GAMBLING GAMES Current Regulations Contain Risks of Uncontrolled Involvement of Adolescents in Online Gambling Games and Money Laundering

eorgia may ban online gambling games. For the last two years the second wave of attack may be carried out against the gambling business. The first one was initiated by former MP Koba Davitashvili, but the parliament rejected his bill by first hearing. At this stage, the Interior Ministry is attacking the gambling business. The Interior Ministry has already developed a bill against gambling business and the document will be sent to the parliament for spring session. According to various inquires, 70% of adolescents play online gambling games. This was a public inquiry and I am sure the figure is higher. We have prepared a serious package of legislative amendments to regulate the field for not only adolescents, but, in general, to regulate the gambling business. We have provided active cooperation with all state offices, we have received certain remarks and we have developed the bill to the condition when it may be submitted to the parliament for discussions. One question arises: whether this decision may be harmful for the economy, but we should ensure the balance between the economy development and human rights. The issue should not be resolved from the standpoint of only economic effect. In this respect we will follow the EU principles. These regulations are very evident and necessary criteria in EU, Deputy Interior Minister Levan Izoria noted. Economy Minster Giorgi Kvirikashvili has also made comments on the issue. Next year online gambling games will not be banned. Only age limitations will be introduced, the Economy Minister said. “The Economy Ministry has prepared no bill on banning online gambling games. We have only mulled over introducing age limitations and control”, Kvirikashvili said. Levan Akhvlediani, a chairman of the gambling business association, says an enactment of the bill will result in closing various sports TV channels, collapse of gambling business and contraction in Georgia’s economic indicators. Akhvlediani

supposes underground gambling games may be flourished in Georgia if the bill is adopted. Total turnover of the gambling business in 2013 marked about 1.213 billion GEL. Total amount of the gambling business and permit duties marked over 105.2million GEL that is about 1.4% of the 2013 state budget revenues. According to the report of Transparency International – Georgia, as of October 1, 2014 the Georgian market registers 94 operators, including 32 major operators. The Association of Young Economists and Financiers is also carrying out research on Georgia’s gambling business market. The association has expressed several remarks over the existing practices of regulations over the online gambling games. Online gambling games become more and more popular and accessible. Today over a half part of Georgian citizens have got an access to the internet and the Economy Ministry plans to further expand the internet connection. After the successful implementation of the project, the Georgian territory will be fully covered with the internet. This signifies online services, including online gambling games will be available on wider territories. I believe this field should not be regulated by the legislation that was adopted several years ago, when only a small part of Georgian citizens had access to the internet. Today, about 100 000 visitors enter the most popular online gambling websites every day. And the Georgian internet space registers many similar websites and this signifies there is a huge quantity of online gambling gamers in Georgia. The

current legislation cannot ensure and efficiently regulate the process of involvement of Georgian citizens in online gambling games. Adolescents have free access to online gambling games, because there is no problem to register adulterated personal data and this is a crime, in practice. On the issue our organization has carried out several public activities. Even international organizations talk about the existing faults. There are recommendations of the Financial Action task Force (FATF) and The Council of Europe’s anti-money laundering body MONEYVAL that call for improving personal data registration procedures in the online gambling games spaces. Thus, the regulations should be improved. Today online gambling games are completely different from the situation even 5 years ago. In the future, this business will become larger-scale. When the sector demonstrates similar changes, regulatory norms should be amended. Officially, gambling games represent an entertainment, but in Georgia these games have gained the image of a monster and misfortune. Therefore, valuable regulations should protect the society from negative affects of gambling games and, on the other hand, the gambling business should not suffer from negative image. Today the current regulations contain risks of uncontrolled involving adolescents in online gambling games and money laundering, Nodar Chichinadze, a chairman of the association of young economists and financiers, says. Thus, the gambling business, gamers and the society should wait for legislative amendments in hope the bill will balance the interests of all parties.

GEORGIA INCREASES TRADE VOLUME WITH EU

he Association Agreement (AA) Georgia signed with the European Union (EU) in June last year will have immense benefits for the country and its people, and the flow-on effect will also be beneficial for other countries, says Georgian Prime Minister Irakli Garibashvili. The Deep and Comprehensive Free Trade Agreement between Georgia and EU may increase Georgia’s export by 12.4 percent and import by 7.5 percent, Irakli Garibashvili, Georgian Prime Minister said at the Georgian-Estonian Business Forum on January 13. “There is much more attractive investment climate in our country and DCFTA will create new opportunities,” Garibashvili said. He said the government’s successful economic policy has boosted Georgia’s economic potential and export opportunities, as the export of the country increased by 24 percent within two years. “At the same time export to the European Union increased by 70 percent, which is an important achievement,” added Garibashvili. Georgia is expected to increase demand for transport and logistics, that’s why the government has decided to build a deepwater port in Anaklia. “The port will increase the trade turnover of Georgia and will improve the fast growing business service in logistics and warehousing sectors. This will also encourage the companies operating in Georgia to benefit from the favorable conditions such as low transportation fees, more expedited shipping dates and security,” Garibashvili said. The prime minister also spoke of an initiative to establish Tbilisi Silk Road Forum. “This forum will give us a possibility to hold high-level meetings where the interested states and international organizations could participate. We will be able to implement different projects in transport, energy and trade fields at the historic Silk Road route,” Garibashvili said. Garibashvili noted that today Georgia has very close political and economic relations with two successful countries, Turkey and Azerbaijan. He expressed hope that Estonia will also become one of the most important partner countries of Georgia. “Estonia is a well-known country with great achievements in the field of electronic and digital technologies. It would be very important for Georgia’s development to develop such a dynamic business environment like in Estonia,” he added. Meanwhile, Prime Minister of Estonia Taavi Roivas said it is also very important for Estonia to establish business relations abroad and encouraged the business society to use all opportunities for establishing closer business contacts in Georgia. An agreement was signed between the GeorgianEstonian Chambers of Commerce under the Georgian-Estonian Business Forum on international road transport of passengers and cargo.

OPINION

caucasian business week

January 19, 2015 #83

ECONOMY IN 2015

e presume that despite the existing challenges in the region, Georgia’s economic growth will reach 5% in 2015, Georgia’s PM Irakli Gharibashvili said at the Georgia-Estonia Business Forum. Georgia’s economic growth is expected to reach 5% in 2014-15, but the forecast is subject to risks, the International Monetary Fund (IMF) said.

The Russia-Ukraine crisis has limited economic impact so far, given Georgia’s limited (but growing) trade links with Russia, however, escalation of regional tensions or further disappointment over the Eurozone recovery could weaken foreign investments inflows and trade, IMF says. What are the main challenges for the 2015 economy and how difficult the next year will be?! been able to overcome those challenges. In last year there were three important factors for the Georgian economy: First of all I would like to point out the processes in agriculture. As a result a record number of wines were exported. In the field of agriculture began the turning point in the process. Another important factor is the insurance sector. Universal Insurance is fully transferred to the state government, and this fully covered population. The significant effects were observed in banking sector. Banks prohibited from owning non-core assets. This is quite a significant step forward to solid financial institutions.

LEVAN KALANDADZE Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative “This year is very important for receiving certain benefits under the free trade agreement that was concluded as part of the associated membership agreement. The faster and more efficiently the Georgian government optimizes the economic policy and adjusts it to the new challenges, the more efficiently the country will make use of the advantages and preferences under this agreement. In practice, the process of formation of Georgia as a regional international hub will start in 2015. In 2015 we should respond to several challenges, which, in practice, determine the GEL exchange rate and stability of economic developments, in general. External factors are also very important and we should take them into account as significant risk factors. I mean the current developments in our partner countries – Turkey, Ukraine and Russia, instability of their national currencies. All three countries are demonstrating essential contraction in exchange rates of their national currencies, as well as inflation processes. These factors sensibly grow risks of making negative affects and influence on the Georgian economy. Optimization of budget processes and spending policy is also very important among internal factors, that is the government should improve serious mistakes made in 2013 and 2014. One of the major and most important factors is related to foreign direct investments trend in 2015. No fundamental breakthrough is registered in Georgia in this respect. If the FDI indicator does not grow, the GEL to USD balance will bring negative affects. Thus, in 2015 a major priority is to ensure monetary stability and balance and the government should direct all accents to this challenge. In this context the government should take essential steps to draw more and more FDI and to make Georgia an interesting and attractive investment country for investors. The Georgian economy has no other alternative. Without growth in FDI inflows, there is no other balancing and stabilizing factors for the Georgian economy in 2015.

IRAKLI LEQVINADZE Economic Analyst The 2015 budget as well 2014 reflects the priorities that government had declared before the elections, and what they consider the main problem. This is the provision of social obligations. The biggest share of that falls on it, and for about a 2,7 billion is allocated for this. As well as infrastructure, agriculture education is a priority direction of the management team. Budget options are optimal and realistic consideration of the realities of our country today. The budget calls for increased foreign and domestic resource commitments. It will be good of big part of debts will be used for infrastructure. It would be better, if the budget will be more cost-share capital. In the long run it would be better to be less than the budget burden on the economy. It needs more economic growth. Irakli lekvinadze believes that the prospects for economic development in 2015 will be dependent on foreign factors. How the situation will develop in Ukraine Russian conflict, How to develop the relations between Russia and the West.

EMZAR JGERENAIA Economic Analyst Economic analyst Emzar Jgerenaia said that 2014 was a pretty bad because of the difficult situation around Georgia. The difficult economic situation in neighboring countries, Oil price drop, Sanctions against Russia. This has affected on the economy of Georgia. According to him, these events have some negative impact on reducing investment. 2014 was a difficult year but the Government has

ZURAB JAPARIDZE United national movement UNM Zurab japaridze wanted to know the reason for optimism regarding the budget from nodar khaduri, ministry of finances. “A government budget in the last two years has failed to fulfill. It is unclear on what basis the government says that there are no budgetary problems. Government has planned more than 500 million payments in 2015. What gives you the basis for this optimism, when in last year and this year we have not fulfilled budget. In 2014 tax revenues in budget were reduced by more than 100 million GEL. We have deep and serious problems with the economy as well as the competence of the government and 2015 will be difficult.

MIKHEIL DUNDUA Economic Analyst, Head of CU Economics Research Center What will be the main GDP deficit target? This option improves next year’s budget, which means

that the country less dependent on debt. Export without re-export has increased by 19%. Problems in Baku with re-export of vehicles lead to the decrease in export. In 10 month net export has increased with 20%. In 2013 net export in EU increased with 52%. Exports in Russia has doubled and income received by the local population. Another parameter which indicates the economic activity it is the historical maximum level of import growth. Import purchases over population. It has its own explanation: Exports of manufactured products increased in the last two years, this has resulted in an increase in income of the population. Early the center was more developed than regions. The center had revenues and the Regions have not exercised of import expenditure. The budget impact on the GEL exchange rate in 2014 is zero. Money withdrawn from the economy is coming back again to the economy. GEL depreciates when you have an imbalance supply between GEL and dollar. The management of this with budget is impossible and that is why all countries resorted to the National Bank.

NODAR CHICHINADZE The president of The Association of Young Financiers and Businessmen – AFBA Economic analyst estimates that the new budget is very optimistic planned. He said the government plans to increase next year’s revenues with 8,5%. Budget Expenditures will increase with 7.3%. He notes that in 2015 economic growth significantly determines growth in budget. The source of next year’s growth in revenues will be economic growth. In 2015 planned budget revenue growth is nearly 11% and the largest part of it is the tax revenue. Tax revenue plan is a 7.6 billion GEL, which is 11.4% more than 2014 planed indicator. If we exclude the inflation factor, in next year tax revenues will increase with 6.4%. But in next year the government plans economic growth with 5%. This is related to the increase in the excise tax, since there are no changes in the other direction. The important thing is to reduce the budget deficit in next year. The budget will be healthier, and will contribute significantly to the macroeconomic stability. I hope that there will be no problems with the disbursement of the budget.

January 19, 2015 #83

INVESTMENT

caucasian business week

LARGE-SCALE COMPLEX TO ARISE NEAR CASINO ARAGVI

A G

large-scale complex will be built in the territory of a former Aragvi casino instead of Hyatt hotel. Investors abandoned an idea of building Hyatt hotel in the wake

of the events of 2008. Later, the business center project was considered. The complex specific project does not yet exist. At this point the market is being studied to determine the directions appropriate for the development on the area. Vice President of Loyal Capital Group Mindia Gadaev told “Commersant”. In his words, there are some conceptual visions of what should be developed in this area, however, as he says, both construction of a hotel and residential and business premises is profitable here. The details will be known only after the completion of market research. As for the financing of the project, Gadaev notes that after its value becomes clear, they will start seeking finances both inside the country and in international organizations. Apart from this complex, Mindia Gadaev’s company has other plans as well. He brings a new hotel brand which will begin operating in the former building of the Ministry of Justice in Rustaveli Avenue and the details will be announced in February.

RIXOS OPENS FIRST HOTEL IN GEORGIA

ixos first hotel in Georgia located in a 5-star hotel complex in Likani will be opened by Georgia’s Prime Minister. In total 151 rooms are located on the 9th floor of the hotel. The complex is equipped with modern infrastructure necessary for leisure and includes conference halls, tennis and football playgrounds, a swimming pool and gym halls. The complex was built with joint investment of the Georgian Partnership Fund (PF) and the Kazakh company KazMunaiGas which total value amounts to $ 48 million. The Partnership Fund’s participation in the project is 50% of capital. The project was suspended when

a new management came to the PF. The new management began negotiations to complete the project and ensured a smooth construction process. Up to 600 local residents worked on the construction. Now, Rixos Borjomi recruited 200 staff and plans to increase the number of employees. The opening ceremony will be attended by the Prime Minister of Georgia Irakli Garibashvili , Vice Prime Minister, Minister of Economy and Sustainable Development Giorgi Kvirikashvili, Executive Director of the Partnership Fund (PF) Irakli Kovzanadze, KazTrans Oil Director Kairgeldy Kabyldin and the Ambassador of the Republic of Kazakhstan to Georgia Ermuhamet Ertisbaev.

GEORGIA’S FOREIGN DIRECT INVESTMENTS (FDI) – FUNDAMENTAL ANALYSIS eorgia’s foreign direct investments (FDI) dynamics shows foreign investors have been demonstrating growing interest in Georgia’s various fields. This interest was raised by such important factors as global economic boom and global financial crisis, political unrest in Georgia and the fact the world community has appreciated some achievements. Despite the negative FDI net indicator, a FDI outflow is also registered from Georgia to the abroad and last years have recorded an outflow of quite considerable amounts from Georgia. Georgian businessmen have strengthened their positions in Georgia and their aspirations for penetrating foreign markets may be an explanation to the FDI outflow tendency. The table, however, clearly demonstrates that cataclysms act controversially on scales of FDI inflows and outflows; political and economic unrest grows FDI exports and shrinks imports, while the opposite tendency grows FDI imports and lowers exports. A major part of foreign investments represent not new investments, but only reinvestments collected from the old investments. For example: in 2008 1.1 billion USD from 1.650 billion USD FDI represented reinvestments from the old investments. Reinvestments ratio in the 2013 total FDI of 1 billion USD marked over 400 million USD. Despite FDI’s positive affects (new job places, technological advancement, growth in revenues to the state budget and so on), there are some affects that drive an outflow of money resources from Georgia. Namely, foreign investors make quite huge profits in Georgia and direct these profits to the abroad. The indicators of 2011, 2012 and 2013 years show FDI inflows and outflows are almost equal to each other. Another issue of discussion is how dangerous is the fact foreign investors direct profits gained in Georgia to the abroad. Indeed, it would be better if investors reinvest the old investments in Georgia, but such decisions are made by investors themselves. The year of 2014 has showed better tendencies in this respect. EU shows major activity in terms of making FDI in Georgia. In 1997 to 2013 and in January to September 2014 the EU ratio in Georgia’s total FDI made up over 41%. After the associated membership agreement conclusion this indicator may be further improved. It should be also noted CIS countries show less activity in making FDI in Georgia, while Azerbaijan is quite active in this respect for the last years. From 1997 to September 2014 Georgia has drawn over 12 billion USD FDI, in which 70% were made by 10 top countries, including the USA ranks first with 1.3 billion USD, the Netherlands is second with 1.29 billion USD and the UK is third with 1.2 billion USD.

The analysis of the 2011 indicators in Georgia show FDI, to be precise, the companies founded by Georgian-foreign capital, make essential affect on the Georgian economy. The research results show in Georgia like other developing economies a major role is played by physical job sectors compared to intellectual job sectors. It is also clear the companies founded by foreign capitals emerge as major market players and these companies constitute a main core of the economic activity of Georgia. The ratio of the companies founded by Georgian-foreign capital in total exports makes up about ½ and this signifies Georgian exports are largely developed thanks to foreign investments.

Source: composed by the author on the ground of UNCTAD and GeoStat reports for 2011. Under the research, the results show for the last 7 years (from 2008 to April 2014) FDI makers were making focus mainly on strengthening positions on the domestic market (80% in total FDI). Efficiency-oriented investments rank second with 17%, resource-oriented investments emerged third with 3%. The 2007 indicators lead to the same conclusion (change limit = 1%). Consequently, foreign investors do not any more consider Georgia as a market of cheap resources and we witness diversification of motivations. The 17% ratio of efficiency-oriented investments in total FDI is also very important and this is precondition of competitive capacity. Sectoral Structure of FDI inflows due to years (in millions of USD)

According to GeoStat, the National Statistics Office of Georgia, FDI portions in various sectors in 2007 to 2013 were as follows (8 billion USD): transportation and communications field – 1.5 billion USD; processing industry – 1.2 billion USD; power system – 1.3 billion USD. The agriculture sector’s ratio in total FDI made up only 1% and this fact is explained by less level of profitability. In turn, the energy sector’s ratio in total FDI is 16% and this field is one of the priority directions of Georgia. Foreign investors also put considerable funds in transportation and communications field and this is also a positive tendency to improve Georgia’s investment environment. It is worth noting over 10 countries in the best 20 investor countries are members of OECD, while the USA, the UK and the Netherlands share the first three leading positions. It should be noted FDI inflows, initially, were registered from the very OECD countries, as they were capable and financially able to make investments in Georgia that time. As a result of active steps of our neighbor Azerbaijan, as well as UAE and other countries, for the first time, nonmember countries of OECD surpassed OECD member countries in terms of investments in Georgia, but this was an only case and it was not repeated next years.

* Since 2009 the Financing Sector also includes FDI indicators in the banking, microfinance and insurance organizations; ** Trade; Education; Public Utilities, social and personal Services; Tbilisi State University Center for Analysis and Prognosis Vakhtang Charaia, Otar Anguridze, Irakli Doghonadze

ANALYTICS

January 19, 2015 #83

caucasian business week

WINTER RESORTS HOTEL MARKET OVERVIEW BY COLLIERS INTERNATIONAL

QUOTES

“Georgia should not Expect New Investments from Kazakhstan at this stage” OLZHAS KHUDAIBERGENOV Advisor to Chairman of the National Bank of the Republic of Kazakhstan and Executive Director of the Kazakhstan Economists Concerning “the second wave” of investment from Kazakhstan, the advisor to the head of the National Bank of Kazakhstan doesn’t expect a large-scale investment outside the country, including in Georgia. He says that the second wave of the global crisis is expected in 2015 that excludes the activity in the foreign markets. As for the Kazakh economy’s dependency on oil prices, he notes that the decline in oil prices, of course, creates risks for the economy, but that the situation is under control - Kazakhstan is working on anti-crisis measures and in a case of their effectiveness, negative effects of the oil plunge will be compensated.

“Building a new Technological University in Tbilisi will take several years” NIKOLOZ CHKHETIANI Cartu Foundation’s Board Chairman “Cartu is actively working on this issue. We have met with representatives of various international universities. The University will be built in Tbilisi, as in the infrastructural and territorial sense it is the most suitable place for such large projects. The project will take a couple of years, as it will be calculated on a large number of students and includes the construction of a university campus,” - Chkhetiani notes. As reported, the price proposed by the investor equals to $ 25 million laris. As for finishing the Technological University in Batumi — Former President Mikheil Saakashvili’s brainchild — it will be put up for auction, according to the Ministry of Economy. The Ministry of Economy and Sustainable Development signed a ‘Memorandum of Understanding’ with the two investors regarding the opening of the Technological University in Batumi.

“The migrant diaspora is one of Georgia’s greatest tools and power for developing the country” SHALVA KIKNAVELIDZE The Deputy-Chair of Diaspora and Caucasus Issues Committee Georgia’s Parliament and Diaspora and Caucasus Issues Committee, in particular, is ready to collaborate with associations supporting the Georgian diaspora’s initiatives in the country. We are ready to serve as liaisons between the diaspora and the state and international organizations. Along with this, we are ready to implement specific policy alterations, which would ease the diaspora’s activities in the country.

liard. Entertainment service fee isn’t included in the room price. The biggest hotel in Gudauri is Marco Polo with 123 rooms, which offers guests additional services like bowling, night bar, spa, sauna, Jacuzzi, billiard, tennis.

GUDAURI Gudauri is a ski resort located on the southern slopes of the Caucasus Mountain Range at an elevation of 2,196 metres above sea level. Gudauri lies 120 km to the north of Tbilisi. The resort offers high-quality skiing opportunities, including free ride and heli-skiing. The total length of ski lifts in Gudauri amounts to around 10 km . The slopes of Gudauri are completely above the tree line and are best for free-riders. From winter 2014-2015, Gudauri has artificial snow, so the skiing season will last from December to April. The vast majority of café-bars and restaurants in Gudauri are located in hotels. Several high class hotels also comprise night clubs, bowling and bil-

BAKURIANI Bakuriani is a ski resort in the Borjomi region, located on the northern slope of the Trialeti Mountain Range, at an elevation of 1,700 metres above sea level. Bakuriani is located 2.5 hours drive from Tbilisi. The resort attracts a wide variety of tourists for skiing and winter sports. Artificial snow machines has been installed on the ski rum Didveli recently, which will probably increase number tourists of the resort. Bakuriani is connected with Borjomi by an electrified narrow-gauge railway, Kukushka. It was established in 1,902. Kukushka still attracts tourists with an amazing 2.15 hour long tour from Borjomi to Bakuriani in winter as well as in summer. Bakuriani park is the main destination of the resort. It offers visitors skating and skiing opportunities. Bakuriani provides cultural entertainment as well. Cinema, located in the center of the resort, hosts visitors during the winter and summer seasons. Gastronomy sector of Bakuriani is dominated by traditional Georgian restaurants.

Gudauri ski resort

Bakuriani ski resort

hanks to its mountainous character Georgia offers various winter resorts, of which the main are: Gudauri and Bakuriani. The number of hotel guests visiting Gudauri and Bakuriani has been constantly growing. The biggest (55%) increase was in 2011. There are a total of 79 accommodation units registered in winter resorts, which supply 1,640 rooms and 4,168 beds. The number of accommodation units, rooms and beds has grown 13%, 14% and 9% respectively. ADR and occupancy rates in Gudauri are 78USD and 44%, these figures in Bakuriani are 58USD and 34% respectively.

“Budget expenditures in December 2014 and in January 2015 could not affect the rate of the national currency” TSOTNE KAVLASHVILI Head of the Treasury Service of the Ministry of Finance of Georgia “This is evidenced by the fact that on December 31 commercial banks have taken a loan of $ 100 million from the National Bank. This suggests that the commercial banks did not have excess liquidity in the national currency, otherwise they did not have to take additional loans. Moreover, as of January 15, the number of lari in circulation decreased by 150 million,”- Kavelashvili says. As reported, in the last days the national currency rate began to decline again, and according to experts, one reason for this is spasmodic budget spending - in particular, during the year it was spent less than planned, respectively, to fulfill the plan on the budget, in November, December and January the government is spending money that was planned to be spent during the year. Accordingly, this mass creates a shortage of dollars and puts pressure on the exchange rate of GEL.

BANKING

January 19, 2015 #83

IMF: GEORGIAN BANKING SECTOR PERFORMING WELL

ccording to the International Monetary Fund, the Georgian banking sector is sound and stable and has continued to perform well, but faces a number of key risks and vulnerabilities that need to be closely monitored. Particularly challenging among them are credit and funding risks related to dollarization, concentration in the banking sector, and reliance on nonresident deposits. While NPLs are gradually declining from their peak in 2009, credit growth is above its long-term sustainable trend. Dollarization presents specific challenges as it increases credit and liquidity risks. There are two major dollarization-related problems: First, most of the borrowers in U.S. dollars (USD) are unhedged, as their income and expenditures are in national currency (this is especially evident in case of households). Second, the NBG has limited ability to provide liquidity support in USD and other foreign currencies. However, it should be noted that the NBG is implementing a set of macroprudential measures aimed at making FX lending more expensive for banks. For example, current risk weights for FX loans are topped at 175 percent.

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Separate stress tests (STs) performed by the NBG and by the FSAP mission show that the banking system as a whole is able to withstand severe shocks, given that most banks maintain healthy capital buffers well above regulatory minimum. The tests were conducted in several scenarios ranging from slow growth to severe macroeconomic shocks, and the results show that major banks would generally remain adequately capitalized, taking into account current profits and introduction of Basel II. In adverse scenarios, recapitalization needs are manageable in terms of GDP (1.6 percent for the worst-case scenario). At the same time, uncertainty due to non-linearity of shocks related to lari depreciation warrant continuation of build-up of capital buffers as long as FX denominated loans constitute substantial share of banks’ loan portfolios. Credit portfolio concentration risks are limited: default by the largest three borrowers would require additional capital of GEL 50 million for five banks. Market risks are very limited, and trading books do not exist. However, some banks are particularly vulnerable and need to strengthen their capital buffers and to mitigate funding risks. These banks exceed the minimum capital requirement by only a few percentage points (p.p.), which limits their loss-absorption capacity. The high level of profitability and solid net interest margins would go down during crisis periods, driving down net interest and other income. To avoid this pitfall, it is important to introduce Individual Capital Guidance, especially for the weakest banks. When it comes to funding risks, further diversification of funding sources and de-dollarization could help to minimize identified vulnerabilities.

TBC ANNOUNCED WINNER FOR LOAN RAFFLE

BC announced winner for loan raffle. Constantine Makharashvili became owner of super prize – flat in Bakuriani. In addition to flat, 50 vouchers were on raffle. The prizewinner will get various prizes with them, among them Apple

products, household and digital technologies. All raffle participants received gift vouchers as soon as they received the loan, also list of the gifts. Any loan products (credit card, quick installment, consumer or mortgage loans) were involved in the promo, which started in December.

RETAIL LOANS RATE IN GEL RISE, DECLINE IN USD

t the end of 2014 rate for the loan in GEL stood at 22,4% (01/12/13 – 21,9%), in the foreign currency 12,1% (01/12/13 –14,6%) Rate for corporate loans in

GEL has reduced to average 11.3% (01/12/13 –12,8%). Market rate on the loans for the legal entities in the foreign currency equals to 10.2% (01/12/13 –11,84%).

RATIO OF RETAIL DEPOSITS IN GEL SHRINKS

hare of GEL in the retail deposits of the banks has been reduced. In the annual context reduction is 3% (0,8 percent points). By December 1 individuals’ deposits in the foreign currency equal to 4,255 billion GEL, 1.4 billion – in GEL (01/12/13 – 3,413 billion/ 1,154 billion.) Among them 3,6 billion GEL are fixed-term deposits and 2,9 billions are in the foreign currency. Only 240 million is placed in GEL for over 1

year, amount in the foreign currency is almost 5 times less – 1,15 billion GEL. In the same period of last year deposits made in GEL equaled to 251 million and in the foreign currency 0 923 million. Rate on the long-term deposits was average 6.8% in the foreign currency (01/12/13 –8,4%), in GEL - 11,9%. 63% of the individuals’ deposits are made in 2 banks: 1,7 billion in Bank of Georgia, 1.8 billion GEL in TBC.

IFC HELPS GLASS CONTAINER MANUFACTURER EXPAND PRODUCTION IN GEORGIA

FC, a member of the World Bank Group, is helping. Georgia’s sole glass bottle manufacturer and leading employer, Mina, take advantage of favorable market opportunities and increased demand by expanding its production lines and boosting growth. IFC is providing a senior loan of $8.5 million and mobilizing a parallel senior loan of EUR 5 million from Rabobank for Mina’s expansion. The company produces glass bottles for the beverages market, a priority export sector for Georgia, which currently largely relies on imported bottles. The investment is set to generate significant corporate income taxes for the state budget and safeguard jobs in an area with limited employment opportunities. Mina is owned by Anadolu Cam, the glass packaging arm of Sisecam, a leading Turkish producer of glass products worldwide. Guray Alpkaya, CEO of Rabobank AŞ in Istanbul said: “Rabobank is pleased to be able to help long-term client Anadolu Cam reinforce its leadership in the region’s glass manufacturing sector. The company is an excellent example of support-

ing regional cooperation, job creation, and economic development.” The project is also expected to help enhance Mina’s competitiveness through renovation and equipment upgrades, along with energy and resource efficiency investments. “This investment is part of IFC’s strategy to support sectors where Georgia has comparative advantages and which have the potential to create jobs, benefit the economy and expand exports. It also supports South-South investment, which is a strategic priority for IFC because of its development impact,” said Thomas Lubeck, IFC Regional Manager for the South Caucasus. IFC made its first investment in Mina in 1999 to help increase exports, enhance energy efficiency, and raise environmental practices to international standards. Georgia became an IFC member in 1995. Since then, IFC has invested $810 million in 60 projects across various sectors and supported regional projects developed in the country. IFC has also implemented a number of advisory projects focused on the development of the private sector.

DECEMBER RECORDS 25% DECLINE IN MONEY TRANSFER

n December money transfers of $116.1 million were made in Georgia. It’s 25% less than in the same period of last year ($154,5 millions) Compared to previous month, growth is 12 millions. Meanwhile, in comparison with previous years it’s slow, as traditionally transfers for New Year, in December were higher than in previous months. Last year in December growth was 32 millions (m/m). Transfers from Russia have reduced by 43% (y/y), from Ukraine – by 67%. 91.1% of the money transfers from abroad to Georgia comes on the 11 largest donor countries, transfers from which exceeded to $1.5 million in August.

Source: National Bank

PASHA BANK ENTERS TURKISH MARKET

he Turkish Banking Regulation and Supervision Agency (“BRSA”) has granted permission to PASHA Bank, a leading private Azerbaijani investment and corporate financial institution, to acquire the controlling stake of TAIB Bank from Aksoy Holding of Turkey. PASHA Bank and Aksoy Holding have enjoyed a strong working relationship over the last several years, making Aksoy Holding the perfect partner for PASHA Bank’s entry into the Turkish market. Both PASHA Bank and Aksoy Holding saw a one-time opportunity to leverage their trusted partnership and to utilise the competence and capital that they share. By establishing a presence in Turkey, PASHA Bank will seek to capitalise on the increased trade and investment flows between Azerbaijan, Georgia and Turkey. With economic activity between these three countries growing, PASHA Bank’s Board of Directors saw entering the Turkish market as essential for serving their clients’ current and potential banking needs. Farid Akhundov, CEO of PASHA Bank, commented: “We are excited to enter into this partnership agreement with Aksoy Holding and look forward to working closely with Turkish corporates. We believe the Turkish market holds great potential, particularly for small and medium enterprises looking for investment opportunities in Azerbaijan, Georgia and other countries in the region. There are also plenty of opportunities for Azerbaijani investments into Turkish SMEs, and we hope that PASHA Bank’s presence in Turkey will help to aid the flow of investments and trade in the region.” Batu Aksoy, CEO and Vice Chairman of Aksoy Holding, also commented: “Partnering with PASHA Bank and bringing foreign direct investment from Azerbaijan to Turkey’s vibrant banking sector is an important moment for us. We are confident that this partnership will yield a very successful,

niche banking platform that will help businesses to grow both in Turkey and the wider region.” Shahin Mammadov, CEO of PASHA Bank Georgia, commented: ““We are excited about PASHA Bank expanding further to the region. Being present in Turkey along with Georgia and Azerbaijan will enable us to even better cater for the needs of the clients with aspirations in regional trade.” About PASHA Bank: PASHA Bank OJSC was established in 2007 as a part of the “PASHA” group of companies, and has become a leading Azerbaijani bank focused on servicing institutional and high net worth private clients. PASHA Bank was established with the strategic goal of servicing clients in the expanding non-oil sectors of Azerbaijan, following the Government’s economic diversification efforts. The Bank operates with the core values of integrity, quality and profitability and has built a reputation as one of the most trusted financial institutions in Azerbaijan. Since 2013 PASHA Bank has been functioning in Georgia as well. www.pashabank.az www.pashabank.ge About Aksoy Holding: Aksoy Holding, established in 1978, operates in 4 business units; Oil & Energy, Tourism & Real Estate, International Trade, and Banking. Group’s flagship subsidiaries include Turcas Petrol, Shell & Turcas Petrol, RWE & Turcas Power, Conrad Istanbul Hotel, Aksoy Middle East and TAIB Bank. Aksoy Holding’s vision is to be one of the most admired, dynamically managed, continuously and sustainably growing and value creating investment companies in Turkey. According to the consolidated financials of Aksoy Holding, Group’s total assets reached 1.8 Billion TL and shareholders’ equity exceeded 1 Billion TL by 2013-end while employing ca. 1,350 people. www.aksoy.com

MARKETS

caucasian business week

January 19, 2015 #83

BUSINESS REPORT IMPACT OF GLOBAL UNCERTAINTY ON BUSINESS CONFIDENCE IN GEORGIA AND THE REGION

ew research from the Grant Thornton International Business Report (IBR) reveals that while business confidence in 2014 climbed to levels not seen since before the financial crisis, a recent spate of uncertainty is weighing on growth prospects for the year ahead. With the price of oil plummeting, the future of the euro zone still far from secure, tensions in Ukraine and concern around the pace of the slowdown in China, the confidence of business leaders, especially in the world’s largest three economies, has slipped as we enter 2015. The IBR shows that global business optimism for 2014 stood at an average of 41% compared to 28% in 2013 and just 12% in 2012. But in Q4, global optimism dropped from 43% to 35%, driven by steep falls in the United States (down 10 percentage points to 59%), China (down 30pp to 25%) and Japan (down 12pp to -12%). Giorgi Usanetashvili, consultant at Grant Thornton advisory team, commented: “We saw the highest levels of business confidence since 2007 over the past 12 months, but looking ahead, there are a number of potential flashpoints which are threatening global economic stability. Volatility in oil price is of particular concern to global markets: prices have dropped to five-year lows in December and while cheaper oil will benefit net importers and industries such as manufacturing and transport, it is already spelling trouble for energy companies and key markets such as Russia and the Middle East. The threat of recession and deflation in the euro zone and Japan is also a massive concern. Shinzo Abe has won a new four-year mandate to try and kick start the Japanese economy but the first round of his Abenomics programme can hardly be viewed as a success. Meanwhile, the euro zone has barely grown in five years, unemployment remains stubbornly high and a change of party in Greece could reignite the sovereign debt crisis. Add in the slowdown in China, which is dampening demand for natural resources from Latin America and exports from south-east Asia, and it’s clear that the outlook for 2015 is far from stable. This uncertainty is weighing heavily on business growth prospects. Both revenue growth - down 13pp (from 56% to 43%) - and profit growth down 11pp (from 43% to 32%) - prospects have both fallen globally. In both China (37%) and the US (35%), revenue growth expectations dropped 33pp over the quarter. Profit growth expectations in China (down 33pp to 13%) and the US

(down 23pp to 34%) have seen similar falls. That said, European businesses are actually feeling more positive about growth compared with three months previously with profitability expectations up from 32% to 40%. Giorgi Usanetashvili added: “The prevailing uncertainty is making life tough for businesses, forcing them to delay decisions over investment in future growth of their operations. Given the turbulent state of global markets, this is understandable. They remain positive about their expansion prospects but certainly less so than three months ago.” Chinese exports continue to fall as it rebalances, which could have major consequences for the global economy. Stronger global demand may boost exports next year, but flagging property investment may largely mitigate this. Meanwhile, if the US Federal Reserve finally raises interest rates next year, it could have major knock-on effects across the world, especially in a number of emerging markets. Business confidence is a key indicator of future economic performance. The large rise in global optimism in 2014 came as a pleasant surprise after a couple of tough years but the dip in the last three months suggests that businesses around the globe see trouble on the horizon in 2015. Let us now see how the business confidence is foreseen in Georgia. When asked what impact business owners expect from trade liberalization, 60% foresee positive or very positive changes, 34% do not expect any change, while 6% were not able to answer. Business owners express the same confidence about readiness to compete with European counterparts. 50% reported that their supply chain management and sustainability is ready in compliance with EU regulations, 4% stated that they will be ready within one year and 18% within two years and more. It should be noted that 28% said that they do not know how long it will take to adopt and implement necessary standards. With respect to impact of the conflict between Russia and Ukraine on Georgian businesses, 14.6% of surveyed business owners expect significant reduction in orders from the former soviet region, the figure is smaller compared to Latvia and Lithuania where expectation to worsen is 18% and 24%, respectively. These figures are significant compared to Estonia and Armenia, where only 6% have the same expectation. According to the survey, only about 2% report that all orders have been cancelled from former soviet region, while 6.3% say that importing raw

materials or goods from Russia or Ukraine has become more complicated and 2.1% expect energy prices to rise. Regarding import from Russia or Ukraine, Latvia and Armenia have the same figure - explanation for this is that most imported products are from Russia or Ukraine. However, the picture is dif-

ferent for energy prices, for which Armenia and Lithuania experienced 6% increase, against 2% in Georgia and Latvia. It should be noted that 72.9% of respondents in Georgia say their business was not impacted by conflict between Russia and Ukraine, which is highest compared to Armenia, Estonia, Latvia and Lithuania.

THE SNB ACTION IS FULL OF RATIONALITY AND GIVES HOPE FOR THE MARKETS AND MAIN STREET

ravelling in Switzerland, I was as surprised as anybody by getting the call that SNB has removed the floor in EURCHF, this despite my earlier research piece on tradingfloor. com: “The worst kind of love is the unwanted one,”outlining that bigger risk but not an actual removal this swiftly. SNB has clearly weighted the pro and cons of the floor and decided the negatives was bigger than the advantages. This will medium and long term be seen as not only rationale but also as the protection of long term Swiss growth and inflation expectations. SNB is effectively acknowledging that the business cycle needs to run its course, the artificial weak CHF had the indirect consequence of inflating an already strong real estate market and rendering Swiss monetary policy at the door of ECB. This is now neutralized and Switzerland sends a strong signal to a country like Japan that the way forward to growth and long term prosperity is via allowing the market to dictate the currency

rate. Switzerland has dealt with a stronger CHF through innovation, productivity and an extensive “Mittelstand” – SME sector. Japan through exporting its problem overseas. The SNB action is full of rationality and gives hope for the markets and Main Street as accepting the business cycle up- and downside is the only way to mean revert to a better place. I expect the EURCHF to trade around 1.000/1.0500 as fair value when all is said and done. The CHF is stronger because its supported by a tax regime, an efficienct and educated society and a SME sector which is constanltly on the out for quality and education and finally now aain supported by a SNB which believes in the micro over macro by allowing the FX rate to be dictated by the market. This does not hide the pain of the surprise for many investors and companies, but it will be a wake up call and a confirmation of our bias that 2015 is the beginning of more volatility. Steen Jakobsen Chief Economist, Saxo Bank A/S

EVENTS

January 19, 2015 #83

caucasian business week

ZAZA URUSHADZE’S “TANGERINES’’ AMONG OSCAR NOMINEES

stonian-Georgian co-production Tangerines (Mandarinebi) has been selected as one of five films in the Best Foreign Language Film category at the Oscars 2015. The war-time drama, directed by Georgian man Zaza Urushadze, was chosen as one of five finalists from a larger pool of eighty-three nominated films in the Best Foreign Language Film category. “I am getting crazy again,” was the response Urushadze wrote on his Facebook page this afternoon when news broke that his film had been shortlisted for the prestigious award. A record number of countries submitted titles for the 2015 Oscars in the foreign language film section – seven more than 2014’s previous record number. Tangerines was presented for Oscar nomination by Estonia last year. The film’s plot takes place against the backdrop of the war in Georgia’s breakaway region Abkhazia. It focuses on an Estonian man who decides to live in Abkhazia after the war, then goes on to describe the bizarre situation he finds himself in when he discovers two wounded soldiers – a Georgian and Chechen – who are on opposing sides. The 87th Academy Awards ceremony will be held on February 22 at the Dolby Theatre in Los Angeles, USA.

FOODPANDA OFFERING A VARIETY OF GEORGIAN DISHES Georgia Comes 4th in Europe’s Best Cuisines

nternet publication “Thrillist” put out a list of Europe’s countries with the best cuisines, where Georgia is sitting at fourth place. The trio of leaders is comprised of Italy, France and Spain. According to the publication, Georgia is rich with herbs and spices, and the combinations found in the local dishes are truly wonderful. The signature card of Georgia is its national meals – khinkali and khachapuri. Most importantly, meat is also a major part of the country’s diverse repertoire, and as for the supplements, there’s the curious “tkemali” sauce. Georgians do enjoy European, Japanese or Chinese cuisine, although celebrations and holidays see national cuisine accented more often than not. It’s hard to imagine a Georgian table without mcvadi, khachapuri, satsivi, chakapuli, elarji, kupati or khinkali, especially on New Year’s nights or during other celebrations. What’s more, even for-

eign guests enjoy them. A detail deserves attention though – for when you decide that a change is in place, choose the easy way – visit www. foodpanda.ge. The service will offer you a wide range of traditional Georgian dishes from a variety of Georgian restaurants, like “Shemoikhede Genatsvale”, “Monadiris Sakhli”, “Pasanauri”, “Sakhachapure N1”. Order food online and use its services without going out – bring your favorite restaurant home. “foodpanda constantly works on improving its offering range and looks after the existing service, making sure it’s constantly being tweaked. Over 80 famous restaurants are currently partnering with foodpanda, which offer other cuisines apart from Georgian – like Ukrainian, Italian, Japanese and etc. I think that their numbers will undoubtedly grow in the future,” – notes foodpanda’s director in Georgia, Giga Kerkadze.

EXCHANGE RATE MONITORING 01.01.2015-16.01.2014

GEL Exchange Rate Depreciates Step by Step

he New Year has started with depreciation in the GEL exchange rate. From January 1 to January 16 the GEL exchange rate against USD shrank by 2.6% to 1.9434 point, while from January 12 to January 16 the rate declined by 1.2% to 1.9311 from 1.9088. The GEL exchange rate against EUR has not changed in practice and an only 0.1% devaluation was registered. As a result, the GEL exchange rate against EUR marked 2.2578 as of January 16. The national currency rate dropped by 1.5% against GBP to 2.9353 from 2.8916 point. At the same time, the GEL Exchange rate against 100 Russian Rubles strengthened to 2.9415 points as of January 16. As to the YTD report, the GEL exchange rate

against USD shrank by 2.6%, strengthened by 1.5% against EUR, declined by 0.4% against GBP and strengthened by 11.5% against Ruble. As to the past of the national currency as of January 16 from 2005 to 2015, the strongest rate of

EUR/GEL

GBP/GEL

USD/GEL

1.5920 against USD was registered in 2008 and the lowest rate of 1.8200 was fixed on January 16, 2005. The GEL exchange rate against EUR was the highest (2.1347) on January 16, 2012 and the lowest (2.4565) in 2010. The highest rate

against GBP (2.4381) was registered on January 16, 2009 and the lowest (3.3985) was registered on January 16, 2005. The GEL exchange rate changes against various currencies YTD are as follows:

he world is drastically out of synch both in terms of economic and monetary policy going into 2015 and faces an unprecedented cocktail of geopolitical risks. Expect markets to reach the point of maximum dislocation as early as Q1 of 2015. Saxo Bank, the online multi-asset trading and investment specialist, has published its annual 2015 outlook for the global markets and its key trading ideas for 2015. The global economy and policy mix is about as out-of-synch as it has ever been and we are faced with major geopolitical risks that could deepen with the advent of sub-60 dollar oil prices, according to Saxo Bank’s latest outlook. Inflation is at multi-decade lows even as monetary policy is extremely loose in most of the developed economies and tight in emerging economies, with the US Federal Reserve the lone developed economy central bank expected to begin a tightening cycle soon - likely around mid-year. Meanwhile, credit spreads trade below default rates and yields and volatility is still near historic lows. Balancing the global economy will require countering the slowdown in emerging markets, combatting deflation and confronting rising debt to GDP ratios. According to Steen Jakobsen, Chief Economist, Saxo Bank, who adds that eventually “the path of least resistance in 2015 is a lower dollar, stable to slightly higher energy prices and

n the first full trading week of 2015, the US Dollar had a mixed performance against other major currencies. The overall US Dollar Index (I.USDX) traded higher for most of the week, but gave up some ground on Friday as stronger-than-expected December employment report was overshadowed by a decline in wage growth. Contraction in hourly wage growth convinced investors about the possibilities of the Fed keeping patience before raising its benchmark interest rate. Meanwhile, the ISM non-manufacturing PMI remained firmly in expansion territory and narrowing trade balance data supported the US Dollar during the early half of the week. Elsewhere, a drop in Euro-zone CPI for the month of December to a five-year low, fueled expectations of ECB announcing fresh easing measures at its meeting on Jan. 22. This accompanied with the Greece uncertainty kept the Euro-zone common currency under pressure. Despite of its drop on Friday, the overall US Dollar Index managed to register a gain for the week. Entering into the fresh trading week, the US Dollar started on the back-foot as investors now foresee the risk of deflation in the US as is expected to be reflected from this week’s CPI data. Apart from the US inflation data, investors await for the release of US retails sales data along with the release of Empire state and Philly Fed manufacturing index, to gauge the strength of US economic recovery. Also, UK CPI and Australian employment data will be on investors radar during the course of the week. Let’s have a brief overview on some major market moving releases scheduled for the up-coming week. After November’s surprisingly better-than-expected reading, market participants will now focus on retail sales data, scheduled for release on Wednesday. For the month of December economists are expecting the retail sales to register a growth of 0.2% as against 0.7% growth recorded in November. Meanwhile core retail sales, which excludes automobile sales, is expected to remain

WORLD MARKET caucasian business week

January 19, 2015 #83

MARKET AND POLICY DISLOCATIONS COULD PEAK IN Q1 OF 2015, WARNS SAXO BANK unchanged interest rates.”, though the point of maximum dislocation, based on an extension of the trends we saw building in 2014, will be seen in the first quarter, as the ECB risks making a terrible decision by hitching its wagon to a new QE programme. Currency markets will see considerable volatility in 2015, with the US dollar continues to strengthen in Q1 and prospects of currency wars emerge, particularly in Asia. Saxo Bank’s key FX trade recommendations for Q1 2015 are to go long on USD/CHF to position for possible punitive negative rates from the Swiss National Bank in March 2015 and to sell the Chinese yuan versus the US dollar and eventually versus the Japanese yen to position for a possible Chinese currency devaluation which would see China exporting deflation to the rest of the world. Saxo Bank expects the global economy to grow by 3% in 2015, compared to 2.2% in 2014, driven by low energy prices, less austerity in advanced economies and higher trade growth, with the major downside risk to global growth in 2015 coming from geopolitical tensions. More specifically: • The US economy will continue to grow at a robust pace driven by consumption and lower energy prices. Saxo Bank expects the US economy to grow around 3% in 2015. • Outlook for the euro area remains challenging, with structural reforms remaining sporadic while

the private sector continues to pursue deleveraging, suppressing both growth and inflation. Saxo Bank expects the euro area economy to grow by 1% in 2015. • The UK economy will grow by 2.5% in 2015, driven by strong private sector growth and supportive government policies, with the main downside being a material slowdown in the housing sector. • Saxo Bank remains sceptical of the impact on the real economy of China’s central bank efforts to arrest the decline in growth through easing policies. The bank’s forecast for Chinese growth in 2015 is a below consensus 6.7%. Despite the relatively low growth rate in the eurozone in 2015, Saxo Bank predicts that Club Med and Eastern European member countries will lead growth in 2015, as comparative gains enjoyed by the likes of Germany come to an end and low unit labour costs in the periphery drive growth. “The upshot of this is that Europe’s economy will finally transform itself to one fuelled by small, innovative and agile companies. This is excellent news for Europe’s future.” adds Jakobsen. FX Saxo Bank predicts that Q1 could see the US dollar strengthen further, but warns to expect an uneven path as leveraged traders are already heavily long on US dollar and significant risks

to that view as the year wears on if asset markets destabilize on the anticipated withdrawal of Fed liquidity. Further afield, economic and political tensions between China and Japan over Japan’s radical monetary policy and JPY weakening could lead to a fresh Asian currency war. EQUITIES Saxo Bank expects Spanish equities to outperform global equity markets in Q1 2015, boosted by the inevitable easing policies pursued by the European Central Bank, as inflation runs low and economic growth is slow. On the other hand, the Chinese equity market remains overheated and is due for a correction, while the oil and energy slump will cast a long shadow over Russian equities too. COMMODITIES Rising supply at a time of weak demand growth and a stronger dollar will keep a raft of key commodities under pressure at the beginning of 2015 with the first half most likely yielding the lowest prices. In oil markets Saxo Bank expects Brent crude to average $62/bbl during the first quarter. A stronger dollar remains the key risk to precious metals while higher US interest rates are already priced in. This leaves positive drivers for commodities such as geo-politics under-priced and with this in mind, the first quarter could see a low point for gold.

FUEL VOLATILITY IN THE FOREX MARKET muted and register a nominal growth of 0.1% as compared to a growth of 0.5% in the previous month. Moving on to the US manufacturing sector, investors will confront the release of two regional manufacturing indices for fresh signs of strength in the ongoing US economic recovery, which could also be helpful in determining further strength for the US Dollar. Manufacturing data for the month of January includes the release of Empire State Manufacturing Index and Philly Fed Manufacturing Index, both scheduled for release on Thursday. Following an unexpected sharp drop in December, the Empire State manufacturing index is expected to rebound and comein at 5.3 for January. Meanwhile, the Philly Fed Manufacturing Index is expected to register a decline and reach 20.3 from lower-than-expected 24.5 recorded in December Apart from the retail sales data and manufacturing indices, investors will have a close look at the latest reading on US headline inflation, consumer price inflation (CPI) for December, which is scheduled for release on Friday. Of-late continuous slide in crude oil prices has been putting pressure on the headline inflation number, with the November reading dropping -0.3% on a monthon month basis. Going ahead, the December reading for the overall CPI is expected to remain soft and fall by another 0.3%. However, the Core CPI, which excludes volatile food and energy prices, is expected to register a rise of 0.1%. Also watchout for the preliminary release of University of Michigan’s consumer sentiment index, scheduled for release on Friday. The Preliminary University of Michigan’s Consumer Sentiment Index reading for January is expected to improve further to 94.2 from 93.6 in December. From UK, the only dominant economic data is the inflation data, which is scheduled for release on Tuesday. After dropping to 1% in November, which happens to be the lowest level recorded in 12-years and lower than the BoE’s target of 2%, this week’s release is now expected to even fall

below 1% mark on the back of continuous decline in oil prices. Lower inflation reading, even matching consensus expectation of 0.7%, is likely to push BoE’s decision to hike interest rates further beyond second-half of 2015, possibly triggering a fresh leg of weakness for GBP pairs. This week’s dominant Australian data, that could materially impact the currency market include Australian employment report, scheduled for release on Thursday. Following a big surge in the month of November, surpassing the most optimistic expectation, economists this time are expecting the number of people employed during December to rise by 5.3K. Meanwhile, the unemployment rate for the month of December is expected to remain stable at 6.3%. Also watch out for trade balance data from Australia’s largest

trading partner, China, which is scheduled for release on Tuesday and could lead to some volatile moves in AUD pairs. With the US Dollar already in short-term overbought condition, this week’s inflation data seems to provide sufficient head-room for the US central bank to keep patience and maintain lower interest rates. This, in the short-terms, might compel investors to table some profits and trigger a corrective move for the US Dollar. However, the Greek political uncertainty is unlikely to pose some any risk to the well-established mediumterm bullish trend for the US Dollar, at-least in the near-future. HARESH MENGHANI Senior Market Analyst Admiral Markets

January 19, 2015 #83

RESEARCH

caucasian business week

SURVEY: HOW GEORGIANS CELEBRATED NEW YEAR’S THIS YEAR

reparations for the New Year festivities begin well in advance of the actual date of the holiday and families spend important financial resources on this occasion. ARC conducted a telephone survey in January 2015 to study family behaviors in connection with the New Year festivities. 450 respondents were interviewed in Tbilisi. As it turned out, the majority of respondents (47%) buy products for the New Year festivities at various outdoor markets specially arranged for this occasion. Hypermarkets take the second place by popularity.

NEIGHBORHOOD

Armenia Offers 60 Investment Projects to Foreign Investors

n the time period between January and September of 2014, foreign investors invested as much as USD 1 billion 501.4 million in the real sector of Armenia’s economy, from which 758.3 million consisted of direct investments. According to Armenia’s Minister of Economy, Karen Tchshmarityan, the main inflow of investments in the real sector of the country’s economy is from Russia, Cyprus, Germany, Lebanon and the Netherlands. Regarding the investments in 2014 overall, Tchshmarityan recalled that the Meridian jewelry, ophthalmological and watchmaking free economic zone has been created. “There has already been nearly $14 milion dollars in investments that have helped create 120 new jobs.

Russia reveals huge cost of supporting the rouble

T The New Year is a traditional festivity. The majority of respondents (59%) met the New Year at home; 20% decided to spend the New Year’s Eve together with their friends. Only 5% of respondents celebrated the New Year out of town; most of them (70%) are respondents aged between 27 and 45 years.

he Russian central bank has revealed the huge cost of trying to prop up the value of the rouble. In the past year, the bank spent $76bn and 5.4bn euros as it repeatedly bought roubles on the foreign exchanges. The Russian currency has been under sustained pressure because of Western sanctions over Ukraine and because of the falling price of oil. In the event, during 2014, the rouble dropped by 41% against the dollar and by 34% against the euro. Along with restrictions on the importation of foreign food, the severe fall in the rouble’s value helped to push up the official Russian inflation rate to 11.4% by the end of the year. Prices rose by 1.3% in November and then by 2.6% in December alone, according to the country’s Federal Statistics Service.

Gazprom says new pipeline will secure gas for Turkey

It is worth noting that a part of respondents plan to change their customs in future and celebrate the New Year out of town together with their families or friends.

he new planned Russian natural gas pipeline to Turkey will provide a “secure supply” for the country, Gazprom spokesman Sergei Kupriyanov said on Jan. 9. In early December, Russia scrapped the South Stream project, which was planned to carry gas under the western Black Sea to Bulgaria and into European markets. Russian President Vladimir Putin instead offered a new gas pipeline route via the Black Sea to reach Turkey’s northwestern Thrace region, with a gas hub also to be constructed at the TurkishGreek border to transfer gas further into Europe. “Putin’s last visit to Turkey added new perspectives to Turkish-Russian energy cooperation,” Gazprom’s Kupriyanov told Anadolu Agency. Underlining that the new proposed pipeline would create a secure supply of natural gas to Turkey, he said the entry point of the pipeline to the Black Sea will be from the “Russkaya” compressor in southern Russia.

Kazakhstan’s GDP increased by 4,3% in 2014

rowth of internal domestic product in Kazakhstan for 2014 amounted to 4,3%, Chairman of Committee of Statistics of the NEM RK Alikhan Smailov reported today. “According to the pre-estimation, the GDP for last year increased by 4,3%,” Smailov said. According to him, the volume of capital investment in the RK was 6 trillion 574 thousand tenge and increased by 3,9%. The volume of industrial production increased by 0,2% and amounted to 18 trillion 492 billion tenge. The gross output of agriculture amounted to 2.5 trillion tenge and increased by 0.8% compared with 2013 year. In the transport sector the growth was 7%, in the communications sector – 8.5%, in trade – 9%, PM’s official website reported.

WORLD NEWS

Facebook At Work Hits App Stores

smartphone app called Facebook At Work will hit app stores Wednesday, the company announced, as the billion-user social network expands into new territory: the office. Facebook FB -0.23% says only a handful of test companies will be able to download the app, which was developed in London, but the release signals that the company is moving forward with the workplace experiment it has been working on since at least November. Facebook At Work is a collaboration tool that lets colleagues communicate through a web interface or a mobile app, instead of using email. The software is still in the early stages, the company said.

China to boost investment in Latin America to $250bn within decade

he Chinese government will invest $250 billion in Latin American and Caribbean countries over the next 10 years in an attempt to strengthen its presence in a region dominated by the US. The volumes of bilateral trade between China and the region’s countries could reach $500 billion, said Chinese President Xi Jinping on Thursday, at the first ministerial forum of China and the Community of Latin American and Caribbean States (CELAC). “I believe that this meeting will achieve fruitful results, give the world a positive signal about deepening cooperation between China and Latin America and have an important and far-reaching impact on promoting South-South cooperation and prosperity for the world,” he said.

Oil price below $45 for 1st time since 2009

rent crude and WTI have continued their headlong plunge in early trading Tuesday, hitting record six-year lows. Brent crude futures fell 2.64 percent to $46.12 in trading on London’s ICE exchange, while WTI dropped by 2.41 percent, plunging below $45 to $44.96 (10:00 MSK). Brent and WTI prices are now at their lowest levels since spring 2009. The ruble was quick to react to the news, losing more than 2 percent in early trading on the Moscow Stock Exchange. The Russian currency was trading at 64.93 to the dollar and 76.94 to the euro at 11:00 am local time. On Tuesday, UAE Oil Minister Suhail Mohammed Faraj Al Mazroui said OPEC was no longer able to “protect” oil prices. “[OPEC] cannot continue protecting a certain price. That is not the only aim of OPEC,” he said at a Gulf Intelligence energy event in Abu Dhabi. “We are concerned about the balance of the market, but we cannot be the only party that is responsible to balance the market,” Al Mazroui said.

Italy’s President Giorgio Napolitano Resigns

taly’s veteran President Giorgio Napolitano resigned Wednesday after almost a decade at the helm of the eurozone’s third largest economy, setting the stage for the election of a new head of state. “President of the Republic Giorgio Napolitano signed his resignation letter this morning,” the presidential office said in a statement. The significance of Mr Napolitano’s departure can be measured by the fact that he has appointed the past three premiers and that the 89-year-old head of state was widely credited with behind-thescenes manoeuvres that finally removed Silvio Berlusconi from power, at the height of the sovereign debt crisis in 2011.

PUBLICITY

January 19, 2015 #83

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APARTMENT

Every Saturday At 21:00

On GDS TV Full of humor Anchors â&#x20AC;&#x201C; Temo Mzhavia, Levan Gogoreliani will offier refined humor, provide good mood and invite interesting guests for the program audience. The program consists of three parts: the first block offers humor and apolitical monologue with funny video clips, pictures and so on. The second and third blocks are dedicated to famous public figures that will be invited as guests. The show will start Wednesdays at 21 oâ&#x20AC;&#x2122;clock and it will cover all interesting issues excluding politics to guarantee good mood for the audience.

January 19, 2015 #83

Embassy United States of America Embassy 11 Balanchivadze S St., Dighomi Dstr., Tbilisi 53-23-34 Tel: 27-70-00, 53-23-34 tbilisivisa@state.gov; E-mail: tbilisivisa@ @state.gov; askconsultbilisi@state.gov askconsultbilisi@st tate.gov United Kingdom of o Great Britain and Northern Ireland Embassy E Tbilisi, 51 Krtsanisi Str., Tb bilisi, Tel: 227-47-47 british.embassy.tbilisi@fco.gov.uk E-mail: british.emb bassy.tbilisi@fco.gov.uk Republic of France Francce Embassy 49, Krtsanisi Str. Tbilisi, T Tel: 272 14 90 ambafrance@access.sanet.ge E-mail: ambafrance e@access.sanet.ge www.ambafrance-ge.org Web-site: www.amb bafrance-ge.org Federal Republic of o Germany Embassy 20 Telavi St. Tbilisii Tel: 44 73 00, Fax: 44 73 64 RepublicEmbassy Italian RepublicEm mbassy Tbilisi, 3a Chitadze St, Tbi ilisi, 292-14-62, Tel: 299-64-18, 29 2-14-62, 292-18-54 embassy.tbilisi@esteri.it E-mail: embassy.tb ilisi@esteri.it Estonia Republic of Estoni ia 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

TBILISI GUIDE

caucasian business week

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

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

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

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

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

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

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

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

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

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

PUBLICITY

caucasian business week

January 19, 2015 #83