CAUCASIAN BUSINESS WEEK #88 by Caucasian Business Week

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BUSINESS WEEK February 23, 2015 #88

February 23, 2015, Issue 88 georgia

IFAD supports $18 million USD climate-smart project in Georgia he International Fund for Agricultural Development (IFAD) has announced a new nationwide project worth almost $20 million USD to help small-scale farmers in Georgia. Pg. 5

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Ilya Eloshvili: Georgia will Become Energy Independent within 10 Years Pg. 9

Be informed, do business

Banks Suspected in Making Speculative Collusions on Currency Market

Kakha Bekauri: Changes in Ad Legislation will Boost Country’s Media Market, Without Constraining Specific Companies

TBC BANK HOSTED AN ENERGY CONFERENCE

n February 17th TBC Bank, with the support of the Ministry of Energy of Georgia, organized a conference on energy. Pg. 3

Two Tourist Centers of Georgia: Tbilisi and Batumi

bilisi is one of the largest cities in the Caucasus as well as one of the largest in Eastern Europe, with a population of 1.2 million. Pg. 8

Liberty Bank to Sustain Rates on Loans Issued in GEL

iberty”, one of the leading banks of Georgia, decalres, that they will sustain the rate on the loans, which are tied to NBG’s refinancing rate. Pg. 11

GEL Collapse Results in Extreme Upturn in Profits of Georgian Banks Pg. 5

Temur Chkonia: No sense of stability on the beer market whatsoever

MTPL in Georgia - a vital step to Economic and Social development

he national currency devaluation continues, and most people’s income is reduced. However, no one thinks about salaries increase. Moreover, companies talk about the fact that due to GEL fall, business suffers losses so to maintain wages Pg. 6 has become the main concern for them.

prosecutor of a court in Ankara, Serif Aydin, filed a lawsuit against the head of Turkey’s central bank, Erdem Basci. Pg. 13

David Yakobashvili: I have no prejudice against Rosneft Pg. 8

GEL continues to go down

neighborhood Turkish central bank’s head can be sued for high inflation

Pg. 4

Pg. 8

Pg. 7

TBC BANK OBTAINS GEL 100 MILLION LOAN FROM ADB

WORLD NEWS ECB approves €3.3bn expansion to emergency funding for Greek banks

he European Central Bank approved a €3.3 billion expansion to emergency funding for Greece’s banks, Bloomberg said. Pg. 13

Pg. 3

Research

Pg. 13

Types of Consumers on Georgia’s Bank Market - How does an averaged statistical Georgian conduct in relation with financial institutions? - What about other segments?

Vakhtang Rcheulishvili: Pg. 8 New referential taxes will mostly assist Center Point Soso Pkhakadze: Reduced investment inflow will continue the downward pressure on currency’s value Pg. 12

Pg. 8

Currency

Choices that Greece Faces: Interview with Mads Koefoed

Possibly Another Week of Volatile Moves In the Forex Market

government news caucasian business week

February 23, 2015 #88

main events New deputy PM appointed in Georgian parliament

ubaz Sanikidze was appointed Deputy Prime Minister of the Georgian Parliament. Sanikidze was appointed Deputy Prime Minister of the Georgian Parliament upon the majority quota. His election to this position was supported by 104 MPs.

Georgia, Azerbaijan discuss regional projects

he strategic partnership and the prospects for intensifying the cooperation between the two countries, as well as the regional projects were discussed in Tbilisi during a meeting between Georgian Prime Minister Irakli Garibashvili and Azerbaijani Foreign Minister Elmar Mammadyarov.

Joining NATO is Georgia’s foreign policy priority

eorgia’s joining NATO is the country’s foreign policy priority and third countries will fail to influence this process, the Georgian foreign ministry said Feb. 19. “Georgia’s foreign policy priority is the country’s integration into European and Euro-Atlantic organizations,” the statement says. “This integration is based on unshakable will and free choice of the majority of the population of Georgia.”

Georgia concerned by “border treaty” between Russia-Tskhinvali

ussia’s attempts to remove the state border between itself and Georgia’s breakaway Tskhinvali (South Ossetia) region was one of the issues Georgia highlighted at a special meeting with co-chairs of the Geneva International Discussions today in Tbilisi.

Georgia launches diplomatic relations with Tonga

eorgia and the Polynesian sovereign state of Tonga have established diplomatic relations by signing a protocol on the establishment of diplomatic and consular relations today.

Georgian Parliament Speaker meets Armenian President

peaker of Georgian Parliament David Usupashvili has finished his official visit to Armenia with a meeting with the country’s president. Domestic and foreign policy was on the agenda when Usupashvili met Armenia’s president Serzh Sargsyan in Yerevan yesterday.

Russia wants border removed with breakaway Abkhazia

ussia is making moves to remove its border with Abkhazia – one of Georgia’s two breakaway regions. Russia, unlike the rest of the international community, recognises Abkhazia as an independent state and has initiated action to develop a stronger alliance between itself and the smaller region.

Google Maps changes Sukhumi to Sokhumi following Georgia’s request

he capital city of Abkhazia – one of the Russian-occupied regions of Georgia – is now being referred to as ‘Sokhumi’ instead of ‘Sukhumi’ on Google Maps after one Georgian internet user challenged the online spelling.

Georgia’s president, Azerbaijani FM mull co-op prospects

eorgia’s President Giorgi Margvelashvili and Azerbaijan’s Foreign Minister Elmar Mammadyarov discussed good neighbourly relations between the two countries at a meeting in Tbilisi on Feb. 19.

Georgian Govn’t Asks IMF Assistance to Stabilise GEL

he Georgian Government has approached the International Monetary Fund (IMF) for additional financial aid in a bid to stabilise the country’s falling currency “as soon as possible”. The Lari, the national currency, began falling in value in November 2014 when one USD was 1.75 Lari. Today, the current rate saw one USD valued at 2.0839 Lari, according to the National Bank of Georgia. IMF has offered significant financial support to Georgia in the past six months. In December IMF allocated a new tranche of financial aid worth nearly $58.1 million to Geor-

gia after IMF reviewed the implementation of the Economic Aid programme. In total, Georgia received $116.3 million within this program that was approved on July 30. Despite this aid, Georgia is now asking for more. Today, Econony Minister Giorgi Kvirikashvili explained the additional funds will be invested in different infrastructural projects. He said more money was needed now, as current action to boost the economy in terms of increasing the number of visitors to Georgia, encouraging exports and supporting the construction sector, would take some time before the effects were felt. “I said that export promotion measures could not

have the desired effect in a short period of time,” Kvirikashvili said. “For having an effect as soon as possible, we aim to meet representatives of the International Monetary Fund and discuss investment opportunities in infrastructural projects. We require additional funds for the purpose of capital expenditures. This is the primary measure that is adequate to the current situation,” Kvirikashvili added. Meanwhile in August of 2014 it was reported that IMF will allocate a tranche of $140 million for Georgia. At the time, Georgia’s Finance Minister Nodar Khaduri told reporters Georgia will get these loan funds from IMF over the next three years.

Regional Development Plan to be Introduced in March

eveloping Georgia’s regions by creating jobs, revitalising the economy and offering more support to locals are some of the goals of the country’s new Regional Development Plan, says Georgia’s Prime Minister Irakli Garibashvili. At today’s Government meeting, Garibashvili said the Government’s econom-

ic team was “actively working” on the Regional Development Plan, which will be introduced to society in March 2015. “We’ll begin the presentation of the regional development plan from March. We are going to subsidise many projects in the regions, which will lead to regional development, economic revitalisation and job creation,” Garibashvili said.

“We will work closely with the private sector and I expect we will cooperate intensively in this direction. We have learnt about each region in detail and described all of the resources and potential of the regions,” he said. “The state program ‘Produce in Georgia’ will be activated in 2015 in order to develop production and create as many jobs as possible,” the PM concluded.

Govn’t Pardons Unfinished Construction Projects from VAT

he Georgian government has decided to release from the financial obligations to the state companies that started building projects until 2008, but failed to bring them to the end. The corresponding decision was announced by Prime Minister Irakli Garibashvili. According to him, construction companies are still in a serious condition because of debts accu-

mulated during this period that hinders their development. “The tightening of bank lending and a decline in demand for real estate posed serious challenges to the construction sector, respectively, companies accumulated large debt to the state. These debts still hang heavy on the shoulders of the business, and hinder the development of not only these particular companies, but also the construction sector in general. Therefore, we decided

on the exemption from VAT of companies that had started their projects until August of 2008 “- said the head of government. In his words, this decision will contribute to the revival of the construction sector and its further development. “The resumption of the suspended projects will be of great importance not only in terms of economic activity, but also contribute to the city improvement ,” – Irakli Garibashvili says.

Ministry of Economy Plans SME Development Strategy

overnment is working on a strategy for the development of small and medium sized enterprises. Georgia took the abovementioned commitment as part of the EU Association Agreement and the Deep and Comprehensive Free Trade Area Agreement (DCFTA). According to the action plan, the strategy should be prepared in the current year. The strategy will be jointly developed by Economy Ministry and Organization for Economic Cooperation and Development (OECD). Enterprise Development Agency is also involved in developing the document. According to George Tsikolia, the initial version of the strategy is prepared, however, it needs to be perfected. In Tsikolia’s words, the strategy focuses on three main strands.

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One of them is development mechanisms for small and medium businesses to identify the problems and ways of their solving? One of the most acute problems is the lack of knowledge of the SME representatives. Tsikolia notes that management methods and technologies in Georgia do not meet modern standards that leads to high losses and low productivity. Director of Entrepreneurship Development Agency says that small business development is hindered due to the lack of modern management methods. The second strand of the strategy is a problem of access to capital. Tsikolia explains that in all countries small businesses face problems in establishing relationships with financial institutions and for this reason exist institutions to assist small and medium businesses in attracting capital.

The third strand of the strategy is a political component. In this case, the strategy is to determine the key decisions that should simplify the development of small and medium businesses. Tsikolia focuses on the second problem. In his opinion, procedures are complicated in terms of the bankruptcy announcement, which also need to be improved. According to him, small and medium business strategy will be ready by September when the final version of Georgia’s strategy will be presented to the OECD. Business specialist Maka Samushioa believes that small and medium business covers a lot of different segments, so it is difficult to highlight specific problems. In her words, she heard numerous arguments about the necessary changes in the law, however, in the business specialist’s opinion, all details can’t be envisaged in the law.

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

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

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Banking

caucasian business week

February 23, 2015 #88

TBC BANK HOSTED AN ENERGY CONFERENCE

n February 17th TBC Bank, with the support of the Ministry of Energy of Georgia, organized a conference on energy. The conference took place in TBC Bank’s conference hall. Minister of Energy of Georgia, Kakha Kaladze opened the conference. The goal of the conference was to discuss the challenges and future development opportunites of Georgia’s energy sector, it also aimed at sharing experience between the members of the Government, major players of the sector and field specialists. TBC Bank is a leading Georgian bank in terms of financing energy sector, and one of the bank’s main priorities is to support energy projects and the development of the field. In the last five years TBC Bank financed up to ten energy projects with 150 million laris. “Rivers in Georgia have a high energy potential, however at this stage only a minimal of the existing potential is being used. High investments in this field are necessary, in order to alter the energy status quo in Georgia. A savvy and sensible use of the country’s hydro energy resources is the priority for our

economy,” —the Energy Minister Kakha Kaladze said. During his address to the conference participants Mr Kaladze also noted that the important role of international financial institutions and domestic banks in developing the country’s energy potential. He said that with the help of local banks many successful projects have been fulfilled in this regard. According to TBC Bank’s CEO Mr Butskhrikidze — “The conference on energy’s function is to nable us to fully reveal the challenges and opportunities of the field from the standpoint of regulating bodies and representatives of the companies operating in energy sector in Georgia or abroad. It is notable that TBC Bank is a host of such a significant event as the role of banking sector is of utmost importance in the development of Georgian energy sector.” It is for the first time that an energy conference of such scale was initiated and organized by a commercial bank. The conference was attended by the Ministry of Energy of Georgia, Partnership Fund, representatives of all major energy companies, and the representatives of EBRD and USAID.

TBC BANK OBTAINS GEL 100 MILLION LOAN FROM ADB

BC Bank, TBC Broker and Asian Development Bank (ADB) completed the transaction to the amount of GEL 100 Million. The 3 year local currency facility will enable TBC Bank to finance micro, small and medium-sized enterprises in the country’s regions. This is the largest-ver local currency loan granted to a Georgian bank. ADB obtained the local currency funds though a private placement of GELdenominated bonds arranged by TBC

Broker, a subsidiary of TBC Bank. “We are delighted to be a part of this landmark transaction which is of great importance not only for the financial sector but the Georgian economy as a whole. This funds will enable TBC Bank to further expand it operations in the regions and provide local currency financing to micro, small and medium-sized businesses. We place great value on our long-standing relationship with ADB and look forward to further successful transactions in the years to come,” commented Vakhtang

Butskhrikidze, CEO of TBC Bank. ADB issues the 3-year bonds at par, with a floating rate coupon that resets quarterly based on National Bank of Georgia’s 3-month Certificate of Deposit yield. The bonds will mature on 15 February 2018. “We are placed to offer a product that eliminates currency risks and stimulates private investment and employment throughout Georgia,” said Todd Freeland, Director General of ADB’s Private Sector Operations Department.

4 Headlines IFC issues first Iveria bond to support capital market development in Georgia

Interview caucasian business week

Changes in Ad Legislation will Boost Country’s Media Market, Without Constraining Specific Companies The Georgian Parliament has already approved a bill of amendments to the law on advertisement by two hearings. The bill had been proposed by the Georgian National Communications Commission (GNCC). The third hearing will be held during the spring session. The bill that introduces new regulations for TV commercial placement will be enacted in April 2015. The bill has confused some media companies. Particularly, TV segment has expressed special regrets over the amendments. Committee hearings at the Georgian Parliament turned out also much tensed. The Banks&Finances newspaper has taken interview from GNCC member Kakha Bekauri over the type and character of legislative amendments and the results the new regulations should bring.

he International Finance Corporation (IFC) is issuing a 30 million GEL bond (about $15 million USD) to support Georgia’s capital markets. This is IFC’s first local currency issuance in Georgia. The Iveria bond, named after an ancient kingdom based in present-day Eastern Georgia, is part of a 200 million GEL bond program and creates a pricing benchmark for future IFC issuances in Georgia’s domestic capital markets. Under the program, IFC can issue Lari-denominated bonds when market opportunities align with the funding needs of the country’s private sector.

Business registration in Georgia drops 12.8% in January

n almost 12.8 percent decrease was observed in the number of businesses registered in January 2015 compared to the same period of 2014, says the National Agency of Public Registry. Furthermore, official data provided by the Agency showed business registration had reduced by 15.6 percent in January 2015 compared to the previous month.

Austrian horticultural company praises Georgia’s potential

eading Austrian horticultural company Witasek is showing encouraging signs it will invest in Georgia’s agricultural sector. The company’s managing director Peter Witasek told Austrian newspaper WirtschaftsBlatt/Karntenthat Georgia had huge potential, particularly in the wine sector. “Georgia may be the most promising country in Eastern European market,” he said.

Enguri HPP rehabilitation will begin in late 2015

major project to renovate and modernise the Enguri Hydro Power Plant (HPP) will start at the end of 2015. Details of the Enguri HPP renovation were revealed by Georgia’s Vice Prime Minister and Energy Minister Kakha Kaladze while he delivered a speech at an energy conference organised by TBC Bank today.

International money transfers drops 23% in January, says NBG

n January 2015 the volume of money transfers from abroad comprised $75.5 million USD (146.5 million GEL), but this was almost 25 percent lower than the same time in 2014, says the National Bank of Georgia (NBG).

Georgia to receive one billion euros soon

eorgia will soon get a membership at the Creative Europe and enjoy the benefits of 1 billion euros aid that will be allocated for preserving and supporting the country’s culture, including art, theatre, music, traditional dance and more. Mikheil Giorgadze, Culture and Monument Protection Minister, said Georgia’s promotion to become a member of Creative Europe was a good opportunity for the country.

Livestock Export Declined Significantly

xports of Georgian cattle to Azerbaijan has virtually stopped - for this reason the purchase price of the meat falls in the country and some farmers consider their work meaningless and do not intend to continue it.

Drop in Oil Prices not Reflected in Ticket Prices in Georgia

espite the fact that oil prices and with them fuel are getting cheaper in Georgia, the airlines operating in the country have not yet revised the airfare. Amiran Abesadze, a representative of the Yanair airline in Georgia, states “Commersant” that the decline in the share of aviation fuel in the cost of tickets should be expected approximately in April.

February 23, 2015 #88

-Mr. Kakha, what concrete changes will be made to the law on advertisement? -It is appropriate to say legislative norms that used to run before 2011 will be returned to the law. Under the previous regulations, broadcasters were able to place ADs for only 12 minutes an hour, that is, 20% of an hour. These regulations meet European standards and Georgia must restore them as part of the associated membership agreement. This restriction was not previously obligatory, but such a mechanism had been presumed in the law, as the legislation called for further enhancement of the European integration course. In 2011 this article was just removed and all limitations in concrete hours were cancelled. The current bill is to restore this article. -What was the ground for removing the previous limitations in 2011? -There is no substantiation. The initiative was proposed by the then parliament’s branch economy committee without substantiation. The initiators used to refer to European instructions, but, in reality, they were opposite to European instructions. This fact was reflected in a due conclusion. Namely, Transparency International Georgia and the Association of Young Lawyers of Georgia submitted negative conclusions that time. Under the reports, removal of the limitations would frustrate and hinder the market development and those amendments objected to European instructions. Both of these NGOs submitted negative conclusions in 2011. In reality, the decision enabled major TV broadcasters to operate by dumping prices. Rustavi 2 and Imedi TV companies were major broadcasters and both of them were controlled by the Authorities. Consequently, dumping prices were to close all resources on the AD market to smaller broadcasters with limited coverage zones, so as small operators have no additional financial sources for operation. In practice, the decision was against freedom of speech and against the media market development. These factors and goals had driven the removal of the restrictions, in reality. The decision has brought the planned results – after the removal of restrictions for TV broadcasters, dumping prices prevailed in the segment of TV commercials, because no limits existed in certain hour zones, for example, in entertainment programs and soap operas. Major TV broadcasters, namely, Rustavi 2 and Imedi offered dumping tariffs for placing numerous commercials. This tendency narrowed the AD market and the unjust competition milieu enabled them to take over the market ratios of small TV broadcasters, magazines and internet portals. TV commercials are reported to be the best advertising way and mean. Consequently, if TV commercials are cheap on the market, the customer, naturally, prefer to buy cheap products and close door to other advertising places. Removed restrictions in 2011 enabled major TV broadcasters to operate with dumping prices. As a result, the decision narrowed the AD market and all players of the market were damaged, including regional TV companies, TV companies with limited coverage and other media outlets as their business model was based on revenues from commercials. - Today the mentioned NGOs are negatively appraising an introduction of limitations. What is the problem now? -I cannot name the reason they have changed position. Today only the bill enactment date is negatively appraised, that is, they demand that legal amendments not be enacted so quickly. First of all, I would like to note amendments will be made to the law stage by stage. We make focus on two main issues: restrictions will be introduced and two products will be separated – AD services and sponsorship packages. Today AD services and sponsorship services are not separated. AD services are provided under sponsorship packages and this is anomaly and inadmissible. This factor hinders the market development. TV commercials and sponsorship are not interchangeable products and they must not be. Consequently, these changes will also take place, that is, sponsorship package will not include AD services any more. Sponsorship service will be interpreted under European instructions. Sponsorship service does not imply advertising commercials of this or that concrete company, that is, special indications for purchase, consumption or preferences of the product is banned. The amendments only introduce a due interpretation of new regulations on sponsorship (name of company and products). It is important that restrictions over sponsorship services will be enacted on January 1, 2016, not in 2015. A 20-minute limit will be introduced on commercials, as well as 4-minute limit for sponsorship package and

placement of AD services, that is, the bill does not restrict sponsorship service. In practice, in 2015 companies will be able to place 16-minute commercials an hour, instead of 12 minutes. Rustavi 2 that is the most active in protests will be able to place 16 minute commercials an hour, while only Prime Time TV program places 17 minutes an hour (and this program is reported to have the smallest placement). Under the bill, Rustavi 2 will have 16 minute AD time an hour in 2015 with 17% upturn in tariffs. The TV company has already carried out these changes and the company will receive higher revenues. We are smoothing these changes so as to prevent market shocks from new limitations, so as the customer properly plan their budgets and suppliers, including major TV companies, not to lose revenues. AD market changes are to boost the common market, not to restrict some companies. In 2016 the bill will introduce an interpretation of AD service, that is AD and sponsorship services will be separated. In 2017 restrictions will be introduced on commercial inserts in news programs. The current norms enable to make commercial inserts every 15 minutes in news programs and this norm will run for two years unchanged. Under the associated membership agreement, the deadline for introduction of the restriction is the year of 2017. Under the European standards, news programs must not be cut earlier than 30 minutes. This regulation will be enacted in 2017. European instructions contain several other restrictions that will be enacted in 2016 and 2017. -The changes will enliven the AD market, including TV commercials market. Despite restrictions, will TV companies receive the same revenues? -Major TV companies set dumping prices on the market and place commercials and sponsorship services at cheap tariffs. As a result, the AD market is narrowed. They are drawing not only TV commercials, but also penetrate advertising space of newspapers and magazines, radio stations and other advertising segments. The point is that losses are inflicted to not only small advertising ventures, but also major TV broadcasters. They are drawing more number of ADs thanks to dumping prices, but financial revenues are low. Restrictions are to lead them to growing AD prices. The companies with excessive AD orders in certain time sections will lose a quantity of AD orders, but these changes will prepare them for the next years. In 2015 they will not have even quantitative losses. -The situation and perspectives with major TV broadcasters is clear. What do you think what portion of AD orders will go to other media outlets thanks to the new regulations? -Today, the ratio of TV commercials on the AD market makes up 75% to 80%. What does this mean?! Last year total value of TV commercials marked 47-48 million USD, that is, the total AD market value made up 65-70 million USD. These changes are expected to double the market in the next 3 years and the market value will increase to 140-150 million USD. Consequently, the ratio of TV commercials will not be 75% to 80% again, but about 55% to 60% (80-85 million USD). We expect this effect to take place in 3 years. - One issue is when you change the established rules of game in line with European instructions, another issue is whether the business will adequately react and follow these changes, whether there is sufficient demand to double the market. -Naturally, when planning the changes, we explored the mentioned issues. The AD market is measured by several parameters, for example, expenditures per capita. In Georgia, 10 USD is recorded on TV commercials per capita and this is very low indicator. What is a TV commercial? – TV commercial implies the sales of a contact with the audience, that is, sales of rating. The customers need to measure the TV product they plan to buy for placing an AD material. They also need a communication with spectators, that is, spectators watch these ADs. Consequently, the quantity of spectators of this or that program and the rating of this or that program is of crucial importance. The price per 1000 contacts, that is, the price of a contact, is one of the parameters to measure AD efficiency. Consequently, the price of a contact is related to capital and the state economy in any country worldwide. If we compare the capital of our country to the capitals of other similar countries, we will see that in Georgia the price of a contact is lower 2-3 times, that is today in Georgia TV commercials are 2-3 times cheaper compared to the tariffs that should have been set amid current economic situation in Georgia. Another issue is related to the efficiency of ADs. Today 60% of TV commercials are sold because of ratings, 40% is sold due to minutes, that is one minute TV commercial has got its own price and 48 million USD TV commercials are sold due to minutes. This signifies neither AD efficiency is measured nor the quantity of spectators of programs.

Consequently, it is possible that the customers buy AD time in some soap operas for a period of one week, but this soap opera has got various quantities of spectators every day, while the price is the same. Therefore, this is incorrect and the customers pay money for nothing, in practice. Moreover, today the duration of a commercial in an hour-long soap opera is 35 minutes and each AD block reaches 15, sometimes 16-20 minutes. Naturally, we have analyzed this circumstance and defined that the rating of the placed commercial halves after the initial 2-3 minutes in 15-20 minute AD block, that is, if the customers pay 100 USD and his commercial comes fifth or later, they practically receive 50 USD service, because the quantity of spectators has halved. The customers are ready to pay twice higher price if the number of spectators doubles and their ADs go second or third in the AD block. Consequently, limits will shrink, but the real price will not grow for the business sector. The price will increase in nominal, but the customers will receive doubled effect. -You have said the customers often pay money for nothing. Do you mean there is low level of business culture in Georgia, as the customers do not realize what services they buy and at what price? -The business behaviour is correct. The problem consists in dumping prices. The business knows AD services are very cheap and it does not find it worth to care for AD efficiency, despite the audience is halved. All business sectors calculate this. When the price will grow, however, the business will have to count each spectator to receive effect, then the business will have to take decision where to place commercials: in high-rating channels with many spectators and expensive services or in TV companies with limited coverage and less spectators or in magazines and newspapers, radio stations and internet editions. Therefore, the business will have to correctly plan AD strategy and to determine efficiency. But today the business does not need to explore this efficiency, because TV commercials are cheap at major TV channels. - It is clear it was different situation four years ago, when restrictions were removed and serious problems existed in terms of freedom of speech. It is not difficult to realize that restoration of the previous norms and its real enactment will not damage major TV companies. On the contrary, they will enlarge, as well as all other media bodies, contrary to the existing practice. Consequently, what is a real motivation of these bodies, who object to restoring the previous norms for AD time limitation and their enactment? -I would not say all major TV companies object to this bill. I have not heard similar objections from Imedi TV company. Imedi had got some remarks like other TV companies, but this was a working process and we have successfully passed this working process, in practice. Namely, before submission of the bill to the parliament, we had worked on the document for about 8 months, analyzed the existing basis, explored western experience, specified details, examined the Georgian market realities. Consequently, we have made detailed analysis and prepared the bill. For the next two months we organized public discussions with all interested bodies, including market player TV companies. They expressed many remarks and this is ordinary working process. We have taken into account many suggestions, including, we agreed on smooth removal to the transient period and gradual introduction of restrictions. Today, I think no company objects and expresses remarks any more over the current version of the bill, excepts for Rustavi 2. As to Rustavi TV channel, two main factors circulate around. I believe in intellectual potential of the Rustavi 2 management and I believe they understand that their company will not lose revenues after the introduction of restrictions. On the contrary, their revenues will increase. At the same time, I can express suppositions that Rustavi 2 management may be afraid their competitors will also strengthen. Indeed, they will not lose revenues, but their competitors, small TV companies and other media outlets will also strengthen and their revenues will also increase. Growth in market ratio the competitors will be higher compared to Rustavi 2 and Imedi. These changes may be unacceptable for Rustavi 2, because its management asserts only Rustavi 2 exists thanks to the AD market and owners of other TV channels pour money into their media outlets because of concrete political interests. And another issue is the motivation of the commission and the bill authors, the legislative functions and duties. Namely, we are to promote the AD market development to provide comparatively equal competition, separate AD service from sponsorship service and the so-called product placement have no naturally competitive advantage (for example frequency resource). Competitive advantage will not be misused and they will not monopolize the market thorough dumping prices.

econo-mix

caucasian business week

February 23, 2015 #88

Banks Suspected in Making Speculative Collusions on Currency Market

top story

GEL Collapse Results in Extreme Upturn in Profits of Georgian Banks

mid the GEL exchange rate devaluation, experts stress a major part of the Georgian society bears losses because of high level dollarization of loans. Moreover, a high ratio of imports has increased consumer prices and clients bear considerable losses. The question arises whether there is some sector in the Georgian economy that could have made profits of the GEL exchange rate fluctuations. Indeed, such a sector genuinely exists and only the bank sector emerges as a main winner. Georgian banks collect revenues from two main sources – interest rates and interest-free operations. Last year the ratio of revenues from interestfree transactions made up 34% in total revenues of the bank sector. At the same time, Georgian banks receive interest-free revenues from two main sources – commission fees and net profits from currency conversions. In 2014 the bank sector drew 284 million GEL commission fees and 118 million GEL net profits from currency conversions, that is, sales and purchase of currencies. Revenues from this source grow every year and the first diagram indicates this tendency. This factor, however, is not decisive. Along with the bank sector enhancement, distinct sources of revenues also grow, including revenues from currency exchange and currency operations. After the GEL exchange rate depreciation, the Georgian bank sector has turned out almost a sole segment having increased revenues from the exchange rate fluctuations. We will show this benefit in figures. Georgian banks have issued about 60% of the loans in foreign currencies, basically in USD. This is about 4.5 billion USD. The annual average weighed interest rate in foreign currency denominated loans is 10%, that is, the bank sector receives annually 450 million USD in the form of interest rates of foreign currency denominated loans. These revenues in GEL look in the following manner: before the GEL rate devaluation, the exchange rate stood at 1.75 point on average. This rate enabled banks to receive 790 million GEL revenues. Today the exchange rate is over 2.0 point and revenues from interest rates on foreign currency denominated loans rose to 913 million GEL. At the same time, 60% of deposits in the bank sector are denominated in foreign currencies and their averaged yield makes up 4.6%. Consequently, if banks used to spend 337 million GEL to serve the yield on 4.2 billion USD deposits, these expenditures have increased to 390 million GEL after the GEL rate devaluation. Nevertheless, interest rates on loans are twice higher compared to the yield on deposits and the bank sector as received more profits from the GEL rate fluctuations. As to the revenues from sales and purchase of currencies, the rate fluctuations turned out profitable for the bank sector anyway. In December 2014, banks’ profits from currency sales and purchase doubled. The diagram 2 clearly demonstrates this tendency. In 2014 the bank sector drew 8.5 million Gel profits on average by sales and purchase of currencies. The sector earned tripled revenues, 23 million GEL. The GEL rate extreme changes were registered in December (Diagram 3). How does the bank sector manage to protect itself from the exchange rate fluctuations and receive higher profits? A logical answer is one. Besides the bank sector, there are many other business sectors in Georgia, but only banks participate in determination of the GEL exchange rate and they rely on the exchange rate they form themselves.

Georgia’s Currency Market without International Standards The currency market is a place where foreign currencies are sold and bought. There are many players on the currency market. For example: central banks that manage currency reserves of countries; commercial banks that are major players on the currency market; companies that participate in trading; investment companies; pensions and hedging funds; insurance companies; brokers; private persons. Bagrat Mezurnishvili, a director for Futures Trading company, has published the following statement on his own Facebook page: “In the USA I, one of the illegal residents, could trade at the New York exchange. I had got my own account and so on. And in my homeland I cannot even attend the trading sessions and learn how and in what way trades are carried out and the GEL rate is determined. In New York I could trade by even 10 USD, while in Georgia I have no similar rights. I would like to add even in Moscow I could trade and I had got my own brokerage place there”. This comment casts light on the existing practice for the GEL exchange rate determination in Georgia. The GEL exchange rate is calculated at the interbank currency market due to the bargains and the results are published by the National Bank of Georgia (NBG). The interbank currency market is managed the Bloomberg digital trading system for currency trades. All licensed commercial banks are entitled to take part in the market,

as well as branches of foreign banks after NBG grants the status of a participant bank. Every working day participant banks publish the rates of sales and purchase in the Bloomberg trading system and these results are attainable to all participant banks and their dealers. What is the reason only the bank sector participates in currency trade sessions? Why do not representatives of other sectors take part in currency trades (we do not mean currency booths, because they make offers due to the official rates)? Exporters are potential suppliers of currency to the currency market and why does only the bank sector set the currency exchange rate to the whole economy? Is the GEL to USD correlation in Georgia equal to the USD to GEL correlation in the bank sector? Is the GEL exchange rate adequate to the existing reality? There is no substantiated answer to these questions. When trade sessions are carried out by a small number of participants, there are high risks for unofficial bargains. Consequently, the doubt will always exist banks collude the GEL exchange rate. The system is closed by 100% and no one is able to verify these doubts. Merab Kakulia, the former vice president of NBG and currently a director for the Financial Stability and Competitiveness Research Centre, talks about the exchange rate determination system with the Banks&Finances: “In all normal countries the exchange rate is mainly formed on the interbank market, because banks represent major sellers and buyers of foreign currencies. Thus, the existing model for the GEL rate determination is suitable to the international practice. But this fact does not rule out unofficial bargains between major players on the market, the so-called market-makers. Major markets register many players and it is harder to make collusions, even more so under strict supervision of central banks. As to small markets like Georgia, there is more ways for unofficial collusions. At the same time, it is almost impossible to catch concrete information and data on unofficial bargains. Thus, the GEL exchange rate is determined in a closed regime on the interbank market by only banks, while a US citizen is able to take part in trade sessions in the USA and a Georgian citizen is not entitled to even attend exchange sessions.

Bank Sector’s Net Profits from Currency Conversions in 2000-2014 (millions of GEL)

Bank Sector’s Net Profits from Currency Conversions in 2014 (millions of GEL)

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GEL Exchange Rate Dynamics in relation to USD - 2014

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IFAD supports $18 million USD climate-smart project in Georgia

he International Fund for Agricultural Development (IFAD) has announced a new nationwide project worth almost $20 million USD to help smallscale farmers in Georgia raise their incomes and increase their climate resilience. Georgia’s Minister of Finance Nodar Khaduri and IFAD president Kanayo Nwanze signed the agreement in Rome, Italy today, which had the official title ‘Agricultural Modernization, Market Access and Resilience (AMMAR) project. The deal consisted of a $13.3 million IFAD loan and a $5.3 million Global Environment Facility (GEF) grant. The project will be implemented over four years, from 2015 to 2019. “Financial assistance provided by IFAD is vital for increasing the production capacity as well as to increase the export. Finally, it will support Georgian agriculture sector to become an important pillar of the Georgian economy,” Khaduri said. IFAD said Georgia’s agriculture sector was highly vulnerable to the impact of climate change, which was leading to serious production losses and threats to food security. Increasing dryness was threatening to devastate the already semi-arid Eastern portions of Georgia by the end of the century, stated IFAD in a press release. The project will aim to address these challenges by supporting inclusive growth of climate-smart agricultural value chains. It will mainstream a climate-smart approach throughout its activities, driven by the needs of small-scale farmers. The project will focus on rural families in areas where there is agricultural and irrigation development potential. It will primarily target small-holder farmers, but will also support others who are involved in agricultural value chains, including agricultural business people, cooperatives and extension and input service providers. One of the goals of the project was to increase small-holder farmers’ incomes by 20 percent in more than 10,000 households; to increase by 20 percent the total value of surplus agricultural production of targeted products; and to ensure that 50 percent of trained small-holder producers adopt one or more climate-smart technologies, such as efficient irrigation. Since 1997, IFAD has invested a total of $52 million in Georgia, leveraging an additional $72 million in co-financing for five Programmes and projects benefitting approximately 93,000 rural families.

opinion

caucasian business week

February 23, 2015 #88

GEL continues to go down

Levan Kalandadze Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative

he GEL exchange rate issue still remains relevant, because the government has failed to halt its depreciation and the GEL rate has fallen below the 2.00 point. The national currency keeps falling. Unfortunately, the factors that create problems to the Georgian national currency have not been neutralized yet. The National Bank of Georgia (NBG) has renewed currency interventions and tightened the monetary policy. These steps were necessary, but they are not sufficient to remove the GEL-related problems, localize the GEL exchange rate devaluation and prepare grounds for its further strengthening in the long-term period. This is one part of the necessary steps and measures. Another part of decisions should be taken by the government. The problem may be localized through coordinated efforts of NBG and the executive body. In this situation there are two tasks to be resolved – short-term and medium-term goals. The short-term goal implies curbing the GEL exchange rate, while medium-term goals require that major investment projects be implemented as soon as possible, including Nenskra and Khudoni HPPs, Anaklia seaport and other similar major projects. Today’s main task is to restore currency balance between the GEL and USD volumes as soon as possible. The mentioned instruments should serve the implementation of these goals. The Georgina Government and NBG are to carry out complex measures to strengthen the national currency. Along with currency interventions, in line with the 2015 budget plans, the government should implement and mobilize projects, grants and first tranches of credits as soon as possible.

Business - The main concern in the last time is to save jobs

tion’s purchasing power and to purchase the technique is no longer a priority. Currency devaluation is a problem for business, which is unable to increase wages in the country. Against this background, we are not able to increase wages in the near future. This process is also reflected in profitability and many businesses operate at a loss “, – says Kokoladze. The issue of salary increase is not discussed at

“Tegeta Motors”. The company’s representatives do not talk openly about this subject. They avoid giving a direct answer and say they have no information regarding the wage changes. Strangely enough but the GEL exchange rate continue to fall since November and employees have not asked for a pay rise. While the income is reducing, no one has hope that their salaries will increase. The main concern in the last time is to save jobs.

National Bank of Georgia decided to increase the refinancing rate by 50 basis points to 4.5%

he Monetary Policy Committee (MPC) of the National Bank of Georgia (NBG) met on February 11, 2015 and decided to increase the refinancing rate by 50 basis points to

4.5%. The MPC decision is based on the macro-economic forecast, according to which the risks affecting projected inflation have increased due to external shock. In order to neutralize the increase in inflation projections, the committee considers gradual exit from the accommodative monetary

policy. However, interest rate increase, the monetary policy still accommodative as policy rate remains below the neutral value. According to the current estimations, unless other factors affecting the economy will occur, by the end of 2015 the monetary policy rate will be around 5%. According to existing forecasts inflation will remain below its 5% target value in the first half of 2015 and will reach target by the end of the year. Annual inflation in January was 1.4% and this decrease mostly reflects the drop in the fuel prices. At the same time the core inflation increased to

3.2%. The inflation forecasts significantly depend on exogenous factors and contain risks of changing in both directions. The NBG will continue to monitor developments in the economy and financial markets and will use all means and instruments at its disposal to ensure price stability. The dynamics of further changes in monetary policy will depend on the dynamics of expected inflation, tendencies in economic growth, global and regional economic environment. The next Monetary Policy Committee meeting will be held on March 25, 2015.

Government discussed the state of national currency

he government’s economic team members gathered at the Ministry of Economy and Sustainable Development and discussed the state of national currency. “We’ve discussed information about the GEL exchange rate and budget performance indicators. In addition, we talked about additional measures for

encouragement of business and investment. This discussion will continue in the economic council under the PM’s leadership and a decision will be made in the near future. The situation is not simple. Many of the components must be fulfilled in order to improve the situation. I think that due to a common action plan, the situation will soon be corrected very easily. We need to work jointly, both

the executive and legislative bodies of the government,” - he said. According to Finance Minister Nodar Khaduri, at today’s traditional meeting very specific plans were outlined as to how to improve the situation in the near future. “We think that the problem can be solved through simultaneous efforts of the executive branch and the National Bank “, - he stated.

Bosco Conference Organizes WealthPro Investment Conference in Ras Al Khaimah

n February 16-17, 2015 Ras Al Khaimah (UAE) hosted WealthPro investment conference. The event was organized by Bosco Conference. The topic of the event included capital management issues. The conference participants discussed opportunities of making investments in Dubai, Ras Al Khaimah, various free zones and offshores all over the world. Modern tendencies in bank services and taxation issues were also discussed, as well as legal procedures, protection of capital management and assets, significant aspects of investments, reception of citizenship in Malta, Cyprus, Latin American countries. The conference were attended by such companies as Al Tamimi & Company (UAE), NTL Trust Limited (Saint Kitts and Nevis), Caledonian Trust (Cayman) Limited (Cayman Islands), Nicolaides Stylianou LLC in cooperation with CDA Cyprus Developers Alliance Ltd (Cyprus), PRIMADOM SA (Switzerland/ France), CHETCUTI CAUCHI ADVOCATES (Malta), Global Business Services DMCC (UAE), HLB Hamt (UAE), Musthafa & Almana (UEA), Zugimpex (Slovakia), IBMC Financial Professionals Group (UAE), Swiss ILC Management Services(UAE). These companies outlined their potential at the event. RAK Investment Authority was a main representative of the conference. The Caucasian Business Week (CBW) newspaper was the event media partner from Georgia. RAKIA Georgia representatives Ioseb Nibladze and David Jebasvhili attended the conference from Georgia. RAKIA Georgia owns Poti Free Industrial Zone, Sheraton Metechi Palace hotel, Tbilisi Mall shopping mall and various development projects in Georgia.

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caucasian business week

February 23, 2015 #88

MTPL in Georgia - a vital step to Economic and Social development

Activating driver’s liability compulsory insurance is inevitable - AYFB

riving force of the insurance industry is obligatory insurance, Yet, in Georgia, such simple matters as easening vechile and other insurances to protect and comfort citizens are not resolved. In every developed country there are numerous such insurances.Obligatory insurance in these countries is the main tool of risk management. One major part of obligatory insurance is Motor third party vehicle insurance and it covers civil legal liability for damage caused to third party by driving the motor vehicle, which means that this will not be paid by a driver, but by the insurance company which issued the policy.

Works on the “Compulsory Insurance of Liability of Vehicle Owners towards Third Parties” bill,in Georgia began in 2013 and postponed to 2017,this year. The activation of the mandatory insurance for vehicle owner responsibility to be of utmost importance to the country’s economy and its residents, as well as being critical for the insurance sector itself-According to the Association of Young Financers and Businessmen (AFBA) Currently AFBA is facilitating a study which will

make it clear how informed car owners are regarding the insurance product about to be implemented in the future, as well as gauge the loyalty of vehicle owners towards the mandatory responsibility insurance. The study will evaluate the social-economic impact of this product throughout its implementation progress. Implementing the mandatory insurance for vehicle owner responsibility was announced since 2015, although there’s no according legislative initiative in the parliament from the government’s side. Relevant parliament committees are waiting for that very governmental initiative, after which certain procedural steps will be made. Wholesome insurance industry assets throughout

advanced countries fluctuate between 25% and 5% towards internal products. From this standpoint Georgia’s state doesn’t offer much perspective. For the country to have a higher level of insurance culture and at the same time experience growth in the sector and turn its advancement into an irreversible process, the insurance companies itself must increase marketing activities and intensively start taking care of product publicity. The second important condition is the implementation of mandatory insurance products. For this

angle the first step to be discussed should be the matter of implementing mandatory insurance for vehicle owner responsibilities.

Mr Devi Khechinashvili, President of Insurance Association said that the government should take responsibility for managing these risks, there needs to be a modern system implemented which will, in technical terms, house itself entirely in the cloud. There are international companies who can adapt cloud systems to Georgia on short notice. The Georgian market is an unattractive one for investors, since a market without insurance is practically unmanaged. It’s important to seek arguments for the government and the parliament to accept the MTPL law this year, so it becomes active in 2017. Meanwhile, the needed infrastructure will be formed, which will be relevant for user security. The insurance companies and the administration will undergo serious preparations, as will the patrol police and the drivers. Best case scenario would involve the law being split in two stages, with one covering local insurance on damages inflicted to Georgian citizens via transit movements, and the second being the introduction of the insurances themselves. MTPL is an insurance of a totally different nature which has no-fault regulations, which means it provides compensation no matter the circumstance. MTPL is a social project, with its main goal being to ensure swift and bureaucracy-free compensation of all vehicle accident damages.

Insurance must find a way into government execution practices, and mandatory insurances will create the needed drive for this to happen. This will contribute in advancing the market and attracting investors, there is no otherwise technical issue in activating the vehicle insurance. It’s the changing of the law and the attitude in governmental planning that holds the utmost importance.

President of Georgian Insurance Institute George Gigolashvili told to CBW that the financial security of insured individuals during vehicle collision accidents will be high, insurance companies will have additional incomes, the staffing for this type of insurance will increase and the infrastructure will experience advancements. It will lessen the problematic matters around the fees for compensating damages after vehicle collisions and will hasten these compensation deadlines, so that the victims don’t have to wait months for their recompense and receiving only part of it. At the same time the insured vehicle owners won’t have to get into debt or sell their property in order to compensate inflicted damage. The implementation of the mandatory vehicle ownership responsibility insurance to be one of those initiatives which will considerably raise the social security of the citizens and become a serious contributing factor in business advancement. Accordingly, its implementation and timely activation is in everyone’s interests, be this vehicle owners, the insurance sector or the government.

AYFB AND ECONOMIC NEWS OUTLETS IN SUPPORT OF REGULATIONS IN MEDIA ADVERTISING POLICY

“The Association of Young Financiers and Businessmen” join the economic news outlets of Georgia in support of regulating advertising limits in media

he Association of Young Financiers and Businessmen” assessed the changes made to the existing media law. We came to the conclusion that the changes in the legislation will improve Georgia’s media market and benefit the advertising sector as a whole. Changes in the media law were met with varying reviews from the public sector. Some media outlets protest against them, saying they will harm the media market and hinder its freedom. Modifications in the law would be undertaken within the framework of The Association Agreement with the EU, which comes with specific visual and audio media prerequisites. “The Association of Young Financiers and Businessmen” has studied the changes in the media law closely. It should be noted that the changes in the media legislation would restore the law that existed up until 2011 and are completely in line with the Eurozone directives and requirements. What changes will take place in case

the law is implemented? --Advertising will not exceed 20% of media content per hour, amounting to no more than 12 minutes. The existing law, adopted in 2011, allows media outlets to exercise the 20% limit not on an hourly basis, but during the entire 24 hours of air. This gives media outlets an opportunity to use the advertising limit at any given segment of the day. -- Starting 2016 advertising and sponsoring will become two distinct categories in media services. The new law will introduce additional four minutes of sponsor time, during which the media outlet will not be able to broadcast non-sponsored advertising. Today advertising and sponsor services are categories that are often mixed together. There are no norms or regulations imposed in order to distinguish these categories and media outlets often sell sponsorship via advertising services. “The Association of Young Financiers and Businessmen” agrees that the changes in the existing media law, apart from being in accordance with

the EU regulations, will improve the country’s media market and also contribute to development of the advertising sector in the long term. Prior to 2011, advertising sector of Georgia was in a state of flux, constantly growing and developing. The changes made in the advertising industry at the time gave an opportunity to major media outlets to adopt the dumping pricing policy, speaking in economic terms. This means that media outlets were able to export services for cheaper than their actual cost in the domestic market. This contributed to the deregulation of prices on the media market in Georgia, which became extremely instable. Since TV advertising has an inherent advantage, low prices placed on this product extremely decrease competition potential of other types of advertising. As a result, the advertising sector as a whole retarded its growth momentum and smaller media outlets lost profits. Hence, the smaller media outlets, such as radio and newspapers, face a hindered opportunity for a suc-

cessful development on the existing advertising market in Georgia. Economic news media representatives, newspapers “Banking and Finances,” “Caucasian Business Week” and “Commersant” share the position expressed by “The Association of Young Financiers and Businessmen” on the subject of changes in the media law. Economic press representatives agree that the advertising limitations abandoned in 2011 caused adoption of damping pricing policy by major TV stations in the country. As a result, the advertising sector has shrunk considerably, incurring losses to smaller players on the market. Such constrained conditions have significantly decreased the potential for

successful operation of the smaller media outlets. We believe that precisely this limits freedom of expression of the media and its development in Georgia. Due to this, economic press outlets are welcoming in regard to the planned changes in the media law. The latter agree that introducing an advertising time limit will regulate the prices on the media market. It will increase the business potential of smaller media outlets. All of this in turn will lead to a more independent and higher quality media in the country. “The Association of Young Financiers and Businessmen— AYFB” Newspaper “Banks and Finances” Newspaper “Caucasian Business Week” Newspaper “Commersant”

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Quotes

“I have no prejudice against Rosneft”

David Yakobashvili, Founder of JSC Wimm-Bill-Dann in Russia Mr Yakobashvili told the media that the deal between the Georgian Petrocas Energy belonging to him and the Russian oil giant Rosneft was an ordinary business move, and he has no prejudices against this company.   He declined to comment on the information about $300 received from the sale of 49% stake in Petrocas Energy, which is engaged in the oil business in Georgia and owns

a network of GULF filling stations in the country. According to him, Rosneft does not intend to increase its share in the Georgian company. “Moreover, they insist on a minority share. Because they do not know the region, are not present there, but want to expand. And we know the region; we know how to develop our business there. The region is small, our Gulf filling stations operate there along with Lukoil, Wissol, while Rosneft is not present on the market,” David Yakobashvili notes. In his words, the transaction took place by mutual consent, as Rosneft is interested to be present in the Black Sea due to the Tuapse refinery, Azerbaijan, Armenia, access to the markets of Turkey, Bulgaria, etc. “We are good players in the region in terms of volume as well; it was interesting to collaborate with us. First they offered to buy 25%, and then - 49%. Controlling stake remained with us. After all, we manage the business, know the specifics of the region, we have many plans for the development of trade in the Middle East countries and so on. We have a lot of resources and a lot of energy. Again, there is a desire to make a road through Russia, Dagestan and part of Azerbaijan, because the main streams are located just there,” – the businessman notes.

“Reduced investment inflow will continue the downward pressure on currency’s value”

Soso Pkhakadze President of a Georgian oil company Wissol Group In 2015, at least in the beginning of the year, investment inflow in Georgia has reduced, and this will increase the pressure on the exchange rate of the national currency Soso Pkhakadze, president of Wissol Group, states. According to him, despite the decline in world oil prices, the cost of fuel in Georgia is not reduced so dramatically as we would like due to the devaluation of the GEL.

“Prior to the decline in international oil prices, the cost of gasoline in Georgia was about GEL 2.20, but today the cheapest petrol Regular costs GEL 1.60. We also have non-branded filling stations where major investments have not been invested, respectively, we can afford to sell fuel for even lower prices there - for example, GEL 1.50 per liter. If we take into account the degree of depreciation of the national currency, it turns out that the current price of fuel is quite realistic,”— the businessman notes. He believes if today’s rate of GEL was 1.75, as it was in the beginning of November, the price of fuel would be significantly lower. “I think that Georgia’s economy looks quite nice, considering the situation in the region. It must be said objectively. Pressure on the GEL is associated with many factors - the negative trade balance, reduced remittances from abroad, general negative background, which prevents the inflow of investments. Despite the fact that in 2013 and 2014 investments were at the same level, probably in 2015, at least in the beginning of the year, inflows will decrease, respectively, the pressure on the exchange rate of GEL will grow,”- says “Wissol” President.

“No sense of stability on the beer market whatsoever”

Temur Chkonia, Founder of Coca-Cola and McDonalds in Georgia Georgian Businessman Temur Chkonia says that investing in the beer business in the country has become risky. According to him, apart from the significant raise in the excise tax, beer can production has been terminated. “We were planning to launch a beer can production line, which we had to postpone indefinitely. This product

would supply not only the local producers, but would also be exported abroad.” “Also we would not be surprised if the excise tax increases yet again, since the movements in this sphere have been absolutely arbitrary and unpredictable so far. There is no sense of stability on the beer market whatsoever. Apart from the high excise tax, there are backward laws in regard to public consumption of beer. Accordingly, we, the investors have a sense of instability toward this business and think it’s too risky to invest in it,” – Mr Chkonia said in an interview. December 11th of 2014 Georgian Parliament altered a law in the Tax Code of Georgia. According to the law, starting January 1st of 2015 the tobacco excise tax has been raised by 0,15 tetris for filtered cigarettes and 0,05 tetris for non-filtered cigarettes. While the excise tax on beer and distilled beverages, increased twice. Beer producers, who have not been warned about the 50% increase in tax in advance, are extremely unhappy with the government’s decision. The law will start operating starting March 1st of this year.

“New referential taxes will mostly assist Center Point”

Vakhtang Rcheulishvili, Founder of a major construction company Center Point Group Mr Rcheulishvili evaluates the government’s decision to release construction companies from old tax arrears as a correct step and declares, that Center Point will take most of the advantage. Vakhtang Rcheulishvili said to GBC, that construction sector will have a possibility

to survive as a result of this decision. Prime minister Mr Garibashvili has declared on the government session, held February 19th that uncompleted constructions, started before 2008 will be released form from VAT and K2 (code “on Local Fees”). “The budget does not loose anything due to release of these taxes, as companies are not able to pay them. The state should take this decision earlier. However, construction sector will have benefits as a result of these preferences, it will get active and will be possible to renovate works and to issue wages. These preferences will mostly assist to us, as Center Point occupies 35% of the residential construction. The advantage will be over GEL 50-70 million. Today, Center Point has completed 90% of the started construction. Over USD 10 million has been necessary to pay customers’ liabilities. This is the category of clientele, who has not submitted money for construction, as they have difficulties in the payment. GEL 10 million has been enough for finishing the constructions, but we have not been able to pay the taxes. Now, we can spend the funds on construction,” - Rcheulishvili says.

February 23, 2015 #88

Two Tourist Centers of Georgia: Tbilisi and Batumi Tbilisi Tourism Profile Tbilisi is one of the largest cities in the Caucasus as well as one of the largest in Eastern Europe, with a population of 1.2 million. Tbilisi accounts for over 25% of the national population. It is the industrial, cultural and social centre of Georgia.Spread over a 490.6 square kilometre area, Tbilisi is one of the few places on the planet where a synagogue and mosque are located next to each other. Despite an overwhelmingly orthodox Christian resident population, Tbilisi generously accommodates diverse cultures, religions and ethnicities. The city generates 52% of the country’s economic output, and accounts for most of the formal employment. Larger incomes in Tbilisi compared with the rest of Georgia, boosts spending on recreation and culture as well as restaurants and hotels. Existing international hotel brands in Tbilisi are Sheraton, Radisson, Marriot, Courtyard Marriot and Holiday Inn, Citadines apart’ hotel as well as Best Western Tbilisi. Other major projects have been announced (Intercontinental, Hilton Garden Inn) and some of them under construction (Millennium, Rixos, Park Inn by Radisson). The city is actively developing its tourism sector. Thanks to low taxes and a favourable climate for investors, Tbilisi is ranked among the top five European cities by the EBA (European Business Association) Attractiveness of Investment index. On July 15, 2014 local government elections were held in Tbilisi. Due to this fact there is a transition period in City Hall and the new government will establish city development plans in the near future. Tbilisi Hotel Market Overview The number of hotel guests in Tbilisi has been growing over the years, with the only exception being 2008, when it declined by 8% compared to the previous year. The main cause of the decline was because of the conflict between Georgia and Russia in August 2008. The share of business travellers as a proportion of the total number of hotel guests has been declining in recent years. It has dropped from 69% in 2008 to 37% in 2013, despite the fact, that absolute number of business travellers has increased. Big share of international visitors to Tbilisi are business travellers, who have demand on International Brand Hotels. Tourists mainly have demand for economy class boutique hotels, which are cheap and have favourable location, mainly in Old Tbilisi. The number of accommodation units in Tbilisi has increased by 17 from 2013 to 2014, adding 555 new rooms and 1,385 beds. In 2015, the construction of seven new hotels will be completed, which will increase supply by 900

rooms. Biggest share (38%) in room supply in Tbilisi is Local Budget/ Economy Class, next comes Local Upscale and Middle Class hotels with 35%, International Upscale and Midscale Brands occupy 10% and 17% respectively. Batumi Tourism Profile Adjara is one of the most beautiful parts of Georgia. It is the most southwestern region of the country, located near the border with Turkey. Its administrative centre is Batumi. Batumi seaport is Georgia’s main sea gateway. In the south, Adjara borders with Turkey; in the west and northwest it is flanked by the Black Sea. In Georgia, especially in Adjara, there are unique natural conditions for the development of all types of tourism. Adjara is famous for sun and beach tourism as well as for ecotourism (rural tourism) and entertainment. Today, Batumi is a fast-growing tourist region. Batumi has undergone serious changes and reforms, significantly improving its worldwide image and making its investment climate more attractive to foreign investors. The hospitality market in Batumi is developing as the inflow of foreign visitors, businessmen and delegations increases at a fast pace, which is attracting well-known international hotel chains. Currently two international upscale brand hotels are present in Batumi: Radisson and Sheraton. Other major branded hotels are under construction, including Grand Rixos Hotel, Hilton and Holiday Inn. Today Batumi has become a distinguished tourist center on the Black Sea. Recent years have seen unprecedented measures taken to develop and encourage the development of the tourist market. The residential houses of Old Batumi have been reconstructed; water supply and drainage systems have been totally restored and renovated. Many tourist attractions have been created and international brand hotels have opened. Batumi has become a centre of cultural events and international gatherings. Concerts attract the participation of world celebrities and the city hosts international festivals in art and sports. Batumi is distinguished by its abundance of diverse architectural buildings, which give the city a vibrant atmosphere. Batumi Hotel Market Overview The number of hotel guests in Batumi has been constantly growing since 2009, but came to halt last year. The number of accommodation units in Batumi has increased by 29, from 2013 to 2014, adding 873 new rooms and 1,772 beds. 75 more rooms will be added until the end of 2014. In 2015 construction of 5 new hotels will be completed, which will increase supply by 845 rooms.

February 23, 2015 #88

economy

caucasian business week

Ministry of Energy: Georgia will Become Energy Independent within 10 Years

An interview with Deputy Energy Minister Ilya Eloshvili

- How important is for the country to focus on energy? - Georgia has a huge potential of hydropower development, which, when used properly, will help the country achieve energy independence within 8-10 years. Otherwise, in 3-4 years we will face serious problems, so the country should develop their maximum potential for energy production. - What is planned for this?

- Our starting point is that every year we import 800 million kWh of energy from Russia. If all this continues, then in 5 years we will no longer have technical capacity to implement these imports - even without taking into account commercial and political issues. Our task is make up the shortfall on our own, and hydropower is the main resource for this. Today we have a following situation – HPPs with total capacity of 200 megawatts were put into operation in 2 years, in addition, now studies are underway regarding the construction of HPPs with a total capacity of 1 500-2 000 MW. We are talking about large, medium and small hydropower plants. When all of these objects come into operation, they will produce 20% of total energy consumption in the country during the winter and autumn at a very low price. At other times of the year the electricity will be exported to Turkey. In addition, giant hydroelectric strategic HPPs are planned to be built. A work is going on, investors have already showed their interest. 70% of

the electricity generated by these stations will be consumed inside the country. All this, together with measures for energy conservation and development of alternative energy, will provide 4 000 MW for 10 years. In this case, we’ll be able to say that we have achieved energy independence and are protected from the negative factors. Today, both the government and the Department of Energy adequately assess the situation and we have a specific plan that will allow us to avoid the worst possibilities. - What is the potential of the rivers in terms of hydropower in Georgia? - Projects, about which I spoke, already exist. There are specific investors who are now studying the opportunities or are waiting for a building permit. Government has explored the potential of four rivers and in September we will have the final conclusions. The process has lasted for 6 months, and will be completed by September. After that,

we can expect a new wave of interest from investors, who will see available energy potential. Much can be said that we have great potential in the energy sector, but one thing to say - and the other to conduct its detailed scientific research. There has not yet been such a systematic approach in Georgia. - How important is the involvement of commercial banks in these projects? Whether Georgia has experience ofcooperation between the energy and banking sector? - This is a very important point. Georgian banks are really motivated by profit, they have seen a real prospect. For example, “TBC Bank” has invested in the energy sector $ 150 million in several years. “Bank of Georgia”, which competes with foreign banks in financing power projects, is also very active. This clearly shows that the development of the country’s energy potential has not only strategic but also commercial value. Otherwise, banks were not so interested in these projects.

World Bank to Launch a $50 MLN Agricultural Project in Georgia

tar Danelia, minister of Agriculture has met Peter Goodman, World Bank representative in Europe and Central Asia region on Friday. The sides have discussed “Development Project of Georgian Irrigation and Land Market”, which should be carried out under the auspices of the World Bank. The total value of the project amounts to USD 50 million, Ministry of Agriculture has declared.

As Peter Goodman, World Bank representative in Europe and Central Asia region has noted, Project of Georgian Irrigation and Land Market includes two components: rehabilitation of irrigation system and development of land market. The main reason of the project is rehabilitation of irrigation and melioration systems and infrastructural assistance of the company’s united melioration system. As Otar Danelia, minister of Agriculture declares, rehabilitation of melioration systems of

Kvemo Samgori, Zeda Ru, Tbisi and Kumisi will be finished at the first stage of the program. Practical works will be launched in the nearest future and supposedly, all melioration systems will be practically rehabilitated. The World Bank will allocate GEL 31 million. The meeting was attended by Levan Dvali, head of Georgian United Company of Melioration System and Nodar Kreselidze, first deputy of Agriculture.

New businesses exempt from taxes in new Mountain Law of Georgia

he Government of Georgia is introducing a new law to encourage people to live and work in Georgia’s mountain regions. The new law – Mountain Law of Georgia – would see mountain communities enjoy greater benefits with the aim of develop-

ing Georgia’s mountain regions, said Georgia’s Prime Minister Irakli Garibashvili. Currently mountain populations leave their homes and migrate to bigger cities to pursue better job opportunities. But the creation of the Mountain Law aimed to curb this. The current draft law noted the creation of a legal

space that would allow the mountain population to rely not only on state aid, but to create their own well-being. Under the new law, entrepreneurs who establish businesses in the mountain regions, use local resources and employ local residents, will be exempt from taxes for three years. And in the case of re-investment, taxes will be written off for a further three years, noted the draft law. Garibashvili said experts have been working on developing the draft law for several months. The final version of the project has been already discussed and the Mountain Bill is expected to be completed by the end of February, and then will be sent to Parliament for approval. The Mountain Law envisaged 50 percent higher salaries and pensions for local residents. Koba Arabuli, the First Deputy Governor of the Mtskheta-Mtianeti, was involved in the draft law development and said permanent and temporary residence status will be introduced to the mountain population. Permanent residency will be of-

fered to people who spend at least nine months of the year in the mountains while temporary residency will be offered to those who spend at least six months of the year there. Accordingly, the preferential system for temporary and permanent residents will be different. Funds towards the cost of developing and implementing the law would be allocated from the state budget, meaning a commission led by the PM will be created to adopt decisions on the most pressing issues and a special department will be established within the Ministry of Regional Development. A Mountain Agency will be established to monitor the implementation of the law as well. Arabuli said it was difficult to estimate the costs related to the new law at this stage, as there was “no exact data” on how many people live in the mountains. The final version of the Mountain Bill will be submitted to the Government in the next few days, and then will be sent to Parliament for approval.

Rosneft-Petrocas joint venture to increase rail transit through Georgia

ussian state-owned oil company Rosneft and Georgian oil transportation company Petrocas Energy Group are banding together in a new joint venture to increase cargo transit through Georgia. The two companies have created a joint enterprise with the aim of increasing the amount of cargo that passes through Georgia by 30 percent. Petrocas Energy Group president Vano Nakaidze believed the extra movement on the railway would lead to additional income for the state budget and Georgian railway. The project was officially revealed at International Petroleum Week (IP Week) in London, England. Petrocas Energy Group and Rosneft held a joint

presentation titled ‘Future Corridor’ at the event, which involved about 200 representatives from the international energy and financial sector. The event was dedicated to the recent creation of the joint enterprise by Petrocas Energy Group and Rosneft. At the end of last year Rosneft signed a document that would see it acquire a 49 percent stake in Petrocas Energy International, and create a joint venture with the oil transport company that operates in the South Caucasus region, which sits on the border of Eastern Europe and southwest Asia. At IP Week, the sides also spoke about attracting additional cargo and investments in Georgia’s transit corridor. More specifically, the talks focused on increasing the volume of oil products’

that transit through Georgia. In London Rosneft and Petrocas Energy Group representatives presented their vision of all the possibilities the newly established joint enterprise could create. They said their joint venture would operate in the trading and logistics area as well as retail of oil products in the Caspian, South Caucasian and Central Asian regions direction. The idea was that these actions would stimulate the industry and increase business activities in the Silk Road corridor, attract more investments and create additional jobs in the region. Chairman of the Supervisory Board of Petrocas Energy Group, David Iakobashvili, said the Supervisory Board was “proud” they were creating a new, important era in Georgia.

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caucasian business week

February 23, 2015 #88

Satelite TV Broadcasting: ASTRA’s partner in Georgia MagtiSat celebrates its THIRD anniversary

agtiSat, the first domestic DTH platform in Georgia, marked its three-year anniversary with the launch of 3 new packages including Georgian, Medium and Full broadcasted via Astra 5B satellite in 31.5 degrees East. Currently MagtiSat offers to its subscribers 107 channels. With updated 3 new MagtiSat packages, it became even easier for customers to make choice based on their interests and needs: • Georgian package– 19-channel package provided for free; the customer has to buy only the MagtiSat equipment. The package features all Georgian TV channels. • Medium package – 79-channel package offers Georgian as well as international SD and HD TV channels including sports, cinema, cognitive, children, news, music, 18+ and others. The monthly fee is 15 GEL. • Full package – 107-channel package composes all TV channels that outline the above mentioned Georgian and Medium packages plus additional SD and HD TV channels. The monthly fee is 30 GEL. After three years of operation more than 100 000 subscribers experienced the high quality service of MagtiSat and new simple system of 3 packages is designed to accelerate the growth of MagtiSat even more. One of the main advantages of MagtiSat is the availability of its service all over Georgia including highland regions which gives potential subscribers both in rural and urban areas the opportunity to be capable of receiving digital broadcasts via Astra 5B satellite in 31.5 degrees East. It is noteworthy that from June 2015 Georgia expects to be transmitted to the digital terrestrial broadcasting. And those who have already MagtiSat dishes installed in their homes will not face any

changes with that regard, they will have access to the chosen package as it is now. Aiming to know more insights and trends about Georgian market, at the end of 2014 company SES conducted a survey for the first time in Georgia. The research unveils data on TV reception modes and habits of Georgians showing the split between satellite, cable, terrestrial and IPTV signal distribution and also the share of satellite reception between the operators. The research has proven once again significant demand for satellite TV broadcasting in Georgia - in rural area individual satellite dish is the most widespread way of receiving TV signal, its share is 79%. On the second position is antenna (32%) for analogue terrestrial signal, which is hardly half of the satellite dish share. However, in urban area distribution of ways of receiving TV is more diverse considering the availability of the different variants of TV signals compared to rural area. Antenna for analogue terrestrial signal has highest share in urban area, which is 36%, next is individual satellite dish with 26%. On the third position is cable network with analogues signal. IPTV is only fourth in this list - 15%. Furthermore, ASTRA has the highest (35.1%) share of distribution of satellites in urban and rural areas. In particularly, 35.5% of those interviewed in urban and 29.7% in rural area said 79%they use ASTRA to receive satellite signal. The information was collected in December 2014. The monitor used the face-to-face interview method with a random systematic sampling with 1500 completed interviews and 141 boost interviews among satellite dish owners. SES Satellite Monitor is the first this kind of survey SES conducted in Georgia. The company expects to present the results of the surveys regarding the Georgia’s satellite TV market periodically to follow the market demands.

Source: IPM

Rocket Internet Enters Middle East’s Online Food Takeaway Market

ocket Internet AG today announces the signing of the acquisition of 100% of the shares in Talabat, one of the leading players in the attractive online food takeaway market in the Middle East, headquartered in Kuwait, for approximately EUR 150 million. The closing of the transaction is expected in the next few weeks. Talabat operates in Kuwait, Saudi Arabia, United Arab Emirates (“UAE”), Bahrain, Oman and Qatar with particularly strong market positions in Kuwait, UAE and Saudi Arabia. It currently co-

operates with more than 1,300 partner restaurants including major brands like Burger King, KFC, JonnyRocket, Hardees, TGI Fridays, Pizza Hut, PizzaExpress, PapaJohn and Subway. With this transaction, Rocket attains leading market positions in the top two markets in the Middle East, Saudi Arabia and United Arab Emirates – countries characterized by the highest smartphone penetration in the world and large basket sizes offering a high potential for further growth. Furthermore, it gains access to new countries with highly attractive market fundamentals. Talabat.

com will be part of the newly created Global Online Takeaway Group which Rocket announced last week in its business update. Rocket furthermore announces that the emerging market leader in the online food takeaway market Foodpanda has signed the acquisition of 24h.ae, a strong player in the UAE. The closing of the transaction is expected to take place in the next few weeks. For further information, please see the press release issued by foodpanda. Oliver Samwer, CEO of Rocket Internet said: “The online food takeaway sector is currently undergoing tremendous change. With the newly created Global Online Takeaway Group, Rocket Internet is at the forefront of consolidating the key markets in one of the most attractive online sectors. The Middle East is one of the most attractive markets with significant growth potential and highly attractive EBITDA margins. The acquisition of Talabat.com is another important step

in our long-term global Food & Groceries strategy. We believe in the long-term growth potential of this space and are excited to take advantage of opportunities to build out our global leadership.” About Rocket Internet Rocket’s mission is to become the world’s largest Internet platform outside of China and the United States. Rocket identifies and builds proven Internet business models and transfers them to new, underserved or untapped markets where it seeks to scale them into market leading online companies. Rocket is focused on online business models that satisfy basic consumer needs across three sectors: e-Commerce, marketplaces and financial technology. Rocket started in 2007 and now has more than 25,000 employees across its network of companies, which operate in more than 100 countries on five continents. Rocket Internet AG is listed on the Frankfurt Stock Exchange.

February 23, 2015 #88

Banking & Statistics

caucasian business week

Living Wage Exceeds Pension by GEL 10,2

inimum living wage has been increased in January and it has made up GEL 160 and 20 tetri. It means that, the minimum has exceeded the government’s orient i.e. the pension volume (150 GEL) by 10.2 GEL. According to Sakstat, the minimum living wage of average customer has been GEL 141,9 in January, while an average family needs GEL

268,7 for the living. However, minimum living wage has been GEL 159,4 in December, 2014, while GEL 154,2 in the same month of 2014, while in GEL 154,2 – January, 2014. The statistics have calculated, that 2-member family needs GEL 227 for the living, 3- member family – GEL 255,4, 4-member family – GEL 283,8, 5-member family – GEL 319,3, while 6-member-family and more – GEL 377,5.

Georgian Wine Exports Decreased Drastically in 2015

he economic crisis in the main export countries and accordingly reduction in purchasing power of consumers had the greatest impact on wine and spirits exports, as expected. In January wine and brandy export revenues decreased dramatically, while chacha sales went up by 34% compared to early 2014. The Russian Federation is the most important economic actor in the major export markets for Georgian wine both in the post-Soviet countries, Central Asia and Eastern Europe. Thus, the crisis faced by Russia will significantly affect the economic environment the Georgian wine export

highway runs through. In January 2015 Georgian wine exports to the Russian Federation significantly reduced (87%, by 2 354 334 bottles), to Azerbaijan – (70%, 31 716 bottles), Ukraine(52%, 346 454 bottles), Estonia-(49% , 27 300 bottles), Kazakhstan- (17%, 39 138 bottles). Insignificant, but the decline in sales is observed in Poland and Latvia, however, these markets, as far as possible, maintain stability along with Lithuania and Uzbekistan, where January exports increased minimally. By contrast, sales increased significantly in East Asia – China and Japan, where the government takes special measures aimed at diversification of export market.

Export of Georgian Wine to China Up by 30%

ccording to the Extraordinary and Plenipotentiary Ambassador of Georgia to the People’s Republic of China, sales of Georgian wine in the country have notably in-

creased. Currently, the Chinese market is a priority for the Georgian winemakers, especially in a situation when the main markets – Russia and Ukraine – are in a state of economic crisis, and the export of Georgian wine in these countries fell sharply.

In 2014, sales in China increased by 34% in comparison with 2013 which is primarily due to the active marketing program. In 2014, a total of 1.2 million bottles of wine were exported from Georgia to China. Winemakers believe that Georgian wine will not be able to become truly competitive without the full development of the Chinese market. To this end, the National Wine Agency intends to increase the activity of actions aimed at promoting Georgian wine in China in 2015.

Liberty Bank to Sustain Rates on Loans Issued in GEL

iberty”, one of the leading banks of Georgia, decalres, that they will sustain the rate on the loans (issued in the national currency), which are tied to NBG’s refinancing rate. Despite the fact, that NBG has increased monetary policy rate by 0.5% up to 4,5%, Liberty will leave the rate on the same index to the clients on the loans, which are tied to this rate. “Respectively, loan service price will not be grown for the borrowers, who have loans denominated in GEL “, – the bank declares. However, “TBC Bank”, “Bank of Georgia” and

“VTB Bank Georgia” have already announced about the annual rate increase by 0.5% on the variable rate loans unlike “Liberty”. NBG conducts review of the monetary policy 8 times in a year. To note, the rate has been on 4% point through a year before the final increase. Therefore, the rate has been grown up to 4% in February 2014, the growth has made up 0,25%. Monetary Policy Committee of NBG has declared on the last session, held on February 11, that as of the current forecast, if other shocks, impacting on the economy, are not revealed, monetary policy rate will be within 5% before the end of 2015.

Bidzina Ivanishvili: Banks Need to Warn Customers About Currency Risks

he former Premier of Georgia regards, that banks are obliged to provide detailed information to the customers about the currency risks. “Specialist of the banks are obliged to explain the risks in detail to the pensioners or businessmen, who addresses them for mortgage loan. Most of the customers, who suffered from mortgage loans, simply put their houses in the bank and took the credit, but later, when the case concerned to the house sale, they were under the shock. They did not realize such risks from the beginning. Of course, we lack experience and knowledge in this sphere as well. Notification is not more insulting than that”, Ivanishvili has declared in an interview with “Kviris Palitra”. In addition, he has answered to the critics of his interview, given to the television. Ivanishvili has

declared in an interview given to “Imedi” by the end of January, that problems should be reduced to the population, suffering from GEL devaluation, if they would hire professional bankers for managing of their savings and trusted the right decision. “I do not take my works back and still repeat: if a pensioner takes a credit or professional businessmen, currency changes and circumstances linked to it is a separate profession”, - Ivanishvili has declared to “Kviris Palitra”. Ivanishvili declares as well, that not merely Georgian borrowers have problems caused by currency devaluation. “All currencies fluctuate. For example, the Swiss franc has depreciated by more than 35% towards EUR, so big problems have been created to them, who had credits”, former Premier has declared.

3 Georgian Citizens tied to HSBC Scandal Producer Price Index is increased by 0,8% in January

roducer Price Index is increased by 0,8% in January, 2015 comparing to December, 2014. According to “Sakstat”, the index is grown by 4,8% comparing to January, 2014, while - by 70,4% comparing to the average of 2005. The price change on the manufacturing industry has made the basic impact on the formation of the index in January 2015 compared to the previous month. However, prices have been increased by 1,2% and it has been reflected by 1,02 percentage point on the total rate of percentage change. Costs have been significantly grown on food staff (including alcohol beverages), tobacco production (3,1%), steel and metallurgical industry (2,6%).

In addition, prices are reduced on the chemical industry (-14,3%). Price change on the following sections had impact on the formation of index through 12-month period: processing industry, prices are changed by 7,8%. As a result, the section’s contribution has totaled to 6,38 percentage point in the total rate of the index percentage change. Cost increase is fixed of the food staff (including alcohol beverages) and tobacco industry (12,5%), the steel and metallurgical industry (7,7%), pulppaper and publishing industry (20,6%). Electro energy, air and water production and distribution: prices are reduced by 6,4%, it has been reflected -0,89 percentage point on the total rate of the index percentage change.

Private direct investments increased by 42% in Adjara in the previous year

rivate direct investment of $276,5 million has been made in the economy of Adjara in the previous year. The figure exceeds by 42% comparing to the index of 2013, - Ministry of Finance and Economy of Adjara has declared.

According to the department, 195 million USD has been invested in the economy of the region in 2013. AT that, 43% of invested private capital accounts for tourism sphere, 32% - construction, 8% - energy, 4% - agriculture, 2% - industry and 2% - other sectors.

eam of journalists from 45 countries unearths secret bank accounts maintained for criminals, traffickers, tax dodgers, politicians and celebrities Secret documents reveal that global banking giant HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws. The leaked files, based on the inner workings of HSBC’s Swiss private banking arm, relate to accounts holding more than $100 billion. They provide a rare glimpse inside the super-secret Swiss banking system — one the public has never seen before. The documents, obtained by the International Consortium of Investigative Journalists via the French newspaper Le Monde, show the bank’s dealings with many clients engaged in a spectrum of illegal behavior, especially in hiding hundreds of millions of dollars from tax authorities. The secret files obtained by ICIJ – covering accounts up to 2007 associated with more than 100,000 individuals and legal entities from more than 200 nations – are a version of the ones the French government obtained and shared with other governments in 2010, leading to prosecutions or settlements with individuals for tax evasion in several countries. Nations whose tax authorities received the French files include the US, Spain, Italy, Greece, Germany, Britain, Ireland, India, Belgium and Argentina. The reporters found the names of current and former politicians from Britain, Russia, Ukraine, Kenya, Romania, India, Liechtenstein, Mexico, Tunisia, the Democratic Republic of the Congo, Zimbabwe, Rwanda, Paraguay, Djibouti, Sen-

egal, the Philippines and Algeria, among others. The document also deals with citizens of Georgia. In particular, according to the leaked information, clients associated with Georgia stored $ 29.4 million and Georgia ranks 132 by volume of stored amounts. In particular, from 1975 until 2006 31 bank accounts were opened in HSBC by personsassociated with Georgia, where a maximum amount of one of the clients reached $ 10 million. In addition, out of 100 000 suspected persons 25 clients are associated with Georgia, three of them have Georgian passports. HSBC commenced banking operations in Georgia in June 2008. This brought to 84 the number of countries and territories in which HSBC has a presence. After ten months of operations the bank has created a solid customer base, increased the capital by $5million, doubled its number of employees from 44 to 86 and opened another branch to further improve the customer experience. The Bank’s start-up, paid in capital as at 23 June 2008 was GEL23.9mln. In March 2009 the capital was increased by $5 million and at present HSBC Bank Georgia’s capital is GEL 32 272 880. The documents were downloaded by a former computer security expert at the giant bank HSBC, and they were released over the weekend by the International Consortium of Investigative Journalists. The documents contain records of some 30,000 accounts kept at HSBC’s Swiss subsidiary between 2005 and 2007. The accounts contained almost $120 billion and were tied to politicians, royalty, designers and sports figures in every part of the world. They were also tied to corrupt businessmen, dictators, arms industry officials and high-end criminals.

currency caucasian business week

February 23, 2015 #88

Choices that Greece Faces: Interview with Mads Koefoed

Mr Koefoed is head of macro strategy at Danish Saxo Bank. Mads prefers a quantitative approach when analyzing the global economy, but also stresses the importance of the debt cycle for understanding today’s macro-economic developments. Mads publishes daily comments on TradingFloor.com and is a regular commentator at on Saxo TV and other broadcast media. - What does the current emergency plan look like and how would it have continued if there had been no elections in Greece and everything ran according to the former plan? - The Troika, consisting of observers from the European Commission, ECB, and IMF, had voiced disapproval of unfulfilled requirements ahead of the Greek elections last month. Despite

these, however, it was widely expected that the Troika and the Greek government would eventually agree to further loans. Greece may have made noises about funding itself in the market, but Greek government bond yields surged towards yearend showing the Greek administration what the market thought of that idea. - What will happen in case of disagreement at

the end of February, when the upcoming emergency plan ends? - If nothing is agreed, Greece will run out of money as soon as next month, plain and simple (unless, of course, funding can be secured from elsewhere, such as Russia.) Ultimately, we could see a disorderly departure by Greece from the euro area, the implementation of a new currency and capital controls. - Tsipras is apparently considering a bridging plan for several months in order to have more time for negotiating an additional emergency plan. What might be the parameters of this plan? - Any temporary bridge financing will come with firm conditions similar to those already in place. - The requirements set by Greece (who will not acknowledge any plan similar to those already approved), and those set by Germany, (who insist on not writing off any further debt), are they compatible? What might be their agreement? - I still expect a deal to be agreed eventually, which will be close to the one already in place, but perhaps with some concessions to new Greek prime minister Tsipras. However, he has given himself little room to maneuver due to his aggressive stance ahead of his victory at the January elections. - According to you, what is the most likely outcome? Will they come to an agreement today? Will they ever come to an agreement? When and about what? - A deal is still the most likely outcome, but it will probably not be agreed as soon as today. We

could well get a lot closer to the end of February before a deal is struck. - The probability of Grexit, did it change somehow? What impact would a Grexit have on Greece (shares, change, international cooperation….) and the rest of Europe (shares, Euro, stability and future of EU…) - The key concern should ‘Grexit’ happen is how it will impact the (remaining) euro area countries. While there is no doubt that there is less direct contagion risk now compared to 2-3 years ago as European banks are generally much sounder now and have less exposure to Greece, unforeseen rippling effects may nevertheless take place and ultimately put pressure on other, more systemically important, countries, such as Italy. Let me stress, however, that we expect a deal between Greece and creditors to be struck, and hence Grexit will be avoided. - Which countries would be politically threatened, if Greece got lighter conditions than it has at the moment? (Portugal, Spain, Italy… anyone else?) Is it the fear of voters who do not wish for hard reforms, which are not necessary for Greece or rather the fear of the “revolt” directly from their political representatives? - The rise of populist parties in other peripheral euro countries, such as Italy and Spain, highlight both the risk of giving in to Greek demands and the risk of austerity fatigue, which is spreading in Southern Europe. Spanish party Podemos is popular at the moment, gaining in polls despite an improving Spanish economy.

Possibly Another Week of Volatile Moves In the Forex Market

ast week’s disappointing US retail sales data, surprisingly higher uptick in weekly jobless claims coupled with improved growth forecast in Bank of England’s quarterly inflation report, news of Russia-Ukraine cease-fire agreement and better-than-expected GDP print from the Euro-zone led to a third week of consecutive losses for the overall US Dollar Index (I.USDX). US retail sales declined for a second consecutive month, dropping by 0.8% in January following a 0.9% drop in December. Meanwhile, BOE’s hawkish comments in its quarterly inflation, signalling to a possible interest-rate hike in 2016, and a stronger-than-expected 0.3% Eurozone GDP growth in the last quarter of 2014 contributed towards the US Dollar weakness. Going forward the monetary policy meeting minutes from the Fed and BoE’s last meetings along with employment data and retail sales data from UK stand out from this week’s economic releases. Apart from the FOMC monetary policy meeting minutes, investors will also track the release of two regional manufacturing indices along with the housing data from this week’s US economic calendar for fresh signs of strength in the US manufacturing and housing sector. Investors will also be focusing on the Bank of Japan’s monetary policy decision and subsequent press conference along with the release of the flash version of manufacturing and services PMI data from Euro-zone. Here is a brief overview on some of the important market-moving events scheduled during the course of the upcoming week. From the US manufacturing sector, investors will confront the release of two regional manufacturing indices, namely - Empire State Manufacturing Index and Philly Fed Manufacturing Index are scheduled for release on Tuesday and Thursday respectively. Following a unexpected jump to 10.0 in January, the Empire State manufacturing index is expected to register a decline and reach 9.1 in February. Meanwhile, the drop for Philly Fed manufacturing index in January was sharper than expected and analysts this time are expecting a minor recovery to 8.8 in February. Moving on to the US housing market, the release of government’s report on building permits and housing starts for the month of January are scheduled for release on Wednesday. Economists expect the number of building permits and housing starts to hold steady above the 1 million mark and come-in at 1.08 and 1.07 million units annualized rate respectively. Data from US manufacturing and housing sector will be scrutinized closely for fresh signs of strength in the ongoing US economic recovery, which would also be helpful in determining further strength for the US Dollar. The key event from this week’s US economic calendar, however, will be the minutes from the Fed’s latest policy meeting, scheduled for release on Wednesday. The Fed remains optimistic over the pace of economic recovery. This accompanied with strong US labor market conditions has continued fueling speculations of an earlier-than-expected interest rate hike by the central bank. Hence, investors will continue watching the Fed meeting minutes keenly in order to determine the timing of the possible first rate-hike. Should FOMC meeting minutes continue reiterate to maintain patience approach before kicking-off the rate-hike cycle, it could possibly lead to extension of the short-term corrective move for the US Dollar. From the Euro-zone, investors remain focused on the key developments on discussion over Greece bailout terms and a possible resolution to the Greek drama from the Euro-zone finance ministers meeting on Monday. Euro-zone ministers are working to reach an amicable deal that would help Greece to avoid a default on its debt. Investors will also be focusing on the release of PMI data, a leading indicator of economic health, for both manufacturing and services sector from the Euro-zone. The flash reading of the PMI numbers from Euro-zone’s two largest economies, France and Germany, along with the broader Euro-zone PMI for the month of February are scheduled for release on Friday. The German manufacturing and services PMI are expected to show continuous expansion while the French PMI figures are expected to reflect contraction in both manufacturing and services sector. The overall Euro-zone PMI data, however, is expected to show activity in manufacturing and services sectors expanding at a slightly higher pace that in the previous month. Other key economic release featuring this week’s Euro-zone economic calendar include German ZEW Economic Sentiment for February and is scheduled for release on Tuesday. After last week’s slightly better-than-expected Euro-zone GDP print, improvement in PMI figures is likely to extend further support for the Euro-zone common currency, Euro. Dominant UK economic releases from this week’s economic calendar consists of UK inflation data, employment reports, retail sales data and minutes from Bank of England’s latest monetary policy

meeting. UK inflation report, scheduled for release on Tuesday, is expected to remain subdued and come-in at 0.3%. The lower inflation expectations already seems to be priced in by the market and hence lower inflation seems unlikely to fuel expectations of a interest rate hike delay by BoE. The UK labor market report and BoE monetary policy meeting minutes, scheduled for release on Wednesday, are likely to continue probing some volatile moves for GBP pairs. The UK labor market report is expected to show the number of people claiming unemployment related benefits declining by 25,200 and the unemployment rate holding steady at 5.8%. Despite a slowdown in inflation and concerns in the global economy, BoE, in its quarterly inflation report last week, remained upbeat on the inflation and economic growth projection. Hence, this week’s minutes from BoE’s latest policy meeting would help investors in determining the timing of a possible rate-hike by the central bank. UK CPI - Inflation rate for the last 10 years: December 2004 to December 2014

Meanwhile, consumer spending which remains supportive pillar of UK’s economic recovery, is expected to have declined in January. Consensus forecast retail sales for January, scheduled for release on Friday, to have declined by 0.1% on a month-on-month basis. Relatively stronger retail sales data and (or) better-than-expected employment reports would eventually result into continuation of the near-term upward trajectory for GBP pairs. Elsewhere, this week’s BoJ’s monetary policy decision, scheduled to be announced on Wednesday is likely to prove a non-event for the Forex market. However, market player would be keen to see BoJ’s evaluation of the latest economic conditions after the release of GDP data on Monday, that showed Japanese economy expanding at a slower-than-expected pace of 0.6% in the Oct. to Dec. 2014 period. With the US Dollar already in short-term corrective mode, any positive developments from the Greek drama coupled with relatively strong fundamental data from other economics could possibly trigger extension of the near-term pull-back move for the US Dollar. Admiralmarkets.ge/analytics/ facebook.com/adimralmarketsgeorgia/

February 23, 2015 #88

Research

caucasian business week

neighborhood Georgia, Azerbaijan play important role in Europe’s energy security – FM

E Types of Consumers on Georgia’s Bank Market

arket Intelligence Caucasus, a TNC exclusive licensee in the South Caucasus has conducted a research on financial behavior of the population in

Georgia. How does an averaged statistical Georgian conduct in relation with financial institutions? The population was grouped in 7 segments due to their behavior: It is interesting three segments are oriented on loan products and these segments constitute over one third of the Georgian population. The ratio of credits-oriented segments is 18%. These consumers keep saturated finance portfolio. They consume almost all bank products. The have got accounts, cards, loans, deposits. At the same time, a major ratio in total portfolio is recorded for loan products. These segments record three times higher ratio of loan products compared to the averaged market indicator. New Creditors=8%. This segment records young people with less experience of relation with financial institutions. They keep no deposits. Their relations with the bank sector started by salary cards and installment payment schemes. At the same time, they have acquired clear loan-taking orientation. Young people in this segment have recently started working and are optimistic. They do not expect something to threaten their incomes and they are not afraid of taking new credit liabilities. The Indebted Segment=13%. This segment also records saturated portfolios. Citizens of this segment have taken all types of bank products. The volume of loan products in this segment are 2.5 to3 times higher compared to the averaged market indicator and in this respect this segment shows less difference from the first segment (Credit hunters), but there is one important and unfortunately, dramatic fact: their incomes do not suffice for their credit liabilities. Therefore, this segment cannot pay loans or pay them with much difficulty. Naturally, they either are included in the Black List or they apply to some new official

and unofficial institutions to take new loans and cover old ones. What about other segments? This fifth segment involves over one fifth part of the population. This segment also records saturated portfolio and almost all bank products with equal portions. The main thing is this segment has got potential to take new bank products. Therefore, commercial banks find this segment the most interesting and desirable. The segment of the so-called Constrained Consumer is almost of the same size. Citizens in this segment keep one account or one credit card, non-salary card. A small part in this segment also owns a credit card and installment schemes. This segment records the most number of the unemployed people and this factor mostly determines deficiency of their portfolios, as well as the name of the segment. The segment of depositors may be called the most conservative. This category owns all types of accounts and cards. A small part also owns a credit card and installment payment scheme. The main thing is that in this segment the volume of deposits is 8-9 times higher compared to the averaged indicator. Finally, Invaluable Consumers – this segment records a huge number of employed citizens, but a major part of them are unqualified workers. Over half part in this segment has no higher education. They spend over half part of their incomes on food and they cannot make savings. Therefore, this segment has no preconditions to keep saturated financial portfolios. Moreover, people in this segment keep only salary cards and their relations with the bank sector are confined by this factor. Many citizens in this segment have not even taken decision to apply to banks and choose some commercial banks themselves. They were just given salary cards at their job places and told which bank would issue their salaries. So, dear friends, tell met about bank products you have and I will tell you who you are! www.wom.ge

nergy sphere is one of the most important fields of cooperation between Georgia and Azerbaijan, Georgian Foreign Minister Tamar Beruchashvili said on Feb.19. The foreign minister made the remarks during a joint press conference with her Azerbaijani counterpart Elmar Mammadyarov who has arrived in Georgia on a two-day visit. “Georgia, as an electricity producing country and as a transit country, plays a special role together with Azerbaijan in ensuring Europe’s energy security,” said Beruchashvili. The foreign minister added that the two sides closely cooperate in the implementation of the Southern Gas Corridor project. “Naturally, the geostrategic position of Georgia and Azerbaijan allow them to develop the transport corridor between Asia and Europe as well,” she said, adding that the project for construction of BTK railway, which will link three countries – Georgia, Azerbaijan and Turkey – is a proof of this cooperation. The minister said that the Georgian section of the BTK railway has been successfully tested. Baku-Tbilisi-Kars railway is being constructed on the basis of the Georgian-Azerbaijani-Turkish intergovernmental agreement. The State Oil Fund of the Republic of Azerbaijan (SOFAZ) finances the project in accordance with the Azerbaijani president’s decree ‘On the implementation of the Baku-Tbilisi-Kars project activities’ dated February 21, 2007.

Turkish central bank’s head can be sued for high inflation

prosecutor of a court in Ankara, Serif Aydin, filed a lawsuit against the head of Turkey’s central bank, Erdem Basci. Turkish news channel Haber7 reported that the prosecutor accuses Basci of serious material damage inflicted to Turkey’s citizens as a result of an erroneous interest rate policy of the central bank. The prosecutor said that, in case of a trial, the Turkish central bank’s head can be imprisoned for up to two years. On Feb. 10, Turkey’s President Recep Tayyip Erdogan criticized Basci’s work, saying that if the central bank’s head can’t cope with his duties, he will be held accountable. “Despite the fact that the government has repeatedly demanded that the central bank lowers the main interest rates, the regulator hasn’t until today responded to this demand,” said Erdogan.

Coca-Cola sounds warning over Russia

oca-Cola Hellenic (HBC), the second biggest bottler of Coca-Cola products, has announced an 11.4 percent drop in fourth quarter profit, warning of further severe market decline in its biggest market Russia. Although Wednesday’s earnings report praised the “good performance” in Russia, as well as Nigeria, Poland, Austria, and Greece, the company’s boss is unsure about the year to come “The market will decline, and we are working to hold the decline [in Russia and Ukraine] to midsingle digits,” Dimitris Lois, CEO of the Swissbased bottler said, as quoted by the Financial Times.

Economist: Armenia exports dropped in 2014

n accordance with the results in 2014, exports from Armenia have fallen by about 8 percent. Economist Gagik Makaryan, who is also Chairman of the Republican Union of Employers of Armenia, told the abovementioned at a press conference on Tuesday. In his words, the main reason is the reduction in exports to Russia, since the purchasing power demand has dropped in this country.

WORLD NEWS Saudi Arabian Oil ‘in talks’ to raise a $10bn loan

audi Arabian Oil Co., the world’s largest oil exporter, is in talks with banks to raise a $10 billion loan, Bloomberg said. The money could be used to fund acquisitions and other investments, according to sources. Known as Saudi Aramco, the company is negotiating with international and local banks to replace an undrawn $4 billion loan, the sources said. The oil exporter is expanding into refining and petrochemicals and seeking to boost ties with Asia.

Inflation in France negative in January

nflation in France was negative in January for the first time in more than five years, AFP reported. Prices in the eurozone’s second-biggest economy declined by 0.4 per cent in January compared with the same month last year, the national statistics agency INSEE said on Thursday. It was reported earlier this month that prices in Germany were also declining by 0.4 per cent. The fall in eurozone inflation is linked to the dramatic fall in oil prices, resulting in cheaper petrol and to a sluggish economy, with weak demand.

ECB approves €3.3bn expansion to emergency funding for Greek banks

he European Central Bank approved a €3.3 billion expansion to emergency funding for Greece’s banks, Bloomberg said, citing a European official. At a meeting of the ECB’s Governing Council in Frankfurt on Wednesday an increase was reportedly approved in the maximum amount of emergency liquidity assistance the country’s lenders can draw down from their local central bank. Lenders can now access €68.3 billion, up from the €65 billion setlast week.

Buffett’s Berkshire Hathaway exits $3.7bn investment in Exxon Mobil

arren Buffett’s Berkshire Hathaway exited a $3.7 billion investment in Exxon Mobil amid a slump in oil prices, Bloomberg said. Berkshire has “not really had the hot hand in energy,”according to Fadel Gheit, an analyst for Oppenheimer & Co. in New York. Crude has fallen by about half since June as US production surged and the Organization of Petroleum Exporting Countries (OPEC) resisted output cuts.

Swiss police raid HSBC Geneva office in money laundering probe

he Swiss subsidiary of HSBC was searched on Wednesday by officials after prosecutors in Geneva said they are opening a money laundering investigation into the bank’s alleged illegal tax activity. The premises of HSBC Private Bank (Suisse) were searched by authorities, AP reported, and the investigation could possibly extend beyond the bank to any clients participating in money laundering. The investigation is being driven by “recent published revelations” of HSBC’s Swiss private banking arm that was accused of helping terrorists, royalty, and drug dealers conceal their identities to avoid taxes.

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

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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 Corner House Tbilisi, I. Chavchavadze ave. 10, Tel: 0322 47 00 49; Email: contact@cornerhouse.ge 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 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 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

GSS Car rental offers a convenient service for those who are interested in renting car in Georgia. Rental fleet mainly consist of Japanese made SUV’s, the company has various models of cars including sedans and minivans which are in good technical condition. Contact information: Email: info@gsservices.ge. Address: Shalva Dadiani 10

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

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

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

The Best Georgian Honey of chestnuts,acacia and lime flowers from the very hart of Adjara Matchakhela gorge in the network of Goodwill, Nikora and smart

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