Caucasian Business Week #90 by Caucasian Business Week

DISTRIBUTED FREE OF CHARGE

BUSINESS WEEK March 9, 2015 #90

March 92, 2015, Issue 90 GEORGIA

IFC, GEORGIAN GOVERNMENT AND TBC BANK PARTNER UP IN SUPPORT OF SMALLER BUSINESSES

n March 5 , 2015 TBC Bank, Entrepreneurship Development Agency and IFC, a member of the World Bank Group signed a Memorandum of Understanding aimed at supporting smaller businesses in Georgia. Pg. 11 th

GEORGIA IS THE FIRST POST-SOVIET COUNTRY TO HAVE LEGITIMATE MICROSOFT PROGRAMS

eorgia is transforming its information technology (IT) sector and stamping out the illegal use of pirated Microsoft products. Pg. 5

WWW.CBW.GE caucasian business week www.facebook.com/CBW.ge Partner News Agency

caucasian1 EBRD to triple its financial support for Georgia

BE INFORMED, DO BUSINESS

HOW MUCH WILL BANK OF GEORGIA’S NEW OFFER INCREASE THE COST OF YOUR LOANS?

After restructuring mortgage loans become 34% more David Iakobashvili: expensive, auto loans become 42% more expensive and Money must consumer loans become 40% more expensive Pg. 5 bring profit, otherwise it should vanish Pg. 8 Ceasar Chocheli: Local production is the main key for GEL stabilization

GEOSTAT: FEBRUARY RECORDS GROWTH IN FOOD PRICES

A D

ccording to the Statistical Service, in February 2015 prices for services in the health system increased 0.9%. Pg. 7

Pg. 8

BEER PRICES RISE BY GEL 0.25-0.30 ue to the 50% increase in excise taxes and the devaluation of the national currency, the beer prices have risen on the Georgian market. Pg. 9

IRAN AND GEORGIA MAY RESTORE DIRECT FLIGHTS

estoration of direct air links between Georgia and Iran can get back on the agenda - it all depends on how actively the Iranians will arrive in Tbilisi since March 21. Pg. 9

Pg. 4

NATIONAL BANK RESPONDS TO ACCUSATIONS

Pg. 6

MERCURE HOTEL TO OPEN IN TBILISI IN SUMMER

Nino Zambakhidze: There is a threat in suspending projects approved within preferential agriculture credit

Pg. 8

Lekso Popiashvili: Government should not suspend construction of Khudon Dam because of a select group’s interests Pg. 8

ercure” hotel operated by “Accor Group “ will be opened in Tbilisi. The construction is being carried out by “Macro Construction” company. Pg. 9

NEIGHBORHOOD AZERBAIJAN PLAYS IMPORTANT ROLE AS FIRST SUPPLIER OF CASPIAN GAS TO EU

zerbaijan plays an important role as the first supplier of the Caspian gas to the EU market, analyst at “Eurasia Energy Observer” Andrej Tibold noted. Pg. 13

Analytics

Pg. 8

Ongoing and Future Projects

TBILISI RESIDENTIAL OVERVIEW

Pg. 12

Currency

GREAT DEPRESSION VS TODAY’S MACROECONOMIC PICTURE IN TRADING

NFP AND CENTRAL BANK MEETINGS TO DOMINATE THE MARKET

GOVERNMENT NEWS

2 MAIN EVENTS POLISH SENATE RATIFIES EU-GEORGIA ASSOCIATION AGREEMENT

he upper house of the parliament of Poland, the Senate, ratified on March 6 the association agreement between the EU and Georgia, Georgia Online reported citing the Foreign Ministry of Georgia.

SOLIDARITY FUND FINANCES TREATMENT OF 70 ILL CHILDREN

he Government-initiated Solidarity Fund has financed the treatment of 70 children and young patients suffering from cancer. Government Administration deputy head Nino Kobakhidze emphasized more than 40,000 employees from 240 public institutions and 16 private companies had contributed to the Solidarity Fund in the past seven months.

TBILISI PREPARES TO IMPOSE NOISE RESTRICTIONS

aking an excessive noise during the day or in the evenings could soon be a punishable act in Tbilisi. The Parliament of Georgia is making moves to approve a bill to regulate noise control, initiated by Tbilisi City Council (Sakrebulo). The noise regulations, developed by Tbilisi Sakrebulo, will be sent to Parliament on March 9. Parliament will debate the bill and if approved, the law will come into effect in October 2015.

PM GARIBASHVILI: ‘WE NEED TIME TO RESTORE JUSTICE AND CITIZENS RIGHTS’

estoration of violated rights of our citizens has its rules and we cannot artificially speed up the process”, Prime Minister Irakli Garibashvili said today while presenting a new department of the Chief Prosecutor’s Office. The new Department of Investigation of Offences Committed in Legal Proceedings was created to investigate crimes committed by public servants where their actions resulted in citizens’ suffering physical and/or material damage. Specifically, the new unit will initially focus on investigating alleged

instances of criminal acts mentioned in claims or statements filed with the Office since October 1, 2012. Of these cases, investigative priority will be given to crimes involving unlawful deprivation of property and acts of violence, which include beating and torture, inhumane and degrading treatment and all crimes in which a public servant or an equivalent person is accused. “For the past two years we have done everything to restore the violated rights of our citizens. We understand our responsibility towards these people. In October 2012 our Government studied thousands of

such cases,” Garibashvili noted. “As you know, former government’s senior officials have been detained and criminal proceedings have started against those people whose activities were linked to the years of unlawfulness, injustice, human oppression and insulting incidents. Restoration of violated rights of our citizens has its rules and we cannot artificially speed up the processes,” he said. Garibashvili noted that hasty steps towards restoration of justice might sacrifice the interests of Georgia and future generations, which was “totally unacceptable.” “That is why we cannot hurry. All

GEORGIAN SLAMS RUSSIA’S MILITARY EXCERCISES IN OCCUPIED ZONES

fficial Tbilisi is expressing “extreme concern” after Russian military held joint training exercises in Georgia’s occupied Abkhazia and Tskhinvali (South Ossetia) regions. Georgian Foreign Ministry said it strongly condemned yesterday’s military training exercises, hosted by the Russian Federation on Georgia’s occupied land.

NEW COMMUNITY CENTRE OPENS IN RURAL GEORGIA

eorgia is taking action to tackle the effects of the recent economic developments. Prime Minister Irakli Garibashvili shared the country’s plan of action with representatives the Analytic Mission of International Monetary Fund (IMF). The sides met in Tbilisi yesterday and discussed the current situation in the region and the major factors that have influenced the economies of other countries in the region. IMF said within the framework of the Mission, Georgia’s economic processes and macro-economic parameters will be evaluated and a risk analysis will be carried out in cooperation with

the Government and the National Bank. The Georgian side was represented at the meeting with IMF’s Analytic Mission by a number of officials, including Vice Prime Minister and Minister of Economy and Sustainable Development Giorgi Kvirikashvili, Finance Minister Nodar Khaduri and the country’s Deputy Finance Ministers. Last week IMF Resident Representative in Georgia Azim Sadikov told Rustavi 2 television channel that the Georgian economy should be comprehensively evaluated in light of the recent economic hardship, and the external factors affecting the economy should be adequately reviewed.

undreds of Georgian people displaced by conflict and violence who live in sub-standard collective centres have been gifted apartments in their name for the symbolic price of one GEL. 109 internally displaced families living in substandard conditions at the hospital building in Kutaisi, in Georgia’s west, will soon be gifted apartments in a private ownership scheme. The new living facilities were fitted out to suit people with disabilities.

Furthermore, the causes and implications of the “unavoidable” depreciation of the national currency should also be investigated, and once the situation was comprehensively reviewed, action should be taken accordingly, he said. The IMF representative voiced his opinion about how to restore order and stability in the Georgian economy, following recent regular meetings with Georgian authorities, where parties discussed the current economic situation in Georgia and the “unavoidable” depreciation of the Lari (GEL). “We have been discussing this issue together with Georgian Government representatives. Our Mission started its activities yesterday. After the correct diagnosis we will continue cooperating with the Government and the National Bank of Georgia to think about appropriate reciprocate activities,” Sadikov said. For the past several days the Government’s economic team has been holding meetings with IMF representatives in an attempt to stabilise the country’s currency crisis. It was earlier announced IMF would advise the Government’s economic team about which financial institution it should take out a loan with – the money of which would be spent on implementing different infrastructural projects. The Government’s economic team was exploring the idea of the World Bank, the Asian Development Bank and the European Bank for Reconstruction and Development as possible donor financial institutions, he said.

PARLIAMENT’S SPEAKER: ‘NATO MEMBERSHIP WOULD PREVENT NEW WAR WITH RUSSIA’

new community centre is about to change the lives of people living in a remote village in eastern Georgia. Georgia’s Minister of Justice Thea Tsulukiani opened a new library and community centre in Nukriani village, eastern Georgia today. The new facility will give residents the opportunity to access a variety of public and private sector services, such as banking and mobile operators. The space was also a place where locals could complete official documentation, as it was a public site connected to the Ministry of Justice.

109 REFUGEE FAMILIES GIFTED NEW HOMES IN KUTAISI

processes need good analysis and decision-making, but one thing is clear – everyone should be responsible for the crimes they have initiated and organised and it should be clear for all governments, that no one will stay unpunished in Georgia, no matter who they are.” The Prime Minister noted medium and lower level public officials who had abused their power but did not commit a crime will not face repercussions or bear responsibility for their actions. “The investigation will focus on the organisers and initiators of crimes,” he noted.

GEORGIA’S ECONOMY IN FOCUS AT IMF MEETING

GEORGIAN PRESIDENT PARDONS 191 INMATES 91 inmates, including three women facing life behind bars, have been pardoned by Georgia’s President Giorgi Margvelashvili. Three female prisoners serving life sentences have had their sentences slashed. Instead of facing life behind bars, the women will be eligible for parole after serving a total sentence of 20 years. President Margvelashvili signed two documents today regarding the pardon of the three female inmates – two days before International Women’s Day on March 8.

March 9, 2015 #90

caucasian business week

or Georgia, becoming a member of the North Atlantic Treaty Organisation (NATO) means hundreds of years of conflict with Russia would be ended and both countries can move forward in a positive way, says Georgia’s Parliament Speaker. David Usupashvili, who is on an official visit to the United States (US), delivered a speech at Georgetown

University in Washington D.C. and talked about Georgia’s western aspirations. He said Russia had provoked Georgia for the past 200 years, and “for some unexplained reason”, Russia believed Georgia was its territory. “We are not interested at all in a devastating war between NATO and Russia on our territory,” he said. “We don’t want to drag NATO states into a war with Russia.”

BUSINESS WEEK caucasian

The Editorial Board Follows Press Freedom Principles Publisher: LLC Caucasian Business Week - CBW Address: Shrosha Street 8/10 Director: Levan Beglarishvili Mobile phone: 591 013936; 577965577 Commercial Department: Irakli Lekvinadze Email: caucasianbusiness@gmail.com WWW.CBW.GE

While talking about the threats posed by Russia, Usupashvili said being a NATO member would be a “prevention mechanism” for Georgia. “We have learnt lessons from history and we cannot remember a single case of NATO-Russia or NATO-Soviet Union military confrontation. So NATO is a prevention mechanism where NATO member states protect themselves and Russia or the Soviet Union could not attack them.” “So, when we want to be a NATO member, this means the war in our country is finished and [we don’t want to] restart another war against Russia.” On Monday, French president Francois Hollande and NATO Secretary-General Jens Stoltenberg gave a news conference at the Elysee Palace in Paris where Hollande expressed opposition to expanding the military alliance. “France’s position is to turn down

would-be members. We consider that expanding NATO is not a priority at this time,” he said. Last month, Russian Foreign Minister Sergei Lavrov said any attempt to bring Georgia into NATO would not contribute to the stability in the South Caucasus and added would take “measures” if NATO tried to “lure” Georgia into the alliance. NATO-GEORGIA RELATIONS Georgia is an aspiring NATO member country and is working towards membership. Georgia actively contributes to NATO-led operations and cooperates with allies and other partner countries in a variety of areas. At the NATO Bucharest Summit in April 2008, allied heads of state and governments agreed Georgia would become a NATO member. This decision was subsequently reconfirmed at successive NATO Summits in 2009, 2010, 2012 and 2014.

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

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

March 9, 2015 #90

PUBLICITY

caucasian business week

INTERVIEW

4 HEADLINES GEORGIA INAUGURATES NEW PROJECT TO PROMOTE ECONOMY

eorgia begins a new project, which aims to promote sustained economic development and stability of the enterprises in the country with the assistance of the US government, referring to the association of trade unions of Georgia, the information-analytical portal Georgia Online said March 4.

EU LAUNCHES 2.7 MILLION EUR PROJECT FOR GEORGIA’S VOCATIONAL EDUCATION SYSTEM REFORMATION

he European Union (EU) has launched a 36month project to provide support to Georgia as it undertakes the Vocational Education Training reform and other reforms in the country’s labour market. The project will provide technical assistance and support in skills development and in managing and monitoring policies, evaluation of reform activities and human resources management.

GEORGIA TO HOST EURO-ASIAN SKI RESORTS CONFERENCE IN 2017

eorgia is gearing up to host the third biannual Euro-Asian Ski Resorts Conference in 2017. The popular event aimed to raise awareness of the variety of international ski resorts and encourage the development of European and Asian winter tourism markets. More than 300 officials involved in summer and winter mountain areas are expected to attend the conference, which is being organised under the auspice of the World Tourism Organization (UNWTO). A special guest of the annual event will be UNWTO Secretary-General Taleb Rifai.

GEORGIA PREPARES FOR DIGITAL BROADCASTING

eorgia is going digital. The country’s broadcasting signals are being overhauled and televisions will soon be operated by digital signals. Households around the country must purchase a special top-box for about 50-100 GEL to be able to receive digital signals. If households do not have a top-box by June 17, 2015, when the analogue signal will be cut off, they will no longer be able to receive a television signal. However from now until mid-June, analogue and digital signals will work in parallel in the Georgian capital Tbilisi. Then step-by-step, the digital signals will be distributed all over the country.

ANNUAL INFLATION RATE EQUALS 1.3% IN GEORGIA

n February 2015 the monthly inflation rate in Georgia reached 0.1 percent. As for the annual inflation rate, it equalled 1.3 percent in February 2015, stated data published by the National Statistics Office of Georgia (Geostat). In February, the following groups were mainly responsible for the slight monthly inflation increase: Health: The price of healthcare increased 0.9 percent, with a relevant contribution of 0.09 percentage points to the overall monthly inflation rate. It is worth noting prices of the subgroup of medical products, appliances and equipment rose by 2.4 percent. Prices were also higher for out-patient services (0.7 percent) and hospital services (0.3 percent).

GOV’T FINANCES SPRING CULTIVATIONS TO BOOST AGRICULTURE

armers throughout Georgia have started spring agricultural works, which is being financially supported by the Government. The state will spend 50 million GEL to help 800,000 small farmers across the country with spring cultivations. Under the Small Farmers Spring Works Assistance Program 2015, small farmers in the regions of Georgia will get their lands cultivated by state-owned tractors. They will also receive 50 GEL agricultural cards, which will enable them to buy agricultural goods according to their own choice.

March 9, 2015 #90

caucasian business week

EBRD TO TRIPLE ITS FINANCIAL SUPPORT FOR GEORGIA The European Commission, European Bank for Reconstruction and Development (EBRD) and the European Investment Bank are combining their efforts to give more support to Georgian businesses so they can experience the benefits of the Association Agreement (AA), signed in June 2014 between Georgia and the European Union (EU). Part of the AA was the Deep and Comprehensive Free Trade Area (DCFTA) agreement. This contract was expected to bring many economic benefits to Georgia by giving local firms access to the EU’s single market– the world’s largest. In particular, the DCFTA will create business opportunities, bring better goods and services and boost competitiveness in Georgia. Here is an interview with EBRD’s Director for Caucasus, Moldova and Belarus, Mr Bruno Balvanera discussing in depth the EBRD’s support for Georgia’s EU aspirations.

- EBRD is providing support to Georgia to implement the DCFTA regulations. How would you assess the implementation process and how much has EBRD invested in Georgia in this direction? - On an accumulative basis we have invested about $2.2 billion USD in Georgia. Last year it was a record year. We invested €225 million, which is almost double the €120 million that we had invested in previous years. For 2015 we have a good pipeline of projects and I would expect we will have a year similar to 2014. We are seeing several investments in industrial projects that we have not seen previously. I am optimistic about the trend of investment in the country. The projects are about extension of business activities of companies that are currently working here or new projects in areas that are in line with what the Government has announced in the ‘Produce in Georgia’ program. It might be agriculture or what I call “light industry” – building materials, chemicals, and pharmaceuticals. These are industries which are not very intensive in capital expenditure, a not very big investment but they are intensive in output and in employment. That is something I did not see last year or the year before. This is a good initiative, and I am confident that that we will see more interesting investments than what I have seen over the last few years. - You mentioned project ideas that you say are new for Georgia. Do you think it is time to think about implementing projects in new industries? - Georgia is perceived to be a top reformer country. This is a country where the authorities overcame corruption. The

“It is very important for Georgia to implement industrial projects – which are a new trend for the country – as a way to benefit from the AA” BRUNO BALVANERA EBRD’s head for Caucasus, Moldova and Belarus

private sector accounts for 30 percent. This is eminently a private sector country driven by private sector rules. What the Government is doing right now is to move to what I call a second round of reforms, which is to go deeper into the reforms that were done by the previous government. This is institutional building. We need more institutions that will regulate competition, the broadcasting of signal on TV and telecommunications. This is exactly where the country is moving. Georgia is a signatory of the AA, which now needs to be embraced with European standards. For me the benefits of the AA and DCFTA are probably more on the institution building than in the DCFTA angle. I do not want to say the DCFTA angle is less important. It is important, as Georgia is going to improve the quality of its products and bring them to a level that Georgia can export to Europe. But it will take time before Georgia starts to penetrate the EU market. - As you say Georgia has everything but it never achieves. How can Georgia finally see the beneficial results? - With regard to economic growth 2014 was a good year; [Georgia experienced] more than a four percent growth. If we compare this rate to the large part of EU countries, Georgia did much better. Maybe not at the rate that you would have liked to see, but the Georgian economy has expanded over the last few years. The forecast of growth for this year is around the same number. This may be subject to regional challenges. In order for Georgians to be able to catch up in terms of income per capita, you will need to have sustained growth for many years at a rate significantly higher

than your partners. This was the case we saw in China for 30 years and today China is one of the largest countries in the world. OK, Georgia has not achieved that but I would say that I feel optimistic that Georgia has all the conditions to achieve that. Georgia has a hydro sector that has been developing and that has attracted a lot of FDI. Unfortunately this is an investment that does not produce a lot of employment. Because once you have built the hydro station you just need a few people to operate it. But it is going to produce exports to Turkey that are going to be good. The place of Georgia in the world is to try to experience the model of countries that have been in similar circumstances. I am referring to the Baltic countries. Those are three relatively small countries that are in between the East and the West; they have the legacy of the East but they want to be much more West. If we look at the example of Estonia, which is one of the most advanced countries in terms of e-commerce and e-governance, you can reach it as well. Georgia has achieved much in terms of e-governance. Georgia has a traditional link with Israel, which is another good example of a country that is [located] in between a difficult area and Europe. Even they do not have the kind of land that Georgia has. Now the Government has a very clear focus on where they need to bring Georgia to a better level. The Georgian market is very small. When you want to bring an investor like Nestle here, and the market is only four

million people, you will not attract it. In that respect the relevant market needs to increase with Azerbaijan for example, which is nine million people, with Armenia, another three million people, and why not also with Central Asia? The second is to expand the industries that are already established here. Overall, I think that Georgia is moving to the second stage of development. First is the creation of institutions and second is the development of the local market. Local investors are extremely important. There are beautiful examples of TBC Bank and Bank of Georgia who are listed on the London Stock Exchange. They are banks that were created by Georgian investors. This is an example of the entrepreneurial mentality that exists in Georgia. They have achieved what any other country of the region has not achieved yet. I understand your frustration that country has done a lot and has very good ranking of the World Bank, but if you look through the window where is the difference? I think it is going to come! - Is it possible for Georgian companies to open a business in the EU? - Theoretically it is possible because the AA allows that but this is not something that I expect will happen in the near future. Why not rather look to increase the quality of Georgian products to European standards and position them well here in Georgia and in the region, and [promote Georgia products] in every country where you have better margins - in the Middle East, in Russia or in Eastern Europe? The benefits are much wider than just Europe.

APPLICATIONS OPEN FOR ‘PLANT THE FUTURE’ PROJECT

udding farmers and agricultural entrepreneurs wishing to get a share of the 15 million GEL Plant the Future project are being urged to apply for financial assistance. The application process opened today for the state-run project, which aimed to co-finance the creation of nurseries and gardens across the country, and in turn, stimulate the country’s agricultural industry. The Agricultural Projects Management Agency noted it had already received a number of applications from farmers who were interested

in participating in the project. The Agency noted 15 million GEL had been allocated to implement the project. The funds would be offered to entrepreneurs over the next two years to co-finance the creation of nurseries and gardens across the country. The Government said the Plant the Future campaign would help farmers produce high quality products that would compete with imported products in the local market. At the same time, this should increase the export potential of Georgia’s agricultural products. In order to be gain financial assis-

tance, candidates should present a detailed concept plan regarding their idea to create a nursery or garden. This should be designed in accordance with the Agricultural Projects Management Agency’s standards. If applications meet the criteria, the Agency will discuss the projects and select the best ones. The chosen projects will be introduced to the Co-Financing Committee, who will then choose which project ideas will be offered financial assistance. Entrepreneurs who wish to create a garden will be offered enough funds to cover 70 percent of plant costs and 50 percent of the cost of an ir-

rigation system. For people wishing to establish a nursery, successful candidates will be offered 50 percent of their total costs. At the same time, project beneficiaries will benefit from the agricultural credit program; where farming cooperatives will receive pesticide sprayers as a gift, the soil testing laboratory costs will be reimbursed for all beneficiaries, and they will be offered practical trainings and theory courses to improve their farming skills. The project envisages the creation of 1,000-1,200 hectares of modern-type gardens and 30-40 new nurseries.

EAST-WEST GAS PIPELINE REHABILITATION PROJECT IS COMPLETE

he rehabilitation process of the East-West Gas Pipeline has finished. The project was financed by United States Agency for International Development (USAID), for which it allocated $62 million USD back in 2010. Today, the country’s Vice Premier and Energy Minister Kakha

Kaladze, the United States (US) Ambassador to Georgia Richard Norland and general director of Oil and Gas Corporation David Tvalabeishvili visited Kutaisi and saw the pipeline. Kaladze said the rehabilitation and expansion project supported the development of Georgia’s safe energy infrastructure. The project was particularly beneficial for residents in

western Georgia, as it will provide the region with a stable gas supply. The new pipeline will also increase the capacity of transported gas. Within the framework of the EastWest Gas Pipeline Rehabilitation project, a 150 km section of the pipeline was modernised. A number of sections were also renewed. These were: Senaki-Poti, Abasha-Senaki, Kutaisi-Abasha,

Zestaponi-Kutaisi and Gori-Kareli sections. Kalade noted Georgia had been going through very difficult phase recently, and new life had to be put into the economy to help the country return to stability. He believed social and infrastructural projects and the country’s energy and healthcare sectors also need to be reviewed.

March 9, 2015 #90

ECONOMIX

caucasian business week

REASONS OFFICIAL AND MARKET EXCHANGE RATES OF GEL ARE DIFFERENT

any considerations and suggestions have been spoken out over the GEL exchange rate devaluation last period. The statement of ex Prime Minister Bidzina Ivanishvili has further stirred up the confusion. Namely, he has accused Giorgi Kadagidze, a president for the National Bank of Georgia (NBG), of the national currency devaluation, as well as of having delayed taking steps for timely settlement of unhealthy moods on the currency market. Besides NBG’s general policy, analytics sexpress serious pretences over regulations for trade in currency. The market seems to be competitive and the exchange rate seems to be determined by the market, but certain doubts arise when the market players’ demands remain classified and NBG publicizes indicators for only the final demand. It is interesting to know what kinds of statements are made by banks to identify which bank affects either devaluation or strengthening of the national currency. The currency market inaccessibility remains a

more disputable issue. Under the current system, the exchange rate is determined at the interbank currency market and neither ordinary citizens nor commercial structures are authorized to take part in trading sessions. We are living in the epoch of Forex, when everybody is able to trade in USD, EUR and any other currencies, but such an opportunity is not applied to the GEL. Analysts assert exclusive players are able to make speculative decisions on the closed market. Consequently, commercial banks are able to earn huge money at the expense of the NBG reserves. Moreover, there are threats major companies will also bear losses because of speculative rates, because they cannot buy USD at currency exchange booths. Under the NBG method, the official exchange rate is determined as the average weighed rate that is fixed at the interbank currency exchange the day before. On the one hand, only banks are authorized to take part in the currency market trading sessions. On the other hand, official exchange rate determination method generates much awkwardness.

As to the current situation, on March 2 NBG’s official exchange rate stood at 2.16 point. The rate was determined at the February 27 trading session, while on February 27 the official exchange rate indicated 2.24 point that was determined the day before. Consumers usually are able to supervise the rate change dynamics on the Bloomberg website. On February 27 we could see the rate was ranging from 2.10 point to 2.16 point, while the NBG rate stood at 2.24 point. When the official exchange rate of GEL shows such a difference from the real market rate, major companies bear serious losses, because they have to purchase currency from banks with the NBG exchange rate. For example, on February 27 major companies had to buy USD with 10%-12% higher rate compared to the currency market real rates. Naturally, all the difference has been accumulated at the banks, where these conversions have been recorded. Georgia remains an imports-dependent country. This situation inflicts losses to ordinary customers, because major importer companies are able to purchase USD in only banks and losses from bank conversion naturally affects the value of their products and services. In the end, the increased prices are paid by the consumers. While, according to the world practice, major and smaller companies are authorized to buy currencies immediately on the currency market and they do not pay conversion fees and have more access to optimal rates.

HOW MUCH WILL BANK OF GEORGIA’S NEW OFFER INCREASE THE COST OF YOUR LOANS? After restructuring mortgage loans become 34% more expensive, auto loans become 42% more expensive and consumer loans become 40% more expensive

o alleviate the negative impact of the GEL exchange rate depreciation, the president of the National Bank of Georgia (NBG) has instructed commercial banks to introduce concrete plans and ease the payment burden on physical bodies, who have taken loans in USD, but receive revenues in GEL. Bank of Georgia has immediately responded to this initiative and announced the introduction of an unprecedented offer for its clients. Later, however, the offer turned out not very unprecedented and it is questionable whether the offer will genuinely smooth the burden on those who have taken loans in USD, but receive revenues in GEL. Bank of Georgia director general Irakli Gilauri noted the clients with a good credit history can apply to the bank and the maturity period of their credits will be extended in automatic regime. This will enable consumers to pay credits in GEL. At the same time, consumers will pay the same interest rates. Bank of Georgia has taken the decision to protect the consumer interests, Gilauri said. It is clear Bank of Georgia’s offer is not unprecedented and it is only a playing with words. This is an ordinary restructuring of a credit, that is, an extension of the maturity period and introduction

of a new schedule for payment. The bank sector has known similar practice for a long time. In case of problematic credits almost all banks offer restructuring terms, while clients with good credit history are able to apply for revising the terms at any time and in most cases commercial banks satisfy similar requests. Moreover the new offer makes Bank of Georgia credits more expensive in the long-term perspective. The point is that the maturity period extensions grow the service costs. After the introduction of the new offer, a major part of the borrowers applied to Bank of Georgia for restructuring their loans, but this category has learnt that the seemingly useful offer extremely grows payments in the form of interest rates. “I have taken a mortgage loan and under the current terms, besides the principal amount, I have to pay 33 000 USD in the form of interest rates, but if I accept the new offer for restructuring the loan, then I will have to pay 52 000 USD, that is I will have to pay 19 000 USD more”, one of the clients of Bank of Georgia noted whose credit has increased by 62% in cost. Naturally, this is a concrete case and it is not expedient to use this case for calculating the growth in interest rates under the Bank of Georgia’s new offer. According to the NBG website, interest rates on

USD denominated loans are as follows: 9.6% on mortgage loans, 13.2% on auto loans, 12.5% on consumer loans. These rates refer to the loans with the maturity period of 5 years and over. In all other cases interest rates are higher. To make the calculation, let’s take the exchange rate of 1.75. Today, under the NBG official data, the exchange rate is 2.16. We will discuss the case with a 10 000 USD loan with a 5 year maturity period. In line with the current exchange rate, a monthly payment on a mortgage loan (with 9.6% interest rate) will be 210.5 USD and the borrower will have to pay interest rates of 2630 USD. With the 1.75 exchange rate the borrower would have to pay 368 GEL a month. But after restructuring the borrower will pay monthly 170 USD and the credit’s maturity period will grow to 79 months and the total interest rate will increase to 3529 USD, up 899 USD (up 34%). In case of auto loans, a monthly payment with 13.2% interest rate will be 228 USD before restructuring. Interest rates will total 3 713 USD. With the 1.75 exchange rate the monthly payment would be 399 GEL. After restructuring the borrower will have to pay monthly 185 USD and the maturity period is extended to 83 months, while interest rates will total 5 301 USD, up 1 588 USD (up 42%). Under the current exchange rate, a consumer loan borrower has to pay 224 USD with 12.5% interest rate. Total amount of interest rate will be 3 498 USD. With the 1.75 exchange rate, the borrower would pay monthly 392 GEL and after restructuring the borrower will pay 181 USD and the maturity period grows to 82 months and interest rate payments total 4 920 USD, up 1 422 USD (up 40%). The mentioned examples show the new offer of Bank of Georgia makes credits very expensive. The terms are said to have been tailored to the consumer interests. In reality, the offer only implies the extension of the maturity period and deteriorates the situation of borrowers. We have taken interest rates from the NBG official website, but, in most cases, physical bodies have to pay higher interest rates and consumers bear more losses.

TOP STORY

GEORGIA IS THE FIRST POST-SOVIET COUNTRY TO HAVE LEGITIMATE MICROSOFT PROGRAMS

eorgia is transforming its information technology (IT) sector and stamping out the illegal use of pirated Microsoft products. Today the country’s Prime Minister signed a special agreement with the computer software giant to give the country access to legitimate licensed Microsoft products and eliminate the use of illegally pirated software in the country. In previous years Georgia was one of the world’s leading countries to sell pirated Microsoft products. An international survey revealed about 130,000 personal computers were sold in Georgia annually and “almost all” were equipped with illegal versions of Microsoft programs. Garibashvili believed replacing illegally licensed software would be “a step forward” for the development of Georgia’s IT sector. This in turn would encourage more people to get into the IT sector and promote more Foreign Direct Investments (FDI’s) into the country. In Tbilisi today the Georgian Government and the American software company signed a license agreement and a Memorandum of Understanding (MoU). Negotiations between the Government and Microsoft to buy legal versions of Microsoft programs started last year. At the time a special commission was established to assess the offers of licensed software companies, prepare a MoU and create a draft law to improve current legislation. Now an agreement has been reached the Georgian Government will start to buy official, licensed Microsoft products. “State institutions will use the licensed programs, which guarantee IT systems security. All public servants will have the latest software of Microsoft,” Garibashvili said. Garibashvili believed replacing illegally licensed software would be “a step forward” for the development of the information technology market in Georgia. He said Georgia was working towards establishing Western standards of property protection, and to do this, the country had to remove its use of unlicensed software. In his opinion this would develop the country’s IT sector and local business, and encourage them to enter international markets. “Unfortunately, many qualified specialists leave Georgia and go abroad to work in jobs there. Now we are creating an opportunity for them to use their knowledge and experience for their country,” Garibashvili said. In 2011, American market research firm IDC studied the global market and concluded Georgia topped the world terms of usage of pirated Microsoft software. In the survey Georgia gained a score of 93, while Armenia scored 89 and Azerbaijan scored 88. About 130,000 personal computers were sold in Georgia annually and “almost all” were equipped with illegal versions of Microsoft programs. In 2010 when Microsoft entered the Georgian market, the use of illegal software was about 95 percent, while by 2013 it had reduced to 91percent.

NBG 6 NATIONAL BANK RESPONDS TO ACCUSATIONS

March 9, 2015 #90

caucasian business week

The National Bank of Georgia (NBG) and the charges against it are still relevant. After ex PM Bidzina Ivanishvili criticized the NBG President, members of the government’s economic team and representatives of the parliamentary majority also disapproved the NBG activities. It is interesting only several experts had blamed the NBG President before Ivanishvili’s criticism and the government members had tightly cooperated with the NBG. Opponents are accusing Giorgi Kadagidze of several faults – steps taken against Cartu Bank in 2011 to 2012, representatives of the Prosecutor’s Office employed at NBG, delayed steps for preventing the GEL exchange rate devaluation, sabotage, operation on behalf of the

United National Movement (UNM). In response Giorgi Kadagidze summoned a briefing saying a deliberate slanderous campaign has started against the central bank and he called on the government to cease attacks on NBG. “I urge representatives of the Authorities, representatives of the Government and members of the ruling political coalition to immediately cease attacks on the National Bank; Similar attacks, first of all, hit the state economy, not me. These attacks make negative affect on investors and are counterproductive,” Kadagidze said. Despite this address, accusations are being still voiced against NBG. Some experts and some members of the government are accusing

OPINIONS ABOUT NBG

Only one of them is a lawyer, who has worked at the Prosecutor’s Office on money laundering prevention issues and NBG finds his experience and qualifications very important, because one of the directions of NBG implies a control and supervision over execution of international obligations in terms of money laundering prevention in the finance sector. It is also fault assertions as if the NBG board must be staffed with only financiers. Apologists of similar approaches should probe into the international practice: a part of the developed countries demand qualifications of a financier or a lawyer for the board membership, while the German and Czech legislations set no restrictions in this respect. The Dutch legislation requires that the board be staffed by members of different professions. - Is Giorgi Kadagidze a protégée of Zurab Adeishvili? - This question is just ridiculous.

With floating exchange rate, no intervention from National Bank is necessary - Mark Griffiths In response to a question on how he would assess the recent accusations towards the National Bank of Georgia, an IMF mission leader Mark Griffiths said that he has never heard anything about corruption in Georgia’s National Bank. He said it is necessary to respect the bank’s independence. “The government and the bank should unite and resolve the existing problems,”- Griffiths remarked. In response to a question about Bidzina Ivanishvili’s comments on the GEL devaluation, Mark Griffiths said that such debates take place in U.S. and Great Britain as well, but privately and not publicly. “Public discussions tarnish a country’s image. That’s why I would like to call on the government to work together, hold debates and resolve these problems together,” Griffiths said. As for spending the National Bank’s monetary reserves, the IMF mission head remarked that when monetary reserves are sold, interest rates increase and economic recession still takes place. As he concluded, no interventions are needed when there is a floating exchange rate in a country.

What happened to GEL was caused by purely external factors - Mark Griffiths It’s purely external factors that caused what happened to Georgia’s national currency, head of the IMF mission Mark Griffiths stated at a conference. In response to a question about why has the lari had gained value in recent days, Mark Griffiths said it is difficult to answer as it is one of the unknown features a floating exchange rate has. “The floating rate implies rises and falls in value in order to balance risks and external factors. It was a great shock, but that’s how the market reacts to the exchange rate,”said Griffiths, adding that the entirety of Europe and many other countries have experienced the same.

IMF: The Government of Georgia and the Central Bank should cooperate The government of Georgia and the central bank should cooperate - Mark Griffiths, head of the IMF mission, said at a press conference “Amid solid economic foundation, reform-minded government and the EU Association Agreement, Georgia has good preconditions to overcome the current challenges”- Mark Griffiths said. Praising government for keeping the budget deficit to 3% of GDP in 2014, well below IMF’s ongoing program target with Georgia, the mission also said that for 2015 the government will need to take measures to keep the budget deficit “under control” as lower than initially forecasted economic growth will result in less than projected tax revenues in the budget. “The government has appropriately taken steps in this direction, including by limiting employee bonuses and by taking efforts to contain administrative spending,”- Mark Griffiths said. In addition, he recommended the government to carry out these decisions and make changes to the budget, which implies an increase in taxes and a reduction of expenditure in order to limit the budget deficit. The head of the mission said that spending on the social safety programs should be maintained and “targeting improved to protect the vulnerable and the poor.

Nodar Khaduri: I cannot Assess NBG Activities “I want to tell you that we have worked jointly with the IMF, but your questions refer to the budget and fiscal policy issues. I cannot assess the operation of the IMF and the National Bank. The International Monetary Fund has said that the state and the government operate correctly”.

Giorgi Volski: IMF Should Have Made Such Statement on NBG for sake of Stability The IMF should have made the statement on NBG for sake of stability. Any statement of the International Monetary Fund, as well as of political leaders may shake the market economy. Hence, I believe the IMF should have made such a statement. However, the field experts have expressed grounded remarks and I agree on them.

the NBG president of sabotage. Deputy Minister of Regional Development and Infrastructure Nodar Javakhishvili has even said the UNM has bribed the IMF Head. As reported, the IMF representative in Georgia Azik Sadikov has positively assessed the NBG activities. “Contraction in foreign trade has hit the GEL. These external factors may to be considered as long-term factors. Therefore, it was impossible to avoid the GEL exchange rate depreciation. Resistance to this process would be counterproductive and Georgia would lose its currency reserves”, Giorgi Baqradze, an advisor to the NBG President, told CBW in response to all accusations.

USD WITHDRAWAL IN 2013-2014

NBG AND CARTU BANK - A police raid seized USD 2 million and EUR 1 million from a Cartu Bank cash delivery van in the center of Tbilisi on October 18; the armored van, transporting cash from the Bank of Georgia’s headquarters, was also confiscated. The Interior Ministry said the seizure was related with a criminal investigation into alleged money laundering case. Cartu Bank, owned by billionaire and oppositions leader Bidzina Ivanishvili, said that seizure was politically-motivated and represented a “political revenge” against Ivanishvili.

THE NATIONAL BANK OF GEORGIA (NBG) HAS NO RELATIONS WITH THIS CASE. LAW ENFORCEMENT STRUCTURES HAVE INVESTIGATED THE FACT. According to my information, none of these organizations have been found guilty. - In October 2011, amendments were made to the Tax Code and the law on enforcement of enterprises. As a result, banks lost the right for becoming a primary mortgager. As a result, only Cartu creditors turned out liable to the state and all the mortgaged assets were handed over to the state. Thus, Cartu Bank could not any more satisfy the standards and the NBG appointed an interim manager in Cartu Bank. In 13 days the interim manager issued 50 million USD loans to 4 companies and Cartu Bank’s liquidity potential was almost annihilated. - These legislative amendments were adopted by the parliament of the previous convocation. I personally consider these amendments to be incorrect and disapprove them, but this is a subject of political suggestions. In various countries different models and approaches are practiced regarding the sequence of mortgagers.

AS TO THE INTERIM MANAGEMENT, AN INTERIM MANAGER AT CARTU BANK WAS NOT APPOINTED BY NBG. THE DECISION WAS TAKEN BY THE COURT AFTER THE BANK REFUSED TO PAY AN 80 MILLION GEL FINE. The court abolished the decision as soon as the bank covered the sum. As to these four concrete loans, I do not know the details. According to my information, these loans were not issued at all, because the old management came back to Cartu Bank. At the same time, I would like to note a loan issuance is a basic direction of operation of any bank.

PROSECUTOR’S OFFICE STAFF AT NBG - On April 10, 2012 amendments were made to the Law on National Bank, under which the NBG Board could employ individuals without educational background in finances and economics. As a result, the NBG Board involved two persons from the prosecutor’s office: Vazha Jankarashvili (worked in the prosecutor’s office in 1983-2012) and Nikoloz Gongliashvili, a deputy head of the Financial Monitoring Service in 2008-2012. Gongliashvili has also taken part in arresting Israeli businessmen in 2010. - This is also a certain myth that is often used to speculate with public opinion and to persuade the society NBG has hired employees from the Prosecutor’s Office. First of all, the NBG Board consists of 7 members.

- In 2013 to 2014 NBG withdrew 115 million USD from the economy. Before November 2013 NBG seized over 0.5 billion USD. After November the GEL devaluation started. NBG was forced to return 220 USD and later additional 100 million USD. NBG noted currency reserves were to be replenished, while the mandatory reserves exceeded the norm five times. The NBG reserves are over 900 million USD. - Along with economic growth, NBG prioritizes a collection of international currency reserves as one of the important tasks and functions. But this goal should not be achieved by withdrawing foreign currency from the economy in automatic regime. As to the international reserves norm, the world practice knows various indicators as benchmarks of this macroeconomic indicator. The most used practice relies on the volume of imports of three months.

ASSERTIONS AS IF THE RESERVES EXCEED THE NORM 5 TIMES ARE UNSUBSTANTIATED AND UNGROUNDED. AS TO THE EXCESSIVE RESERVES OF OVER 900 MILLION USD, SEEMINGLY, WE ARE WITNESSING PROBLEMS WITH LOGICS AND ARITHMETIC. If we multiply the January imports (538 million USD) three times and exclude the existing reserves from it, we genuinely receive 800 million USD (and this is close to 900 million USD), but, first of all, this indicator implies the imports of goods and services and when talking about 3 months, we imply the average annualized indicator, not some concrete month. Therefore, if we take into account these factors and the fact the averaged monthly imports of goods and services were about 800 million USD in 2014, and then we will see that the currency reserves by the end of 2014 would suffice to cover imports of only about 3.1 months. - In early 2013, Giorgi Kadagidze said the 2013 growth forecast was optimistic and it should be reviewed. NBG asserted unbalanced spending would negatively affect the exchange rate. In August first signs of exports contraction appeared. The question is why NBG withdrew USD from the turnover amid such expectations? - NBG and the government carry out monetary and fiscal policy on the ground of concrete macroeconomic parameters that are agreed with the International Monetary Fund (IMF) and that is published on the IMF website. This agreement is signed by the Prime Minister of Georgia, vice Prime Minister, the Economy Minister, the Finance Minister and the NBG President. Net international reserves are considered as one of such macroeconomic indicators. These reserves were accumulated in line with this document in 2013 and at the end of 2013 the real reserves exceeded the plan by only 20 million USD. It is worth noting this indicator is only one of the many other macroeconomic indicators and monitoring of only this parameter cannot outline the genuine reality and picture. All macroeconomic parameters should be simultaneously analyzed to see the real picture. - Is it expedient to increase the monetary rate, when mandatory currency reserves are over 900 million USD or it is justified to sell USD and make the market interventions? - I have noted the figure of 900 million USD is the result of problems with arithmetic.

ALLEGATIONS ABOUT DELAYED REACTION - Nana Keinishvili, MP from the Georgian Dream coalition, accuses the National Bank and UNM of the

GEL exchange rate devaluation. “This problem was created artificially. This is a group, which involves the UNM members and NBG has also played a certain role in this process”. - We hope all these absurd accusations were dismissed during the IMF mission visit to Georgia. Nodar Javakhishvili about NBG - Deputy Minister of Regional Development and Infrastructure Nodar Javakhishvili asserts there are signs of sabotage from the National Bank. What was the benefit from boosting the turnover by 350 million GEL? In 1990th the National Bank has done the same. They used to give loans unreasonably.

MR. NODARI IS A GOVERNMENT MEMBER AND WE DO NOT MAKE COMMENTS ON GOVERNMENT MEMBERS, BUT IT SHOULD BE NOTED MR. NODARI IS FAMOUS FOR HIS ACUTE IMAGINATION. THE SCALES OF HIS IDEAS ARE CLEARLY SHOWN BY ONE OF HIS UNIQUE INITIATIVES FOR INTRODUCTION OF TOURISM QUOTAS.

COORDINATION WITH GOVERNMENT - Giorgi Kadagidze asserts NBG has coordinated all steps with the government, with the economic team of the government. Previously, the economic team members used to repeat the same. After Ivanishvili’s statement, they also started criticizing the NBG. If all the problems were discussed in the working process and no pretences existed before, why have these accusations attacked the NBG so unexpectedly? - Previously, no problems have existed with communication between NBG and the government. NBG represents Georgia’s main fiscal agent and we jointly with the government have shared and keep sharing information and considerations in everyday regime. Georgia’s economic policy is determined by the Georgian government, not NBG. The central bank functions have been strictly determined by the state constitution – provision of stability of prices and financial stability. And we have been fulfilling both functions with success and this achievement has been recognized by various influential international organizations.

OFFICIAL EXCHANGE RATE DETERMINATION METHOD - Under the current system, exchange rates are determined at the interbank currency exchange. Ordinary citizens and commercial entities are not authorized to participate in trading sessions. Market analysts assert the closed market system grants exclusive opportunity to the players to make some speculative decisions. Large companies are suffering by speculative exchange rates. According to the established practice in the developed world, major and comparatively smaller companies can invest in any currency on the currency market. This practice enables to save costs on conversion and to have an access to optimal rates. - Technical details of currency trading sessions such as clearing, netting and so on would be boring for the newspaper readers. Therefore, I will not go into the details. I would just say that currently trading sessions are carried out on the Bloomberg platform that was introduced at NBG with the technical assistance of US Government. This platform represents a transparent system for currency trading sessions and the world’s leading countries apply it at the interbank trading sessions. This project of NBG turned out very successful and for the last 2-3 years representatives of central banks of about 20 countries (Moldova, Tajikistan, Kyrgyzstan, Surinam, Botswana and so on) have visited us by the World Bank (WB) recommendations. - At the news conference Giorgi Kadagidze has talked about ordered articles, unprofessional analysts and about deliberate slanderous campaign against him. Who is interested in conducting such a campaign and may be this campaign appraised as a revenge for Cartu Bank? - Similar attacks are periodically discerned against NBG. We do not plan to waste time on probing into the reasons and interested bodies. NBG has been executing the constitutional duties with high sense of responsibility and professionalism to serve the nation and the country. Tamar Kakabadze

March 9, 2015 #90

ECONOMY

caucasian business week

MINISTRY OF ECONOMY: ‘ILLEGALLY SEIZED PROPERTY WAS NOT SOLD’

IMF ASSESSMENTS ON GEORGIAN ECONOMY, HIT BY ‘SEVERE EXTERNAL SHOCKS’ ‘Central Bank is doing a good job’; ‘Political attacks on Central Bank not the best way forward’; ‘GDP growth may reach 2%, but even that is subject to risks’; ‘Govt has to keep budget deficit under control’; Govt will have to cut spending or increase taxes, or both; ‘Spending on social safety net should be maintained, targeting improved’; ‘Georgia is well placed to overcome the current challenges’; ‘Accelerate reforms and ease recent restrictions on foreign businesses’;

it by “severe external shocks”, Georgia’s economic growth could reach only 2% this year, but even this projection is subject to risks, said a mission from the International Monetary Fund, which visited the country on February 23-March 4. The government, which less than three months ago set economic growth target at 5%, said last week that it would cut this year’s growth forecast to 2%. There was only 0.5% year-on-year GDP growth in January. Crisis in Ukraine, deepening recession in Russia and currency devaluations in Georgia’s trading partner countries in the region led to decline in exports and remittances, resulting in lower foreign earnings and causing depreciation of Georgian currency lari (GEL), according to IMF mission, which visited Georgia to assess the impact from developments in neighboring countries on its economy. Although GEL gained 6.8% over the past week to 2.1078 per U.S. dollar, it’s still weaker compared to 1.7542 in early November, before it started depreciation. At the peak of its recent depreciation on February 25-26, GEL had 29% of its value lost against U.S. dollar since early November. Georgian exports declined 30% year-on-year in January and remittances were down by 23% y/y in the same month. Number of tourists in Georgia was 7.8% lower in January-February than year ago. The current account deficit increased to about 9.5% of GDP in 2014. Although annual inflation was only 1.3% in February, far short of central bank’s target of 5%, it will likely pick up somewhat in coming months because of GEL depreciation, according to IMF. Praising government for keeping the budget deficit to 3% of GDP in 2014, well below IMF’s ongoing program target with Georgia, the mission also said that for 2015 the government will need to take measures to keep the budget deficit “under control” as lower than initially forecasted economic growth will result in less than projected tax revenues in the budget. “The government has appropriately taken steps in this direction, including by limiting employee bonuses and by taking efforts to contain administrative spending,” IMF mission said in a statement. The government said it would cut administrative spending and revise the budget, but it has yet to present a detailed scheme. Mark Griffiths, who led the IMF mission, said at a news conference in Tbilisi on March 4 that in order to limit the increase in the budget deficit, the government will have to cut spending or increase taxes, or the both. “The problem is that budget deficit could increase so we need to limit that. I know that it’s not the best time to increase taxes, but the government has to choose which taxes to increase or which spending to cut… This is a difficult choice for

them, but they have to do this,” he said. The mission said in the statement that spending on the social safety programs should be maintained and “targeting improved to protect the vulnerable and the poor.” “Because of its solid fundamentals, reform-minded authorities and the Association Agreement with the EU, Georgia is well placed to overcome the current challenges,” it said. “We look forward to plans to accelerate reforms to make Georgia a more attractive place for doing business and for investing, for creating jobs, and for boosting growth in the future. These should include easing recent restrictions on foreign businesses, seeking out new private investment, boosting saving through pension and capital market reforms and raising education standards,” IMF mission said. IMF ‘FULLY SUPPORTS’ CENTRAL BANK’S POLICY IMF mission also said that it “fully supports” policy of the National Bank of Georgia (NBG) to “refrain from intervening in the foreign exchange market and to allow Lari to float.” In a written statement on February 26, ex-PM Bidzina Ivanishvili accused the central bank and its president Giorgi Kadagidze’s “inaction and wrong actions” for GEL depreciation. He claimed that the central bank did not intervene sufficiently to help stop sharp fall of GEL and suggested that the central bank should have sold more U.S. dollars from its reserves. After Ivanishvili’s statement was released, some government members and representatives of the GD ruling coalition also voiced criticism of the central bank. IMF mission said that central bank’s intervention “to resist shocks, that will likely be long-lasting, would only waste Georgia’s foreign currency reserves and slow the reduction of Georgia’s trade deficit with the rest of the world.” Central bank’s reserves stood at USD 2.61 billion as of end-January. USD 120 million was spent from reserves as of February 24. Speaking at the news conference Griffiths, who led the mission, said: “It’s important to avoid blame-game and to focus on solutions.” “We need to protect independence of the central bank; they are doing a good job,” he said. “I think that political attacks are not the best way forward in this difficult time.” IMF mission said in its statement that independent of the central bank should be “preserved and respected, so that it is free to pursue its main objective of price stability, and to make sure that the financial sector stays healthy, which will support long-term stable economic growth.” “The government and the NBG need to work together now – in a way that respects each other’s areas of responsibility and central bank independence – on a comprehensive action plan to address these new challenges.” Civil.ge

ccording to Economy Minister Giorgi Kvirikashvili, in recent years the government has not put the property about which there were suspicions that it was illegally confiscated, up for sale. He said this commenting on the creation of a commission that will review cases of alleged illegal confiscation of property during the previous government. In his words, if the investigation confirms that a particular property was confiscated illegally, the state will decide on its return to owners using specially developed mechanisms. “The Prosecutor’s Office carried out a very important work. All cases were systematized, and now we, including the Ministry of Economy, have a common pattern in this regard. Within two years, we have suspended the privatization of property about which there were suspicions that it had been confiscated illegally. Accordingly, if it is determined that there has been a violation of the law, the property will be returned to the own-

ers, “- said the Minister. He notes if the confiscated property is no longer public property and has already been sold to new owners, the state is working on a compensation mechanism - a variety of options are envisaged, including the transfer of the adequate property to the victim. According to the Minister of Finance of Georgia Nodar Khaduri, most part of illegally confiscated property is still owned by the state. “Most of the property confiscated under the previous government has not been sold, the Ministry of Economy stopped the privatization of the objects on which litigation was carried out. We wait for the completion of the investigation, and will act in accordance with the decision of the court. And today, the money is in the budget, in the fund of enforcement of the court decisions. Needless to say, we will offer a variety of alternatives to the affected citizens, “- Minister of Finance of Georgia notes. As stated by the Minister of Economy, about 700 controversial objects are registered at the stage.

GEOSTAT: FEBRUARY RECORDS GROWTH IN FOOD PRICES

ccording to the Statistical Service, in February 2015 prices for services in the health system increased 0.9%. In particular, prices for medical products increased 2.4%, for ambulatory care 0.7%, for hospital services - by 0.3%. At the same time prices for transport decreased 2.4% and for service of private cars – by 4. 3%. In February, the inflation rate was 0.1% compared to January and prices for transport and health care had a major impact on its formation. In February alcoholic drinks hiked in price by 0.1% compared to January, by 1% - for tobacco products , by 0.4% - for water, electricity, gas, by 0.7% - for hotels , restaurants, recreation, by 1.5% - for various services. In this period clothing and footwear became cheaper by 1.2%, transport- by 2.4%, communication - by 0.1%. In February 2015 inflation in Georgia amounted to 1.3% compared to February 2014, mainly due

to changes in prices for health care, food, alcoholic and non-alcoholic beverages, tobacco and transport. During the year, health care has risen in price by 6.4% , including medical products and equipment- by 11%, outpatient care - by 4.2% , hospital services- by 5.2%. Food and non-alcoholic beverages during the year went up by 1. 9%, fruits- by 18.6%, meat prices fell by 4, 2%, vegetables - by 6%. Alcohol and tobacco rose 8.1%, including tobacco - 10, 6%. Prices for transport decreased by 7.8%, for transport costs - by 12.9%. At the same vehicles prices rose by 10%. In the same period prices hiked for food and soft drinks (1, 9%), water, electricity, gas (1, 9%), furniture, household items (2, 1%), recreation, entertainment, culture (1, 1% ), education (2, 4%), hotels, restaurants, cafes (2. 8%), miscellaneous services (2, 4%). During this period, prices have fallen on clothes and shoes (5, 4%), and communication (0, 4%).

THOUSANDS OF OIL TANKS HALTED AT GEORGIAN-AZERBAIJANI BORDER

hat is the current situation in Batumi Seaport and why have about 2000 wagons been halted at the GeorgianAzerbaijani border? What are the problems transportation companies are facing and why do they plan to leave the Batumi Seaport and find alternative routes? According to the IPress information, after the new management entered the Batumi Seaport, transportation companies that mainly convey liquid oil products are systematically facing problems. According to our information, today over 1800 containers with oil products are staying in Azerbaijan and waiting to head for the Batumi Seaport. Currently, 514 tanks of ExxonMobil with Azeri Light, 141 tanks of NaftIran, 1262 tanks of Vitol Apollo and 61 tanks of Vitol are waiting in Azerbaijan. Transportation companies are facing difficulties with transporting tanks and wagons to Batumi Seaport. After Malik Diusembaev was appointed as a new director, cargo transportation, especially oil products transportation volume considerably fell, a new wave of firing workers started (the management refers to expired labor contracts) and legal problems arose. Ipress will cover all these issues tomorrow. The problems with cargo transportation have intensified. This is proved by the statistics and comments made by transportation companies. “We had problems with Batumi Seaport previously too and these problems exist now. We are facing problems with cargo reception. Everything will be decided tomorrow”, representa-

tives of MG (Canargo) oil products distribution company say. Representatives of Vitol company, a trader on the Batumi Seaport territory, also prove problems with transporting cargoes to Batumi. “Cargo transportation to the Batumi Seaport is related to many problems. About 2000 tanks have been halted in Azerbaijan, and this happens permanently… Wagons are let continue the way stage by stage and all these factors affect revenues of the Seaport, the Railway and consequently, the state budget”, the company says. According to our information, similar restrictions arose to one of the major foreign oil companies, which has already applied to state structures for reaction. IPress has contacted the management of LLC Batumi Oil Terminal. The representatives did not rule out the information on halted cargo and promised to divulge details in private conversation. The company director Malik Diusembaev told IPress he will not make comments on the issue by phone and will talk on Batumi Seaport operation in an interview personally. Later, IPress contacted deputy director Levan Jobava, but he noted he was not entitled to make comments on similar issues and added the director was ready to talk about this and all other issues in an interview with IPress. In several minutes the deputy director pointed out the director could talk about the issue without consultations with the Kazakh side. “You can forward your questions and we will answer them”, he said. IPress keeps working on the issue and will publish all details as soon as possible.

ANALYTICS

8 QUOTES

“Money must bring profit, otherwise it should vanish”

DAVID IAKOBASHVILI, one of the founders of JSC Wimm-Bill-Dann, Russian manufacturer of dairy products and juices Rosneft paid 144 million USD to businessman David Iakobashvili for 49% of Petrocas Energy Limited,

- Russian edition of Forbes reported relying on 2014 financial report of Rosneft. The payment has been conducted in January of this year and a joint enterprise has been established with Petrocas. Rosneft declared in December of 2014, that the company planned to purchase a non-controlling package of Petrocas to run a joint venture in the South Caucasus. Petrocas holds and manages oil and oil product logistics assets and also manages the world’s largest retail chain, which includes 140 branding gas stations (Gulf chain) in Georgia. The company also carries out trading operations in the Caspian and Black Sea region. David Iakobashvili has acquired controlling package of Petrocas Energy in 2011. “I was offered 20% on my deposit and I decided that it was a good proposal. Money must bring profit, otherwise it should vanish. The company fulfilled the promise and I liked that,” - Ikobashvili has declared in an interview with Forbes.

“Local production is the main key for GEL stabilization”

CEASAR CHOCHELI, Businessman Businessman Cezar Chocheli believes the development of local production is the main factor for the lari’s stabilization and economic development. For this purpose, the businessman offers the government to allocate GEL100-150 million annually in the near 3-4 years for business development. Chocheli says that businesses should have greater access to financial resources that is impossible when bank loans are issued at 10% -12%. Chocheli notes that GEL

150 million will be spent to ease the loan interest. In the businessman’s words, the government has been carrying out a pretty good project “Produce in Georgia,” the success of which is at risk due to restrictions on bank loans. He notes that if the local industry doesn’t develop, the country may always face the risk of the lari’s devaluation, as foreign remittances from abroad and exports slight decline have an impact on the national currency. The businessman believes that we should develop such enterprises which will allow not only to replace foreign products in the domestic market but also will go for export. The businessman names a few reasons why local production is not developed in the country. One of the reasons is the high interest rates on loans, the second major reason, in Chocheli’s opinion, is the small market. According to him, in this small market local producers have to compete with large foreign companies. “When large and successful companies operate in the country, small businesses will be able to develop because all big companies need different types of services. Today the focus is made on development of small companies,” - says Chocheli.

“Government should not suspend construction of Khudon Dam because of a select group’s interests”

LEKSO POPIASHVILI, deputy chairman of Georgian National Investment Agency Lekso Popiashvili, deputy chairman of Georgian National Investment Agency declares, that sharp decline of investments is not expected on the base of Q1. Important projects are carried out with foreign investments. “Implementation of significant projects has already begun in Q1 of this year and I hope, that there will not be a sharp decline of investment in the current and future

year. As these projects are already launched and investments are made, so they will not be suspended. However, we have problems in terms of the South Korean and Japanese investors. Georgia is very far location for them and they see it as part of the same geopolitical region as Iraq and the rest of Middle East. So, they avoid making big investments in our country because of the geopolitical risks associated with the region.” “As for the other foreign investors, who are neighbors of Georgia or make identification of the country, they consider Georgia, as mobile and free market for investments.” “We consider that infrastructural and investment projects must be carried out. The government should not have to take into notice small group of people’s opinion and suspend such projects, as Anaklia, Tbilisiby-pass road and Khudon Dam. Therefore the government’s initiative related to the privatization policy is welcomed and it must become more active. According to our recommendations, activities of Partnership Fund should become more aggressive and take more risks. The most important is that regulations should not be hampering.”

“There is a threat in suspending projects approved within preferential agriculture credit”

NINO ZAMBAKHIDZE, head of Georgian Farmers Association Nino Zambakhidze, head of Georgian Farmers Association sees a danger in suspend of projects approved within preferential agriculture credit.

March 9, 2015 #90

caucasian business week

Zambakhidze says that problems have been created to the farmers in order of credit service due to GEL devaluation. Therefore, Ministry of Agriculture and Project Management Agency are not able to assist to them at this point. “Project Management Agency has declared, that they cannot change the terms, because the project should be written afresh,” - Nino Zambakhidze stated at a conference where experts and high officials have been discussing GEL devaluation and its impact on the country’s economy. Nino Zambakhidze says, that most of the agriculture credits are issued in USD and farmers have difficulties in the credit service due to the big devaluation of GEL. “Farmers have to do the choice to pay credits or employees’ salaries,” –Zambakhidze stated. To remind our readers, borrowers have been paying merely small share of credit’s interest rate (annually from 1 to 3%), whereas, the state has been covering the main share of the interest rates.

TBILISI RESIDENTIAL OVERVIEW POPULATION The total population of Tbilisi is 1,175,200. The mentioned figure has increased by 2% since 2009. Compared with the other cities in Eastern Europe, it is of a similar size to Prague and Sofia. Over the next ten years we expect a 10% growth in population of Tbilisi. TENURE STRUCTURE (HOME OWNERSHIP) Home ownership in Tbilisi is high, as it is in Georgia. In the current period it stands at 86%. Compared with Eastern European cities the Tbilisi figure is second only to Bucharest. Such a high rate is an indication that development of the rental market is very low. However, it can not be discounted that part of the population has not officially registered lease agreements. LIVING AREA The average living area in Tbilisi stands at 23 sqm per capita. The largest properties are located in Vake and Saburtalo district. The smallest living areas are in Chughureti (5.4 sqm) and Nadzaladevi (6.7 sqm) Compared to other Eastern European cities Tbilisi stands between Vilnius and Budapest. STOCK The total housing stock in Tbilisi equals to 344,000 dwelling units, of which the largest share was built during 1960-1990, so called “Soviettype” residential buildings. After this period, in 1991-2000 there was a significant decrease in development, but after this decade residential construction picked up significantly. During 20132016, 21,000 dwelling units will be delivered. Main market suppliers The Georgian residential market is dominated by local developers. Participation of foreign investors is limited to a handful of larger schemes such as Dirsi (Azerbaijan), Hualing (China) and Dona Group (Israel). Developers fall into the following

categories: large-sized developers, middle-sized developers, small-sized developers and passive developers. Large-sized developers includes companies that have large scale construction projects (over 50,000 sqm) and also are involved renovation, refurbishment and fit-out. The middle-sized developers are actively implementing middle scaled projects (from 10,00050,000 sqm). Small-sized developers are represented by developers of condominiums, limited liability companies and houses etc., whose total construction area is under 10,000 sqm. Passive developers are those companies, who have encountered problems during development and have consequently suspended construction. ONGOING AND FUTURE PROJECTS Currently there are 233 residential development projects in Tbilisi, covering 1,013,000 sqm land area and a total of 2,900,000 sqm construction area. Ongoing projects have been divided into several categories by selling price, such as premium, middle and low segments1. 45% of total supply is the middle and low segments, only 10% is represented by the premium segment. Currently, from observed development projects around 19 units2 have suspended status, with a total area of 539,478 sqm it holds 19% of the total supply. ISSUED CONSTRUCTION PERMITS According to the information provided by National Statistics Office of Georgia, during 2003-2013 over 10,000 construction permits were issued in Tbilisi, which totally amount 12 million sqm3 construction space. In accordance to this period only 2,000 units were completed with 2.3 million sqm. Despite such a negative interdependence of these indicators, it should be noted that the quantity of completed constructions are characterized by a growing trend.

COMPANY NEWS

March 9, 2015 #90

CHINESE MERCHANTS LEAVE THE GEORGIAN MARKET

hinese merchants have closed several shops in the territory of Lilo market and left Georgia. The commercial space owner, the businesswoman Laura Ghachava noted. According to her, the main reason for the return to China is the lari’s devaluation. Ghachava explains they were also dissatisfied with their activity’s’ daily study by the Revenue Service. “Many of them are closing trade objects and leaving the country. This process started about a month ago. They were dissatisfied with the Revenue Service’s work as well,”- says Ghachava.

ITALIAN ICE CREAM PARLOR TO OPEN IN TBILISI IN MID-MARCH

talian ice cream parlor “Caprigiani” will be opened in Tbilisi in mid-March. The café will be opened in the former trade center “Pirimze” by Amiran Gagua, a famous person in Sokhumi. Amiran Gagua owned café “Penguin” in Sokhumi which was a gathering spot for the whole town. It is a well-known specialist in making coffee in sand. The cafe was founded by the Sokhumi businessman Jony Kakachia who owns cafes in the Czech Republic.

Kakachia also plans to open the Ukrainian restaurant in the former “Pirimze” building. In a conversation with “Commersant” the businessman says that the Italian ice-cream has no analogue in Georgia and in the first stage 10 varieties of ice cream will be sold in the café . Kakachia explains that the object will be calculated for a medium segment and prices will not exceed the available on the market. The cafe was founded by the Sukhumi businessman Jony Kakachia who owns cafes in the Czech Republic. Kakachia also plans to open the Ukrainian restaurant in the former “Pirimze” building. “Tri Kazaka” is expected to open in two months and will try to attract users with the Swedish table and other proposals. The businessman notes that the restaurant will be designed for all segments and therefore, the prices will be available. Carpigiani is a gelato machine maker founded in Bologna in 1946 which now sells its treats in more than 100 countrie

BEAUTY SALONS LOSING CLIENTS

gainst the background of a currency crisis in Georgia, beauty salons are suffering losses. The owners of the salons say that the clientele has significantly reduced since people do not have the ability to pay

for services in salons. In the beauty salon ED claim that the fall in demand began on January 14 and has decreased by about 30%. “We do not increase the prices for our services at the expense of the decrease in our profit,” - say in the salon. In the salon “Plus” say that the number of customers decreased by 60-70%. “The financial p condition of our customers in recent months has deteriorated. Even coming to the salon all talk about their problems and credits. We also do not intend to increase prices for our services as we can lose customers we already have, “- say the owners of the salon.

BEER PRICES RISE BY GEL 0.25-0.30

ue to the 50% increase in excise taxes and the devaluation of the national currency, the beer prices have risen on the Georgian market. The company “Zedazeni” increased cost of a bottle by 25%. According to the company’s commercial director Kakha Paichadze, all the products manufactured by “Zedazeni” rose by GEL 0.25-0.30. “We do not rule out that in the case of appreciation of the national currency, the price will be reduced,” - he says. “Castel” company increased prices for the products by 25-30%. “The product has risen in price by GEL 0.250.30 for two reasons - an increase of excise taxes and the devaluation of the national currency,”

caucasian business week

- the company’s Director Levan Zautashvili explains , who also did not rule out that in the case of stabilization of the national currency price would again be reviewed. Another Georgian beer producer “Natakhtari” will increase prices within 10 days. “At the moment we still maintain prices the expense of existing stocks. But as soon as they run out - the price will rise immediately by 20% “said the director Nikoloz Hundzakashvili. At the same time, the brewing company “Kazbegi” has no plans to increase prices for their products till April. According to the company’s founder, the MP Gogi Topadze, the demand for beer increases in April, and prices will not be raised ahead of time. “Then he will have to choose - either increase prices, but demand for beer will be reduced or prices remain at current levels, but the rate of profit will be reduced, “ - he notes. As reported, the excise tax on beer increased from 1 March 2015. Representatives of the brewing industry strongly opposed this decision, arguing that it will hurt the industry and force the companies to lay off some employees. In spite of this, the Ministry of Finance did not reconsider its decision and the new excise tax came into force on 1 March.

DEMAND FOR DIABETES - FRIENDLY LEMONADE INCREASING

onsumer demand for DiabetesFrienly lemonade is increasing. According to the company “Natakhtari”, sales of this type of beverage are increasing every year. At this point, only lemonade with a pear flavor is manufactured and 1 liter plastic bottle costs GEL 1.30. The lemonade

is exported to Azerbaijan and Armenia since 2014. The company produces a zero-calorie lemonade since 2010. They say in the company that a variety of products is favorable for consumers while the user contentment is important to them. “That is why we hail the competition within fair business ethics,” - the company says.

MERCURE HOTEL TO OPEN IN TBILISI IN SUMMER

ercure” hotel operated by “Accor Group “ will be opened in Tbilisi. The construction is being carried out by “Macro Construction” company. The company’s representative states “Commersant” that “Mercure” hotel will be opened in the summer. A 4-star hotel will be located in the center of the capital. “Accor” is a French hotel group present in 91 countries that operates the worldfamous hotels and restaurants such as “Sofitel”, “Novotel”,” Grand Mercure”,” Ibis”. With over 750 three to four-star hotels globally, the Mercure

hotel chains offer fantastic deals on hundreds of dream destinations. Recall that “Macro Construction” is carrying out construction of the residential complex “Green Budapest” in Tbilisi.

IRAN AND GEORGIA MAY RESTORE DIRECT FLIGHTS

estoration of direct air links between Georgia and Iran can get back on the agenda - it all depends on how actively the Iranians will arrive in Tbilisi since March 21, when the country begins to celebrate the New Year holidays. However, it is possible that the problem with the visa regime will fail this tourist season because the Iranian banking system works with limitations due to the Western sanctions - respectively, the citizens of the country cannot receive the recently introduced electronic visas which must be paid by plastic card. According to Rahim Abachi, President of the Georgia-Irania Chamber of Commerce, Georgia simplified visa regime through the introduction of electronic visas, but the citizens of Iran cannot pay for them, as the Iranian cards are valid only within the country, and the number of people having international cards is small. “It took about 2 months to obtain a visa at the embassy located in Tehran after tightening the visa regime and now, as they say, no more than 5 days. However, due to problems with the cards, a few citizens of Iran will be able to visit Georgia. From this point of view it would be nice if the Georgian consulates opened in other major cities of the country,”- he says. In his words, in the second half of March it will

be clarified how a system of electronic visas justified itself - if during the Iranian New Year Georgia is visited by at least 1 000 citizens, then it will be a good indicator. “In this case, a resumption of air connection between Georgia and Iran will be on the agenda. Prior to the introduction of visa regulations, direct flights were performed from Tehran to Tbilisi and Batumi, but in October they were stopped. Currently, visitors can fly from Iran to Georgia only fly through Baku or Istanbul, but passengers have to wait there for hours, “- Rahim Abachi notes. According to the Chamber, because of the visa regime not only businessmen from Iran leave Georgia, but also tourists who annually brought the country up to $ 130 million. Visa-free communication with Iran was canceled unilaterally by the Georgian government in 2013, but it was possible to obtain a visa at the border, in a simplified manner. Since September 2014 the Georgian government has tightened visa regulation, and Iran was included in the list of the countries with a full visa regime. The system of electronic visas was introduced in February 2015. To obtain it, the foreign national must submit a photo, copy of the passport, reservation in the hotel or invitation, round trip ticket , insurance, financial guarantees and pay for a visa which costs $ 50. Its preparation requires no more than 10 days.

AIR ASTANA WILL PERFORM REGULAR FLIGHTS FROM TBILISI SOON

bilisi and Astana will be connected with direct regular flights soon, it will be performed by air company Air Astana. Georgian Civil Aviation Agency explains, that direct regular flights between Georgia and Kazakhstan have not been carried out earlier.

However, Air Astana will start regular flights from June 1. According to the Agency, Air Astana will perform 3 flights in a week between Tbilisi and Astana. To remind, according to 2014, Air Astana was occupying 3% in order of passenger number taken from Georgian Air Port.

OPINION

March 9, 2015 #90

caucasian business week

RAILWAY PRIVATIZATION

o stabilize the exchange rate of the Georgian lari, the government has put several objects for privatization. Georgian Railway LLC is not included in the list yet, however, there has been a lot of talk around the company. One week ago, Economy Minister Giorgi Kvirikashvili said that for quoting it would be good if at least 25% of “Georgian Railway” were sold. However, the Minister explained that this issue should be approached with caution while selecting the possible owners. “The railway is a transport policy instrument in the hands of the government, so we should be very careful with this issue, but it does not mean that a minority stake in this company will not be sold”, - said the Vice Premier. Members of the parliamentary majority were not against the alienation of 25% from 100% share of the strategic object. According to Temur Maisuradze, Deputy Chairman of the Sector

LEVAN KALANDADZE Economic Analyst, Chairman of Georgian Infrastructure Projects Initiative

Economy and Economic Policy Committee, 25% is not the amount which would endanger the state. However, the MP believes if the object is sold, the received funds must be used not for the lari’s strengthening, but for the modernization of the railway. As for the buyer’s selection, Maisuradze says that this process is important when selling any amount of interest, because any purchaser enters the market with a particular purpose and intent. The Budget and Finance Committee member Goderdzi Bukia says that not only the railway, but any other object should be privatized to develop the private sector. “It happens all over the world. Everything is strategic for the country that deals with the country’s safety and security, but isn’t the economy strategic? It is the main strategy. Economic development is not possible without the private sector “, - Bukia notes.

To stabilize the GEL exchange rate, the government has put out several assets for privatization. LLC Georgian Railway has not been included in the list yet, however, sharp discussions are being conducted around the company. A week ago Economy Minister Giorgi Kvirikashvili noted the government could sell a 25% ratio in Georgian Railway, but the issue should be carefully treated while selecting the available owners. “The railway is a transportation policy instrument for the government, so we should be very careful with this issue, but it does not mean that a minority stake in this company will not be sold”, - said the Vice Prime Minister. Members of the parliamentary majority were not against the alienation of 25% from 100% share of the strategic object. Temur Maisuradze, a deputy head for the par-

In his words, where and how the money from privatization will be spent, it’s up to the government. By the way, this is not the first time the authorities consider the alienation of the Georgian railway. This issue was discussed by the “National Movement” at the beginning of 2012. Then the government planned to sell the shares on the London Stock Exchange, however, later changed their mind. Reuters reports that due to difficult market conditions, the company will not be able to sell the securities on the LSE. But on Friday Giorgi Kvirikashvili said, that Railway privatization is not being considered at this time. Some people want to create a new negative story to force us to talk about it. The topic was Privatization will ever happen or not. The dangers of foreign policy must be provided. Railway privatization is not being discussed at the moment.

liament’s sector economy and economic policy committee, noted the sales of a 25% ratio will not harm the state interests. At the same time the MP asserts funds from the sold asset should finance the Georgian railway modernization, not the GEL exchange rate enhancement. As for the available clients, Maisuradze said this is issue very important, because any owner enters the market with particular purposed and intents. The Budget and Finance Committee member Goderdzi Bukia says besides Georgian Railway, many other assets should be privatized to develop the private sector. “This is made all over the world. Everything is strategic for the country that deals with the country’s safety and security, but isn’t the state economy a strategic direction? It is the main strategy. Economic development is impossible without the

private sector “, Bukia said. In his words, it’s upon the government to decide where and how much to spend from the mobilized funds. By the way, this is not the first case the authorities have initiated to sell a stake in Georgian Railway. This issue was actualized by the United National Movement at the beginning of 2012. Then the government planned to sell the shares at the London Stock Exchange, however, later their plans changed. Reuters reports that due to difficult market conditions, the company will not be able to sell the securities at the LSE. But on Friday Giorgi Kvirikashvili said Georgian Railway privatization issue is not being considered at this time. Some people want to create a new negative story to force us to talk about it. The issue is whether the asset will be ever privatized or not.

ECONOMIC TURMOIL IN THE CAUCASUS

n February 21, Azerbaijan became the latest post-Soviet country to be infected by the economic malaise emanating from Russia, when its Central Bank devalued the manat by around a third against the dollar and euro. Armenia and Georgia are also facing economic struggles—and all three countries will see political consequences. As the three are now so different they will be manifested in very different ways. In Azerbaijan the downturn is spectacular for being so sudden. For months the government declared that the country was immune to the economic problems of its neighbors. Then the Central Bank abruptly announced a currency devaluation of 33 percent against the dollar and 30 percent against the euro. “Black Saturday,” as it is being called, triggered chaotic scenes with some banks and supermarkets reportedly shutting their doors and sharp price hikes on foreign imported goods. Azerbaijani President Ilham Aliyev sought to reassure the public. He said that the devaluation was a result of “regional processes,” and that the devaluation was carried out to thwart “specula-

tors” who were buying up 500 million dollars a day. The country has a strong buffer in the form of the State Oil Fund of Azerbaijan, valued at 37 billion dollars at the end of 2014. But low oil prices are also delivering a heavy blow. Oil and gas comprise 95 per cent of export revenues and the 2015 state budget was predicated on an oil price of 90 dollars a barrel. The damage is as much about perception as reality. For a decade, Azerbaijanis have experienced an oil boom and growing sense of prosperity. As in many European countries prior to the Eurozone crisis, many people had accumulated big bank debts and credit card bills and used them to buy property and consumer durables. That golden age is ending. Oil exports are falling. The largest Western oil company in the country BP has cut jobs. And now the currency is devalued. Expensive prestige projects like this summer’s European Games look more and more like hubris, especially with a new report in The Guardian that the Azerbaijani government is even spending its money on flying British athletes to Baku. Azerbaijan is an authoritarian state and there are

only sporadic reports of protests. But the public is complaining at home, if not in the streets, and we can already expect that the political elite will start to fight each other over the diminishing economic pie. In Georgia, a country with real democratic politics, the lari has lost about 30 percent of its value against the dollar in the last four months. That makes the Georgian Dream government more politically vulnerable, set against a generally disappointing performance on the economy since it took power in 2012. But there is as yet no strong opposition force ready to challenge them. Armenia starts with an overall weaker economy, heavily intertwined with Russia. Its currency, the dram, has also weakened over the past year, but, ironically, the fact that it has devalued less than the ruble has had negative effects on Armenia, cutting Armenian exports to Russia and forcing thousands of migrant workers resident in Russia to come home. All this, just as the Armenian government has yoked the country even more strongly to Russia by joining the Eurasian Economic Union. A political drama has played out in Armenia over

the past two weeks in which leading oligarch and leader of the country’s main alternative political party Gagik Tsarukian first challenged President Serzh Sargsyan and then capitulated. It is to be assumed that the price of Tsarukian’s capitulation was that a threatened investigation into his monopolies will be called off. In Armenia a few powerful individuals, such as Tsarukian, dominate the economy and manipulate prices of key goods, buffering themselves against misfortune, such as a falling dram, and exposing the population to more misery. Economic analyst Garen Yegparian says, “They are... privatizing the benefits and socializing the costs of the dram’s fluctuations in value. They can do this because they also control the levers of political power, and make the rules to suit their own personal, not the country’s and broad population’s, interests.” The Armenian leadership, in contrast to its Azerbaijani adversaries, should no longer fear a revolt of the oligarchs. But Armenian population is indignant and less intimidated. Trust in politics as a whole has reached an all-time low. We can expect angry public voices to be heard this spring. THOMAS DE WAAL

BANKING

March 9, 2015 #90

caucasian business week

MICROFINANCE MARKET EARNS 9 MILLION GEL BY TRADE IN FOREIGN CURRENCY

icrofinance organizations (MFOs) received GEL 8.9 million in revenue in the fourth quarter of 2014 from buying and selling foreign currency that is 2.2 –fold more compared with 2013. Lasha Nikolaishvili, “Rico credit” founder, said in late February that due to the lari’s depreciation , the financial institutions received the colossal revenues. In his words, “Rico Credit” saw 5 –million profit in one month due to the lari’s depreciation – but this happened at the expense of the impoverishment of the people. As for other financial indicators, the organizations’ net profit in 2014 increased by 28.5% and amounted to GEL 79.6 million. During the reporting period, the total assets of

MFOs amounted to GEL 1.1 billion, which is 36.4% increased, while liabilities increased 37.3% and amounted to 836.4 million. MFIs’ lending increased by 37% and totaled 852 million. While consumer loans account for the largest share (GEL 427.9 million) of the total lending, which is 55% (152 million) more in one year. It should be noted that the microfinance institutions’ net loans increased 36.9% and amounted to 841.4 million. Net interest income increased by 26.6% and amounted to 166.5 million in the reporting period. In total 70 microfinance organizations functioned in the country by the end of 2014 which employ a total of 4 101 people and own 294 service centers and branches.

JANUARY RECORDS 43 MLN GEL DOWNTURN IN ISSUANCE OF CONSUMER LOANS

volume of consumer loans issued by banks by February 1, 2015 amounted to GEL 2.192 billion, which is GEL 43 million less than the figure of January 1, 2015. According to the National Bank’s data, a volume of consumer loans increased GEL 369 million in a year (by February 1, 2014 – GEL 1.823 billion). As per statistical data, by February 1 short-term loans worth GEL 501 million were issued , of which GEL 431.6 million were in the national currency, 69.7 million – in foreign currency. A volume of long-term loans amounts to GEL 1.7

billion, of which 1.37 billion were issued in the national currency, 321 million – in foreign currency. During the reporting period the average interest rate on short-term consumer loans reduced from 28.4% to 23.2% in a year, in particular, by 24.8% on the loans issued in the national currency (30.6% for February 1, 2014), in foreign currency – by 13.5% (16.1% for February 1, 2014). The average interest rate on long-term consumer loans reduced from 18.1% to 16.1%, in the national currency – by 17% (February 1, 2014 – 18.6%), in foreign currency – by 13.7% (February 1, 2014 – 16%).

Editorial The information on Pasha Bank the Caucasian Business Week newspaper has reprinted in its 89th issue from the website of one of the news agencies does not fit the authentic text. To remove this misunderstanding, we publish that part of the authentic text, which was reprinted with mistakes. See the quote: Q. Are there any new businesses lines that PASHA Bank is planning to launch in the nearest future? Goga Japaridze, Commercial Director of Pasha Bank Georgia: Natural extension of our current core competence of large-scale corporate banking is entering into SME segment. We are presently researching this opportunity. We want to make sure that as an institution we are ready to cover the SME sector, which is several times larger, by number of entities, than large corporate segment. This is something we are looking at and most likely we will decide upon our next steps closer to the end of the year.

RATING OF THE WEALTHIEST BANKS IN TERMS OF ASSETS The share of 5 largest banks in terms of assets totals to 72,7% (01/02/14 – 77,1%; 01/02/13 – 80,8%) of the banking sector’s total assets. TOP 5 banks in terms of assets:

BANKS NEGOTIATING DEBT RESTRUCTURING

ommercial banks began individual negotiations on restructuring the debts of those customers who have loans in dollars and incomes in the national currency - at the same time the representatives of the banking sector do not believe that there is something special and expect the crisis to end in the near future. According to the General Director of “ProCredit Bank” Asmus Rotne, the bank considers the problems of the debtors, but is closely monitoring the rate of the national currency, which has recently started to strengthen - respectively, at this stage the problem is not as complex as a few days ago. “No matter what is the client’s credit history, his income in the long term is important in order to be able to service the loans. Anyway, all cases are considered individually, “- he says. According to the CEO of the bank “Republic” Antoine Gabizon, the economic prospects of Georgia are quite positive. “We are closely monitoring our portfolio, and there is no reason for the emergence of serious problems. Individual borrowers may find themselves in a difficult situation, but it is a small part of our customers. Now we are considering the possibility of way out of this situation. In this sense, there is no single and accurate recipe. Everything depends on the individual case - the loan amount, type, borrower income, etc. Based on these data, a concrete plan of action to solve the problem will be drawn up. We have daily contact

with clients but the demand for restructuring is not too high. So I can say that the situation is not critical,”- says the banker. According to the General Director of “Liberty Bank” Giorgi Arveladze, 96% of the loans were issued by the bank in the national currency, while loans in foreign currency ( 4% of the total portfolio) are mostly corporate loans. “Accordingly, the number of people who have incomes in GEL and loans in dollars is not so big but despite this, we are ready to conduct individual negotiations in order to ease their plight. Overall statistics on negative customers has not changed,”- he notes. Chief Risk Officer at “KorStandart Bank” Temur Abuladze says that the best solution is to extend loan payments in order to avoid monthly payments increase. “We do not have problems, because our policy takes into account all such risks that might be expected in the case of the depreciation of the national currency. However, if someone asks the bank about restructuring, we are ready to extend the repayment period of the loan. We always work on different mechanisms of stabilization for problematic loans. We are not interested in selling the property, we want to have a stable and adequate income, so we always try to meet the wishes of the client. At the same time we must not forget that the bank is not a charitable organization, and we do not donate money to anyone, “- he said.

As of the reporting period, banking sector is represented by 20 banks. Legal procedure of TBC and Constanta merger has been finished in January, while Bank of Georgia and PrivatBank’s - will be finished in July.

IFC, GEORGIAN GOVERNMENT AND TBC BANK PARTNER UP IN SUPPORT OF SMALLER BUSINESSES

n March 5th, 2015 TBC Bank, Entrepreneurship Development Agency (Enterprise Georgia) and IFC, a member of the World Bank Group signed a Memorandum of Understanding aimed at supporting smaller businesses in Georgia. Vakhtang Butskhrikidze, TBC Bank’s CEO, George Tsikolia, CEO of the Entrepreneurship Development Agency and Thea Gigiberia, IFC’s Georgian Representative, signed the agreement. Trilateral cooperation will be a key of the new SME support project of the government’s Produce in Georgia program. The project aims to support micro and small entrepreneurs. To encourage local production, individuals in remote rural regions interested in starting a new business will receive financial and technical support from the Entrepreneurship Development Agency.

IFC will work with both partners to disseminate online resources available through the SME Toolkit, a free online business portal Www.Tbcbusiness.Ge, launched by TBC Bank and IFC Georgia in 2013 in cooperation with IBM. “Our joint efforts serve as a good example of how global knowledge tailored to the needs of the local market can make a difference,” Theona Gigiberia, IFC’s Georgia’s Representative said. “This cooperation is part of our strategy in Georgia to support smaller enterprises and help them create jobs and reduce poverty.” IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. Georgia became an IFC member in 1995. Since then, IFC has invested more than $810 million in 60 projects across various sectors and supported in Europe and Central Asia.

CURRENCY caucasian business week

GREAT DEPRESSION VS TODAY’S MACROECONOMIC PICTURE IN TRADING

March 9, 2015 #90

NFP AND CENTRAL BANK MEETINGS TO DOMINATE THE MARKET

History repeats itself – using an investor’s time machine, Saxo Bank checks how much you could earn on history-shaping economic events from before the year of 1990, assuming CFDs were to exist back then. CFDS - INVESTING IN A CRISIS Contracts for difference (CFDs) are simply a financial derivative in the form of an agreement between the issuer (seller) and the buyer (purchaser), when respective sides commit themselves to pay the difference between the current value of the contract and its value on the date of issuing. Due to their character, CFDs are particularly well suited for a period of increased economic uncertainty, when stability of the economy is uncertain and asset prices are affected by fluctuation – these determine the rhythm of trading on global markets. THE SECOND FALL OF MOSCOW – OIL CONSPIRACY Moscow is a giant with feet in ‘oil’ – a transparent fact well known to the main opponents of the Kremlin prior to the collapse of the Union of Soviet Socialist Republics. And though during the Cold War there were many military tensions between opposing factions, falling of the Eastern Comrades in fact needed no bullets to be fired – at least officially. All that was needed was to increase the production of ‘black gold’, the export of which – as well as today – was paramount to the survival of the state. The ‘dirty work’ was done by the Saudis in cooperation with the Americans and other countries interested in lifting the iron curtain: “A joint action like that had a precedent, which led to the fall of the Soviet Union (…) In 1985 the Kingdom increased its production from 2 to 10M barrels daily, knocking the price to 10 dollars.” – as reminded recently by one of the Russian newspapers referring to current oil prices. If any of the investors were to receive a tip from the Saudi sheiks of the planned ‘action’, he or she could take a short

position to earn a fortune on the oil market. From November 1985 to April 1986 oil prices fell 69%. Assuming the hypothetical possibility of investing in CFDs on oil, this market move with a minimal security deposit of 4% could lead to opening a short position of nominal value of 1,000,000 USD with a deposit in the amount of 40,000 USD. With such commitment to capital investment the customer would gain 690,000 USD investing only 40,000 USD, which means over 17-fold increase of the value of the portfolio (1725%). It seems that after almost thirty years Russia failed to do its history homework and again made its economy highly dependent on the export of energy resources. Forgetting the requirement of prior restructuring of trade, Vladimir Putin decided to return Russia to its former glory – beginning with attacks on Georgia and Ukraine... and that would be it. Former allies (USA and Saudi Arabia) joined forces once again on the resource market leading to a significant reduction in prices of natural gas and crude oil. In just a few months the value dwindled by over 60%, reaching historical minimums. Russia ran out of petrodollars necessary to maintain military operation, and the restoration of the empire clearly lost its impetus, being between an increasing budget deficit and an abject inefficiency of the banking sector. Those who spotted an analogy to year of 1985 could earn a profit of 61% during the last year. But only employing a CFD (Contracts for difference) would give the investor the tools for optimal capital use. Just as in the previous example, assuming a hypothetical possibility of investing in CFD on oil, this market move of a minimal security deposit of 4% would allow to open a short position of a nominal value of 1,000,000 USD with the deposit valued at 40,000 USD. With this level of capital investment the customer would gain 610,000 USD investing only 40,000 USD, which means over 15-fold increase of the value of the portfolio (1525%). UNCLE SAM VS RUSSIAN BEAR The Russian invasion of Crimea, and the escalation of the conflict to the eastern regions of Ukraine, especially

in Lugansk and Donetsk, were direct factors which significantly contributed to the economic collapse of Moscow – even though it would most certainly reach our eastern neighbors, who were reforming their economy in a manner that was dilatory. Even though the outflow of foreign capital from Russia in previous years remained at a relatively high level (61 billion dollars in 2013.), what happened during the last year meant a real Armageddon for the local capital market. The imposition of sanctions by Western countries, as a consequence of the aggressive rhetoric adopted by Vladimir Putin, clearly weakened investment enthusiasm across the river of Bug, leading to the ‘escape’ of more than 150 billion dollars throughout the year of 2014. Panic among entrepreneurs leaving cold Siberian taiga and the Russian bear, moving to the sunny beaches of the west coast of the United States, were additionally stimulated by suspicious legal solutions as, for example, so-called “nationalization of losses” in the energy sector. This, as you might think of a “charitable” activity of the Kremlin authorities was nothing but an attempt to reach a more effective control of the economy, by making unruly oligarchs dependent on the state capital (read: Putin’s). There was and still is nothing to prevent socialization of the losses in other sectors ... This concern “shared” the main Russian RTS index, which since only the July of last year depreciated more than 40 percent. Investors, who while fleeing from capitulating Moscow took short positions on the RTS index, could have achieved a rate of return of up to levels as high as 60 percent. Russian problems with the drainage of foreign capital,

is nothing compared to the Great Depression, which hit the United States in the 1930s, and then the whole globe. Suffice it to say that, according to many experts, the then crash on Wall Street indirectly contributed to the outbreak of the World War II, radically changing the geopolitical system in the coming decades. “Black Thursday” - determining the official “start” of the deepest recession of the twentieth century had its roots primarily in the ever growing oversupply of goods overseas, which had not met with sufficient demand from the US market, due to its relatively limited absorptive capacity. Intense credit activity in the overenthusiastic banking sector, generated industrial production in enterprises, which were unable to offset the operating costs through the sale of overproduced goods. This in turn influenced the decline in the profitability of companies allocating substantial sums for investment activities (often financed by means of loans). The Great Depression is also a consequence of an irresponsible lending to European countries, which after WWI attempted to heave itself from the rubble. American bankers, hoping for a better situation on the Old Continent, came too liberal to risk assessment, which turned out to be too high. A few years after the “Black Thursday” one of the major US indexes, the Dow Jones Industrial Average, melted from 381.17 points to 41.22 points in mid-1932. This meant a decrease by about 90 percent! If Saxo Bank had been offering CFDs in the 30s, the investor-clairvoyant, investing only the amount of $ 200,00, would have increased his balance by $ 900,000. How? Through the described market move, with a minimum security deposit of 2% for the DJI index CFDs, would allow the opening of a short position with a nominal value of $ 1,000,000 with a deposit in the amount of $ 20,000. A change of 90% in the value of DJI index, would bring a customer a profit of $ 900,000, with an initial investment of only $ 20,000, and that means more than 45-fold increase in the value of the portfolio (4500%). Author: Emmanouil Lemonakis, Head of Central Eastern Europe Region, Saxo Bank

fter spending much of the February in consolidation mode, the US Dollar made a comeback in the last week, especially against Euro, helping the overall US Dollar Index (I.USDX) to register eight consecutive month of gains. On the economic front, last week’s smaller-than-expected downward revision of US GDP growth rate for the fourth-quarter of 2014 and rebound in durable goods orders accompanied with unchanged Fed outlook on interest rate hike and upbeat tone on labor market conditions, as reflected in Federal Reserve Chair Janet Yellen’s semi-annual testimony on monetary policy, extended support to the US Dollar. On the flip side, the fall in US headline CPI number was attributed to the drop in energy prices while slightly weaker home sales number signalled some cautiousness. Moving forwards, a series of top-tier economic events scheduled at the beginning of a new month will keep investors engaged and has the potential to trigger some meaningful volatility in the Forex market. The key highlights, however, will be the most keenly watched economic indicator from the US, monthly jobs report, popularly known as Non-Farm payrolls data (NFP). This week’s US economic calendar begins with the release of ISM manufacturing PMI data for the month of February on Monday. Following a larger than expected drop in January, the index is expected to comein at 53.4 for February as compared to 53.5 recorded in January. Also the ISM non-manufacturing PMI for February, scheduled for release on Wednesday, is expected to show a minor drop to 56.5, from 56.7 recorded in the previous month. Following last month’s lower-thanexpected pace of expansion in the manufacturing PMI, any drop below this month’s expected PMI figures would raise concerns over the health of the economy. This might eventually lead to some weakness for the US Dollar. In the run-up to the NFP data, ADP report, which shows the number of private-sector jobs addition and provides an early estimate for the government’s report. The ADP report, scheduled for release on Wednesday, is expected to show an addition of 214,000 new private-sector jobs in February. However, investors attention will remain focused on Friday’s NFP data and is likely to overshadow other economic releases. US labor market reports is one of the most keenly watched economic data, known for generating substantial volatility in the financial markets, and this week’s release would be no exception. After printing better-than-expected reading for three consecutive months, economists continue to remain optimistic over the strength in the US labor market and the pace of US economic recovery. After adding more than 300,000 new jobs for two consecutive months, consensus estimate this week’s report to show an addition of 241,000 new jobs to the economy during the month of February. Meanwhile, the unemployment rate is expected to dip a bit to 5.6% from 5.7% recorded for January. Also watch out for the release of US trade balance data for the month of January, also scheduled for release on Friday. Amid uncertainty surrounding the timing of the interest-rate hike by the US Fed, strong labor market report would undo any pessimism over the strength of the

broader US economic recovery, eventually helping the US Dollar to build further on its gains. Apart from the US releases, monetary policy decision announcements from Australia, Canada, UK and Euro-zone should provide adequate momentum for the market. Starting with the Reserve Bank of Australia (RBA), which surprised market by a rate-cut in February, is scheduled to announce its monetary policy decision on Tuesday. This time too RBA is expected to cut its benchmark interest by 25 basis points to 2.00%. Other economic indicators that could have a material impact on the Australian Dollar (AUD) includes Australian GDP print for the fourth-quarter of 2014 and is scheduled for release on Wednesday. Following a dismal 0.3% growth in the third quarter, economists forecast a 0.7% growth for the last quarter of 2014. Market already seems to be pricing-in Tuesday’s RBA rate-cut announcement, and hence any surprise positive surprise from RBA or a better-than-expected GDP growth rate sets the stage for a sharp pull-back rally for the already slumped AUD. Adding to this, Australian trade balance and retail sales data, scheduled for release on Thursday are other events to watch from this week’s Australian economic calendar and could contribute towards making the upcoming week an eventful week for AUD. Meanwhile, the Bank of Canada, which also surprised markets in January by cutting its key lending rate to 0.75%, is scheduled to announce it monetary policy decision on Wednesday. A day later the Bank of England is scheduled to announce its monetary policy decisions. Market participants are not expecting any major announcements from both these central banks and hence are likely to prove as a non-events for the market. However, this week’s important UK PMI readings, which includes Construction and Services PMI for the month of February, and Canadian GDP print for the last month of December, might trigger the required momentum for the respective pairs. UK construction PMI data is scheduled for release on Tuesday and release of UK services PMI is scheduled on Wednesday. The Canadian monthly GDP figure is scheduled for release on Tuesday. Moving on to the Euro-zone, with the flash Euro-zone CPI print already published on Monday, investors will now focus on ECB monetary policy decision, which is scheduled on Thursday and where ECB is not expected to alter its current monetary policy stance. However, market will closely scrutinize the ECB press conference, which will be followed by the monetary policy decision announcement, and where participants will look for details on the central bank’s one-trillion Euros of government bond buying program, which begins in March. Also, ECB President Mario Draghi’s comments towards Greek uncertainty might trigger some volatile move for the Euro-zone common currency, Euro. Summing it all, this week’s important economic releases/events has the potential to trigger some meaningful volatility in the Forex market. Further, given that the US Dollar is already in a well-established strong up-trend, only a highly disappointing NFP reading or a substantial jump in unemployment rate could possibly trigger some near-term corrective move for the greenback. Admiralmarkets.ge/analytics/ facebook.com/adimralmarketsgeorgia/

RESEARCH

March 9, 2015 #90

caucasian business week

MONITORING OF TV COMMERCIALS

NEIGHBORHOOD

Azerbaijan plays important BP to invest $12bn in role as first supplier of Egypt gas fields ritish energy giant BP said on Friday it Caspian gas to EU would invest $12 billion in gas fields

zerbaijan plays an important role as the first supplier of the Caspian gas to the EU market, analyst at “Eurasia Energy Observer” Andrej Tibold told Trend on ‘This week in focus’ episode. “The Southern Gas Corridor has become a priority project in the European Union,” he said. “There are several reasons for that.” “From the beginning the Southern Gas Corridor has been an alternative source of supply,” Tibold said. The diversification has been the main stake here.” Tibold said that another benefit of this project is that alternative sources of supply are good for liquidity on the gas market.

Turkish lira hits second record low against dollar in one day 2012 TO 2014 DYNAMICS

IPM Researches company carries out AD market monitoring and analysis. The dynamics of growth in AD market in 2012 to 2014 is very interesting. According to the 2012 report on AD monitoring, a total number of TV commercials marked 1 226 955. The figure marked 1 054 550 in 2013 and 1 156 589 in 2014. The diagram shows the quantity of TV commercials due to years. Quantity

As to the duration of commercials (chronometry), the statistics is as follows: 36 721 957 seconds in 2012, 23 413 164 seconds in 2013 and 21 908 791 seconds in 2014. The diagram shows a total duration of TV commercials in 2012 to 2014. Chronometry

Official investments are as follows: according to the 2012 official pricelist the value of TV commercials marked 1 65 739 784 USD, 2013 – 206 487 576 USD, up by 40 747 792 USD year on year , and the cost of TV commercials in 2014 equaled 27 6577 057 USD. The Diagram shows official investments in 2012 to 2014 (in USD). Investment (in USD)

www.wom.ge

WORLD NEWS

he Turkish lira slid to a second record low against the dollar Wednesday, Anadolu Agencyreported. In late trading, the lira fell to 2.5673 against the dollar, with a loss of more than two percent in value since Monday. In morning trading, the Turkish lira had first hit a record low of 2.5492. “There have been significant short-term capital outflows from the country in recent weeks,” explained Bernd Berg, director of emergingmarkets strategy at Societe Generale Cross Asset Research in Paris. “The lira keeps hitting fresh new all-time lows against the dollar each day. This is driven by a very weak general backdrop for emerging market currencies these days, but mainly due to negative domestic news.”

in Egypt together with Russian-owned partner DEA, AFP reported.“The WND (West Nile Delta) project investment is the largest foreign direct investment in Egypt,”BP’s chief executive Bob Dudley said. The project would employ thousands of people during the construction phase. The aim is to develop five trillion cubic feet of gas resources and 55 million barrels of condensates. Production is expected to begin in 2017.

German industrial production rises for 5th month

ermany’s industry output rose for a fifth month in January in a sign that the momentum in Europe’s largest economy is strengthening, Bloomberg reported. A report from the Economy Ministry in Berlin showed Friday that adjusted for seasonal swings, output was up 0.6 percent in January after a revised 1 percent gain in December. Production climbed 0.9 percent from a year earlier.

China cuts economic growth target to 7%, lowest in 25 years

landmark session of the Chinese National People’s Congress has opened in Beijing to discuss comprehensive reforms for the Chinese economy as it slows down, as well as create effective governance mechanisms to combat corruption. Parliamentarians will consider reports on the implementation of a plan for social and economic development of China in 2015.

Georgia preserving foreign-exchange reserves Europe to start itch Ratings-London-05 March 2015: The sharp slowdown in Russia’s economy is a €1.14trn ‘easy money’ significant shock for the economies of other program on March 9 sovereigns in the Commonwealth of Independent States (CIS) region, but the impact on these counECB President tries’ credit profiles varies considerably, Fitch Rat-

ings says. Armenia and Ukraine have the most direct exposure among Fitch-rated sovereigns, while the steep fall in oil prices has magnified the fallout in Kazakhstan and Azerbaijan.he Russian economic contraction has a direct impact on CIS countries with close economic links through trade, remittances, and investment flows. Indirectly, the sharp fall in the rouble has been a major factor in significant currency adjustments across the region. Russia is Armenia’s leading export market and largest source of foreign direct investment and remittances. Russia’s slowdown will therefore have a major impact on Armenia’s growth prospects, as reflected in our one-notch downgrade of the latter to ‘B+’ in January. The disruption of traditionally close economic ties with Russia has been a significant contributor to Ukraine’s sharp economic contraction. Ukraine is the second most exposed Fitch-rated CIS sovereign even excluding the impact of the current conflict and trade restrictions. Georgia is less exposed to Russia via remittances and trade ties, although we are still likely to slightly revise down our GDP growth projections for 2015-2016. Both Armenia and Georgia have allowed their currencies to float, providing a shock absorber and preserving foreign-exchange reserves. Direct Russian exposure relative to GDP is lower in Kazakhstan and Azerbaijan, but the impact of the rouble’s depreciation on their fixed currencies is a major indirect channel of contagion - particularly in a context of lower oil prices. Azerbaijan has responded by devaluing the manat and shifting from a US dollar peg to a euro/dollar basket. We believe there is a high possibility Kazakhstan could also devalue, as the tenge’s real effective exchange rate has appreciated to levels last seen before the February 2014 adjustment. Devaluation poses risks for both sovereigns, but they have strong buffers. Our full report, “Russia Slowdown Hits CIS Sovereigns”, is available to subscribers at www.fitchratings.com or by clicking the link above.

he European Central Bank will kick off its monthly €60 billion purchases of government bonds and private sector assets next Monday, said the head of the ECB Mario Draghi. “Following up on our decisions of 22 January 2015, we will, on 9 March 2015, start purchasing euro-denominated public sector securities in the secondary market. We will also continue purchasing asset-backed securities and covered bonds, which we started last year,” Draghi said in a press-releasepublished Thursday after a news conference in Cyprus.

China to slash coal consumption by 160mn tons in 5 years

hina intends to cut coal consumption by 160 million tons by 2020, and up its use of non-fossil energy to 15 percent by then. Air pollution has been linked to a spike in lung cancer in Beijing and a reduced life expectancy in some regions of 5.5 years.

Huawei Rumored As Google’s Next Nexus Partner

n an unprecedented move, Google may tap the Chinese hardware manufacturer for its next-gen smartphone. Google could turn to Huawei for an upcoming Nexus device, or so says Kevin Yang, director of China research at iSuppli. According to Yang, Google has already signed the deal with Huawei to collaborate on the next version of the pure Androidsmartphone.

BUSINESS

caucasian business week

March 9, 2015 #90

10 REASONS BEER IS NOT BAD FOR YOU Daily Allowance is 300 grams of carbohydrates in a standard 2,000-calorie diet. In other words, you would need to drink an entire 24-pack case of beer - and then reach into a second case - simply to reach the government’s recommended daily allotment of carbohydrates. You’re better off munching an apple or drinking some soda pop if you want to carbo-load. Each has about 35 to 40 grams of carbs - three times the number found in a beer. Also, beer has no fat or cholesterol.

BEER IMPROVES YOUR CHOLESTEROL Beer not only has no cholesterol, it can actually improve the cholesterol in your body. In fact, drinking beer regularly and moderately will tilt your HDL/LDL cholesterol ratios the right way. You’ve got two kinds of cholesterol in your system: HDL, the “good” cholesterol that armor-plates your veins and keeps things flowing, and LDL, the “bad” cholesterol that builds up in your veins like sludge in your bathtub drain. Beer power-flushes the system and keeps the HDL levels up. According to some studies, as little as one beer a day can boost your HDL by up to 4 per cent. BEER HELPS YOU CHILL The social aspects of moderate drinking are solidly beneficial to your health. In other words, to get out every now and then and relax with your buddies over a couple of beers. BEER DRINKERS LIVE LONGER Moderate drinking is good for you, and beer is good for moderate drinking. Everyone knows that if you drink too much, it’s not good for you. Let’s not pull punches: If you’re a drunk, you run into things, you drive into things, you get esophageal cancer, you get cirrhosis and other nasty conditions. But more and more medical research indicates that if you don’t drink at all, that’s not good for you either. According to numerous independent studies, moderate drinkers live longer and better than drunks or teetotalers. Beer is perfect for moderate drinking because of its lower alcohol content and larger volume compared with wine or spirits. And as that old radical Thomas Jefferson said, “Beer, if drank with moderation, softens the temper, cheers the spirit, and promotes health.” And he didn’t need a scientific study to tell him that. BEER IS ALL-NATURAL Some know-it-alls will tell you that beer is loaded with additives and preservatives. The truth is that beer is as all-natural as orange juice or milk (maybe even more so - some of those milk & OJ labels will surprise you).

Beer doesn’t need preservatives because it has alcohol and hops, both of which are natural preservatives. Beer is only “processed” in the sense that bread is: It is cooked and fermented, then filtered and packaged. The same can be said for Heineken. BEER IS LOW IN CALORIES, LOW IN CARBOHYDRATES AND HAS NO FAT OR CHOLESTEROL For a completely natural beverage, beer offers serious low-calorie options. Twelve ounces of Guinness has the same number of calories as 12 ounces of skim milk: about 125. That’s less than orange juice (150 calories), which is about the same as your standard, “full-calorie” beer. If beer were your only source of nutrition, you’d have to drink one every waking hour just to reach your recommended daily allowance of calories (2,000 to 2,500). And nobody’s recommending you drink that many. The only natural drinks with fewer calories than beer are plain tea, black coffee and water. Surely, beer is loaded with those fattening carbohydrates, right? Wrong again. The average beer has about 12 grams of carbs per 12-ounce serving. The U.S. Recommended

BEER HAS PLENTY O’ B VITAMINS Beer, especially unfiltered or lightly filtered beer, turns out to be quite nutritious, despite the years of suppression of those facts by various anti-alcohol groups. Beer has high levels of B vitamins, particularly folic acid, which is believed to help prevent heart attacks. Beer also has soluble fiber, good for keeping you regular, which in turn reduces the likelihood that your system will absorb unhealthy junk like fat. Beer also boasts significant levels of magnesium and potassium, in case you were planning on metal-plating your gut. BEER IS SAFER THAN WATER If you’re someplace where you are advised not to drink the water, the local beer is always a safer bet. It’s even safer than the local bottled water. Beer is boiled in the brewing process and is kept clean afterwards right through the bottle being capped and sealed, because if it isn’t, it goes bad in obvious ways that make it impossible to sell. Even if it does go bad, though, there are no life-threatening bacteria bacteria (pathogens) that can live in beer. So drink up - even bad beer is safer than water.

BEER PREVENTS HEART ATTACKS If you want to get a bit more cutting-edge than vitamins, beer has other goodies for you. You’ve heard of the French Paradox, how the French eat their beautiful high-fat diet and drink their beautiful high-booze diet and smoke their nasty goat-hair cigarettes, but have rates of heart disease that are about one-third that of the rest of the world? It’s been credited to red wine and the antioxidants it contains. Hey, guess what else has lots of antioxidants, as many as red wine? Dark beer! According to the American Heart Association, “there is no clear evidence that wine is more beneficial than other forms of alcoholic drink.” One study profiled in the British Medical Journal in 1999 said that the moderate consumption of three drinks a day could reduce the risk of coronary heart disease by 24.7 per cent. BEER FIGHTS CANCER The most amazing beer and health connection is something called xanthohumol, a flavonoid found only in hops. Xanthohumol is a potent antioxidant that inhibits cancer-causing enzymes, “much more potent than the major component in soy,” according Dr. Cristobal Miranda of the Department of Environmental and Molecular Toxicology at Oregon State University. This xanthohumol stuff is so good for you that the Germans have actually brewed a beer with extra levels of it. BEER DOES NOT GIVE YOU A BEER BELLY A study done by researchers at the University College of London and the Institut Klinicke a Experimentalni Mediciny in Prague in 2003 showed no connection between the amount of beer people drank and the size of their overhang. “There is a common notion that beer drinkers are, on average, more ‘obese’ than either nondrinkers or drinkers of wine or spirits,” the researchers said. But they found that “the association between beer and obesity, if it exists, is probably weak.” Most studies have found that people who drink beer regularly (and moderately) not only don’t develop beer bellies - they weigh less than non-drinkers. Beer can boost your metabolism, keep your body from absorbing fat and otherwise make you a healthier, less disgusting slob. Just drink it in moderation, as part of an otherwise healthy diet. So that’s it. Drink beer. You’ll live longer and be happier. You won’t get fat. In fact, you may weigh less. You’ll boost your metabolism, improve your health and reduce your risk of clogged arteries, heart attack and cancer. What more could you want?

March 9, 2015 #90

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

TBILISI GUIDE

caucasian business week

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

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

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

Restaurants 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

PUBLICITY

caucasian business week

March 9, 2015 #90