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Summary of Euromonitor Reports Read on p. 6

The Best Political System for Georgia by MERAB PACHULIA, GORBI on p. 21

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Did Azerbaijan enter the post-oil era? Olga AZHGIBETSEVA and YAROSLAVA BABYCH ISET

ometimes, transformation requires a crisis. Economists in particular are very well aware of this maxim. We are reminded of it every time a country undergoes an economic shock. A country in those times is a bit like a patient who gets the last warning from a doctor to drop the unhealthy habits or face irreversible consequences. One of these scenarios has been unfolding in front of our eyes during the past year. Georgia’s neighbor and one of the largest trading partners, Azerbaijan, has been going through tough times. Continued on p. 4

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CSR is Misunderstood by the Majority of Companies in Georgia

The FINANCIAL

SR is by definition voluntary and therefore success relies on a business-led approach. It is also diverse and constantly evolving to meet changing circumstances. Our survey was carried out in recognition of the increasing importance of CSR to business. The FINANCIAL received more than 30 responses from businesses. The remaining 300 failed to respond. The responses illustrate the general situation of CSR in Georgia.

There were some examples of good practice but also evidence that the idea of CSR is misunderstood by the majority of companies. Many companies view CSR as philanthropy or little more than financial help for socially vulnerable people. This narrow perspective means that many businesses fail to examine what this agenda means for their organization and consumers in the future. The majority of companies interviewed refused to name their total budget allocated for CSR, which in itself can speak of a lack of transparency at companies and understand-

ing of the importance of financial and non-financial reports. The survey’s results show that Georgian businesses are contributing to environment protection on a minimal level. Most of them, especially those who pollute the environment, are not involved in the greening of the areas where they operate. In a very rare cases we found CSR Manager’s position at the companies in Tbilisi. This confirms that CSR is not a part of long term strategy of businesses in Georgia.

The Ten Principles of the UN Global Compact

Continued on p. 5 Continued on p. 17

MFO Crystal: Social Responsibility Weekly is More Important during Times of Market Economic Difficulty Watch See on p. 2

See on p. 10

CMYK

HEADLINE NEWS & ANALYSIS

csr: business reports to media

FINANCIAL

22 FEBRUARY, 2016 | FINCHANNEL.COM

MFO Crystal: Social Responsibility is More Important during Times of Economic Difficulty The FINANCIAL By MADONA GASANOVA

espite economic downturn and market fluctuations, MFO Crystal managed to end 2015 with 40% growth. The credit portfolio of the company has grown by 48%, totalling GEL 108 million. Overdue loans make up just 1.3%. Against the background of dramatic devaluation of the Georgian Lari, Crystal started offering the conversion of loans from foreign currencies into the national one, so as to bring relief to its customers. For further protection of citizens from exchange risks the company will continue crediting in the national currency. Having social responsibility is considered by the management of the company to be even more important during times of tough economic conditions. “Despite the economic, political and financial difficulties last year, Crystal managed to achieve the desired growth rate and maintain a good quality of assets. The credit portfolio of the company increased by 48% and reached GEL 108 million. It was the highest growth rate among the leading microfinance organizations operating in Georgia as of 2015. Due to the local currency devaluation and deterioration of borrower’s repayment capacity, the overdue loan portfolio has been slightly increased and amounted to 1.3%. The overall risky portfolio, including restructured loans, made up 2.7%, which is still one of the best asset quality ratios in the sector,” Malkhaz Dzadzua, CEO and General Director at MFO Crystal, told The FINANCIAL. According to Dzadzua, there is a risk that during times of tough economic conditions CSR and business ethics will become less important for the companies. However, he believes that it is less dependent on external factors. “The corporate culture inside the company and employees’ moral standards are more important in this case. If social responsibility is indeed among the company’s core values and the owners have a strong commitment to it, then it will always be a top-priority for any responsible businesses. On their side, consumers will easily notice it in their daily relations with the company. Revealing social responsibility and protecting consumers’

MALKHAZ DZADZUA, CEO and General Director at MFO Crystal

interests are even more necessary during an economic downturn. Otherwise, ‘falselyresponsible’ companies are better lustrated during such times. Dissatisfied customers will be even more damaging than the cost issued for CSR activities.” MFO Crystal plans to have a relatively cautious lending strategy this year. The main emphasis will be on the quality of the portfolio and effective risk management. The company will continue a portfolio growth and 5-6 new branches will be added to its chain. Crystal will further increase its concentration on the regional and rural markets. As Dzadzua said, they intend to continue active financing in the national currency and also offer interesting innovating projects to young start-up entrepreneurs. “Regardless of the difficulties in the region, Crystal traditionally successfully manages to raise funds from international financial markets. Last year we were able to obtain about USD 20 million of credit resources from the European and US markets. Just recently, the company successfully completed a second round of equity investment and one of the leading DutchBelgian companies has become a new shareholder of Crystal. Accordingly, our foreign partners are still having a positive attitude and are steadily continuing financial support to Crystal” said Dzadzua.

Q. The fact that the exchange rate remained stable as of the end of 2015 has resulted in a relative sense of security. Meanwhile, from the second half of January 2016 we still have witnessed dramatic devaluation of the GEL. What are your expectations in this regard for 2016? A. Georgia has witnessed almost 40% devaluation of the national currency. It was accompanied by insufficient and ineffective communication of the Government and Central Bank with the public. Against this background, it is difficult to talk about positive expectations and long-term stability yet. Loss of confidence happens very easily and quickly, but its restoration requires a lot of time, hard work and effort. Therefore, we think that certain difficulties are still expected. However, we are still relatively optimistic about the future and hope that thanks to the recent experience, the public and the Government are more prepared to meet the new challenges. Q. Are the ongoing economic problems fundamental, or temporary? A. Unfortunately, right now we are dealing with a combination of several internal and external negative factors. There are mixes of fundamental as well as short-term problems. The most severe is devaluation of the national currency, decline of economic activity, high poverty and unemployment level. All of these are added to by ongoing political problems and external challenges. As a result, we get a less stable and predictable environment. Due to the increased risks, it is hard for businesses to make longterm forecasts and attract new solid investments. Q. The importance of reducing the dollarization rate generally be-

comes part of the agenda during a period of devaluation. However, during such times people’s trust in the national currency naturally decreases. How proper is our monetary policy in this direction? A. It is bad that problem of dollarization is mostly addressed during the times of high devaluation, when it is already too late. The current dollarization rate, which is almost 70%, demonstrates the less effectiveness of the current monetary policy. For such a weak and importdependent country as Georgia, the issue must always be part of the agenda of the Government and central bank. In parallel to a prudent monetary policy and wise regulations, it is necessary to initiate a series of promotional and incentive programmes, to gradually increase confidence in the national currency amongst the population as well as business entities. Outreachliteral programmes, support of export-oriented enterprises, assisting start-ups and innovative ideas and ensuring a long-term stable environment is but a small list of steps that are required in this regard. Q. Crystal has always been focused on the dominance of its credit portfolio in the national currency. During the peak of the devaluation you even offered your borrowers the opportunity to convert loans from foreign currencies into the national one. Another issue is persuading customers to save in the national currency. What is your view on this, how can financial companies encourage customers to start saving in Lari? A. Crystal is one of the few companies that is actually trying to encourage financial transactions in the national currency. We do not try to

transfer exchange rate risks to our consumers. Whereas the dollarization rate of the banking sector is 70%, in our company it comes to just 27%. So, 73% of our loans have been issued in Georgian Lari (Increased from 64% as of last year). We believe that like Crystal, all responsible financial companies can protect customers from foreign exchange risks and are able to manage their major transactions in the national currency. Q. The head office of Crystal is located in Kutaisi, in the region of Imereti. You mostly target offering financial assistance to the regions. Tell us from the example of your customers, how have the economic conditions changed since 2014, from the beginning of the dramatic fall of the Georgian Lari? A. A focus on regional businesses, small entrepreneurs and farmers is Crystal’s top priority. 95% of our loan portfolio is invested in the regions, outside Tbilisi. Devaluation of the Lari has significantly worsened the financial situation and repayment capacity of our customers. Though they borrowed from Crystal in Lari and thus their credit liabilities have not increased, many of them have taken out a parallel loan in another credit facility, which is mainly in US Dollars. Therefore, the overall situation and credit burden became quite complicated for them. The fall in solvency in general has led to a decrease in demand and sales in the local market. Consequently, the income level of customers has reduced and they are in no hurry to expand their businesses. Q. The flagships of CSR activities in Georgia are mostly large companies. Crystal is a rare exception in this regard. What encouraged you to make your company so socially responsible? A. Today, there are more than 500 workers employed at Crystal. We have 32 regional branches and company’s total assets increased up to GEL 120 million. Therefore, we can say that Crystal has already become a large company in the country. However, a focus on social responsibility and taking care of consumer rights started much earlier and the small size of the company was not a hampering factor for it. We think that fundamental factor for the company in this case is having the right corporate values. Stakeholders, especially founders and management, should have a clear will to do business responsibly. Active involvement on a global scale and relationships with international partners is another important factor. It helps to make effective transmission of the best international standards and adapt to local reality. Q. Share with us your experience on what the benefits are of the ‘SMART Campaign’ that you implemented, and why CSR should be part of the agenda of every company? A. The International SMART campaign for Cli-

ent Protection was initiated in 2008-2009. It was a time when during the global financial crisis, a violation of consumers’ rights, unethicalness and aggressive treatment from banks reached their zenith. SMART Campaign was created in response to these processes. It set up seven universal principles for client protection. This campaign has proved that meeting these rules is wise and profitable also for the companies themselves, since it leads to a high level of customer loyalty. Consequently, socially responsible companies would get more stable, loyal and solvent customers. All of this is one of the main conditions for the success of business in the long-term. More than 1,500 MFOs worldwide are affiliated in the Smart Campaign to date. They support the implementation of these principles in their daily activities. In Georgia, Crystal was the first company to have joined this initiative and introduced its principles in dealing with customers. Q. What is the main CSR policy of Crystal? A. The CSR activities of Crystal incorporate three main directions. The first is Responsible Business - protection of consumers’ rights, Smart Campaign, universal standards and code of ethics. The second direction is Social Performance Management - measuring and monitoring of the work of the company in order to see what we have changed for clients. The third direction is Social Projects - charity, ecology, environment protection and education. Q. Please tell us about the internal CSR activities of Crystal? A. One of the directions of the above-mentioned universal social standard concerns internal CSR. It gives recommendations on how a responsible company should treat its employees. As a result of various observations and internal or external surveys, we can proudly state that Crystal is an exemplary Georgian company, where employee rights are highly protected. Our organization has not been doing business at the expense of the exploitation of workers. The majority of our employees have a constant (permanent) labour contract. Working conditions are in line with the high commercial standards. There are internal career and professional growth plans. The company has a competitive and outcome-based reimbursement system. Working hours are strictly fixed. We never overload our workers. Our employees are highly involved in the formation of the company’s plans and goals. We also support improvement of their qualification by different study programmes and trainings.

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FINANCIAL HEADLINE NEWS & ANALYSIS FINCHANNEL.COM | 22 FEBRUARY, 2016

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JANUARY 2016: KHACHAPURI INDEX FOR FRUGAL WIVES

he cost of cooking one standard portion of Khachapuri stood at 3.61GEL in January 2016. Compared to the previous month (December 2015) the Index lost 4.3%; in annual terms (compared to January 2015), it actually gained 6%. Considering average prices, Telavi – the smallest city in our sample – is currently one of the most expensive markets for khachapuri ingredients. Yet, it also offers the greatest bargains for those frugal housewives among us who care to look for the cheapest ingredients. A frugal housewife would pay only 3.12GEL for one portion of Khachapuri in Telavi, saving a solid 14.3% of the local average price. Tbilisi and Kutaisi are somewhat less friendly for frugal housewives, offerings savings of 13.5 % and 9.9%, respectively. There are even fewer

bargains in Batumi. If one spends time to search for the cheapest

ingredients, she could save only about 8.4% of the local average,

paying 3.24GEL for one portion of khachapuri.

Did Azerbaijan enter the post-oil era? DISTRIBUTION The FINANCIAL distribution network covers 80 % of key companies operating in Georgia. 90 % is distributed in Tbilisi, Batumi and Poti. Newspaper delivered free of charge to more than 600 companies and their managers. To be included in the list please contact distribution department at: temuri@financial.ge CONTACT US EDITOR-IN-CHIEF ZVIAD POCHKHUA E-MAIL: editor@financial.ge editor@finchannel.com Phone: (+995 32) 2 252 275 HEAD OF MARKETING LALI JAVAKHIA E-MAIL: marketing@financial.ge marketing@finchannel.com Phone: (+995 577) 74 17 00 CONSULTANT MAMUKA POCHKHUA E-MAIL: finance@financial.ge Phone: (+995 599) 29 60 40 HEAD OF DISTRIBUTION DEPARTMENT TEMUR TATISHVILI E-MAIL: temuri@financial.ge Phone: (+995 599) 64 77 76 COPY EDITOR: IONA MACLAREN COMMUNICATION MANAGER: EKA BERIDZE Phone: (+995 577) 57 57 89 PHOTO REPORTER: KHATIA (JUDA) PSUTURI MAILING ADDRESS: 17 mtskheta Str. Tbilisi, Georgia OFFICE # 4 PHONE: (+995 32) 2 252 275 (+995 32) 2 477 549 FAX: (+95 32) 2 252 276 E-mail: info@finchannel.com on the web: www.financial.ge daily news: www.finchannel.com

Intelligence Group ltd. 2016 Member of

Olga AZHGIBETSEVA AND YAROSLAVA BABYCH

ISET

The unfolding of a crisis In the last year, Azerbaijan’s economy, like that of many other oil-exporting countries, was severely affected by the collapse in the worldwide crude oil prices. As the global oil price dropped by 70%, the oil sector of Azerbaijan plunged by nearly 35%. For an economy where the oil sector accounted for more than half of GDP in the last eight years, there was only one prospect - a sharp national currency devaluation. Unable to fight the devaluation pressure, the Central Bank of Azerbaijan (CBA) announced a switch from a fixed exchange regime to a managed float. Unfortunately, prior to this, around 60% of the foreign exchange reserves were spent to sustain the currency peg. During that time the CBA devalued the Azerbaijani manat (AZN) only once by 30%. Right after the switch to a managed float was made, manat depreciated further by 52%. Overall, the currency lost more

than half of its value vis-à-vis the US dollar. Almost immediately in the wake of devaluation the consumer prices started to climb. Food, clothing, furniture, - for years all of these goods were cheaper to import from abroad, and their local producers were priced out of the market. Unfortunately, the drop in budget revenues in 2015 also meant the the government could not afford to expand the social security programs. The only promise the government has made was to adjust the payments for the most vulnerable part of the population, the pensioners.

As a result, Azerbaijan faced a wave of political and economic protests – something almost unimaginable before in the tightly controlled political climate of the country.

The opportunities for the non-oil sector

As bad as the depreciation was, it gave a much needed relief to some sectors in the non-oil economy. Both the exports and the import-competing locally produced goods became more competitive

almost overnight. Although the data shows that the value of Azerbaijani nonoil exports (quoted in US dollars) declined in Q3 2015 by 25%, much of that decline was due to the depreciation effect. If quoted in manat, the value of non-oil exports would actually increase. The total output of the nonoil sector expanded by 4.4% in 2015. Not surprisingly, the trade sector contributed 2.37 percentage points to this increase, expanding by 16.7% year on year (above the five-year growth average for this sector)*. Agriculture also expanded at a good pace of 7.8%, contributing 0.74 percentage points to the non-oil sector growth. Other expanding sectors were transport and storage (more than 10% growth, contributing 0.8 percentage points), accommodation and food services (grew by 16.3%, although the pace of growth was below the average of the previous years, pointing to the effect of declining incomes and wealth). Other non-oil sectors also managed to grow, albeit at a slower than average pace. Unfortunately, the once booming construction sector declined precipitously, posting a negative 11.5% growth in 2015. Overall, the non-oil sector has increased its share in Azerbaijan’s GDP to 67% in 2015. The graph below illustrates the changes that have taken place.

Foreign Direct Investment In the first three quarters of 2015 the foreign direct investment to the non-oil economy has declined relative to both 2014 and 2013. The non-oil FDI in Q1-Q3 2015 was 678 mln USD, a 20% decline compared to the same period in the previous year. While the Continued on p. 13

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FINANCIAL HEADLINE NEWS & ANALYSIS FINCHANNEL.COM | 22 FEBRUARY, 2016

csr: business reports to media

Majority of Companies in Georgia Misunderstood the Idea of CSR, Survey The FINANCIAL

SR is by definition voluntary and therefore success relies on a businessled approach. It is also diverse and constantly evolving to meet changing circumstances. Our survey was carried out in recognition of the increasing importance of CSR to business. The FINANCIAL received more than 30 responses from businesses. The remaining 300 failed to respond. The responses illustrate the general situation of CSR in Georgia. There were some examples of good practice but also evidence that the idea of CSR is misunderstood by the majority of companies. Many companies view CSR as philanthropy or little more than financial help for socially vulnerable people. This narrow perspective means that many businesses fail to examine what this agenda means for their organization and consumers in the future. The majority of companies interviewed refused to name their total budget allocated for CSR, which in itself can speak of a lack of transparency at companies and understanding of the importance of financial and non-financial reports. The survey’s results show that Georgian businesses are contributing to environment protection on a minimal level. Most of them, especially those who pollute the environment, are not involved in the greening of the areas where they operate. In a very rare cases we found CSR Manager’s position at the companies in Tbilisi. This confirms that CSR is not a part of long term strategy of businesses in Georgia. There is a lack of links with local communities. The majority of companies are not aimed at increasing the financial level of their clients and local populations. A significant majority of respondents pointed to differences between large and small business and noted this had implications for how CSR is practiced. Corporate responsibility is not just the preserve of big business but something which every business can adopt. Indeed, smaller businesses can, and do, contribute significantly to the environment and, especially, to society, as they can have closer links with the communities they serve. Many small and medium sized enterprises do enormous good for the environment and communities around them. And of those that do, a high proportion do not publicize the good contributions they make, and thus potentially miss out on economic benefits.

Activities by companies Only three companies from all of those surveyed confirmed the presence of a CSR Manager’s position. These are: British Petroleum, Crystal MFO, and Silknet. Pasha Bank’s activities are more associated with sponsorship and charity. The Bank financed the education of three children. It also supported the Tbilisi Mayor’s Office in rehabilitation after damage caused by the flooding in June 2015. Pasha Bank also provides marketing specialists with free professional books. GT Electronics spends 1-1.5% of its total revenue on CSR projects, according to Nino Tabatadze, Deputy Director. In 2015 GT electronics was involved in a tree planting campaign, which aims to popularize the Caucasian FirTree. GT Electronics, as an active member of the Businesswomen’s Association, was involved in support of women entrepreneurs badly affected by the Tbilisi floods in June 2015. According to Nino Tabatadze, GT Electronics takes care of and keeps green the territory where it operates. CSR is part of the communication manager’s responsibilities at Japan Tobacco International (JTI). “The budget for CSR activities up till 2018 is already defined,” said Anna Skhiladze, Communication Specialist in the Caucasus, Corporate Affairs and Communication. She said that according to JTI, global social responsibility company policy should allocate 0.5-1% from annual revenue for CSR projects. In 2015 JTI was also supporting the rehabilitation works in Tbilisi following the flooding. It covered the utility expenses of families affected by the natural disaster. There is neither a CSR budget nor CSR position allocated at Georgian Wine Association, according to Tata Jaiani, Communication and Business Development Manager of the Georgian Wine Association. However, the core business of the Association is in line with CSR values. It promotes Georgian wine producers worldwide, keeps old wine producing tradi-

tions; supports research; and supports the development of wine tourism. “Unfortunately we did not find donors for CSR projects. Next year we will intensify activities focused on CSR projects,” said Tata Jaiani. According to Ltd Prestige, one of the leading retailers of perfume brands in Georgia, the company was involved in charity projects last year. One of the best examples of the SME role in CSR is Natali Group, one of the leading networks of beauty salons in Georgia, which spends a significant share of its revenue on CSR activities. According to Natali Toloraia, owner of the company, each year the company allocates 25% of its total revenue for education and professional development purposes. The company was granted state authorization for providing professional education. “We are aimed at supporting socially vulnerable people by providing them with trainings and help in building their careers,” said Toloraia. The club provides free services to people with low incomes. Students of Natali Academy regularly visit orphanages and homes for the elderly, caring for the residents’ beauty. In addition, Natali salons are adapted for people with disabilities. Natali Group incorporates beauty salons, spas, anti-ageing clinics; beauty shops, solarium clubs; and distribution. “We have created a free and equal working environment for our workers,” Toloraia told The FINANCIAL. Nitsa Cholokashvili, Public Relations Manager, is in charge of CSR issues at IDS Borjomi Georgia, one of the leading producers of spring and mineral waters in Georgia and worldwide. In 2013 the company established its training centre in Borjomi. Up to 2,000 people have passed the course up till now. The training centre teaches students foreign languages and computer skills. It also supports employment. “Part of the factory owned by IDS Borjomi is now occupied by the centre, which has become quite popular in the region. We have had great results. Up to 30 school leavers became students of universities in Georgia. Many of them received state grants for

free education,” Cholokashvili told The FINANCIAL. Alliance Group Holding spent more than USD 200,000 on CSR projects in Georgia. “In 2015 we held a masterclass by Jordan Belfort, an American author, motivational speaker, and former stockbroker. This event was aimed at improving the entrepreneurship and marketing skills of the Georgian business audience,” said Salome Kukava, Corporate Communications Manager at Alliance Group Holding. TBSC Consulting contributed to the recycling of paper and plastic materials. CSR management at TBSC is included in the responsibilities of the company’s head. In 2015 Unicard paid the medical expenses of children with cerebral palsy. It was involved in the ‘Wings for Life’ project. Sarajishvili spends 2% of its total revenue on CSR, the company told The FINANCIAL. These funds mainly go towards medical support and education. CSR issues are included in the responsibilities of the Marketing Manager at IRAO Insurance Group, member of Vienna Insurance Group. It’s expected that in 2016 IRAO will spend an extra EUR 30,000 on CSR activities. This sum was allocated by VIG as a prize in a corporate contest. The company said it spends 5% of its total income on CSR projects. However, in 2015 it was USD 5,000. BP Georgia is of the companies who pioneered Corporate Social Responsibility projects in Georgia. It spent around USD one million on CSR in 2015. Development of the local population is one of the most important projects to be implemented by BP in 2015. A project which was started in 2013 brings many benefits to the population who live close to the pipeline. 322 infrastructure rehabilitation projects are implemented with an average of 50% community contribution. 20 Social Enterprises created by the Community Based Organizations generated income and extended the provision of social services to their constituent communities; 2,050 farmers established individual and group demonstration farms using new technologies

and increased their harvest. The increased yields resulted in an increase of target households’ incomes by an average of 20-22% average. 457 small businesses were established and 23 scaled up their activities. The share of business activities in target families’ incomes achieved 25% and revenues increased up to 28%. More than 500 agricultural subsidized loans were disbursed. 92 rehabilitation projects were implemented in schools along WREP. 45 youth groups, with 1,212 students, were established in target schools along WREP. 60 micro-grant projects and 544 small scale environmental actions were implemented by the youth groups. Eristavi & Partners spent about GEL 10,000 on charity and sponsorship. The company provides free legal service to the Green Georgia fund established by the Georgian Patriarchate. DLA Piper, in the frame of its global social programme, contributed to the reform of the judicial system in Georgia. The aim of the project is to improve the access of youths to legislation and their participation in public activities. DLA Piper provided free legal advice to the Caucasus Natural Fund on issues related to the fees of using lands in protected areas. RSM Capto spends 5% of its total revenue on CSR activities. The management of the company believes that one of the most important projects was participation in the ‘World Day’ event, which aims to teach employees of the current strategies of the company. In 2015 RSM founded a leadership programme with the participation of top managers globally. RSM provided scholarships to 7 students. The company is mainly focused on skills development and professional education. In 2015 BDO cooperated with American Friends of Georgia aiming to support palliative care. Liberty Bank spends 2.5% on CSR activities during the year. Last year it was actively supporting the Solidarity Fund, contributing to fundraising by providing special software. GEL 1,802,815 was donated through Liberty Bank to the Solidarity Fund, from which the Bank directly paid GEL 213,482.72. In addition, Liberty Bank donated GEL 100,000 to people affected by the floods in Tbilisi. It also sponsored the medical treatment of several vulnerable persons abroad. Gulf Georgia, one of the leading oil and gas retailers, said it spent GEL 100,000 on CSR last year. It helped more than 100 disabled people’s families. Wrigley Georgia said 1% of annual revenue is spent on CSR. The company said it organized several activities aimed at raising awareness on environment protection. The company was involved in tree planting, and the cleaning of different areas. Dirsi Development Company was focused on energy efficiency in its construction projects. It managed to reduce energy use by 30%. It also created a green area around newly-constructed

buildings. KPMG Georgia spent GEL 20,000 on CSR activities in 2015. The company said its main CSR directions are education, environment protection and the development of society. ProCredit Bank Georgia is one of the few companies prioritizing environment issues in its daily work. The Bank has a special Eco Department with the following directions: 1) Environment Management; 2) Management of Social and Ecological Risks Related to Crediting; and 3) Green Crediting. By the end of 2015 the Eco crediting portfolio consisted of USD 30 million, or 7.6% of the total portfolio. The Bank cooperates with Caucasus Nature Fund, supporting development of the infrastructure of protected areas. In 2015, ProCredit Bank gave GEL 20,000 to Algeti National Park. HeidelbergCement Georgia has allocated GEL 230,000 for CSR projects in 2016. Last year it spent around GEL 293,000. The company raised GEL 48,060 during a marathon with 2,033 participants. Money is to be spent on development of The Rehabilitation Center of Disabled People in Rustavi. HeidelbergCement Georgia says it promotes healthy living and charity, which is the strategy of the company. Aldagi Insurance Company was also involved in charity projects during 2015. The company highlighted its support of people affected during the June flooding in Tbilisi. Wissol Petroleum Georgia implemented several educational programmes in the regions of Georgia. The company distributed books in villages with limited communications. Wissol also contributed to the popularization of products made in Georgia and the sale of healthy products. Grant Thornton helped Tbilisi Zoo in its human resource development. Crystal Microfinance Organization spends 2% of total revenue on CSR projects. It raised financial awareness of the population. Its Smart Borrow programme aims to deliver recommendations to the clients of Crystal MFO before the credit is issued. PSP Pharmacy retailer introduced bio bags in 2015. It is also involved in planting trees across Tbilisi. ARDI was focused on cultural projects in 2015. It sponsored and organized more than 25 projects. Silknet, one of the leading internet providers, spent GEL 60,000 on helping socially vulnerable people. GEL 50,000 was apportioned for people affected by the floods. It provided free communication services to more than 5,000 users including charity funds. SilkTV provides free access to its educational content to more than 10,000 users. The company gave expensive medical equipment to clinics based in Tbilisi and in the regions of Georgia. VTB Bank Georgia spent a record GEL 3 million on CSR and charity projects.

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csr: business reports to media

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22 FEBRUARY, 2016 | FINCHANNEL.COM

UN Global Compact Launches “Pioneers” Programme as Part of SDG Roll Out Strategy

nited Nations Global Compact headquarters announced the launch of a multiyear Local Network SDG Action Plan - the centerpiece being a “Pioneers” programme aimed to spur action and inspire business to advance the Sustainable Development Goals (SDGs) in countries around the world. The overall Action Plan is designed to assist the UN Global Compact’s 80-plus Local Networks in developing and executing relevant SDG implementation strategies and link these, where possible, with national plans of action. The launch of the UN Global Compact Local SDG Pioneers programme kicks off the Action Plan and is designed to honor select business leaders and change-makers who can demonstrate that businesses can be successful while contributing to sustainable development. The global search for Pioneers aims to spur action and inspire more businesses to get involved in the SDG agenda with the most inspiring Pioneers being recognized at the 2016 UN Global Compact Leaders Summit. “Our new annual Local SDG Pioneers campaign is designed to make global goals local business.” said Lise Kingo, Executive Director, UN Global Compact. “As we embark on achieving the SDGs, the UN Global Compact is taking the lead on turning these goals into drivers for sustainable business innovation.”

Network Kick-start Workshops Global Compact Local Networks will play an essential part in the roll out of the SDGs and Local SDG Pioneers campaign to businesses everywhere. Networks in over 80 countries stand poised to deliver SDG Kick-start Workshops that will engage the 13,000+ UN Global Compact participants, help identify local priorities and opportunities related to the SDGs, and shine a light on the new faces and businesses behind sustainable development in local markets.

The SDGs give important direction to the UN Global Compact’s founding mission to encourage companies to do business responsibly – based on the ten universal principles – and to provide solutions to global challenges. As an ongoing initiative, the UN Global Compact hopes the Local SDG Pioneers campaign will encourage outstanding efforts on responsible business around the world and scale-up the action on the SDGs over time.

Pioneer Selection

Process The global campaign for Local SDG Pioneers will have two submission criteria to help identify individuals who are acting on the new SDG business opportunities. The first category will identify the best local business leaders and the second will identify the best local change-makers. Any person with an official affiliation to an active UN Global Compact participant organization (both private sector and civil society), or PRME school can be nominated as a Local SDG Pioneer. A Pioneers Selection Group

of leading experts from the public, private and not-forprofit sectors will cast their votes based on a set of criteria, and identify five finalists for each category. The Pioneer in each category with the most votes will receive special recognition at the UN Global Compact Leaders Summit, 22-23 June 2016, and will enter into a yearlong programme with the UN Global Compact to further develop the Pioneers’ global potential and support their ambitions.

Local

SDG Resources and Tools To help roll out the SDGs to business worldwide, the UN Global Compact recently launched a fresh set of tools and resources to aid in the implementation of the global goals. The UN Business Action Hub is platform where UN agencies and business engage in dialogue, share information and take action to advance UN objectives and the Sustainable Development Goals. The SDG Compass –developed jointly by GRI, the

UN Global Compact and the World Business Council for Sustainable Development (WBCSD) – guides companies in taking a strategic approach to the SDGs and enhancing their contribution to sustainable development through core business activities. The SDG Industry Matrix – developed jointly by KPMG and the UN Global Compact - provides practical guidance for companies and showcases industry-specific examples and ideas for corporate action related to each SDG.

UN Global Compact Leaders Summit The 2016 UN Global Compact Leaders Summit (22-23 June, New York) will recognize the most inspiring Local SDG Pioneers and provide a dynamic stage to jump-start business action everywhere on the new SDGs. The Summit will connect, co-create and communicate the opportunities that lie within the SDGs and unleash the potential of turning global goals into local business. Through inspirational talks, intimate roundtables and SDG-themed networking opportunities, the Summit aims to inspire the business models, products, services and partnerships of tomorrow.

Trends Summary of Euromonitor Reports Bottled Water in Georgia Consumer habits are starting to change in relation to bottled water. Trust in tap water is gradually decreasing after several articles from the media questioning the quality of tap water in Tbilisi and other urban areas. Previously, families were choosing bottled water for household consumption only for infants, but towards the end of the review period adults were also choosing it for themselves. This resulted in an increase of sales of pack sizes larger than one litre. COMPETITIVE LANDSCAPE In terms of value shares, sales of bottled water were led by IDS Borjomi Georgia and Healthy Water in 2015, recording respective share of 52% and 35%. IDS Borjomi Georgia’s product portfolio

due to declining trust in tap water in Georgia. This will also increase demand for larger pack sizes over one litre. Demand in urban areas is expected to increase significantly; however, smaller pack sizes will also be more popular due to the growing number of foreign tourists in Georgia.

Carbonates in Georgia TRENDS is the largest among category players, and it offered three brands in carbonated natural mineral bottled water and two brands in still spring bottled water. IDS Borjomi Georgia continued to actively advertise its brands, both its new launches and more-established products, in both categories. Healthy Water was more concentrated on carbonated water, where its brand Nabeglavi accounted for a 28% value

share of overall bottled water in 2015; however, the company had a weaker presence in still bottled water. Healthy Water was not as active as IDS Borjomi Georgia in terms of marketing and promotions. PROSPECTS Household consumption of bottled water is expected to rise significantly over the forecast period, which is

Low health awareness among consumers resulted in carbonates continuing to record stable growth in 2015. There was slight awareness from consumers about the harm that cola drinks could do to their health, but noncola drinks were considered healthy as Georgian consumers did not have a negative perception of excessive sugar in drinks. Besides, there is a strong tradition of consumption of non-cola carbonates with traditional Georgian

dishes and alcoholic drinks (wine, chacha, vodka). COMPETITIVE LANDSCAPE In 2015, carbonates was led by Coca-Cola Bottlers Georgia, Iberia Refreshments and Efes Georgia Lomisi, recording respective value shares of 31%, 25% and 13%. The top two companies were successful due to their sales of cola carbonates, where they offered the brands Coca-Cola and Pepsi, which recorded respective value shares of 43% and 27% in 2015. Their success was attributable to strong international awareness of the brands and also strong local interest promoted by advertising. Both companies managed to acquire the best selling spaces in modern grocery retailers and traditional grocery retailers. The third player, Efes Georgia Lomisi was strong in non-cola carbonates, where it achieved a 25% value share in 2015 with its brand Natakhtari. The brand’s success was due to very strong advertising and a good distribution sys-

tem, which even reaches outlets of very remote villages. In addition, it benefited from an overall positive approach from Georgian consumers to local brands. PROSPECTS The competition within non-cola carbonates is expected to increase, which will in turn drive certain innovations and help to keep unit prices. No imported brands are expected within non-cola carbonates, however, the domination of local brands will continue due to the long tradition of manufacturing such drinks and the positive attitude of consumers towards local brands.

Concentrates in Georgia TRENDS The popularity of concenContinued on p. 8

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Latest research reveals a growing divide in global trust levels, but business stands to win Global Reporting

scandal, Martin Winterkorn, admitted his company had “broken the trust of our customers and the public.” In addition to the immediate financial cost of the scandal, according to a BBC news report, the carmaker’s shares have fallen by about a third since the scandal broke. Shareholder trust was clearly damaged. Unsurprisingly, the general public’s trust in the automotive industry decreased by 6% since 2015 according to the Edelman Barometer.

here’s good news, and then there’s great news for business, according to the 2016 Edelman Trust Barometer – the annual global study which tracks trust in four global institutions (government, business, media and NGOs). Trust has reached its highest level since the Great Recession, and business received the largest increase in trust (6%) among the “informed public” (those with at least a college education, who are very engaged in media, and have an income in the top 25%). However, this increase in trust is not the finding that’s making headlines. Instead, it is the growing trust disparity which has people talking. The study found that while trust is rising in the elite (“informed public”) group, trust levels in the mass population group have barely moved since the Great Recession.

Moving beyond trust

in particular the financial services sector where there is a gap of more than 20 points between the elite’s trust in the sector and the general population’s trust.”

Unbalanced Clear growth and opportunity the great for business trust divide This gap in trust offers “There are double-digit gaps in half of the countries surveyed, the most significant being in the US, where 70% of the elite population express trust in business, compared to 51% of the general population, a 19-point difference,” explains Richard Edelman, President and CEO of Edelman. “This skepticism is clearly manifested in the perception of specific industries,

unique opportunities for business and puts organizations in a strong position to bridge the divide. Innovative, forward thinking businesses which are flexible enough to adapt to a new era of transparency could stand to reap the benefits of this emerging era, if they can win the trust of the general public. Figures from GRI and the Edelman Trust Barometer

clearly suggest the positive relationship between greater transparency and increased trust. In 2015, the Financial Services sector (which includes banks, investment funds, insurance companies and real estate) was the most active in sustainability reporting, submitting the highest number of sustainability reports to the GRI Sustainability Disclosure Database. The Financial Services sector also saw the largest increase in trust (8%) out of all sectors in the 2016 Edelman Barometer. Coincidence? Trust in government, however, is not fairing as well as business according to the study – with trust levels rising by just 1% among the general public, and 3% among the informed public. Clearly, governments have more work to do to gain trust from the public, and one of GRI’s key

focus areas is to bridge the gap between business and government, bringing them together to work towards the shared goal of a more sustainable economy.

Value of trust – and damaged reputations The value of trust from the public cannot be underestimated. The recent scandals involving VW cheating emissions tests, and the entrenched corruption in FIFA, highlight how eager the press and the public are for greater transparency, and just how damaging unethical business practices can be. VW’s Chief Executive at the time of the

Scandals aside, although organizations increasingly understand the importance of transparency and trust, the public expects them to go beyond simply acknowledging their impacts. “Increasingly, people correlate societal action with trust in business,” explains Kathryn Beiser, Corporate Practice, Edelman. The Edelman Barometer revealed that 80% of the general public expect that businesses can both increase profits and improve economic and social conditions in the communities in which they operate. Business is responding to this call. The inclusion of business at last year’s United Nations Sustainable Development Summit is a prime example of how business is playing a more pivotal role in driving positive change and moving beyond the shortterm profit line. We also saw substantial engagement by business in the recent climate change discussions at the Sustainable Innovation Forum (SIF15) – a major side

event of COP21. This event was aimed at bolstering business innovation and bringing scale to the emerging green economy.

How can business capitalize on these findings? The Edelman Barometer revealed that the model of influence is changing, from top-down influence to greater levels of peer-to-peer influencing. We are increasingly seeing mass movements based on dissatisfaction and urgency. Edelman therefore offers four recommendations to organizations wishing to embrace the new reality of influence and address trust inequality: - Create societal impact in addition to profits through purposeful action - Express your values through honest, ethical engagement in which you share your story - Ignite your most powerful advocate, your employees - Engage cross channel to meet stakeholders, where they are, about what most interests/concerns them. The first step for organizations, is to know your existing impacts, and build the opportunities for engagement from there. By understanding the risks and opportunities your organization faces – through the sustainability reporting process – you can start to make more informed decisions on the areas that matter most.

Summary of Euromonitor Reports Continued from p. 6

trates was gradually fading in Georgia in 2015. These products were popular 1520 years earlier when other soft drinks were not widely available. In addition, concentrates are quite cheap and this was a reason for their popularity. Towards the end of the review period, demand for these products was low and decreasing even further. Only liquid concentrates are used at home for cooking various sweet dishes. Concentrates are regarded as very unhealthy and consumers are trying to reduce their consumption.

Soft Drinks in Georgia UNIT PRICES AFFECTED BY CURRENCY DEVALUATION Currency devaluation in Georgia drove up unit prices of products in most categories within soft drinks in Georgia. As a large share of soft drinks is imported, unit prices were in some ways tied to the currency rate and fol-

lowed the devaluation quite closely; however, manufacturers in some emerging categories with strong competition had to decrease their mark-ups to remain competitive. CHANGES IN CONSUMER HABITS CHANGE THE STRUCTURE OF CATEGORIES There are important changes to consumer habits occurring within soft drinks. A notable category in this respect is bottled water, where still bottled water is increasing its share at the expense of carbonated bottled water. The shift is as a result of households giving up tap water consumption and switching more to bottled water. In addition, consumers’ approach towards energy drinks has resulted in strong growth of the category, as many Georgians have started using energy drinks as a morning drink, just like coffee. SOFT DRINKS DOMINATED BY COLA AND BOTTLED WATER MANUFACTURERS In value terms, soft drinks was led by Coca-Cola Bottlers

Georgia, IDS Borjomi Georgia and Iberia Refreshments in 2015, with cola drinks and bottled water being the largest generators of sales. There were no significant changes in the rankings of the leading players within soft drinks in 2015, and no new major entries were observed. CRISIS DOES NOT STOP LAUNCHES New brands entered into emerging categories in 2015, including RTD tea, bottled water and energy drinks. These new launches were mainly initiated by the leading companies. All new launches were from foreignbased manufacturers, except within bottled water, which is traditionally dominated by local brands. TOTAL VOLUME GROWTH SET TO DECLINE OVER THE FORECAST PERIOD Total volume sales of soft drinks are expected to grow at a CAGR of 5% over the forecast period, which is lower than growth registered over the review period. Many categories recorded dramatic increases during the review period, as the products were

new to Georgian consumers. Such categories are expected to record stable growth, but explosive growth is not expected over the forecast period.

Coffee in Georgia The currency devaluation exposed small manufacturers and local retailers of coffee to financial difficulties. The conditions that modern grocery retailers are offering are no longer affordable to minor brands of coffee. The initial payments for positions on shelves and the 3-6 month grace periods for payment are already a threat to financial stability for such small companies being already pushed to the edges by more expensive imports of coffee beans. As a result, the small local manufacturers are moving to independent small grocers where individual negotiations are possible. In the long term, this trend is expected to decrease the shares of small companies in modern retailers and the gradual expansion of modern retailers will drive the overall market to defragmentation.

COMPETITIVE LANDSCAPE Kraft Foods Inc remained the leading player in coffee in 2015 with an overall retail value share of 26%, followed by Nestlé SA with a 14% share. The leadership of Kraft Foods Inc was the result of the strong positions of its brands Jacobs and Carte Noire in instant coffees. These brands are established and already have a strong image among consumers. Jacobs is perceived as the best mass instant coffee, while Carte Noire is positioned as a more premium brand and associated with top quality. Nestlé SA is represented by its Nescafé brand, which is also highly familiar to consumers for many years. Tchibo GmbH was the third leading coffee company with its brand Tchibo in retail value sales terms with an overall share of 9%. The popularity of Tchibo has been strengthened due to its presence for many years, but due to its lower availability in retail outlets, it is positioned in third place among instant coffees. PROSPECTS The gradual increase of modern grocery retailers

will stop the trend of new, small local manufacturers constantly entering the fresh coffee category. The big retailers demand strong financial means from the suppliers that they were able to give grace period for payment for sold goods and were also able to pay for maintaining good positions on shelves. This trend of gradual shrinking of traditional grocery retailers will also weaken the position of small manufacturers and importers and cause market saturation around financially strong companies that can afford to be present in chains of modern grocery retailers. RTD coffee did not manage to gain in popularity among Georgian consumers in 2015. Low availability, the absence of promotions and strong competition from other categories left RTD coffee underdeveloped. The increase in the popularity of energy drinks towards the end of the review period also negatively affected the performance of RTD coffee. Energy drinks became a morning drink for many consumers, leaving little space for growth of RTD coffee.

Continued on p. 13

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AGL CEO: CSR is the Ethics of the Modern Business World The FINANCIAL By MADONA GASANOVA

ith USD 416 million AGL (Adjaristsqali Georgia LLC) will bring the Shuakhevi HPP to Georgia. The implementation of this project incorporates: development of the hydropower sector; the creation of new jobs; cash inflow into the state budget by payment of taxes; an increase of qualified staff in the Georgian labour market; the development of the Adjara region; contribution to the independence of the Georgian energy system; and implementation of social projects which are designed to assist in the long-term development of the Adjarian highlands. The company is implementing about 70 CSR projects in Adjara, worth GEL 6 million. “A company is a success when it demonstrates responsibility for the country and the society in which it does business,” Ronny Solberg, CEO at AGL (Adjaristsqali Georgia LLC), told The FINANCIAL. AGL (Adjaristsqali Georgia LLC) is the special purpose vehicle set up to develop the hydropower resources on the Adjaristsqali River and its tributaries, in the Autonomous Republic of Adjara, in South Western Georgia. AGL is a joint venture between India’s Tata Power and Norway’s Clean Energy Invest (40 percent each), and IFC, a member of the World Bank Group (20 percent). The joint objective is to develop the Adjaristsqali project as a sustainable project from an environmental, technical and economic point of view. The Shuakhevi HPP is the first scheme of the Adjaristsqali hydro power cascade. In total, 730 Georgians are employed by the Shuakhevi HPP. The local municipalities of Khulo and Shuakhevi also benefit from property tax revenue: GEL 3.2 million in 2015, GEL 5 million - in 2016, and GEL 8 million - in 2017. In his exclusive interview with The FINANCIAL, Solberg discussed the potential of the Georgian hydropower sector. He distinguished the importance of businesses carrying out socially responsible projects. “Georgia is a developing country. Based on my observation, for the last few years there has been a growing trend among businesses towards implementing CSR activities. The social responsibility of businesses is the ethics of the modern business world. Hopefully, AGL activity will become inspiring for others,” said Solberg.

RONNY SOLBERG, CEO at AGL (Adjaristsqali Georgia LLC)

Q. The energy sector has been one of the most promising for Georgian officials in terms of attracting foreign investors. What are your suggestions for what needs to be done to create a more business friendly environment in this sector? A. Georgia has great hydro power energy capabilities. The strengthening of this sector, reduction of energy imported into the Georgian energy system, and increase of energy exported, are extremely important in order to gain energy independence for the country. The steadfast governmental support of capital providers and due and prompt response to evolving challenges is of primary importance to creating a more businessfriendly environment in this sector. Our company is implementing the construction of the Shuakhevi HPP cascade on Adjaristsqali. Within solely one year, a 187 megawatt clean energy generating power plant has been added to the Georgian energy system. While carrying out the project, we, on a daily basis, collaborate with the Georgian Government and realize its full backing. Q. The Shuakhevi HPP is expected to be worth USD 416 million. However, usually in the initial stages businesses only issue a small sum in order to try their forces on a new market. What assured your company to take such a risky step? A. Before the plan to build the Shuakhevi cascade was embarked on, numerous studies had been carried out, the market of the neighbouring country had been researched and all of the risks that might have arisen in the market subsequent to the project completion had been figured out and taken into consideration. After our hydropower station is operational, Georgia will have a station with an installed capacity of 187 megawatts, which will produce

an additional 440 million kilowatt-hours of electricity which, during the winter, will be completely used by the Georgian population. In the summer, when the production of electricity is extensive throughout Georgia, we will export electricity to Turkey and make our contribution to the export potential of Georgia. Q. Before starting active operations AGL faced a negative attitude from the local population. We have seen that this is a common trend when talking about the implementation of new hydropower projects. Have you faced the same problem in other countries and what contributed to such an attitude in Georgia? A. The construction of hydropower plants is accompanied by public outcry in other countries as well. Society is unaware of what to expect from the project during its implementation process or subsequent to its completion. The questions that have to be answered are whether their family welfare will change for the worse or what difference the project will make to the region. Therefore, it is of prime importance to raise the awareness of the local population about the pros of the project. Since the start of the project our team meet daily with members of Khulo and Shuakhevi, they have visited villages and families and listened to their opinions. When it was necessary, the team informed the local population about the project and tried to help all to find themselves in this project and to see the success it may bring their families, region and country. Since the start of the construction phase of the project our company has opened information centres for effective holding of a direct line of communication with the population. The main function of these information centres is to increase the local population’s awareness about local projects. I think the above-mentioned clearly

indicates our company’s purpose to implement the project with maximum transparency and active involvement of the population. Now we are at that point when we are implementing Shuakhevi HPP in close cooperation with the local population. As time will pass, the people will see better what benefits this project will bring to the region. Q. Climate change is the main concern of the developed world. What is its impact on the hydropower industry? A. During any construction process, the first priority must be the meticulous study of the environment where the hydro energy project is to be implemented. The environmental impact of the Hydro Power Industry is minimal on provision that the total study has been pursued and the environment appraisal report complies with all international obligations. I would like to inform that Shuakhevi HPP is the first hydropower project in Georgia certified by the United Nations Framework Convention on Climate Change (UNFCCC) for carbon emission reductions. The Shuakhevi HPP is expected to reduce greenhouse gas emissions by more than 200,000 tons per year. Before the start of the Shuakhevi HPP a number of studies and reports were prepared. These were carried out by foreign specialists working alongside Georgian professional experts. Based on these studies the environmental impact assessment report (EIA) was prepared, it describes in detail the direct and indirect impacts of the activities on human health and safety, plant cover and fauna, soil, air, water and climate. After evaluation and detailed study of these documents the Ministry of Environment and Natural Resources Protection of Georgia gave permission to “Adjaristsqali Georgia” to start the Shuakhevi HPP. Our company’s commitment and responsibility are not fulfilled just with the studies prior to construction.

We are constantly conducting monitoring in different directions (hydrology, geology, biodiversity). Monitoring results are periodically sent to the Ministry of Environment and Natural Resources Protection of Georgia. I can assure you that the environmental monitoring will continue even after the completion of the construction (for approximately 10 years), and in the event any minor changes are revealed these will be responded to in an appropriate way. I would like to note that minimal environmental impact of the project is one of our top priorities. Thus the company uses every possible means based on international standards of compliance and the experience of local professionals to ensure maximum reduction even of minimal environmental impacts caused by construction activities. Q. AGL plans to spend GEL 6 million on its CSR projects. How did you distinguish which directions would be prioritized? A. It is important for us that all CSR projects are primarily tailored to the interests and needs of local communities. In order to be a successful project, it is a prerequisite that the project has been planned jointly with the involvement of local communities and municipalities. We are implementing about 70 CSR projects in Adjara. Q. Could you please provide a list and brief description of the CSR projects implemented by AGL? A. Our priority is to support the long-term development of Adjara. In this regard, our company is distinguished by the high social responsibility that we have in relation to the communities where we work. I would like to note that education is one of the most important priorities for AGL. Our company tries to implement educational projects that support the growth of education for the next generation of Adjaran highlanders. Recently, we also implemented an educational project for English teachers. This project aims to improve teachers’ knowledge of English and to enhance their professional skills. Over 40 English teachers from the Khulo and Shuakhevi districts took part in the project. We also held English-only after-school activities for gifted and talented students to develop their English and critical thinking skills in an informal atmosphere and held an essay competition in which 44 local students participated. Infrastructure projects are an important part of regional development. We have quite a long list of infrastructure projects, which we are implementing in cooperation with local municipal governments. These projects include building road infrastructure, improving drainage systems, and providing local communities with permanent water supplies. This is just a short list of the projects which are currently in progress or which have already been implemented. We are also improving school facilities.

Empowering communities is one of the most important issues for the development of highland Adjara and consequently is a key direction for our company. We have recently started a project of funding start-up businesses by awarding grants and promoting household businesses. This project includes training in both practical and theoretical aspects of running a business. We have also launched a beekeeping project in the Khulo and Shuakhevi municipalities. The aim of this project is to improve and restore the livelihoods of affected farmers to pre-project level. Farmers are trained in new trends and modern technologies of beekeeping to acquire the skills for setting up beekeeping enterprises. Apart from training, participants are provided with bee families, beehives, and any other necessary equipment. All social projects that are implemented by the AGL are focused on long-term goals. We will do our best to ensure that our planned projects will bring actual results to the region’s development process. Q. For some, CSR is perceived as just another PR tool for big business, a drop in the ocean that does more good for that company’s brand than it does for others. Share with us your experience of why CSR is important for all businesses, regardless of their size? A. CSR is the participation of society in a long-term development project which is equally significant both for large and small businesses. The most important thing is to know your society and be aware of its needs. Any small and big steps that companies take in this direction make an important contribution to the common cause that can be referred to as public benefits. Q. What are the main benefits of CSR for the community? A. The objective of the projects implemented by our company is the long-term development of Adjara. It is essential that the standard of living of the local population does not decline after the project has been completed and when our company no longer employs local people. This is primarily the main aim of our social projects. As an example, we have contributed a lot to the development of bee-keeping in this region. Namely, we have provided bee-keepers with all the necessary equipment, taught them all the modern methods used in bee-keeping and how to prevent the escape of honeybees. The aim of all this is to equip a bee-keeper with knowledge essential to do his business and earn his living.

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Progress Bank: “CSR Activities are Necessary for Businesses” The FINANCIAL By MADONA GASANOVA

usiness is an integrated part of society and having a socially responsible strategy is very important, believes the management of Progress Bank. The Bank has been actively executing projects that are environment-, citizen- and employee-friendly. In 2016 Progress Bank plans to implement a long-term policy in terms of its CSR. “Progress Bank realises with full responsibility that it is a part of society and therefore contributes to the development of society. Our goal is to have a positive impact with our work on the society in which we operate. CSR has always been prioritized for Progress Bank. Thus we have always been quite active in this direction. There was no exception in this regard in 2015. Last year we implemented various CSR projects. The strategic directions were focused on society, clients, employees, environment protection and healthcare. Some of the projects were of a higher budget, some lower. However, most important is the fact that social activities were carried out,” Akaki Kordzadze, CEO of Progress Bank, told The FINANCIAL. The total budget of CSR activities amounted to 18% of the profit of Progress Bank in 2015. “Last year was a reactive period. This year we will determine a long-term plan in this regard. Innovations will be prioritized for us in the future,” said Kordzadze.

AKAKI KORDZADZE, CEO of Progress Bank

Kordzadze believes that CSR activities are necessary for businesses. “We are obliged to create a better environment in the society we live in. No business stands separately from the public.” At the end of 2015 Progress Bank underwent rebranding. The Bank has switched to radically new channels in terms of services and branding. The new slogan of the Bank is: We Created it for You. “We have taken effective measures, and increased the area of services. The Bank implemented a 24-hour service system and remote services. Software bases were also updated. All the procedures recently implemented are fully customer-oriented. We created new workplaces and hired qualified staff. We managed to double our assets by attract-

ing new customers and offering them user-friendly products. We are really proud to be contributing to the construction of social prosperity,” said Kordzadze. A brief description of the CSR activities of Progress Bank implemented in 2015: The largest in scale was assistance of the victims of the Tbilisi flooding. The Bank contributed GEL 50,000 to this cause. The sum measured about 10% of its profit of the year. It was one of the highest rates in the banking sector. Another very large-scale campaign was held on 9 May. The Bank congratulated WW2 veterans and issued financial assistance to 610 veterans. The sum amounted to GEL 30,500. Within the framework of

its social activities the Bank joined an event held for the 5-year anniversary of the Monk Andria Fund. The Fund was established in 2012 in Tbilisi. It supports young adults under 18 who are suffering from terminal cancer, with their rehabilitation and improvement of their quality of life. It was the first time that the Bank had issued financial assistance to the Fund. Progress Bank decided to contribute to the planting project initiated by City Hall. The management of the Bank believes that community involvement is very important in this regard. The Bank appealed to City Hall, following which they were allotted an area in Dendrite Park. Employees of Progress Bank planted 500 cypress trees there. It was the first time that Progress Bank had been involved in a greening campaign. The management plans to continue activity in this direction in the future. In 2015 Progress Bank was involved in the photo campaign - Friends do not Count Chromosomes - initiated by the union ‘Our Children’. It was established to raise awareness of Down’s syndrome. For two years already the Bank has been purchasing Christmas trees from the NGO ‘Child, Family, Society’, which works with people with disabilities. The Bank uses these souvenirs while congratulating its employees and clients at New Year. Employees of the Bank personally visited their friends on 3 December - International Day of Persons with Disabilities - and gave gifts as well as attended the manufacturing process of these souvenirs.

Progress Bank periodically helps the beneficiaries of the charity organization ‘Catharsis’, by financing dinners for them. Participation in a photo campaign arranged by Catharsis - We Will Also Grow Old also took place last year. The Director of the Bank feels proud to find out how socially responsible his employees are. Bank workers are arranging various activities on their own initiative. For example, during the Tbilisi flooding they purchased essential items for the victims on their own initiative. The active involvement of Progress Bank employees in greening campaigns is also worth mentioning. They bought seedlings in addition to those bought by the bank and later planted them with their family members in an area of Dendropark. Each Progress Bank employee is involved in the construction on Makhata Mountain. They transfer a certain amount of money to it every month. In line with its involvement in environmental projects the Bank participated in the cleaning campaign initiated by the National Bank of Georgia Clean up Georgia.

tion about the company’s innovations and corporate offers. The Bank also has an insurance package for each employee. Progress Bank’s staff are involved in sporting activities. They train every week and take part in internal competitions. The Bank holds corporate parties. Its first service branch was opened on 24 November, 2008. Since then, holding corporate events at the end of November each year has become a tradition. Last year’s event was radically different and was based on an original idea. None of the employees, except for the organizers, knew what the destination of the event was going to be. They were divided into teams and were only able to reach their final destination with the help of puzzles and clues. All the participants found it fun and interesting. At this event we always reveal the winners of different nomination categories. We try to show our workers that we value their work. It gives everyone additional stimulus. This year Progress Bank introduced a new tradition of holding a corporate event which is also attended by our clients.

The Internal CSR of Progress Bank: Progress Bank gives its employees an opportunity to develop, improve their qualifications, acquire new skills and get promoted. The company has introduced a system of incentive bonuses. An Intranet has been introduced for the effective communication of staff. Progress Bank workers are able to quickly obtain informa-

Advertiser: Progress Bank. Contact FINANCIAL Ad Dep at marketing@finchannel.com

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A Statistical Portrait of Agriculture in the EU

MINISTER OF ECONOMY AND SUSTAINABLE DEVELOPMENT OF GEORGIA

Dimitri Kumsishvili:

The FINANCIAL

n the European Union (EU), the Member State contributing the most to the value of agricultural production was France (accounting for 18% of the EU total), followed at a distance by Germany (14%), Italy (13%), Spain (10%), the United Kingdom (8%), the Netherlands (7%) and Poland (5%). Together, these seven Member States represent around three-quarters of total EU agricultural output. This information is issued by Eurostat, the statistical office of the European Union, on the occasion of the publication of its statistical book on agriculture, forestry and fishery. This publication is divided into seven chapters, providing facts and figures about farm structure, agricultural accounts and prices, agricultural products, agriculture and environment, forestry and fishery production. As 2015 marked the abolition of dairy quotas, this year a whole chapter is also dedicated to 30 years of quotas in the milk sector in the EU.

“The Bobokvati Residence, which the Government of Georgia transferred to the Patriarchate of the Georgian Orthodox LSE A F Church in exchange for property in y l Krtsanisi, is less valuable.” st Tamar KETSBAIA

FactCheck

n September 2015, the Bobokvati Governmental Residence was transferred to the Georgian Orthodox Church. In exchange, the Government of Georgia received back the movable and immovable property which belonged to Krtsanisi Park Ltd established by the Patriarchate of the Georgian Orthodox Church. The Minister of Economy and Sustainable Development of Georgia commented upon this issue: “I do not want to go further into the part which deals with value but I believe that the Krtsanisi area is far greater than that of Bobokvati.” FactCheck studied this topic. According to Decree N1129 of the former President of Georgia, Mikheil Saakashvili, issued on 9 December 2010, the property under the ownership of the Government of Georgia was directly sold to the Patriarchate of the Georgian Orthodox Church for a symbolic price (GEL 1). Specifically, the property included 37 nonagricultural land plots (including Krtsanisi forest park’s five land plots) with a total area of 7,270,657 square metres and 14 buildings with a total area of 24,547.95 square metres. On 10 April 2014, the Patriarchate of the Georgian Orthodox Church, together with M & C Georgia Holding, established Krtsanisi Park Ltd whose basic aim was to receive profit with the principal fields of activities determined to be construction work, investments, mining, processing and selling of final production. The Patriarchate of the Georgian Orthodox Church put the entire property received from the state by Decree N1129 together with immovable property with an area of 1,000 square metres received by Decree N479 of the President of Georgia, issued on 15 September 2006, in the capital of the newly established Krtsanisi Park Ltd of

which 25% of the shares were owned by the Patriarchate of the Georgian Orthodox Church itself. According to the bylaws, M & C Georgia Holding, which owns 75% of the shares of Krtsanisi Park Ltd, had to make a monetary and non-monetary contribution to the capital of Krtsanisi Park Ltd. Additionally, only M & C Georgia Holding was responsible to provide any construction costs arising in the future. According to the contract between the state and Krtsanisi Park Ltd concluded on 28 November 2014, the state purchased four plots of non-agricultural land adjacent to the village of Ponichala with a total area of 19,544 square metres for the construction of a highway connecting Tbilisi with Rustavi. For this deal, Krtsanisi Park Ltd received GEL 919,778 in total from the state. On 11 September 2015, the Patriarchate of the Georgian Orthodox Church addressed the National Agency of State Property with an official letter and in exchange for 25% of Krtsanisi Park Ltd, requested the transfer of a non-agricultural land plot with a total area of 149,796 square metres together with 18 buildings on that land plot with a total area of 4,662.21 square metres located at 218 Abashidze Street in Kobuleti. The Patriarchate of the Georgian Orthodox Church also requested a freeof-charge transfer of a land plot with a total area of 11,810 square metres for 49 years together with the transfer of two buildings located on the plot. Based upon this request, the Ministry of Economy and Sustainable Development drafted a project which was presented to the Government of Georgia on 14 September 2015. According to the project, the state was getting back 100% of Krtsanisi Park Ltd in exchange for the Bobokvati residence. FactCheck requested information on the project from the administration of the Government of Georgia. The administration responded that the project is 59

FINANCIAL

pages long although FactCheck was given only two pages. Therefore, the position of M&C Georgia Holding Ltd, as the owner of 75% of Krtsanisi Park Ltd in regard to the aforementioned contract, is unknown. With Decree N2013 of the former Prime Minister of Georgia, Irakli Gharibashvili, issued on 21 September 2015, it became evident that there were no changes in the document and the request of the Patriarchate of the Georgian Orthodox Church was fully satisfied. As a result, the Bobokvati Governmental Residence was transferred to the ownership of the Patriarchate of the Georgian Orthodox Church whilst the state became the owner of 100% of Krtsanisi Park. There was no audit assessment concerning the value of the two assets at the time of concluding the contract. FactCheck was informed by the Ministry of Economy and Sustainable Development that the respective audit assessment was prepared only on 30 October 2015. The Government of Georgia did plan to sell the Bobokvati Governmental Residence together with other assets for privatisation in order to stabilise the GEL exchange rate. The initial price of the Bobokvati residence was announced at GEL 35 million. However, the residence was eventually taken off the list of assets for privatisation. In regard to the property of Krtsanisi Ltd, apart from five land plots in the Krtsanisi forest park, it includes land plots located adjacent to Ponichala, Aghtaklia, Karajalar and Rustavi with buildings located thereon. According to Audit Assessment N800 made by the Compaud audit company, which was published on 30 October 2015, the total value of the aforementioned assets is GEL 61,548,600. Therefore, based upon a market assessment, the property comprising Krtsanisi Park Ltd is indeed more valuable than that of the Bobokvati Governmental Residence.

CONCLUSION FACTCHECK CONCLUDES THAT DIMITRI KUMSISHVILI’S STATEMENT IS MOSTLY TRUE.

MOSTLY FALSE

The views expressed in this website are those of FactCheck.ge and do not reflect the views of The FINANCIAL or the supporting organisations

France, largest producer of cereals in the EU In the EU, the record amount of 331.7 million tonnes of cereals (including rice) was harvested in 2014. With 72.7 million tonnes, France remained by far the largest producer of cereals in the EU, followed by Germany (52.0 mn t), Poland (31.9 mn t), the United Kingdom (24.5 mn t), Romania (22.1 mn t), Spain (20.6 mn t), Italy (19.4 mn t) and Hungary (16.5 mn t). In terms of value, cereals represent 13% of total agricultural output in the EU and account for 25% of EU crop production.

Cereals production up compared with longer-term average despite reduction of the cultivated area Compared with 2013, the harvested production of cereals rose in 2014 in a vast majority of EU Member States, with the highest relative increases being registered in Slovenia (+41.9%), Cyprus (+41.7%) and Slovakia (+38.0%), followed by Estonia (+25.2%), Austria (+24.4%), the United Kingdom (+22.5%) and Hungary (+20.9%). In contrast, the largest decrease was observed in Spain (-19.0%), ahead of Greece (-8.2%) and Croatia (-6.1%). At EU level, the harvested production of cereals increased by 8%, while the area of cultivation remained globally the same. Over a longer time period, production of cereals in the EU has varied between a low of 253 million tonnes in 2003 (a year of severe drought) and a high of more than 330 mn tonnes in 2014 (a year with very favorable weather conditions). Compared with the average over the period 2000-2012, cereals production in the EU was 15.2% higher in 2014, while cultivation area was 5% lower. Across Member States, the most remarkable rises of the harvested production of cereals were recorded in the three Baltic States – Lithuania (+72.4%), Estonia (+70.3%) and Latvia (+68.3%) – followed by Bulgaria (+56.9%), Slovakia (+49.3%) and Romania (+39.1%). Decreases

were recorded in Cyprus, the Netherlands, Italy, Spain and Greece. When analyzing the time-series, it should be kept in mind that cereals production is strongly influenced by weather conditions. Largest number of pigs in Germany and Spain, cattle in France, sheep in the United Kingdom. In 2014, the cattle population in the EU amounted to 88.4 million animals. With about 19 million animals, France recorded slightly more than 1 out of every 5 bovine animals in the EU (22% of the EU total), ahead of Germany (14%), the United Kingdom (11%), Ireland, Spain and Italy (all 7%). With 84.2 million animals, the population of sheep in the EU was in 2014 almost identical to that of cattle. More than 1 in 4 sheep (27%) in the EU were reared in the United Kingdom, which totaled 23 million sheep. It was followed at a distance by Spain (18%), Romania and Greece both 11%). For pigs, Germany (28.3 million swine, or 19% of the EU total) and Spain (26.6 million, or 18%) were by far the two Member States with the largest numbers in the EU. Of the 148.3 million pigs in the EU, more than a third were located in these two Member States. In terms of value, pigs, cattle and sheep represent 17% of total agricultural output in the EU and account for 42% of animal production.

Third Meeting of Business Café

onsultancy Company Insource continues Business Café meetings with exclusive sponsorship of PASHA Bank. The third meeting of the project was held in Rooms Hotel, Tbilisi, On February 17th. Representatives of top management of the leading Georgian businesses attended the session

on “Management 3.0 or MBA Books in Mirror” led by Andro Dgebuadze. The first meeting of Business Café was held in October, 2015 and its subject was “The management of human resources” moderated by David Gogichaishvili. The second meeting was hosted by Alexander Jejelava who spoke about the organizational corporate culture.

There is a rising interest towards Business Café gatherings as they give a good opportunity to top-management representatives from different companies to discuss specific work-related topics and share experience with each other in informal atmosphere. Insource plans to hold 6 Business Café meetings with exclusive support of PASHA Bank in 2016.

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FINANCIAL HEADLINE NEWS & ANALYSIS

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Summary of Euromonitor Reports Continued from p. 8

Air Care in Georgia TRENDS The currency rate fluctuation in Georgia that started at the end of 2014 and continued in 2015, causing a -34% devaluation of the Georgian Lari, forced consumers to reduce spending on products instead of those of first necessity. The decrease in the disposable incomes of consumers deterred many of them from trying new products such as candle air fresheners, which seemed unaffordable in times of economic crisis. COMPETITIVE LANDSCAPE SC Johnson & Son Inc leads sales in 2015 with a 19% value share; its brands are Glade and Oust, which have respective value shares of 15% and 5%. Reckitt Benckiser Plc’s Air Wick brand leads with a 19% value share; the company is second with a 19% value share. The brands are well established and have a longstanding presence. Advertising in 2015 remains strong, mainly at points of sale and on outdoor advertising ban-

data does not allow us see the sectoral breakdown of non-oil FDI, it may well be the case that the struggling construction sector was responsible for the decline. While it is too early to say what future awaits the nonoil sectors of Azerbaijan, it is likely that the volatile external environment will slow down the progress. However, the transition to the non-oil economy must be.

Zurab Melikishvili: “The amount of investments dropped by 17% in the first three quarters of 2015… e Investments in the agriculture and energy u r t fields have also dropped.” y Teona ABSANDZE

ners. Another reason for the two companies’ leadership is the financial strength of the importer companies of these specific brands that allows them to maintain visible positions in modern grocery retailers. PROSPECTS Together with the expansion of modern grocery retailers, the variety of air care products will increase in the forecast period. The inter-

national players in the Georgian market (modern grocery retailers such as MAF Georgia and Carrefour) will increase the variety of their products and air care will be included. Consumers will consequently increase their consumption of the less traditional products in air care. Nevertheless, the growth of more traditional products will be stable Source: Euromonitor International

Did Azerbaijan enter the post-oil era? Continued from p. 4

MEMBER OF THE UNITED NATIONAL MOVEMENT

What can be done to facilitate the transition? Since the development of the non-oil sector is very sensitive to the institutional environment of any country, batting corrupt practices in all spheres of economic life would be a top priority for Azerbaijan. As far as foreign trade is concerned, it will be

FactCheck

n 28 December 2015, at the extraordinary session of the Parliament of Georgia, a member of the Parliamentary Minority, Zurab Melikishvili, made particular emphasis upon Georgia’s economic indicators, including the drop in foreign direct investments. Mr Melikishvili stated: “The amount of investments dropped by 17% in the first three quarters of 2015. Investments have dropped in the field of agriculture. Additionally, investments decreased in energy as well. The first quarter of 2015 ended with -51% and the second quarter with -88%.” FactCheck verified the accuracy of Zurab Melikishvili’s statement. According to the prelimi-

l t s Mo

nary data of the National Statistics Office of Georgia, the total amount of foreign direct investments in Georgia during the first three quarters of 2015 amounted to USD 1,019 million which is 17% less as compared to the amount of investments made in the previous year. According to the data of the first three quarters of 2015, the biggest amount of foreign direct investments, at USD 571 million, was made in the field of transport and communications. The construction sector ranks second in terms of attracting foreign direct investments with USD 112 million and the financial sector is third with USD 110 million. According to the data of the first three quarters of 2015, USD 21 million was invested in the field of agriculture whilst this amount was USD 11 million in the same period of 2014. Therefore, according to the data of the first three quarters

of 2015, the amount of investments in agriculture increased by 91%. In regard to the field of energy, USD 42 million was invested therein according to the data of the first three quarters of 2015. USD 153 million was invested in energy in the same period of 2014. The amount of foreign direct investments in the field of energy dropped by 52% in the first quarter, by 88.6% in the second quarter and by 56.8% in the third quarter of 2015. In total, investments in energy decreased by 72.5% in 2015. Of note is that the amount of investments in the field of energy decreased in 2014 (by 22%) as well. In the period of 2011-2012, the largest investments were made in the energy field. This trend was kept in place throughout 2013, too, but energy moved to the fourth place in 2014 and down to the sixth place in the first three quarters of 2015.

Graph 1: Foreign Direct Investments in 2013-2015 (by quarters, USD million)

equally important not to succumb to the temptation of protectionism, which could hurt the sectoral competitiveness over the long run. If successful, these policies would ensure that a decade from now the year of 2015 will be remembered in Azerbaijan a year of opportunities, the dawn of the new post-oil economy. * Source: The State Statistical Committee of Azerbaijan National Accounts, ISET-PI calculations.

FOR SALE 9,8 ha non-agricultural, privately owned parcel for industrial use (cadaster code # 01.19.26.004.088) located next to Tbilisi Airport (It is possible to divide it into several parts)

CONCLUSION ACCORDING TO THE NATIONAL STATISTICS OFFICE OF GEORGIA, THE AMOUNT OF FOREIGN DIRECT INVESTMENTS DROPPED BY 17% IN THE FIRST THREE QUARTERS OF 2015 AS COMPARED TO THE SAME PERIOD OF THE PREVIOUS YEAR. ACCORDING TO THE DATA OF THE FIRST THREE QUARTERS OF 2015, INVESTMENTS IN THE FIELD OF AGRICULTURE ROSE BY 91% INSTEAD OF DECREASING AS STATED BY THE MP. IN REGARD TO THE ENERGY FIELD, IT WAS A LEADER IN TERMS OF ATTRACTING FOREIGN DIRECT INVESTMENTS IN 2011-2013. THE SITUATION WORSENED IN 2014 AND 2015 WAS EVEN LESS SUCCESSFUL. ACCORDING TO THE FIRST THREE QUARTERS OF 2015, THE AMOUNT OF FOREIGN DIRECT INVESTMENTS IN THE ENERGY FIELD DROPPED BY 72.5%. THEREFORE, FACTCHECK CONCLUDES THAT ZURAB MELIKISHVILI’S STATEMENT IS MOSTLY TRUE.

MOSTLY TRUE

Address: Airport settlement, Samgori district, Tbilisi Tel: +995 599 529 529 info@cei.ge The views expressed in this website are those of FactCheck.ge and do not reflect the views of The FINANCIAL or the supporting organisations

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FINANCIAL

22 FEBRUARY, 2016 | FINCHANNEL.COM

Aversi Pharma to Continue Price Reduction of Medicines in 2016 The FINANCIAL By MADONA GASANOVA

ue to overall economic problems, 2015 was quite a difficult year for Aversi Pharma. Ongoing currency fluctuations make it difficult for the company to make optimistic forecasts for 2016. However, Aversi is not considering cutting its budget for CSR activities this year. Moreover, new social projects have already been scheduled. The company promises to continue with the reduction of its medicines’ prices and make high-quality drugs affordable for the whole of society. “2015 was quite a difficult year for Aversi. The turnover and profit of the company was equal to the data of the previous year. However, in USD the figures were less given the percentage of the inflation rate,” Lali Bregvadze, Head of the Public Relations Department at Aversi Pharma, told The FINANCIAL. In her interview, Bregvadze talked about the main challenges for the Georgian pharmaceutical market, where the competition continues to grow. Bregvadze told how the leading Georgian pharmaceutical company tries to take care of the most vulnerable members of society. “We do our best to offer qualified and cost-effective products at affordable prices. However, there are groups of our society that cannot afford high-quality products. Our social projects, therefore, help us to provide proper assistance to all groups and care for their health. Pro-

LALI BREGVADZE, Head of the Public Relations Department at Aversi Pharma viding high-quality medical products to everyone is of great importance to our company,” said Bregvadze. Q. The Head of the Partnership Fund recently stated that the entrance of the new pharmaceutical company ‘Humanity Georgia’ will twice reduce the cost of drugs in Georgia. Will this predicted price reduction also apply to Aversi? A. The entrance of Humanity Georgia will not reduce the cost of medicaments that have been in high demand and popular in Georgia for many years; medicines such as No-Spa, Nimesil,

Mezym Forte, Cardiomagnyl, Detralex and others. Humanity Georgia plans to start selling cheap Indian medicines with different brand names. Aversi started importing these kinds of medicines 10-15 years ago. However, neither the population expressed any desire to purchase them, nor did doctors to prescribe them. So, due to the lack of demand we are less actively importing cheap-priced Indian drugs. Q. What kind of changes will the entrance of Humanity Georgia bring to the Georgian pharmaceutical market?

A. If the population and doctors positively react to the cheap Indian medicines of Humanity Georgia, then our company will also start importing drugs from India for cheaper prices. There are several thousand pharmaceutical factories in India and a wide choice of cheap drugs. Q. What are your expectations for 2016? A. On 15 October, 2009, Georgia accepted the law regarding parallel import. Since then the competition on the pharmaceutical market has been increasing. Inflation is an additional problem right now. So, making any predictions is difficult. Q. What kind of innovations will you be offering to your customers this year? A. We will try hard to further reduce prices of medicines by ‘bothering’ our suppliers. Q. Can you tell us please about the CSR projects implemented by Aversi? A. Aversi was established on 14 November, 1994. Since its establishment the company has been implementing longterm as well as short-term social projects. Our CSR projects incorporate: assistance of multiple-child families; free medical service for Olympians; free medical service for the Georgian Patriarchate; a thousand free surgeries for cataract-diseased patients; youth education care; free dinners at charity house ‘Catharsis’; medical care project for WW2 veterans; international donor’s week project; free medical examinations in mountainous areas; vouchers for retirees; internal corporate activities; a bonus system and motivation factors. Out of the projects just listed,

the majority are long-term. Q. Why is CSR important and what are its main advantages for companies, society and the country as a whole? A. CSR is a form of goodwill from businesses - taking extra responsibility, and satisfying higher standards of work than they are forced to by law. CSRfriendly companies act ethically, consider the needs of various public groups and contribute to the solution of social, economic and ecological problems. Healthcare is the main concern of our company. We do our best to offer qualified and cost-effective products at affordable prices. However, there is a group within our society that cannot afford high-quality products. Our social projects help us to provide proper assistance to all groups and care for their health. Providing high-quality medical products to everyone is of great importance to our company. Q. International financial institutions have predicted 2-3% economic growth for Georgia in 2016. Will the reduced economic growth have an impact on your CSR activities this year? A. Aversi has long-term CSR projects, which we will be continuing with in 2016. In addition, the company will implement new social projects. Q. Since its foundation, Aversi has managed to become a trusted brand on the Georgian pharmaceutical market. What is behind the meaning of your company’s name, and in which ways have you influenced Georgian business?

A. During the founding of the company, upon the initiative of the founder, the company was named the Latin word that perfectly describes the company’s principle: non-stop and sustainable development - spiral development. Aversi’s slogan - wishing you health and peace of mind! - expresses its main goal, the company’s care for the health and safety of its customers. There are 231 pharmacy Aversi stores around the whole of the country. The company is producing 145 sorts of medicines, of 238 positions. 21 branches of Aversi clinics are operating across the country. Our insurance company is founded with 100% Georgian capital. Our company also includes Konstantine Eristavi Experimental and Clinical Surgery National Center. There are 80,000 employees working across all of the medical facilities of Aversi. We contribute dozens of millions of Lari to the state budget. Considering all of these factors Aversi has managed to show its innovation and have a positive influence on the Georgian business environment.

Advertiser: Aversi. Contact FINANCIAL Ad Dep at marketing@finchannel.com

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Cola Giants May Lose Out on Global Soft Drinks Growth as Carbonates Declines in 2020 The FINANCIAL

remains a growth market, with no region expecting a decline. Emerging markets will continue to drive growth. However, the story is more difficult for soft drinks cola giants as both TCCC and PepsiCo will see market share erosion in off-trade value terms in most regions. The market share declines are more pronounced for TCCC which is expected to lose share in all regions, whereas PepsiCo is expected to lose share in all regions except Latin America. The continuous decline in market share is a reflection of declining sales of carbonates within soft drinks as a whole market, especially in North America and Western Europe, due to consumers giving preference to other categories. Asia Pacific is set to record absolute growth of US$34 billion in 2015-2020, outperforming other regions in actual terms. TCCC is likely to encounter a loss of market share by over one percentage point. In addition, the size of the bubble shows that Asia Pacific is a more important market for TCCC than PepsiCo. Thus, TCCC may be in more desperate need to sustain and grow its market shares in Asia in order to capture the regional growth fully. Figure 2, the bar chart shows soft drinks’ global growth prospects by category in relation to cola giants’ possible contribution in 2015-2020. As a global brand owner (GBO), PepsiCo is likely to lose share

he Coca-Cola Company (TCCC) and PepsiCo recently held their analysts conference on Q4 2015 financial results. TCCC announced plans to refranchise and focus on brand building and marketing, whereas PepsiCo’s discussion of growth initiatives appeared a bit vague with little mention of the progress of the integration of the Power of One Strategy in the meeting. This is perhaps the right time to have a quick look at what their positions would be in 2020, assuming carbonates continues to slow. Euromonitor International’s latest research shows that bottled water is set to be the growth driver in many major soft drinks markets, while carbonates will see a noticeable slowdown. Using figures from Competitor Analytics we demonstrate a scenario illustrating how the cola giants’ market shares will look, assuming carbonates continues to slow far into 2020. This is part one of the two-part series. Part one exhibits the impact of slowdown of carbonates on cola giants, and part two shows how Danone and Nestlé may stand in 2020.

Here are the key findings for part one: Figure 1, the bubble chart shows that overall soft drinks

in bottled water, sports and energy drinks, juice and concentrates. In juice, for example, PepsiCo will continue to generate much lower sales compared to TCCC. Assuming PepsiCo sticks to its alliances with Unilever (RTD tea Lipton) and Starbucks (RTD coffee) in the next few years, PepsiCo may not be able to fully benefit from the potential growth of RTD tea. As bottled water is set to be the category driver and smaller and regional players are the big contributors, both TCCC and PepsiCo still have an opportunity to grab share from their rivals. TCCC may make a noticeable share gain in RTD tea in 2020 as it is expanding its tea brand portfolio. In 2016, TCCC is launching Fuze Tea in Australia, backed up by big-budget marketing campaigns. Alarmingly, PepsiCo’s position in sports and energy drinks may be impacted by its rivals. TCCC now holds a minority stake in Monster; it will be in a much better position if it fully acquires Monster by 2020. In brief, the whole picture demonstrates that both cola giants may be in unfavourable positions in the global soft drinks market in 2020 with a decline in carbonates anticipated. Both companies need to accelerate their diversification in terms of categories and geographies. PepsiCo should look to build a strong portfolio of still drinks brands in Latin America and Asia Pacific.

PepsiCo’s FY2015 Lacklustre Results Suggest its Snacks Portfolio Could Benefit from a Yoghurt Brand Euromonitor International

en the dire prospects in carbonates and the slowdown in its North American food business, there is no option for PepsiCo but to follow Coca-Cola’s lead.

hile PepsiCo’s reported net revenue decline of 5% “topped analysts’ expectations” in FY2015, the food arm of the business performed considerably worse than last year, with its Europe Sub-Saharan Africa division recording a 22% net revenue decline and its Asia, Middle East & North Africa division seeing a 4% fall in net revenue, a significant drop compared with its 2% growth last year. Appreciation of the US dollar is definitely to blame, as are political turmoil affecting the Middle East, general macro headwinds in Asia and stagnancy in Europe. However, there are more serious structural challenges that PepsiCo needs to think of in order to improve profitability and its return to shareholders. Its failed attempt to acquire a stake in the US yoghurt player Chobani needs to be evaluated in this wider context.

The Fall of Carbonates It is no secret that carbon-

Yoghurt Fits With Pepsico’s Wider “Macrosnacking” Goal

ates are going out of fashion. The US, once hailed as the world’s biggest soda paradise, is now seeing the 10th year of decline in its carbonates market, leaving beverage giants like PepsiCo to look for growth alternatives. One such option is through the development of internal products, as Coca-Cola did with Fairlife. However, this is both an expensive and risky strategy as it is an area in which PepsiCo does not have production exper-

tise. A safer way to broaden product portfolio is through acquisitions. However, unlike Coca-Cola, which purchased stakes in the energy drinks manufacturer Monster Beverage and organic juice producer Suja Juice in 2015, PepsiCo has been slow on the acquisition side of things. Outside its yoghurt joint ventures in the US and Russia, PepsiCo has thus far mainly focused margin expansion on organic growth and portfolio trimming. Giv-

From a growth perspective, yoghurt seems to be an attractive category to venture into, particularly in the US, where the majority of PepsiCo’s sales come from and where the company seems to be struggling the most. Yoghurt value sales increased at a 5% CAGR in the US over 2010-2015, above the world average of 3%. In addition, given relatively low per capita sales in the US and consumers’ growing interest in naturally healthy, protein-rich snacks, it has considerable room for growth. Yoghurt also fits well with PepsiCo’s overall snack and soft drinks portfolio as it can come in a drinkable format or be incorporated into oats and consumed as a breakfast or snack item. The fact that yoghurt caters to several snacking occasions is particularly relevant for PepsiCo’s

Quaker brand, which is expanding its product range to include ready-to-eat cereals and oat-based drinks to better cater to on-the-go breakfast consumption. Yoghurt can also be eaten as a standalone snack, which would be a good complement to PepsiCo’s savoury snacks portfolio, which includes nuts and fruit snacks.

Pepsico Missing from the Protein Corridor It also fits with PepsiCo’s broader vision of growing into different aisles in the supermarket. As Nooyi, PepsiCo’s CEO, highlighted, PepsiCo needs to be present in all shop “corridors” and vary its “better for you” strategy with regard to changing consumer habits around naturalness and health. Currently, the company has a strong presence in the grains and carbohydrates corridors and is expanding its coverage in nuts and fruit snacks; however, it is underrepresented in the protein corridor. With the recent announcement that it is ending its yoghurt venture with Müller, there cannot be a better time to introduce a strong dairy brand.

Going After a European Yoghurt Player Could Pay More Dividends in the Long Run While all the reasons to expand into dairy are there, Chobani was probably too ambitious a target. Selling the majority stake of its family business to a carbonates giant would have been an unlikely choice for Hamdi Ulukaya, the proud owner of “America’s Number 1 Greek Yoghurt Brand”. Rather than going after the world’s 10th biggest yoghurt company, PepsiCo could try Filippou Group, owner of Fage Total Greek Yoghurt, which rose at an impressive 11% value CAGR over 20102015 globally, outpacing overall category growth by seven percentage points and jumping into fourth position in the US yoghurt market, just behind Chobani. Filippou also has a solid presence in Western Europe, where PepsiCo has struggled to maintain its sales and margins, and it might eventually help the company to return to a positive growth trajectory.

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Americans See Russia Less Negatively, as Less of a Threat The FINANCIAL

fter reaching a new low in 2015, Americans’ impressions of Russia have recovered somewhat this year, with 30% viewing the country favorably versus 24% in 2015. The majority of Americans continue to view the nation unfavorably, and their favorability rating is still half as high as it was a decade ago. Russia and the U.S. have a tempestuous history. As part of the Soviet Union, the Russian government engendered fear and resentment among Americans for decades after World War II during the Cold War. Hostilities began to ease during the era of glasnost in the mid-1980s. Through much of the 1990s and 2000s, Americans’ favorable opinions of Russia climbed, swelling to 66% in 2002. This sentiment began to crash when Vladimir Putin

returned to the presidency in 2012. Some of his policies and actions, including discriminatory policies against gays and Russia’s involvement in Ukraine, contributed to favorability dropping to a low point of 24% last year. But in Gallup’s annual World Affairs update survey conducted Feb. 3-7, Americans’ favorability toward Russia has edged back up. The reason for this may be

that Russia simply isn’t dominating news headlines as it did in 2013 and 2014. Putin’s interventions in the Middle East and Ukraine have arguably been most in the news in the past year, while Russia has also been prominent for its economic free fall as oil prices collapsed worldwide. The economic free fall, however, may not inspire a negative or positive response in Americans.

Younger Americans Have Highest Favorable Opinion Toward Russia

Americans between the ages of 18 and 34 gave Russia the highest favorable rating across all age groups at 43%. This is significantly higher than those aged 35 to 54, and more than double the percentage of Americans aged 55 and older. In the past four years, young Americans have maintained a relatively positive opinion of Russia, with the exception of last year. This may be attributable to most of this age group not living through the Cold War and not viewing Russia as the enemy to the U.S. that other generations experienced. In the political spectrum, favorability of Russia is similarly low across party lines, with Republicans, Democrats and political independents all giving Russia a favorable rating between 29% and 32%.

Perceptions of Russia’s Military Power as

a Critical Threat Decline As Americans’ opinions of Russia improve, a smaller percentage believes Russia’s military power is a critical threat to the U.S. Thirty-nine percent of Americans say Russia’s military power is a critical threat, down 10 percentage points from last year, but still above where it was from 2004 through 2014. Nearly two years since Crimea became part of Russia, stirring up a hornet’s nest of geopolitical tension in Eastern Europe, many of the concerns voiced by NATO countries have not materialized. Russia has not invaded other former Soviet republics or made any pronouncements of aggression toward the U.S. Americans’ perception of the military power of Russia as a critical threat comes in far below the threats that Americans are most concerned about, including international terrorism and cyberterrorism.

Dealing With Crisis Threats The Ten Principles of the

eloitte survey finds significant gaps between board members’ awareness of crisis threats and preparation to handle them The FINANCIAL -- Board members around the world have confidence in their organizations’ ability to deal with crisis situations (76 percent), but are less confident that they, and their organizations, are prepared for them. Fewer than half (49 percent) of the board members surveyed say their organizations have the capabilities or processes in place required to handle a crisis with the best possible outcome, according to the Deloitte Touche Tohmatsu Limited (Deloitte Global) survey report “A crisis of confidence.” “Most businesses will face a crisis at some point; it’s a matter of when, not if,” says Peter Dent leader of Deloitte’s Global Center for Crisis Management. “Board members should discuss with management to ensure there is a sound and common understanding of the risks that can leave an organization vulnerable to crisis. It’s equally important to deepen that understanding by strengthening the systems used to detect and prevent adverse events from occurring in the first place.”

Additional survey findings include: Disparity between feeling ready vs. being ready: More than three-quarters of board members (76 percent) believe their companies would respond effectively if a crisis struck tomorrow. However, only 49 percent of board members say their companies engage in monitoring or inter-

UN Global Compact

C nal communications designed to detect trouble ahead, and only 49 percent say their companies have playbooks for likely crisis scenarios. Even fewer, (32 percent) say their companies engage in crisis simulations or training. Damage to corporate reputation ranked top area of vulnerability, followed closely by cyber-crime: Survey participants said the crisis areas that make them feel the most vulnerable are corporate reputation (73 percent) and cyber-crime (70 percent). Twothirds (66 percent) named supply chain issues, regulatory action, and natural disasters as vulnerabilities as well. Gap between vulnerability and preparation: When asked about specific crisis areas, board members were more likely to acknowledge their vulnerability, than they were to say they had a plan to address it. For example, 73 percent named reputation as a vulnerability, but only 39 percent said they had a plan for it. Board members aren’t en-

gaging with management: Fewer than half (49 percent) say they have engaged with management to understand what has been done to support crisis preparedness. Only half say board members and management have specific discussions about crisis prevention. No quick fixes: Fewer than one-third (30 percent) of board members whose organizations had been hit by crises said their reputations recovered in less than a year. Sixteen percent said it took four years or more. Financial and operational crises had similar long recovery times. “It’s clear that crisis awareness, preparation and resilience needs to be a more prominent topic in the boardroom. While the approach may differ depending on the company, no board should underestimate the challenge of crisis preparedness” said Dent. More than 300 board members from companies representing every major industry and geographic region responded to the survey.

orporate sustainability starts with a company’s value system and a principled approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labour, environment and anti-corruption. Responsible businesses enact the same values and principles wherever they have a presence, and know that good practices in one area do not offset harm in another. By incorporating the Global Compact principles into strategies, policies and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long-term success. The UN Global Compact’s Ten Principles are derived from: the Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption.

Human Rights Principle 1: Businesses should support and

respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses.

Labour Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies.

AntiCorruption Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

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FINANCIAL

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IRAO Given a Günter Geyer Award for Social Conscience The FINANCIAL

By MADONA GASANOVA

t is believed 2016 will be an extremely challenging year for the Georgian insurance market. Despite this however, insurance company IRAO (Vienna Insurance Group), plans to maintain its growth trend this year. Insurance products are still considered to be luxury goods in Georgia. In this regard, a transformation is needed in people’s minds for the proper perception of insurance as an item of necessity. By implementing CSR as part of its company’s tradition, the management of IRAO wants to make its social commitment focused on the most vulnerable part of society - children. “In terms of developing the economy, maintaining yearto-year growth of the company is an extremely tough issue, but I strongly believe that when you have a clear vision and specific goals, you can achieve them. We think that 2016 will be extremely challenging for the whole insurance market taking into consideration currency depreciation processes, in our country, as well as in the whole region. Still, the average growth rate of IRAO during the last three years has been equal to 20% and we are very confident that we will properly manage to maintain this growth trend during the year 2016,” Vakhtang Dekanosidze, General Director of IRAO, told The FINANCIAL. A few years ago the Management Board of IRAO made a decision to direct its CSR strategy towards the most vulnerable part of our society - children suffering from cancer. This concern became the main reason why IRAO started its relations with Monk Andrew’s Foundation, which is the only foundation in Georgia taking care of around 75 children from socially-unprotected families struggling with cancer. “Last year, Vienna Insurance Group (VIG) paid particular attention to IRAO’s SAD project, and at the beginning of December 2015, representatives of VIG visited Monk Andrew’s Foundation in Georgia. We were soon after very excited to be acknowledged for our work.

VAKHTANG DEKANOSIDZE, General Director of IRAO

The IRAO SAD project, which was implemented in compliance with VIG CSR strategic directions, was recognized by the Special Jury as a 2nd prize winner of the Günter Geyer Award for Social Conscience, initiated by Wiener Städtische Versicherungsverein (the principal shareholder of VIG), annually provided for Group member companies for their social commitment,” said Dekanosidze. Q. Leading companies are used to having an impact on the whole business environment. What are your most notable advantages and directions where others try to emulate you? A. International Insurance Company IRAO, Vienna Insurance Group, has been operating on the local insurance market for around 12 years. During this time, the company has made a significant contribution to the development of the insurance industry and Georgian economy. Starting from its corporate history - IRAO occupies one of the leading positions among the top five companies, and offers its corporate and retail customers various types of qualified insurance products.

IRAO, as a member of Vienna Insurance Group (VIG), is constantly striving to transfer European business proceeding standards and culture to our country. Operationally, the strategic mechanisms of IRAO are strictly based on VIG standards and existing guidelines. It ensures we provide our customers with unconditional reliability. As for Vienna Insurance Group, it has been operating in Central and Eastern Europe (CEE) for more than 25 years and is one of the leading listed insurance groups in the region. According to preliminary results of 2015, it has generated more than EUR 9 billion in premiums, making it number 1 in its core markets last year again. VIG is presented in 25 countries of Central and Eastern Europe, with around 23,000 employees of 50 Group companies. Q. The Georgian insurance market is still lagging behind the developed world. What are the main steps that need to be implemented in order to develop the sector further? A. I fully agree with the statement that the Georgian insurance market is not yet

matured. It has an asymmetric structure, in terms of how certain insurance lines are well developed in comparison to others. Besides, they differ from classic lines of insurance that exist on developed markets. In this regard, the Georgian insurance market strongly needs the implementation of compulsory types of insurance, such as motor third party liability, employer’s liability insurance, etc. Launching compulsory lines of insurance would become a trigger for formulating a symmetric and comprehensive market. Q. Have you noticed any changes (such as cautiousness) in the attitudes of foreign partners towards Georgia, due to the existing economic instabilities in the region? A. Currently, economic instability processes are spread beyond our region, still, we truly believe that our country has huge potential to maintain its path of development in various sectors; starting from banking, tourism and other service spheres. The corporate history of the development of VIG, in terms of its expansion into the CEE region started 25 years ago, highlights its experience and confidence to operate and develop in countries with diverse economic conditions. A few years ago, our shareholder, Vienna Insurance Group, provided one of the largest contributions to the Georgian economy, with approximately GEL 50 million investments into the Hospital Rehabilitation Programme. As of now, 16 multi-profile hospitals are operating in various Georgian regions and are providing beneficiaries with qualitative medical service. Q. Have insurance products transformed in people’s minds from luxury goods to items of necessity yet in Georgia? A. By definition, insurance is a risk transferring mechanism that contains social benefit elements, protects the population from various unexpected financial risks, prevents them from becoming insolvent, and preserves the welfare of society. Nevertheless, insurance products are still considered luxury goods in Georgia. A mental transformation is needed for the proper perception of insur-

ance as an item of necessity, which should be supported by the Government as well. As was mentioned above, launching compulsory types of insurance, for example, motor third party liability insurance - will protect our population from negative impacts, which often cause significant financial losses in the case of motor accidents, and will raise awareness of insurance as such. Q. Could you please provide a brief description of the list of CSR projects implemented by IRAO Insurance Company? A. Nowadays, in accordance with corporate social responsibility development, besides the Government, private companies have also started to think about the difficulties people are surrounded by in everyday life and ways to solve them. By implementing CSR as part of our company’s tradition, we want to make our social commitment related to our society. A few years ago our company’s Management Board made a decision to direct its CSR strategy to the most vulnerable part of our society - children struggling with cancer. Statistics show that over 200,000 children are revealed to have cancer worldwide each year. Therefore, 80% of those children live in low or middle income countries where survival rates can be as low as 5%, compared to 80% in high income countries, and proper medical treatment at an early stage is crucial for their improvement. This concern became the main reason why IRAO started its relations with Monk Andrew’s Foundation, as this support and cooperation became in full compliance with the direction and priority that we have taken in this regard. Until now, the Foundation has been the only one of its kind in Georgia, which takes care of around 75 children from socially unprotected families suffering from cancer, and provides them and their families with all the necessary conditions that are crucial for their rehabilitation, besides medical treatments. Still, the Foundation has no organizational basis, it exists and operates, as far as providing any kind of support to such families, mainly based

on the desire and freewill of its founders, volunteers and their supporters. As well as monthly donations provided to Monk Andrew’s Foundation by IRAO, every year employees organize a Social Active Day project at the Foundation - initiated by our shareholder VIG, when around 20% of employees together with the company’s Management Board, visits and spends a day at the Foundation; organizes an entertainment event for the children; and delivers equipment necessary for their proper development and rehabilitation. But the most important and positive impact of this event is providing the children with an encouraging influence. Q. For some, CSR is perceived as just another PR tool for big business, a drop in the ocean that does more good for that company’s brand than it does for others. Can you share with us your experience of why CSR is important for all businesses, regardless of their size, and what the main benefits are for the community? A. IRAO’s inspiration, for transforming its social projects to the company’s constant CSR strategy, was the almost two centuries of experience and socially-oriented corporate culture of our shareholder - Vienna Insurance Group. Since the first predecessor of VIG was founded in Austria in 1824, awareness of responsibility, sustainability and value-oriented growth became main priorities for the Group. These priorities create a background for VIG social commitment, as a matter of tradition. Since then, the Group has been permanently launching and carrying out a number of social, volunteer and charity projects and activities in Austria, as well as on an international level.

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Weekly Market Watch ECONOMY

growth. Copper ores (+42.2% y/y), fertilizers (+191.5% y/y), crude oil (+25.2% y/y), and gold (+28.4% y/y) were the major export commodities posting increases. Gases (+3.2% y/y), petroleum (-19.7% y/y), cars (-33.4% y/y), copper ores (+54.5% y/y), and pharmaceuticals (-34.5% y/y) represented top 5 imported commodities in January 2016.

Trade de¿cit down 25.9% y/y in January 2016

In January 2016, the trade de¿cit shrank 25.9% y/y to US$ 283.3mn as exports decreased 21.9% y/y to US$ 122.2mn while imports fell 24.8% y/y to US$ 405.5mn, according to GeoStat. 32% of exports were directed to the EU (-37.8% y/y), 24% to the CIS (-46.5% y/y), and 44% to other countries (+37.2% y/y, on the back of increased exports to China and Switzerland). Signi¿cantly reduced car re-exports (-45.6% y/y) and nut exports (-47.9% y/y) weighed on export

Key macro indicators 1M16 …

2.8%

4.6%

GDP per capita (ppp)

…

9,566

9,209 3,676

Population (mn) Inflation (eop)

…

3,765

3.7*

4.5

5.6%

4.9%

2.0%

Gross reserves (US$ bn)

2.4

2.5

2.7

CAD (% of GDP)

….

10.7%

10.6%

Fiscal deficit (% of GDP)

….

…

3.0%

Total public debt (% of GDP)

…

41.1%

35.5%

Source: Of¿cial data, IMF, G&T *Preliminary results of census, previous data is subject to recalculation

Money transfers down 11.8% y/y in January 2016

Ease of Doing Business # 24 (regional leader)

Source: GeoStat Note: 4Q15 ¿gure based on rapid estimates

mittances from Russia (-23.4% y/y, 29.8% of total) and Greece (-35.4% y/y, 11.8% of total) were the major contributors to the drop in total money transfers. Meanwhile, remittances posted

In January 2016, money transfers decreased 11.8% y/y to US$ 66.5mn, according to NBG. Signi¿cantly reduced re-

PPI (% change m/m)

2014

GDP (% change)

GDP per capita (US$)

PPI (% change y/y)

BB-

Ba3

BB-

Stable Affirmed May-2015

Positive Affirmed Mar-2015

Stable Affirmed Oct-2015

Economic Freedom Index # 23 (mostly free) Global Competitiveness Index # 66 (improving trend)

Source: Rating agencies

Source: World Bank, Heritage Foundaition and World Economic Forum

growth from USA (+15.1% y/y, 11.3% of total), Israel (+64.5% y/y, 4.8% of total), Germany (+9.1% y/y, 3.1% of total), and Spain (+5.5% y/y, 2.9% of total).

Producer price index up 0.2% m/m and 4.1% y/y in January 2016

PPI for industrial goods increased 0.2% m/m in January 2016, according to GeoStat.

Nominal Effective Exchange Rate and Real Effective Exchange Rate

Source: NBG Note: Index growth means appreciation of exchange rate, decline means depreciation of exchange rate.

Source: GeoStat

FIXED INCOME

EQUITIES

Georgia Eurobonds, YTM (%)

TBC Bank (TBCB LI)

A 3.7% rise in supply of electricity, gas, and water prices contributed the most to the overall index change. Prices were down for manufacturing of basic and fabricated metals (-6.0% m/m) and up for chemical products (+11.6% m/m). Prices were also down for mining and quarrying (-4.6% m/m). Annual PPI increased 4.1% y/y in January 2016, with supply of electricity, gas, and water prices increasing 19.0% y/y and contributing 2.51ppts to the overall index change. Also, manufacturing prices increased 2.1% y/y, contributing 1.73ppts to the overall index change (in this category, prices were up for the manufacture of food, beverages, and tobacco and chemical products; down for basic and fabricated metals).

Georgia Healthcare Group (GHG LN)

BGEO Group PLC (BGEO LN)

Corporate Eurobonds: Bank of Georgia Eurobonds (GEBGG) closed at 5.2% yield, trading at 103.3 (+0.2% w/w). GOGC Eurobonds (GEOROG) were trading at 99.1 (-0.7% w/w), yielding 7.7%. Georgian Railway Eurobonds (GRAIL) traded at a premium at 103.2 (+0.9% w/w), yielding 7.1%. Georgian Sovereign Eurobonds (GEORG) closed at 105.2 (+0.6% w/w) at 5.7% yield to maturity.

Source: Bloomberg Source: Bloomberg

Local bonds

Eurobonds

GEOROG GWP 11/17 M2RE 03/17 EVEX 05/17 GLC 09/17 05/17 Amount, US$ mn Issue date Maturity date Coupon, % Fitch/S&P/ Moody's Mid price, US$ Mid yield, % Z-spread, bps

Georgia sovereign credit ratings

Real GDP growth, %

2015E

WEEKLY MARKET WATCH EXCLUSIVELY PROVIDED TO THE FINANCIAL BY GALT & TAGGART

GEBGG 07/17

GEORG 04/21

GRAIL 07/22

250

400

500

11/15

03/15

05/15

09/14

12-May

12-Jul

11-Apr

12-Jul

11/17

03/17

05/17

09/17

17-May

17-Jul

21-Apr

22-Jul

15.000**

9.500

8.750

6.875%

7.750%

6.875%

7.750%

BB-/BB-/Ba3 BB-/BB-/Ba3

BB-/BB-/-

BB-/-/-

-/-/-

BB-/B+/-

100.0*

99.0

100

98.0

99.1

103.3

105.2

103.2

15.0

10.1

9.5

9.7

7.7

5.2

5.7

7.1

n/a

712.8

544.7

445.4

592.8

BGEO Group (BGEO LN) shares closed at GBP 19.13/share (+18.23% w/w and +13.40% m/m). More than 252k shares traded in the range of GBP 16.58 – 19.62/share. Average daily traded volume was 57k in the last 4 weeks, less than in the previous month.

MONEY MARKET Re¿nancing loans: National Bank of Georgia (NBG) issued 7-day re¿nancing loans of GEL 700mn (US$ 280.9mn).

Source: Bloomberg

FTSE 250 Index, of which BOGH is a constituent, gained 4.53% w/w and gained 0.10% m/m, respectively. The volume of BOGH shares traded was at 0.64% of its capitalization. TBC Bank (TBCB LI) closed the week at US$ 9.40 (-1.05% w/w and +0.97% m/m). More than 34k GDRs changed hands in the range of US$ 9.40 – 9.70/GDR. Average daily traded volume was 7k in the last 4

weeks, more than in the previous month. Georgia Healthcare Group (GHG LN) shares closed at GBP 1.63/ share (-2.61% w/w and +0.31% m/m). More than 25k shares were traded in the range of GBP 1.63 – 1.76/share. Average daily traded volume was 9k in the last 4 weeks. The volume of GHG shares traded was at 0.02% of its capitalization.

Certi¿cates of deposit: NBG sold 182-day, GEL 20mn (US$ 8.0mn) certificates of deposit, with an average yield of 9.91% (up by 4bps from previous issue). Ministry of Finance Treasury Notes: 1-year GEL 45.0mn (US$ 18.1mn) T-Bills of Ministry of Finance

were sold at the auction held at NBG on February 17, 2016. The weighted average yield was ¿xed at 11.655%. The nearest treasury securities auction is scheduled for February 24, 2016, where GEL 10mn nominal value 10-year T-Notes will be sold.

T-bills / T-notes, yield curve

Monetary policy rate

Source: Bloomberg *GWP 11/17 bonds are in Georgian lari **Floating rate with 7.5% over the NBG’s re¿nancing rate

Eastern European sovereign 10-year bond performance Issuer

Amount, US$ mn

Georgia Azerbaijan Bulgaria Croatia Hungary Romania Russia Turkey

500 1,250 323 1,250 3,000 2,250 3,500 2,000

Source: Bloomberg

Coupon, % 6.875% 4.750% 5.000% 3.875% 6.375% 6.750% 5.000% 5.625%

Maturity date 12/04/2021 18/03/2024 19/07/2021 30/05/2022 29/03/2021 07/02/2022 29/04/2020 30/03/2021

Ratings (Fitch/S&P/Moody) BB-/BB-/Ba3 BBB-/-/Baa3 BBB/-/BB/BB/Ba1 BB+/BB+/Ba1 BBB-/BBB-/Baa3 BBB-/BB+/Ba1 BBB-/-/Baa3

Mid yield, % 5.7 6.1 1.1 3.6 3.4 3.1 4.0 4.4

Source: NBG *As of latest auction

Source: NBG

WEEKLY MARKET WATCH EXCLUSIVELY PROVIDED TO THE FINANCIAL BY GALT & TAGGART Investments (or any short-term transactions) in emerging markets involve signi¿cant risk and volatility and may not be suitable for everyone. The readers of this document must make their own investment decisions as they believe appropriate based on their speci¿c objectives and ¿nancial situation. When doing so, such recipients should be sure to make their own assessment of the risks inherent in emerging market investments, including potential political and economic instability, other political risks including without limitation changes to laws and tariffs, and nationalization of assets, and currency exchange risk.

GALT & TAGGART Address: 79 D. Agmashenebeli Avenue, Tbilisi 0102, Georgia Tel: + (995) 32 2401 111 Email: gt@gt.ge

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FINANCIAL

22 FEBRUARY, 2016 | FINCHANNEL.COM

VTB Bank Georgia Spent GEL 3 Million on its CSR Projects in 2015

The FINANCIAL By MADONA GASANOVA

TB Bank Georgia increased its assets by 18.2% in 2015. The loan portfolio of the Bank has increased by 23.1%, in comparison with the previous year. Well-known for its active support of Georgian sport, the Bank is involved in culture and charity as part of its CSR activities. VTB Bank Georgia chooses to support long-term social projects, focused on investing in a better future for the nation. The Bank spent more than GEL 3 million on its CSR projects in 2015. “The whole year has been very successful for VTB Bank Georgia. We have maintained a growing trend. VTB Bank Georgia entered the top five of the Georgian banks. Assets grew by GEL 191.2million. That is 18.2% more compared to the previous year. Our loan portfolio grew by 23.1%.,” George Barkalaya, Vice-President at VTB Bank Georgia, told The FINANCIAL. “There has been a growing trend in the deposit portfolio as well. We successfully positioned ourselves in the corporate business direction, as well as in regard to SME business. So, VTB Bank Georgia has been growing in every direction: retail, small business and corporate. We plan to continue our growth and our success in the upcoming years.” “Year by year we are improving our results and 2015 was no exception. Accordingly, the budget for CSR activities was higher last year than in 2014. VTB Bank Georgia spent more than GEL 3 million on its CSR activities in 2015. It is one of the highest figures spent in Georgia. Our CSR activities incorporated a wide range of directions, including sport, culture and charity. The

GEORGE BARKALAYA, Vice-President at VTB Bank Georgia

budget per each direction was indeed quite solid,” said Barkalaya. During the last year the Bank donated 1% of its profit, worth GEL 207,000, to the victims of the 13 June Tbilisi flooding. VTB Bank Georgia also donated GEL 1,200,000 to the Gymnastic Federation which had been fully destroyed. In March of the current year the newly-renovated building of the Federation is due to be officially opened. Q. Please can you tell us about the CSR activities that you have been implementing? A. Our CSR activities are quite diversified. The Bank is supporting various fields. We are proud to be the partners of the national teams and federations of various sports. VTB Bank Georgia has been a general sponsor of the Rugby National Team. We are sponsors of the National Water Polo Team. We are glad to bear witness to

their great success. Our national water polo team participated in the European Championship. We support the Aquatic Sports Federation of Georgia, Gymnastic Federation of Georgia, and Equestrian Sport Federation. For the first time in history our sportsmen obtained a license for participation in the World Cup. The Football club Saburtalo, as well as the kid’s rugby team Chokhosnebi, are also in the list of those which we have been endorsing for years and will continue to endorse in the future. VTB Bank Georgia became a general sponsor of the Business Champion’s League in football. We wish success for all athletes and we hope that the financial support of VTB Bank will play an important role in the development of Georgian sport, will promote its advancement and achievements. Last year we decided to start financing a kid’s ski school. We are proud to support a healthy lifestyle

among Georgian children. In addition to our financial assistance, the Bank tries hard to promote these activities of sport. I can recall our campaign #Iam16 which was launched for the support of our rugby team. There was unprecedented activity and involvement of society in this campaign, irrespective of age or borders. Culture is a field in which VTB Bank Georgia tries to provide significant assistance. Among the projects funded by the Bank are: Rustaveli Theatre, Griboedov Theatre, and Telavi DramaTheatre. The number of projects financed by VTB Bank determines the high corporate and social responsibility of the Bank. We are pleased that with the financial support of VTB Bank many interesting projects have been implemented and this relationship has been largely successful. We are doing our best to be active in Georgian society. Q. 2015 was quite a difficult year. Devaluation had a negative impact, especially onthat segment that had loans in a foreign currency. How did you try to bring relief to your customers? A. VTB Bank Georgia has always been supporting its customers as we have always been focused on building long-term relations with them. Devaluation indeed had an impact on citizens. However, there were also the victims of the Tbilisi flooding that required our assistance too. So, the Bank gave help to all of its customers that appealed to us. Considering the scale of damage of the Tbilisi flooding, we even annulled loans for some of our customers. As for the borrowers that had debts in a foreign currency, the Bank offered restructuring, prolonga-

tion and also a reduction of interest rates. Q. What are your plans for 2016? A. This year we plan to expand our CSR projects. The types of sport supported by VTB Bank Georgia will continue to increase. We will strengthen our assistance for involving children in sport. We are proud to see that other businesses started following us in carrying out CSR activities. We are optimistic that any sport which we will start financing will also become successful. From 2016 the Bank will have a new slogan -Where People Matter. We will continue further assistance and strong support for our customers that really matter to us. Q. How is awareness of CSR growing among Georgian society? A. The involvement of businesses in CSR activities is growing annually. If we compare the current activities of companies in socially responsible projects with 2010 we will get radically different figures. However, I think that this policy is still in the period of development. Funding CSR activities is becoming more important for Georgian businesses. I am sure that the activity will bemuch higher in the next five years. We are proud to witness how social responsibility is increasing among each of our employees. Our staff members established a charity foundation “Generation. On Fridays employees can come into the bank dressed in casual clothing. However, when participating in this they agree to transfer part of their wages to charity. The charity foundation of VTB Bank Georgia workers targets helping vulnerable citizens. Over 100 citizens benefit from this foundation annually.

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CFOs Concerned About Effectiveness of Corporate Reporting The FINANCIAL -- CFOs are losing confidence in corporate reporting and its effectiveness, as pressure from audit committees, the complexity of implementing new reporting requirements and reporting overload affect performance, according to the annual survey by EY’s Financial Accounting and Advisory Services (FAAS), Are you prepared for corporate reporting’s perfect storm? In the global survey of 1,000 CFOs across 25 countries in organizations with revenue greater than US$500m, CFOs’ confidence across all aspects of corporate reporting has fallen compared to last year. Only 55% are confident in the degree of compliance, compared with 84% last year. Also declining is the consistency in the application of key performance indicators, at 44%, compared to 66% in 2014; less than half (45%) feel confident in the clarity and relevance of messages, down from 67% in 2014. CFOs’ view of the effectiveness of the cost of corporate reporting has fallen significantly year-on-year, at 39%, compared to 68% in 2014. Just 48% said that their reporting was effective in securing the confidence of the board, a significant drop from 71% last year. Yet a third of CFOs (32%) agree that meeting the needs of the audit committee and supervisory boards is the most critical factor in driving the importance of effective reporting. External reporting fares no better, with only 43% of CFOs saying that their reporting is effective in meeting the expectations of those outside their organization. “Corporate reporting needs to be all things to all people — relevant, timely and cost effective”, Peter Wollmert, EY Global and EMEIA

FAAS Leader, says. “CFOs need to step back and evaluate what they are producing and address concerns over confidence and effectiveness quickly. To delay means that the timeliness and accuracy of reporting will continue to affect performance. Corporate reporting will only serve its intended purpose if the CFO is confident of its value.”

Responding to reporting complexity As reporting must meet increas-

ingly rigorous standards and cover more areas, from corporate social responsibility reporting to management intelligence, demand for information is also on the rise, with 71% saying there has been an increase in the number of reports issued, with some of this increase due to new regulatory requirements such as the forthcoming EU directive on nonfinancial reporting. For CFOs, the key challenges of today’s reporting environment are the complexity of the regulatory environment (58%), the volume and pace of big data (55%), and the complexity of local and international compliance requirements (53%).

With CFOs seeing innovative technology and big data as critical factors of success, 82% expect to increase investment in reporting technologies over the next two years, with 20% planning to increase technology investment in reporting technologies by 20%.

Boards and audit committees increase CFO scrutiny CFOs are also feeling the ripple

effect of increased scrutiny being placed on audit committees and supervisory boards. Eightyfour percent of respondents say that audit committees and boards have increased their overall attention on reporting in the past three years, with 34% saying that the attention has increased significantly. A third (32%) of CFOs say that the relationship they have with their audit committees is clearly a factor in how frequently they are asked for information. Forty-three percent of CFOs who have a strong relationship with the audit committee are more likely to say that members want more frequent reports. This drops to 25% for those with a poor relationship. Data analytics is becoming increasingly popular among CFOs to support the requirements of audit committees and boards, with 34% making good progress and 34% making more limited use of analytics. Of those using analytics, the top three priorities are more sophisticated information management storage solutions (61%), more use of automation in data capture and generation (57%) and investing in advanced analysis and data mining tools (51%). Wollmert says: “Audit committees are under the spotlight for how they carry out their responsibilities, and CFOs are in turn under pressure to provide more and more information. Yet it’s important that it doesn’t become a situation of reporting overload. CFOs must turn volumes of data into reporting insight, which means having the right strategy, processes and skills in place.”

The Best Political System for Georgia MERAB PACHULIA

Chart 1. Proﬀered Poli cal System

Chart 2. Preference for Poli cal System by Social Class

Source: GORBI, December 2015 na onwide surveys of 1200 respondents .

GORBI

hat is the best political system for Georgia? For me, that’s an easy question – having a representative democracy in which the majority of the population can live without fear. Representative democracy is achievable, but there are two major steps to undertake (along with numerous reforms): holding fair and transparent elections, and continued relations with the West. The current government has held two elections since the regime change in 2012, one presidential election and one for local government. The outcomes of both elections were easy to predict for GORBI, since there were very few (as claimed by some opposition candidates) falsifications: when elections are truly competitive, preelection polls can be quite accurate. Removing fear from peoples’ lives is much more difficult. It involves improvements in economics, education, health care, and infrastructure. But, more importantly, it requires securing peace, a

process which depends not only on us, but also on Russia. Since 1918, there have been three instances in which the Russian military occupied either the entire country part of its territory. This constant threat means that the Georgian government has to take its diplomatic responsibilities very seriously. Recently, GORBI has asked this question throughout Georgia: “Which political system, in your opinion, would be best for Georgia: the Soviet system as it was before Per-

estroika, the political system that exists today, or a Western-style democracy?” The answers we found were alarming. More than one in four people surveyed said they prefer the Soviet System before Perestroika. However, a vast majority of surveyed respondents chose either a Western-style democracy or the existing system, with 38% and 19% respectively. And another 16% of citizens could not name any preferred system. Nostalgia for the Soviet sys-

tem is negatively correlated to the economic status of the respondent: Those in the lower socio-economic classes are more inclined to favour the old Communist system where economic well-being was guaranteed. The bottom line is that each country, including Georgia, is unique in terms of history and issues. We can’t just copy a political system from any Western country and bring it to Georgia. Even if we agree with Plato and get a “philosopher-king” president

(which, with our philosopher president, is true) we won’t solve all our problems. We have to continue implementing reforms, working with our Western allies, and putting all our efforts into avoiding another war with Russia. Even with the recent Gazprom negotiations or increasing presence of Russian propaganda, we seem to being working towards democracy and peace. Knock on wood. GORBI is a regional hub for partner organizations and

international clients. Since 2003, GORBI remains an exclusive member of Gallup International research network for its two decades of experience in survey research in post-Soviet Union countries, as well as Mongolia and Iraq. This data was provided exclusively to the Financial.

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BasisBank in Cooperation with EBRD Launches Unique Offer Enabling Energy Cost Cutting The FINANCIAL

By MADONA GASANOVA

asisBank, with the assistance of EBRD, is offering Georgian businesses and legal entities the chance to borrow ‘Energocredit’ with a competitive interest rate, get free technical assistance and get 10-15% cash back. Awareness of businesses on cutting energy spending and developing new projects with the sum of money saved, makes the management of BasisBank optimistic that the new offer will receive high interest from customers. “Money saved in business means new investments, an opportunity to launch new projects and create new workplaces,” said David Tsaava, CEO at BasisBank, while explaining the importance of Energocredit for businesses. Energocredit offers a triple benefit to customers of BasisBank: 10 to 15% cash back on investments in energy efficient equipment and refurbishment; tailor-made advice of international experts on energy-saving possibilities; and a loan package for investments in energy efficiency with the best conditions. “Energy efficient projects are in the interest of our country. The project that we have launched is very attractive for customers. The advantages include accessible credit for individuals as well as legal entities. Also, energy audits by world leading audit companies are also offered to our customers. They will deliver information to customers on what needs to be changed in their businesses in order to reduce energy expenditure. This service is absolutely

free of charge. The third big advantage of our project is 10-15% subsidies. So, customers receive a credit line with competitive conditions; get consultations without any extra charge, and 10% subsidies from EBRD. All of these elements combine to make our offer very interesting for customers,” Tsaava told The FINANCIAL. Energocredit is a dedicated programme of the European Bank for Reconstruction and Development (EBRD) aimed at supporting the development of sustainable energy projects in Georgia, Armenia and Azerbaijan. Through Energocredit, the EBRD provides USD 125 million

to local financial institutions in the Caucasus region, for on-lending to both local businesses and individuals implementing energy efficiency measures and renewable energy projects. With these funds, the programme aims to enhance awareness of energy efficiency and to transfer skills to local financial institutions in sustainable energy lending. According to Irakli Mekvabishvili, Chief Banker, out of the total USD 125 million, the largest share - USD 70 million - has been acquired by Georgia. “The figure shows the high importance of energy efficiency projects among Georgian businesses,” said Mekvabishvili.

In 2015 EBRD granted BasisBank a line of credit of USD 6 million for energy efficiency investments under the Caucasus Energy Efficiency Programme, Energocredit. Out of this amount, BasisBank has already issued USD 3 million. Manufacturing and construction are the top sectors that have adopted energy efficiency in their businesses. As Tsaava said, in general, the demand is equal from various business directions. “On its side, the Bank is cooperating with all of them,” Tsaava added. “It is important that our offer is not targeting the implementation of new directions. It is affordable for companies that have decided on re-

armament or even repairs and want to implement energy cost saving systems,” said Tsaava. Interest rates on Energocredit will vary in line with the business sector. In Tsaava’s words, despite all of the above-mentioned advantages that the project offers, the Bank has competitive interest rates on loans. According to Tsaava, BasisBank is the fastest growing bank on the market. The average growth rate of the Bank annually is around 4045%. “There is a niche on the market where it is possible to continue crediting with lower risks. Accordingly, we are optimistic that we will manage to attract the segment which is interested in the implementation of energy efficient systems.” The credit portfolio of the Bank in 2015 totalled over GEL 570 million. With over 70%, small and mediumsized businesses make up the largest part of its credit portfolio. The Bank did not have any significant increase of overdue loans in 2015. “The procedures implemented and experience that we have gained is the main contributor to these results,” Tsaava explained. “A stable environment will be very important for our country. It will contribute to attracting investments. FDI will remain of key significance to our country in 2016. Foreign investments support the foundation of new businesses. We are closely watching the situation in our neighbour countries; changes in oil prices have an impact on crude producers which have been the main investors in Georgia during recent years. However, there are also Asian countries expressing an interest in investing in Georgia,” Tsaava told The FINANCIAL.

Wizz Air Announces New Base, 18% of Unemployed Seven New Routes in Kutaisi Persons in the EU Found a Job

The FINANCIAL -- Wizz Air, one of the largest low-cost airlines in Central and Eastern Europe, on February 17 announced it will begin base operations in September at David the Builder Kutaisi International Airport with one A320 aircraft and add seven new routes to Europe. Wizz Air will launch new twiceweekly service from Kutaisi to Berlin Schönefeld, Munich Memmingen, Milan Bergamo, Dortmund, Larnaca and Sofia, while flights between Kutaisi and Thessaloniki will be flown three times a week. With these new destinations, Wizz Air’s network from Georgia consists of 11 routes to eight countries. Fares start at EUR 24.99, according to Wizz Air. Kutaisi, famous for its many gardens and tree-lined streets, is the second-largest city in Georgia. Its most famous landmark is the 11th century Bagrati Cathedral ruin, a protected UNESCO Heritage site. Wizz Air began operations in Kutaisi in 2012 and has carried more than 500,000 passengers in that time. The details of the base announcement were released at a press conference on February 17 in Tbilisi by Georgia Vice Prime Minister, Minister of Economy and Sustainable Development of Georgia Dimitry Kumsishvili and Wizz Air Chief Corporate Officer Owain Jones. ”We are very excited about being a part of the economic development of Kutaisi, not only in terms of culture and tourism, but for business and manufacturing as well,”Owain Jones, Wizz Air Chief Corporate Officer said. “Wizz Air believes investment in Georgia with an Airbus A320 aircraft and with a locally recruited base crew will pay economic dividends for business in Georgia and for Wizz

Air. We know the importance of affordable air travel for a region’s economic development which has been a by-product of WIZZ operations in all our base cities. Opening a base here underlines our commitment to providing the people of Georgia with high quality, low-fare service to more and more cities throughout Europe.” “Following fruitful and extensive cooperation we are proud to greet Wizz Air, one of the largest low cost carriers in Europe, on opening of its base at Kutaisi International Airport, which is the first low cost airport in the region”, Dimitry Kumsishvili, Vice Prime Minister, Minis-

ter of Economy & Sustainable Development of Georgia said: “ “We are confident that Kutaisi International Airport will be a successful and productive base for Wizz Air operations that will support the development of tourism in Georgia and will give the new opportunities to Georgian travelers to travel to Europe with affordable ticket fares. Wizz Air’s base will create new job opportunities for industry professionals and have a positive impact on the aviation industry as a whole.“ Wizz Air was recently named 2016 Value Airline of the Year by the editors of Air Transport World, one of the leading airline trade magazines.

The FINANCIAL -- Out of all persons in the European Union (EU) who were unemployed in the second quarter 2015, 62.7% (12.9 million persons) remained unemployed in the third quarter 2015, while 17.9% (3.7 million) moved into employment and 19.4% (4.0 million) towards economic inactivity in Q3 2015. Of all those initially in employment, 96.7% (169.6 million persons) remained in employment, while 1.4% (2.4 million) of those employed in the second quarter were observed to be unemployed in the third quarter, and 2.0% (3.5 million) transitioned into economic inactivity. Today, Eurostat, the statistical office of the European Union, publishes quarterly labour market flows, based on non-seasonally adjusted labour market data from the European Union Labour Force Survey. Labour market flows show the movements of individuals between employment, unemployment, and economic inactivity and enrich the analysis of the net changes in stocks. These statistics help to understand and interpret changes in the levels of labour market indicators. In order to ensure comparability, data published by Eurostat

are based on a harmonised methodology. This may result in small differences between these data and those published nationally. These labour market flows are highly seasonal, which means that both the size and the direction of a flow in and out of unemployment depend not only on general economic conditions, but also on seasonal factors such as students seeking jobs after graduation. As seasonally adjusted flows data are not yet available, only changes compared with the same quarter of the previous year are presented in the following table. In this table, a negative sign means a lower proportion of persons moving to or remaining in a category compared with the same quarter of the previous year, while a positive sign means a higher proportion of persons moving to or remaining in a category. For instance in the EU, the proportion of persons moving from unemployment to employment from the second to the third quarter of 2015 increased by 0.9 percentage point (pp) compared with the flows between the same two quarters of 2014, while the share of those remaining unemployed decreased by 1.7 pp.

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ISO 26000 in the Post-2015 Development Agenda The FINANCIAL

n January 2016, the 2030 Agenda for Sustainable Development came into effect. Now, the eyes of the world are on solutions to guide international development and cooperation for the 17 initiatives (goals) over the next 15 years. Can ISO 26000 make a difference? At the United Nations Sustainable Development Summit on 25 September 2015, world leaders adopted the 2030 Agenda for Sustainable Development, which includes a set of 17 Sustainable Development Goals (SDGs) to end poverty, fight inequality and injustice, and tackle climate change by 2030. The SDGs are a new, universal set of goals, targets and indicators that UN member states will be expected to use to frame their agendas and political policies over the next 15 years. They follow and expand on the Millennium Development Goals (MDGs), which were agreed by governments in 2001 and expired at the end of 2015.

So where does ISO 26000 on social responsibility fit into the picture? According to Professors Adriana Rosenfeld and Adriana Norma Martínez from the National University of Luján in Argentina, ISO 26000 addresses sustainable development and the post-2015 development agenda in a coherent and complete way. The core subjects and issues defined by the ISO standard include human rights, labour practices, the environment, fair operating practices, consumer issues and community involvement, which encompass, among other things, the principles of equal opportunities and nondiscrimination. ISO 26000 provides a visible, influential and pragmatic way to impulse change, and meet the SDGs. Here, Rosenfeld and Martínez highlight the reasons why.

responsibility and sustainable development? Rosenfeld and Martínez: Even if the concepts of sustainable development and social responsibility are frequently used interchangeably, sustainable development refers to the economic, social and environmental goals common to all people whereas social responsibility refers to an organization’s responsibilities to society and the environment. So when an organization decides to undertake and implement social responsibility, the overarching aim of course is to contribute to sustainable development. ISO 26000 provides guidance on how businesses and organizations can operate in a socially responsible way. It clarifies what social responsibility is, helps businesses and organizations translate principles into effective actions and shares best practices from around the world relating to social responsibility. The ISO standard is designed to assist organizations in contributing to sustainable development, encouraging them to go beyond basic legal compliance, and to promote a common understanding in the field of social responsibility, complementing other existing instruments and initiatives.

ISOfocus: What is the relationship between ISO 26000 guidance What kind of on social

opportunities/ synergies does ISO 26000 represent for sustainable development? There is a real potential for ISO 26000 to make a positive contribution to sustainable development. The standard covers the majority of direct sustainable development issues, such as environmental impacts and human rights. Indeed, it has a broader scope than most sustainable development standards. We undertook an analysis to review the opportunities and synergies between the SDGs and ISO 26000. The academic work consisted of a detailed examination comparing the SDGs and their targets to ISO 26000, in general, and Chapter 6 (Guidance on core subjects of social responsibility), in particular. The conclusion of the study and analysis was that both documents share the general objective of fostering sustainable development and the conceptualization of sustainable development, recognizing the economic, social and environmental dimensions and their interdependence.

Could you please describe how ISO

26000 could help meet the SDGs? Could you give an example or two? The SDGs are providing valuable opportunities to advance human dignity and rights. They reaffirm the importance of freedom, peace and security, the right to development and the right to an adequate standard of living, including the claim to food and water, the rule of law, good governance, gender equality, empowerment of women and the overall commitment to just and democratic societies that support such development. This approach is similar to ISO 26000. The ISO standard recognizes the respect for human rights in one of its seven core subjects. Secondly, the SDGs include a stand-alone goal on equality and the empowerment of women and girls as well as gender-sensitive targets in other goals. Here again, ISO 26000 shares a similar approach. The gender dimension cuts across the International Standard, and is expressed in “Gender equality and social responsibility” (Box 2 in ISO 26000): “There is a demonstrated positive link between gender equality and economic and social development. [...] Organizations should review their decisions and activities to

eliminate gender bias and promote gender equality.” Last but not least, environmental issues are also a major theme that runs through the SDGs and a core subject contained in ISO 26000. How can ISO 26000 help companies on their path to sustainability? Here again, could you please provide an example or two. According to ISO 26000, the objective of sustainable development is to achieve sustainability for society as a whole and for the planet. The analysis we undertook of the SDGs and ISO 26000 clearly suggests that organizations can find items that allow them to contribute to sustainability by using the ISO standard. The relationship between the two documents is conspicuous. Take, for instance, Objective 13 of the SDGs, “Take urgent action to combat climate change and its impacts”, and Issue 3 of ISO 26000, “Climate change mitigation and adaptation” (within the core subject: “The environment”). The International Standard explains the core subject by providing information on its scope, its relationship to social responsibility, its related principles and considerations, and its associated issues. In particular, subclause 6.5.5 of ISO 26000 describes the issue, provides a set of ten related actions and expectations and gives examples of climate change adaptation actions. There’s no doubt that the standard’s use by all types of organizations and the promotion of social responsibility in their value chains (Core subject 6.6, “Fair operating practices” / Issue 4) will contribute to the achievement of the SDGs.

What are your hopes and aspirations for the future use of ISO 26000? ISO 26000 is the most comprehensive and concise guidance of what an organization should do to contribute to sustainable development – for that reason, it is extremely useful. It constitutes a valuable tool for the implementation of the post-2015 development agenda. It is vitally important to increase the global use of ISO 26000, and, in so doing, enable partnerships among governments, private sector and civil society. These will be key to ensuring the SDGs are met and our planet’s sustainability is secured.

history

CSR Europe – 20 years of business-policy interaction driving the CSR movement 2010 - 2015 2010 saw the launch of Enterprise 2020, an ambitious initiative to shape the business contribution to the EU’s Europe 2020 Strategy. Enterprise 2020 is CSR Europe’s flagship initiative, encompassing all its campaigns in the coming years, and was the only business-led initiative to be taken on by the European Commission in its European Strategy on CSR. At the end of the Enterprise 2020 Summit 2012, business leaders together with José Manuel Barroso, then President of the European Commission, and Herman

Van Rompuy, then President of the European Council, called for closer collaboration on growth and jobs.

2005 - 2010 In 2005, 400 business and stakeholder practitioners launched the European Roadmap for Businesses – “Towards a Competitive and Sustainable Enterprise,” which outlined the goals of CSR Europe in the coming years. This Roadmap also laid the foundations of a comprehensive CSR blueprint, which the European Commission included in its European Strategy on CSR.

2000 - 2005 By 2000, the momentum created by the network of businesses prompted EU Heads of State and Governments to make an Appeal on CSR at the Lisbon Summit, which pledged to make Europe “capable of sustainable economic growth with more and better jobs and greater social cohesion by 2010.” By pushing for this Appeal, CSR Europe prompted the European Commission to engage more strategically with business and stakeholders in developing a European Strategy on CSR; the first strategy being adopted in 2002.

In response to this Appeal, CSR Europe led the first European Campaign on CSR, encouraging and equipping enterprises to mainstream CSR into their business strategies and practices. It is at that time that CSR Europe also co-founded with a small group of business schools and universities the European Academy of Business in Society (now The Academy of Business in Society, ABIS) to embed CSR in the research and curriculum of future managers.

1995 - 2000 In 1995, two years after Jacques

Delors - President of the European Commission (1985-1995) - called on enterprises to combat social exclusion and unemployment, 20 business leaders adopted the European Business Declaration against Social Exclusion. In 1996, the European Business Network for Social Cohesion was formed (later renamed CSR Europe) to create a space for men and women in business to share experiences, develop solutions and engage in a smart policy dialogue with the EU with a view to enhancing corporate social responsibility within their organisations and beyond.

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