Issue #1080 Business

Issue no: 1080/145

• SEPTEMBER 4 - 6, 2018

• PUBLISHED TWICE WEEKLY

In this week’s issue...

FOCUS

4th Tbilisoba Festival Held in Minsk

ON EU INTEGRATION EU Commissioner visits Georgia, opens Eastern Partnership School

PRICE: GEL 2.50

NEWS PAGE 2

PAGE 2

Georgia Chooses Film to Send to the Oscars

NEWS PAGE 3

Georgia: The New Blockchain Giant BUSINESS PAGE 6

Huawei Overtakes Apple in Number of Smartphones Sold

Giorgi Margvelashvili, President of Georgia, on the left, and Johannes Hahn. Source: European Commission

Khulo Fest Celebrates Local Production in Mountainous Adjara

BUSINESS PAGE 8

€45 Million EU MacroFinancial Assistance Package Finalized

BY SAMANTHA GUTHRIE

O

n August 25, the municipality of Khulo in the Adjara region held Khulo Fest. The event was organized by the Khulo local action group (LAG), in cooperation with Khulo’s City Hall, with the support of the European Union and Caritas Czech Republic in Georgia (CCRG).

On a warm Saturday afternoon, in front of the Khulo Drama Theater, members of the public gathered for an exhibition of local products for sale and sampling. The festival aimed to promote local products and handicrafts such as paintings, souvenirs, decorative trinkets, handknit socks, and agricultural products. There was even a corn on the cob-eating contest.

A total of 19 local farmers and artisans had exhibits at the festival. Local tourism providers also offered attendees information on different regional sights and things to do in the area. The town’s main draw for tourists is its cable car.

Due to the mountainous terrain, getting from one village to another can be a challenge by foot, car, or horse, so a cable car was installed

BUSINESS PAGE 10 Prepared for Georgia Today Business by

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Photo: European Union

by the Soviets to improve accessibility. The cable car connects Khulo with the village of Tago.

Another interesting aspect of Khulo municipality is that the majority of the population is Muslim, adopted during the Ottoman rule of the area in the 16th – 19th centuries. Beautiful 19th century mosques can be found tucked in the mountains and valleys of mountainous Adjara.

Khulo Fest was attended by tourists and local residents, along with representatives of the

m/m

Bank of Georgia (BGEO LN)

TBC Bank Group (TBCG LN)

Ministry of Agriculture of Adjara, UNDP, and local government representatives.

Visitors were treated to performances by local folk dancing groups: Argineti, Mermisi, Khikhani, Bermukha, Khomli, and Khulo, and musical entertainment from local bands Sound Lab, Groovephonics, and DJ Chiki/Rezi. The other main entertainment was the stunning view of Argineti Mountain, serving as the backdrop for the festival.

Continued on page 4

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NEWS

GEORGIA TODAY

SEPTEMBER 4 - 6, 2018

4th Tbilisoba Festival Held in Minsk

BY THEA MORRISON

T

he well-known Georgian festival Tbilisoba was celebrated in the capital of Belarus, Minsk, hosting 70,000 people in the city

center.

World-renowned Georgian jazz singer Nino Katamadze showed off her talent, and legendary folk ensemble Erisioni performed Georgian songs and dances with the Voices of Georgia folk music band.

This year the much-loved festival lasted until midnight and spread along the Svisloch River and Zybitskaya Street.

The festival was organized under the auspices of the Minsk City Hall, the Georgian cultural society Mamuli, and the Borjomi trademark.

For the first time, the Tour Bazaar

event was also held which informed visitors about Georgian tourist attractions and offered tours to Georgia at a discount.

Among the most interesting features of the festival was tasting of traditional Georgian wine and food. The visitors had a chance to enjoy Georgian cuisine and learn more about the Georgian culture.

This was the fourth Tbilisoba Festival held so far in Minsk and it was opened

by Tbilisi Mayor Kakha Kaladze and Chairman of the Minsk City Executive Committee Andrei Shorez.

In his speech, the Mayor of Tbilisi thanked the Belarusian people for holding the festival. According to him, Tbilisi and Minsk are friendly cities and this relationship can be advanced further in the future.

“I would also like to welcome the Georgian diaspora and wish them success. Your role is important in present-

Tbilisoba 2018 in the center of Minsk

ing our country,” Kaladze said.

Within the framework of his visit, Kaladze, his Deputy Ilia Eloshvili and

Georgian Ambassador to Belarus, Valery Kvaratskhelia, held a meeting with Andrei Shorez. The sides discussed the

main issues of relations between the twin towns.

As the Tbilisi Mayor said at the meeting, Minsk and Tbilisi have enough resources to deepen friendly relations.

"It is very important for me that this visit has taken place. I am glad that the Georgian culture festival Tbilisoba 2018 was held in the capital of Belarus, hosting so many people.

We had the opportunity to introduce our culture and country to the people living here. I appreciate the relations between our countries and peoples," said Kaladze.

The Tbilisi Mayor also visited public electronic transport company Belkommunmash (Белкоммунмаш). Kaladze saw electric transport produced by the Belarussian Company and attended the presentation of the bus produced by company MAZ (МАЗ).

Georgian Days took place in Belarus on August 31-September 3.

EU Commissioner Johannes Hahn Visits Georgia

BY THEA MORRISON

E

uropean Commissioner for Neighborhood Policy and Enlargement Negotiations Johannes Hahn is paying a visit to Georgia this week. Within the framework of the visit, the European School for the Eastern Partnership is to be officially opened in Tbilisi.

The Ministry of Foreign Affairs (MFA) of Georgia notes it will be the first such school to be established outside the EU. The school is for graduate school students from Eastern Partnership countries and offers internationally recognized

European quality educational programs.

After completion, students will receive an International Baccalaureate Diploma of European standards. According to the Georgian Foreign Minister David Zalkalian, the visit of Johannes Hahn to Tbilisi is very important for Georgia as it will further advance the European integration process.

Zalkaliani noted that the opening of the European School in Georgia is the first achieved goal of the goals and objectives that were set at the Eastern Partnership summit in Brussels, in November of 2017, which points to the close and fruitful co-operation between Georgia and the European Union.

“It will be the first such European

School outside the EU, where 16- and 17-year-old students from the Eastern Partnership countries will be awarded European Bachelor's Degree diplomas.

This is yet another step towards achieving closer integration between the EU, Georgia and the Eastern Partnership countries,” he explained.

In addition, the Minister said all important issues relating to co-operation with the European Union will be discussed within the framework of the visit.

Hahn arrives in Georgia on September 3, and on the 4th he will hold bilateral meetings with high-rank officials of Georgia. The European School for the Eastern Partnership will be officially launched on September 4.

NEWS

GEORGIA TODAY SEPTEMBER 4 - 6, 2018

3

Fitch Affirms Georgia at 'BBOutlook Positive' Photo: European Judo Union

Georgians Take Home Judo Gold, Silver in European Cup

BY SAMANTHA GUTHRIE

BY THEA MORRISON

F

itch Ratings Inc., one of the "Big Three credit rating agencies," has labeled Georgia at 'BB-'Outlook Positive.

The agency says so far Georgia's economy has been resilient against recent regional volatility.

“However, escalating negative developments in Turkey and the risk of further US sanctions against Russia represent downside risks to Georgia's economic outlook. Russia and Turkey are Georgia's second- and third-largest trading partners, accounting for 14.5% and 7.9% of total exports in 2017, respectively. Both countries are also important sources of remittances, foreign direct investment (FDI), and tourism revenues,” the agency stated.

According to the agency, estimates from national

statistics (GeoStat) show the economy to have grown 6.0% in real terms year-on-year, above Fitch's expectations.

“Growth was broad-based; led by domestic demand through a strong pick-up in investment activity and robust export growth. Fitch projects real GDP growth to average 4.8% in 2019-2020, compared with 3.5% across 'BB' category sovereigns. Risks are on the downside due to the less favorable external environment,” Fitch assessment reads.

For 2018 and 2019, Fitch is forecasting Georgia's general government fiscal deficit to average 2.6% of GDP, down from 2.9% of GDP in 2017, and in line with the projected median deficit of 'BB' peers.

“Developments in the banking sector remain stable, with the authorities making gradual progress towards meeting structural benchmarks set out under the IMF's EEF to strengthen the sector's financial stability framework, and regulations on capital and liquidity requirements,” the agency reports.

Georgia Chooses Film to Send to the Oscars

BY SAMANTHA GUTHRIE

F

or the 2018 Academy Awards, also known as the Oscars, Georgia has selected the film Namme as its submission to the Best Foreign Language Film category. The selection was made by a jury vote in Tbilisi, beating out five other films.

Apart from Namme, the short list included: Horizon directed by Tinatin Kajrishvili, Khibula directed

by George Ovashvili, Dede directed by Mariam Khatchvani, Ekvtime: Man of God directed by Nikoloz Khomasuridze, and Hamlet directed by Giorgi Megrelishvili.

Writer and director Zaza Khalvashi’s Namme premiered at the Tokyo International Film Festival and made its national debut last year at the Tbilisi International Film Festival. The film follows the story of a young woman, Namme, in a Georgian high mountain village, tasked by her father to guard a healing spring. Conflict arises when a hydro power plant is slated to be built nearby – reflecting the current reality in several of Georgia’s mountain regions. Namme and her father clash when the spring suddenly dries up, and he insists that a sacrifice must be made for the water to return.

The film was a Georgian-Lithuanian co-production.

The trailer, with English subtitles, is available here.

I

n the 2018 Senior European Judo Cup, held in Bratislava, Slovakia over the weekend, the final men’s match in the U90 kg weight category pitted two Georgian judokas against each other. Beka Gviniashvili defeated countryman Avtandil Tchrikishvili; they were awarded gold and silver medals, respectively.

Georgians refer to Gviniashvili as “Tyson,” and the athlete “gave an exciting and convincing performance,” according to the European Judo Union (EJU). Gviniashvili is known for his style and control. During his fights, he “kept his opponents at

bay whilst at the same time he was able to set up his array of scoring techniques.”

Gviniasvhili first beat British judoka James Reid, then Canada’s Mohab El Nahas. Tchrikishvili struggled a big against Russian Roman Dontsov, but came out on top in the end. The final match was close, but Gviniashvili was eventually victorious through a “right sided maki-komi, scoring waza ari.”

The Georgian Judo Federation will soon choose which judoka to send to the World Championships in Baku at the end of the month. The front runners in the U90 kg category were Gviniashvili and Tchrikishvili. After Sunday’s match, Gviniashvili commented that Bratislava was preparation for the World Championships.

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NEWS

GEORGIA TODAY

SEPTEMBER 4 - 6, 2018

Japan to Allocate $343 Million for Georgia’s Rikoti Highway

BY THEA MORRISON

C

onstruction of the 14 kilometer-long Shorapani-Argveta section of Georgia's Rikoti highway in the west of the country is to be financed by Japan with $343 million.

The relevant agreement will be signed during the visit of the Minister of Foreign Affairs of Japan Taro Kono to Tbilisi.

The Japanese Foreign Minister will

hold meetings with the President of Georgia, Prime Minister and Minister of Foreign Affairs.

Minister Cono is also expected to honor the memory of the heroes who died for the unity of Georgia.

“In accordance with this agreement, the Japanese government will allocate 38.735,000,000 Japanese Yen ($343 million) for Japan's International Cooperation Agency (JICA) to construct the 14.7 km long Shorapani-Argveta section of the highway,” Georgia’s Foreign Ministry reports.

Photo source: 1TV

Bakhtadze Prioritizes Transforming Racha into Tourist Paradise increased investment to improve infrastructure and support local businesses, including guest houses.

Bakhtadze visited a market, organized as part of the day’s event, that had many ‘Produce in Georgia’ products on display. "It brings us great joy that these programs resulted in an excellent outcome in Ambrolauri,” he praised.

Another major plan to develop Racha’s tourist potential is the plan to expand the small airport in Ambrolauri. “21 infrastructure projects are being implemented, out of which 18 are close to completion. It is essential to maintain momentum in the construction and rehabilitation of rural roads,” the Prime Minister said confirmed.

BY SAMANTHA GUTHRIE

P

rime Minister Mamuka Bakhtadze visited the northern region of Racha and spoke to the public at a Mariamoba event last week in Ambrolauri. He announced his desire to transform the region into a major tourist destination with year-round appeal.

“Our aim is to turn Racha into a fourseason destination,” said Bakhtadze, “Our goal should be to at least triple the number of tourists and visitors in this region of the country.” He pledged

Photo: Sputnik Georgia

He explained that currently, only 10-15% of the full potential of this "beautiful region” is being tapped. “The next stage will of course involve the rehabilitation and development of very important tourism sites in Shovi and other destinations” said Bakhtadze.

Bakhtadze also announced plans to construct a new football stadium in Ambrolauri, the administrative capital of Racha, that meets FIFA standards.

The stadium will have artificial turf and seating for 500 fans. The 1.5 million GEL stadium is scheduled to open in 2019.

The Prime Minister mentioned that other sporting facilities are also in the works for 2019 and 2020, but did not give further details.

Khulo Fest Celebrates Local Production in Mountainous Adjara Continued from page 1 The EU supports rural development in Georgia through its ENPARD program.

Aiming to reduce rural poverty, ENPARD has been implemented since 2013, with a total budget of €179.5 million. The first phase of ENPARD focused on developing national agriculture potential, while the second and third phases focus on creating economic opportunities for the rural population that go beyond agricultural activities. Khulo Fest was organized in the framework of the EU funded project “Promotion of Rural Development

ties for small farmers, and improving employment and living conditions in rural areas. Major projects supported

by ENPARD include developing the Strategy of Agricultural Development in Georgia 2015-2020, training over 400 Ministry of Agriculture employees, the adoption of the Law of Georgia on Agricultural Cooperatives, establishing 59 consultation and information centers throughout the country, developing the Rural Development Strategy of Georgia 2017-2020 and Action Plans for 2017 and 2018-2020, and forming LAGs in various municipalities.

and Diversification in Khulo Municipality” implemented by Caritas Czech Republic in Georgia (CCRG) in partnership with Croatian non-governmental organization HMRR and PMC Research Center, under the European Neighborhood Program for Agriculture and Rural Development (ENPARD).

ENPARD conducts several rural development projects in Georgia. Its projects aim at four main target areas – improving the efficiency of institutions involved in agriculture, strengthening cooperation amongst small farmers, improving access to capacity building opportuni-

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6

BUSINESS

GEORGIA TODAY

SEPTEMBER 4 - 6, 2018

Georgia: The New Blockchain Giant

BY SHAWN WAYNE

I

n today’s global cryptocurrency mining industry, China’s Bitcoin network computing power takes the lead, easily accounting for half the total. However, with cryptocurrency mining gradually attracting the attention of other countries, China is starting to face challenges from international forces. Nonetheless, as the mining competition gets fiercer, the future direction of cryptocurrency mining becomes more uncertain, resulting in the following question: Where is the next breakthrough in global mining development?

All the answers are expected to be announced by the top experts of the cryptocurrency mining industry in Tbilisi. That, in itself, might be an answer already.

Emercoin announced in early August the successful implementation of its open-source “Trusted Diploma” blockchain platform by the Tbilisi Business & Technology University (BTU). As blockchain grows beyond conventional financial technology (fintech), to empower other industries with new levels of security and immutability, the unique collaboration between Emercoin and BTU marks a new phase in the technology’s expansion. Emercoin is a blockchain platform opened in 2013 and used by companies such as Coca-Cola and Microsoft. Currently in use by BTU, the “Trusted Diploma” platform uses blockchain to provide the education sector with verifiable diplomas and other certificates on an encrypted and secure app. The app ensures that the competencies of all graduates are easily and clearly verified.

The collaboration of the education sector and a cryptocurrency company aims to help schools, businesses, and graduates validate the online accuracy and authenticity of education credentials. This ground-breaking blockchain system enables administrators to store and share verifiable diplomas and other education certificates on an encrypted and secure app.

“Much like the little check mark on Twitter or Facebook profiles, companies like LinkedIn or Indeed.com could use this to validate the data represented on profiles, ensuring that data is tamperproof and accurate,” said Emercoin advisor Bill Tai. Emercoin and BTU are addressing a complicated social issue together, in both developed and developing countries. Due to widespread corruption and manipulation, online displays of education credentials are increasingly viewed as unreliable.

Some graduates also face difficulty obtaining their records from colleges or school systems that have closed or otherwise refuse to recognize their legitimate credentials. This problem was cited as a global crisis in a 2016 report to UNESCO and the Council for Higher Education Accreditation.

Through secure, distributed blockchain services, Emercoin has managed to come up with a solution to this problem which graduates and companies suffer from.

“Trusted Diploma will help us combat growing levels of manipulation and corruption and ensure that the education credentials we see online are valid,” said Kostiantyn Bigus, Emercoin Managing Partner. “We urge everyone to join our effort, which will improve professional services and protect people from dangerous fraud in the health care, legal, real estate, and other sectors.”

The BTU, which opened in 2016, offers students innovative new approaches to learning, and by partnering with Emercoin, they made this platform possible and simultaneously boosted the blockchain industry in Tbilisi.

“We are very happy to work with the innovative Emercoin team on this crucially important project.

The Trusted Diploma platform will help our school build a secure and immutable database of education certificates, which will help our graduates as they pursue successful careers,” said Mikheil Batiashvili, the BTU university rector and Minister of Education, Science, Culture and Sports of Georgia.

Tourism and wine have been shaping Georgia of late, as it will going forward. And yet, the country has been noticed for more than just its beauty and culture, which is why the 2018 World Digital Mining Summit will be held in Tbilisi, taking place September 21 - 23. This summit has invited over a 100 top experts from more than 30 countries, including blockchain giant China, the United States, the United Kingdom and others from Europe. The biggest leaders of the global mining industry will gather to explore the development of cryptocurrency mining, including both the challenges and opportunities in the industry.

This summit is proof of the growth Georgia has experienced as it becomes a regional leader in the use of blockchain technology. The world’s first cryptocurrency terminal was born in Tbilisi and after this summit, many people will be considering Tbilisi as the next possible blockchain giant in the years to come. Many people will also be staying in Tbilisi after the summit to attend the NEO Hackathon+, taking place a few days later, from September 28-30.

Spotcoin announced that it has partnered with the Georgian American University (GAU) and GEOLAB to focus on blockchain projects in the public sector, as well as the Georgian National Agency for Public Registry (NAPR) and Georgia’s Innovation and Technology Agency (GITA).

NAPR is seeking potential blockchain technology solutions to streamline government with a focus on real estate transactions. The potential streamlined solutions need to address financial concerns, reduce wrongful manipulation/fraud, and increase trust in the process. NEO Hackathon+ will explore solutions to provide NAPR with process automation that uses blockchain hashing and timestamping.

Focus on Georgia is constant, with current issues regarding territory disputes, NATO membership, tourism and investment; however, September is going to mark a new focus point in Georgia; the potential of its becoming a new blockchain giant.

BUSINESS

GEORGIA TODAY SEPTEMBER 4 - 6, 2018

Photo source: thecheaperinsurance.com

Profit of Insurance Companies in Georgia Doubled in Q2 2018

BY THEA MORRISON

T

he Insurance Supervision Service reports that in Quarter 2, 2018, the net profit of insurance companies operating in Georgia doubled and amounted to GEL 16,34 million, while in Q1 2018 it was GEL 7,57 million.

Increase in net profit was also observed throughout the year, with the data of Q2 2018 exceeding the data of the same period of 2017 by GEL 13,91 million.

In the first six months of 2018, the amount of bonuses attracted by the sector, assets and equity of insurance companies also increased.

Insurance bonuses attracted by insurance companies in Q2 2018 amounted to GEL 295.28 million from direct insurance activities. In Q1 2018, it was GEL 164,39 million.

According to Q2 data, the assets of insurance companies are GEL 699,37 million and their equity

is GEL 180,69 million.

In January-June, the companies attracted most insurance bonuses from medical insurance.

Land transport insurance (GEL 45,36 million), property insurance (GEL 41,16 million), life insurance (GEL 19,01 million) and civil liability insurance (GEL 12,86 mln) were also among the top five insurance packages picked by customers.

In addition, according to the official data of the Insurance Supervision Service, in Q2 2018, 5.9% of the registered vehicles in the country were insured, while in Q1, 5.5% of vehicles were insured.

Specifically, in Q2, 76,207 policies were issued for land transport insurance (except for railway transport), which is 16,439 policies more than those issued in the same period of 2017.

Only 14,9% of the Georgian population uses health insurance; however, the number of policies has increased by 12,741 in a year. In particular, in Q2 2018, 554,338 policies of medical insurance were issued in the country. In the same quarter of 2017, 541,597 health policies were issued and 535,809 in Q2 2016.

Ukrainian Factory Wins Tender for Supply of Buses for Batumi

BY DIMITRI DOLABERIDZE

B

y the end of 2018, JSC "Cherkasy Bus" will supply 40 city low-floor buses (A092N6) to the Adjaran municipality of Batumi, having won a tender to do so, reports Interfax-Ukraine with reference to the message of the Mayor of Batumi.

The first 15 buses of Isuzu Ataman have already been delivered and presented and will be appearing on the streets of the city from this week. The remainder will be delivered by the end of the year.

The buses, based on Japanese ISUZU units, are designed for 60 people, and come equipped with a GPS system, air-conditioning and are adapted for people with disabilities.

According to the report, the purchase of buses is financed by the European Bank for Development and Reconstruction with low interest rates.

The cost of the contract was not disclosed, but according to media reports, in the summer of 2017, the government of Georgia and the EBRD agreed to provide a loan of €5.5 million to finance the renovation of the bus fleet in Batumi, which in 2019

also plans to purchase city electric buses.

Cherkasy Bus was, until 2011, part of the corporation Bogdan, which in late 2008 won a tender for the delivery of 83 city buses of small class Bogdan A092 to Batumi. That year, 190 buses were delivered to Georgia, including 40 buses A092 and 150 buses of the middle class.

In 2011, Zeta's closed-end venture investment fund, managed by Assy Life Asset Management (Easy Life, Kyiv), became the new owner of the factory, and the company registered the trade mark of the bus - Ataman.

According to the association "Ukrautoprom", in January-July of this year, the plant produced 250 buses - 35% more than in the same period of 2017 (total in Ukraine for seven months 461 buses produced).

Uzbekistan Interested in Cargo Transportation by "Baku-Tbilisi-Kars" Railroad

BY DIMITRI DOLABERIDZE

U

zbekistan is interested in actively using and increasing the volume of transportation of its foreign trade cargoes via the Baku-Tbilisi-Kars (BTC) railroad, Uzbek Ambassador to Azerbaijan Sherzod Fayziyev told Trend.

“The wide use of the Transcaucasian transport corridor for the transportation of increasing volumes of export-import cargoes meets the interests of our

states,” he said. “The BTC railway corridor introduced in October 2017, as well as the creation of infrastructure at the Baku International Sea Trade Port under construction in the Alat settlement, will realize the huge transit, transport and communication potential of our countries and regions.”

“In turn, we hope that Azerbaijan is also interested in using the potential of Uzbekistan, located in the heart of Central Asia and having enormous economic and strategic capabilities. The Free Economic Zone of Navoi also creates a good basis for deepening cooperation in the transport and communication sphere,” Fayziyev noted.

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BUSINESS

GEORGIA TODAY

SEPTEMBER 4 - 6, 2018

Huawei Overtakes Apple in Number of Smartphones Sold ADVERTORIAL

T

he International Data Corporation (IDC) published the business success of the first half of 2018, according to which HUAWEI’s global supply of smartphones has grown significantly to more than 95 million.

According to IDC data, HUAWEI has overtaken Apple in the number of smartphones sold in the second quarter and has achieved second position. In the past three months, HUAWEI has sold 54.2 million smartphones, which accounts for 15.8% of the company's market share. As for Apple's AprilJune period, the smartphones sold amounted to 41.3 million.

According to the report, Samsung takes first place with an amount of 71.5 million smartphones sold, taking up 20.9% of the market share. "The growth of HUAWEI's market share is impressive and highlights its desire to make a place for itself in the markets where the brand is not so well known,” said IDC Program Vice President Ryan Reight. “Samsung, Huawei and Apple are considered to be competitors, which in my opinion, will not change.”

“The last six months have been successful for HUAWEI CBG, with growth of business observed in every market. The main reason for our success is the company's dedication to innovation and most importantly, the loyalty of our consumers. HUAWEI's focus is on improving the products,” said Richard Yoo, Executive Director of HUAWEI's consumer business group.

HUAWEI products and services are available in more than 170 countries and are used by a third of the world's population.

According to 2015 data, the smartphone market is the third largest in the world. 16 Research and Development Centers operate in the US, Germany, Sweden, Russia, India and China. HUAWEI Consumer BG is one of the three business units in Huawei, one of the main destinations for smartphones, personal computers, tablets and smart services. HUAWEI's global network is based on 20 years’ experience in telecommunications and produces innovative technologies for consumers worldwide.

Russia Copes with US Sanctions by Buying Gold the Russian central bank bought 29 additional tons of gold.

Previously, the central bank increased its gold reserve by 20 tons in May, and 17 tons in June. All in all, compared to January 2016, the holding increased by 37%.

Russia has been dealing with economic sanctions since 2015, related to

Image source: Andrzej Barabasz

BY ANTOINE DEWAEST

T

he Russian Federation plans to overcome the new US sanctions by increasing its holding of gold.

According to official data,

its support of Ukrainian separatists and the Crimea annexation. Recently, new pressures were raised by the United States which put tariffs on imports of steel and aluminum from Russia. The value of the Russian Ruble plummeted from 55 per dollar (€48) in February to 70 (€60) after the US announced the new sanctions.

The Russian central bank sold 84% of its ownership of US government debt. Now, it only represents 17% of the central bank’s reserves. According to Russia’s Finance Minister, Anton Siluanov, Russia will keep on this momentum in response to the sanctions. “In fact, the dollar, which is considered to be the international currency,

is becoming a risky tool for payments," Siluanov noted.

This dual strategy is aimed at insulating the Russian economy, in particular from the dollar value.

Russia is one of the largest gold holding countries, just before China, according to the World Gold Council. The USA remains the largest.

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BUSINESS

GEORGIA TODAY

SEPTEMBER 4 - 6, 2018

€45 Million EU Macro-Financial Assistance Package Finalized

BY SAMANTHA GUTHRIE

O

n Friday, the European Union concluded the €45 million macro-financial assistance (MFA) package that was first offered to Georgia in April of this year. Georgia and the EU have now signed a Memorandum of Understanding for the package, which is designed to help Georgia meet part of its external financing needs and support internal structural reforms.

A press release from the Delegation of the European Union to Georgia explained the rationale of the agreement, saying that although the country “has made significant progress,” Georgia still faces regional risks to its economic health and stability, likely referring to Russian aggression, and risks posed by “its own economic imbalances.”

“Georgia has shown strong and lasting commitment to economic reform, which the EU has consistently supported and fostered,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs. “This agreement includes policy measures that will help make the Georgian economy more resilient, with stronger and more inclusive growth for the benefit of its citizens.”

MFA is a crisis response instrument available to countries in the EU neighborhood, and is designed to comple-

ment International Monetary Fund (IMF) assistance programs. Georgia has previously received two MFA packages since the 2008 Georgia-Russia War, each worth €46 million, disbursed between 2009 and 2017. The third MFA package was proposed in September 2017, and adopted by the European Parliament and the Council in April 2018.

Representatives of the IMF completed their most recent visit last week, praising Georgia’s commitment to economic reform and revising GDP growth predictions upward to 5.5% for 2018.

The funding is divided into two portions – €10 million in grant money, and €35 million in medium-term loans, with unspecified “favorable financing conditions.” It will be distributed in two tranches. Georgia’s first EU MFA package was 100% grant based, and the second was 50% grants and 50% medium-term loans.

Disbursements of funds will be conditional, tied to Georgia’s continued adherence to its IMF program and the implementation of specific policies jointly agreed on by Georgia and the EU, enumerated in the Memorandum of Understanding. Disbursements are also dependent on Georgia’s continued respect of “effective democratic mechanisms, including a multi-party parliamentary system, the rule of law, and guaranteeing the respect for human rights.”

The EU aims to help Georgia lay the groundwork for sustainable and inclu-

Photo: European Union

sive economic growth – a key priority of both Georgia and the EU – by supporting the government reform agenda.

The policy conditions outlined in the Memorandum of Understanding build on Georgia’s EU Association Agreement, elaborating from existing government reform plans. Their goal is “to strengthen the Georgian economy in the areas of public finance manage-

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ment, the financial sector, social and labor market policies, and the business environment.”

The Parliament of Georgia is expected to ratify the Memorandum of Understanding in the coming weeks.

Responding to the most recent economic projections, Deputy Minister of Economy and Sustainable Develop Ekaterine Mikabadze emphasized the

importance of Georgia's economic growth being sustainable and resilient to the complicated economic situation in the region.

“The reforms carried out by the government are due to the reduction of external vulnerability and higher inclusive growth in the country, which is the basis for the sustainable economic growth of Georgia,” said Mikabadze.

BUSINESS

GEORGIA TODAY SEPTEMBER 4 - 6, 2018

PLAN Marines of the 1st Marine Brigade and members of the USMC fire the Type 95 Assault Rifle during an exchange exercise. By Lance Cpl. Jeremy J. Harper

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China's Grand Strategy

BY EMIL AVDALIANI

T

he first goal of all successive Chinese dynasties throughout the centuries was to gain and maintain control of the heartland (Han), the core of which consists of major Chinese rivers, is abundant with productive lands and is full of people. A further logical step is maintenance of influence over the buffer zones which surround the Han core and consist of mountainous regions to the west, desert lands to the north-west and impregnable forests to the south. The third major imperative was historically to protect China’s coastline from foreign powers. However, since this threat was quite rare in the ancient and medieval periods of Chinese history, the country did not see any need to develop powerful naval capabilities. The Yangtze and Yellow rivers, with surrounding fertile lands, produced enough to feed large numbers of population living in the Han core and as such, in an age without transcontinental trade routes and the only way to connect with the Middle East and Europe being the famous Silk Road, the geographic boundaries (mountains, jungles, deserts and the sea) from all sides made China essentially a closed country with self-sufficient economic means.

In other words, where previously China’s insularity was a geopolitical advantage rather than a significant constraint, from the late 20th century this was no longer the case. With international trade routes and various supply chains, China has to be open and, in many cases, rely upon raw materials brought from abroad via sea routes. Thence comes China’s fourth geopolitical imperative: protection of international trade lines and resource hubs. This will only be viable through two options: finding alternative land routes such as One Belt, One Road or by building a powerful military fleet capable of securing various resources and global supply chains across the Asia Pacific and elsewhere.

Building a powerful navy will mean collusion with the United States, whose world primacy rests upon domination of sea lines and relevant security alliances in Europe and Asia-Pacific. Any diminution of the US sea power will have a direct impact on the world order, considering the importance which Washington attaches to developments in foreign powers’ naval capabilities. Chinese naval technology may still be substantially behind current US capabilities. Indeed, the US has 11 aircraft carriers, while the Chinese only one (which still lacks an aircraft wing capable of operating off a carrier deck).

However, the trends indicate that China has been making significant progress in the last several decades, as the country is rapidly developing new destroyers, amphibs, stealth fighters and long-range weapons. This could potentially expand expeditionary military operations around the globe.

China continues to construct an array of offensive and defensive capabilities to enable the PLA to gain maritime superiority within the first island chain in Asia pacific. Those are the islands which

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run from the Kurils, through Taiwan, to Borneo, roughly encompassing the Yellow Sea, East China Sea, and South China Sea. China’s broad range of anti-ship cruise missiles (ASCMs) and launch platforms, as well as submarine launched torpedoes and naval mines, allow the People’s Liberation Army Navy (PLAN) to create a lethal threat against enemies approaching Chinese waters and operating areas.

The PLAN continues to develop into a global force, gradually extending its operational reach beyond East Asia and the Indo-Pacific into a sustained ability to operate at increasingly longer ranges. The PLAN’s latest naval platforms enable combat operations beyond the reach of China’s land-based defenses.

Furthermore, the PLAN now has a sizable force of high-capability logistical replenishment ships to support long-distance, long-duration deployments, including two new ships being built specifically to support aircraft carrier operations. The expansion of naval operations beyond China’s immediate region will also facilitate non-war uses of military force.

The PLAN’s force structure continues to evolve, incorporating more platforms with the versatility for both offshore and long-distance power projection. China is engaged in series production of the LUYANG III-class DDG, the JIANGKAI II-class FFG, and the JIANGDAO-class FFL. Even on the aircraft level, despite its numerical weaknesses, China continues to learn lessons from operating its only Ukraine-produced aircraft carrier, Liaoning. The Chinese first domestically produced aircraft carrier, launched in 2017, will be commissioned in 2019 (according to various sources this will be a multi-carrier force). China’s next generation of carriers will probably have greater endurance and be capable of launching more varied types of fixed-wing aircraft than Liaoning. There also comes PLAN Aviation’s progress on improving capabilities to conduct offensive and defensive offshore operations such as strike, air and missile defense, strategic mobility, and early warning and reconnaissance missions.

Overall, for the moment, the PLAN’s ability to perform missions beyond the first island chain is modest. What is important here is that the PLAN’s ability is constantly growing as it gains more experience operating in distant waters and acquires larger and more advanced technologies. The US will remain a dominant force in the coming decades, but Chinese successes cannot be underestimated.

Chinese naval successes, reflected in the recent congressional report, add to growing American fears that China might become a global competitor. Indeed, from the US perspective, what the Chinese are doing in Eurasia through its pivotal One Belt, One Road initiative, and various moves to influence Tajikistan, Afghanistan and Pakistan, is geopolitically important. From the US perspective, the Chinese are doing exactly what the Americans have been opposed to – solidifying one-country rule in Eurasia.

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