Issue #918 Business

facebook.com/ georgiatoday

Issue no: 918/64

• FEBRUARY 7 - 9, 2017

• PUBLISHED TWICE WEEKLY

FOCUS ON MAKING FAILURE AFFORDABLE The economic costs of an ineffective insolvency framework are substantial. Georgia needs PAGE to make changes now

4,5

PRICE: GEL 2.50

In this week’s issue...

Georgian Rail Transit is Declining PAGE 5

National Statistics Office Reports January Inflation Rate PAGE 6

RETAIL FPI | Meat Prices on the Up: Partying after Fasting?!

PAGE 8

The Shahin Friendship School Facing Closure - Political Influence?

Gas DiplomacyGazprom Brings in Uzbekistan, but Risks Losing Europe PAGE 9

BY VAKHTANG MAISAIA

A

s the whole nation celebrated the visa liberalization nod from Brussels on February 3, a rather peculiar, conveniently-timed nay slipped under most people’s radar.

The R. Shahin Friendship School in Batumi, among the most in-demand schools in the whole country, was denied authorization (meaning suspension if the decision is enforced) by the General Educational Authorization Council of Georgia of the National Center for Educational Quality Enhancement.

The decision is being questioned and protested by most parents and school authorities, and allegations are ripe that it was politically motivated.

Continued on page 2

European Union Supports Study Trips on Best Practices in Rural Development PAGE 10

OSCE Chair, Austrian Federal Minister Visits Georgia PAGE 11 Prepared for Georgia Today Business by

Markets As of 03ͲFebͲ2017

STOCKS Bank of Georgia (BGEO LN) GHG (GHG LN) TBC Bank Group (TBCG LN)

COMMODITIES Crude Oil, Brent (US$/bbl) Gold Spot (US$/OZ)

INDICES

Price

w/w

m/m

w/w

m/m

GBP 30.07

+4,1%

+1,7%

GEOROG 04/21

105.56 (YTM 5.26%)

+0,1%

+0,6%

GBP 3.5075

+2,1%

Ͳ1,2%

GEORG 04/21

BONDS

111.05 (YTM 3.98%)

Price

+0,1%

+1,1%

GBP 14.5

Ͳ3,3%

+0,7%

GRAIL 07/22

109.50 (YTM 5.69%)

+0,1%

+2,2%

BGEOLN 07/23

101.50 (YTM 5.72%)

Ͳ0,1%

+0,9%

Price

w/w

m/m

56,81

+2,3%

+2,4%

CURRENCIES

Price

w/w

m/m

1 220,30

+2,4%

+5,3%

GEL / USD

2,6800

Ͳ0,6%

+0,9%

GEL / EUR

2,8726

Ͳ0,5%

+4,5%

Price

w/w

m/m

GEL / GBP

3,3425

Ͳ1,2%

+2,7%

FTSE 100

7 188,30

+0,1%

+0,1%

GEL / CHF

2,6987

+0,1%

+4,4%

FTSE 250

18 411,67

+1,2%

+1,5%

GEL / RUB

0,0454

+0,9%

+4,1%

DAX

11 651,49

Ͳ1,4%

+0,6%

GEL / TRY

0,7251

+4,1%

Ͳ1,9%

DOW JONES

20 071,46

Ͳ0,1%

+1,0%

GEL / AZN

1,3843

Ͳ0,4%

Ͳ6,1%

5 666,77

+0,1%

+4,4%

GEL / AMD

0,0055

Ͳ

Ͳ

NASDAQ MSCI EM EE

152,22

Ͳ0,6%

+1,3%

GEL / UAH

0,0985

Ͳ0,6%

+0,5%

MSCI EM

918,87

+0,3%

+5,8%

EUR / USD

0,9272

Ͳ0,8%

Ͳ3,5%

SP 500

2 297,42

+0,1%

+1,8%

GBP / USD

0,8011

+0,6%

Ͳ2,0%

MICEX

2 226,61

Ͳ1,7%

Ͳ2,6%

CHF / USD

0,9930

Ͳ0,6%

MSCI FM

2 583,23

+0,0%

+6,1%

RUB / USD

59,0027

Ͳ1,5%

Ͳ3,1%

GT Index (GEL)

1 177,93

Ͳ

+0,1%

TRY / USD

3,6969

Ͳ4,5%

+2,9%

GT Index (USD)

860,97

Ͳ

Ͳ2,0%

AZN / USD

1,9367

Ͳ0,2%

+7,4%

Ͳ3,3%

2

NEWS

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

The Shahin Friendship School Facing Closure - Political Influence?

Continued from page 1 Fingers are pointed at Turkey, as President Erdogan’s government, which barely survived a coup attempt, is increasing political pressure on the countries where his arch-rival, Fethullah Gulen, still maintains a foothold. Georgia is an eligible candidate as such a country, as it hosts several educational facilities with alleged links to Gulen’s Hizmet movement and their educational network called Çaglar.

The Shahin Friendship School is undoubtedly perceived as one such facility by Turkish leadership, well demonstrated by the outright hostile statement by the Turkish consul in Batumi, two days after the attempted coup, calling for the Georgian government to close down facilities “belonging to Gulen’s educational network”, where, as he

claimed, children are being raised as terrorists.

The Turkish Embassy’s diplomatic attempt to defuse the situation by claiming that it was a journalistic misunderstanding did little to alleviate the apparent confusion, as the journalist in question released the original version of the recording. Shortly after, Prime Minister Kvirikashvili paid Ankara and the Turkish President an official visit, with general consensus among experts and opinion-makers alike that “revision” of Gulen-linked facilities would be a major talking point between the two sides.

With Georgia being a sovereign country, an incident of perceived foreign pressure (albeit nothing new) is an alarming development, especially considering that as recently as September 2015, the

IFC to Expand Activities in Georgia

BY NINO GUGUNISHVILI

T

he International Financial Corporation (IFC) is interested in expanding its activities in Georgia, Tomasz Telma, IFC Europe and Central Asia Director, announced in a meeting with Georgian Prime Minister Giorgi Kvirikashvili in Tbilisi last week.

Telma emphasized the possibility of cooperation in the economy, energy, infrastructure and financial spheres, noting the large investment potential Georgia has, well reflected in the Doing Business report produced by the World Bank.

PM Kvirikashvili in turn introduced the governmental reform plans aimed at economic growth, macro-economic stability and business stimulation, and

stressed the importance of IFC involvement in such public private partnership (PPP) both through their investment and technical consultancy activities.

Telma also told press representatives of the IFC’s interest in developing the Georgian agricultural sector, in partnership with the World Bank, particularly in terms of improving product exportability. He also said they are investing more in the hospitality sector, as a business with clear prospects for growth, the healthcare sphere and in making Georgia more energy self-sufficient.

A member of the World Bank Group, IFC is one of the largest International financial institutions, assisting private sector development in Georgia for the last twenty years through investment and consultancy services.

Please see IFC-related articles on georgiatoday.ge (Search IFC).

very same National Center for Educational Quality Enhancement found no fault on their monitoring mission to the Shahin Friendship School and had no qualms about granting it authorization, a status which, as GEORGIA TODAY has come to know from third sources, is now subject to dispute due to its “inherent illegality and lack of necessary documentation.”

However, far more pressing is another question – Is the Shahin Friendship School, as the Turkish government seems to think, a breeding ground for terrorism, or, for that matter, “a tool for Turkization” (another allegation hurled at the school by those trying to justify its suspension)?

If the overwhelming majority of parents and school officials are to be believed, it is neither. The teaching program in the school is in full compliance with Georgia’s national education program, while 95 percent of the school’s pupils are Georgian, and Turkish isn’t even a mandatory language, while Western languages such as English, German and French are taught at higher intensity.

“My children go that school and my wife is a certified teacher,” one parent told GEORGIA TODAY. “She teaches TOEFL courses there; it’s one of the very few schools in Georgia that offers such advanced teaching. For eight years, we haven’t heard a single complaint registered by a parent. Unlike most schools, private or public, this one actually guarantees both safety and a good education, and closing it down is going to bring only harm.”

And that raising terrorists issue? Well, so far, there are none. Oh, wait – The private Demirel College, also linked to the Çaglar network and which experienced authorization struggles of its own last summer, has, among others, one notable alumni: Georgia’s biggest export to NBA and world basketball in general – Zaza Pachulia. So far, he hasn’t exhibited any large-scale violent behavior (that is, apart from on the court where he frequently scares the living hell out of his opponents) or any signs of being “Turkicized”. Go figure.

Education, Culture and Sports Minister of Adjara, Inga Shamilishvili has already said that the students of Shahin School will be transferred to other educational institutions.

“We will wait for the final decision of the General Educational Authorization Council of Georgia and after this will discuss the issue with the Education Ministry of Georgia,” he said.

Georgia’s Public Defender, Ucha Nanuashvili, also commented on the issue, saying the decision of the National Center for Educational Quality Enhancement should be well-grounded before action is taken.

“Developments in our neighboring country should not affect Georgian edu-

cational institutions,” Nanuashvili added.

While NGO Tolerance and Diversity Institute has its eyes and ears on the case, the protesting parents wait for the final verdict. The school administration has already voiced its intention to take the case to court if the decision remains enforced. They have also issued an open

letter (See page 8).

As for Georgia’s Ministry of Education, at present it seems far too occupied tackling the challenges posed by fairytale heroes to comment on the above controversial decisions.

R. Shahin was the former Minister of Agriculture of Turkey, of Georgian ancestry.

4

BUSINESS

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

Failure is Always an Option! Or is it?

BY SOPHIKO SKHIRTLADZE, IRAKLI SHALIKASHVILI

T

Source: World Bank Doing Business Publications

Recovery Rate

39.5 38.2

(high income)

Resolving Insolvency Indicators

OECD

which lend in cash or in-kind, when debtors for whatever reason are unable to meet their obligations. Evidence illustrating a positive correlation between the strength of a country’s insolvency framework and economic outcomes is abundant, but an optimal insolvency framework depends on the legal background and other specificities of the country. 2016 Nobel prize laureate in Economics, Oliver Hart, recognized for his contribution to contract theory, argues that while there are no onesize-fits all insolvency laws, there are general principles that every law should satisfy. He identifies three specific goals the law should try to accomplish.

Goal 1. Ceteris Paribus, a good insolvency procedure should deliver an ex-post efficient outcome.

In other words, the efficient outcome of an insolvency procedure is achieved when viable firms reorganize, while unviable firms exit the market.

High recovery rates for creditors and low costs in terms of financial and time expenses of insolvency proceedings are also important. High insolvency costs discourage liquidation of inefficient firms and diverting freed-up resources into a productive use. Letting ailing firms exit increases the robustness of the economy, benefiting the whole society.

Goal 2. A good insolvency procedure should preserve the bonding role of debt by penalizing managers and shareholders adequately in insolvency states.

Insolvency regime is a tool to achieve financial discipline. Lenient insolvency procedures increase the risk of investors in case things go awry. Therefore, only high-risk investors will be willing to invest in countries with weak insolvency regimes.

Lower downside risks would encourage a higher variety of investors to engage in entrepreneurial activities, and therefore stimulate the economy.

According to the International Monetary Fund’s Orderly and Effective Insolvency Procedures Guidelines, the degree to which insolvency law is per-

ECA

ily lags behind on international indicators assessing the insolvency framework in the country, e.g.

Georgia is currently ranked 106th on the Doing Business Resolving Insolvency indicator, behind Niger, Mongolia, and Uzbekistan. Often-cited changes in methodology have nothing to do with the fact that the insolvency law in Georgia is manifestly bad, and despite continued promises from policy-makers, there are no signs of recovery.

Insolvency law guides the relationship between debtors, such as entrepreneurs and shareholders, and creditors, such as banks and other institutions

Georgia

he type of failure we’re talking about is like how frogs lay 20,000 eggs so a few wind up as adults sitting on a lily pad sucking down mosquito dinners - is how the author of the recent Newsweek article describes the rate of failure it takes to breed a handful of unicorns-tech startups valued at more than $1 billion. Failure has increasingly become a chapter in success stories; stories which inspire a new generation of entrepreneurs to try, fail, try again, and succeed.

Economics, as we have come to know it, is about efficient allocation of resources. Resources move in a Schumpeterian destructive fashion to create innovative products and services to keep up with the appetite and sentiments of the market. The regulatory environment has a mandate to smooth the process by ensuring fast entry and fast exit of resources, so when the legal system becomes a stumbling block in the process, there is no one to blame but the institutional architects.

While it virtually takes less than a week to establish a business in Georgia, it might take several wasteful years to exit and free up the resources for a fresh start. Despite its reputation as leading reformer in the region and beyond, Georgia stead-

73

Time (Years)

2

2.2

1.7

Cost (% of estate)

10

13.1

9.1

Outcome (0 as piecemeal sale and 1 as going concern)

0

0

1

Strength of insolvency framework index (0-16)

6

9.9

12.1

Commencement of Proceedings Index (0-3)

1.5

-

-

Management of Debtor's Assets Index (0-6)

3.5

-

-

Reorganization Proceedings Index (0-3)

0

-

-

Creditor Participation Index (0-4)

1

-

-

Component indices

Source: World Bank Doing Business 2017

ceived as pro-creditor or pro-debtor is irrelevant.

What matters is the extent to which these rules are effectively implemented by a strong institutional infrastructure. A pro-debtor law that is applied effectively and consistently will generate greater confidence in financial markets than an unpredictable pro-creditor law.

Goal 3. A good insolvency procedure should preserve the absolute priority of claims, except that some portion of value should possibly be reserved for shareholders.

Reserving a portion of value for shareholders decreases the incentives for high risk-taking on behalf of shareholders in order to avoid insolvency or delay an insolvency filing.

Congruent with these general principles, the Doing Business Resolving Insolvency indicator evaluates insolvency regimes around the world in terms of their ability to secure the most efficient outcomes. Georgia’s performance is comparable to the Europe and Central Asia (ECA) region (excluding OECD high income countries) on indicators such as: the recovery rate, which measures how many cents were collected out of the dollar by secured creditors from an insolvent firm at the end of the insolvency proceedings; time needed for creditors to recover their credit, recorded in calendar years; and, the cost of the proceedings, recorded as a percentage of the value of the debtor’s estate. The outcome of an insolvency proceeding is most likely to be a piecemeal sale, rather than sale as a going concern, which adversely affects the recovery rate.

The gap in performance is pronounced when it comes to the Strength of Insolvency Framework Index. In all sub-indices, Georgia’s insolvency regime scores remarkably low, particularly so for the Reorganization Proceeding Index, indicating its minimal compliance with internationally accepted practices for reorganization and restructuring, and for the Creditor Participation Index, indicating limited participation of creditors in insolvency proceedings.

Assessments of other direct and indirect stakeholders are consistent with the Doing Business ratings. According to the assessment report produced by USAID project, “Governing for Growth (G4G) in Georgia,” the current “law adversely affects the rights of senior secured creditors, largely ignores the rights of unsecured creditors, and does not provide a flexible enough framework for “rehabilitation” to be a useful strategy for either debtors and creditors.” The German Economic Team assessment identifies two key aspects in which the Georgian framework fails to conform to international best practices. The first key aspect is that its main focus is on liquidation of insolvent companies, rather than on rehabilitation. The second aspect concerns the limited institutional capacity to manage insolvency cases, such as an absence of an established profession of private insolvency office holders (temporary management while the company is engaged in insolvency proceedings).

Observing the overall regulatory performance of Georgia in the recent years, it is difficult to explain what has taken us so long to develop in this particular area and bring it up to international standards. The chart below could offer a hint to solving this puzzle. The dots of the chart illustrate the average distance to frontier (DTF) scores for each group of countries by each Doing Business indicator. The DTF score measures the distance of each economy to the “frontier,” which represents the best performance observed on each of the indicators across all economies in the Doing Business sample since 2005. Looking closely at the difference in DTW scores between OECD High Income Countries and less affluent countries, one can observe that the gap between the scores is the largest for the Resolving Insolvency indicator. This is a clear illustration of the complexity in this regulatory area. Improving performance goes beyond redrafting simple laws and deregulating different sectors of economy, and requires institutional development and capacity building on a larger scale.

Continued on page 5

BUSINESS

GEORGIA TODAY FEBRUARY 7 - 9, 2017

Georgian Rail Transit is Declining

BY DIMITRI DOLABERIDZE

R

ail transit through the territory of Georgia has been steadily declining, as indicated by the final statistics for 2016 published by the Office of Georgian Railways (GR). In fact, the volume has decreased by 49% over the past four years.

Experts blame inefficient management for the decline and are urging the government to radically reorganize the industry.

Statistics, published on the GR website, describe the serious crisis in the Georgian rail industry. Where, in 2012, 20 million tons of cargo was transported by railroad, by the end of last year this figure had fallen to 11 million. Note, in the same period, cargo traffic from China through Central Asia to Europe has grown seven times.

According to the head of Corridor Research Center, Paata Tsagareishvili, the reduction of transit-related factors has both external and internal causes.

"One of the reasons is that, in recent years, countries in the region have redirected much of their oil through pipelines. However, that only explains 20-25% of the reduced transit. In addition, according to the country's transit corridor, Azerbaijan and Georgia have been unable to agree on a unified tariff policy. At the same time, Georgia’s contribution to the development of the infrastructure is below even criticism, directly affecting the speed of improvement of transportation. As a result, the transit corridor

passing through Georgia is becoming less and less attractive."

The main way out, experts agree, is a radical reorganization of the sector, as GR management continues to work in Soviet patterns with continued corruption risks.

"Georgia has pledged to implement EU directives,” said Tsagareishvili. “These imply the commercialization of the industry where passenger and freight transportation is provided by separate entities. Another structure should be engaged in the process of developing the infrastructure, while an integrated approach would involve the creation of a supervisory body to regulate the tariff policy. Further, implementation of ‘Euro instructions’ will help lead to greater transparency and will reduce the risk of

corruption to zero," the expert believes.

According to the founder of the Club of Professional Railroaders, David Gochava, the industry is based on the management of non-transparent schemes, which hinders its development.

"Development of the Georgian railway depends on the government's position,” he says. “I think the introduction of ‘Euro-instructions,’ based on the experience of the Baltic countries, would accelerate the development of the industry.

Separation of the industry’s management into three independent business structures will make the operation more flexible and results-oriented. In the future, it is theoretically possible to partially privatize the sector by selling a 49% stake to strategic investors who have experience in management.”

5

Failure is Always an Option!

Or is it?

Continued from page 4 In particular, given the complex and pressing nature of insolvency proceedings, effective implementation calls for judges and case administrators who are efficient, and adequately trained in commercial and financial matters, and the specific legal issues raised by insolvency proceedings (IMF).

The complexity of implementation is exacerbated by political economy issues that arise in transition periods whenever a country considers reforming its insolvency framework. Even if debtors and creditors jointly favor more efficient procedures, this may not be the case in the short run in existence of debts negotiated under previous terms (Hart, 2000).

Pressure from conflicting interests can also delay policy design and implementation processes, and create regulatory frictions.

Many countries are embarking on this

challenging route to upgrade their regulatory framework and institutional infrastructures. According to the Doing Business reports, the most popular trends among reformers in the past three years include: - Introducing a new restructuring procedure - Improving the likelihood of successful reorganization - Strengthening creditors’ rights To summarize, the economic costs of an ineffective insolvency framework are substantial, and are realized through higher interest rates for borrowers, investor reluctance and loss of economic activity by potential entrepreneurs or entrepreneurs that have to prematurely leave the market without a chance for a fresh start. To catch up with modern market dynamics, Georgia needs to create a regulatory framework where failure is an affordable option, and do it fast.

Source: World Bank, Doing Business Data and Authors' Calculations

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6

BUSINESS

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

Georgian Fashion House Materia Opens New Textile Factory in Tbilisi

BY THEA MORRISON

A

well-known Georgian fashion house, Materia, has opened a new textile factory in Tbilisi. The factory is of European standards and currently employs 250 people.

Materia unites three Georgian designers: Lika Chitaia, Tiko Paksashvili and Aleksandre Akhalkatsishvili and owns two premium lines: Matériel and Dots.

The Matériel brand is exported to 10 countries: Switzerland, Australia, South Korea, Russia, Italy, China, Armenia, Kuwait, and Ukraine.

The company borrowed 1.2 million GEL in a business loan from the European Bank for Reconstruction and Development (EBRD) to manage the business and open the new factory.

Matériel shops are located in Tbilisi on Kote Abkhazi Street and Hotel Hilton Batumi. A Materiel shop will soon be opened in New York, USA. The new factory was opened on February 3 by the Minister of Economy and Sustainable Development, Giorgi Gakharia.

“It’s a very good example of a success-

Materia factory

ful business,” the Minister said. “We’ll be supporting such factories in the frame of the state-led program ’Produce in Georgia’. The consumer goods industry is a field in which additional jobs can be created very rapidly.”

He then thanked the EBRD for its active involvement in the development of factories in Georgia and said that it is very important that Georgian production is being exported abroad.

“Materia has a strong and diversified business,” the Minister said at the opening ceremony.

Fashion House Materia also makes uniforms for the Georgian army, police and border police, for the municipal cleaning service, Post Office staff and even for the Georgian National Rugby Team.

National Statistics Office Reports January Inflation Rate

BY NINO GUGUNISHVILI

T

he National statics Office (GEOSTAT) released a report on the inflation rate for the month of January 2017.

The report shows that the monthly inflation rate amounted to 2.9%, influenced by price changes for various food groups and non-alcoholic beverages.

For the period of January 2017, an increase of 4.2 percent on food prices and non-alcoholic beverages has been

reported as amounting to contributing 1.27 percentage points to the overall Consumer Price Index (CPI) change.

According to the data from the recent report, vegetable prices were higher (22.4%); fruit and grapes- 8.9 %; cheese, milk and eggs- 3.1%; oils and fats- 3.1%; fish- 2.8%; and meat- 2.5%.

In the transport group, prices are reported to have increased by 7.2%, contributing 0.94 points to the monthly inflation.

The report indicates that compared to the same month of the previous year, the Consumer Price Index change (annual inflation rate) saw a 3.9% increase.

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BUSINESS

GEORGIA TODAY FEBRUARY 7 - 9, 2017

7

Together We are Strong: Female Entrepreneurs Share their Formulas for Success

BY MANUELA KOSCH

S

tarting with nothing and ending up as a successful company. Such stories happen in Hollywood films, you may think…but they also happen in Adjara, Georgia. At the first Women’s Business Forum in Batumi, held on January 31, businesswomen from around the region met to describe how they had achieved their “Hollywood” dream.

The Association of Businesswomen of Adjara (ABWA) of the Adjara Chamber of Commerce and Industry (ACCI), in partnership with the Women’s Rooms municipal service, organized the first Women’s Business Forum to increase awareness of businesswomen and to empower others to establish their own companies.

Around 120 women and 20 men participated in the forum, no easy feat seeing as many roads in the region were shut due to heavy snowfall. Some women we spoke to had even travelled to the forum on foot.

The Chairman of the Adjara Chamber of Commerce and Industry, Tamaz Shavadze, opened the event with these encouraging words: “I hope this forum will be just a beginning, and that it will now take place annually.”

Among the participants there was no impression that the women of Adjara feel in any way disadvantaged. Even if the average income of a women in Georgia is just 618 GEL a month (while the average income of men is 980 GEL), the women are seemingly motivated to work harder. There was a distinct spirit of beginning, not only for the Women’s Business Forum, but for female entrepreneurship in general.

Makhvala Kvirikadze, Head of the Association of Businesswomen of Adjara, told her personal story in hopes of encouraging younger participants.

“In 1993, I built a greenhouse to grow flowers and started to sell my products in various locations.

Now I sell flower seeds.”

Her recommendation for younger entrepreneurs: “It’s important to believe in yourself and to start with a small business. You can do business on your own!”

Other stories were also shared by other successful local businesswomen, giving listeners insights into the challenges they had faced and the experience they had gained:

FROM ADJARA TO NEW YORK The Sulguni of Nanuli Kakhadze’s company Tsezai Cheese Factory Ltd is sold all over Georgia and has even made its way to New York. It all started with a cheese company in Tsalka which, following a certain amount of success, expanded to Adjara, where they purchased better equipment and trained the staff. What started as a small family business developed into one of the leading cheese factories in the Adjara region. Together with the company in Tsalka, they now produce 9 tons of cheese every week.

WITHOUT HEALTHY ANIMALS, NO DAIRY FARMING For rural farmers, it is crucial to have healthy animals and to have access to drugs and veterinary services. To support such farmers, veterinarian Nana Balanchivadze opened her first vet pharmacy in 2000. The infrastructure was very basic but now she can be proud of a well-equipped pharmacy and the consultancy services she offers other veterinarians. “The key to success is the love of the pro-

Wine Export Increases by 184% in January

BY THEA MORRISON

G

eorgia’s National Wine Agency (NWA) reports that in January 2017, around 4,322,733 bottles of wine were exported from Georgia to 26 countries worldwide, that is 184 percent higher compared to the same period of 2016.

The exported wine in January this year amounted to $8 million, which is 141 percent higher than 2016.

“In January exports increased to the European Union, China, USA and other traditional markets.

We hope that the tendency of export increase will

be maintained in all directions,” the head of the NWA, Giorgi Samanishvili said.

The top countries where Georgian wine was imported this January are: Russia (2,861,471 bottles), Ukraine (402,858), China (372,440), Poland (156,302) and Kazakhstan (106,284).

In addition, in January around 896,986 bottles of brandy were exported to eight countries, 59 percent more than in 2016.

In total, the exported brandy in January this year amounted to $2.25 million, which is 49 percent higher than data for 2016.

On the whole, export income for alcoholic drinks this January amounted to $21.7 million. In the same period of last year, the income was only $6.6 million, meaning a growth of 229 percent.

fession, experience, knowledge and skills to manage a business,” Balanchivadze says.

AN OBSESSION FOR COOKING LEADS TO A SUCCESSFUL GUESTHOUSE Inspired by birdwatching tourists and her own cooking skills, Nargiz Dumbadze was motivated to open a guest house. First, she studied to increase her knowledge about business-management and how to attract clients to her guesthouse. Now, even her children are involved in her successful business- working as trained guides to take tourists through the region. Like the previous speakers at the forum, she insists that there are no bad ideas and that women must believe in themselves. She also recommends getting consultation before starting.

LANDSCAPE PAINTINGS SOLD IN KOREA AND AUSTRALIA Roena Khozrevanidze was born into a family of painters. She started her business with the paintings of her husband and son. They now not only sell the paintings in Korea, Germany and Australia; they also conduct workshops in their Art Studio.

But Khozrevanidze has more ideas- she wants to open a guesthouse and offer master classes in painting. “I see big potential in tourism in this area,” she says enthusiastically.

All these success-stories have one thing in common: they would not be feasible without the support of both the government and NGOs, as all the women present had received financial and/or technical support for their projects.

Tea Sharashidze introduced the idea of Women’s Rooms. Women’s Rooms are open spaces in municipal buildings where prospective businesswomen can find support in writing business plans and other useful services. In all the success-stories mentioned earlier, the support of the Women’s Room was an essential ingredient.

Business women in Adjara can apply for governmental support from the Agriculture Projects Management Agency, The Agency of Entrepreneurship Development, or The Ministry of Finance and Economy of Adjara.

A number of companies attended the Women’s Business Forum to show off the support they can offer entrepreneurs- be it through financing or training services.

The Farmers of the Future Association, The European Bank for Reconstruction and Development, Bank of Georgia, the Institute of Democracy and Arts Group are investors from the private sector that provide support for equitable Business Development. They also introduced their offers at the forum.

To round off the inspiring day, one businesswomen from each of the five municipalities in Adjara was awarded a prize for her work.

Natia Surmanidze from the organizing committee was more than happy with the first Women’s Business Forum: “The forum exceeded my expectations and we will be sure to organize the second edition next year,” she told GEORGIA TODAY. The forum was held with the support of the Swiss Development and Cooperation Agency (SDC), and Mercy Corps’ Alliances Lesser Caucasus Program.

8

BUSINESS

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

Open Letter to the PM from the Director of R. Shahin Friendship School in Batumi

RETAIL FPI | Meat Prices on the Up: Partying after Fasting?!

B

y the end of January, food prices in Tbilisi’s major supermarkets had increased by 7.2% compared to December 2016.

Although prices increased m/m, there was a slight decrease in prices y/y. Food prices declined by 5.5% compared to January 2016.

Most of the prices increased when analyzed on a biweekly basis. Pork, coriander and butter experienced the most drastic price increases from the middle of January. Pork prices increased by 29.8%, whereas coriander and butter gained in value by 24.0% and 8.4%, respectively. In contrast, eggplants, cucumbers and tomatoes became cheaper by 20.2%, 8.9%, and 5%, respectively.

LOOKING MORE CLOSELY AT MEAT PRICES… During the entire month of January, meat prices were particularly notable for their increase. Where, during previous years, the end of the annual fasting period was the major cause of this increase, this time there are also interesting changes in trade data that may be held responsible for the higher meat prices. In the category of live bovine animals only, Georgia’s exports increased tremendously.

Georgia exported approximately 12 thousand tons

In the past, the major buyer of Georgian live animals was Azerbaijan; in 2016, almost 85% of live animal exports went to Iraq

Georgia exported approximately 12 thousand tons of live bovine animals in 2014, just over 10 thousand tons in 2015, but in 2016 it exported more than 20 thousand tons of live bovine animals in 2014, just over 10 thousand tons in 2015, but in 2016 it exported more than 20 thousand tons. Thus, Georgia’s exports in this category increased by 92.3% in 2016 compared to the previous year. Interestingly, during the previous years, the major buyer of Georgian live animals was Azerbaijan; in 2016, almost 85% of live animal exports went to Iraq.

M

r. Prime Minister, We are forced to draw your attention to the unlawful actions taken against the Shahin School in Batumi, which has been functioning for 23 years and which currently has 340 students.

On February 3, 2017, at a meeting held in the National Center of Educational Quality Enhancement, the decision to terminate authorization to the R. Shahin School was made based on the fact that six non-Georgian students were transferred from the Turkish to the Georgian section. There is no law or regulation in Georgian legislation with regards to changing sections. The transfer of students to the Georgian section was made after and according to the decision of the Authorization Council on September 4, 2015, to close the Turkish

section in the school.

Unplanned monitoring was conducted for the third time in the school in recent months.

We would like to express our suspicion that this baseless decision is a part of a deliberate policy to limit and prevent the Shahin School from functioning in Georgia.

We would therefore ask you to take this issue under your personal control and defend the rights of the 340 students of the school and their parents.

We ask you not to give the right to anyone to close a school that has served the country for so many years already. We ask you not to let the school’s work be limited- a school in which Georgia’s honorary citizens have been raised.

Respectfully, Elguja Davitadze

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WHAT ABOUT GEORGIAN CONSUMERS? The increased export of live animals reduced the supply of meat to the local market, causing higher prices for both beef (the price of which increased by 5.3% m/m), and pork, as a result of the substitution effect between the two products. Once beef becomes scarce and expensive, consumers switch to pork and, due to high demand, the latter’s price also increases. If the trend of local currency depreciation continues, one may expect an even higher rate of exports, and therefore continued higher prices in the future.

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BUSINESS

GEORGIA TODAY FEBRUARY 7 - 9, 2017

Gas Diplomacy- Gazprom Brings in Uzbekistan, but Risks Losing Europe

BY DIMITRI DOLABERIDZE

P

roblems in negotiations with Turkmenistan are encouraging Gazprom to extend the procurement agreement with neighboring Uzbekistan, and the Russian company is waiting for the first visit of newly elected president Shavkat Mirziyoev to Moscow.

“The Uzbek leader's visit is planned for MarchApril this year,” says Putin's press secretary Dmitry Peskov. “During the visit, the two countries will sign a number of agreements in the field of tourism, health, education, medicine, chemistry, military-technical cooperation, migration policy, and energy. One of the central themes of the meeting will be energy agreements, in particular the extension of the gas purchasing contract to Uzbekistan.”

The new contract, which will expire in 2022, will see the supply volume negotiated.

“The contract is vital for Gazprom: due to the remoteness of their own fields in Central Asia, the company is forced to import gas from neighboring countries, the delivery of which is cheaper than transportation from origin,” Gazprom head, Alexei Miller, explained in 2013.

In fact, Central Asia is only the region where Gazprom buys gas for Uzbekistan from Kazakhstan and Turkmenistan.

In 2014, oil prices plummeted, and Gazprom announced the beginning of "optimization of procurement" of gas in Central Asia- in layman’s terms: a reduction.

Gazprom first tried to bargain with suppliers in Central Asia to lower prices for natural gas. Turkmenistan refused. As a result, Gazprom had to significantly reduce the volume of gas purchases from Turkmenistan, and in January 2016 completely tore up the contract. Since June 2015, the parties have been in the Stockholm Arbitration Court, where Gazprom demands Turkmenistan revise the price of Turkmen gas from 2010 to 2015 and return $2 billion of used gas to them.

The difference in Uzbek and Turkmen gas reaches a minimum value of $100 per thousand cubic meters.

According to Gazprom, Turkmen gas costs $240 as opposed to the $140 purchased from Uzbekistan.

However, a distinct lack of enthusiasm in Gazprom to buy gas from Uzbekistan is observed, and supply volumes are falling constantly. Where, in 2015, Gazprom imported 6.3 billion cubic meters of gas, in 2016 it planned to buy a total of 4 billion cubic meters.

Historically, Gazprom wanted to buy Turkmen gas so Turkmenistan could not export to Europe or China.

Uzbek gas does not pose such a danger

Turkmenistan is one of the most gas-rich countries in the world, with reserves at 13.4 trillion cubic meters “Perhaps it is the refusal of the Turkmen to make a gas price revision that explains the conclusion of the long-term contract with Uzbekistan. But if a price decrease is agreed with Turkmenistan, most likely supply would fall from Uzbekistan,” says head of the Oxford Institute for Energy Studies, Jonathan Stern.

“Turkmenistan is one of the most gas-rich countries in the world, with reserves at 13.4 trillion cubic meters. It’s already exporting gas to China and would like to send it to Europe. By redeeming gas from Turkmenistan, Gazprom would guarantee a lack of potential competitors in the supply to these two directions,” the expert believes.

“Historically, Gazprom wanted to buy Turkmen gas so Turkmenistan could not export to Europe or China. Uzbek gas does not pose such a danger: it is only available in Kazakhstan and Russia and other outlets have not been added,” says Stern.

“Europe wanted Turkmenistan to join the Southern Corridor project, according to which gas from the Azerbaijani Shah Deniz field is to flow via Turkey to the EU in 2019. As for China, it has been supplied with Turkmen gas since 2009.”

If the supply of Turkmen gas to China increases, and it also delivers to the EU states, undoubtedly it will interfere with the future plans of Gazprom which intends to increase supply to these areas.

That said, even if such deliveries start, Turkmenistan is unlikely to be able to compete with Russia on the volume of supply to Europe or China. Total exports of Turkmenistan to Iran and China do not exceed 48 billion cubic meters per year, while export by Gazprom to Europe, according to BP, in 2016 reached 165 billion cubic meters. The fact that Gazprom has a reserved capacity of 200 billion cubic meters means the chances of winning the European market for Turkmenistan equals zero.

Turkmenistan will not be able to find that extra capacity of gas to sell to Europe or to increase export to China. At the same time, the fact that Gazprom is the guarantor of gas supply to Kyrgyzstan and Uzbek gas helps it to comply with these obligations.

Meanwhile, intractability is causing Turkmenistan “the gas-rich republic” to lose potential investors to Gazprom.

“If there was no conflict, Gazprom would invest in local gas export to Iran: delivering its gas to the poor northern regions. In exchange, Gazprom would receive Iranian gas in the south,” Stern suggests.

In the meantime, the monopoly prefers to invest in Uzbekistan. Gazprom has almost finalized a production sharing agreement (PSA) on the development of gas condensate field "Djel" in Uzbekistan (reserves of about 10 billion cubic meters). In addition to "Djel," Gazprom is already working on several projects, including Shahpaty, and a number of blocks in the Ustyurt region.

9

10

BUSINESS

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

Number of Tourists in Mountainous Region of Adjara Rises to 107%

T

he year 2016 marked a significant increase in the number of tourists visiting Mountainous Adjara, the Adjara Tourism Department has announced. Compared to 2015, the number of visitors to the region’s popular destinations rose to 107 percent, with 5513 visits.

The Machakhela, Khikhani and Keda touristic destinations were among the most popular throughout the year, with a greater number of visitors to family type hotels.

• + 99% Number of visitors in Keda • + 113% Number of visitors in Khikhadziri • + 244% Number of visitors in Machakhela The number of family hotels in these

destinations also increased, with 2016 seeing more than 20 family hotels serving tourists, 33% higher compared to 2015.

The number of tourists and visitors heading to museums in Mountainous Adjara was up, with 13,628 tourists having visited Chkhutuneti, Keda and Selim Khimshiashvili museums, which consequently positively affected the number of tourists eating in the restaurants in the region.

These statistics were made according to the information the Touristic Product Development Agency collected from the owners of family type hotels, and restaurants.

The Agency has been working to promote touristic products and services since the end of 2015.

“Our Agency worked very actively all through 2016 to promote Tourism products and services the Mountainous Adjara has to offer,” said Tinatin Zoidze, Director of Tourism Product Development Agency. “During the year, the Machakhela, Keda and Khikhani wine destinations were marked and developed. We organized 18 info tours, and trained 18 tour guides. Over 300 visitors had a chance to get acquainted with all the variety of services and products available. It’s impossible to develop Adjara region to a year-round attractive touristic destination without promoting its touristic potential, that’s why continue to work in that direction and why I think by the end of this year we’ll again see an increased number of tourists and visitors.”

European Union Supports Study Trips on Best Practices in Rural Development

T

he European Union continues supporting a series of study tours for representatives of local governance, business and civil society to share experience of the Local Action Groups (LAGs) that work to engage local residents in rural development.

The first study tour in Lagodekhi, in December 2016, was followed by a second event in Kazbegi on February 1 and 2, 2017.

The Kazbegi study tour involved over 30 participants from different regions of Georgia and was attended by Nodar Kereselidze, Deputy Minister of Agriculture of Georgia, and representatives of the Ministry of Regional Development and Infrastructure of Georgia.

The study tour took place in the framework of the European Union's Neighborhood Program for Agriculture and Rural Development (ENPARD) and was organized by the United Nations Development

Program (UNDP) and the Ministry of Agriculture of Georgia, in cooperation with the Civil Development Agency (CiDA) and Czech organization People in Need.

The study tour participants met with representatives of Kazbegi Local Action Group (LAG) and the Head of Kazbegi Municipality, and received information about the ongoing initiatives in the field of rural economy and social issues.

The Kazbegi LAG was established in February 2016 with assistance from the European Union in cooperation with the organization People in Need, Biological Farming Association Elkana and Czech National Network of Local Action Groups (NNLAG).

The Kazbegi LAG lists up to 140 members and takes active part in municipal life.

The EU has also supported establishment of LAGs in Lagodekhi and Borjomi municipalities.

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This year, in the framework of ENPARD, LAGs will also be established in five other municipalities - Dedoplistkaro, Akhalkalaki, Tetritskaro, Keda and Khulo.

LAGs are a common practice in European countries and an important feature of the EU approach to rural development, which encourages the empowerment

and involvement of local representatives in decision-making.

The EU works closely with the Georgian government, local authorities, national and international partners to introduce the European best practice in rural development and to promote civic engagement in this field.

A series of study tours to the pilot LAG sites is part of this effort. The initiative is also in line with the Rural Development Strategy of Georgia adopted by the government in December 2016.

The EU is supporting rural development in Georgia through its ENPARD Program. Implemented since 2013 with a total budget of EUR 102 million, the main goal of ENPARD is to reduce rural poverty. The first phase of ENPARD in Georgia focused on developing the potential of agriculture. The second phase focuses on creating economic opportunities for the rural population that go beyond agricultural activities.

BUSINESS

GEORGIA TODAY FEBRUARY 7 - 9, 2017

11

OSCE Chair, Austrian Tbilisi Mayor Summarizes Federal Minister Visits 2016 Activities Georgia

BY NINO GUGUNISHVILI

A

t a presentation held in Radisson Blu Iveria Tbilisi on Friday, Tbilisi Mayor Davit Narmania introduced the projects Tbilisi Municipality completed in 2016, highlighting in particular a number of major infrastructure rehabilitation works.

The Mayor claimed that almost 500 streets in the capital city had been wholly renovated, and the rehabilitation of a further 600 streets is planned for 2017.

The launch of the second part of the New Tiflis renovation project was announced for 2017, which includes the rehabilitation of the Orbeliani Square and nearby territory.

Narmania announced at the presentation that by March 2017, the city will have 143 new buses from Man Truck and Bus AG. The renovation of the Kus Tba (Turtle Lake) cable way was named as an important project of 2016, and as part of the cable roads development in the city, with the Mtastsminda cable way next on the list for realization.

The Mayor said that over 180,000 trees and plants were planted around the city last year and, for the first time, almond and olive tree gardens will now

BY THEA MORRISON

S

ebastian Kurz, the Austrian Federal Minister for European and International Affairs and OSCE Chairman, welcomed the European Parliament’s decision to grant Georgians visa-free regime with the European Union (EU) while paying his second official visit to Georgia on February 2-3.

“Georgia is on the right path, pursuing the goal of deepening its relations with the EU,” Kurz said at a press-conference after meeting with Georgia’s Foreign Minister, Mikheil Janelidze.

Georgia’s Ministry of Foreign Affairs (MFA) reports that the parties discussed ways of increasing OSCE’s involvement in the peaceful resolution of the Russian-Georgian conflict, focusing on the security, humanitarian, and human rights situation in Georgia’s occupied territories – Abkhazia and South Ossetia.

The officials also mentioned the involvement of the OSCE Austrian Chairmanship to aid in the process of confidence-building between the communities living on both sides of the occupation line.

“Special attention was paid to the importance of Georgia’s close co-operation with OSCE institutions in the democratization process of the country.

be cultivated both in and outside Tbilisi.

He went on to describe the social, cultural and sports programs supported and realized throughout 2016 by Tbilisi Municipality, stressing that the Municipality office will gradually move to a single window principle which will give Tbilisi citizens easier access to the services the Municipality provides.

Talking points also included prospects of deepening bilateral relations between Georgia and Austria,” the MFA reports.

During the joint press conference, the Georgian and Austrian Foreign Ministers emphasized the close and friendly relations between the two countries.

Minister Janelidze thanked Sebastian Kurz for his personal support of Georgia and for his efforts to make the issue of Georgia one of the priorities on the OSCE agenda.

The Austrian Minister in turn highlighted the importance of the opening of the Austrian Embassy in Georgia last September. “Prospects for economic co-operation are good and Austrian companies find Georgia's business environment friendly,” he said.

“Georgia is a country with great potential.”

Kurz then visited the Administrative Boundary Line (ABL) in the village of Ergneti, near Georgia's breakaway region of Tskhinvali, South Ossetia, where the regular meetings of Incident Prevention and Response Mechanism (IPRM) take place. He also met with Internally Displaced Persons living near the ABL. During Kurz's meeting with Georgia’s Prime Minister, Giorgi Kvirikashvili, democratic reforms implemented in Georgia were discussed, as were ways of improving living conditions for residents of Georgia's occupied regions.

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Tbilisi Mayor Davit Narmania at the presentation

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SOCIETY

GEORGIA TODAY

FEBRUARY 7 - 9, 2017

So-called South Ossetian Foreign Ministry Comments on Georgia’s Visa Liberalization The Administrative Boundary Lines (ABLs) across the Tskhinvali region

Russian-occupied Tskhinvali Court Illegally Sentences Georgian to 20 Years in Prison

BY THEA MORRISON

G

iorgi Giunashvili, a 39-yearold Georgian citizen, was sentenced to a 20-year term of imprisonment by an unrecognized court of Georgia's Russian-occupied South Ossetia region.

The man was detained by occupying forces in June 2016 for illegally crossing the administrative boundary line (ABL) between South Ossetia’s Tskhinvali region and Georgia.

Following a month of detention, the authorities of the breakaway region accused him of terrorism, claiming he was a member of an illegal armed group.

They also say that Giunashvili exploded a hand-grenade in 2007 and opened fire on South Ossetian soldiers in 2008, which “left one dead and another injured.”

The family of Giunashvili says he is innocent and asks international organizations and the Georgian authorities for help.

“My brother is innocent and was illegally detained. The charges against him are absurd,” said Revaz Giunashvili, brother of the detained.

Official Tbilisi agrees. Georgia’s State Security Service (SSS) released a statement saying they would do their best to have Giunashvili released.

“The so-called court’s decision, as well as the charges against Giunashvili themselves, are fabricated and have no legitimate basis,” the statement of the SSS reads.

“The State Security Service has provided all details of the case to all state agencies in order to inform the international community," the agency said, claiming they will raise the issue at the meetings of the Incident Prevention and Response Mechanism (IPRM) and at the Geneva International Discussions.

“This is a key issue for the Georgian side," said Georgia’s Minister of Reconciliation and Civil Equality, Ketevan Tsikhelashvili. “We will intensify our efforts to work with our foreign partners to secure Giunashvili’s release.”

BY THEA MORRISON

T

he “Foreign Ministry” y of akaway region Georgia’s breakaway South Ossetia etia commented on the e approval of visa liberalization ralization for Georgia by the European an Parliament last week.

The statement says that at the benefits of the new regime me between Georgia and the he European Union (EU) have ve nothing to do with the “cititizens of South Ossetia.”

The so-called Foreign Ministry of South Ossetia were speaking in response to the e statement of certain Georgian officials that the benefits of visa liberalization would also be offered d to the residents of Georgia’s occupied ed regions.

"The South Ossetian Foreign eign Ministry once again underlines the fact that the development of relations between the EU and Georgia, including visa-free relations, concerns only the citizens of Georgia and does not apply to the citizens of the Republic of South Ossetia. The offer of the Georgian leadership to an independent state can only be described as sick logic," the statement reads.

Moreover, the so-called Foreign Ministry of South Ossetia stressed that the residents of South Ossetia made a choice in favor of independence 25 years ago,

and they do not want to have anything to do with the State of Georgia.

“As Georgia could not fulfil its aggressive plans towards South Ossetia, now it is resorting to tricks,” the statement reads, adding that the citizens of Ossetia also have Russian citizenship and documents and can travel abroad.

“Enough time has passed for the Georgian leadership to realize that the only possible model for relations between Georgia and South Ossetia is a relationship between two equal countries," the

statement reads.

The European Parliament voted in favor of visa-free travel for Georgian citizens to the Schengen Area at a plenary session on February 2. The new regime between Georgia and the EU will go into force as soon as the suspension mechanism is activated.

When the process is complete, biometric passport holders will be able to enter the Schengen area, for 90 days within any 180-day period for holiday, business or any purpose, excluding work.