Issue #824 Business

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Issue no: 824/17

• MARCH 8 - 10, 2016

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Hotel Crowne Plaza Opens in Borjomi

FOCUS ON BUSINESS SECURITY

Magticom Chief David Lee is one of many who are talking about potential social network abuse by the Russian government for the creation of anti-EU sentiment in Georgia

Concerns are growing over the potential Russian take-over of Georgian internet services

PAGE 5

Government to Create Initiative Group for Better Communication with SMEs

BY EKA KARSAULIDZE

P

rime Minister Giorgi Kvirikashvili and Minister of Economy and Sustainable Development of Georgia Irakli Kumsishvili met representatives of Small and Medium Enterprises to talk about their role in economic development, government programs, and the establishment of better communication. The meeting with the representatives of about 50 different SME industries was held in Expo Georgia on March 4.

PM Kvirikashvili made a proposal to establish a permanent dialogue with representatives of Small and Medium Enterprises. This implies personal meetings, as well as the creation of an

PAGE 2

Cushman & Wakefield | Veritas Brown’s Take on the New Incentives for the Hospitality Industry in Georgia PAGE 3

The Making of Nations ISET PAGE 4

Dentistry Today: All about the Doctor-Patient Relationship PAGE 8

initiative group which will link the relationship between business and government, report the hot issues and monitor the response of the State.

A similar system already operates with Large Businesses.

Continued on page 2

Georgia to Receive More Azeri Gas Supplies, Mulls Gazprom Deal PAGE 10 Prepared for Georgia Today Business by

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71,8750

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GT Index (GEL)

886,18

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2,9045

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708,13

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1,6250

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BUSINESS

GEORGIA TODAY

MARCH 8 - 10, 2016

Government to Create Initiative Group for Better Communication with SMEs

Hotel Crowne Plaza Opens in Borjomi

BY ANA AKHALAIA

I

nterContinental Hotels Group, one of the world’s largest hotel companies, has entered Borjomi, a resort town in south-central Georgia, with its Crowne Plaza brand. The five-star hotel Crowne Plaza Borjomi was officially opened by Prime Minister Giorgi Kvirikashvili on March 6th.

USD 32 million was invested in the hotel construction and 250 people were employed, 150 of which were local residents. The Hotel management itself consists of 150 people.

The Prime Minister stated that the hotel further underlines Borjomi as one of the most important tourist destinations in Georgia. He pointed out that the number of visitors to Georgia has increased by 23% compared to the same period in 2015.

He further added that the government should

pay more attention to Borjomi infrastructure, which will make the resort an international tourism hub.

“Just a few days ago we announced that the program ‘Produce in Georgia’ has added a new component ‘Host in Georgia,’ which is to contribute to the development of hotel networks in the regions. We thank company Dizon Limited for the implementation of this particular hotel project. The company has also restored Borjomi sulfur pools, which have a long history and whose recovery was very important for this resort,” said the PM. Borjomi is famous for its mineral water industry, which is one of the largest exports of Georgia, the Romanov summer palace in Likani, and the World Wide Fund for Nature site Borjomi-Kharagauli National Park. Because of the supposed curative powers of the area’s mineral springs, it is a frequent destination of choice for people with health problems.

Continued from page 1 “Naturally Large Businesses are important, I have nothing against them, but not only well-known people should appear at meetings with top officials,” the PM said. “The SME sector is a dynamic force with the highest growth rates. Moreover, this is one of the most important sectors of the economy in terms of jobs.”

The head of the Georgian Government also discussed the four-point reform plan, one of the main directions of which is business promotion. The reform plan involves government support, economy, infrastructure and education. According to PM Kvirikashvili, the government has many programs for financing new businesses. The Start-up Financing Fund will begin in the near future, the ‘Produce in Georgia’ state program is expanding, as well as its new sub-components, like ‘Host in Georgia’ (which supports the creation of a network of small

hotels), which is to be launched soon.

“However, to develop these fields in the right way, we need your feedback,” the PM told business representatives. “We want to listen to your ideas about what should be done to encourage SMEs in Georgia.”

The meeting raised various issues: administrative, payment, financial themes, issues of popularization of different areas, abolition of income tax, creation of a ‘Front office,’ where all government services will be available for businesses, and much more.

Both sides were satisfied as the entrepreneurs had the chance to discuss their problems with the authorities and get a response.

“The business sector is well aware of the government programs that are designed for them,” said Minister of Economy, Irakli Kumsishvili. “We have already heard and noted all the issues that they are interested in, and will begin work on their consideration soon,” he said.

Ministry of Economy Creates New Agency to Develop Export Potential

BY ANA AKHALAIA

A

new Agency, the ‘Trade Development Agency,’ has been created in the Ministry of Economy and Sustainable Development with the support of the European Union and European countries on an Order issued by the Minister of Economy, Dimitri Kumsishvili, based on a governmental decision.

To develop Georgia’s export potential, the new agency’s main activities will consist of studying the markets of European countries, making trade turnover analysis, and preparing respective recommendations.

At the same time the Agency will provide consultations to business operators which are in a trade relationship with the EU, identify their needs and problems, and respond to them. It will also provide interested entrepreneurs with information on trade benefits. In addition, it will help them to make contacts with marketing companies and business operators of the European countries.

It will further gather information on Georgian exporters in Europe, register them and carry out categorization of their activities, according to

extent and other characteristics.

The Trade Development Agency plans to organize a number of bilateral inter-governmental economic meetings with the European Union and other European countries, to prepare phrasebooks for delegation visits and to cooperate with the diplomatic corps.

GEORGIA TODAY would like to congratulate its beloved team member, Tim Ogden, on his recent marriage to Anna Jorbenadze.

Wishing you both long life and much happiness together!

BUSINESS

GEORGIA TODAY MARCH 8 - 10, 2016

Cushman & Wakefield | Veritas Brown’s Take on the New Incentives for the Hospitality Industry in Georgia

G

EORGIA TODAY had the privilege to meet with Tom Day, Regional Director of Cushman & Wakefield | Veritas Brown for Hospitality and Investor Services, to discuss the developments and incentives in the Hospitality Sector across Georgia.

HOW WOULD YOU EVALUATE THE HOSPITALITY SECTOR IN 2015?

The Georgian hospitality sector during 2015 saw an increase in the branded 4/5 star hotel room supply in Tbilisi by 349 rooms and in Batumi by 427 rooms. The 5* “Hotels & Preference” Hualing Tbilisi opened during the second quarter 2015 with 247 rooms. The 4* Mercure Tbilisi operated by Accor Hotels opened in June 2015 with 102 rooms. In Batumi, the 5* Leo Grand hotel opened its doors on the 7th June with 180 rooms and on May 20th, Batumi also saw the opening of the 5* Hilton Batumi with 247 rooms.

For a sample of seven 4/5* hotels (five in Tbilisi and two in Batumi) comprising 1200 hotel rooms, the full year data shows a fall in occupancy for the year from 65.6% (2014) to 62.5% (2015). Average daily rates (ADR) slipped from $140 (2014) to $134.75 (2015) and RevPAR was down year on year by 8.5%.

A combination of regional shocks to demand and the addition of almost 800 rooms of supply to the Georgian hotel

market put short-term pressure on occupancy and average daily rates across the sector during 2015. The supply pipeline is strong in both Tbilisi and Batumi and during 2016-2018 approximately 2000 hotel rooms of 4/5 star standard are due to be added to the Georgian hospitality market.

Whilst ADR and occupancy will come under pressure during 2016-2018, the forecast growth in leisure tourist and business travelers should ensure that across Georgia ADR and occupancy stabilize at $120 and 60% respectively. The relatively low hotel operating costs across Georgia will continue to ensure that hotel balance sheets remain healthy despite the strong pipeline supply growth.

WHAT RECENT PROJECTS HAVE CW | VB WORKED ON IN HOSPITALITY? We advise numerous hospitality development companies and existing hotel operators and owners across Georgia.

Our expert consultancy team based in Tbilisi have advised many of the largest hospitality projects in Georgia, for example: Axis Towers in Tbilisi, the Hilton Batumi Hotel & Belle Vue Residences, the Metro City project in Batumi, the Babillon Tower project in Batumi, luxury spa and wellness concepts in Ureki and Kaprovani. We have also conducted feasibility study and master planning work for hotel resorts in the ski resorts of

Gudauri and Bakuriani.

In total, we have performed Feasibility Studies for 17 hospitality projects throughout Georgia as well as sourcing international hotel operators for some of these projects including Radisson, Swiss-belhotel and Wyndham Hotels.

COULD YOU PLEASE EXPLAIN THE NEW HOSPITALITY INCENTIVE SCHEME OFFERED

BY THE GEORGIAN STATE PROGRAM “PRODUCE IN GEORGIA”?

In the framework of this initiative entrepreneurs receive financial and technical assistance from the Georgian state program to develop a hotel, expand and refurbish the existing one, sign a franchise or management contract with a renowned hotel brand. The project must be located outside of Tbilisi and Batumi and “Produce in Georgia” will support with: Interest rate co-financing, partial collateral guarantee, financing franchise fees and consultancy costs. Enterprise Georgia under the Ministry of Economy and Sustainable Development of Georgia will provide financial and technical assistance in the following manner: INTEREST RATE CO-FINANCING for Hotel Development/Expansion: • 10% Interest rate co-financing (loans in GEL) for the first 2 years • 8% Interest rate co-financing (loans

in USD/EURO) for the first 2 years • Minimum loan volume – GEL 500,000 (or equivalent in USD/EURO) • Maximum loan volume – GEL 1,000,000 (or equivalent in USD/EURO) • Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 500,000 (or equivalent in USD/EURO).

INTEREST RATE AND FRANCHISE/ MANAGEMENT CONTRACT COFINANCING for the Development of International Brand Hotels: • Co-financing of hotel Franchise/Management agreements for the first 2 years (up to GEL 300,000 annually) • 10% Interest rate co-financing (loans in GEL) for the first 2 years • 8% Interest rate co-financing (loans in USD/EURO) for the first 2 years • Minimum loan volume – GEL 500,000 (or equivalent in USD/EURO) • Maximum loan volume – GEL 5,000,000 (or equivalent in USD/EURO) • Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 2,500,000 (or equivalent in USD/EURO).

FRANCHISE/MANAGEMENT CONTRACT CO-FINANCING for the Development of International Brand Hotels: • Co-financing of Franchising/Management agreements for the first 2 years (up to GEL 300,000 annually) and co-financ-

3

Tom Day, Regional Director of Cushman & Wakefield | Veritas Brown for Hospitality and Investor Services

ing of consulting services.

Cushman & Wakefield hospitality consultancy services for all of these incentive schemes can be co-financed by Enterprise Georgia under the Ministry of Economy and Sustainable Development of Georgia.

HOW CAN CW | VB HELP POTENTIAL DEVELOPERS AND INVESTORS WITH THIS NEW SCHEME? We create added benefit to a hospitality development project through expert feasibility study analysis and financial modelling to ensure that our clients receive the project rates of return that are commensurate with the discount rates applied to finance in Georgia. Typically, regional and global investors want to see at least a 15-20% internal rate of return per year to invest in projects across Georgia. Where a development project needs part or full financing, our Investor Services team then aims to bring about investment by matching the available projects to our extensive database of global investors.

Our hospitality team also offer hotel operator and brand search services, assisting the hotel developer by bringing international operators and brand names to the market, hence adding value to the projects.

Our Tbilisi office is available to handle your enquiry on +995 322 474849 or please do email for expert advice: tom.d@veritasbrown.com.

4

BUSINESS

GEORGIA TODAY

MARCH 8 - 10, 2016

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.

The Making of Nations

BY ERIC LIVNY

G

OING UP … OR DOWN? I was 13 when my family took the fateful decision to make ‘Aliyah’ to Israel back in 1977. ‘Aliyah’ (the act of going up in Hebrew) is a nice term describing Jewish ‘repatriation’ from the Diaspora (St. Petersburg, in my case) to the Holy Land. Etymologically, ‘Aliya’ originates in the ancient Israelite tradition of annual ‘pilgrimage tours’ to Jerusalem (situated almost 1km above sea level). Yet, there was very little ‘going up’ in the social status of my family during the first five years in Israel.

My parents took more than two years to learn enough Hebrew to be able to land their first jobs.

To cut on household expenses, I was sent off to Alonei Itskhak, a Jewish Agency-financed boarding school catering to immigrant kids: recent arrivals from USSR, like myself, and children to barely literate parents who immigrated to Israel from remote rural communities in Morocco, Algeria, Tunis, and other North African nations in the 1950s.

Needless to say, the two groups – the ‘Russians’ and ‘Moroccans’ – lived in parallel universes. We attended the same classes but had little else in common. We communicated in different languages, and were different in everything that mattered: from manner of speech and behavior, to hobbies and intellectual interests.

Things changed quite dramatically the following year. I passed entrance exams and was admitted (with a scholarship) to the Hebrew Reali School in Haifa, an elitist private institution that agreed to (very partially) open its doors to outsiders like myself. A more than 2-hour daily commute from Kiriat Ata (a small working class town in Haifa’s vicinity) seemed like a good price to pay for membership in this prestigious club, a hotbed of technological talent, intellectual, military and political leadership.

As the only ‘Russian’ kid in the class, I worked very hard to hide my foreign identity and accent.

Thus, I spent hours circling my (very) humble abode in order to practice the difficult Hebrew ‘r’ sound. Very soon I acquired near flawless mastery of the language, but all my efforts to ‘connect’ and become socially accepted fell flat.

Ironically, my classmates and I wore the same uniform consisting of jeans and blue shirts with the school’s motto “Walk Humbly” (Micha, 6:8) sewn to the pocket. Yet, these blue shirts could not conceal the differences in social status between outsiders and those born into upper middle class Israeli families from Haifa’s upscale neighborhoods on Mount Carmel.

By the age of 16, I gave up on desperate attempts to acquire ‘authentic’ Israeli friends and found refuge in the company of other ‘Russians’ closer to my proletarian neighborhood. This could have been the end of my Israeli dream, except that at the age of 18 I was drafted by the Israeli military.

Having immigrated to Israel at 13, I started feeling a proud Israeli citizen only when I wore the military uniform of an elite paratrooper unit

THE GROUND BENEATH MY FEET The year was 1982. Israel was at war in Lebanon and volunteering to serve in an elite paratrooper unit seemed like the right thing to do. Very soon I found myself in a boot camp with 25 other young guys: Dov Zilber from Moshav Kfar Kish and Ofer Cohen from Naharia; Yair Itzhaki from Kubbutz Kineret and Roni Almagor from Tel Aviv; Amir Halkin from upscale Savion and Pinki Zuaretz from crime-infested Netanya; Arik Libman (myself), son of recent Soviet emigrants, and Omri Sharon, son of the then Minister of Defense and future Prime Minister Ariel Sharon.

NATIONAL ARMY, ISRAELI STYLE Military service is a universal duty for Israelis (certainly for the Jews among them). Every young Jewish Israeli man and woman, regardless of their social status, education, or skin color is required to serve in the Israeli Defense Forces (IDF). Moreover, military duty is not only mandated by law but is considered to be a privilege.

About a year prior to being drafted, young Israelis start going through a battery of tests designed to examine their psychological fitness, cognitive and physical abilities. The purpose is to optimally match future soldiers and officers (based on their skills and motivation) to military occupations and units. Those selected into occupations that require prior training are assigned to intensive prep courses in programming, technology, languages, etc. Depending on IDF needs, hundreds are allowed to acquire higher education degrees in fields ranging from IT and engineering to medicine and law (yes, the army also employs lawyers!) in order to serve in a professional capacity.

Once again, I was the only ‘Russian’ in the pack, but this time it seemed to be of little significance.

What mattered was your willpower and physical strength; the agility with which you would wake up to substitute for your friend on a night duty or stick your shoulder under a heavy stretcher. It was about who you were yourself and not “what is your father” (a line that stuck with me from A Portrait of the Artist as a Young Man).

This was the moment when I finally started feeling a proud Israeli citizen.

GEORGIA’S NATION BUILDING PROJECT CELEBRATING 130 YEARS Most Georgians are acutely aware of the fact their country is home to many ethnic and religious minorities – Armenians and Azerbaijanis, Ossetians and Yazidis, Jews and Greek. Yet, few would doubt that despite being divided and ruled by dominant regional powers for much of its history, the Georgian nation has been in existence since times immemorial.

The truth is that, just like all modern nations of our time, the Georgian nation is very a recent creation. Until well into the 19th century, Kartvelian tribes were just that: tribes. Of course, they spoke closely related dialects and had a common religion, but one would have a hard time discerning anything like a common national sentiment. And, indeed, how could there be any unifying sentiment in a territory divided by impassable mountain ranges and artificial borders imposed by rival empires and competing feudal rulers.

Georgia’s revival as a nation started with the country’s political unification under the Russian rule in early 19th century. However, it was not until 1860s and 70s, when influenced by other national movements on the fringes of the Russian empire and elsewhere in Europe, Georgian intellectuals were able to take the country’s nation-building project to the next level. Two notable milestones in this process were the publication, in 1876, of Mother Language (დედა ენა) by Iakob Gogebashvili, and the establishment, three year later, of the Society for the Spreading of Literacy among Georgians. Led by Ilya Chavchavadze, Iakob Gogebashvili and other literati, this charity supported the teaching of the Kartuli vernacular in newly founded schools across the entire country, seeking to establish it as a common national language for all Georgians. Kartuli books, newspapers and magazines published by Chavchavadze et al were just another means of achieving the same goal.

Celebrating its 130th anniversary in 2016, Georgia’s nation-building project is not much younger than most national movements in Europe. However, having achieved independence only in 1991, Georgia is still a very young nation, lacking in maturity and confidence of its older siblings. As we wrote on these pages, to date, Georgians tend to cluster in family groups and clans, and many of the country’s challenges – in business, politics and government – stem from people’s limited ability to let go of these primitive parochial bonds.

Sadly, instead of breaking existing divides, Georgia’s education system and institutions, such as the military, are major detractors from the country’s nation-building project. Instead of facilitating social mobility, Georgia’s public schools are sustaining and deepening existing social and cultural gaps (see “Like Teacher Like Son” on the ISET Economist Blog). Instead of helping heal wounds in Georgia’s social fabric, the Georgian law on military duty and military service effectively divides the nation into haves and have nots. As a result, Georgia ‘national’ army is but an army of illiterate peasants, poorly motivated and unfit for the security challenges of the 21st century. * * * The good news is that backwardness comes with an important advantage: ability to learn from the mistakes and successes of others. Israel may face its own share of challenges, but if there is one thing Georgia could learn from Israel it is how to use the military as the ultimate nation-building device.

BUSINESS

GEORGIA TODAY MARCH 8 - 10, 2016

A Matter of National Security?

VimpelCom in the Georgian Market

BY ZVIAD ADZINBAIA

E

arly January this year, VimpelCom, one of the largest Russian mobile and telecommunications companies, through its daughter company Beeline, announced its interest in the Georgian market. The deal concerned the fiberoptic cable through which Georgia receives internet from Europe (the Bulgaria-Poti undersea cable).

The cable is currently owned by Caucasus Online, a Georgian internet service provider that controls a large part of the Georgian internet communications market.

Following the news, which lead to wide public criticism for the potential cyber risks from Russia, Caucasus Online said in a statement that the sale of the Black Sea cable and land infrastructure is not a subject of negotiations but confirmed that talks were underway with several major telecommunications companies on the purchase of the Caucasus Online retail segment.

While meeting with VimpelCom lead-

ership at the Davos Economic Forum late January, the Prime Minister of Georgia, Giorgi Kvirikashvili, stated that he does not see any misgivings in Beeline’s future acquisition of part of Caucasus Online, confirming that the deal does not refer to the selling of the backbone infrastructure.

Director of Beeline Georgia, Giorgi Tkeshelashvili, also said that the Russian company is not interested in purchasing the fiber-optic cable.

David Lee, head of Magticom, the largest telecommunications company in Georgia, spoke to GEORGIA TODAY on the matter. He claims that VimpelCom is a corrupt Russian company and says that if it is allowed to enter the Georgian market, there will be no way to stop Russian monitoring and control of the internet network within the country. He added that it will be the first time in history that a country has sold its internet network to a country occupying its territory.

Although Magticom was believed to be one of the main players in the deal, Lee clarified that since November 2015, his company has had no interest in the agreement, having pulled out of all negotiations due to the non-commercial price set.

“A company of this size, having already been convicted of corruption, can disrupt the normal operation of the market.

For example, by offering an astronomical price for assets and then price dumping to remove competition,” Lee stated.

Following public concern over the potential deal, over 10 leading NGOs in Georgia, including the Strategic Communications Center, Georgia’s Reforms Association, Transparency International Georgia, and public movement Iveria, sent a petition to the President, PrimeMinister, Parliamentary Speaker and the Chairman of the Georgian National Communication Commission, warning them of the national security risks that the deal could incite.

The petition says that the government’s failure to guarantee cyber security and privacy of citizens might endanger the country’s national security interests as well as harm the confidentiality of private and classified data, which will enable the hostile country (Russia) to utilize the information for its own purposes.

The petition adds that, considering Russian’s most formidable cyber-assault capabilities, an integral part of its ‘hybrid warfare’ strategy, the threat is particu-

larly heightened for Georgia when the sale of a communication company involves Russia-based operators.

“Bearing in mind Russia’s continuous attempts to penetrate the communication markets in a number of countries over the past years, purchasing mobile and internet providers in Georgia will strengthen Russian capability of gathering and monitoring the information flow in Georgia and make use of such for Russian intelligence purposes,” the NGOs claim.

Civil society is urging the addressees of the petition to put on hold the negotiations between Caucasus Online and VimpelCom until the issue has been investigated with due consideration.

Nika Rurua, a founder of Iveria, told GEORGIA TODAY that through opening doors for the Russian governmentaffiliated company, Russia will be enabled to control Georgian internet space.

“Relatively, all internet communication, including that through Facebook, Google and mobile networks will be able to be effectively monitored by Russia’s special services.”

A leader of Free Democrats and exDefense Minister of Georgia, Irakli Alasania, early February also warned of the sale of the strategic fiber-optic cable which could result in a potential higher risk of cyber-attacks.

5

Russian VimpelCom was founded in 1992. It operates throughout the Commonwealth of Independent States space and has shares on the European market, including in Italy and Greece.

In November 2015, the company’s CEO, Jo Lunder, was arrested on corruption charges in Oslo, Norway. The case alleges that in exchange for an operating license, VimpelCom funneled some USD 57.5 million to Takilant, a company linked to Gulnara Karimova, the daughter of Uzbek President, Islam Karimov.

Last month, the Securities and Exchange Commission announced a global settlement along with the US Department of Justice and Dutch regulators that requires VimpelCom Ltd. to pay over USD 795 million to resolve its violations of the Foreign Corrupt Practices Act (FCPA) to win business in Uzbekistan.

VimpelCom’s Beeline, and Caucasus Online, filed a joint application to the Georgian National Communications Commission (GNCC) on November 15, 2015, according to which Beeline should become the provider of cable television, the internet and the telephone network

by Caucasus Online.

The GNCC began administrative proceedings on the issue on January 5. The Commission is expected to reveal its final decision on March 10.

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BUSINESS

GEORGIA TODAY

MARCH 8 - 10, 2016

Beekeeping Program to Ministry of Agriculture Seeks Beneficiaries Give 7000 Beehives to Interested in Sericulture Cooperatives

BY ANA AKHALAIA

T

he State Program for Supporting Beekeeping Agricultural Cooperatives has given more than 1200 artificial beehives to agricultural cooperatives in Lentekhi, Tsageri and Oni municipalities of Georgia’s western region of Racha-Lechkhumi and Kvemo Svaneti.

The Minister of Agriculture, Otar Danelia, stated that the region has a great potential to develop beekeeping and the state program will significantly contribute to the growth of product quality and volume, as well as honey production traceability which is one of the necessary preconditions for Georgian honey realization in the European market.

Within the Program, about 100 agricultural cooperatives throughout the country will be given more than 7000 artificial beehives. 28 beekeeping agricultural cooperatives of Racha-Lechkhumi region have already been granted 1901 beehives.

According to the Chairman of Agricultural Cooperative Development Agency, Giorgi Misheladze, the second phase for cooperatives to register in the Program for Supporting Beekeeping Agricultural Cooperatives is ongoing from February

Hybrid mulberry imported from Uzbekistan does not produce fruit and is used to feed mulberry silkworms

BY ANA AKHALAIA

Minister of Agriculture, Otar Danelia. 28 beekeeping agricultural cooperatives of Racha-Lechkhumi region have already been granted 1901 beehives

29 to March 16. Cooperatives can register on the website of the Agricultural Cooperative Development Agency.

“The Program participant cooperatives will be given beehives made of their preferred material, wood or polystyrene, at 30% of the price. Cooperatives, upon request, can additionally take 1 piece of 12-frame honey extractor and / or 2200litre storage tanks for honey,” said Giorgi Misheladze.

Participant cooperatives in the state Program which have refugees and / or persons with disabilities as 50% of their partners will be given the required inventory with co-financing, at 20% of the price.

Participant cooperatives also have the

New Domestic Flight to Launch Connecting Kutaisi and Natakhtari

BY TAMAR SVANIDZE

A

new domestic flight will be launched beginning March 10 connecting Georgia’s western administrative capital Kutaisi with Natakhtari, about 30 kilometers north of Tbilisi.

Flights will be carried out every Tuesday and Thursday between Natakhtari and Kutaisi.

Ticket prices for the flight have been set at 50 Gel ($20) for adults and 35 Gel

10 Galaktion Street

right to test one sample of its honey in the laboratory of the Ministry of Agriculture without charge. Participant cooperatives will be provided with technical assistance within the frames of supporting the implementation of the essential technical regulations for honey.

The Ministry of Agriculture started the supporting program for beekeeping at the end of 2015. The program aims to improve technical and material bases of beekeeping industries of agricultural cooperatives, to increase quality and quantity of produced honey and other beekeeping products, as well as to implement capital investment for agricultural cooperatives and increase the qualifications of their shareholders.

On a flight with Service Air. Source: www.georgia2016.eu

($14) for children. Tickets will be made available via Tbilisi-based tour operator Vanilla Sky Privately owned company, Service Air, will operate the flights using Czech-built planes capable of carrying 15 passengers.

Georgia’s Economy Ministry announced that Service Air would also be responsible for carrying out flights between Kutaisi and Mestia, the administrative center of the mountainous Svaneti region, on Mondays and Fridays.

Service Air currently offers flights between Natakhtari and Mestia four days a week, on Mondays, Wednesdays, Fridays and Sundays.

Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge

T

he Ministry of Agriculture held a working meeting under the Sericulture development Project to plan the distribution of imported hybrid mulberry seedlings free of charge among small entrepreneurs.

The Deputy Minister of Agriculture, Iuri Nozadze, stated that the Ministry of Agriculture is ready to find beneficiaries interested in the development of sericulture and will provide them with all the necessary information and advice for growing and maintaining the plants.

Within the Sericulture Development Project, the founder of Georgian alcohol producing company Askaneli Brothers, Jimsher Chkhaidze, donated 100,000 mulberry seedlings imported from Uzbekistan to the Georgian government.

According to the Head of the Agricultural Research Centre, Levan Ujmajuridze,

hybrid mulberry imported from Uzbekistan does not produce fruit and is used to feed mulberry silkworms. Cultivating these saplings is possible with intensive planting, as well as with single roots.

The Ministries of Agriculture, Economy and Sustainable Development and Environment and Natural Resources Protection are involved in the Sericulture Development Project.

The meeting was attended by Jimsher Chkhaidze, representatives of the Ministry of Environment and Natural Resources and advisors of the Minister of Agriculture.

According to the Prime Minister, Giorgi Kvirikashvili, a year ago, the Ministry of Economy created the Industrial Development Group which works on development strategies for various industries, including the concept of sericulture revival. Sericulture is based on the model of small farming, the revival of which will contribute to the development of small production and the increase of employment in the country.

BUSINESS

GEORGIA TODAY MARCH 8 - 10, 2016

Factory-made Tklapi Appears on Georgian Market

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One in three businesses worldwide (33%) has no women in leadership positions

Senior Business Roles Held by Women in Georgia Down to 29%

BY ANA AKHALAIA

F

actory production of the Georgian national dessert Tklapi has been launched in Georgia.

The factory-made packaged Tklapi, produced by Fruit Factory, appeared on the market several weeks ago.

Tklapi is a traditional Georgian roll-up pastille made with dried puree of different varieties of fruit, the most popular of which is sour plum (Tkemali), plums and figs. Tklapi can be sour or sweet. It is spread thinly onto a sheet and sundried on a clothesline where it thickens.

According to the founder, Timote Gvazava, at this stage they are producing four kinds of Tklapi: apple, sour plum, feijoa and apple + sour plum. The product is completely natural, without any additives. Sometimes the company receives prepared apple puree and then dries it.

“There is no factory-made Tklapi in Georgia. There is one producer but they also sell sun-dried products. Winterproduced products did not previously exist on the Georgian market, which was exactly our goal: to produce Tklapis not only in summer but in winter too,” said Gvazava in an interview with Georgian media outlet Commersant.

The company uses an enclosed drier

O

to dry their product and have introduced new machinery to that end. Fruit Factory aims to offer customers products made in sanitary conditions, since the Tklapi found on the market today is handmade in unknown conditions and is sold without packaging.

Further, it aims to increase productivity, receive an ISO (International Organization for Standardization) certificate and have simplified relations with European countries. It also plans to start producing Tklapis from other fruits and make other fruit products, though this requires special machinery which the company doesn’t yet have.

Fruit Factory’s Tklapis will soon appear on the shelves of supermarket chain Fresco. The company has also received

requests from the Baltic States, Russia and Poland and is now working on the proposed conditions.

Fruit Factory was established in 2015 and started production a month ago. The company has invested GEL 150,000 and currently employs 12 people.

n International Women’s Day, a new report based on the annual Grant Thornton survey of 5,520 businesses in 36 economies reveals a slight uptick of women in senior management positions from 22% to 24%, but a third of businesses still do not have women in leadership positions. In Georgia, the number of senior leadership roles held by women moved from 38% to 29%, while 26% of businesses still have no women in leadership roles.

The G7 is among the worst performing regions, with just 22% of senior roles occupied by women and 39% of companies with no women in senior roles. Two of the poorest performing individual countries are Japan, with just 7% senior roles held by women, and Germany, with 15%.

Meanwhile Eastern Europe and ASEAN report the highest proportions of women in leadership at 35% and 34% respectively, and just 16% and 21% of firms with no women in senior management respectively. Russia tops the list of individual countries with 45% of senior roles held by women, followed by the Philippines at 39%, where only 9% businesses have

no women in senior management.

Nelson Petrosyan, managing partner of Grant Thornton, said: “Companies across developed nations have talked the talk on diversity in leadership for long enough. It’s time to put their promises into practice and deliver results. We know that businesses with diverse workforces can outperform their more homogenous peers and are better positioned to adapt to a rapidly changing global business environment.”

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. It is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 5,520 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted between July and December 2015.

This unique survey draws upon 22 years of trend data for most European participants and 11 years for many nonEuropean economies. For more information, please visit: www.internationalbusinessreport.com

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BUSINESS

GEORGIA TODAY

MARCH 8 - 10, 2016

Dentistry Today: All about the DoctorPatient Relationship

BY EKA KARSAULIDZE

G

igi Makharadze is one of the best doctors of dental surgery in Georgia. Educated abroad, he returned to his homeland and, along with actively practicing his art, has been engaged in teaching and has opened his own clinic. The Cedex (Center of Dental Experts) Clinic, apart from offering qualified personnel and the latest technology, has something more important – the trust of its customers. GEORGIA TODAY met with Doctor Makharadze and discussed the main problems in this field, the dental business and the culture of aesthetic beauty.

“It’s a mistake to believe that dentistry is poorly developed in our country. At the very least our young professionals prove it. I often attend conferences all around the world and I’m pleased to notice many young people from Georgia there. They are deeply enthusiastic and interested in their profession, something we obviously lacked 20 years ago,” said Dr. Makharadze. “I believe that Georgia has quite a bright future in this regard.”

Moreover, the Doctor says that developing the dental business in the right direction could be beneficial to the country as a whole. The Cedex Center has a large number of foreign patients; foreigners who are currently working in Georgia, foreign guests who heard about the good service and affordable prices from their fellow-residents, as well as immigrants to Georgia.

According to Dr. Makharadze, the prices of dental services have increased dramatically in most European countries, leading to Dent-tourism becoming very popular worldwide. “I’m not one to speak about other clinics, but compared with the world’s dental centers, we at Cedex have very affordable prices, hence our flow of foreign patients,” he said. “I can already say that I will barely manage to have a holiday this summer, because of the number of patients I’m expecting- summer of one of our busiest times.”

Dentistry is one of the most complex and dynamic areas. The knowledge that could be received from tutorials 10-20 years ago has been left far behind. Dr. Makharadze noted that as a dentist, it is highly important to keep abreast of the latest developments in the field; to update

one’s knowledge and skills, as well as to purchase new technology regularly.

If, in the areas of professionalism and improvement skills, Georgia has advanced enough, there is another important aspect, on which Dr. Makharadze is currently actively working.

“The oral cavity is an intimate area which is located some 10-15 cm from the brain. Naturally, when someone invades it with his/her fingers or with tools, the brain begins to panic. Therefore, it is essential to establish good contact with a patient beforehand. I have a strong focus on consultation and there are times when I’ve actually refused to treat a patient. If you cannot establish contact, if the patient does not trust me, then, unfortunately, the treatment will not work,” the Doctor said.

Moreover, for very fearful patients there should be no worry to visit the dentist nowadays. Cedex Clinic uses sedation, which is safe and commonly used in medicine. It is not a narcosis, but the patient is half-asleep, feels no pain, and wakes up fully just when everything is finished.

Dentistry is also one of the most complex areas of medicine. If something is wrong in your mouth, it will never pass

Dr. Gigi Makharadze of the Cedex (Center of Dental Experts) Clinic. Apart from offering qualified personnel and the latest technology, has something more important – the trust of its customers

without assistance. With this in mind, no one should delay a visit to the dentist and, ideally, everyone should get their teeth cleaned professionally twice a year.

“It often happens that some diseases occur with no symptoms and pain, so the patient may think that everything is fine, leaving the problem undetected until the dentist notices something amiss during an inspection. While cleaning, the doctor works on each tooth individually, so he/she would be able to spot a problem in good time,” he added.

Dr. Makharadze advises patients to always listen to their bodies. There are no universal rules, but it is always important to take care of oral hygiene and have

regular check-ups. If something goes wrong, or your teeth are in danger, they will let you know, and if they need help, for your own peace of mind, it is of course best to go to a dentist you can trust.

Today, teeth function as a person’s business card, not only their health, but also as a part of aesthetic beauty. They require consistent monitoring and care.

Therefore, in contrast to other areas of medicine, it is important to have the number of your own personal, trusted, dentist in your contact list. This practice is widely accepted in the West, is the culture of behavior, one which Dr. Makharadze would like to encourage in Georgia.

BUSINESS

GEORGIA TODAY MARCH 8 - 10, 2016

Qvevri-made whisky is unique in that it is a very aromatic pure alcohol that comes from the natural maximum filtration

Georgian Distiller Patents Method for Qvevri-made Whisky

BY ANA AKHALAIA

G

eorgian distiller Aleko Kvernadze has patented a method for making whisky using Georgian earthenware vessels known as Qvevri.

“We’ve been developing this idea for two years. No one has come up with anything like this,” Kvernadze said. “We originally tried this more as an experiment to see what clay does as a catalyst when making high quality alcoholic products.”

Used for fermentation, storage and ageing, Qvevri are an 8,000 year-old wine making tool that, according to UNESCO, is entirely unique to Georgia.

Qvevri-made whisky is unique in that it is a very aromatic pure alcohol that comes from the natural maximum filtration.

Kvernadze believes his method of making whisky will be of interest around the world as it is entirely unique compared to other types of hard alcohol.

He explained that the clay from which Qvevri are made purifies alcohol in ways other technologies cannot.

“Vodka is essentially a pure spirit that can be used to make whisky. Using our Qvevri, we’ve restored Georgia’s ancient mountain traditions.

Grapes don’t grow in the high mountains, so our ancestors used to make vodka from grain. If they had aged Zhipitauri, a type of low alcoholic vodka, they would have made whisky. But they didn’t know what to do with that type of technology back then,” said Kvernadze.

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BUSINESS

GEORGIA TODAY

MARCH 8 - 10, 2016

Georgia to Receive More Azeri Gas Supplies, Mulls Gazprom Deal

Iranian Company Seeking to Export Tractors to Georgia

BY TAMAR SVANIDZE

G

eorgian Energy Minister Kakha Kaladze and the President of Azerbaijani State Oil Company SOCAR, Rovnag Abdullayev, have signed an agreement regarding additional gas supplies to Georgia.

Following the signing, Minister Kaladze said current negotiations with Russia’s state-run energy giant Gazprom remain on-going, though no agreement had been signed as additional volumes of natural gas are not currently needed.

“We recently sent our last proposal to them (Gazprom), offering to continue receiving gas under the old contract.

Namely, we want to receive 10 per cent as raw natural gas,” Minister Kaladze.

According to the agreement signed between Kaladze and Abdullayev, Georgia will receive an additional 500 million cubic meters of gas from Azerbaijan.

“We’ve managed to increase the supplies to 1.5 billion cubic meters, as well as to 1.5 billion cubic meters via a pipeline connecting the two countries through Azerbaijan’s Gazakh district,” Abdullayev said.

“Compared to 2012, natural gas consumption in Georgia increased 40 per cent, which called for additional volumes of gas,” Minister Kaladze said.

He added that the new agreement with

ITMCO’s expert in international relations, Arash Moazenzade

BY ANA AKHALAIA

I Georgian Energy Minister Kakha Kaladze and the President of Azerbaijani State Oil Company SOCAR, Rovnag Abdullayev, signed an agreement regarding additional gas supplies to Georgia

SOCAR cancels the need to continue negotiations with Iran over natural gas imports.

Azerbaijan exports gas to Georgia via a pipeline linking the two countries. The annual gas pumping capacity of this

pipeline exceeds 2.5 billion cubic meters.

Some 750 to 800 million cubic meters of annual gas supplies are being sent to Georgia from Azerbaijan’s Shah Deniz field, 1.4 bcm by SOCAR, and 200 mcm from Russia.

ranian Tractor Manufacturing Company (ITMCO) has expressed interested in exporting tractors to Georgia.

“We want to start exporting to Georgia but it is very important Georgia takes the first step if they want to buy our tractors. We have an export department where we can arrange a meeting with Georgian representatives,” ITMCO’s expert in international relations, Arash Moazenzade, told Georgian journalists in a tractor factory in Tabriz, Iran.

So far, he says, there has been very little communication in this regard with Georgia, which imports tractors mainly from Russia and Belarus at present.

However, he says Iranian tractors are able to compete in terms of quality, as well as price.

ITMCO has produced tractors since 1968. The company annually produces 25,000 tractors, 70% of which remains in Iran, 30% is exported to Sudan, Nigeria, Venezuela, Afghanistan and Iraq.

ITMCO has produced the new ‘ITMS 5000’ type tractors since 2015 which is produced only in 5 countries. It has 150 horsepower with a price ranging from USD 50,000 to 60,000 in Iran, while it costs USD 100,000 on the global market.

The company also makes ‘ITMCO 399’ which has 110 horsepower distributed to the front and rear wheels and consisting of 210 different parts. It costs USD 20,000 but the world market price is much higher.

The company employs 5000 people on an average salary of USD 700-800. The Tabriz Tractor Factory has 2500 employees, 200 of which are women who work in administration and prepare tractor structures.

BUSINESS

GEORGIA TODAY MARCH 8 - 10, 2016

11

Dechert OnPoint: Improving Regulations, Amendments to the Law on Entrepreneurs

D

echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ruslan Akhalaia and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, a global specialist law firm that focuses on core transactional and litigation practices, providing worldclass services to major corporations, financial institutions and private funds worldwide. With more than 900 Lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide. For more information, please visit www.dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.

in the profit tax statement.

Capital Increase The Amendments support and regulate the established practice of increasing a partner’s share in a limited liability company through contribution to its capital.

This, like realization of other similarly significant partners’ rights, requires a decision of the general assembly. In particular, in case of a capital increase in a limited liability company, the partners shall be entitled to participate in the capital increase in proportion to their shares by paying the full amount of the respective contributions into the company’s capital within the timeframe defined by the general assembly. Exceptions can occur in cases when the partners agree on some other rule for exercising such right. Additionally, if any of the partners do not exercise such right fully or partially, following the capital increase a new distribution of shares may be effected.

Voting Rights The Amendments provide that the decision of a company’s general assembly on changing the voting rights of holders of a certain class of shares, either by cancelling and/or reducing and/or granting such rights, shall enter into force only with the consent of more than 75% of the holders of the class of shares whose voting rights are to be affected by the decision.

INTRODUCTION As a step toward further improvement of Georgia’s business environment, the Parliament of Georgia recently passed amendments (the “Amendments”) to the Law of Georgia on Entrepreneurs (the “Law”). The Amendments enhance existing protections of the rights of minority shareholders, increase transparency of corporate management and control of enterprises and, subsequently, facilitate access to financial resources on the part of enterprises.

This week’s edition of Dechert OnPoint examines the key aspects of the Amendments and provides an overview of the Law’s amended clauses with regard to dividend distribution, capital increases, changes to voting rights, the right to purchase shares in an enterprise and requirements regarding the supervisory boards of enterprises.

Share Purchase For the purpose of ensuring maximum protection of the interests of shareholders, the Amendments provide that if new shares are issued by a company, respective shareholders shall have preferential rights to purchase them in proportion to their current shareholding. However, this right may be cancelled by decision of the shareholders’ general assembly.

According to the Amendments, if an enterprise accountable under the Law of Georgia on the Securities Market and with its securities listed on a Stock Exchange holds at least 50% of the shares of another enterprise, such other enterprise shall not have the right to purchase shares in the above mentioned accountable enterprise. This restriction shall not apply to securities brokers defined by the Law of Georgia on the Securities Market.

defined by the Law of Georgia on the Securities Market and with its securities listed on a Stock Exchange, must have on its supervisory board at least one member who is an independent person not equipped with representative powers (i.e., is not a director of the same company). For the purposes of this clause, a person is deemed independent if s/he does not hold shares of the company and does not receive any salary or other economic benefit from the company except for compensation received for membership on the supervisory board. Those enterprises which do not have an inde-

pendent member of the supervisory board upon enactment of the Amendments shall be subject to the requirement in question within 2 years from enactment of the Amendments and upon the first instance of its changing of the membership of the supervisory board.

more rights and legislative guarantees.

These, along with other amendments recently made to Georgian legislation, make Georgia stand out in the region as a country taking significant steps toward improving and advancing corporate governance, and thus improving its business environment.

CONCLUSION On a final note, one can observe that the Amendments serve to improve Georgia’s entrepreneurial and investment environment on the one hand, while on the other protecting the interests of minority shareholders by granting them

*** Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

OVERVIEW Dividends According to the Amendments, interim and annual dividends in a limited liability company or joint stock company may be distributed according to the decision of the company’s general assembly. The Amendments require that the timeframe for distribution of profits after making the respective decision be defined in the company’s charter, however, such timeframe is limited to a maximum of 9 months. The purpose of this Amendment is to ensure that dividends are paid within the same calculation period as covered

Supervisory Board Pursuant to the Amendments, an individual cannot simultaneously be a member of the supervisory board and directorofthesamecompany.TheAmendments require those enterprises which are in conflict with this requirement to make necessary changes in their management bodies no later than 2 years from the date of entry into force of the Amendments.

A new clause introduced by the Amendments provides that a joint stock company, as an accountable enterprise as

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