Issue #894 Business

facebook.com/ georgiatoday

Issue no: 894/52

• NOVEMBER 8 - 10, 2016

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Cheese Festival in Tbilisi

PAGE 3

“Friendship Bridge” – For or Against Gravitation?

FOCUS ON PROSPERITY London's Legatum Institute ranks Georgia one of the top democratic performers PAGE among ex-Soviet countries

G

eorgia’s former President Mikheil Saakashvili on Monday announced his resignation as governor of Ukraine’s Black Sea region of Odessa.

Saakashvili, who has lived in self-imposed exile from Georgia since being defeated by his political rival Bidzina Ivanishvili in 2012, said he made his decision to step down after Ukrainian officials were for the first time forced to publicly declare their income.

“That was the last straw that broke my patience," said Saakashvili during his announcement.

The unprecedented declarations revealed the vast wealth of most of the ruling political class

in the country, including Ukrainian President Petro Poroshenko.

In his resignation speech, Saakashvili accused Ukrainian politicians of corruption and Poroshenko, personally, for supporting widespread graft operations in Ukraine’s wealthiest regions.

Saakashvili went on to accuse Poroshenko, who was once his close ally and friend, of supporting Odessa’s most powerful crime syndicates.

Odessa-native Poroshenko appointed Saakashvili as governor of the region in May 2015 in the hope that he and many of his reformist allies would engage in the same radical measures used in Georgia to eradicate corruption in the police force and state bureaucracies.

Saakashvili has frequently clashed with local

British Council Georgia Celebrates Customer Service Week in Tbilisi

6

Former Georgian President Saakashvili Resigns as Governor of Odessa

BY NICHOLAS WALLER

ISET PAGE 4

PAGE 5

Hilton Tbilisi to Open in 2019 PAGE 6

First Electric Vehicle Charging Stations Open in Tbilisi PAGE 7 politicians and Odessa’s citizens, many of whom have openly opposed his efforts to overhaul the region’s most profitable sectors, including Odessa’s huge port and customs office.

In his announcement, Saakashvili said he would continue to push for radical reform in Ukraine as a private citizen after forming an alliance with “young, honest and like-minded forces.”

Dechert OnPoint: Proposed Amendments to Georgia’s New Patent Regulations PAGE 10 Prepared for Georgia Today Business by

Markets As of 04ͲNovͲ2016

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

BONDS

w/w

m/m

GBP 29.03

Ͳ2,6%

Ͳ4,4%

GEOROG 04/21

105.38 (YTM 5.38%)

Ͳ

Ͳ0,2%

GBP 3.50

Ͳ2,8%

+11,1%

GEORG 04/21

111.89 (YTM 3.92%)

Ͳ0,2%

Ͳ0,1%

GBP 13.03

+1,6%

+3,4%

GRAIL 07/22

111.63 (YTM 5.35%)

Ͳ0,5%

Ͳ1,1%

BGEOLN 07/23

102.63 (YTM 5.53%)

Ͳ0,4%

Ͳ1,1%

Price

w/w

m/m

45,58

Ͳ8,3%

Ͳ10,4%

1 305,06

+2,3%

+2,9%

CURRENCIES

Price

Price

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GEL / USD

2,4325

+1,5%

+3,2%

GEL / EUR

2,6952

+2,8%

+2,8%

Price

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GEL / GBP

3,0414

+4,2%

FTSE 100

6 693,26

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MSCI EM

880,12

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EUR / USD

0,8976

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+0,6%

SP 500

2 085,18

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GBP / USD

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MICEX

1 962,71

MSCI FM

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2 444,21

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RUB / USD

64,4471

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+2,7%

GT Index (GEL)

908,54

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TRY / USD

3,1568

+1,6%

+3,2%

GT Index (USD)

736,27

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AZN / USD

1,7053

+1,6%

+5,9%

2

NEWS

GEORGIA TODAY

NOVEMBER 8 - 10, 2016

Friendship Bridge to Be Built at Georgia-Armenian Border

Georgia’s Prime Minister, Giorgi Kvirikashvili, and the Armenian President Serzh Sargsyan

BY THEA MORRISON

A

bridge is to be built at the GeorgiaArmenian border as a symbol of the friendship between the two neighboring states.

The construction of the bridge, expected to be completed in two years, is to feature a four-lane highway which will run through the territory of the new Sadakhlo-Bagratasheni checkpoint on the Georgia-Armenia border.

The project is supported by the Governments of Georgia and Armenia and financed by the European Bank for Reconstruction and Development (EBRD) which will allocate EUR 10.3 mln for the project.

Georgia’s Prime Minister, Giorgi Kvirikashvili, and the Armenian President Serzh Sargsyan visited the territory allocated for the construction of the new bridge on Friday and attended the opening ceremony of the checkpoint.

The parties emphasized that the new border checkpoint, along with the Rustavi-Sadakhlo highway, would allow traffic flow to and from Armenia with uninterrupted access to the East-West and North-South Transit Corridors, also promoting sustainable and competitive development of the region's transport network.

Georgia has already commenced tender competition procedures pertaining to a feasibility study and detailed design for the Rustavi-Sadakhlo highway.

The agreement on the construction of the Friendship Bridge was signed on December 24, 2014 by

Giorgi Kvirikashvili (the then Deputy Prime Minister and Minister of Economy and Sustainable Development of Georgia) and Gagik Beglaryan, the Minister of Transport and Communications of Armenia, during Kvirikashvili’s visit to Yerevan.

Deputy Minister of Economy and Sustainable Development of Georgia, Genadi Arveladze, stated that the Georgian side is ready to modernize its road network to provide a wide and convenient transportation corridor both from west to east, and from north to south.

Georgia and Armenia have six joint checkpoints.

Two of these checkpoints—namely, Bagratashen and Gogavan—started operating in October, 2016, while work is still in progress at a third, the Bavra checkpoint, which will connect northern Armenia with the Armenian-speaking Javakheti region of Georgia. It is scheduled to open at the end of 2016.

The new checkpoints are replacements of older ones in the same locations, and are to be equipped with modern devices for passport and luggage control of citizens, sanitary control of products of animal and vegetable origin, as well as for custom clearance and security systems.

The construction of the Friendship Bridge is expected to start in the first quarter of 2017 and to be completed in the summer or autumn of 2018.

PM Kvirikashvili and Sargsyan held a face-to-face meeting in Bagratshen. The parties discussed prospects of further developing good neighborly relations and bilateral cooperation in different fields.

The discussion also covered the issue of further deepening transport and energy cooperation between the two countries.

More on this on page 4

Georgian Schools to Be Equipped with Wi-Fi by Microsoft

Georgia's Education Ministry and Microsoft signed a memorandum on Friday

BY THEA MORRISON

T

he Ministry of Education and Science of Georgia, and American company Microsoft signed a memorandum of understanding on Friday, which envisages implementation of Wi-Fi practices at Georgian schools.

Under the memorandum, Microsoft will support the implementation of Wi-Fi infrastructure at Georgian schools and provide teachers and school leaders with the educational content, educational materials and expertise needed in order to support the utilization of internet and modern technologies

in the educational process.

The agreement was signed by Georgia’s Minister of Education and Science, Alexander Jejelava; the Central and Eastern Europe General Manager of Microsoft, Michael Collagher; the Global Director of Microsoft Connectivity, Alexander Toledo Late; and the Manager of Microsoft in Georgia, Nikoloz Doborjginidze.

Initially, Microsoft will implement Wi-Fi technologies in 32 schools in various cities and towns throughout the country without any charges.

However, the long-term strategy aims at providing free internet in all schools and other educational institutions of Georgia, as many schools now have internet, but do not have Wi-Fi modems.

Continued on page 6

BUSINESS

GEORGIA TODAY NOVEMBER 8 - 10, 2016

3

Cheese Festival in Tbilisi

BY NINO GUGUNISHVILI

G

loomy Sunday afternoons may be just the right time to taste some Georgian cheese, wine and honey in the fresh air, in the center

of Tbilisi.

Rose Revolution Square was pleasantly crowded this Sunday, transformed into a festive bustle enabling passing guests to enjoy a bite of churchkhela and honey, and also a wide sampling of the many cheeses Georgia is well-known for.

Numerous Georgian wine brands were also present.

It seemed each and every visitor was engaged in lively conversation with the merchants, trying to grab the fast-selling products, and although 5 o’clock was officially time to wrap up, no one seemed in a hurry- none wanting to leave without at least one type of cheese and a bottle of wine in hand.

Anna Mikadze-Chikvaidze, Head of Cheese Producer’s Association of Georgia, told GEORGIA TODAY that almost 101 types of Georgian cheese were presented at the 2016 Cheese Festival.

“Nadugi, for example, a type of Georgian snack made of Sulguni cheese and blended with mint, has wonderful nutritional components, is as yet unknown beyond Georgia’s borders. The potential that milk production had in the country was under-utilized for many years,” she said. “However, the fact that Tenili cheese made in Samtskhe-Javakheti and Kvemo Kartli regions of Georgia from sheep or cow’s milk and Dambal Khacho, usually made in Pshavi, are both acknowledged as being an intangible heritage. This hopefully signifies that Georgians, too,

will care for their agricultural products.

In an attempt to promote a variety of locally produced Georgian cheese, the Ministry of Agriculture announced 2017 to be the Year of Cheese Popularization, be it artisan-made or produced in the

monasteries of Georgia.”

Mikadze-Chikvaidze went on to note that despite the fact that many entrepreneurs were present at the 2016 Cheese Festival, a greater number might have been reached, and more local producers

encouraged to participate.

“Many local producers think they don’t have problems selling cheese and don’t see the need to take part in events like these” she lamented.

She recalled the period when she her-

self re-discovered the rich variety of Georgian cheese and how she persuaded local farmers to show their homemade products for the first time in Signagi, Kakheti.

“That moment,” she says with a grin, “was a turning point for Georgians and a culture shock for foreigners who were used to just the familiar Sulguni and Imeruli cheese.”

Two of probably the youngest entrepreneurs at the cheese festival, Nodar Trapaidze and his friend Giorgi Toidze, 14, who had an assortment of cheese from Tsnisi village near Akhaltsikhe, eagerly shared their joy at seeing so many people attending and, despite their youth, worked diligently and professionally while offering their products to customers.

Givi Kavtaradze from Shiraki Cheese a Dedoplistskharo-based enterprise, also attending the cheese festival, told GEORGIA TODAY they produce smoked Sulguni and Imeruli cheese as well as cottage cheese and natural butter, from cows brought from Spain and the Netherlands.

“Saperavi wine is also a part of our production,” he said. “The turnout was fantastic this year. The Festival is an excellent possibility both for the producers and potential customers to get to know each other, promote the brand, and get noticed.”

“It’s an ideal place for winemaking companies to introduce and offer their wines,” said Gigi Aronishidze, Marketing Manager at Dugladze Wines Company. “I was pleasantly surprised to see so many different kinds of Georgian cheese today, of very good quality, and alongside the actual tasting and degustation experience, it’s important to get feedback from our customers, even if it’s critical, it helps to make our products better,” he said.

4

BUSINESS

GEORGIA TODAY

NOVEMBER 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.

“Friendship Bridge” – For or Against Gravitation?

BY IRAKLI SHALIKASHVILI

T

he official visit of the Armenian President last week was concluded by a splashy announcement that the building of the “Friendship Bridge,” a new infrastructure project approved by the Georgian and Armenian Governments in late 2014, will start construction in 2017, and will be completed in under two years. The Georgian Prime Minister and the Armenian President have reportedly discussed a range of other opportunities to deepen economic and trade relationship between the two countries and support business community engagement in this process.

This excitement might come as a surprise in these times of diverging paths of the regional integration policies of the two countries. In 2015, Armenia joined the Russian-led customs union – the Eurasian Economic Union (EaEU), while Georgia had already signed a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU (June, 2014).

2015 also saw a drastic decline in trade volume between the two (see Figure 1), in absolute terms (-29%, in USD), and in the share of Armenian goods in Georgia’s total trade volume (from 4.35% to 3.58%). The question naturally arises: will “Friendship Bridge” end up being mostly a transit route between Armenia, Russia and the rest of the EaEU, or will it serve as a tool for strategic trade and economic partnership between Georgia and Armenia?

STRONG “GRAVITATIONAL FIELD”…

Many similarities between the Georgian and Armenian economies have emerged from geographical, historical and anthropological circumstances, which according to trade economists create a unique set of favorable conditions for deeper economic integration. The gravity model of international trade was first introduced by Jan Tinbergen in the paper, “An analysis of world trade flows in shaping the world economy” in 1962, which uses key country characteristics to explain overall trade volume between two countries. According to the model, trade between two countries is proportional to their respective sizes, measured by their GDP, and is inversely proportional to the geographic distance between these countries. Though important, these two characteristics proved to be incomplete in terms of explaining trends in trade flows across the world. As a result, over time the model acquired a more diverse set of variables (such as common language, common borders, landlocked, island, land area, common country, GSP (Generalized System of Preferences), joint FDI stocks, joint

trade with all partners, partnership with EU, NAFTA, etc.) which served to better explain trade flows between countries.

According to the gravity model, given that Armenia and Georgia are geographically and historically very close neighbors, with common borders, and that for Armenia, Georgia provides unique access to foreign markets, and that both countries have very similar economic structures, we can infer that they both benefit from quite a strong “gravitational field” for bilateral trade.

Figure 1. Trade Volume between Georgia and Armenia

…BUT DIVERGING PATHS… Both Georgia and Armenia have been an important destination for other country’s exports, supported by the bilateral Free Trade Agreement (FTA), signed in 1995. The FTA, effective to-date, precludes any tariffs or quotas on products traded, and allows for the free transit of goods. Recent commitments to mutually exclusive free trade agreements, DCFTA for Georgia, and EaEU for Armenia, will have the most immediate implications on trade terms between the two countries due to the tariff and non-tariff barriers each agreement entails.

The FTA between Georgia and Armenia is in principle incompatible with EaEU membership, but an explicit clause in the agreement allows Georgia to trade freely with Armenia as long as the FTA remains effective. However, Georgia will only be able to export domestic products tariff-free to Armenia. Reexports of foreign produced goods will be subject to increased tariffs. In the long run, non-tariff barriers erected through product standards to which each country is committed to comply with by 2020-2022 may lead to increased compliance costs for both Georgian and Armenian exporters.

The German Economic Team-Georgia (GET), in the 2016 report “Trade between Georgia and Armenia: Business as Usual?”, claims that the different trade orientations will have short- and longterm consequences for Georgian-Armenian trade dynamics. Table 1 summarizes the short-term and long-term consequences for both tariff barriers (TB) and non-tariff barriers (NTB) on exports of domestic and re-exports of foreign goods. In the short-term, higher tariffs will be imposed on only a few foreignproduced goods, so tariff barriers will have low to no negative impact on total exports to Armenia. Non-tariff barriers, such as more demanding customs procedures for non-EaEU countries, are expected to bring about marginal negative impact. In the long run, on the other hand, the elimination of tariff exceptions for re-exports will cause an additional negative impact on exports from Georgia. Due to Georgia’s strategic importance as a transit route for

Source: Geostat

Armenia’s exports, it is highly likely that the Georgia-Armenian FTA will remain effective, in which case Georgia will continue to benefit from duty-free access to the Armenian market. However, since Georgia will conform to DCFTA standards, and Armenia will apply EaEU regulations, the compliance costs for exporters will increase, mainly in the agriculture sector, because of the different product standards and safety requirements the agreements entail.

This is expected to have considerable negative impact on trade between Georgia and Armenia.

According to GET, part of the decline in export structure in Georgia can already be explained by Armenia’s EaEU membership. In 2014, 9.8% of total Georgian exports were directed to Armenia, while in 2015, this number dropped to 7.1%. 77% of this decline was due to a drop in re-exports, mostly of used cars, which according to the authors, resulted from increased administrative and financial burdens at the EaEU customs border.

… AND SENTIMENTS The deteriorating economic ties of Armenians and Georgians is exacerbated by a noticeable distrust of each other.

According to the Caucasus Barometer, an annual survey conducted by the Caucasus Research Resource Center, more Armenians, as well Georgians, approve of doing business with Russians rather than with each other (see Figure 2). Luckily, the share of respondents who do not approve of doing business with each other is significantly smaller for the young generation of Georgians and Armenians.

ON THE POSITIVE SIDE… Georgia’s duty-free access to the EU carries the promise of attracting Foreign Direct Investment (FDI) in the production of goods for export to the EU market. For Armenia, Georgia can serve as a duty free “export platform” for EUoriented goods and services. Exportplatform investment can be done by setting up an entire production chain or some elements of it (not necessarily the final stage of production). The type of investment (sector, production phase) will depend on the “Rule of Origin” regulations that apply in each specific case (i.e. the share of Georgia, EU and/ or other eligible countries in the final value of the product), Georgia’s comparative advantages in production inputs (labor, land, water, energy, natural resources), and, of course, investors’

know-how.

While still comprising a minor share (0.77% in 2015) of Georgia’s total FDI, 2014 and 2015 saw a remarkable increase in Armenian FDI relative to previous years (157% increase over 2012-2013).

More time is required to see whether this short-term surge in investment flows is maintained and could be attributed to export-platform investment.

TO CONCLUDE… Despite recent evidence pointing to diverging paths of trade policies, Georgia and Armenia have significant strengths that can be utilized in order to take advantage of the opportunities their economic and political partnership makes available. If left unattended, adverse external circumstances and the weaknesses discussed above could take a toll on the economic development of these countries. Therefore, we hope that the “Friendship Bridge” will bring together the Georgian and Armenian governments to work on coordinated policies of economic integration, connect Georgian and Armenian businesses to take advantage of the opportunities each country has to offer, and supply Georgian shops with the second best water in the world (after San-Francisco) from Dilijan (Rubik Khachikyan, 1977).

Figure 2. Approval of Georgians and Armenians Doing Business with Each Other and Russians

Table 1. Summary of Impact Analysis based on GET (2016)

Source: Caucasus Barometer 2015 (CRRC)

BUSINESS

GEORGIA TODAY NOVEMBER 8 - 10, 2016

5

British Council Georgia Celebrates Customer Service Week in Tbilisi With the rich and valuable experience and understanding gained through previous years’ themes, British Council Georgia says that the staff and customer engagement has become even more entrenched in their operations. This year they interviewed their customer service team and asked them to share their experience of working at the organization.

As Zaza Purtseladze, Director of Brit-

BY NINO GUGUNISHVILI

F

or the fourth year British Council Georgia celebrated Customer Service Week at its teaching center in Tbilisi.

Coinciding with the busiest time of the year, ending the registration period, there were many reasons to thank the British Council team members, its customers, partners and stakeholders.

British Council states that the Customer Service Week gives "the chance to highlight every detail and component of the company’s operations and most importantly each person who contributes to its success. This is an event during which it becomes possible to raise awareness on the importance of customer service as a whole, paying particular attention

to building close relationships with customers, seen to be an essential factor in today’s increasingly competitive market, a goal impossible to achieve unless each employee puts the customer first," British Council representatives said.

British Council Georgia claims that the organization believes “customer service is not merely about being on the front line; it is in fact a holistic approach that organizations should apply to every aspect of their processes, procedures, quality control and strategy in order to succeed.”

Customer Service Week (CSW) is seen as playing a vital role in forming and understanding business behaviour in Georgia. According to the British Council Georgia, it is high time to “analyse and plan activities and events that are underpinned by customer-orientated values.”

ish Council Georgia said in a TV interview, British Council aims at defining the needs of customers and seeks to provide services tailored to their specific needs. "The goal of the CSW was to strengthen the communication with customers," he said.

This year, British Council Georgia has an ambitious plan to reach 1 million 8 hundred thousand customers both

Source: insidetheclassroomoutsidethebox.wordpress.com

directly and indirectly.

25,000 will be reached directly, 600,000 through social media and around 1 million will be reached through media products, radio and television.

CSW was held from October 24 to October 29. It is an annual event that is regularly held in all the British Council Offices worldwide. The organization is present in 110 countries around the globe.

6

BUSINESS

GEORGIA TODAY

NOVEMBER 8 - 10, 2016

Prosperity Index: Georgia’s Democracy Level One of Best Among Ex-Soviet Countries

Hilton Tbilisi to Open in 2019

BY THEA MORRISON

BY NINO GUGUNISHVILI

Legatum Institute released the Prosperity Index 2016 results.

Source: prosperity.com

T

he 10th annual Global Prosperity Index 2016 of London-based Legatum Institute revealed that Georgia has improved its prosperity over the last decade. It now ranks 84th among 148 countries.

The results of the research were based on various factors, including: economic quality, business environment, governance, education, health, safety and security, personal freedom, social capital and environment.

According to the report, Georgia’s most noticeable achievements have been in the Governance and Business Environment sub-indices, with more than a 36 rank increase in both over the last decade.

Factors holding back Georgia’s prosperity level are Social Capital and Natural Environment, both of which are amongst the global bottom thirty and declining.

However, the study revealed that Georgia performs best on Education and Governance and scores lowest on the Social Capital sub-index, adding it has a small prosperity deficit signifying that it slightly under-delivers prosperity for its citizens compared to its wealth.

“Nevertheless, this is an excellent result compared to its regional peers. Armenia and Azerbaijan have much larger prosperity deficits than Georgia despite having similar wealth and prosperity ranks,” the report reads.

The Legatum index also says that Georgia’s Governance sub-index has improved,

A

five star Hilton Tbilisi is set to open in Tbilisi, Georgia, in 2019, further to the agreement signed between Michael Collini Vice President of Hilton Worldwide and Elgudja Tsintsadze, President of Granat Georgia, last week.

The USD 20 million investment hotel with a 200 room facility and a Michelin

surpassing that of its regional peers, adding that between 2007 and 2016, Georgia experienced a 38 percent improvement in perceptions of corruption, a 52 percent increase in judicial independence, and rule of law has progressed substantially, all of which are the best scores in the region.

“Georgia’s democracy level is one of the best amongst ex-soviet countries.

The level of political rights has risen above the global average. Such improvements in these variables are rare for an ex-soviet country,” the Legatum Institute highlighted.

However, the report stressed that since 2013, the country has noticed a decline in confidence in the honesty of elections and in the government.

Most impressively, according to the Index, it seems that improvements in governance have come alongside huge efforts to augment Personal Freedom in Georgia.

As for the global prosperity, the report says that after the 2008 and 2009 global financial crisis, global prosperity has risen to unprecedented levels in the past decade.

The Legatum Institute is based in London and is an independent charity within the Legatum Group, a private investment group with a 30-year heritage of global investment in businesses and programs that promote sustainable human development. It is also an international think tank and educational charity focused on understanding, measuring and explaining the journey from poverty to prosperity for individuals, communities and nations.

The Legatum Prosperity Index, the Institute’s signature publication, provides a lens through which to view a comprehensive assessment of national success.

It offers a unique insight into how prosperity is forming and changing across the world.

star restaurant is to be situated in the building of the former Ministry of Agriculture on Kostava Street.

“It’s yet another wonderful example of state-private cooperation. Tbilisi citizens were waiting a long time for the hotel to open in this beautiful building,” said Dmitry Kumsishvili, Minister of Economy of Georgia, while attending the agreement signing event.

“Approximately 100 people will be employed during the Hilton Tbilisi construction, with 200 to be employed when the hotel opens,” he added.

Hilton Tbilisi Agreement Signing

Georgian Schools to Be Equipped with Wi-Fi by Microsoft Continued from page 2 After the project is implemented, the teachers and students will be able to connect to the internet at school for free which will remove barriers to access to knowledge. The memorandum also covers the MS Office 365 Cloud Service, which will assist Georgian teachers and students in the introduction of engaging teaching and learning practices.

The cooperation between Georgia’s Education Ministry and Microsoft began seven years ago and since then the company has conducted trainings and con-

ferences for teachers, and organized seminars and consultations on implementation strategies of modern technologies.

Prior to signing the agreement, the representatives of Microsoft had a meeting with Georgia’s Prime Minister, Giorgi Kvirikashvili.

The meeting focused on the opportunities of Microsoft Game and Education Resources to be offered at Georgian schools, introduction of simple teaching and learning applications, development of a single space for e-learning and exchange of information, along with

the design of e-textbooks.

It was also mentioned that the Georgian government and Microsoft have a License Agreement, which permits the Georgian side to use copyrighted products of the Microsoft Corporation within public institutions throughout the country.

Giorgi Kvirikashvili thanked Microsoft representatives for their consistent support and effective cooperation in the areas of education and innovation and expressed hope that this bilateral cooperation would develop further in future.

Read. Learn. Enjoy.

Pick up a copy of Georgia Today Education at any BIBLUS shop or phone 229 59 19

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BUSINESS

GEORGIA TODAY NOVEMBER 8 - 10, 2016

7

Commercial Pavilion to Be Built on Flower Market Source: martinasblogs.blogspot.com

The agreement to free the area has already been made with 50 to 100 flower merchants. Source: bpn.ge

BY NATIA LIPARTELIANI

C

ompany ‘PP’ plans to build a commercial pavilion on the territory of the current Flower Market on Collective Farm Square.

As the company's owner, Laura Gachava,

First Electric Vehicle Charging Stations Open in Tbilisi

says, the company has already applied for a construction permit from Tbilisi City Hall.

According to the project, the first floor of the area will be integrated with a cafe.

On the side of the road an area with open arches will give space for a number of flower traders to sell their products.

It will also be possible to sell flowers on the roof, where terraces will be

arranged in the style of an amphitheater.

“The agreement to free the area has already been made with 50 to 100 flower merchants and they plan to leave the area within a week. The project will kick off right after company receives the construction permit from City Hall,” Gachava said.

The pavilion will consist of around 10 thousand square meters and will cost USD 2 million to build.

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Large kitchen, 3 bathrooms. 2 balconies. Provided with: electricity, heating, air conditioning, Internet, TV, IP telephone, alarm, full software. 1 sq.m.- $ 8 plus tax

Charging stations begin to appear around Georgia’s capital city

BY NINO GUGUNISHVILI

E

lectric Vehicle charging stations will now be available in Tbilisi on Europe Square and near the KusTba (Turtle Lake) turn in a project initiated by E-space and Tbilisi City Hall.

“With the current project they seek to promote energo-effective initiatives in the city,” said Irakli Likvinadze, Tbilisi Mayor Deputy. “Tbilisi City Hall provided territory to E-space free of charge in both locations and will also cover electricity expenses for the stations. Ongoing negotiations with City Park will hopefully make parking for electric cars free in the near future. We

will support any initiative that addresses the issue of making our city environment better,” he added.

There are currently around 50 electric cars in Georgia and importing such vehicles into the country is tax-free.

By the end of the year, 100 more charging stations will be installed, not only in the capital but also throughout the regions.

Address: 22 Tskneti Highway, Bagebi, Tbilisi, Georgia.

TEL 592223377

8

BUSINESS

GEORGIA TODAY

NOVEMBER 8 - 10, 2016

Adjaran Village Festival Draws Crowds in Batumi

BY NATIA LIPARTELIANI

BY MARIKO NATSARISHVILI

W

hat the Pack has included a Georgian product in its monthly packaging design review. Georgian Dried Fruit Chiri was named among the list of best packaging designs of October.

The branding was done by Ia Darakhvelidze, a graphic designer.

What the Pack is a large-scale Russian consumer branding and packaging design oriented project. The Best Packaging

I

n late October, Batumi residents and tourists were given a great opportunity to discover the charm of the Adjaran villages, rich cuisine, ancient traditions and gorgeous folklore in Europe Square, Batumi, at the Rural Tourism Festival organized by the Department of Tourism and Resorts to mark Rural Tourism Day (October 28).

The Festival’s official name was “Gandagana,” the name of the famous and beloved Adjaran folk dance.

Special festival decorations during the festival featured picturesque characteristics of typical Adjaran villages.

The Festival included a combination of rural tourism, eco and wine tourism, each of which had its own “corner” arranged in the open air, at which the municipalities of the region presented local, traditional cuisine, samples of sweets, cheese, souvenirs and local handcrafts.

The highlight of the festival was the 150-year-old granary exhibited in the center of Europe Square.

Guests got to join in the folk-music show, weaving of wool, tobacco cutting, and culinary master classes and various competitions. They were also able to taste local wine and see the Chachamaking process.

The Gandagana Festival was held for the second time this year, generating an enormous amount of interest as well as having a positive economic impact on

What the Pack Names Georgian Dried Fruit Best Package Design

ROUTING

participating villagers, since they were able to sell the goods they exhibited. One of the cheese sellers said, he sold 700kg cheese throughout the day.

Chairman Zura Pataradze attended festival with his family.

“I am happy to see such a good turnout at this year’s festival.

Rural development is one of the government’s priorities. We have planned a lot of interesting projects in the high moun-

review is published by reviewers on a monthly basis.

Chiri is produced by ‘Kareli Fruit,’ a company which was founded in 2015 and has since been offering customers a variety of dried fruits.

Kareli Fruit buys raw materials from local farmers to add to the produce from its own harvest. Its dried fruits are then sold in 200-gram packets.

Kareli Fruit is now aiming to enter the EU market.

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tainous areas. Our government continues to support the villagers to develop rural tourism,” he said.

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BUSINESS

GEORGIA TODAY NOVEMBER 8 - 10, 2016

9

Safety at Work: the Dialogue Begins

"Effective labor inspections, together with clear and modern safety standards, could help prevent deadly accidents,” said the Public Defender (Ombudsman) of Georgia

BY LUKAS MÄDER

W

hen a 63 year old railway worker died on October 27 after he had his leg run over by a train in southern Georgia, it counted the third death in a work accident that month. Prior to this a construction worker fell to dead in Tbilisi and at the beginning of the month a worker was found dead in the Mindeli coal mine in Tkibuli. He was presumably poisoned by toxic gas.

This casualties raised a discussion about safety in the workplace and the prevention of such accidents. The main demand is for the re-introduction of the labor inspectorate which was abandoned in 2006.

“Effective labor inspections, together with clear and modern safety standards, could help prevent such deadly accidents,” said the Public Defender (Ombudsman) of Georgia in a statement followed the October casualties which lead to an accusation that the government was not taking sufficient measures.

The Office of the Public Defender is working directly with the parties involved for improvements. At the beginning of this month it organized, with the help of the non-governmental organization Danish Institute for Human Rights, a conference about Business and Human Rights which included working conditions and labor safety. The aim was to bring the different stakeholders together: non-governmental organizations and representatives of the government, trade unions and the employers’ associations – only the latter failed to attend.

Business and Human Rights includes a wide range of aspects: minimum wages,

10 Galaktion Street

equal payment for men and women and protection against unfair dismissal. But for Georgia the most important issue is likely the introduction of an effective labor inspection – a point mentioned by different participants at the conference and particularly by the International Labor Organization (ILO), a specialized agency of the UN also present at the meeting.

An appropriate labor inspectorate includes not only enough well-trained

An appropriate labor inspectorate includes welltrained inspectors, a comprehensive mandate, the possibility to apply sanctions against a company and a form of organization which prevents corruption

inspectors but also a comprehensive mandate, the possibility to apply sanctions against a company and a form of organization which prevents corruption.

The Ministry of Labor, Health and Social Affairs has already started the process to create such a labor inspectorate again and a pilot project with 25 labor inspectors trained by the ILO is in operation.

Elza Jgerenaia, Head of the Labor and Employment Policy Department in the Ministry of Labor, Health and Social Affairs, told GEORGIA TODAY that the legislation proposal is ready to be discussed in parliament.

“It will improve the working conditions, especially in professions with physical work, e.g. on construction sites or in the heavy industries,” Jgerenaia said. “The companies have to appoint a responsible person for health and safety, and they have to report on the working conditions.”

Jgerenaia hopes that the newly elected parliament will soon start discussion about the proposal.

“The question of minimal salaries is also to be addressed,” said Jgerenaia. “A tripartite commission including representatives of the employees, the employers and the government will discuss this issue at their next meeting planned for December.”

The commission has existed since 2013 but will only start to really function this year as a potential effective instrument for social partnership in Georgia.

Concerns also exist about the plans of the government to create and implement a National Action Plan on Business and Human Rights. Several participants at the conference stressed the importance that the stakeholders, including the government, believe in the action plan and understand the responsibility which comes along with it.

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BUSINESS

GEORGIA TODAY

NOVEMBER 8 - 10, 2016

Dechert OnPoint: Proposed Amendments to Georgia’s New Patent Regulations

D

echert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani and joined by senior associate Irakli Sokolovski and associates Ana Kostava, Ana Kochiashvili and Natia Lapiashvili, is partnering with Georgia Today on a regular section of the paper to 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.

INTRODUCTION Since the signing of the Association Agreement (the “Association Agreement”) between the European Union and the European Atomic Energy Community and its Member States and Georgia in 2014, which entered into force in July 2016, LEPL National Intellectual Property Center of Georgia– Sakpatenti (“Sakpatenti”) has been developing amendments to several Georgian laws related to the protection of intellectual property rights. The proposed amendments aim to comply with Georgia’s obligations under the Association Agreement and cover laws regarding copyright and related rights, patents, trademarks, design, pesticides and agricultural chemicals, medicines and pharmaceutical activities. Some amendments to the Civil Procedural Code of Georgia have also been elaborated to include provisions regarding the specificities of judicial proceedings on cases related to the protection of special rights attached to objects of intellectual property.

This edition of OnPoint provides an overview of the major amendments to the Patent Law of Georgia (the “Law”). Namely, the article briefly explains the possibility of issuing supplementary protection certificates to plant protection products as well as

Bolar Exemptions, new mechanisms for compulsory licensing and cross-licensing and additional mechanisms proposed for effective enforcement of patent-related rights.

SUPPLEMENTARY PROTECTION CERTIFICATE The proposed amendments allow for the possibility of issuing supplementary protection certificates to both pharmaceutical and plant protection products subject to administrative authorization before being put on the market. The supplementary protection of plant protection products is a new facet of the Law, thus the proposed draft law provides a definition of plant protection products. In addition, the new regulations require the granting of a supplementary protection certificate in cases of extension of the patent protection period as well as the specifying of terms and procedures for granting the supplementary protection certificate. The supplementary protection period may not exceed a period of five years.

Considering that the supplementary protection certificate extends the patent protection period in certain instances, the proposed amendments introduce a new regulation known as the “Bolar Exemption”. This regulation is intended to balance the rights of patent holders against the public interest. Bolar Exemptions guaranteed under European Directives 2001/82EC and 2001/82EC allow those companies producing generic pharmaceutical products to carry out preparatory procedures in order to enter a market immediately following expiration of a patent.

These companies are exempted from the obligation to submit the results of toxicological and pharmaceutical tests and clinical trials in order to obtain access to the market. This principle

allows the use of inventions for experiments and trials, provided that: (a) they will not be used for commercial purposes; and (b) the pharmaceutical products do not reach the market before the patent expires.

COMPULSORY LICENSING According to the draft laws prepared by Sakpatenti, a patent-protected invention or a utility model can be used within the territory of Georgia based on a compulsory license granted by a competent body.

This applies under special circumstances such as natural disasters, catastrophes, epidemics and national defense and public health crises. The proposed amendments designate Sakpatenti's permanent council as the competent body for issuing compulsory licenses and specifying the requirements for compulsory licensing, as well as the limits and terms of use for a patent-protected invention or utility model. The terms and conditions for compulsory licensing shall be determined by a relevant government decree. A decision of the permanent council of Sakpatenti on issuing a compulsory license is subject to periodic review and may be terminated once the conditions underlying its issuance are no longer present.

CROSS-LICENSING The new principle of cross-licensing is based on the anti-monopoly policy and concern for the public interest and applies to circumstances when it is impossible to use a patent-protected invention or utility model without violating the special rights of earlier patents. However, a cross-licensing application must substantiate that the technical solution, invention or utility model is essentially dependent on an earlier patent-protected invention or utility model and has significant economic advantages as compared to the earlier invention or utility model.

EFFECTIVE ENFORCEMENT The proposed amendments introduce additional mechanisms for the prevention, suppression and sanctioning of violations of patent-related rights.

In order to protect special rights, the draft regulations authorize patent holders to request the destruction of products manufactured as a result of infringement of their special rights, their removal from the market or destruction of the technical appliances used during production. The patent holders are granted discretion to request damages, recovery of income received through the infringement and on-off compensation from the violator

of their special rights. The court may address these measures against an “intermediary”–a new term introduced by the proposed amendments denoting any person whose services are or were used in economic activities that infringe special rights– upon the request of a patent holder.

The draft law proposes that in appropriate cases and at the request of the person liable for infringement of the special rights the court may order pecuniary compensation to be paid to the injured party in lieu of the abovementioned measures if that person acted unintentionally and without negligence or if execution of the measures in question would cause disproportionate harm to the infringer.

At the same time, the pecuniary compensation must be acceptable to the patent-holder. The proposed amendments define mechanisms for calculating the amount of compensation.

CONCLUSION According to Sakpatenti, the proposed amendments will ensure that the interests of patent holders are balanced notably through the establishment of reasonable limits to the monopoly the current legislation grants to patent holders. After Sakpatenti finalizes the draft laws and discussions it is currently holding with various circles of scholars and practicing lawyers regarding the proposed amendments, final drafts will be submitted to the Parliament of Georgia in accordance with the Government of Georgia's formal procedures for further discussion and adoption. *** 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.

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 world-class 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.

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POLITICS

GEORGIA TODAY NOVEMBER 8 - 10, 2016

11

Nagorno-Karabakh: Azerbaijani Impatience, Armenian Perseverance and International Community Complacency

BY EUGENE KOGAN

T

he simmering conflict between Azerbaijan and Armenia over the NagornoKarabakh region was not and is not a so-called frozen conflict but rather conflict with its own pace and dynamics. The conflict erupted or rather ignited since Azerbaijani leadership was not and is still not satisfied with its prolonged status quo, while for the Armenian leadership maintaining the status quo was and still is the preferable solution.

The recent flare up of the conflict did not set a precedent but rather showed that the unresolved conflict can get out of control but still not develop into a full-blown war. The difference between the recent flare up and the earlier ones is that the fourday conflict was very intense, with a large number of casualties and both sides using a wide-range of weapon systems.

The international community was taken by surprise as a result of it, being preoccupied with other raging conflicts around the globe and in Syria in particular. Russia and Turkey, as the Allies of Armenia and Azerbaijan respectfully, behaved with restraint. Russia and Turkey no longer have sway over the leadership in Yerevan and Baku, while the remaining members of the OSCE Minsk Group have a rather limited mandate over resolution of the conflict that in the meantime disappeared from the headlines.

The current break in hostilities does not augur well for the near future since the Azerbaijani military failed to reach their goals, while the Armenian military are likely to reassess their strategy. As General Vitaly Balasanyan, Deputy of the NagornoKarabakh National Assembly, said: “The Azerbaijani military conducted a competent warfare both in terms of strategy and tactics. The fact that their operations failed does not speak of the incompetence. I am assured that they were seriously trained.

They are not weak and we should not underestimate Azerbaijan.” This is the highest accolade that the Nagorno-Karabakh Defence Army General can bestow on its adversary.

Whether or not the next round of confrontation will turn into a full-blown war with hundreds of casualties and will involve Russia, Turkey and Iran is not a foregone conclusion but nor can such a scenario nor such an option be dismissed out of hand.

It needs to be remembered that compared with other unresolved conflicts around the globe, the conflict over Nagorno-Karabakh has disappeared from the media headlines and basically been forgotten. Therefore, Azerbaijan from time to time sends a reminder note to the international community: ‘Hello there! The unresolved conflict can escalate at any time whether or not you are ready for it.

Please remember that and behave accordingly.’

In addition to the Azerbaijani impatience and unhappiness about the unchangeable status quo, Laurence Broers from the London-based Chatham House think tank notes that without the ability to influence the conflict parties or credibly enforce a ceasefire, the international community has left a security vacuum in Nagorno-Karabakh. This is no proxy war but rather confrontation between two states over the disputed territory of NagornoKarabakh. And both Armenia and Azerbaijan remain at loggerheads over the disputed territory. Furthermore, the presidents of Armenia and Azerbaijan are no longer so easily persuaded by and ready to meet each other at the request of Moscow. Meetings between the presidents of Armenia and Azerbaijan and their counterpart in Moscow failed to

produce any results. As a result, the current situation has been exacerbated and it is not surprising that Serzh Sargsyan, President of Armenia, told Dmitri Medvedev, Prime Minister of Russia that Yerevan expects from Moscow “targeted statements and concrete actions” that would keep Baku from again ratcheting up tensions in the conflict zone.

Sargsyan warned that another “large-scale” Azerbaijani attack on Nagorno-Karabakh would result in a full-blown war. Sargsyan’s message should be taken seriously since thus far Armenia reacted with restraint against Azerbaijani fire. However, in the next round of confrontation all gloves will be off.

The recent flare up began with the presidents of Armenia and Azerbaijan attending the Nuclear Security Summit in Washington on April 1. What is more interesting is that the fighting erupted just hours after Presidents Sargsyan and Aliyev each met separately with US Vice President John Biden on the margins of the summit. Biden cautioned both presidents about the need for restraint but Biden’s advice was not taken into consideration.

In other words, the United States, as one of the most important world actors, has rather limited leverage upon decisions made in Baku and Yerevan.

In a very interesting analysis of Can Kasapoglu, several important points were highlighted: a) In military terms, it would be fair to say that Baku and Yerevan would not go into an all-out war; b) However, a warlike rehearsal through skirmishes and the trajectory of the recent clashes hint at what the next war between Azerbaijan and Armenia would look like; c) Russia would pretend to be a peace-mediator, while supporting Armenian defense through the back door; d) Turkish public opinion would strongly side with Azerbaijan, and Ankara would play a supportive yet cautious role.

At the moment it appears that the Azerbaijani military operates under certain constraint since they are not interested in a spill over effect that may lead to a regional conflagration that [may, author’s note] involve not just Russia and Turkey but also Iran. Therefore, local war between Azerbaijan, Nagorno-Karabakh and Armenia is the likely scenario of the potential war.

Furthermore, tensions along the Line of Contact (LoC) remain very high and the situation remains very fluid and very unpredictable. All the talks about Armenia being a member of the Collective Security Treaty Organization (CSTO) and the CSTO obligation to provide military assistance to Armenia in case of conflict between Armenia and Azerbaijan is loose talk and nothing more. What’s more,

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GEORGIA TODAY

EDITORIAL DEPARTMENT:

Editor-In-Chief: Katie Ruth Davies

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Karen Tovmasyan, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze, Nino Gugunishvili, Thea Morrison, Natia Liparteliani

the recent flare up over Nagorno-Karabakh clearly demonstrated that the CSTO remains a neutral actor - it did not support the Armenian position.

Worse, one member state, Kazakhstan, released a statement of neutrality, while another, Belarus, declared that the conflict should be resolved based

on international legal principles of territorial integrity.

The same rules, namely, maintaining a position of restraint, apply to Turkey. Turkey as a member of NATO, has its own obligations and cannot rush to the assistance of Azerbaijan if Azerbaijan initiates the conflict.

We need to remember that words are cheap but actions are costly. The short-term military gains are likely to be cheered by the public in Armenia and Azerbaijan, however, the long-term consequences are likely to be painfully unpleasant. The economy in both countries is going through a difficult time and replenishment of military hardware used or lost during the recent flare up is a costly business for both countries.

To conclude, the role of Russia and Turkey over its respected allies is often exaggerated for the two countries domestic audience. The rest of the OSCE Minsk Group has a very limited lever over both parties. The political will of the OSCE Minsk Group so often emphasized was not and is not there to force a solution that is not going to be fully or even partly accepted by Armenia and Azerbaijan. Therefore, the next eruption of the conflict is unavoidable and even though the lost of human lives is terrible, the two countries’ politicians may be willing to accept the human cost.

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SOCIETY

Armenian Government Slashes Tourism Industry Subsidies

BY NICHOLAS WALLER

T

he Armenian government announced late last week that state support for the country’s struggling tourism industry will be cut by 47 percent to just over USD 200,000.

The cuts come with Armenia’s economy in free-fall as remittances from the Armenian diaspora – the overwhelming majority of whom live and work in Russia have largely dried up as the Russian Ruble has lost more than 60 percent of its value after Moscow was put under international sanctions for its invasion of Ukraine in 2014.

According to the government’s press release, the reduced state funds will be used to stimulate domestic tourism and organize cultural events around the

country, as well as to attract foreign investments into Armenia’s tourism industry.

The majority of the outside investments are expected to come from Moscow as Russians account for nearly 50 percent of Armenia’s total tourists.

Armenia’s Tourism Development Minister Mekhak Apresyan said in October that the number of visitors to Armenia has grown by 11.3 percent since 2014, but the overall amount of money spent by tourists has dropped significantly.

Apresyan stated that the tourism ministry hopes to target new, untapped markets in the country to attract visitors from outside the former Soviet Union.

“We want to offer more options that focus on agro- and adventure tourism, as well as developing our spas and health resorts to attract a larger tourism flow,” Apresyan told regional news Web site Kavkaz-uzel.

GEORGIA TODAY

NOVEMBER 8 - 10, 2016

US Commander of NATO Resolute Support Visits Georgia

BY THEA MORRISON

T

he Commander of the North Atlantic Treaty Organization (NATO) Resolute Support Mission and United States (US) Forces in Afghanistan, General John Nicholson, visited Tbilisi on Monday.

The US General was welcomed by Georgia’s Prime Minister, Giorgi Kvirikashvili, at the Governmental Administration.

The parties discussed issues pertaining to NATO-Georgia and US-Georgia strategic partnership and prospects of deepening defense cooperation.

The two sides also underlined Georgia’s engagement in the Resolute Support Mission and the contribution to international security.

General Nicholson thanked the Georgian side for active participation in various peacekeeping missions in order to ensure global security and underlined that the US would always stand by Georgia’s side.

“Georgians have been serving alongside Americans for years in Afghanistan, and we certainly appreciate their contribution…

The US firmly supports Georgia's territorial integrity and sovereignty," General John Nicholson stated after the meeting.

General John Nicholson and Georgia’s Prime Minister, Giorgi Kvirikashvili

He also added that Georgian soldiers clearly demonstrated their commitment by participating in the Noble Partner joint trainings, which also involved American and British soldiers training together with Georgians.

Kvirikashvili noted that the US General’s visit demonstrates the importance of US-Georgia bilateral relations and appreciation for Georgia's continued contributions to international security missions.

General Nicholson also met with the Defense Minister of Georgia, Levan Izoria. The sides discussed issues of bilateral cooperation in the defense field.

According to Izoria, the parties agreed to plan and implement Georgia’s pre-

paredness program, considered under the memorandum signed by Georgia and the US. General Nicholson stated that Black Sea Region security is very important for NATO. “Many allies and partner countries are located along the Black Sea coast. Therefore, it is very important for that coast to be secure. There is a strategy that envisages aerial and marine patrol police and trainings and exercises as well,” the General noted.

Georgia is the largest non-NATO contributor to the NATO peacekeeping missions in Afghanistan and the fifth largest contributor among all contributor countries.