Issue no: 1158/184
• JUNE 11 - 13, 2019
• PUBLISHED TWICE WEEKLY
PRICE: GEL 2.50
In this week’s issue... Weekly Entrepreneurial News @entrepreneur.ge NEWS PAGE 2
Trade Deficit Shrinks, as Exports, Tourism & Remittances Show Strong Growth in April ISET PAGE 4
FOCUS ON THE WORLD TRAVEL AWARDS EUROPE
Batumi is named Europe’s Leading Emerging Tourism Destination
PAGE 3
Bakhtadze Promotes Georgian Economy at World Affairs Council in Seattle BUSINESS PAGE 5
Does Georgia Need More Factories?
Gov't Abolishes Benefits for "Golden List" Importers BY THEA MORRISON
G
eorgia’s Finance Ministry has abolished benefits for 217 so called “Golden List” member companies, putting them in the same category as small and medium businesses. The 217 companies were allowed to pay import tax 30 days after importing goods; however, under the new law, this period has been reduced to five days. Deputy Minister of Finance Tsotne Kavlashvili said the government policy, including tax and structural reforms, has been developed to improve the business environment in the country, which means the creation of equal conditions for all business entities. Continued on page 3
BUSINESS PAGE 6
Azura Bar Launched at the Biltmore Hotel Tbilisi BUSINESS PAGE 8
Mandatory Technical Inspection Results: 114,830 Cars Fail, 117,640 Pass Image source: Seva Global Logistics
SOCIETY PAGE 9 Prepared for Georgia Today Business by
Markets As of 07ͲJunͲ2019
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GBP 16.03
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GEOROG 04/21
104.26 (YTM 4.36%)
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Georgia Capital (CGEO LN)
STOCKS
GBP 9.77
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GEORG 04/21
105.82 (YTM 3.57%)
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GBP 2.61
+4,4%
+15,5%
GRAIL 07/22
108.60 (YTM 4.72%)
+0,6%
+1,0%
GBP 15.82
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GEBGG 07/23
102.25 (YTM 5.38%)
+0,3%
+0,3%
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CURRENCIES
GHG (GHG LN) TBC Bank Group (TBCG LN)
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63,29
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2,7325
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1 340,86
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GEL / EUR
3,0941
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3,4792
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2,7654
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FTSE 100
7 331,94
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0,0421
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0,4682
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DAX
12 045,38
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1,6092
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DOW JONES
25 983,94
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GEL / AMD
0,0057
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NASDAQ MSCI EM EE
19 232,39
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176,47
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SP 500
2 873,34
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MSCI FM
2 702,39
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64,7894
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GT Index (GEL)
1 582,68
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5,8305
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GT Index (USD)
1 208,13
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NEWS
@entrepreneur.ge Gamarjoba! I’m the Editor-in-Chief of the Georgian edition of Entrepreneur magazine and I’m here to share the top weekly Entrepreneurial news with you: Vladimer Chikviladze has made musical Qvevri a reality from an idea born several years ago in a friend’s wine cellar. Chikviladze worked to sophisticate the concept before launching the ‘Qvevri Sound System,’ a synthesis of the traditional wine vessel and modern technologies, based on the founder’s international experience in the field of audio systems. The Qvevri Sound System is created with the use of natural materials, hard work and love. Chikviladze is sure that the Qvevri Sound System will establish itself in Georgia, as well as abroad. The renowned Smart Ring (CNICK), created by young Georgian start-uppers, is already wellknown here. Founder David Kvitsiani recently announced that smart ring consumers will soon be able to make payments through POS terminals and also to use it on transport. The new function is to be added to the innovative product by the end of the year. The aim is to integrate as many cards as possible into one device for the comfort of the client. The ring is available on Amazon for $60-70. Interest is high both in Georgia and abroad. CNICK was the winner of a contest for high-tech business ideas at Startup Georgia in 2017. Georgian fashion has added a new name to its list: Super Atlas. Founder Sofo Natsvaladze, used a grant from the Produce in Georgia program last year to start to produce female and male clothing which is now exported to global brands and international designers, in accordance with specific models and materials. Super Atlas can already be seen on the French, Polish and Italian markets. There is also a fashion line, the models of which are sent to fashion weeks in different countries. Follow the Entrepreneur Georgia Instagram page to get the latest updates from Georgian Entrepreneurs. For doing business with Georgian Entrepreneurs, write us on business@entrepreneur.ge
GEORGIA TODAY
JUNE 11 - 13, 2019
Ruling Party Wins By-Elections BY AMY JONES
T
he ruling party won the byelections held in Mtatsminda district in Tbilisi on 9 June, the Central Election Commission announced on
Monday. Only two candidates ran in the elections: Vladimir (Lado) Kakhadze from the ruling Georgian Dream (Democratic Georgia) party and Shalva Shavgulidze from the European Georgia (Free Democrats) party. Chairperson of the CEC Tamar Jvania announced the election results at a press conference on Monday morning. Kakhadze won with a 61.83% share of the votes, receiving 10,738 votes, whilst Shalva Shavgulidze received 37.17% (6,630 votes). The first round of elections was held on May 19. However, as none of the candidates crossed the 50% threshold, the position was decided in a second byelection. By 8 PM on Sunday, 18,105 voters had cast their ballot, accounting for 41,23% of registered voters across 31 polling stations. Due to the small number of candidates running for the position, there was only one ballot paper. The vote counting process was fast, with preliminary results released by 10.30pm on the evening of the elections. The CEC stated that polling and vote counting procedures were conducted “in line with election legislation in an accessible environment.” “Observers and authorized represent-
Image source: Georgian Dream Facebook
atives of election subjects had an opportunity to freely monitor vote counting procedures,” read a statement by the CEC on their website. The Mtantsminda seat, previously held by Salome Zurabishvili, became vacant after she was elected as the fifth President of Georgia on 16 December 2018. Georgian Dream’s Political Secretary Irakli Garibashvili announced Kakhadze’s candidacy for the free seat on March 25. “Kakhadze is a professional in his field, he loves his city, his country, and its people… caring for Tbilisi is nothing new for him, he will contribute to our team and will strengthen us,” said Garibashvili. Kakhadze is a radiologist who has worked in Georgian politics for some time. “It is a great honor for me to be elected as Mtastminda MP and bring the problems of the district to parliament,” he stated in the lead up to the elections. Shalva Shavgulidze, the European Georgia candidate, refused to congratulate
Kakhadze on his victory. European Georgia thought he would be unsuccesful as they believe that Georgian Dream fails to address real problems that Georgians face. Georgian Dream did congratulate Kakhadze on the results: “I congratulate Lado Kakhadze on the elections victory,” announced Georgian Prime Minister Mamuka Bakhtadze on Facebook. “I would like to express my gratitude to our citizens once more for their declared trust [in Georgian Dream.]” he continued. “We know exactly what kind of problems are faced by our people and, together with the public, we will be able to overcome existing difficulties.” The ruling Georgian Dream party was formed by Georgian billionaire businessman and politician Bidzina Ivanishvili in 2012, who remains chairman of the party. On Monday morning, Ivanishvili chaired a meeting with Georgian Dream members regarding ongoing issues and plans in the upcoming period.
BUSINESS
GEORGIA TODAY JUNE 11 - 13, 2019
3
Batumi Wins Prestigious Travel Award BY SAMANTHA GUTHRIE
O
n Saturday, June 8, the 2019 World Travel Awards Europe Gala Ceremony was held in Madeira, Portugal. Taking home the coveted award for ‘Europe’s Leading Emerging Tourism Destination’ was Georgia’s own Black Sea resort city, Batumi. Hundreds of representatives of leading travel industry institutions from across Europe attended the ceremony. Other nominees for the award were Sofia, Bulgaria, Matera, Italy, Baku, Azerbaijan, Ljubljana, Slovenia, Derry, Northern Ireland, Mostar, Bosnia and Herzegovina, and Kutna Hora, Czech Republic. “Being nominated in this category is extremely important for us,” said Sulkhan Glonti, Chairman of the Ajara Department of Tourism, upon learning of the nomination in March. “Recognition by such a prestigious and prominent organization will be positively reflected on the promotion of our region and increase its popularity on the international arena." “We have spent a lot of time collaborating with international media platforms in recent years, including direct commercials, as well as press tours,” Glonti continued. "More than 1000 journalists and tourist agencies were hosted in 20172018 by our region, which had reciprocal fruitful outcomes in terms of elevation of the number of travelers, as well as improving awareness in the international respect. Our campaign GoBatumi was part of our goal to win the award," he added. “In order to overcome the challenges faced by our country and region, efficient communication and campaigns on the international market are vital...Tourism is a business with strong competition, and we are clearly aware of the importance of each success,” said Glonti in March. “I congratulate each resident of Batumi on winning this important award. This is yet another new stage for our city, which will contribute to economic development and to creating a better future for each Georgian family,” said Tornike Rizhvadze, Chairman of the Government of Ajara, who personally attended the ceremony in Madeira. Other winners at this year’s European Gala
Image source: Batumi City Hall
include: St. Petersburg, Russia, voted ‘Europe’s Leading City Destination.’ Portugal was voted ‘Europe’s Leading Destination,’ and Madrid, ‘Europe’s Leading Meetings & Conference Destination.’ The World Tourism Awards celebrated Batumi’s win, noting it was aided by “the captivating mix of Belle Époque meets contemporary splendor.”
Gov't Abolishes Benefits for "Golden List" Importers Continued from page 1
"We have undertaken obligations to ensure that our customs procedures and regulations are harmonized with the EU customs legislation and this decision is another step forward in this direction,” he explained. “These business entities have a reasonable time to adapt to the new regulations. Importers of nonexcise goods have been given 30 days, and importers of excisable goods 10 days,” he added. However, according to the Revenue Service, wheat importers on the "Golden List" will enjoy the previous conditions: 45 days to pay import tax. The order issued by the Minister of Finance Ivane Matchavariani on May 31, which abolishes benefits for 217 members of the "Golden List," came as a surprise to the business community. The above-mentioned amendment will take effect on the 10th day following publication of the decree for excisable goods, on 12 June 2019, and in other cases on the 30th following publication, on 2 July 2019. A company gets the status of "Golden List" member if it shows up to GEL 5 million value goods in export or import or if the company shows a high rate of import duties paid, no less than GEL 900,000. In addition to this, the company must have a high amount of customs declarations submitted for the import or export of goods- no less than 100. Some of the most prominent members of the “Golden List” are: JSC GEFA (GPC); JSC Teliani Valley, Tegeta Motors Ltd, Vioni Georgia LTD (Beeline); JSC Sarajishvili; Rompetrol, Magticom, LLC Elizi Group, Wissol, Lukoil, , Aversi-Pharma Ltd, Caucasus Online, Elite Electronics, LC Waikiki, New Hospital, SOCAR and Energo Pro-Georgia. Mikheil Chelidze, Head of the SMEs Association, has three reasons, based on the information provided by the Ministry of Finance, which explain why the minister abolished simplified procedures for “Golden List” companies. “First, we are going to Euro regulation, where there are no such benefits and the same regulations for everyone…Second: all importers should be in in equal conditions. I agree with this one…Third is the return of VAT. In this part, the Revenue Service saw some risks. This was one of the motivators
that led to the conditions being made equal for everyone,” he explained. Chelidze claims the Ministry of Finance is going to abolish the "Golden List" entirely in 2021. The Georgian Business Association has released a statement on the cancellation of tax benefits for the 217 companies, saying it will lead to them having financial problems. “This decision is to create serious financial problems for large importers. The Georgian Business Association believes that the decision should be postponed and additional consultations held,” the Association said. Chairman of the Committee on Sector Economy and Economic Policy of Parliament, Roman Kakulia, says that there should be no "Golden List" at all, although he did comment on the reasons for the decision and noted a lack of proper communication. "The emphasis was on the European regulations, European practice, and I agree with that. Now the dates have been moved ahead and not the content itself. I do not agree with the dates given to businesses but I agree with the content of the regulation. The “Golden list” should not exist and there should be the same approach for every type of company, but the adaptation period is very important for everyone,” he said. Levan Gogsadze, the Head of the GT Group, which is on the “Golden List,” says that they did not receive any notification about the abolition of the benefits for large companies. Gogsadze claims the government’s step is “ungrounded” and that it will have a negative impact on the “Golden List” companies. “I learned about the changes from media. No one sent us any notification about the new regulations… I find it very strange that the issuance of such a regulation took place in a closed-door situation,” he said. Business Ombudsman Irakli Lekvinadze says the existence of the "Golden List" is a good motivator for many companies, showing they are more reputable and enjoy benefits from being so. “The main concern here is that the changes happened very quickly and without communication, which is very important for business when such a decision is made,” he said.
The 2019 World Travel Awards World Tour includes regional ceremonies in Montego Bay, Jamaica, Abu Dhabi, UAE, Mauritius, La Paz, Bolivia, and Phu Quoc, Vietnam. The winners in each regional category will continue to the Grand Final, which will be held in Muscat, Oman. The World Travel Awards has been operating since 1993. In its own words, the organization’s
mission is “to acknowledge, reward and celebrate excellence across all sectors of the tourism industry. Today, the World Travel Awards brand is recognized globally as the ultimate hallmark of quality, with winners setting the benchmark to which all others aspire.” The winners of the World Travel Awards are determined by online public voting.
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BUSINESS
GEORGIA TODAY
JUNE 11 - 13, 2019
Trade Deficit Shrinks, as Exports, Tourism & Remittances Show Strong Growth in April BY DAVIT KESHELAVA AND YASYA BABYCH
I
SET-PI has updated its forecast of Georgia’s real GDP growth rate for the second quarter of 2019. Here are the highlights of this month’s release:
HIGHLIGHTS • ISET-PI’s forecast of real GDP growth for the second quarter of 2017 has not changed and stands at 4.7%. The first estimate of the third quarter growth forecast is at 7.4% . • The real GDP growth rate reached 5.1% year-on-year for April 2019. Consequently, the estimated real GDP for the first four months of 2019 amounted to 4.8%. • Based on April’s data, we expect annual growth in 2019 to be 5.5% in the worst-case or “no growth” scenario, and 5.9% in the best-case or “average longterm growth” scenario. Our “middle-ofthe road” scenario (based on average growth over the last four quarters) predicts 5.6% real GDP growth in 2019. Sharp ups and downs of the year-onyear growth rate from one quarter to the next are not usual. Typically, quarterly growth rates follow particular patterns, which are captured by ISET-PI’s empirical forecast model. Therefore, the unusually high growth in the first quarter
could result in overly optimistic predictions about next quarter’s performance. Indeed, the forecast for Q3 is largely influenced by the high Q1 actual growth and is expected to overestimate reality. Yet, looking at the economic landscape from the standpoint of the April data, several variables changed significantly and effected growth predictions in different ways. The increase of money supply and significant improvements in external statistics (exports, imports) are the main positive drivers of the optimistic growth figures, while moderately high inflation and credit restrictions had a negative impact on the forecast value. The first set of variables that had a significant positive effect on our forecast is related to the money supply. The Monetary Policy Committee of the National Bank of Georgia met in May, and decided to leave the monetary policy rate unchanged at 6.5% . Moreover, the National Bank of Georgia did not make any foreign exchange market interventions in April 2019. However, all of the monetary aggregates, including the largest—Broad Money (M3)—experienced significant yearly growth (M3 aggregate rose by 18.9% yearly). The largest increase was observed for Monetary Aggregate M1, which went up by 23.7% relative to the same month in the previous year. Moreover, Currency in Circulation increased by 19.5% in yearly terms (all of the monetary aggregates increased in monthly terms as well). Rapid expansion
of monetary aggregates contributed positively to the real GDP growth forecast. The other set of variables that had a notable positive impact on the GDP forecast is related to external factors. A great majority of the countries in the wider region continued their strong growth path in the first quarter of 2018. According to the rapid estimates of real GDP growth, Armenia and Azerbaijan maintain relatively high annual growth rates: 6.6% and 3.0% in the first quarter of 2019. Moreover, Russia advanced on average by 0.7%, in April-June 2019, compared to this period the previous year . Only the Turkish economy is still far behind its peer countries, shrinking by 2.6% yearly in the first quarter of 2019, following a 3% contraction in the previous period and compared with market expectations of a 2.5% contraction . Favorable economic conditions in the wider neighborhood stimulated the Georgian economy through the trade, remittance, and tourism channels. However, political instability and deteriorated economic conditions in Turkey still remain the primary external threat to the Georgian economy. As mentioned earlier, the improved economic conditions in Georgia’s partner countries contributed to real GDP growth through trade, remittances, and tourism. Notably, exports grew by 34.2% year-over-year in April of 2019, driven by significantly larger exports/re-exports of copper ores and concentrates (surprisingly increasing by 2.7 times yearly), and motor cars (up by 99% yearly). However, the exports of cigars, cheroots, cigarillos and cigarettes, and ferro alloys declined by 45.5% and 26.9% respectively compared to the same month of the previous year. During the same period, imports increased by only 0.6%, driven by the import of copper ores and concentrates, packed medicines (the latter two used mostly for re-export), and digging and drilling machines, while the import of petroleum (notably, world prices of crude oil decreased by 1.2% yearly and increased by 7.7% monthly) and motor cars had a negative contribution to imports. As a result, the trade balance improved by 16.3%, compared
to the same month in 2018, and reached -423.1 million USD. Both remittances and tourism showed significant yearly increases in April 2019. Money transfers rose by 10.1% yearly in the fourth month of 2019, driven by remittances from the USA (up by 15.2% yearly), Italy (up by 25.8% yearly), Greece (up by 8.6% yearly), France (up by 41.1% yearly), and Ukraine (up by 30.8% yearly). Remittances from the Russian Federation and Turkey experienced a slight yearly decline and had a 0.6 and 1.4 percentage point negative contribution to the total growth of remittances, respectively. In addition, the number of international visitors increased by 3.7% in April, compared to the same month of the previous year, while the number of tourists increased by 4.2% annually and reached 63% of total international visitors. According to the model, both tourism and remittances had a significant positive contribution to the GDP growth forecast. The one variable that had a slight negative contribution to the growth figure was the Metals Price Index (PMETA). The reason for including this variable in our forecast model was that metals form a significant share of Georgia’s exports. Therefore, a global increase in the price of metals should help the Georgian economy. In April, metal prices went down by 5.6% annually, but increased by 0.6% in monthly terms. Overall, the Metals Price Index had a very small, but overall negative effect on our predictions of GDP growth in the second and third quarters. On the negative side, the increase in Consumer Price Index (CPI) dampened our growth predictions. In April, the annual inflation rate reached 4.1%, which is 1.1 percentage points higher than the targeted 3%. The main contributor to the annual price increase was the increased excise tax on tobacco (making the excise tax equal on filtered and unfiltered cigarettes) and increased food prices, which contributed to annual
inflation by 1.3 and 1.7 percentage points respectively. However, one should note that this type of tax hike (excise on tobacco) can increase only the level of prices, not the inflation rate going forward (it is a one-time factor) and is expected to be exhausted next year. It is worth mentioning that core inflation (inflation excluding the most volatile petroleum and food prices) remains at a low level of 1.4%. As we mentioned in our previous report, new lending regulations could potentially have a negative impact on shortterm growth predictions. In April 2019, the total volume of commercial banks’ consumer credit increased by only 1.1% yearly and even decreased by 0.1% monthly. However, the volume of commercial banks' short-term consumer credits decreased by 62.9% and 5.2% in yearly and monthly terms respectively (the main driver behind this negative trend being consumer loans in the national currency). Whereas, the volume of commercial banks' long-term consumer credits increased by 30.9% and 4.3% yearly and monthly respectively. Overall, the variables related to consumer credit have had a slightly negative impact on the growth forecast. Our forecasting model is based on the Leading Economic Indicator (LEI) methodology developed by the New Economic School, Moscow, Russia. We constructed a dynamic model of the Georgian economy, which assumes that all economic variables, including GDP itself, are driven by a small number of factors that can be extracted from the data well before the GDP growth estimates are published. For each quarter, ISET-PI produces five consecutive monthly forecasts (or “vintages”), which increase in precision as time goes on. Our first forecast (the 1st vintage) is available about five months before the end of the quarter in question. The last forecast (the 5th vintage) is published in the first month of the next quarter.
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BUSINESS
GEORGIA TODAY JUNE 11 - 13, 2019
5
Bakhtadze Promotes Georgian Economy at World Affairs Council in Seattle BY SAMANTHA GUTHRIE
G
eorgian Prime Minister Mamuka Bakhtadze is currently on an official visit to the United States of America. From June 4-June 15, Bakhtadze is meeting with representatives of major businesses in San Francisco, California, Seattle, Washington, and Dallas, Texas to promote Georgia as a business and investment location. He will also meet with high level government officials in Washington, DC. Bakhtadze will speak to the attendees of the 3rd Annual US-Georgia Strategic Partnership Conference, hosted by the US Institute of Peace on June 12. The World Affairs Council of Seattle, which aims to advance global understanding and engagement in the region, hosted ‘A Conversation with Mamuka Bakhatadze, Prime Minister of Georgia’ on June 7. At that event, Bakhtadze addressed US-Georgia bilateral relations and deepening their strategic partnership, as well as Georgia’s position as “a stable democratic stronghold in its region.” He also spoke with attendees about Georgia’s work promoting sustainable and inclusive economic development and helped frame the process of advancing America’s commercial interests in Eurasia and beyond. Bakhtadze opened his speech saying, “Our strategy is to make Georgia a regional hub for tourism, international business, logistics, education, and innovations.” He explained Georgia's steps and achievements toward democratic insti-
Image source: Office of the Prime Minister of Georgia
tutions and development, 28 years after independence from the Soviet Union, and less than two weeks after Georgia’s Independence Day celebration on May 26. Bakhtadze emphasized reforms of the justice system, which have “made Georgia one of the easiest places to do business, to invest in our country, our people, and our infrastructure. Step by step, we are becoming an economic hub for the region.” He also mentioned the country’s NATO-EU integration process: “We are forging trade agreements with France and allies like the US. The World Bank Group ranks us as 6th in terms of doing business in the world. The Fraser Institute ranks us 7th, right after the
US, in economic freedom. As a reflection of our commitment to open governance, the Open Budget Index ranks us 5th in access to government information. We have all important indicators moving in the right direction, from free press to economic growth.” He also noted that the IMF’s latest projections for Georgia’s economic growth position Georgia as the regional leader. Bakhtadze discussed major investment projects, including the Anaklia Deep Sea Port, which he called “a multidimensional business hub.” Georgia’s tourism potential was also raised, “We are a country with 8.5 million visitors a year, and this year this
number will be 9 million, while our total population is roughly 4 million. And I guess you will agree that it is indeed a remarkable achievement. This is something we are very proud of, but we are determined to further continue punching above our weight," said Bakhtadze. It was not only praise for Georgia’s progress since independence, however. Bakhtadze acknowledged the challenges facing the country, including Russian occupation and the crisis of internally displaced people. “We are not about to let Russia define our future,” the Prime Minister declared defiantly. Georgia’s success, he said, should be evaluated within the regional context.
Bakhtadze noted the major education reforms currently ongoing that he has spearheaded. “We believe that human capital development is a major mission for any government in any country,” he stated. The purpose of the speech was to raise interest in Georgia among American entrepreneurs and investors. "We welcome, invite, and encourage enterprising Americans to seize these opportunities that are in Georgia. Thanks to our location, our immediate regional market offers access to half a billion people. We offer a truly unique and vital geographic location for American business to reach European and Asian markets. Georgia is a gateway for eight landlocked countries in the heart of the Eurasian Continent, the fastest growing consumer market in the world. This region boasts 18% of all mineral resources in the world. Our strategy is to help these nations to unlock this economic value. We are investing a lot in our infrastructure, and this is the reason we are constructing a deep-sea port in Georgia," Bakhtadze declared. He closed his remarks by emphasizing the many new public policies aiming to “create an ecosystem for startups and innovations.” Bakhtadze added, “Georgia is about engagement. In the 21st century, the success story should be all about engagement. Georgia is full of hope and aspiration. We are proud of our history. We are part of the global community. We stand shoulder-toshoulder with the US and other nations of the world dedicated to democracy and opportunity, and the protection of our civilization and values from those who wish us harm. We need friends like America to help us proceed further.”
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BUSINESS
GEORGIA TODAY
JUNE 11 - 13, 2019
Does Georgia Need More Factories? BY ERIC LIVNY
T
here is no simple answer to the question of whether or not Georgia needs more factories. When several years ago I sat down for coffee with the late Kakha Bendukidze, one thing we could easily agree on is that Georgia is never going to be an industrial powerhouse. Georgia’s talented-but-lazy men, we concurred, are simply not built (or, rather, raised) to man industrial production lines. Trying to imagine Georgia’s future, we talked about exporting arts and crafts, and how the nation’s raw artistic talent could benefit from a better organization (a deficit Kakha wanted to address through an art management program at his Free University). Yet, the sad truth is that while Georgian men may have a great reputation in arts, toast-making, and entertaining, relatively few of them will ever be able to make a living by practicing these skills. Likewise, claims to be the cradle of winemaking will not be sufficient for Georgia’s traditional agriculture to become a safe economic haven for more than a few thousands of Georgian households. One hectare – the typical plot size in Georgia – is simply not enough to sustain a family.
SHALL WE EXPORT GOODS… OR PEOPLE? Potentially a paradise for environmentalists and tourists, a manufacturing-free Georgia might be quite hellish for a very substantial part of Georgia’s population – those who lack the skills and the aptitude for employment in modern services, be it hospitality, banking, public administration or Business Process Outsourcing (BPO). In other words, Georgia faces an important political choice: to invest in exportoriented manufacturing (and thus absorb a part of its surplus labor) or to continue to export its working-age population – to visa-free European destinations, such as Poland, and other labor-starved countries.
WHEN REALITY AND IDEOLOGY CLASH… Whatever choice Georgia makes, it should not necessarily squander the little manufacturing capacity it does have – by virtue of Soviet industrialization legacy or thanks to locally available agricultural raw materials and mineral resources (such as gas from Azerbaijan and local deposits of coal, manganese, copper, and gold). Yet, the libertarian ideology that Georgia’s young ruling elite has embraced since the jolly days of the Rose Revolution rejects the very notion that governments should be doing anything to cultivate and protect local industry and agriculture. According to this ideology, strong international competitors are to the domestic economy what predators are for an ecosystem: they are supposed to cull
Natia Turnava, Georgia’s recently appointed Minister of Economy and Sustainable Development, visiting Rustavi Steel and GeoSteel in May 2019.
vulnerable domestic prey, such as the old, injured, or sick, leaving more ‘food’ for the survival and prosperity of healthy and productive enterprises. Also, by controlling the size of domestic business populations, international competitors may be counted on for slowing down the spread of disease (nepotism and corruption?) and teaching those surviving to run faster for their life (coming to work on time?). Of course, predators may from time to time ‘catch’ very young prey (“infant industries”) and even healthy enterprises, but libertarians would consider this to be a reasonable price to pay for eliminating sick or injured ‘animals’, and promoting natural selection in which only the fittest businesses are left to survive and reproduce. Underlying libertarianism is a substantial body of economic thinking. Yet, if turned into a secular religion of sorts, libertarianism (just like Marxism a century ago) may start interfering with people’s sense of reality. Thus, when presented with the immense challenge of Iranian steel products being dumped in the Georgian market, Giorgi Kobulia (until recently Georgia’s Minister of Economy and Sustainable Development), simply refused to see a problem. “If Iran wants to subsidize our construction sector, why should I complain?” At the time of Kobulia’s conversation with Georgian steelmakers, Iran was going through a major currency crisis triggered by the renewal of US sanctions in November 2018. While Iran’s National Bank was ordered to maintain the official exchange rate at 42,000 rials against the dollar, the black market rate tumbled to 110,000 rials against the greenback as of January 1. Taking advantage of the black market rate, Iranian exporters were happy to dump steel and anything else abroad.
As a result, the price of Iranian concrete reinforcement bars (‘rebars’) in the Georgian market fell below the cost of raw materials for local producers, triggering a major crisis for the industry. Kobulia’s iron ‘bio-logic’ could have cost Georgia more than 2,500 jobs, wiping out the entire steelmaking ‘species,’ which was perfectly viable under normal circumstances. Luckily for the industry, the dumping of Iranian steel in Georgia has been eventually stopped by … the Iranian authorities' success in clamping down on black-market currency exchange.
GEORGIA NEEDS FDI, NOT FTA! The Iranian dumping episode was not the first in Georgia’s history. In 2007, Georgia pompously celebrated the opening of GeoSteel, one of the country’s largest FDI projects and a major producer of rebars. However, when I visited Rustavibased GeoSteel in March 2016, the company was practically paralyzed because Ukrainian and Russian steel products were inundating the Georgian market. A sharp weakening of domestic currencies made Ukrainian and Russian exports much more competitive in international markets. Europe and US – until then ardent promoters of free trade – have sealed off their markets with tariffs and anti-dumping investigations. Georgia remained absolutely open, creating a major threat for those very few Georgian companies that engage in manufacturing activities. To his credit, Hardeep Singh, GeoSteel’s CEO, was able to retain a healthy sense of humor. “Georgia does not need any more FTA,” he told me. “We already have FTAs with lots of countries. What we need is FDI! You can only trade when you have something to sell, and Georgia’s agriculture and industry don’t have much to offer.”
Georgia’s international trade environment is highly volatile, and often unbalanced and unfair. Over the past several years, Georgia's major trade partners – Russia, Ukraine, Azerbaijan, Turkey, and Iran – have all gone through dramatic currency devaluations, changing the terms of trade between them and Georgia, and threatening whole sectors of the Georgian economy. Moreover, some of them use unfair restrictions to prevent Georgian companies from accessing their own markets. Yet, in the minds of Georgian policymakers the very concept of “protection” has been for too long strongly associated with corruption (such as when protective tariffs are slapped on foreign products in exchange for a bribe), and “protectionism” (an ideology seeking to develop local industries behind insurmountable tariff and non-tariff barriers, to the detriment of domestic consumers). Such an ideological view of protection policy tools is wrong and harmful. When one country subsidizes its farmers and then starts dumping agricultural products on its trade partners, the latter have every right, according to the World Trade Organization (WTO), to close their markets. Anti-dumping policies belong into the toolkit of legitimate "safeguard measures" in WTO terminology and are commonly utilized by the US and the EU. Generally speaking, WTO members are allowed to take a range of temporary safeguard actions, such as restricting imports of a certain product so as to prevent permanent injury to domestic production. In other words, temporary safeguard measures are meant to provide a degree of insurance for investors (risking their financial capital) and workers (risking their jobs and human capital) against unfair competition or drastic changes in a country’s terms of trade.
THE TIMES THEY ARE A-CHANGIN'? Things may be finally moving in the right direction with Natia Turnava’s appointment as Minister of Economy and Sustainable Development on April 18, 2019. With less than a month on the job, Turnava visited Rustavi’s metallurgical companies and told reporters that Georgian manufacturers do “need support in the domestic market.” Hallelujah! The government’s support is likely to take the form of assistance with investment in energy-efficient and eco-friendly technologies, as well as passing antidumping legislation consistent with WTO rules and procedures. As I was told by EU-financed experts working on this legislation, the new law may include a “social interest” clause, allowing the government to consider not only producers’ interests but also those of the final consumers and user industries, such as construction companies, in case of rebars. That may be a good compromise considering the role international competition does play in promoting technological upgrading and healthy management practices. * * * Georgia may never become the world’s manufacturing hub. Its beauty and traditional hospitality make it a natural born touristic destination. Yet, Georgia without factories may be a country for very few Georgians. This is something our policymakers have to bear in mind when deciding on the country’s strategic direction. About the author: Eric Livny is Founder and President at Tbilinomics Policy Advisors and Chair of Economic Policy Committee at the International Chamber of Commerce (ICC Georgia).
BUSINESS
GEORGIA TODAY JUNE 11 - 13, 2019
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TBC Bank Group PLC Hosts Capital Markets Day in London ing services, micro, small and mediumsized business, TBC Insurance, novelties on the markets of Uzbekistan and Azerbaijan, agile structure, and more. The event continued in a Q&A format, enabling the investors to obtain thorough responses on their questions, straight from the heads of particular directions. “The Capital Markets Day is a unique opportunity for the bank on the one hand,
TRANSLATED BY KETEVAN KVARATSKHELIYA
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n June 6, the TBC Bank Group PLC hosted the Capital Markets Day in London. The event took place in the Stock Exchange
office and was attended by investors, analysts and financial sector reps from 120 countries. At the event, the representatives of the TBC Bank top management informed the investors in detail regarding the technological achievements of TBC Group, its goals, as well as plans for future development. The aspects of the Uzbekistan and Azerbaijani markets,
and for the investors on another, to meet each other and exchange information. Holding events of this type is an approved method worldwide. Such communications with investors once a year is vital for attracting more investments,” stated Giorgi Shagidze, Deputy CEO and Chief Financial Officer of TBC Bank. It is the 5th time this year that the TBC Bank Group PLC has hosted a Capital Markets Day in London.
being the part of the strategy of TBC Group, were also covered. The Capital Markets Day continued for several hours. The TBC Management members gave presentations to the audience on the following topics: business strategy, financial outcomes, SPACE- a totally digitalized bank, macro economical overview, risk management, retail, corporate and investment bank-
Technological Superiority at the Heart of China-US Confrontation BY EMIL AVDALIANI
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he US defense and technology sectors have become genuinely worried about Chinese significant strides in the technological sphere. Various reports have over the past couple of weeks stated that the Chinese military and technology sectors are close to achieving parity with the US. One such report, published several days ago by the Center for New America Security, stated that China now “appears increasingly close to achieving technological parity with US operational systems and has a plan to achieve technological superiority.” In a way, the current confrontation between the US and China fits into the biggest struggle in history: a battle between sea and land peoples. China is more of a continental power than a sea one, while the US is clearly an oceanic country. The US, like its historical predecessors, be they ancient Greeks, medieval Venetian merchants, or British and French seafarers in the 19th century, has so far successfully managed to limit Eurasian powers from rising to a prime position in the major world continent. But with China it is different. One simple example suffices to state a surprising development. Since about 1885, the United States has not had to face a competitor or even a group of competitors with a combined Gross Domestic Product (GDP) larger than its own. China surpassed the United States in purchasing power par-
Image source: industryweek.com
ity in 2014 and is on track to have the world’s largest GDP in absolute terms by 2030. In comparison, America’s Cold War adversary, the Soviet Union, was bogged down by a truly unsustainable economic system that ultimately crumbled under pressure in the 1980s. At the height of the Soviet power, its GDP was roughly 40% the size of the United States’. As said, a guarantee to win the Cold War was the US’ technological and eco-
nomic preeminence. This is still at the heart of today’s global competition. Both Washington and Beijing understand that bilateral trade issues are in fact disguised by a deeper rivalry which opens up in the technology and innovation sector. It has always been the case that sea powers possessed much fewer human resources, but attenuated this problem with much larger technological advances in comparison with continental powers.
What is worrying for the US, and this constitutes a fundamental shift in global history, is China’s ability as a land power not only to confront the Americans with a larger population pool, but also with a highly competitive technological sector. Several moves made by the Chinese government in the past week show China’s massive technological prowess. According to state media, Beijing is alleg-
edly creating a system to protect its technology. Exactly what this system is, is not clear, but it was suggested that the system will build a strong firewall to strengthen the nation’s ability to innovate and to accelerate the development of key technologies. The Chinese also announced that they, like the Americans are considering restricting export of Chinese technologies abroad, primarily to the US. This follows similar US moves to restrict sales to Huawei Technologies and other Chinese tech firms on national security grounds. Thus, there are major concerns as to how the US would be able to offset the Chinese geopolitical challenge. There has always been a simple understanding in the US ruling circles, and among strategists, that it is America’s technological edge which gives it fundamental superiority. If this is no longer the case, then the very foundation of the US grand strategy is at stake. US general Paul J. Selva, Vice Chairman of the Joint Chiefs of Staff, has warned that the Chinese military could reach technological parity with the United States in the early 2020s and outpace the Pentagon in the 2030s, if the US military doesn’t respond to the challenge. The course is set for future global instability, where the Americans will be more worried and the Chinese more assertive in pursuing their goals. This does not necessarily mean that a military confrontation would ensue, but it is highly likely that both states might end up investing billions, if not trillions, to develop future technologies.
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BUSINESS
GEORGIA TODAY
JUNE 11 - 13, 2019
Azura Bar Launched at the Biltmore Tbilisi Hotel BY KETEVAN KVARATSKHELIYA
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he hottest party season is about to begin and the Georgian capital is rich in its choice of must-try destinations for a good time. But if you’re looking for more than the average, or want to turn your event into an unforgettable celebration, the recently opened bar Azura, launched by the Biltmore Tbilisi Hotel, is the place to go. With a strong reputation as one of the trendiest spots in the city, the Biltmore Tbilisi Hotel hosted guests at the official opening ceremony of Azura on June 7. Prior to a briefing about the event itself, which we’ll come back to in a moment, it is certainly worth describing the ambience of the venue. Hidden in the green courtyard of the tallest glass building in Tbilisi, Azura represents a wonderful mélange of nature and urban and is nothing short of spectacular. Its founders have organized it in such a way that guests have an opportunity to be in the city center and yet relax among a diversity of flora. Painted plants snake across the ceiling of the bar, maintaining the atmosphere of outdoors-in and a fountain in the center of the courtyard adds a sprinkle of freshness. Azura is located adjacent to the hotel swimming pool, giving guests an opportunity to enjoy refreshments and a wide selection of colorful cocktails while sunbathing. In addition, the guests will find a real paradise on the second floor of Azura, featuring pleasant coolness, delicious cocktails, Shisha varieties and a
beautiful garden view. At the opening ceremony, guests were hosted with delicious specialties and a multiplicity of confectionery, as well as Georgian wine and various non-alcoholic drinks. Within the scope of the event, local and foreign chefs offered attendees
an incredible cooking show of seafood. The evening was accompanied by live music and rounded off with a raffle, awarding lucky winners with interesting prizes. At the event, GEORGIA TODAY spoke with Nino Chechelashvili, PR and Mar-
keting Manager of the property. “There is a wonderful atmosphere with a lot of greenery at Azura,” she said. “We plan to keep surprising guests with novelties. At Azura, we offer mouthwatering dishes and cocktails, healthy smoothies while enjoying the sun, which will help
our clientele to relax in the very best way.” Azura is an ideal venue for summer celebrations and private events, including wedding ceremonies which can be organized by the experienced and professional team of the Biltmore Hotel Tbilisi.
Global Finance Names Georgia among the Most Dynamic Investment Destinations BY ANA DUMBADZE
A
uthoritative magazine Global finance has named Georgia among the countries with the most dynamic investment attractiveness, based on measures such as economic stability, rating, and quality of business regulations. According to the Ministry of Economy and Sustainable Development, Global Finance has included Georgia among those countries that are noteworthy due to sharp growth and intensive interest from investors. Georgia is among the leading European countries in this group. While working on the above-mentioned
assessment, Global Finance relied on five economic components: GDP growth forecast, changes in direct foreign investments, corruption perception in the country, the competitiveness of the country and the ease of doing business. According to economic components,
Georgia meets the top 10 countries with the best results in components such as ease of doing business and corruption perception. Global Finance estimates that, due to global trade tensions and internal problems, 2018 was a transformative year for
JSC Nenskra Hydro Statement on the Chuberi Flooding
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enskra Hydro JSC, the Nenskra Hydropower Plant (HPP) project company, released a statement onthe natural disaster that occured in Chuberi village, Mestia municipality, on June 7. According to the company's information, on June 7, 2019, as a result of heavy rain, the Nenskra River tributary Devrula overflowed into Chuberi village. The Devrula bridge was damaged and resulted in paralyzed traffic movement, which has already been restored. In order to ensure the safety of local residents, traffic across the bridge on the River Marghula in Kvemo Marghi village was restricted. The staff of JSC Nenskra Hydro is in continuous communication with the local
community members to assist them as needed. The top management of JSC Nenskra Hydro has visited the site to get a clearer picture of the situation and heavy machinery of the Georgian Construction Consortium (GCC), a contractor company of JSC Nenskra Hydro, has been mobilized. “The existence of a dam in the valley in the near future will enable us to control the water level in the river bed to prevent such natural events," said Teimuraz Kopadze, Chief Operations Officer of JSC Nenskra Hydro. "This will significantly reduce the risk to the population and infrastructure." Since November 2018, JSC Nenskra Hydro has been carrying out preparatory works for the construction of Nenskra HPP in Chuberi, which included rehabilitation
and bank-strengthening works on the areas damaged due to a flood on July 5, 2018. To date, a 211-meter section of the road to Tita village has been fully rehabilitated and access restored. Bank-strengthening works are also complete. As part of the rehabilitation works, the damaged Chuberi bypass (945 m) was partly rehabilitated: the river-bed was cleaned, the existing road was widened and bankstrengthening measures were undertaken. Corrugated pipes and wire grids were arranged to ensure the safety of residents in the vicinity of the village Lari-Lari. Currently, rehabilitation works on the damaged road are being carried out on the project area (14.4 km): a stone embankment and temporary wooden bridges have been set up and the river-bed cleaned.
many economies in terms of concerns in currencies, declining commodity prices, and dwindling investor confidence. According to the publication, on this background, Georgia is among those countries that are characterized by impressive growth and growing interest from investors. “Whether it is true that every great challenge offers great opportunity, emerging markets were certainly handed plenty of both over the past several months. Between global trade tensions and homegrown problems, 2018 proved to be an especially transformative year for many economies. Currency concerns, declining commodity prices, and dwindling investor confidence only added to the turbulence”, reads the publication. “Global Finance describes Georgia as
a country that is characterized by rapid improvements in the business environment with high growth and strong links with the EU. For the above-mentioned assessment, Global Finance relies on the following sources: • IMF, World Economic Review (WEO), October 2018 • UNCTAD, World Investment Report, June 2018 • WORLD ECONOMIC FORUM, Global Competitiveness Report, 2018 • TRANSPARENCY INTERNATIONAL, Corruption Perception Index, 2018 • WORLD BANK, ease of doing business, 2019", - reads the statement released by the Ministry of Economy and Sustainable Development of Georgia.
SOCIETY
GEORGIA TODAY JUNE 11 - 13, 2019
Mandatory Technical Inspection Results: 114,830 Cars Fail, 117,640 Pass
Image source: loop.news.com
BY THEA MORRISON
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f 232,470 cars which took the mandatory technical inspection from January 2018 to February 2019, 114,830 cars failed and only 117,640 passed. The information was released by the non-governmental organization Institute for Development of Freedom of Information (IDFI) which studied the results of the inspection launched on January 1, 2018. The first stage of the mandatory testing required trucks of over 3.5 tons and passenger cars with more than eight seats to undergo safety checks. The second stage was launched on July 1, 2018 and required all vehicles registered to state entities to undergo a mandatory check, which was followed by the third stage from October 1, envisaging inspection of all automobiles with 3.0 engines and above. From January 1, 2019, the government launched the final phase of the campaign and required all other vehicles to undergo mandatory testing. The cost of inspection for cars is 60 GEL. If a car fails the test the first time, its owner is given a 30-day period to fix the identified problems. Reinspection is free of charge. The IDFI notes that in 2018, due to their being no technical inspection, the amount of fines imposed on drivers amounted to GEL 1 million and car owners spent more than GEL 16 million during the first stage of inspection. The NGO report reads that a total of 232,470 cars were tested from January 2018 to February 2019. 80,999 vehicles out of total 114,830 which failed during the initial stage applied for repeated inspection, as a result of which 4,330 failed to pass the testing again and 76,669 vehicles were approved. Of the twice-failed 4,330 cars, 4,032 were tested a third time and 2,150 failed to meet the requirements again. 1,182 of those cars managed to pass the third inspection. The organization says the largest number of vehicles that were inspected were M1 category vehicles which have no more than eight seats. According to the study, 63% of motor vehicles tested during the inspection conducted in 2018-2019 were M1 type and counted 79.5% of tested cars during the re-inspection. IDFI says the newer the cars, the fewer the irreg-
ularities. The percentage of vehicles issued in various years which failed the inspection is as follows: 2001-2005: 40%, 2006-2010: 33%, 2011-2015: 28% and 2016-2019: 20%. The organization highlighted that the Audit Report 2018 had revealed old and technically faulty cars are the main source of air pollution. According to the Audit Report, the quantity of exhaust and its harmful effect largely depends on the engine type and other technical parameters of cars. Most vehicles ten years and above are technically defective, thus pose a threat to the air quality in Georgia. In 2019, the Environmental Protection and Natural Resources Committee of the Parliament of Georgia published a report on the air condition in Tbilisi, which reads that the main cause of atmospheric air pollution in Tbilisi is the exhaust of motor vehicles. The IDFI says that the Ministry of Internal Affairs does not keep a record of the reasons specific cars could not pass the inspection. “In light of the fact the State fails to record the reasons why motor vehicles were found faulty, it is difficult to determine the problems of the existing auto park, estimate the damage to the environment and have a clear picture how problems have been eliminated at the second stage,� the NGO said. However, the organization added that the inspection had brought positive results, and the majority of owners of defective cars had managed to fix the flaws prior to re-inspection. During the inspection process, some questions arose as to whether inspectors are properly equipped and trained to inspect cars. However, the test centers claim that a high standard of inspection is met, with much of the work carried out by computers. In October 2018, the Investigation Service of the Ministry of Finance announced fraud had been discovered in relation to a number of technical inspection centers. A statement from the Investigative Service said that as a result of investigative activities, 10 centers for vehicle technical inspection were identified in the regions of Tbilisi, Samegrelo-Zemo Svaneti, Imereti, Kakheti and Mtskheta-Mtianeti, whose employees were falsely issuing passes for municipal and privately-owned vehicles. Under the Georgia-EU Association Agreement signed in 2014, Georgia is obligated to ensure all vehicles are in line with EU standards.
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SOCIETY
GEORGIA TODAY
JUNE 11 - 13, 2019
Georgia Reinforces National Commitment to Achieving the Sustainable Development Goals
BY SOPHIE TCHITCHINADZE & NINI DAKHUNDARIDZE
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housands of Georgians gathered in the town of Ambrolauri this weekend to take part in the country’s second national Sustainable Development Goals (SDG) Festival, initiated and organized by the United Nations in Georgia. The slogan of this year’s edition of the Festival echoed the core theme of sustainable development: to “Leave No One Behind.” The SDGs comprise 17 global goals that were adopted by all the member states of the United Nations in September 2015, aiming to end poverty, eliminate inequality and save the planet by 2030. The festival addressed the five pillars of the
SDG’s – People, Planet, Prosperity, Peace and Partnership. The President of Georgia, Salome Zurabishvili, addressed the participants and guests of the Festival at the grand opening in the evening. The President confessed her love for the region of Racha and announced her life-long dream of wanting to buy an Oda (Rachvelian house) somewhere in the region, she went on to say that “Racha has everything global tourists are looking for: wine, cheese, wheat, mountains, snow, beauty, your regional folklore – all things getting rarer by day in the rest of the world. That is why we have to protect it, so the region doesn’t lose its identity.” The newly appointed United Nations Resident Coordinator in Georgia, Sabine Machl, stressed the continuous efforts of the United Nations to support Georgia in achieving its national SDGs.
“The UN agencies active in Georgia are covering a wide range of areas related to the five pillars of sustainable development – People, Planet, Peace, Prosperity and Partnership,” she said. “Our work rests on strong cooperation with our partners, the Government of Georgia, local self-governments, civil society, the private sector, academia and all development partners in the international community.” The SDG Festival transformed the public space in Ambrolauri into a colorful display of activities illustrating the country’s efforts to achieve the Sustainable Development Goals. The busy agenda included sport activities, interactive seminars and workshops, talks and exhibitions featuring SDG activists and supporters from different walks of life: writers, artists, researchers, students, teachers, school children, farmers, diplomats and politicians. “It’s no accident that the SDG Festival is taking place this year in Racha,” said Louisa Vinton, Head of the United Nations Development Program (UNDP) in Georgia. “Like so many other locations in Georgia, it has vast development potential but needs to overcome the challenges of rural poverty, depopulation and climate change to realize the promise of peace and prosperity. We are confident that the festival will build public understanding and enthusiasm for our shared responsibility ‘to leave no one behind.’” The Festival concluded with a fair of local agriculture products as part of a project supported by the Government of Switzerland [more details in the next issue of GT], and an open-air concert featuring well-known Georgian artists. It was organized with the support of a wide range of partners, including UN
agencies and donors, the Government of Switzerland, the Government of Georgia, the administration of the Racha-
Lechkhumi-Kvemo Svaneti region, Ambrolauri Municipality, and many others.
Natakhtari Beer Wins Superior Taste Award
ADVERTORIAL
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n June 3, Natakhtari Beer was granted a Superior Taste Award by the International Taste Institute in Brussels. Products were tested by a large panel (over 200 jury members) of professional taste-experts, members of the world’s most
prestigious Chef & Sommelier associations. Their talents are recognized in Chef and Sommelier competitions and by renowned institutions such as Le guide Michelin and Gault & Millau. Products were analyzed and scored following a strict and neutral methodology. Products were tasted blind by a large panel of independent food and drink professionals who do not know the product brand name nor its origin as they taste it.
“Almost 200 prestigious Chefs and Sommeliers came together to give objective and professional feedback to producers on the taste of their products” said Laurent van Wassenhove, Managing Director of the International Taste Institute. “Chefs in famous institutions, Michelin-starred chefs, Best Sommeliers awardees, …they all blind taste the products registered by producers. Products with high gustatory scores receive the ‘Superior Taste Award’.
POLITICS
GEORGIA TODAY JUNE 11 - 13, 2019
11
The Outcome of the European Parliament Elections - What Does it Mean for Georgia? BY TEONA LAVRELASHVILI
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he European Parliament elections are over, with the liberal wing sighing with relief, while the right wingers can smugly point to the increase to 25% of representation in the world 's second largest democratically elected parliament. But what does the new set-up mean for Georgia? As a Georgian at the European Commission, I tried to answer that in a piece written for the Georgian Foundation For Strategic and International Studies (Rondeli Foundation). The mood on election night was quite gloomy in Brussels. Europeanists from all sides felt anxious about the possible populist surge. It did not happen, yet there are still not many reasons to celebrate. The good news is that the European Parliament (EP) elections gained something of a new momentum. Since its first ever direct elections in 1979, the voter turnout has continuously shrunk, while this year we saw an increased participation by almost 9% compared to the previous elections. This positive trend suggests that people are interested in Europe again, that there is an awakening of the European demos, who no longer view the EP elections as 'second order' elections. More good news is that the populists and nationalists are contained, and hysteria of a genuine cleavage among pro-EU and anti-EU populist forces is over. The bad news is that the EU is left in uncertainty. Not because of fragmentation, after all the major parties secured a majority, but because of the growing division among the Member States, which hold conflicting visions on the future of Europe. In the new setting of the Council, it will become more difficult to reach agreements. The political ambiance is affected by the populists as well. Although they did not rise significantly, their share of seats increased from 20 to 25%. It is particularly worrisome that Italy, a founding Member State, is drifting away from EU principles and in the words of Nathalie Tocci, has “chosen a path of national marginalization.� Salvini's far right League party came first in Italy. It promises to change the rules of the EU game together with France, the UK, Hungary and Poland.
Image source: ft.com
Marine Le Pen's victory, although with a small margin, signals the weakening of Macron's Renaissance vision of the EU, while in the UK, Farage is again in the spotlight. In Belgium, election night turned out to be a 'Black Sunday' - the nationalist, separatist and anti-immigrant party, the Vlaams Belang (Flemish interest) won triple elections (regional, federal and European). The rise of these types of parties illustrates that the times of political taboos are over, and people are not shying away from proclaiming themselves extreme right. These trends again confirm that the political architecture in Europe is in constant flux. However, we should not be mistaken into reading the European trends in the votes of a single country. If green politics appeal to German and French citizens, the same is not valid for example for Central and Eastern Europe. The voters' preferences appear fragmented, shedding light on the regional divisions and disparities within the Union.
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GEORGIA TODAY
EDITORIAL DEPARTMENT:
Editor-In-Chief: Katie Ruth Davies
BUT WHAT DO THE EP ELECTIONS MEAN FOR GEORGIA? First of all, it means that there is a new balance of power in the European Parliament. 40 years of majority between the conservative center-right EPP (European People's Party) and PES (Party of European Socialists) is over, and broader coalitions are expected to be created, including among the Liberals and Greens. Now the challenges for Georgia might be that agreements and decisions on country specific issues and on foreign affairs (the Eastern Partnership), will be more complex and prolonged. Georgian diplomats will need to adjust their negotiation strategies to various political groups; however, their efforts will be in vein if national political parties do not decide to cooperate. The cross-party partnerships of leading Georgian parties will be needed to secure attention from Europarty (parties with EU-level officials, Members of the European Parliament) and relevant political figures. It is high time that the Geor-
Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Dimitri Dolaberidze, Vazha Tavberidze, Nugzar B. Ruhadze, Samantha Guthrie, Amy Jones, Thea Morrison, Ana Dumbadze, Ketevan Kvaratskheliya Photographer: Irakli Dolidze
gian political parties pool their resources to lobby in a coordinated manner the country's strategic interests at the EU level. Georgia's level of ambition will also depend on who will take the EU's top jobs. The key question here is will the next Commission be political or technical? If the Commission President will be chosen via the Spitzenkandidaten (lead candidate) procedure (which means that the European Council should propose a candidate taking into account the election results of the European Parliament), the Commission will emerge as a more political institution, strong enough to support by itself the new formats and partnerships with the neighborhood countries, including Georgia. If the Council decides to reject this procedure, the President will be nominated by the European Council. This will signal a return to intergovernmentalism, shifting the power balance towards the member states, which don't show much enthusiasm for the enlargement agenda. It is no coincidence that the European Com-
Website Manager/Editor: Katie Ruth Davies Layout: Misha Mchedlishvili Webmaster: Sergey Gevenov Circulation Managers: David Kerdikashvili, David Djandjgava
mission recommended opening accession talks with Albania and North Macedonia in an annual report published recently; however, as Martin Selamayr, the European Commission's Secretary General, confirmed in a private talk, the result of the upcoming Council Summit in June will be zero, as Member States are reluctant. Naturally, in order to advance the neighborhood policies, it will be essential to have a strong High Representative for Foreign Affairs and Security Policy, as well as a committed Commissioner for Enlargement and Neighborhood Policy. Looking ahead, it is clear that while the EU will need to fix its internal challenges, among others reconciling the populist moves and the green waves, Georgia should not find itself put aside. Its political elites should find a crossparty consensus and build a solid strategy involving civil society to advance the country's interests by enhancing its channels of strategic communication at the EU and Member States' level.
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