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Issue no: 794/2
• NOVEMBERR 1 17 7 - 19, 2015
• PUBLISH PUBLISHED TWICE WEEKLY
FINCA Bank Georgia Launches Personal Banking Business Line
FOCUS ON SERVICE PAGE 2
Lika Khitarishvili, Head of the Personal Banking Service Center of FINCA Bank, talks to us about the bank’s mission, vision and newly launched personal banking business line
YOUR FREE COPY
Georgia Today offers its sincerest condolences to those affected by the tragedy that befell Paris on November 13th.
In this week’s issue... F in Georgia to Reach FDI M More than USD 1.5 billion PPAGE 2
LLess Bureaucracy Is Good, B But Not Good Enough!
World’s Largest Wendy’s Opens in Tbilisi
ISET PAGE 4
BY MERI TALIASHVILI
Comparing Living Standards
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issol Group has opened the largest Wendy’s restaurant in the world…in Tbilisi. The three-floor restaurant located at 26th May square covers 1,450 sq. meters and has a hosting capacity of 450 guests. The restaurant was deliberately opened on November 15th, the date when, 46 years ago, American businessman and philanthropist Dave Thomas opened the first Wendy’s in Columbus, Ohio, US. The opening ceremony was attended by Todd Penegor, the company’s Executive Vice-President and Chief Financial Officer, the company’s Chief Development Officer, newly appointed US Ambassador to Georgia, Ian C. Kelly, local government and business representatives among them the Mayor of Tbilisi David Narmania, and Opening the Biggest Wendy’s in the World: Soso Pkhakadze, the President of Wissol Group; Davit many other public figures. Narmania, Mayor of Tbilisi; Ian C. Kelly, US Ambassador to Georgia; and Todd Penegor, Wendy’s Continued on page 2 Executive Vice-President and Chief Financial Officer
PAGE 6
Navigating the EU Integration Process PAGE 8
EU-Funded Rural Development Pilot Project Presented in Lagodekhi PAGE 9
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BUSINESS
Adjara to Spend 3.7 million GEL on Marketing Campaign
BY ANA AKHALAIA
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djara is to spend 3.7 million GEL on the region’s tourism marketing campaign in 2016- the amount of money provided in the budget of the Department of Tourism and Resorts for a marketing campaign in both local and international markets. According to the draft budget 2016 of Adjara, funding of the Department will increase by 21.5%. Within the 2016 budget, funding for the Department is 5,823.300 GEL up from the 2015 figure of 4,582 million GEL. The Department will spend 854,800 GEL on tourist products and service development and 1,266.500 GEL on management and effective development of the tourism and resorts sector. According to the Chairman of Department of Tourism and Resorts of Adjara,
Mamuka Berdzenishvili, “Approximately 100 thousand GEL will be added to our newly created tourism product agency, which is responsible for the development of tourism products. According to the 2016 draft budget, funding the Department will be increased by 1.4 million.” It is planned to increase online activities and PR campaigns of the Department in 2016. The increased budget will make it possible to host more press tours in 2016 than in 2015. The advertising budget is also increasing in terms of domestic tourism. According to the 2016 draft budget, 369,00 GEL will be spent on regional tourism advertising within Georgia. Berdzenishvili went on to say that the Department conducted advertising and marketing in 9 target markets in 2015. “Given the fact that the number of tourists is growing every year in Georgia and Adjara, the Department made a decision to add a 10th country, the Russian Federation, into the 2016 program budget.”
Business Incubator Fab Lab Opens in Tbilisi BY ANA AKHALAIA
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new, modern industrial laboratory ‘Fab Lab’ has opened with the support of City Hall in the Technical University. The industrial project belongs to the Technology Development Fund. “It is very important to have a laboratory equipped with modern technologies which, on the one hand, enables students to improve their qualifications in practice and, on the other hand, is a profitoriented business project, by which we are helping small businesses,” said Davit
Narmania, Tbilisi Mayor. “They can produce their desired products and items with the help of the laboratory and then put them up for sale on the market. This project is particularly interesting for us because this laboratory is the first of its kind in the capital. What’s more, the same kind of laboratory will be opened in the Tbilisi State University in December.” The main goal of Fab Lab is to support inventors, innovators and beginner entrepreneurs. The Business Incubator is equipped with the latest technologies, and modern machinery will allow users to make their ideas reality. Business Incubator Fab Lab will serve clients free of charge.
GEORGIA TODAY
NOVEMBER 17 - 19, 2015
FDI in Georgia to Reach More than USD 1.5 billion BY ANA AKHALAIA
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y the end of the year, foreign direct investments will stand at more than USD1.5 billion. Economists predict that the increase in investments should be particularly eye-catching in the energy sector and construction in the data of the 3rd and 4th quarters. According to Q2 official data of 2015, USD530 million worth of direct foreign investments came to Georgia. This was the largest volume in the last six years but the rate of investments failed to affect the rate of GEL and unemployment. Both these issues continue to be major challenges for the Government. According to the Economic Council of the Government, the Co-Investment Fund is implementing USD2 billion worth of investments in Georgia. The majority of projects will be completed by the end of 2017. The projects are as follows: hydroelectric power plant Mtkvari, Tskhenistskali and Oni cascades; Dairy Farm and milk processing factory; Gallery Tbilisi; Hotel and fitness center in Shekvetili; Panorama Tbilisi; Hotel Axis Towers; highlevel computer data center. Some of the projects are already being carried out. As mentioned above, Georgia’s foreign direct investment amounted to USD 530 million dollars in two quarters, while in 2014 – more than 1.7 billion. Last year, the biggest investors were the Nether-
lands (26%), Azerbaijan (24%) and China (15%). These three countries accounted for 65% of FDI. USD114 million came from the United Kingdom, USD85 million from Luxemburg, while investments increased from the United States, Turkey and Russia. Most of the direct foreign capital was invested in transport and communication - USD343 million, which is 27% of the total foreign direct investment. Construction took second place with USD295 million, while the third was the processing industry with USD174 million, followed by the energy sector - USD87
million and the financial sector - USD78 million. According to government members, a large-scale investment has been made in the energy sector. However, the volume of investments in this sector has been declining for several quarters. A few months ago, the Energy Minister Kakha Kaladze spoke about the investment of USD600 million to enter the energy sector. The National Statistics Office will release the data of Q3 on December 9th while the results of Q4 will be released in spring 2016.
Italian Company Telecom Italia Sparkle to Expand Market Interest
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talian company Telecom Italia Sparkle is expanding its global IP network in a new joint project with Turkish telecommunications company Turkcell and Georgia’s largest internet provider Silknet. The project will be presented on November 17, at 11:00 am at the Radisson Blu Iveria Hotel where each of the three companies will make a statement and celebrate with the signing of a tripartite Memorandum of Understanding.
World’s Largest Wendy’s Opens in Tbilisi Continued from page 1 Soso Pkhakadze, the President of Wissol Group thanked their partners, and attributed the huge success of Wendy’s in Georgia to the love of their faithful customers. Georgia Today exclusively interviewed Wendy’s Executive Vice-President, Todd Penegor.
MR. TODD, WENDY’S HAS OPENED THE LARGEST RESTAURANT IN THE WORLD IN TBILISI. WHY DID YOU CHOOSE GEORGIA? Yes, it is genuinely the largest in the world. And it is because of the support of Wissol Group who partnered with us to make sure that we were comfortable with the idea of building the largest Wendy’s restaurant. They felt that if they could make a statement here they would make a statement for the company around the globe and clearly what you see here today is the result of that statement. With the opening of the new restaurant, we’re try-
ing to create a truly unforgettable experience: to make sure that when you come here, you engage with the people, enoy fabulous tasting food, and experience nice facilities. The new restaurant is unique; we have Dunkin Donuts downstairs and a Frosty’s Corner, a fabulous café on the second floor and if you want to have a fun you have a brilliant space on the third floor with all the necessary equipment and also a space for kids. As for the new workforce, in this restaurant alone we have employed 50 folks, running three different shifts. In one particular shift they allow 16-18 people. I tell you one thing: they [Wissol and Wendy’s Georgia] are very, very good to their people. We recognized them earlier this year with a Jim Near Award which is Wendy’s special award that goes to the organization most focused on their people and giving back to the customers.
WHAT ABOUT WENDY’S SENSE OF SOCIAL RESPONSIBILITY? One of our core values is giving something back. That really goes to the his-
tory of our founder David Thomas. In the US and Canada we have the David Thomas Foundation of Adoption and we spend a lot of time raising money in our restaurants to help the most unadoptable kids to be adopted. I am sure we will do the same here and we are so proud to be in Georgia. The Government is spending a lot to encourage job creation and encourage Western brands to enter the country. And boosting the Georgian economic climate means creating more jobs and it’s a pleasure for us to be a part of this. At the opening of Wendy’s, US ambassador to Georgia Ian C. Kelly once again expressed the US support for Georgia in terms of politics and business. “Our main priority here in Georgia is to help the country integrate into Europe and the North Atlantic community, and a big part of this is about growing business and the trade relationship between these two countries. The Wendy’s event is just one example of the fantastic partnership between the US and Georgia,” Ambassador Kelly said.
BUSINESS
GEORGIA TODAY NOVEMBER 17 - 19, 2015
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FINCA Bank Georgia Launches Personal Banking Business Line BY MERI TALIASHVILI
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INCA Bank Georgia has recently opened its first personal banking service center in Tbilisi to offer personal banking services to its clients. Customers of the personal banking service center will join more than 80,000 citizens of Georgia already enjoying FINCA Bank’s financial services. One of the leading financial institutes, FINCA has been operating in Georgia for more than 17 years. During this time, FINCA Georgia has made significant contribution to the formation of credit culture and to the development of small and medium businesses. Georgia Today met Lika Khitarishvili, head of the personal banking service center of FINCA bank and talked to her about the bank’s mission, vision and newly launched personal banking business line.
FINCA BANK GEORGIA IS A PART OF GLOBAL NETWORK OF FINCA MICROFINANCE HOLDINGS (FMH). COULD YOU TELL US MORE ABOUT FINCA BANK GEORGIA AND FINCA, GENERALLY, WHAT IT DOES WORLDWIDE? “FINCA” is an international financial institution, founded in 1985 in the United States with representatives in 23 countries. Being a part of global network of
FINCA Microfinance Holding (FMH), it has strong international financial partners such as: FINCA International (USA), The International Financial Corporation (IFC, World Bank Group) (USA), KFW Bankengruppe - German Development Bank, FMO - United Bank of Netherlands, responsAbility Social Investments AG, Triple Jump and other financial institutions. FINCA’s vision is to build a global network of sustainable and scalable social enterprises that improve lives worldwide. Exactly based on this strategy it began to expand its network in Eurasia. In 1998 the first branch was opened in Georgia. Initially, the organization operated with the status of microfinance institution in the Georgian market, however, after receiving a banking license in 2013, the organization now offers a full range of banking services to its customers. FINCA, on a global scale, provides full financial services to around 2 million people worldwide. Small and Medium Entrepreneurs are FINCA’s core segment in the entire world. FINCA’s global mission is to alleviate poverty through lasting solutions that help people build assets, create jobs and raise their standards of living. In Georgia, in terms of loans, people owning small or medium size businesses are FINCA Bank’s major segment. Since receiving a banking license in 2013, FINCA Bank Georgia has expanded the scope of services and banking products and
serves more than 80,000 clients in all regions of the country through its 41 service centers. Today, our deposit interest rate is one of the highest and most competitive. Alongside our international financial partners, we are oriented on offering customers products and services tailored to their needs. We aim to be the bank which is the most reliable partner for the client, both when they need money and when they are looking to gain benefit from that money. We understand that customers need comfortable banking services that are constantly improving, and therefore we strive to expand the scope of our bank, its services and products. It is therefore important to note that, in October 2015, FINCA Bank Georgia launched personal banking business line.
WHAT DOES FINCA BANK PERSONAL BANKING SERVICE MEAN? FINCA Bank personal banking business line implies offering the best service that focuses on clients’ needs and interests, and offers comfortable service and highly qualified consultation in both cases when the client visits us, as well as during distance service. FINCA Bank Georgia is built on the platform developed over 17 years of operations in the country contributing to the formation and development of the lending culture. Today, through the FINCA Bank per-
Lika Khitarishvili, Head of the Personal Banking Service Center of FINCA Bank
sonal banking service, we are aiming at changing people’s attitude towards time and money. Our challenge is to have people see the importance of saving. Having savings helps us properly and effectively plan our future. In such cases, we are not afraid of the future and are ready to meet unforeseen situations.
GEORGIAN BANKS HAVE ALREADY IMPLEMENTED THE PERSONAL BANKING SERVICE. WHAT IS FINCA BANK OFFERING THAT IS NEW IN THIS DIRECTION? Personal banking qualifications, customer orientation, effective and comfortable service - is a guarantee of customer’s peace-of-mind - This is the driving force of personal banking service. I think you would also agree that we live in an era where time is the most valuable asset and when life seems to fly by. In such cases, it is vitally impor-
tant to have quick and optimal decisionmaking skills. Therefore, with our personal banking service, we want to help our clients to make right decisions at the right time… We believe that stability and security are the core values of our time. We aim to be the best for our customers because nothing is more valuable than a reliable, stable, loyal financial partner - the international experience of FINCA Bank is a guarantee of financial stability of our clients.
WHICH ARE THE TARGET SEGMENTS – AFFLUENT OR MASS AFFLUENT CLIENTS? Our service aims at both - Affluent and Mass Affluent segments. Generally, FINCA Bank aims to offer financial services which will satisfy the needs of any segment. Because we believe that all customers equally want to receive a high-quality and client-oriented service.
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BUSINESS
GEORGIA TODAY
NOVEMBER 17 - 19, 2015
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.
Less Bureaucracy Is Good, But Not Good Enough! BY OLGA AZHGIBETSEVA, CHARLES JOHNSON, AND ERIC LIVNY
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hy do we fall, Bruce? So we can learn to pick ourselves up – Thomas Wayne to his son (Batman). The Georgian Government’s pride and joy of the previous years has been its high standing in the World Bank’s Ease of Doing Business index. Investors, policymakers, and economy-watchers around the world have opened editions of magazines like The Economist to see full-page advertisements about why Georgia is ‘different’ among Post-Soviet countries when it comes to doing business. A line such as “Georgia is different because we are the World Bank’s number 1 reformer for 5 years” said it all. Georgia’s Doing Business ranking peaked at #9 and 8 in the world in 2013 and 2014, respectively, after vigorous actions by the new Georgian administration to strengthen judicial independence and better secure property rights. In the following two years, however, Georgia went down in the Index: to #15 last year, and to 24 in the most recent ranking released on October 26, 2015. What could possibly go wrong?
CINDERELLA LOSING HER GLASS SLIPPER? Georgia’s performance (see chart) in the Ease of Doing Business index is a Cinderella story. In 2006, the country ranked in 100th place, but, thanks to a rapid and effective reform process, by 2010 it
climbed all the way to 10th position, ahead of some of the most eminent economic powers in the world, such as Germany and Switzerland. Despite recent setbacks, Georgia maintains its official title as the fastest reformer in the Ease of Doing Business over the past 12 years, closely followed by Rwanda (incidentally, Rwanda’s largest bank, Bank of Kigali, is chaired by a prominent Georgian banker, former PM and ISET’s chair, Lado Gurgenidze). But what did this achievement mean in reality? How could Georgia be possibly ranked ahead of Germany on any conceivable indicator of economic performance? For lack of a convincing answer, Doing Business methodology has always been subject to harsh criticism from within and outside the World Bank Group. First and foremost, the Index grossly under-delivers relative to its well-selling name. De facto, until 2014, Doing Business had been measuring freedom from, and (to some extent) efficiency of government regulations (a classical example is # of days to register a business). Yet, to measure how easy it is to do business (as opposed to registering a business), one would have to look at many other factors which Doing Business had ignored ‘for simplicity’. Such are things like, for example: • quality of infrastructure • availability of input suppliers and service providers • size of internal and external market • labor force quality (skills and ethics) • access to finance • property rights While slashing suffocating regulations and redundant bureaucracy, Georgia could
not achieve nearly as much progress on any “doing business” factors that require patient construction and nurturing rather than swift revolutionary actions. Removing regulations – and even corrupt officials – is an easy task, provided the political will is there. Re-educating the entire labor force takes generations.
THE EASE OF GOING UP AND DOWN IN INTERNATIONAL INDEXES To do justice to Georgia’s reformers, they did implement a number of highly successful constructive reforms such as moving almost all government services to online platforms and opening amazingly efficient public service halls. Yet, despite a lot of improvement, Georgia’s infrastructure is still light years away from Germany; its peanut-sized market is still hardly an attraction for multinational companies seeking to maximize the bang for their buck; whoever decides to invest in Georgia – for emotional or any other reasons – would still have to invest in own supply chain and services, given that very little would be available from local providers; and so on and so forth. The many shortcomings in its business environment did not stop Georgia from progressing to almost the very top of the Ease of Doing Business Index. They did not stop Georgia from progressing for one simple reason: until 2014, the Index had largely ignored or discounted many of those things that businesses really care about. And by the same token, while Georgia’s seemingly worse performance in the Ease of Doing Business in 2015 and 2016 certainly works great inserted into an opposition party’s stump speech, the only thing it reflects is a change the World Bank’s methodology. Yes, a change that, finally, after almost a decade of criticism, brings the methodology of Doing Business a bit closer to what its name actually implies. An independent panel, appointed by the President of the World Bank, reviewed the methodology and practice of Doing Business in October 2012. The resulting report issued in June 2013 expressed concerns about both coverage and relevance of Doing Business indicators, as well as its potential to be misinterpreted as a one-size-fits-all template for development. Nevertheless, a recommendation was made to retain the Doing Business report with some modifications to its methodology, institutional structure, name, and communication strategy. The methodology had been retooled over two years, in 2014 and 2015, with some
10 Galaktion Street
additional changes expected in the coming years. The revised methodology, while maintaining the same basic structure, adds new indicators (e.g. quality of land administration systems, quality of construction regulations and controls, reliability of electricity supply, and quality of the judicial process). These new indicators focus on quality of regulation or infrastructure issues that are more challenging for developing countries, such as Georgia. To take another example, Georgia’s has been downgraded to 78th on “trading across borders” after this indicator has been revamped in 2016 to better reflect the actual structure of Georgian trade.
SHOULD “DOING BUSINESS” BE SIMPLE OR COMPLICATED? For all its simplicity – and maybe thanks to it – the good old Doing Business Index did perform a useful function. It motivated governments to implement deregulation reforms and improve the quality of existing regulations. It was able to perform this function because, until 2014, it covered areas that are mostly under direct government control. A government that wanted to look good on the Index could do so in a very short time. And many governments, starting with Georgia, jumped on the opportunity to do so. For example, Azerbaijan made huge strides in Doing Business after its government became envious of Georgia’s success. Did it make Azerbaijan a truly good country for doing business? No, it is still as corrupt and as clan-dominated as ever before. However, having fewer and more efficient regulations was a good thing for Azeri businesses and citizens. No government can instantly improve its ranking on far more comprehensive indices such as the Global Competitiveness Indicators (GCI) compiled by the
World Economic Forum. Progress in GCI is painstakingly slow because it requires a lot of investment in things like infrastructure, innovation systems, free trade agreements, etc. Hence, GCI is not as effective in motivating myopic governments that are only interested in achieving quick results (before the next elections). It is particularly weak in incentivizing governments of developing countries, such as Georgia, which by definition would never be able to top the world on the quality of infrastructure or labor qualification. A more complex and realistic Doing Business is likely to lose in the amount of attention it is getting in Georgia and elsewhere in the developing world where it provided governments with a unique opportunity to shine. Still, by keeping its focus on certain actionable aspects of the business environment it will continue to perform an important role in promoting good governance reforms.
ONE STEP BACK, TWO STEPS FORWARD! The fact that Georgia went back in the new Doing Business may deny Georgian officials a platform to sing the praises of a top-10 ease-of-doing-business economy. At the same time, the new methodology helps highlight and monitor progress in areas that are key for strengthening Georgia’s competitiveness. Improvement in some of these areas (contract enforcement, quality of judicial processes, and reliability of electricity supply) is already reflected in the 2016 Doing Business report. Additional progress may be achieved thanks to closer economic ties and easier ‘trade across borders’ between Georgia and the EU. Put simply, rather than constituting a setback, the 2016 Doing Business Report should be seen as an opportunity for Georgia to “learn how to pick itself up” once more.
Tel: (995 32) 2 45 08 08 E-mail: info@peoplescafe.ge
GEORGIA TODAY NOVEMBER 17 - 19, 2015
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BUSINESS
GEORGIA TODAY
NOVEMBER 17 - 19, 2015
The Galt & Taggart Research team comprises Georgian and Azerbaijani finance and economic experts who have broad experience of covering the macro and corporate sectors of the two countries. Our current product offering includes Georgian and Azerbaijan macroeconomic research, Georgian sector research, and fixed income corporate research. For free access to Galt & Taggart Research, please visit gtresearch.ge or contact us at gt@gt.ge.
Comparing Living Standards BY EVA BOCHORISHVILI
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ross domestic product (GDP), the sum of all economic activity within a nation’s borders, provides a good snapshot of a country’s economic performance. However, citizens of a country with a large GDP do not necessarily live better than those in smaller economies, as GDP per capita is the better indicator of a nation’s standard of living. For Example, China is the second largest economy by size of GDP after USA, but there is still a sizeable gap in the quality of life of an average American and an average Chinese citizen, captured by per capita GDP, as China has the world’s largest population. In our case, Uzbekistan’s GDP at US$ 62.6bn in 2014 was almost 4 times larger than that of Georgia, but the average quality of life of a Georgian citizen was higher than that of an Uzbek citizen, as measured
by per capita GDP. On average, a citizen of Uzbekistan (with per capita GDP at US$ 2,046) had less money than a citizen of Georgia (per capita GDP at US$ 4,434), with the Uzbek population 8 times larger than the Georgian population. As seen above, national output statistics are commonly converted into US$ for comparison reasons across countries. However, there are two main methods of making cross-country comparisons of GDP and the related per-capita income and they can provide markedly different answers.
TWO DIFFERENT YARDSTICKS: 1. PER CAPITA GDP When determining individual economic wellbeing, GDP per capita is a more appropriate tool than GDP. To arrive at this figure, the market exchange rate is used to convert GDP in national currency into US$. Using this metric, Georgia’s per capita GDP has shown remarkable improvement, increasing almost 5 times to US$ 4,434 in 2014 from US$
924 in 2003, helped by healthy GDP growth rates, as well as a decrease in population. However, the recent regional economic problems and related lari depreciation have weighed on per capita GDP, bringing it to almost the 2011 level. According to IMF’s estimates for 2015, Georgia ranks 119th out of 189 economies in terms of GDP at US$ 13.8bn and 117th in terms of per capita GDP at US$ 3,720. To reverse the trend, the value of goods and services that we produce must increase significantly. If Georgia wants to join the ranks of countries with US$ 10,000 GDP per capita by the mid-2020s, it will need average annual real growth of at least 6%, which would allow Georgian citizens to feel the benefits of economic growth through improved living standards. To achieve this level of per capita income, FDI is one of the most important factors, taking into consideration Georgia’s low savings rate and skills needed to produce more sophisticated goods and services. In this regard, government policies aimed at improving the business environment, coupled with increasing the competitiveness of Georgian products and services, are essential.
2. GDP PER CAPITA BASED ON PPP An even better indicator for comparing living standards across countries is GDP per capita based on purchasing power parity (PPP), which takes into account variations in living costs across nations. Instead of market exchange rates, this metric uses the PPP exchange rates, which show how much currency will be needed to buy the same quantity of goods and services in different countries and is a more accurate reflection of actual living standards. This type of cross-country comparison is the basis for the well-known “Big Mac” index, which is published by the Economist magazine. The major advantage of PPP exchange rate is its relative stability over time compared to market rates. Another drawback of market exchange rates is that they are relevant only for internationally traded goods. Nontraded goods and services tend to be cheaper in low-income versus high-income countries. A haircut in Georgia is significantly cheaper than one in New York, as is the price of a taxi ride or a theatre ticket. Any analysis that fails to take into account these differences in the prices of non-traded goods
across countries will underestimate the purchasing power of consumers in developing countries and, consequently, their welfare. For this reason, PPP-based per capita income is generally regarded as a better measure of overall individual well-being. Using PPP-based per-capita GDP, Georgia was in 107th place with US$ 9,209 GDP per capita (PPP) in 2014, ahead of many developing countries, including many from the former soviet bloc: Armenia, Ukraine, Uzbekistan, twice as rich as Moldavians, more than three times wealthier than Tajiks, and significantly ahead of many developing Asian and African countries. Georgia is close to Bosnia and Herzegovina, Egypt, and Albania, but lags significantly behind rich countries, including major remitting countries for Georgia like Russia with per capita GDP (PPP) at US$ 24,449, Italy at US$ 35,131, and Greece at US$ 25,954. While this outcome is disappointing, it is still an improvement compared to 2003, as Georgia moved up 15 spots in the global ranking over the last 11 years, becoming almost 3 times wealthier based on per capita GDP (PPP). This progress came on the back of higher growth in Georgia, compared to other economies, and structural improvements, which reduced living costs. While this number takes into account the decline in the Georgian population by 588,000 persons over that horizon, leaving the population number unchanged in 2014 still yields a more than 2x increase in PPP-based per capita GDP since 2003. Notably, while lari depreciation weighs on the per capita GDP estimate for 2015, in PPP terms Georgia still posts an improvement over the 2014 figure, according to IMF. Based on IMF’s projections, Georgia will maintain the same position in the global ranking with projected annual average real growth of 4.6% over 2016-2020. Faster growth will be necessary to move up in the global per capita GDP ranking and improve the country’s living standards. Looking at the prospects of Georgians’ living standards, a stronger lari will translate into higher GDP in US$ terms, bringing Georgia closer to the club of wealthier nations. Maintaining a competitive environment and an open economy is imperative to keep living costs manageable, so that the higher GDP per capita in US$ terms will translate into higher GDP per capita based on PPP.
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Navigating the EU Integration Process BY KATIE RUTH DAVIES
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n a conference entitled ‘Making the Most of the DCFTA,’ within the framework of the Visegrad Fund project ‘Sharing Experience of Public-Private Dialogue in EU,’ the Policy and Management Consulting Group (PMCG) hosted high ranking representatives of the Moldovan and Georgian governments, the EU delegation, Hungarian, Polish, Czech and Slovakian diplomatic missions and representatives of EBRD, EIB, USAID, WB, and IFC in Chisinau, Moldova on October 22-23. The aim was to discuss the most efficient ways for governments and private sectors to navigate through the EU Integration Process, more specifically, to assist Moldovan and Georgian businesses and government bodies to strengthen dialogue and awareness about the opportunities and challenges presented by the signing of the Association Agreement. Cecilia Malmstrom, EU Commissioner for trade; Luc Devigne, Head of the EU Commission unit Russia, CIS, Ukraine, Western Balkans, EFTA, EEA and Turkey; Archil Karaulashvili, Deputy Minister on European and Euro-Atlantic Integration of Georgia; Aleksi Aleksishvili, Former Minister of Finance of Georgia, CEO- Policy
and Management Consulting Group - PMCG (Georgia) and other highranking officials shared their experience and opinions regarding the process of EU approximation. The focus of the event was on sharing the experience of the Visegrad countries (Czech Republic, Hungary, Poland, Slovakia) in developing constructive publicprivate dialogue in a transition period, while harmonizing legislation and standards with those of the EU. Key topics discussed were ‘One year of the DCFTA,’ ‘external assistance for SMEs to meet the requirements of the DCFTA,’ ‘accessing EU markets,’ ‘building public-private partnerships,’ and ‘providing support services.’ Valerian Gvalia, Senior Adviser of EUGeorgia Business Council: “The EUGeorgia Business Council (EUGBC), the only European Business Association in Georgia, pays paramount attention to experience sharing with its business colleagues. Indeed, joint efforts from Eastern Partnership member states are necessary in order to move forward towards the benefits of the Association Agreement and DCFTA. The International Conference in Chisinau ‘Making the Most of the DCFTA’ proved once again that there is interest from the Georgian side to enhance the trade relationship with the EU.” Georgia Today spoke with Nino Samvelidze, EU Programs Manager of PMCG,
GEORGIA TODAY
NOVEMBER 17 - 19, 2015
At the ‘Making the Most of the DCFTA’ conference. (From left to right) Silvia Radu, GAS NATURAL FENOSA and President, EBA Moldova; H.E. Ambassador Pirkka TAPIOLA – Head of the European Union Delegation to Moldova; Cecilia Malmstrom – EU Commissioner Trade; and Octavian Calmic – Deputy Minister of Economy, Republic of Moldova.
about some of the topics covered in the conference.
WHAT KEY ACHIEVEMENTS AND CHALLENGES WERE HIGHLIGHTED ON COMPLETION OF THE FIRST YEAR OF THE DCFTA IN MOLDOVA AND GEORGIA? Both Moldova and Georgia started implementation of the norms and recommendations set out by the AA and DCFTA which also includes legal approximation of different sectors. The approximation process creates opportunities for economic advancement of the countries but there are several areas which still remain a challenge, one being the capacity and readiness of SMEs to catch up with the process and regulations. The DCFTA has large political meaning for these countries and its proper implementation is important. At the same time it is essential not to sacrifice business interests to accelerated implementation of the DCFTA, namely approximating legal and institutional framework while disregarding business needs and interests. The Moldova conference stressed that another challenge is possible increased imports from the EU and additional pressure on domestic producers, especially in the short run. This, together with increased costs due to strict compliance requirements with EU standards,
might be a trial for the economy. This is why assessing the countries competitive advantage is important; targeting the most promising fields in the short-run which might have spill-over effect and useful gains in the future. Special attention should be paid in correctly utilizing the technical and financial assistance provided by the EU, EBRD, EIB and others so they bring tangible results. One of the challenges for SMEs in these countries is the lack of available and cost effective advisory services, lack of interregional and international mechanisms to exchange best practice, as well as a lack of internal funding due to underdeveloped capital markets and a financial sector still in transition. For this, Georgia, Moldova and Ukraine need to develop local expertise capacity to provide cost effective advisory services to SMEs, facilitate exchange of best practice, and improve access to funding for SMEs to foster economic development
WHAT KIND OF ASSISTANCE / SUPPORT HAS BEEN OFFERED TO SMES IN GEORGIA AND MOLDOVA IN PARTICULAR? The European Commission - jointly with the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD)– has put in place the DCFTA Facility for SMEs. The DCFTA Facility for SMEs is an integral part of the SME Flagship Initiative,
a wide-ranging regional initiative of the EU which aims to provide support to SMEs in the Eastern Partnership to tackle the challenges impeding them from reaching their full potential. The Facility will complement the EU programs in each country that help small businesses grow and prepare for the new market opportunities of the DCFTA and help national authorities to implement their Association Agreements. The DCFTA Facility for SMEs will receive approximately €200 million of grants from the EU budget. This contribution is expected to unlock at least €2 billion of new investments by SMEs in the three countries, to be financed largely by new loans supported by the Facility. The funding will: • Help SMEs to seize new trade opportunities with the EU and within the region which have been opened up thanks to the DCFTA; • Improve access to finance for SMEs, enabling them to make the necessary investments to increase their competitiveness; • Allow SMEs to integrate into global value chains by becoming business partners of foreign direct investors; • Enable SMEs to comply with new sanitary, phytosanitary, technical and quality standards, as well as with environmental protection measures, thereby benefiting local customers and boosting exports to the EU and beyond.
WHAT IS TRACTION CAMP
TRACTION Camp is a three-day training project for advanced early stage startups based in Georgia, Armenia, and Azerbaijan. This project is produced by USAID-REG, and is aimed at helping founders of existing startups improve their skills and enhance their competitiveness position globally. An average of seven (7) founders will be selected from each country to participate in the Camp, with the goal of augmenting their business operations with top industry insights and best practices. This will be the third TRACTION Camp, after two successful editions in June in Macedonia, and October (forecasted) in Odessa, Ukraine. In each edition, 20-25 regional founders participated, learning from six renowned international experts. The TRACTION Camp agenda is based on experiential, demand-driven skill transfer from experienced operators (founders, growth experts, and investors) to local startup founders. These are the topics of learning for the three-day program of TRACTION Camp: • Pitching to international investors • Presentation and (oral/written) communication skills • Understanding marketing systems and metrics-based growth • Sales and distribution channels • Hiring strategy and execution • Investment structuring • Cashflow management and optimization TRACTION Camp will be organized by USAID-REG, with support from local sponsors and partners. Partners will provide assistance and sponsorship in covering a part of the logistical expenses, and in offering (in-kind) prizes for winning entrepreneurs.
WHEN AND WHERE
TRACTION Camp will take place in Tbilisi, Georgia, on November 27-29, 2015, at Tbilisi’s state-ofthe-art High Tech Park. Previous editions have been held at off-season resorts (Mavrovo skiing resort in Macedonia in June, and Odessa seaside resort in Ukraine in November).
EXPERTS
Three US/Silicon Valley and two leading European experts will be invited to provide the trainings at TRACTION Camp free of charge (no fees, only expenses). Based on previous TRACTION Camp experience, the project will attract proven investors, exited entrepreneurs and top domain experts in business development.
APPLICATIONS AND ADMISSION
Applications for TRACTION Camp will open on October 1, 2015. USAD-REG will contact a number of partner organizations in each country to submit applications, which will be handled with priority. If startup slots remain unfilled, a public call will be announced through the TRACTION Camp website (http://tractioncamp.me). Partner organizations in Armenia, Azerbaijan, and Georgia are: • Armenia • Microsoft Innovation Center, Yerevan • Granatus Ventures, Yerevan • Enterprise Incubator Foundation, Yerevan • Saryan Tumanyan, Yerevan • Gyumri IT Center, Gyumri • Azerbaijan • Khazar Ventures, Baku • High Tech Park Azerbaijan, Baku • Georgia • Georgia’s Innovation and Technology Agency, Tbilisi • Smartex Capital, Tbilisi • Bank of Georgia Incubator, Tbilisi • IBSU Idea Lab, Tbilisi
BUSINESS
GEORGIA TODAY NOVEMBER 17 - 19, 2015
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EU-Funded Rural Development Pilot Project Presented in Lagodekhi BY ROBERT ISAF
L
ast Thursday government representatives, local community members, and international delegates came together in the bright, day-lit conference room of the Lagodekhi Protected Area’s Administration Center to present a new pilot project aimed at spurring growth in Georgia’s rural areas. The Lagodekhi Rural Development Pilot Project is one of a triplet of pilot projects, all formally opened at a recent launching ceremony in Stepantsminda (Mtskhet-Mtianeti region). The other two pilots are based in Borjomi and Kazbegi. Initial meetings for these pilot projects have been taking place since August. Taken as a whole, the Rural Development Pilot Projects represent only small component of the larger European Neighborhood Program for Agricultural and Rural Development (ENPARD), a fiveyear program funded by the European Union which aims to “reinvigorate the agricultural sector in Georgia with a
thorough cooperation of government, civil society, and farmers.” ENPARD was initiated in March 2013, and will continue until 2018. Of its EUR 52 million budget, EUR 3 million is set aside for the Rural Development Pilot Projects. Rural Development Programs (RDPs) are a long-established and essential piece of European policy. A core aspect of these programs is the LEADER method, and its hallmark local-governance mechanism, known as the Local Action Group (LAG). The LEADER method – an acronym of “Liason Entre Actions de Dévelopement de l’Économique Rurale”, or “Links between Development Actions and the Rural Economy”, was developed in the early nineties by officials at the European Commission as a tool for spurring rural development across the newly unified Europe. It recognized the necessity of allowing rural communities to dictate the direction of their own growth, while having that growth funded by sources at the national and international level. By doing so it created early, successful examples of the public-private partnership principle, a principle now firmly enshrined in European Rural Development policy.
It is in the Local Action Groups themselves that these principles are most concretely realized. Under LEADER method, LAGs are created by the government first, with geographic boundaries drawn within which all residents are entitled to LAG membership, normally for a small fee. There is no exact requirement for the legal structure of each LAG, although they are normally organized as NGOs, but the LAG’s decision-making body must be at least 50% composed of private citizens, associations, and business interests. Therefore, it is hoped that it is the private interests of the local community itself which come to determine the direction of the LAG, which itself is responsible for distributing the Rural Development funds allotted to it by the public, government budget. RDPs and the LEADER method have been implemented across the European Union for nearly two decades, and are being expanded into new Member States. For instance, in February of this year the European Commission approved a second RDP for Slovenia. A EUR 1.1 billion public budget is available for the 7-year
period, of which EUR 838 million is coming from the overall EU budget. The RDP as adopted anticipates nearly 600 jobs created in rural areas. The Rural Development Pilot Projects in Georgia are funded as a part of the EU’s European Neighborhood Policy, which is concerned with the EU’s nearby “Neighbor” states – hence the name of the larger ENPARD programme of which these three pilot projects are a part. Each pilot project community is to be paired with NGOs and organizations from communities where the RDPs are already in place. In Lagodekhi, the pilot project is to be implemented with the assistance of the international NGO CARE, in partnership with the ETEA foundation, a university center based out of Cordoba, in southern Spain. Accordingly, present at the opening presentation last Thursday were representatives and delegates from across Europe. Filling the room before the head panel were dozens of government officials and local community members. There was a clear sense of eagerness, of reigned-in and cautious enthusiasm.
“Potential” was the keyword of the afternoon, gushed both as regards the LEADER method as a tool and Lagodekhi as a testing grounds for it in Georgia. The Govenor of Lagodekhi Municipality, Kakha Jamburia , started with a call to action for his neighbors. “We are here to strive and walk together. We have to be proactive and develop a correct strategy. We will be a model and example for others.” One official from the Ministry of Agriculture spoke up towards the end of the proceedings. “One week ago I visited Slovenian villages with the same project,” she said. “I would like to assure you that it can be very successful. Yes, financial support is important, but your support is even more important. I had the impression the villages had been painted by an artist. They don’t need an outsider to tell them what to do. I invite you to forget your ego – and to think about your village. This is a unique opportunity from EU and CARE, but don’t forget that they will leave, and we will stay. Please, all of you, be involved, be proactive, and we will see amazing, amazing results, too.”
Kurgan Culture (3-2 BCE), “Golden Fleece Colkheti” (8- 3 BCE), Kingdom of Kartli-Iberia (3rd century BCE-4th century CE).
80 works by the artist executed in different periods of his life.
THE NATIONAL GALLERY Address: 11 Rustaveli Ave. www.museum.ge
WHAT’S ON IN TBILISI THEATRE
TBILISI NODAR DUMBADZE STATE CENTRAL CHILDREN’S THEATRE Address: 99/1 Agmashenebeli Ave. Telephone: 295 39 27 November 19 ROYAL COW Tale Directed by Guram Bregadze Russian Language Start time: 15:00 Ticket price: From 6 Lari CINEMA
AMIRANI CINEMA Address: 36 Kostava St. Telephone: 299 99 55 www.kinoafisha.ge November 17-19 SPECTRE Directed by Sam Mendes Cast: Daniel Craig, Christoph Waltz, Léa Seydoux Genre: Action, Adventure, Thriller Language: English Start time: 19:45 Language: Russian Start time: 12:15, 16:00, 19:30, 22:40 19:45, 22:30 Ticket price: 7.50 – 12.50 Lari BLACK MASS Directed by Scott Cooper Cast: Johnny Depp, Benedict Cumberbatch, Dakota Johnson Genre: Biography, Crime, Drama Language: Russian Start time: 17:15 Ticket price: 9.50 – 10.50 Lari BURNT Directed by John Wells Cast: Bradley Cooper, Sienna Miller, Daniel Brühl Genre: Comedy, Drama Language: Russian Start time: 15:00, 22:40 Ticket price: 8.50 – 12.50 Lari
RUSTAVELI CINEMA Address: 5 Rustaveli Ave. Telephone: 255 50 00 www.kinoafisha.ge November 17-19 THE LAST WITCH HUNTER Directed by Breck Eisner Cast: Vin Diesel, Rose Leslie, Elijah Wood Genre: Action, Adventure, Fantasy Language: Russian Start time: 13:50, 16:00, 17:15, 20:00 Ticket price: 8.50 – 12.50 Lari BURNT (Info Above) Language: Russian Start time: 13:50, 16:00, 17:15, 20:15, 22:15 Ticket price: 8.50 – 12.50 Lari SPECTRE (Info Above) Start time: 11:45, 14:05 Ticket price: 7.50 – 9.50 Lari BLACK MASS (Info Above) Start time: 22:30 Ticket price: 11.50 – 12.50 Lari MUSEUM
GEORGIAN NATIONAL MUSEUM SIMON JANASHIA MUSEUM Address: 4 Rustaveli Ave. Telephone: 2 99 80 22, 2 93 48 21 www.museum.ge ARCHAEOLOGICAL TREASURE PERMANENT EXHIBITION Examples of work by early Georgian goldsmiths were discovered during archeological excavations, and are currently preserved in the archeological treasury. The exhibition presents three periods of development in the history of Georgian goldwork, from the 3rd century BCE to the 4th century CE:
November 17 - May 1 GEORGIAN NATIONAL MUSEUM AND ALEXANDER KARTVELI ASSOCIATION PRESENT AN EXHIBITION DEDICATED TO THE GREATEST MILITARY AIRCRAFT DESIGNER IN HISTORY. The exhibition will demonstrate the life and merits of the Georgian emigrant, an innovator of American and World aviation - Alexander Kartveli (Kartvelishvili /18961974/). The exhibition will also showcase models of aircrafts designed by Kartveli, blueprints, archives, documentation, articles, photos and multimedia materials. The exhibits will highlight the extraordinary life that Kartveli lead and his enduring legacy in military aircraft design. SHALVA AMIRANASHVILI MUSEUM OF ART Address: 1 Lado Gudiashvili St. Telephone: 2 99 99 09 www.museum.ge November 5-23 MALKHAZ KUKHASHVILI’S PERSONAL EXHIBITION Malkhaz Kukhashvili is a graphic artist who worked for the film and television industries. Among his works are movies like “Artist”, “Nodar Dumbadze”, “Leonardo” and many more. He also worked on illustrations for the books of famous Georgian writers VazhaPshavela and Giorgi Leonidze and illustrated children’s book “Deda Ena” and a book dedicated to Tbilisi. The artist frequently collaborates with different advertisement agencies. The exhibition will showcase up to
GEORGIAN PARLIAMENTARY LIBRARY Address: 7 Gudiashvili Str. Telephone: 2 97 16 61 November 19-24 MIKHEIL KHORAVA’S PERSONAL EXHIBITION PAINTING, CERAMICS ZURAB TSERETELI MUSEUM OF MODERN ART Address: 27 Rustaveli Ave. Telephone: 2 14 84 11, 2 98 60 04 www.momatbilisi.ge October 9 - November 15 THE SOLO EXHIBITION OF FAMOUS GEORGIAN ARTIST OLEG TIMCHENKO. The artist with an inexhaustible imagination and a distinctive individual style offers the innovations to his visitors. The exhibition combines the series of three different projects under the title “Self-Portrait, Culmination, No Comment”. GALLERY
EAST POINT Address: 2 Tvalchrelidze Str. IN THE FRAMEWORKS OF ‘ARTISTERIUM’, PROJECT ARTBEAT WILL BE PRESENTING ‘ECHOES 2’ AT IT’S MOVING GALLERY, AN EXHIBITION BY NINO CHUBINISHVILI, AKA CHUBIKA, SPONSORED BY EAST POINT. The artist continues working on her series of Echoes and offers the viewer a journey in the flow of thought through her abstract works and visual signs. The first works from the series are being exhibited in New York at Art in General.
November 7 – December 6 AN EXHIBITION OF SCENOGRAPHY BY THREE GEORGIAN ARTISTS – OLEG KOCHAKIDZE, ALEXANDER SLOVINSKY, YURI CHIKVAIDZE. The exposition, the first of its kind since the 1980s, is dedicated to the 80th anniversary of the three members of the artistic group working on scenography. The exposition will showcase stage and film decorations with up to 200 illustrations, sketches, costumes, models and posters on display. All the exhibits are from the collections of the Georgian National Museum, State Choreography Theatre, Shota Rustaveli Drama Theatre and private collections. TIFLIS BRANCH Address: 4 K. Abkhazi Str. Telephone: 299 65 66 November 13-22 IRAKLI AVALISHVILI AND NUGZAR NATENADZE EXHIBITION MUSIC
MOVEMENT THEATRE Address: 182, Aghmashenebeli Ave., Mushthaid park Telephone: 599 555 260 November 19 THURSDAY JAZZ Leaders: RESO KIKNADZE (SAX) NIKA GABADZE (GUITAR) MISHA JAPARIDZE (BASS) GIO KAPANADZE (DRUMS) Start time: 21:00
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BUSINESS
GEORGIA TODAY
NOVEMBER 17 - 19, 2015
Metro Holding Presents Metro City Batumi The Colorful World of Fireworks – MAXSEM BATUMI Fireworks importers Maxsem provide wedding and festive fireworks, flaming fountains and a wide variety of kites at wholesale and retail prices. Any event in our lives can be transformed into a celebration: any holiday can be extravagantly highlighted- all you need to make a show of fire is pyrotechnics. Our company can offer you just what you need. If you need fireworks, think Maxsem, a Polish company engaged in the import of consumer fireworks into CIS countries and the European Union. European quality fireworks at an affordable price, professional logistics and competent service to our customers has allowed us to become a significant market player in Eastern Europe. To date, the company is officially listed in Poland, Lithuania, Latvia, Moldova, Ukraine, Russia Belarus and now in Georgia (to be found in Tbilisi AND Batumi). Our clients count people of all ages, attitude and lifestyle. However, they have something in common: a desire to make life brighter and more varied. And in this we are ready to help them. Our
experts will help you choose the right setup and the original signature fireworks. Still not sure? Give us a call! Address: Batumi - Tbel Abuseridze Street # 9 Tel: 597 36 90 90 Tbilisi- Tsereteli Avenue # 2. (Dinamoarena) 574 730909 Wholesale and retail prices. Service includes delivery and show.
T
he presentation of mega project “Metro City” was held on November 14. Metro Atlas Georgia is under the ownership of the brand Metro Holding, which has a share on the Istanbul Stock Exchange and employs over 35,000 employees in more than 70 companies worldwide. Metro City can be found just 2 km from Batumi International Airport and 500m from the city center. The complex, the construction of which was begun in February 2015 and will be successfully completed in April 2017, harmoniously mixes mountain and sea views. The two residential complexes of Metro
City include 464 apartments with parking, an expansive green area, outdoor swimming pool and a playground for children. The biggest conference room in Transcaucasia for 1500 persons, a yacht club, a channel for gondolas, and a golden sandy beach (with sand directly imported from Bulgaria). The project is unique in its special maintenance services. Mehmed Ayag (Chairman of the Board at Metro Avrasya Georgia) claims that 99% of employees will be selected from the local population. Metro City Forum gives an opportunity for visitors to not only shop but also to spend the weekends with their friends and family. It will
be the first multifunctional trade center to spread over such a wide area- 16 000 square meters. Metro Holding has made deals with such well-known brands such as Zara, LC Waikiki, Koton, Alexander Gardi, Polaris and more. The project budget amounts to 125,000.000 USD. The company will spend 1 million USD on rehabilitating the water channel near the investment territory. Carrying out the project will begin this year. As per the agreement, Metro Atlas Georgia will have 5 years to complete the construction, although, according to the company’s statement, the project is expected to be complete by 2017.
USD 250 million To Be Invested in Poti Mega Port
Maxsem Batumi
BY ANA AKHALAIA
A
ccording to Poti Port owner APM Poti, USD 250 million will be spent to increase the capacity of Poti Port. Following a positive Environmental Impact Assessment report from the Ministry of Environment, an application will be submitted to the Ministry of Economy on the first stage of construction and, after receiving the permit, further construction
stages of the Poti Mega Port project will be presented. The first stage includes building two docks, the length of which will be 300 meters, while the depth - 14 meters, enabling Poti Port to be able to process more than 1 million TEU containers. The project should be completed within 30 months. APM Terminals says there are currently four ports in Georgia, which process about 20 million tonnes per year. However, the total capacity is more than twice that. APM Terminals owns 63 terminals and ports in 39 countries. According to the Company, decreasing
oil prices, reduced remittances from abroad, sanctions on Russia, and military actions in Ukraine have led to the reduction of cargo volume at Georgian ports and the APM Terminals recognizes that building a new port alone won’t necessarily solve the problem. Yet during the recent troubled period, Poti Port, which owns 85% of the container traffic moving through Georgian ports, was able to upgrade infrastructure and equipment of the Port in order to make it the most productive and safest port in the country and to maintain its current position as a gateway to Central Asia and the Caucasus.
BUSINESS
GEORGIA TODAY NOVEMBER 17 - 19, 2015
11
Dechert OnPoint: New EU Trademark Regime to Address ECJ’s Decision in IP Translator
D
echert is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia. Contributing this week is London-based Dechert Partner Paul Kavanagh. Mr. Kavanagh is an expert in intellectual property who specializes in technology licensing and transactions, trademark and copyright issues, and intellectual property litigation. He regularly speaks at conferences and seminars and has contributed to a number of intellectual property-related journals and books. Mr. Kavanagh is recognized by Chambers UK and The Legal 500 as a leading voice in the field of intellectual property law, with the former calling him “an impressive authority on trademarks.”
NEW EU TRADE MARK REGIME TO ADDRESS ECJ’S DECISION IN IP TRANSLATOR The European Court of Justice’s June 2012 decision in IP TRANSLATOR changed the way trade mark specifications are interpreted. OHIM’s application of this decision led to inconsistent interpretations of trade mark specifications depending on whether they pre- or post-dated that decision. The new EU Regulation governing EU-wide trademarks looks set to remove this inconsistency, but at the expense of CTM owners. This week’s edition of OnPoint provides an in-depth analysis of the new regime. The two key pieces of legislation that govern trade marks in the EU are the Community Trade Mark Regulation (the “CTM Regulation”) and the Trade Mark Directive. The CTM Regulation governs Community Trade Marks (“CTMs”), which are registered trademarks that confer rights on the owner throughout the EU. The Trade Mark Directive, by contrast, harmonizes the regulation of national marks by individual EU Member States. On 8 June 2015 the Council of the EU published finalized texts of a recast Trade Mark Directive and a new Regulation amending the CTM Regulation (the “New Regulation”). These texts followed a political agreement on a new trade mark regime reached by the Council, European Parliament and European Commission on 21 April 2015. Whilst the New Regulation is yet to be formally adopted, it is unlikely that there will be substantial changes to its provisions. Broadly, the owner of a valid registered Community trade mark (“CTM”) has an exclusive right to use that mark for the goods and/or services specified in the CTM registration. Goods and services are categorized into various classes, pursuant to the Nice regime. The contents of each Nice class is summarized by class headings, however the class headings are far from comprehensive and often belie the true breadth of goods/ services covered by that class. The breadth of each class can vary substan-
tially, for example Class 33 only covers alcoholic beverages other than beer whereas Class 45 includes services as diverse as pet sitting and horoscope casting.
SUMMARY The New Regulation will bring welcome consistency to the interpretation of class headings used in CTM specifications, as the meaning held by class headings will no longer depend on the date on which the application was filed. However, the New Regulation threatens to diminish the protection attached to CTMs predating 22 June 2012 that used class headings, unless CTM owners are pro-active in making a declaration to add goods/ services to the specifications. As much of the protection offered by such additions is not retrospective the earlier the additions are made the better, so it is recommended that CTM owners start preparing to make the necessary declaration before the New Regulation comes into force. Trademark owners should: 1. carry out an audit of any CTMs applied for prior to 22 June 2012 to identify any CTMs that specify goods/services using class headings; 2. assess in each case whether use of the class heading was intended to confer protection for goods/services beyond those covered by the literal meaning of the headings; and 3. consider whether to make a declaration to the EU Intellectual Property Office ( “EU IPO”, which will be replacing OHIM under the new regime), once the New Regulation comes into force, to extend the goods/services covered by the CTM and, if appropriate, which goods/services should be specified in that declaration.
SUBSEQUENT OHIM PRACTICE A key area of difficulty following the IP TRANSLATOR decision was how to treat CTMs filed before the IP TRANSLATOR decision, given that OHIM’s guidance prior to IP TRANSLATOR suggested that using the class headings was an effective way of obtaining protection for the full alphabetical Nice list. OHIM attempted to reconcile the IP TRANSLATOR decision with its previous guidance by treating all of the applications made before the IP TRANSLATOR decision that used the class headings as covering (i) the literal meaning of the class headings, and (ii) all the goods/services listed in the full Nice alphabetical list in force at the time of filing. By contrast OHIM has interpreted class headings used in applications made after IP TRANSLATOR literally and not as automatically importing the full Nice list.
More generally OHIM now applies the requirement of “clarity and precision”, as established in IP TRANSLATOR, when considering CTM specifications.
THE NEW EUROPEAN TRADE MARK REGIME The New Regulation provides for a change in approach towards pre-IP TRANSLATOR CTMs. Pre-IP TRANSLATOR CTMs that use class headings will be treated as registered just for goods/services within the literal meaning of the relevant class heading and not for the full alphabetical list. This brings the interpretation of pre-IP TRANSLATOR CTMs in line with OHIM’s current practice in relation to new applications, but will restrict the extent of the rights attached to a large number of CTMs. However, the New Regulation offers owners of pre-IP TRANSLATOR CTMs an opportunity to avoid this restriction. CTM owners that used class headings to specify goods/services can make a declaration within 6 months of the New Regulation coming into force that when using the class headings in their CTM application their intention was to seek protection in respect of goods/services beyond those covered by the literal meaning of class headings. This declaration must specify which additional goods/ services (from the alphabetical list in force at the date of filing) the applicant intended to be covered. The EU IPO will then take “appropriate measures” to amend the register accordingly. The rights attached to goods/services added under the declaration procedure are limited as the amendment to the specification will, in significant respects, not be retrospective. When seeking to
prevent a third party’s use of a mark, where such use started before amendments were made to a specification, the owner of an EU trade mark (as a CTM will be known once the New Regulation comes into force) will not be able to rely on additions made under the declaration procedure, just on the literal meaning of goods/services on the register at the time third party started the potentially infringing use. Similarly, an owner of an EU trade mark will not be able to rely on the additional goods/services when opposing or applying for a declaration of invalidity of a later trade mark if the later mark was applied for or used before the register was amended. The New Regulation also codifies the ECJ’s dicta in IP TRANSLATOR providing that the EU IPO shall reject applications where the goods/services are unclear or imprecise, unless the applicant suggests acceptable wording within a period set by the EU IPO.
CONCLUSION The New Regulation threatens to strip rights away from certain CTMs. CTM owners should take the steps outlined above to evaluate the risk that these changes pose to their CTM portfolio and to minimize the impact on any CTMs adversely affected. *** 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. For more information, please visit www. dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.
IP TRANSLATOR In the case of IP TRANSLATOR (which has been the subject of much debate among trade mark practitioners) the Chartered Institute of Patent Attorneys applied to register the mark “IP TRANSLATOR” in the UK. The goods/services specification simply listed the class headings for Class 41. The UK Intellectual Property Office (the “UK IPO”) considered that listing the headings for a class amounted to claiming protection for all the services in that class even though not all of those services were listed explicitly and even if not all of those services fell within the literal meaning of the headings. This reflected the approach taken at that time by OHIM and a number of national IP offices. It had become common practice to use class headings in this way to register CTMs for the entirety of a class. The applicant challenged the UK IPO’s decision before the English High Court, which made a reference to the European Court of Justice. The issue for the ECJ to consider was whether specifying the headings of a particular class meant that all possible goods/services within that class were covered by the trade mark. In its decision dated 22 June 2012, the ECJ held that:
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1. the goods/services for which trade mark protection is sought must be identified with sufficient clarity to enable the competent authorities and economic operators, on that basis alone, to determine the extent of the protection conferred by the trade mark; 2. some class headings can properly be used to identify goods/services, as they are in themselves sufficiently clear and precise; and 3. when using the class headings an applicant can indicate that it wants its registration to cover all the goods/services included in the full alphabetical Nice list for that class, but, if the applicant does not intend its application to cover all the goods/services on the full list, it must specify the particular goods/ services that it intends to be covered.
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