Issue #1024 Business

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Issue no: 1024/117

FOCUS

• FEBRUARY 20 - 22, 2018

• PUBLISHED TWICE WEEKLY

Photo: Kvirikashvili delivers speech at the special event dedicated to Georgia within the frames of the 54th Munich Security Conference.

ON RESULTS IN MUNICH

Interest in Georgia grows, concerns over Visa-Lib soothed

PAGE 2

PRICE: GEL 2.50

In this week’s issue...

Georgian Prime Minister: Georgia a Natural Hub Connecting East & West NEWS PAGE 3

Why Is Georgia Educating Future Unemployed?

ISET PAGE 4

Tbilisi Hosted B2B Luxury & MICE Workshop for the 2nd time BUSINESS PAGE 6

One year of Mirziyoyev: Uzbekistan Looks Outwards

German Minister: Preservation of Visa Liberalization Depends on Georgia

BY THEA MORRISON

G

erman Interior Minister Thomas de Maizière said that if the number of visa-free regime violators from Georgia to the European Union (EU) further increases, the suspension mechanism might be activated. However, he added that everything depends on Georgia and its efforts to maintain the benefits of visa-free travel with EU countries.

Maizière made the statement while meeting the Georgian side within the frames of the 54th Munich Security Conference, which started on February 16 and lasted until February 19.

Continued on page 2

German Interior Minister Thomas de Maizière.

Source: euractiv.com

BUSINESS PAGE 7

Terabank Closes 2017 with Outstanding Results BUSINESS PAGE 9

MP Irakli Kovzanadze: We Need Rapid & Fundamental Reforms BUSINESS PAGE 11 Prepared for Georgia Today Business by

Markets As of 16ͲFebͲ2018

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64,84

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2,4650

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3,0520

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3,4591

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2 732,22

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0,7124

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2 255,27

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3 046,77

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56,4163

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GT Index (GEL)

1 582,68

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3,7471

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GT Index (USD)

1 208,13

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MSCI EM EE MSCI EM

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NEWS

GEORGIA TODAY

FEBRUARY 20 - 22, 2018

Source: qha.com.ua

German Minister: Preservation of Visa Liberalization Depends on Georgia Continued from page 1 The German minister stated that besides violations of visa-free rules, which allow Georgians to stay in the Schengen Area for 90 days in any 180day period, there is a major problem of increased organized crime groups from Georgia.

“We hope that visa liberalization will be maintained. We're not going to launch a suspension mechanism now, but the number of visa-free regime violators is alarming. Another important issue is the growth of crime. Georgia is actively involved in solving this problem,” Maizière added.

Elmar Brok, Member of the European Parliament from Germany, and former Chairman of the European Parliament Committee on Foreign Affairs, also expressed his concern over the increased number of asylum seekers from Georgia.

“If the visa-free travel is further followed by an increased number of asylum seekers, the mechanism of suspension might be activated, but I hope it will not happen,” he said.

The German MEP said that the Georgian government should cooperate with European countries and do its best to maintain one of its most significant achievements to date.

“If a citizen of Georgia remains in the EU for more than three months and asks for asylum, Georgia must take back such persons and prove that it is a country that acts in accordance with the law,” he added.

The Georgian opposition says the government has to be more active in the fight against crime and

needs to launch a better information campaign, to warn its citizens about the consequences of violating the visa-free regime.

Gigi Tsereteli, member of the parliamentary opposition European Georgia, says one of the main reasons for the increased number of Georgian asylum seekers abroad, is “the poor economic situation and poverty in the country.”

United National Movement (UNM) MP, Salome Samadashvili, says the government has failed to fight criminals within the country and “that is why the number of Georgian criminals has increased in EU countries as well.”

Georgian Foreign Minister Mikheil Janelidze also commented on the issue, saying activation of the suspension mechanism will not be necessary.

He explained that the Georgian government is cooperating with EU countries and is doing its best to avoid any complications regarding the visa waiver.

“We share the concerns expressed by our western collegues, but the joint activities with our European friends will help us avoid activation of the suspension mechanism,” he added.

The issue of re-discussing Georgia’s visa-liberalization was raised after the first report of the European Commission under the suspension mechanism, released on December 20, 2017.

The report reads that the number of Georgian asylum seekers to the EU has increased. It also says that Georgian organized criminal groups are still reported as one of the most frequently represented non-EU nationalities involved in serious and organized crime in the EU.

Prime Minister on the Munich Conference

BY TAMZIN WHIEWOOD

P

rime Minister Giorgi Kvirikashvili visited Germany last week for the Munich Security Conference. He spoke about the event on his return, and began by overviewing the importance of US-Georgia relations.

“The relations between America and Georgia are on a very high level. We cherish this, and we must keep going forward. Together with the US Secretary of Defense, we discussed in detail our ongoing cooperation with the United States. Mr. Mattis has pledged that our relations will intensify even further. It is very important that we are cooperating under the NATO Substantial Package, on one hand, while running together with the US the Georgian Defense Readiness Program on the other, which is very important to our country. We expressed our gratitude for the invaluable support of our territorial integrity and sovereignty and Georgia’s NATO membership and European integration.”

The Prime Minister attended a number of meet-

ings, one of which saw the opportunities presented

by Georgia being discussed.

“The executives of large companies joined us in very exciting discussions about the opportunities Georgia has to offer. Keen interest was expressed, and I am convinced that many of them will visit Georgia in the near future.”

The occupied territories of Abkhazia and South Ossetia were also discussed.

“Our every meeting, without exception, brought up the situation in the occupied territories and human rights violations there. Generally, the problem of our occupation and the state of affairs in the region, in both the Georgian and Ukrainian contexts, is detrimental to regional security as a whole, and we are actively discussing this issue with all our friends. The support Georgia enjoys today is a result of these discussions and a demonstration of support of Georgia’s foreign trajectory, regional stability, and so on. I believe that this year’s Munich Security Conference has proved very important, and I have no doubt that the conference will bring about very concrete positive results for Georgia.”

Liechtenstein Shows Interest in Georgia’s E-services

BY THEA MORRISON

M

inister for Foreign Affairs, Justice and Culture of Liechtenstein, Aurelia Frick, has stated that her country is interested in Georgia’s successful experience in e-services and digital technologies.

She made the statement while meeting Georgia’s Vice-Premier and Foreign Minister, Mikheil Janelidze, within the frames of the 54th Munich Security Conference.

Along with Georgia’s economic opportunities, transit and tourism potential, digital services and

cyber security were the key topics discussed by the officials.

It was underlined that Georgia ranks third among European countries in terms of its commitment to cyber security.

According to Minister Janelidze, the Georgian Foreign Ministry will be the first among ministries to employ digital technologies.

Special note was taken of Liechtenstein’s assistance allocated to Georgia for the implementation of the Council of Europe Action Plan for 2016-2019 in the areas of human rights, the rule of law and democracy.

Aurelia Frick expressed Liechtenstein’s support for Georgia’s sovereignty and territorial integrity, as well as for its political aspirations.

NEWS

GEORGIA TODAY FEBRUARY 20 - 22, 2018

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Georgian Prime Minister: Georgia a Natural Hub Connecting East & West

BY THEA MORRISON

G

eorgianPrimeMinisterGiorgi Kvirikashvili underlined that Georgia is a hub connecting East and West and that it plays an important role in the latest regional developments.

The PM made the statement at a special event dedicated to Georgia, held within framework of the 54th Munich Security Conference.

Kvirikashvili highlighted that Georgia is actively promoting strategic East-West initiatives, including the Southern Corridor and the New Silk Road.

“Our government launched ambitious infrastructural projects to facilitate EastWest trade through road, waterways and rail. We opened the Baku-Tbilisi-Kars railway in October 2017, connecting Azerbaijan, Georgia and Turkey, and construction of the Anaklia Deep Sea Port is underway, paving the way for future investments and prosperity in the region,” he stated.

He also stressed that the efficient implementation of the Association Agreement with the EU, together with the Deep and Comprehensive Free Trade Area (DCFTA), remains a top priority of the Georgian government.

“The EU’s transformative power and the European choice and determination of our people have made Georgia a regional leader in building a stable European democracy,” the Prime Minister underscored.

In his speech, Kvirikashvili also spoke about the benefits of visa-free travel with

the EU, adding it facilitates professional exchanges between businessmen, scholars, students, and ordinary Georgian citizens.

“It brings the possibility for Georgians to come to Europe and see Europe’s achievements first-hand – prosperity, respect for the rule of law and a peoplefriendly environment: the world that Georgia strives to join,” he added.

Before attending the event, Kvirikash-

vili met the representatives of large international and German companies and introduced them to Georgia's investment opportunities, the country's favorable business environment, and implemented reforms.

The meeting participants spoke about Georgia's prospects of transforming itself into a regional hub and about large ongoing investment projects with the international business community.

Kvirikashvili highlighted that Georgia is the first country in the region to enjoy Free Trade Agreements with the EU, the European Free Trade Association, CIS and neighboring countries, and China, and is also negotiating a similar agreement with India.

The PM invited the heads of German and international companies to Georgia to learn more about the business and investment opportunities in the country.

Within the frames of the conference, Kvirikashvili also met European Commissioner for Enlargement and European Neighborhood Policy, Johannes Hahn, and his Dutch counterpart Mark Rutte.

Special attention was paid to Georgia’s investment and tourism potential, and the growing interest of Dutch investors and tourists in Georgia.

At the meeting with US Secretary of Defense James Mattis, the sides discussed regional security, Russia's aggressive actions in Georgia's occupied territories, and the grievous human rights situation on the ground.

The parties discussed Georgia's integration into NATO and the upcoming NATO Summit. The US’ unwavering stance on Georgia's NATO membership was emphasized, along with America's support of Georgia's European and EuroAtlantic integration.

“The United States of America remains a firm supporter of Georgia in the process of enhancing the country's defense capacity and working towards its European and Euro-Atlantic integration,” Mattis stated during the meeting.

Moreover, at the meeting of Kvirikashvili and Chairman of the Munich Security Conference Wolfgang Ischinger, it was agreed that next year Georgia will host a variety of events co-organized by the Munich Security Conference.

The 54th Munich Security Conference started on February 16 and lasted until February 19. The Georgian delegation was headed by the Prime Minister at a conference which brought together heads of states from more than 30 countries and more than 100 ministers worldwide.

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BUSINESS

GEORGIA TODAY

FEBRUARY 20 - 22, 2018

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.

Why Is Georgia Educating Future Unemployed?

BY ERIC LIVNY

S

adly, today we are using budget funds to directly fund unemployment. We are financing professions that may not be required later.

Giorgi Kvirikashvili, Prime Minister of Georgia As most other former socialist countries, Georgia enjoys a very high literacy level, as measured e.g. by the share of people completing secondary education.

And yet, the single most problematic factor for doing business in Georgia, at least since 2013, is “inadequately educated workforce”. Not crime. Not corruption. Not access to finance. Not faulty infrastructure. Inadequately educated workforce.

Importantly, the problem is not so much about access to education per se but access to the right kind of education and, most importantly, high quality Vocational Table 1: The most problematic factors for doing business in Georgia since 2007

2007 2008 2009 2010 2011 2012 2013

Policy instability Access to financing Access to financing Access to financing Access to financing Access to financing Inadequately Educated force 2014 Inadequately Educated force 2015 Inadequately Educated force 2016 Inadequately Educated force

WorkWorkWorkWork-

Source: World Economic Forum, The Global Competitiveness Reports

Education and Training (VET). Equally disturbing is the other side of this coin: youth unemployment, particularly high (about 30% in 2016) among those aged 20-24.

So, what do we do to tackle this problem?

One possibility is to revolutionize the VET system and dramatically improve the quality of vocational training and education offered by Georgian public and private college. Sounds like the right thing to do, except that Georgian youth don’t really want to be trained for what they perceive to be low paying, manual jobs. As one employer put it in a public discussion forum, “all Georgians want to become economists and measure the country’s GDP. Nobody wants to actually work and contribute to the GDP”.

Clever technicians and people with great manual skills can actually earn a lot of money, even in Georgia. Our challenge is that many a Georgian boy (and girl) don’t want to go into vocational training for reasons that have nothing to do with their future occupations and earnings. First, there is the issue of social status. Second, young Georgian males would do anything to defer and completely avoid military conscription, an option reserved only for university students, under Georgia’s current laws.

Third, universities offer better networking opportunities and a far superior marriage market. “How do you become a general’s wife”, asks Liudmila in the Soviet 1980 classic Moscow does not believe in tears. The response she got

was “You marry a young lieutenant”.

The challenge of over-education is not unique to Georgia. It is rooted in the truly global phenomenon of ‘degree inflation’ whereby a very large share of youth is trapped into at least trying to get a college degree (any). The logic is very simple. If everybody, even people of very modest academic abilities, have a college degree, not having one comes with a stigma.

In the run up to the 2008 subprime mortgage crisis, ever increasing prices lured people into buying a piece of real estate even when they could not repay their debt. Today, many Americans of subprime means and subprime academic abilities are trapped into mortgaging their lives in order to finance college degrees that serve no purpose other than avoiding a social stigma. Some economists believe that the fast accumulating mountain of student debt will be the next big financial bubble.

In Georgia, the problem of over-education is compounded by the fact that access to (useless) higher education is very easy. The revenue stream of Georgian universities depends only one thing: the number of students they enroll. Not research productivity. Not teaching quality. Not students’ learning outcomes or their employability. Just the number of tuition-paying students. It is therefore not surprising that universities set very low admissions standards and implement very lose screening in the course of one’s studies. Effectively, universities and students strike a deal: universities pretend to be teaching, and students pretend to be studying. As my 12-year old daughter would say, easy peasy lemon squeezy.

Furthermore, university degrees are not only easy to get. They are also affordable. The fees charged by Georgian universities (about $900/year) may be not within reach for many Georgian families.

However, those who can afford private tutors may qualify for a government scholarship. And because class attendance is neither required, nor monitored, the opportunity cost of acquiring a university degree is extremely low. Most students, the most employable among them, start their professional careers while in the 2nd or 3rd year of studies.

Most crucially, the “pretence” equilibrium in the Georgian education market is very stable. Diploma mills are not sanctioned for not delivering education or skills. Georgian employers in any case prefer to hire candidates with a higher education degree (any). And it cannot be otherwise in an environment in which even taxi drivers and shop assistants brandish a university diploma (or two).

• Furthermore, about 70-80% of the students’ learning objectives are achieved through on-the-job training, while only 20-30% are acquired through classroom instruction.

• As apprentices, students are paid a modest salary or stipend, which together with the cost of training/mentorship, exceeds their productivity in the early

(without acquiring a formal qualification). And students do not defect because all companies in the sector hire either young apprentices or people with a formal professional qualification.

Yet, Georgia is not Switzerland. Georgian businesses are very young, and the Georgian business community is not very well organized. The incentives for

Figure 1: The economics of industry-led VET education: the costs incurred by employers in the early phase of a student’s apprenticeship are covered by gains achieved once the student achieves a basic level of qualification

training phase. The costs of training (for the companies) are more than fully recouped later, when apprentices acquire the basic skills of their profession.

This model of VET education is supposed to be allowed and, indeed, encouraged by Georgia’s new laws on VET and Public-Private Partnerships. But, is it feasible in the current Georgian context?

It is crucial to understand that the German and Swiss companies are willing to incur the cost of training because students do not “defect” to competing companies in the middle of an apprenticeship

Georgian businesses to engage in expensive industry-led VET are not very strong, to put it mildly. Particularly, in the absence of German-style coordination.

The situation has been very well characterized by Nikora CEO Irakli Bokolishvili: “Skills are definitely a bottleneck for us”, said Bokolishvili at a recent ISEThosted seminar. “We tried to hire graduates of the Agrarian University but they have not seen meat in the life. At the same time, businesses are not “training centers”. If I train people, how can I be guaranteed that they stay with me? A

good specialist can easily find a job elsewhere.” * * * Let us make two practical suggestions.

In recent years, the Georgian government has undertaken a number of important legal steps to allow private sector companies to develop and run dual education programs. Yet, though necessary, such steps are not sufficient. In the absence of relevant traditions, the government should be willing to engage in a serious coordination effort, strengthening and, in some cases creating, sectoral business associations, empowered to decide on relevant qualification standards and be involved in the governance and management of VET programs. One can start in a small way by piloting the model in one or two sectors in which coordination among leading actors may be easiest to achieve (construction?).

Second, Georgia may be proud of its success back in 2005 in implementing tough policies to eliminate corruption and restrict supply of low quality ‘higher education’. It introduced unified university admission examination and withdrew licenses from more than a hundred of ‘degree mills’ or village universities (orghobis universiteti), as they were called in Georgian. Time may have come to take further steps: raise the mandatory threshold for university admission; set a higher minimum tuition fee to further narrow the field; condition public scholarships on means testing in addition to NAEC exam scores; put universities and VET college on a level playing field when it comes to military conscription.

Provided political will is there, such measures are likely to have an immediate and significant impact.

HOW ABOUT MAKING VOCATIONAL EDUCATION MORE ATTRACTIVE? The Georgian government’s goal, as specified in its 4-point plan, is to remake the entire VET landscape: phase out outdated class-based learning by aging VET professors and introduce the socalled dual education model that is practiced in countries like Germany, Austria and Switzerland. The concept of dual education stems from the centuries-old apprenticeship tradition surviving to this day in many parts of Western Europe.

According to this model: • VET students are employed as apprentices by private companies for the entire duration of their education. In fact, their enrolment is conditioned on being hired!

10 Galaktion Street

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

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BUSINESS

GEORGIA TODAY

FEBRUARY 20 - 22, 2018

Tbilisi Hosted B2B Luxury & MICE Workshop for the 2nd time

O

n February 17, Tbilisi hosted the prestigious professional luxury travel event B2B Luxury & MICE Workshop in Radisson Blu Iveria Hotel for the 2nd time.

This year, the workshop saw 30% more international participants than in 2017 due to the potential of the local market.

As an established specialist travel industry event, the B2B Luxury & MICE Workshop brings together a variety of luxury and destination travel products and introduces them to new markets, where travel, and specifically Luxury travel, is emerging.

The B2B was a closed ‘invitation only event’ which focused on luxury and upmarket travel products including luxury hotels, destination management companies and travel destinations via national tourism boards. A selected number of leading outbound Georgian Travel companies were invited to attend and have one-to-one meetings with prestigious international exhibitors.

The B2B Luxury & MICE Workshop is organized by the British company TMI, a travel marketing and communication company which is the part of

Travel Consul Alliance (www.travelconsul.com), working in partnership with Georgian marketing consulting company BRANDOR Consulting.

This year, the B2B Luxury & MICE Workshop brought some prestigious new destinations to the Georgian market for the first time, including the tourism boards of Slovenia, Monaco, Dubai and Greece, and welcomed the return of Singapore and the Dominican Republic.

As many of the international participants were visiting Georgia for the first time, the workshop kicked off with a presentation/ overview of the Georgian outbound travel market by TMI’s Director Helene Lloyd and was continued by an introduction to technology platform CHUTE. CHUTE helps destinations, hotels and other travel products to increase their presence on social media. Company representative Nathan Bird and invited speaker Sandro Sulamanidze, from Travel Business Service Ltd., held a panel discussion about the influence of social media on tourism in general, and its tendencies in Georgia.

Local participants attended a presen-

tation innovatively introducing Slovenia, this year’s Official Partner, delivered by Slovenian Tourism Board representative Anja Bezgovsek.

The presentations were followed by the workshop itself, a series of face-toface meetings between international and local partners.

The working day finished off with a gala cocktail for all workshop participants in the “Hotel Museum” and other special guests.

GEORGIA TODAY and OK Magazine were the Official Media Partners of the event.

The world of luxury was represented by numerous well-known and niche 5* star hotel brands, including: Belmond; Bahia Principe from Spain; Duetorri Hotels from Italy; Chateau de la Messardiere, France; Losinj Hotels & Villas, Croatia; Grecotels, one of the leading hotel brands in Greece; as well as Italian Hospitality Collection, a collection of upscale Italian properties that came to the Georgian market for the first time.

A complete list of foreign participants and the event details can be found on the event website www.B2Btravelworkshop.com.

BUSINESS

GEORGIA TODAY FEBRUARY 20 - 22, 2018

One year of Mirziyoyev: Uzbekistan Looks Outwards

BY DIMITRI DOLABERIDZE

F

ollowing the death of Islam Karimov, who ruled Uzbekistan for almost 25 years, Shavkat Mirziyoyev won the presidential elections. He recently completed his first year in office. GEORGIA TODAY takes a look at what he achieved in this time.

In February 2017, Mirziyoyev approved the Development Strategy for 2017-2021 (covering a wide range of reforms in many areas). The most complete structural changes in Uzbekistan during this year occurred in the field of economy. Mirziyoyev initiated about 40 measures aimed at liberalizing the economy, the restrictions of which had been having a negative impact on the dominant role of the state.

Mirziyoyev abandoned the isolation policy pursued by Karimov and sought to improve relations with other Turkic republics. This is also evidenced by the fact that he made his first visit to Turkmenistan and that he devoted his main program of foreign visits to the leaders of the Turkic republics.

Six times he met with the President of Kazakhstan, three times with the President of Turkmenistan and three times with the President of Kyrgyzstan.

In addition, he also visited Turkey and held two meetings with the President of the Republic of Turkey, Recep Tayyip Erdogan, one of which was held in Uzbekistan Uzbekistan's efforts to develop relations with neighboring countries offer new opportunities for regional cooperation. On November 10-11, 2017, the international conference ‘Security and Sustainable Development in Central Asia’ was held under the auspices of the United Nations in Samarkand. At this conference, it was decided to unite the leaders of the five Central Asian countries in Astana in 2018 before the Nevruz Summit. This expansion of cooperation between the Turkic republics may create conditions for the formation of an independent Turkestan agenda. In the near future, Uzbekistan could become a regional trading center due

to its geopolitical location in relation to the other four countries of Central Asia.

In the first year of his presidency, Mirziyoyev also gave more freedom to his country’s media.

Specific steps were taken to abolish forced labor in agriculture, and, from January 1, 2019, exit visas are to be abolished in the country, without which the citizens of Uzbekistan cannot currently leave the country. In addition, Uzbekistan announced the introduction, from February 10 this year, of a visa-free regime for a period of 30 days for citizens of several countries, including Turkey.

Turkey was the first country to recognize the independence of Uzbekistan in 1991. For this reason, relations between the two countries have developed rapidly. Erdogan's statements about the “new page in relations” made during the meeting in Samarkand, and Mirziyoyev's words that “it's time for cooperation, not conversation,” have acquired an even deeper meaning.

Due to historical ties, Uzbekistan has always been a country whose attitude towards Turkey was something special. Bilateral cooperation between Turkey and Uzbekistan in the field of economy, security (mainly in the fight against terrorism), health care, tourism, production of textile and leather products, is also expected to develop rapidly.

The creation of joint universities in Uzbekistan, such as the Kazakh-Turkish University named after Ahmet Yasevi in Kazakhstan and the Turkish-Uzbek University named after Ulugbek, one campus in Istanbul and the other in Samarkand, can play a big role in applying the knowledge accumulated in Turkey and Uzbekistan in the region.

The period of Mirziyoyev's presidency seems to be a new stage for Uzbekistan. Karimov pursued a policy of distancing himself from the organizations of regional cooperation, especially the Turkic Council. The change in this policy can benefit both Uzbekistan and other players in the region. Uzbekistan has certain problems in terms of money and energy, and overcoming these problems will contribute to foreign investment and greater regional cooperation.

Kumsishvili, World Bank Discuss Cryptocurrencies & Blockchain Technologies

BY THEA MORRISON

F

irst Vice Prime Minister of Georgia, Minister of Economy and Sustainable Development Dimitry Kumsishvili and the World Bank delegation headed by Hans Timmer, the Chief Economist of the World Bank for Europe and Central Asia region, have discussed opportunities of the development of cryptocurrencies and blockchain technologies in Georgia.

The meeting was held on February 19 in Tbilisi.

Georgia’s Ministry of Economy reports the World

Bank representatives highlighted that the production of bitcoins and blockchain technologies in general are very well developed in Georgia, adding the country is among the leaders in this field.

“The World Bank found it necessary to study the experience that public and private sectors of Georgia have accumulated in this regard, particularly in the use of the blockchain technologies,” the Ministry reports.

Furthermore, the World Bank representatives expressed interest in the current situation in the field and the visions and prospects of the further development of those technologies in Georgia.

The World Bank delegation also plans to meet non-governmental sector and other state agencies.

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BUSINESS

GEORGIA TODAY

FEBRUARY 20 - 22, 2018

Average Hotel Prices in Georgia & Hotel Price Index (January 2018)

Graph 1: In the graph, standard double room average prices in 3 and 4-star hotels and guesthouses are given by regions. 5-star hotel prices are provided below.

I

n this bulletin, we discuss hotel prices1 in January across different regions of Georgia and calculate the hotel price index2 in January 2018 compared to December 2017.

Information about hotels and hotel price data were collected by contacting hotels individually and by using the website booking.com. On this website, there are more than 10,000 accommodations (apartments, hostels, hotels, etc.) registered on the territory of Georgia. For the purpose of this study, we focused on guesthouses3 and 3, 4, and 5-star hotels.

AVERAGE HOTEL PRICES In January 2018, the average cost of a

room in a 3-star hotel in Georgia was GEL 124. Similar to December 2017, the most expensive 3-star hotels in Georgia were in Mtskheta-Mtianeti and SamtskheJavakheti regions, where the daily rates surpass the average price by 53% and 33% respectively. This is largely due to the high prices of standard double rooms in the hotels in popular winter destinations, specifically Bakuriani and Gudauri.

The rates for 3-star hotels in SamegreloZemo Svaneti were also above the national average.

The average cost of a room at a 4-star hotel in January 2018 was GEL 223. The most expensive 4-star hotels are found in Mtskheta-Mtianeti region (GEL 315).

Table 1: Percentage change of prices in January 2018 against December 2017

Prices for this type of hotel are also above average in Kakheti, Samtskhe-Javakheti and Tbilisi.

5-star hotels are only found in three regions outside Tbilisi (Adjara, Kakheti, and Samtskhe-Javakheti). For this type of hotel, the average cost of a room was GEL 373 in January 2018. Similar to December 2017, there was a vast difference between prices for 5-star hotels in Tbilisi and the other three regions. In Tbilisi, the average price was GEL 649, in Kakheti it was GEL 297, in Adjara it was GEL 216, and in Samtskhe-Javakheti it was GEL 407.

The prices for guesthouses were considerably lower compared to 3, 4, and 5-star hotels. The average cost of a room in January 2018 was GEL 74. The highest daily rates for guesthouses were found in Kvemo Kartli, Samegrelo-Zemo Svaneti and Mtskheta-Mtianeti regions.

terized by seasonality and in regions which have only a small share of the hotel market. The demand for hotel services in Kakheti and Imereti regions is not affected by seasonality. The value added in the hotel and restaurant sector in Racha, Guria, Kvemo Kartli and Shida Kartli regions contributes insignificantly to the total value added in this sector in Georgia (3% in 2016).

The 3-star, 4-star and 5-star hotel price

index decreased by 7.8% in January 2018 compared to December 2017. For these types of hotels, Tbilisi and MtskhetaMtianeti regions recorded the steepest price decreases.

In guesthouses, a moderate price increase was recorded (3.3%). In this type of accommodation, the biggest percentage price rise for standard double rooms was recorded in Mtskheta-Mtianeti region.

HOTEL PRICE INDEX In January 2018, the hotel price index2 decreased by 6.4% compared to December 2017. The daily rates for standard double hotel rooms changed significantly in Tbilisi. This notable decrease can be linked to the decrease in the number of international travelers in January compared to the previous month. In January 2018, compared to December 2017, the number of international travelers visiting Georgia decreased by 25.9%. Of these international travelers, the number who stayed in Georgia for 24 hours or more (tourists) decreased by 19.4% compared to November4.

In December 2017, the increased daily rates for standard double hotel rooms in Mtskheta-Mtianeti and SamtskheJavakheti regions, due to the increased demand for hotels in Gudauri and Bakuriani, remained stable for SamtskheJavakheti, while for Mtskheta-Mtianeti prices decreased by 3.4%.

Similar to December 2017, the prices in January 2018 were still more or less stable in regions which are not charac-

1The results are based on the surveying of standard double hotel room prices of 3, 4, and 5-star hotels and guesthouses in 10 regions of Georgia. Hotels were chosen arbitrarily according to random sampling principle. The study contains 71% (312) of all 3, 4 and 5-star hotels and 25% (456 guesthouses) of all guesthouses registered on booking.com.The 3, 4 and 5-star hotel price data was collected by contacting hotels individually, while the prices of guesthouses were taken from booking.com.

2 The calculation of the hotel price index is based on the recommendations given by the International Monetary Fund (IMF). The elementary aggregate price index is calculated by Jevons index (Consumer Price Index Manual-Theory and Practice (2004), Practical Guide to Producing Consumer Price Indices (2009)).

3 Guesthouse: a type of accommodation that is characterized by having a small number of rooms and where services are usually offered by the resident family.

4 According to the Georgian National Tourism Administration, in January 2018, 444,421 international travelers visited Georgia. Of these, 189,476 travelers stayed in Georgia for 24 hours or more. In December 2017, the number of international travelers was 600,004, of whom 234,969 travelers stayed in Georgia for 24 hours or more.

BUSINESS

GEORGIA TODAY FEBRUARY 20 - 22, 2018

9

Terabank Closes 2017 with Outstanding Results T erabank has published its main financial indicators for the year 2017, demonstrating it was successful for the whole bank, which achieved all important milestones in every business line.

Terabank’s total outstanding loan increased in 2017 by 22% to reach GEL 105.4 million. Growth could be seen in all strategic segments, with Loans to Micro and Small and Medium Businesses (SMEs) up by GEL 76 million (49%), the total amount of retail loans up by GEL 30 million (25%), and the growth of retail deposits reaching GEL 61 million (42%).

Terabank’s net profit totaled GEL 16.3 million with the ROE at 16%.

“Despite the high competition surrounding the SME segment, Terabank’s loan portfolio in this direction has increased by almost 50%,” said Thea Lortkipanidze, Terabank’s CEO. “This means that Terabank has firmly established its place as a reliable and trustworthy financial partner for businesses.

The increase of retail deposits by 42% is also very important for us as it confirms a high trust in Terabank.”

2017 also proved to be successful for Terabank in terms of international cooperation. The bank attracted long-term credit resources from the Netherlands Development Finance Company (FMO), which allocated GEL 31 million for the purpose of supporting the development of SME businesses and promoting women’s involvement in the business

sector in Georgia. Women’s involvement in business constitutes a very important direction for Terabank and it has said it plans to offer new services and products to women, in cooperation with the FMO. “After the rebranding process, 2017 was the year we introduced our new name and opened new branches for our customers. The year was successful for us in terms of all of our assessment indicators. This confirms once again the fact that our customers were pleased with our changes,” Lortkipanidze added.

Also in 2017, Terabank made an important step forward in terms of remote service development and introduced its customers to a completely updated and user-friendly internet banking platform.

Simultaneously, the bank improved its physical presence in regional parts of Georgia by opening two branches in Batumi and one branch in Zugdidi. The new concept for the branches, entitled “Financial Home,” was actively introduced throughout the year and in 2018, all the bank’s branches will be renewed in line with the new concept.

Considering this favorable economic environment, Terabank is said to be expecting more significant and important growth in the current year. Work in the area of business loans is ongoing and deepening the non-credit relationships with bank customers, and the offering of additional services, is also planned.

Taking into account modern trends, Terabank says it is focusing on the devel-

opment of remote channels and the introduction of new technologies.

Eighteen years have passed since Terabank emerged on the Georgian market; however, it has only been operating under

the name Terabank since its rebranding in 2016. The main shareholder is H.H. Sheikh Nahayan Mabarak Al Nahayan, who has invested $250 million in Georgia’s banking and hotel industries. As

Sheikh Al Nahayan stated at the Tbilisi Belt and Road Forum, there are “all conditions for doing business in Georgia.”

He says he intends to double investments over the next two years.

10

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BUSINESS

tartup Factor, based on international standards established by the Startup Factory of the Georgian University Innovation Center, is an accelerating program managed by Future Laboratory and implemented and based on the principles of the ‘500 American Start Accelerator's 500 Startup Operations.’

The program of the State project is run by Irakli Kashibadze and 500 Startup Accelerator Program Certified Trainer, Giorgi Khachidze.

Acceleration involves a three-month active promotion process where teams with innovative ideas prepare to enter the market with specific products.

Startups are able to get trainings from leading specialists throughout those three months, get advice from mentors, consult with field specialists and state agencies responsible for the issues, contact technical specialists, work on their business model and refine the initial product.

It has already been confirmed that one of the foreign investment funds which invested in the startups, is to start funding three startup factories with EUR 5,000 to 10,000.

On April 15, within the frames of ‘DEMO,’ other Georgian and foreign investors will hear the results of the selected startups and also be able to consider cooperation.

The selection of final startups was said to have been difficult, as many interesting projects were introduced to bring innovation to the market.

Namely, the 11 finalists are: • ‘Total Traffic Management,’ which monitors

GEORGIA TODAY

FEBRUARY 20 - 22, 2018

Georgia Facing New Chances to Develop Innovative Ideas the speed of public, personal and service traffic and offers dynamic regulation.

• ‘Family’ is a startup program that helps patients to deal with complications in pregnancy and subsequent periods, including the ability to effectively deal with child problems and to get appropriate situational advice.

• ‘Spy Recipe’ provides customers with seasoned spices, and plans to offer interesting ways to make homemade dishes that are effective and tasty.

• ‘T'winers’ is a startup which will help citizens to use taxis at reasonable prices, and significantly reduce municipal traffic.

• ‘DR Pillow (DR-Dreaming-Reality)’ is a clever pillow that enables us to interact and manage our dreams.

• ‘Mima, Global Brain’ is an innovative application that reduces the lack of information in the process of selecting the next specialty, educational and exchange program.

• ‘Visual Hub’ offers branding and automatization.

• ‘Harry - App / Platform,’ can help travelers in the city to travel and save money.

• ‘Kangaroo Roger’ is a startup offering ways to choose a gift effectively.

• ‘FitCard’ creates a unique service that allows you healthy living with just one card. The application will also help time optimization and to reduce expenses.

• ‘Apply’ is an App to help you find likeminded people and infrastructure for organizing sports games.

Georgia’s External Trade up by 20% in January

T

he preliminary data from the National Statistics Office of Georgia (Geostat) reads that in January 2018, the external merchandise trade of Georgia amounted to $816.6 million, 20.2% higher than the data of the same period last year.

Geostat says that exports last month equaled $222.7 million (26.0% higher), while imports stood at $593.9 million (18.2% higher).

The negative trade balance was $371.2 million in January 2018, and its share in external trade turnover constituted 45.5%. Export excluding re-export amounted to $167.5 million, 16.8% higher than the data of the same period 2017.

According to the report, in January 2018, the external trade turnover of Georgia with European Union countries amounted to $211.5 million, 6.6% more y/y.

Exports to the EU amounted to $64.2 million (21.4% higher), while imports stood at $147.2 million (1.2% higher).

The share of EU countries in the external trade turnover of Georgia amounted to 25.9%: 28.8% in exports and 24.8% in imports.

In January 2018, the external trade turnover of Georgia with the CIS totaled $305.2 million, up 38.2% compared to y/y.

Exports to CIS countries stood at $80.8 million (23.5% higher), while imports equaled $224.4 mil-

lion, 44.4% higher compared to the same period of 2017.

The share of CIS countries in the external trade turnover of Georgia constituted 37.4%: 36.3% in exports and 37.8% in imports. In January 2018, compared to the previous year, CIS countries accounted for 38.7% of the overall trade deficit.

Georgia’s top trading partners last month were Turkey ($112.0 million), Russia ($94.1 million) and Azerbaijan ($91.1 million), followed by China ($10.118 mln), Armenia ($12.901 mln) and Ukraine ($8.339 mln).

The January 2018 share of the top ten trading partners in the total external trade turnover of Georgia was 69%.

As for Georgia's top exported commodities in January 2018, copper ores and concentrates took first place, equaling $34.1 million which is 15.3% of total exports. Exports of ferro-alloys totaled $27.3 million and its share in the total exports amounted to 12.3%. Motor cars were in the third place at $15.7 million, 7.0% of the total exports.

The top import commodities in January 2018 were petroleum and petroleum oil, the import of which amounted to $57.1 million and 9.6% of total imports, followed by the petroleum gases commodity group with $48.4 million, or 8.2% of imports. Motor cars came third at $29.8 million.

Hungarian PM Slams EU, UN for Allowing in Economic Migrants

BY DIMITRI DOLABERIDZE

H

ungarian Prime Minister Viktor Orban said his government would oppose the efforts of the EU and the UN to expand migration around the world, as “Islam will soon knock on the doors of Central Europe,” he stated in his traditional message to the nation on Sunday, Associated Press reported.

Orban noted that “Christianity is the last hope of Europe,” and accused politicians in Brussels, Berlin and Paris of contributing to the “decline of Christian culture and the advancement of Islam.”

In his speech, he argued that “Islam will soon knock on the doors of Central Europe” both from the west and from the south.

He cited examples of how Western Europe is gradually becoming Muslim.

“Indigenous Germans are being squeezed out of Germany's largest cities, which are primarily occupied by migrants," the Hungarian PM said.

His speech was made ahead of the parliamentary elections, which will be held in Hungary in April.

Following the elections, Orban hopes to take the post of Prime Minister for the third time.

Earlier, Orban was heard to call refugees from the Middle East “invaders.”

“We do not consider these people Muslim refugees; we consider them Muslim invaders,” the Hungarian PM said. “They are economic migrants who are striving for a better life.”

The European Commission is preparing to make its decision on a lawsuit against Hungary, Poland and the Czech Republic for failure to comply with the agreement of 2015 on the resettlement of refugees from Greece and Italy on the EU quota.

BUSINESS

GEORGIA TODAY FEBRUARY 20 - 22, 2018

11

Russia & the Eurasian Economic Union OP-ED BY EMIL AVDALIANI

T

hroughout history, “big” countries have tried to influence smaller states.

Economy was an important tool in this. “Sea peoples,” or those nations which quickly developed their naval powers, built wealth on trade with peoples inhabiting far-flung lands of the world. The primary communication mechanism for Great Britain, France, Spain and others, was the sea.

There was a group of other countries which, due to their continental geography, based their ascendancy on dominating their smaller neighbors. Russia, Germany, Iran and others built their economic successes on the extraction of maximum benefits from smaller countries.

When we talk about Russia’s Eurasian Economic Union, it is partially wrong to name it an attempt to resovietize the former Soviet lands. In fact, it is much better to call what Russia is doing now an attempt to establish its own commonwealth where it aims to be the economic powerhouse for the neighboring South Caucasus, Central Asia, Ukraine and Belarus. It can be likened to the Russia that existed under the Romanov dynasty, where economic interests at times drove the government to occupy/incorporate new territories.

For Germany, its own economic commonwealth is the European Union; for China, its neighborhood,

but this is changing as Beijing works to develop large infrastructure projects across Eurasia, known as the Belt and Road Initiative (BRI). For Russia, it is the former Soviet lands. Russia incorporated Georgia in the early 19th century because of probable economic benefits (silk and numerous raw materials).

Though it is true that through the creation of the Eurasian Economic Union (EEU), Russia wants to forestall any western economic or military encroachment on the former Soviet space, it is also true that

Russia needs this relatively underdeveloped space to pump its own money into and to use the region’s raw materials for its industrial heartland.

Again, it very similar to what the Romanovs were doing. The Eurasian Union has several strategic advantages. The collective population of the grouping totals almost 179 million people and its collective GDP nears $1.9 trillion. That means that Russia is poised to be dominant in the EEU. Russia’s advantage can also be found in its geographic dimension. A look at the map shows that

the EEU is well positioned between the two economic powerhouses of Europe and East Asia. This is fortunate for the Union countries, considering the scope of the strides China is making in expanding and implementing its BRI initiative. Indeed, several of the major economic corridors through which China wants to connect to the European market, run via Kazakhstan and south of Russia.

Russia’s other advantage is the fact that the country is mostly surrounded by weak states with at times underdeveloped economies. That creates a momentum for Russia. However, at the same time, when we talk about what actually creates a fundamental (geopolitical) problem for Russia, it is not only NATO’s expansion, but the European Union’s (EU) enlargement. The EU’s march will kill Russia’s dominant economic position in the South Caucasus, Ukraine and elsewhere if Moscow backs off. True, being close to the EU does not negate huge possibilities for trade with Russia (as is the case of Georgia), but it will still be different from when Russia fully dominates the trade balance between the two countries.

Thus, approaching the question of the Eurasian Economic Union in a more balanced way, it is fair to say that what Russia does is nothing new in the history of the region. The only way to compete economically with the powerful EU or rising China, is to create its own economic space where nonpowerful states are drawn in and Russia plays a dominant role through its size, economy and population number.

MP Irakli Kovzanadze: We Need Rapid & Fundamental Reforms

W

e need rapid and fundamental reforms. One of such is the Pension System Reform,- noted MP Irakli Kovzanadze, Fiscal Committee Chair of the Parliament of Georgia, at a public-private sector dialogue held at the Parliament of Georgia. The key topic of the discussion was a Draft Law of Georgia on the Savings Pension: Advantages and Challenges.

As noted by MP Kovzanadze, the bulk of the State Budget (almost 45%) is social spending, but pensioners are still the most vulnerable group of society. According to him, the current monthly pension (180 GEL) is far from sufficient to ensure a decent lifestyle. The Fiscal Committee Chair

believes that the incremental increase of pensions by 10, 20 or even 60 GEL will not solve the problem in the long-run. Hence, he says, it is essential that “fundamental changes are made towards this end.”

“We need rapid and fundamental reforms in various directions to let the economy of Georgia develop and grow, respond to modern challenges and become competitive. One such direction is the Pension Reform and, namely, I have in mind the introduction of a Savings Pension Model. It is an internationally practiced method, which implies co-participation of the employer, employee and the State, i.e. contributions and united responsibility of the three parties” he added.

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