Issue #1144 Business

Issue no: 1144/177

• APRIL 23 - 25, 2019

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

Weekly Entrepreneurial News @entrepreneur.ge NEWS PAGE 2

An Egg Today? Or a Hen Tomorrow? Credit Regulations in Georgia ISET PAGE 4

European Experts Publish Report on Georgia’s David Gareji Monastery Complex

FOCUS ON HPP CLASHES Following the Pankisi protest this weekend, we take a look at Georgia's HPP conundrum

PAGE 9

Source: Ruptly

Zelensky’s Presidency is Unlikely to Change Ukraine’s Foreign Policy

BY EMIL AVDALIANI

T

he polls after the second round of presidential elections in Ukraine gave Volodymyr Zelenskiy more than 70% of the public's support. Zelensky, 41, challenged the incumbent president Petro Poroshenko, who has already admitted his defeat.

Questions which occupied analysts around the world were two-fold: how possible is it that a new president will be able to change the internal situation (battle with corruption, etc.) in the country; second, what will happen to Ukraine’s foreign policy?

Continued on page 5 Image source: abc13.com

BUSINESS PAGE 7

Ministry of Economy Anticipates More Investments, Exports in Mining Sector BUSINESS PAGE 8

QSI International School of Tbilisi Celebrates Earth Day CULTURE PAGE 15 Prepared for Georgia Today Business by

Markets As of 19ͲAprͲ2019

Price

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BONDS

Price

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Bank of Georgia (BGEO LN)

GBP 16.66

Ͳ0,8%

Ͳ1,2%

GEOROG 04/21

103.63 (YTM 4.83%)

+0,1%

+0,4%

Georgia Capital (CGEO LN)

STOCKS

GBP 10.22

Ͳ4,3%

Ͳ4,0%

GEORG 04/21

105.85 (YTM 3.76%)

+0,1%

+0,2%

GBP 2.05

Ͳ7,7%

+2,8%

GRAIL 07/22

107.45 (YTM 5.20%)

Ͳ0,0%

+0,2%

GBP 15.24

Ͳ2,3%

Ͳ6,0%

GEBGG 07/23

102.08 (YTM 5.44%)

+0,3%

+2,2%

CURRENCIES

GHG (GHG LN) TBC Bank Group (TBCG LN)

COMMODITIES Crude Oil, Brent (US$/bbl) Gold Spot (US$/OZ)

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71,97

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+6,4%

GEL / USD

2,6960

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1 275,52

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GEL / EUR

3,0303

Ͳ0,4%

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GEL / GBP

3,5043

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2,6553

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Ͳ0,9%

FTSE 100

7 459,88

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0,0422

+0,7%

+1,2%

0,4638

19 835,93

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0,0056

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+1,8%

7 998,06

+2,0%

FTSE 250

+0,2%

+3,5%

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0,1004

Ͳ0,3%

172,19

+0,1%

+2,2%

EUR / USD

0,8893

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1 092,52

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GBP / USD

0,7698

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SP 500

2 905,03

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1,0146

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+1,5%

MSCI FM

2 713,76

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RUB / USD

64,0162

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GT Index (GEL)

1 582,68

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TRY / USD

5,8110

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+6,1%

GT Index (USD)

1 208,13

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AZN / USD

1,7001

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NASDAQ MSCI EM EE

+1,0%

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NEWS

GEORGIA TODAY

APRIL 23 - 25, 2019

New Minister of Economy: I Am Lobbying Business & Citizens @entrepreneur.ge Gamarjoba! I’m the Editor-in-Chief of the Georgian edition of Entrepreneur magazine and I’m here to share the top weekly Entrepreneurial news with you: Georgian wine from the Chelti Winery has been named among the Best 30 Wines in the World at Europe’s largest wine exhibition ProWein 2019, which took place in Germany this year. The cellar presented five different wines at the event, succeeded in the highest nomination and won five golden medals. Andria Mirianashvili, the General Manager, notes the Grand Gold, awarded to the ‘Saperavi Qvevri Reserve 2015’, was the most significant prize. Chelti also saw success at the International Food and Drink Exhibition – Foodex Japan 2019. Of the 14 Georgian wine companies present at the event, all four of Chelti’s presented wines were awarded golden medals.

There’s something new and tasty on the Georgian sweets market: Batona, which is a brand offering a variety of Gozinaki (chopped nuts boiled in honey). Nana Lekveishvili, the author of the idea, wants to remove the ‘seasonal’ label from the product. Production started in November and has passed official inspections. The assortment of products includes traditional Gozinaki and a type dipped in Belgian chocolate, while Christmas jams are among the upcoming plans. At the first stage, the products will be presented on the local market, with export planned for future.

Lopota Lake Resort and Spa is to welcome guests with its own wine. ‘Buera’ is the name of the new Georgian wine, as is the rare grape variety from which it is made using European and traditional methods.

Currently, you can only taste it at the resort’s Chateau Buera, but it is set for wider release soon. And it is not the only novelty of Lopota Lake Resort and Spa, as two new locales have been launched on the site: the first floor of Chateau Buera features a restaurant, while a bar and meeting room are located on the second floor. Guests can also enjoy wine tours.

Follow the Entrepreneur Georgia Instagram page to get the latest updates from Georgian Entrepreneurs. For doing business with Georgian Entrepreneurs, write us on business@entrepreneur.ge

BY THEA MORRISON

G

eorgia’s newly appointed Minister of Economy, Natia Turnava, says the recent insinuations about her, released after her appointment, are just speculations.

“After my appointment, I read a lot of unpleasant information about my skills which are totally made up. If you have a look at my biography, you will see that I have worked with a lot of businessman and organizations and I worked in both - private and public fields,” Turnava said.

The new minister noted that the only side she represents and lobbies is the business and the citizens of Georgia.

“If I am lobbying anyone, this is a small and medium business and ordinary citizens whom I promise I will do my best to help. The Ministry of Economy will be more open, we are dealing with business circles and also simplifying services for ordinary citizens,” she stated when she was presented as a new minister by the Prime Minister Mamuka Bakhtadze.

Turnava mentioned that the previous minister, who stepped down on April 18, was very good at elaborating new strategies.

"Although we had not worked together for a long time, Kobulia was a very strong economist, a powerful analyst, a very strong strategist. We cooperated in developing a number of strategies and we will still continue their implementation, especially in the energy field,” the new minister said.

While presenting Turnava, Mamuka Bakhtadze said that the decision of Kobulia’s resignation was made by him, after the consultations with the ex-minister.

“Kobulia is a professional and a very strong economist…However, Turnava also has very rich experience in this field.

"We need fast solutions now, making decisions in an operational manner that serves the interests of our society and entrepreneurs. I am convinced that Natia will succeed in fulfilling her obligations.

In my opinion, she has a correct perception of the social reality that is in the country today. The assignments and deadlines, which have to be done by the Ministry of Economy, are ambitious and strict but Natia has our full support and will successfully fulfill her obligations, "said Bakhtadze.

Turnava graduated from the Tbilisi State University Economics Faculty in 1990 and has taken Harvard and International Monetary Fund Vocational Training Courses. She also did a joint master program of the University of

Cambridge, UK, and Robert Kennedy College (Zurich).

In 1994-1996, she worked as a scientific worker of the Institute of Democracy and Politics of Georgia.

In 1996-2000, she was the Deputy Head of the State Chancellery Service; Member of Tbilisi Sakrebulo and Deputy Chairperson of Finance Commission; In 2000-2005, Turava was the First Deputy Minister of Economy and in 2005 she became the Deputy Secretary of the Security Council; In 2013-2018, she served as the Deputy Executive Director of the state-led Partnership Fund; Member of the Governing Board of the largest Georgian private industrial group (GIG); Executive Director of International Energy Corporation of Georgia; From July 12, 2018 to April 18 she was the First Deputy Minister of Economy.

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BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

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.

An Egg Today? Or a Hen Tomorrow? Credit Regulations in Georgia

BY DAVIT KESHELAVA

A

round two years ago, ISETPI published a blog article on the problem of overindebtedness in Georgia.

The article stressed the idea that due to notably increased access to finances, an aggressive marketing campaign provided by financial institutions, and poor socio-economic conditions throughout the country, Georgians (particularly the poorest) are mired in a swamp of debt, from which they are unable to escape. The macroeconomic indicators, which typically measure the expansion of consumer credit, have experienced a dramatic increase over the last 6-7 years. For example, the household debt to GDP ratio has increased from 10.6% in the first quarter of 2011 to 36.7% in the fourth quarter of 2018. Furthermore, a households’ debt to a households’ disposable income rose from 25.2% in the fourth quarter of 2012 to twice as much, 57%, by the third quarter of 2018 (this is also its historical maximum).

Household debt service and principal payments to income ratio have also experienced a dramatic increase, from 9.5% in the first quarter of 2012 to 14.6% by the third quarter of 2018 (Source: Financial Soundness Indicators of the National Bank of Georgia). Although the soundness of deposit taking institutions was not under question (microfinance institutions, online lenders, and other non-deposit taking organizations were much more fragile however), there were stories of poor and vulnerable people whose finances collapsed under the burden of expensive loans, causing the loss of their only property.

WHAT ARE THE TWO WAVES OF THE REGULATIONS? ISET-PI’s article was not alone in highlighting the threats of over-indebtedness in Georgia. International organizations also drew much attention to the topic, and ultimately recommended that policymakers introduce appropriate policy measures to regulate credit expansion.

The first wave of credit regulations was introduced in May of 2018, and it aimed to restrict borrowing for individuals who might not have enough income to service their debt. A corresponding amendment was prepared by the National Bank of Georgia (NBG), however, the new initiative also received significant support from upper-level government officials (particularly within the ministry of finance). The newly imposed regulations restricted issuing loans without comprehensive analyses of consumers’ solvency. Commercial banks were, moreover, only able to issue loans without a solvency analysis up to 25% of their supervisory capital. The first wave of regulations was particularly restrictive for microfinance institutions (MFIs) and online lending companies, and the number of MFIs reduced from 73 in May of 2018 to 65 in January of 2019, while the number of online lending companies declined from around 75 to a much reduced 30 in the same period (there is no proper information regarding the number of online lending companies, thus these numbers simply represent an estimate from financial experts).

The second wave of, more restrictive, regulations entered into force in January 2019. The respective legislative act defined responsible lending principles and ascer-

tained solvency analysis (which implies a detailed analysis of incomes, expenses and the total obligations of lenders, and verification of information provided and clients’ credit history, etc.) for any institution that issues loans to more than 20 individuals, including commercial banks, MFIs, online lenders and others. Additionally, the longest duration for mortgage loans, consumer loans with real estate collateral, and transport loans has been defined as 15, 10 and 6 years, respectively, while the maximum duration of other consumer loans is only 4 years.

Moreover, it is required that the difference between a debtor’s net income and their loan not to be less than the subsistence minimum. The decree has also defined the upper ceilings of Paymentto-Income (PTI) and Loans-to-Value (LTV) ratios for various disposable income groups. (Source: FactCheck, GRASS, New Lending Regulations - New Barriers for the Consumer and for Business).

WHAT ARE THE CAUSES OF OVER-INDEBTEDNESS? Economic literature reveals that “a private household is over-indebted if its income over an extended period is not sufficient for servicing debt on time (after deducting costs of living expenses) despite a reduction of the standard of living” (D’Alessio and Iezzi, 2013). Unfortunately, there is no empirical literature studying the characteristics of overindebted households in Georgia (to ask the relevant questions- Why was a loan required? What was the reason for a household’s insolvency? What is their average income? What is their level of education? etc.), nevertheless, it is still possible to identify potential causes. The origins of the over-indebtedness problem can be divided into two groups from the demand and the supply side.

One can identify the following demand side causes: 1. Serious Poverty and Unemployment.

According to the Statistics Office of Georgia (Geostat), the average proportion of the total population living under the absolute poverty line, between 20102017, amounted to 27.1% (more than one fourth), though this number was even greater, 32.4%, for those living in rural areas. Moreover, in 2010-2018 the average unemployment rate was a doubledigit number, 15.4%, but on average 54.8% of the employed were in fact, selfemployed, chiefly in the lowest production, subsistence agriculture. The poor and unemployed can be considered the groups most vulnerable to falling into the over-indebtedness trap (Economic Policy Research Center (EPAC) - Management of nonperforming loans in Georgia, 2014).

2. Low Level of Financial Literacy. An ISET-PI survey about levels of financial literacy in Georgia, conducted in 2016, asked four questions measuring financial education (relating to (1) simple and compounded interest rates, (2) inflation, (3) financial risks, and (4) effective interest rates). The results showed that 42% of the population fell into the moderate range (two or three correct answers), while 52% exhibited a low level of financial literacy (one or no correct answers).

Low levels of financial education stimulate reckless borrowing and the use of higher cost credit, and thus such households regularly have difficulty paying their debts (Gathergood and Disney, 2011).

3. Notable Health Expenditures (specifically before the Universal Healthcare

System). According to the World Health Organization (WHO), the average outof-pocket health expenditure (% of current health expenditure) for the Georgian population reached 76% in 2011, and reduced, relatively, to 57% in 2015 (although, it remains far higher than the world average - 18% between 2011-2015).

Significant out-of-pocket expenditures often force poor families to finance these expenses with borrowing or the sale of household assets - often called “distressed health care financing” (Damme et al., 2004,; Joe, 2014).

4. Gambling Problems, the Casino Business and Ludomania. CRRC research conducted in 2015 identified that 6% of their respondents admitted to being involved in gambling activities, and 47% of these people were playing not for fun, but to win large sums of money. Besides which, the turnover of gambling businesses exceeded 5.6 billion lari in 2017 (an increase of 1 billion lari compared to the previous year). Thus, the rapidly expanding gambling market may well be closely linked to over-indebtedness.

5. Other factors include; an aggressive marketing campaign created by financial institutions; unstable employment due to the liberal labor code and inappropriate law enforcement; unhedged borrowing (“currency mismatch” - having income and liabilities in different currencies); booms in the construction sector; etc.

These demand side factors would never have helped produce an over-indebtedness problem without an initial supply of credit. One can identify the following supply side causes: 1. MFIs and Online Lenders. According to the National bank of Georgia, there were only 15 MFIs in 2007, yet this number had increased to 75 by 2017. Unfortunately, there is no definitive information regarding the number of online lenders, however it is widely recognized that their numbers increased dramatically between 2010 and 2016. It is worth mentioning that most MFIs and all online lending companies used a specific business profile to issue loans (mainly consumer credit) ignoring the financial health of borrowers (they even offer loans to people without a permanent source of income – toxic loans), and they typically charged far higher interest rates than commercial banks. Considering the much stricter loan standards and conditions in commercial banks, the type of credit issued by MFIs and online loan companies was primarily taken by the poor and unemployed (Economic Policy Research Center (EPAC) - Management of nonperforming loans in Georgia, 2014).

2. Increased Financial Resources in Commercial Banks from Attracting Deposits. The National Bank of Georgia has revealed that the stock of domestic currency deposits has increased 3.6 times since 2011 (the growth was notably accelerated in 2015-2016), while foreign currency deposits (without considering the exchange rate effect) have grown 2.8 times in the same period.

The combination of demand and supply side factors has resulted in a much faster increase in domestic credit than in the overall economy, and considering the source of this increasing trend (generally not creditworthy people), the National Bank of Georgia has decided to restrict credit expansion to minimize the risks of financial instability.

WHY ARE WE CONCERNED ABOUT OVER-INDEBTEDNESS? According to the empirical literature, there are three groups of negative con-

sequences possible behind the overindebtedness problem: 1. Threats to Financial Stability. Despite rapid credit expansion, the soundness of deposit taking institutions was never under question (non-performing loans to total loans for commercial banks remained stable). However, the data discerned from microfinances suggests that financial strain was chiefly experienced by households who did not, for various reasons, qualify for a loan from a commercial bank. In addition, the credit score distribution data, from the country’s only credit bureau, covering 88.6% of the adult population, indicates that the distribution is skewed towards the high-risk category. There are notably more MFI clients in the E3 category (the highest risk) than bank clients, as banks have much stricter requirements for providing credit. Such rapid growth in consumer credit consequently prompted concerns about the sustainability of credit expansion (Babych, Grigolia and Keshelava, 2018).

2. The Negative Social Consequences of Over-indebtedness. For the majority of over-indebted households the debt is quite small, thus suggesting that this form of over-indebtedness represents a social issue, rather than a financial stability problem (D’Alessio and Iezzi, 2013; Davit Utiashvili - Overview of the Georgian Banking Market, 2018). Over-indebtedness often leads to an increased number of properties retained by financial institutions. The value of the real estate and movable assets retained by MFIs has increased by more than 7.9 times since 2011. Research conducted by Society and Banks reveals that the number of properties sold by the National Bureau of Enforcement of Georgia reached 9,378 between 2011 and 2015. Furthermore, the data collected from only 2015 indicates that 27.1% of the properties were obtained by commercial banks, 16% by MFIs, and, the largest portion, 51% by private lenders. Moreover, over-indebtedness frequently leads to a higher crime rate, high employee stress levels (causing low productivity), mental and physical absenteeism, and even suicide (we have had several of such tragedies).

3. The Negative Economic Consequences of Over-indebtedness. As for the negative economic consequences, over-indebtedness can deprive people of the motivation to start a formal job; where they prefer to be involved in the shadow economy, and avoid using an official bank account for their salary.

WHAT ARE THE SHORTCOMINGS OF THE PROPOSED REGULATION? It is notable that supply side regulations usually create a tradeoff between the long-term benefits of financial stability and the short-term costs of restricted credit. The government needs to tread lightly between protecting consumers from becoming over-indebted and supporting the profitability of financial intermediaries to increase access to credit (Porteous, 2006). Therefore, it is necessary to carefully examine the shortterm costs of the regulation: 1. Reduced Growth Rates of Consumer Credit (Short-term Effect). The National Bank of Georgia shows that, from the first three months of 2019, the average yearly growth rate of total consumer credit was around 3.2%, while it experienced 33.0% and 22.5% growth in 2018 and 2017, respectively. The main contributor to such a decline in annual growth rates was the rapid reduction of

short-term consumer credit (on average, yearly by 47.3% in the first quarter of 2019). Furthermore, a notable reduction in installment loans, from the supply side, negatively affected the profitability of technology and furniture shops, and many people working in these sectors have already lost their jobs. While from the demand side, the regulation has restricted access to refrigerators, TVs and other modern facilities. Technology shops additionally started to employ property renting services, and even to develop internal installment systems, although they are often neither experienced nor efficient providers.

2. Mortgage Loans for Real Estate Purchases and Repairs. While regulations should, potentially, have a negative impact on the growth rates of mortgages, according to the National Bank of Georgia, the volume of household mortgage loans for real estate and repairs have maintained a rapid growth phase in annual terms.

Mortgages taken by households (not excluding the exchange rate effect) have increased, on average, by 39.9% yearly for the first three months of 2019. However, growth in the construction sector was restricted in the last quarter of 2018 (due to regulations and a limited supply of construction permits). Additionally, construction companies are planning to provide internal loans to supplement these restricted mortgages.

3. Justified Income and the Shadow Economy. Although there is no reliable data on the proportion of the Georgian population employed in the shadow economy, one can still argue that quite a significant number of Georgians are involved in the underground economy (for example, according to Geostat, the extent of informal employment of total non-agricultural employment amounted to the 33.9% in 2017). More than 50% of the Georgian population live in villages, and most are self-employed in subsistence agriculture. Therefore, financial institutions might have significant difficulties in conceiving their earnings as justified income, and properly assessing their credit-worthiness, which leads to restricted access to financing.

4. Private Lenders. A controlled supply of credit without restricting its demand might lead to a disbalance in the credit market, which raises the opportunity for non-regulated private lenders (individuals who are lending money to less than 20 people for certain interest [ordinarily higher than offered by other institutions] payments) to attract clients and charge fairly high interest rates.

To conclude this article, it is worth mentioning that the regulation package proposed by the National Bank of Georgia only includes supply-side measures, even though over-indebtedness is an extremely complex phenomenon and originates from both supply and demand side factors. Furthermore, a large section of the empirical literature concludes that only policy strategies that contain a balanced mix of demand and supply measures can hope to address indebtedness (Braucher, 2006 [relating to the United States of America]; D’Alessio and Iezzi, 2013 [South Africa]; Kovács, 2013 [Hungary]). Therefore, policymakers should work hard to improve financial literacy for all of society (particularly the younger generation and the most vulnerable); reduce poverty and unemployment using appropriate economic and social policy measures; introduce certain regulations to the gambling sector (particularly for people under 18 years old); improve consumer protection; etc.

BUSINESS

GEORGIA TODAY APRIL 23 - 25, 2019

Special Olympic World Games in Abu Dhabi – Its Symbolic Importance & Objectives

BY H.H. ESSA ALNOAIMI - THE AMBASSADOR OF THE UNITED ARAB EMIRATES IN GEORGIA

I

n March 2019 Abu Dhabi, the capital of the United Arab Emirates (UAE) hosted the Special Olympic World Games ‘Abu Dhabi 2019’ where around 7,000 athletes with special needs participated from 192 countries.

Georgian team actively took part in this global sport event and as the result Georgian athletes competing in table tennis and athletics (run) won in total 6 medals (2 gold, 2 silver and 2 bronze). On this occasion, we would like to express our sincere congratulations to the Government of Georgia, Georgian people and sportsmen on such an outstanding achievement and wish them further accomplishments in sport.

Hosting this international event by the UAE as the country of tolerance, assures the symbolic meaning and noble goals of this Olympic, which was organized with participation of 21 000 Emirati and UAE resident volunteers.

His Highness Sheikh Mohamed Bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE’s Armed Forces expressed his deep interest on this occasion as it was an opportunity for the UAE to share to the world its values and principles, which stated

by His Highness as following: “The values of tolerance, harmony and coexistence are essential basis of life in the UAE and this global event gives the chance to 7000 participants of the Special Olympic World Games to embrace the Emirati cultural heritage.”

The remarkable opening ceremony at Zayed Sports City was attended by 40 000 spectators and millions of viewers watched it through the media means. It was an opportunity to spread the solidarity and partnership principles among humanity through the cultural and entertaining activities,

which raised the awareness of the audience and enhanced relationships. That is what the world urgently needs nowadays.

I would like to mention to the readers that the first International Special Olympics Summer Games were held in Chicago, Illinois, US, in 1968, while the first International Special Olympics Winter Games were held in February 1977 in Steamboat Springs, Colorado, US. Thankfully, this event and human connection delighted everyone.

Zelensky’s Presidency is Unlikely to Change Ukraine’s Foreign Policy Continued from page 1 The situation inside Ukraine will require meticulous work on behalf of the new president. The elites might be unwilling to accept his propositions and policy moves, which could create tensions.

What is clear, though, is that the ordinary population would be supportive of even radical moves to clear the country of corruption and ineffective governance.

On the foreign policy front, Ukraine’s major issue will be the war in Donbas and relations with Russia. There have been fears that with Zelensky at the helm, Ukraine’s foreign policy would radically change in favor of Russia. In fact, it will be very difficult for him to do this, as in the last five years since the Ukraine crisis broke out following the annexation of the Crimean Peninsula, Ukraine has ratified the Association Agreement with the European Union, the non-signing of which actually deposed the former president Viktor Yanukovych, and has received visa-free access for its citizens to the EU (except for the UK and Ireland) and four other Schengen-associated countries.

Moreover, Kiev has reinforced the Ukrainian army amid the ongoing conflict and contained the conflict with Russia to eastern Ukraine and the Azov Sea. On a cultural level, recently, Ukraine’s Orthodox Church gained autocephaly (independence) from the Russian Church. On the economic front, too, there have been changes, as Ukraine’s trade has been redirected to Europe rather being mostly dependent on Russia, as was the case before 2014.

Thus, it is highly unlikely that Ukraine’s foreign policy will change under Zelensky: there are simply too many economic, military and ideological moves made that connect the country to the West.

Zelensky may indeed meet Putin and even soften his rhetoric towards Russia, but on a grander level of state politics, he will not change Ukraine’s view of Crimea and the conflict in Donbas. A recent

spectacular rise of national self-consciousness among ordinary Ukrainians will not tolerate any U-turn to the country’s foreign policy. A democratically elected Zelensky is also a hostage of Ukrainian public opinion.

The Russian public is watching the peaceful changes in Ukraine with great interest and even hopes for a similar process inside Russia. The large neighboring Slavic country, Ukraine, will have a greater influence on the Russians than, for example, Georgia’s path to democratization. Georgia’s successes have been small due to the country’s size as well as cultural differences. Moscow, therefore, could easily bend the narrative and argue that Georgia’s recent successes are minimal and contemptuous.

With Ukraine it is different. While the Russians have been arguing since 2014 that Ukraine’s problems were the result of a “divorce” with Moscow, now they see real results of the democratic changes in Kiev. Public debates, peaceful co-existence of rival candidates and, most importantly, presidential changes; all this is deeply hoped for and expected at least in some sections of the Russian population.

Zelensky’s win also shows that among post-Soviet Slavic states, Ukraine is in fact the only one which has regularly changed heads of the state. Thus, this development might also have an influence on Belarus where eventually the time will come when long-ruling Alexander Lukashenko will have to make a choice between an independent Belarussian successor or Belarus integrated into Russia (and talks about this latter development have become common in media resources of late).

Zelensky’s presidency and the way he was chosen undermines Russia’s narrative, where the success of Ukraine would be against a common cultural, even geopolitical, perception among the Russian elites that Kiev has historically been unable to achieve anything without Moscow’s support.

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BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

g.Vino City Wine Hotel – Interview with Chef Tamta Kikaleishvili

BY SAMANTHA GUTHRIE

I

n the trendy Chughureti neighborhood around Marjanishvili St., g.Vino City Wine Hotel offers an upscale yet welcoming boutique experience for hotel guests and diners alike. The restaurant, led by reknowned chef Tamta Kikaleishvili, serves up her signature playful, creative take on Georgian cuisine.

Kikaleishvili, who spoke with Georgia Today for this piece, explained her journey into cooking: “I started cooking when I was 15-16. I loved the idea of people gathering around for nice food and it always worked out well. When my guests were happy, I felt happy – so I guess that’s how it started. Luckily, my friend, very good chef Ramaz Gemiashvili, gave me a chance to start working in a restaurant, so by the age of 19 I was already working professionally.” g.Vino City Wine Hotel was launched

by Lida Vardania and Mamuka Maisuradze as a spinoff of their Sololaki wine bar, g.Vino. The popularity of g.Vino among both tourists and locals led the couple to develop the wine hotel concept. Lida and Mamuka worked in development before entering the hospitality business, and wanted to directly contribute to their country’s economic growth. Both the

wine bar and wine hotel revolve around – you guessed it – wine. Each room is named after a different Georgian grape variety, and guests are given a bottle of wine with a note card that briefly describes that variety. They offer an impressive collection of natural wines, qvevri wines, and more commercial varieties, paired with clever twists on Georgian food at their restaurant. Despite the charms of g.Vino City Wine Hotel, they don’t keep visitors to themselves. They offer a spectacular wine tour that explores the best wine bars and cellars of Tbilisi. g.Vino City Wine Hotel and Restaurant opened its doors earlier this year, and the owners quickly brought their head chef on board. “I have worked in many places, and I never left a job because I didn’t like it there. When you are young, you have to move on and take up new challenges. That’s how I end up in g.

Vino…me and the founders of g.Vino, our ideas and vision just clicked, so I felt that this was a chance to create something new and experiment. We tried to gather young and talented people who love what they are doing, so I can say we are blending work and fun!” said Kikaleishvili.

Lida and Mamuka strive to keep the family-run feel in everything they do, by being actively engaged in the business’ day-to-day operations. The restaurant at g.Vino City has a comfortable atmos-

phere and a relaxed ambiance. It feels a bit like an upscale, city center guest house, removed from the stresses of the world. The couple looks forward to hosting wine lovers and foodies, who are taken care of by Chef Kikaleishvili.

The kitchen relies heavily on locallysourced Georgian products, which keeps the ingredients fresh and the dishes seasonal. Kikaleishvili explains, “whenever I create a menu, I try to get to the roots, but also always play with ingredients – always seasonal, mixed techniques – and I try to make a complex taste, but not too complicated. Georgia is the country of wine. Our food is based on drinking or curing hangovers, so my task at this point is not to forget to pair everything with beautiful Georgian wine. I think Georgian cuisine is such an adventure and so amazing, that even I get surprised when I dig in to the old recipes.” g.Vino City Hotel welcomes both visitors for their first taste of Georgian food, and those who have had Georgian cuisine a thousand times. “I can imagine what kind of celebration it is to taste Georgian food for the first time. That’s why I try to keep Georgian spices and ingredients as close as possible.” Kikaleishvili has a real passion for Georgian food, and for sharing it with the world. She exclaimed, “When I was starting to cook, I was a real sweet tooth – now my favorite food is some Georgian seasonal greens, Kakhe-

tian oil, and a nice, hot piece of Georgian bread. I hope that Georgian food and wine will become very popular in the world because it is authentic and so

amazing. We will achieve this with the help of people who love what they do and put their soul into it. So, the future is ours!”

BUSINESS

GEORGIA TODAY APRIL 23 - 25, 2019

7

European Experts Publish Report on Georgia’s David Gareji Monastery Complex

BY THEA MORRISON

E

uropa Nostra, the most representative heritage organization in Europe, published a technical report on the rehabilitation of the David Gareji Monasteries and Hermitages in Georgia, listed among the 7 Most Endangered heritage sites in Europe in 2018, following a nomination made by the Georgian Arts and Culture Center.

A special group of experts, who visited the complex in November 2018, studied the ancient cave-city complex and had several meetings with the locals and authorities in order to devise a report on the current state of the site, as well as recommendations for future actions.

The report, published last week, identified two main threats that face the David Gareji Complex. One threat is degradation of the physical structure and artworks.

“Due to seismic risk, water percolation and the soft and porous nature of the limestone rocks in which the monasteries were hewn, the structure is liable to crumble when exposed to cycles of heat and cold.

This has a detrimental effect on the artwork on the interior walls once the cavity is no longer sheltered by the overarching slabs of stone,” the report reads.

Another threat named by the experts is vandalism and graffiti.

“Continued unlawful practices such as souvenir-taking and graffiti have contributed to the degradation of the site.

The sheer size of the site unfortunately makes this difficult to control, since providing security for the whole complex is rather unrealistic,” the experts said,

adding an increase in visitors might lead to a sense of social pressure, in turn discouraging this type of behavior.

The group of experts also released some recommendations that should be followed in order to slow down the destruction of the 6th century cultural site: • Prioritize the sites that are at the greatest risk. With so many sites, each with its own physical characteristics, historical values, archaeological risks, and limited short-term resources, it would be impossible to guarantee protection for each.

• In the short term, the structural stability of each cave site needs to be assessed through geo-structural analysis.

• Safe access to the sites is needed to set up preliminary security systems to both monitor their geographical stability and to discourage any unwanted visitors with bad intentions.

• The erection of a well-rounded visitor center and museum would allow exhibition of the artefacts that were discovered and also efficient servicing of increasing flows of tourism.

The experts also added that there is a lot of potential to develop the area into a viable destination for sustainable cultural tourism.

The David Gareji Monasteries and associated Hermitages comprise 21 identified monastery complexes and at least 5000 individual cells and sanctuaries carved out of the rock across the Lori plateau in south-eastern Georgia. While all the structures were historically located in Georgia, changing borders, particularly in Soviet times, means that one site, Bertubani, is in Azerbaijan, while two monasteries lie between Georgia and Azerbaijan.

Source: time2georgia.com

Although the border is disputed and is therefore subject to some political tensions, a site visit was agreed between the border authorities at the working level, allowing access to the Udabno lavra.

The earliest structures have been dated to the 6th century and are associated with St David Gareji, or Garejeli. He was one of the thirteen Assyrian fathers who established the cluster of monasteries and developed both the monastic life on the site and the Christian Church across the wider region.

The David Gareji Monasteries and Hermitages are under the ownership of the Patriarchate of Georgia.

“It is still an active monastery center with daily services, and this adds to its

importance and underlines the urgency of its preservation,” the organization said.

Georgian President Salome Zurabishvili, who visited the site with Europa Nostra representatives on April 20, also called for the urgent restoration of the David Gareji Monastery Complex.

"It is clear that it is necessary to restore this monument very quickly. That is why Europa Nostra declared Davit Gareji as a monument in danger. It is necessary to start the restoration of the complex as soon as possible and we should also urgently solver the border issue," said the President.

Zurabishvili also signed the ‘Berlin Call to Action’ document which was presented

by The Secretary-General of Europa Nostra, Sneška Quaedvlieg-Mihailovic.

The document names the protection of cultural heritage as a political and individual priority. Those that sign the pledge take the responsibility to protect cultural heritage and set the ground for a more peaceful, successful, and inclusive Europe.

Europa Nostra is the pan-European federation of heritage NGOs which is also supported by a wide network of public bodies, private companies and individuals. Covering more than 40 countries in Europe, the organization is the voice of civil society committed to safeguarding and promoting Europe’s cultural and natural heritage.

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BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

Ministry of Economy Anticipates More Investments, Exports in Mining Sector

BY SAMANTHA GUTHRIE

L

ast week, the now-former Minister of Economy and Sustainable Development, Giorgi Kobulia, held a meeting with representatives of the Georgian mining sector. The meeting was also attended by Maia Zavrashvili, Head of the LEPL National Agency of Mines, who gave a presentation on the activities and the plans of the Agency for the next year.

Investments in the mining sector in the first quarter of 2019 amounted to 30,250,000 GEL ($11.2 million), which the ministry expects will lead to the generation of some 350 new jobs.

“The mining sector is one of the most important sectors for our economy, not only in terms of employment but also for exporting and attracting investments,” said Kobulia.

Kobulia explained that meetings with sector representatives are useful and productive, allowing the government a chance to hear a variety of recommendations and perspectives directly from business people.

At the close of the meeting, Kobulia

Image source: Ministry of Economy and Sustainable Development

responded to the participants’ concerns, saying, “We will take into consideration these recommendations in the near future. We will work on the licensing rules as well as on the simplification of various regulatory and legislative provisions to make this sector more attractive to foreign and Georgian companies.”

The ministry plans to take steps that will drive investments up in the next year. Such meetings, Kobulia insists, help make the Georgian mining sector more attractive for foreign investors, both by creating a platform to introduce potential regulatory and policy change, and

by signaling to investors that the Georgian government is sympathetic to the interests of big companies and willing to negotiate with them. “The meeting with the representatives of the sector caused great interest. We shared our visions and talked about the challenges.

We are planning to attract about $200 million in foreign investments this year, while exports should reach $600-700 million. This is a very large sum for Georgia so we are paying special attention to the development of this sector,” Kobulia noted.

During the meeting, there was no discussion of a topic that has garnered par-

ticular interest among the public lately: industrial safety. Following a series of deadly accidents on construction sites, many have expressed concern that safety in the mining sector is poorly regulated and even more poorly enforced. On March 31, a man was killed in Chiatura while working on the cable car system that services that town’s mines. On April 5, 2018, six miners died and three were injured in Mindeli mine in Tkibuli after the ceiling collapsed. On June 2, 2018, two more miners died at a private coal mine in Tkibuli. On July 16, 2018, another incident in the Mindeli mine left four miners dead and six severely injured,

after which Prime Minister Bakhtadze promised the government would no longer put its citizens lives at risk and declared the mine would be closed. Dozens of other deaths and injuries have occurred in Georgia’s mines in recent years.

There has also been concern about the environmental and health impacts of Georgian mines. Earlier this month, the United Nations Working Group on Business and Human Rights visited Georgia to assess the impacts of business operations on human rights. At a closing press conference that announced preliminary observations, the team expressed concern that in the mining and construction sector specifically, labor rights are systemically violated. Experts also visited the Chiatura mines and concluded that they create significant environmental pollution, and that measures taken by the Georgian government are not adequate and do not prevent irremediable damage to the environment.

Kobulia stepped down in the evening of April 18, and was immediately replaced by his First Deputy, Natia Turnava. It is not yet clear whether Turnava will keep Kobulia’s policies in place, including his pledges to the mining sector.

Shatili’s UNESCO Status Remains in Limbo as Cultural Heritage Preservation Concerns go Unaddressed

BY RYAN MICHAEL SHERMAN

S

hatili has languished on UNESCO’s tentative list of World Heritage sites for 12 long years.

In the meantime, tourist visits to the site have skyrocketed.

New guesthouses open every year. Tours promising the full medieval experience place photos of the internationally famous fortress village front and center. With only four hours needed from Tbilisi, a trip up to Shatili makes for the perfect overnight adventure for anyone aching to take in mountain panoramas and ancient vistas with less than 24 hours to spare.

According to local residents, twenty years ago tourists in Shatili were unknown.

Tourists did not start coming in large numbers until a few years ago, they said, but now the tourist season starts earlier and ends later every year.

Yet locals are more positive about the changes than one might expect. Tourism has opened many new opportunities for local people in an area that has traditionally relied on farming in difficult conditions. Many Shatili folk who had moved down to the lowland are able to return for much of the year to earn extra income.

SHATILI’S WALLS AND TOWERS ARE DETIORATING Shatili remains unprotected by any official designation or international recognition from bodies like UNESCO, the branch of the United Nations devoted to ensuring the world’s unique sites of cultural heritage are preserved and properly managed.

According to locals, the condition of Shatili’s towers are increasingly a cause for concern and many are liable to collapse. Such incident are most likely to occur in the spring, after a winter of freeze-and-thaw cycles followed by heavy rains. Visitors are also free to climb in and out of towers and little information is available at the site about their history, structure, or traditional use. Unstable structures also present safety hazards for visitors. “They go in,” one local said, “not realizing they are so unstable.”

According to the locals, after a poorly implemented tower restoration project many years ago, changes to the roofs caused water to pool rather then drain

at the corners. Now water runs down the walls, eroding clay and undermining structural integrity. “They get worse every year,” one young man said. “If they don’t fall, you’ll take a look, and there is another crack.”

CULTURAL HERITAGE TOURISM INTRODUCES NEW JOBS AND NEW BURDENS Khevsureti’s growing popularity as a tourist destination offers livelihood opportunities for local residents to act as guides, drivers, guesthouse hosts, and work in restaurants and stores. As was recognized by the World Bank’s 2016 SESCHA (Strategic Environmental, Social and Cultural Heritage Assessment) report, “harnessing the tourism potential of [the Mtskheta-Mtianeti] region would help to provide job opportunities particularly in mountainous areas and to support rural populations, balancing migrations to the lower plains.”

The tourism industry continues to be the fastest growing sector in the Georgian economy with an incredible annual growth rate of 17.6%, according to the 2017 government GNTA report. While no estimation of the number of visitors to Khevsureti has been recorded, visitor numbers to protected areas like the Pshav-Khevsureti Protected Area have been in sync with these impressive growth rates, according to the report.

Economic growth in Khevsureti has not been experienced equally. Shatili, for example, offers 16 guesthouses, 60% of Khevsureti’s total number of guesthouses according to internet listings, making for an overnight capacity of approximately 300 visitors. By comparison, the villages next in total guesthouse numbers are Korsha and Barisakho, which contain only three guesthouses apiece.

While the World Bank report touts the cultural heritage of the region as a tourist honeypot of job creation, it also warns that ramping up tourism comes with significant risks. Those identified in the Mtskheta-Mtianeti region were: 1) Little attention is given to carrying capacity of the advertised sites 2) Management plans are not required or used 3) Saturation will lead to a negative impact on visitor experience and harm the heritage sites.

The report notes that natural and cultural resources are “in a need of restora-

tion and conservation,” and that past projects for restoration of historical monuments had resulted in “controversial outcomes.” It advises that a “cautious approach is required to the restoration works to be undertaken on the historic monuments of the Mtskheta-Mtianeti region.”

LIMITED PRESERVATION EFFORTS Khevsureti does enjoy protected status as part of the Pshav-Khevsureti Protected Area region. This privileged status results in more serious fines for illegal hunting and logging activities in the area. Initiatives targeting the preservation of cultural heritage or the implementation of management plans for sustainable use have remained minimal.

A tower that was being converted into a guesthouse collapsed in 2017 but was restored the following year by a private company in consultation with the National Agency of Cultural Heritage Preservation of Georgia. The rehabilitation sought to use the original stones, while the collapse was attributed to improper drainage issues.

The most significant development initiative in the area recently has been the 5-year Support Program for Protected Areas in the Caucasus (SPPA), which is set to close out this year. This EUR 8.25-million program was funded and partially implemented by organizations like the German KFW Development Bank in partnership with Georgian government agencies. In Khevsureti, SPPA’s efforts have included environmental protection workshops and contests to help locals increase guesthouse capacities. These efforts did not include steps to ensure sustainable use of cultural heritage resources or mitigate threats like those identified by the World Bank Report.

SHATILI’S TROUBLING ASSOCIATION WITH UNESCO For over a decade, Shatili has been touted as a potential UNESCO World Heritage Site and has sat on UNESCO’s tentative list. Popular Georgian and international travel sites bandy about its UNESCO association as part of their promotional material, as will be found in entries on Tripadvisor.com, Transfersgeorgia.com, Georgiastartshere.com, Visitgeorgia.it, to name a few. Many of these incorrectly assert that Shatili has already been des-

Image source: jesper-48.blogspot.com

ignated a UNESCO World Heritage Site.

A disclaimer on the UNESCO site makes clear that inclusion on the tentative list does not indicate any protective status, integrity of the item, or recognition by UNESCO: on the contrary, a spot on this list should only be considered an expression on intent of the respective country’s plan to secure UNESCO recognition of the site.

Tentative UNESCO status for a cultural heritage site is only the very first step in a long process. The next step toward recognition is an intense nomination process which, if pursued immediately, takes about 1.5 years and requires the country to create detailed plans for “adequate protection and management systems to ensure a properties [sic] safeguarding.” The UNESCO guidelines state that “very high standards are required in this area. The Inspectorate looks closely at legal framework, designation, ownership, commitment of resources, management philosophy, and effectiveness of on-the-ground measures and public access.”

The proposal for UNESCO recognition was originally submitted in October of 2007 by the Ministry of Culture, Monuments Protection and Sport of Georgia.

This ministry has since undergone several dissolutions and merges, most recently in 2018 when it became part of the Ministry of Education and Science.

While the reason for Shatili’s languishing seniority on the tentative list has never been officially commented upon, the submission document itself suffers from worryingly scant detail and accuracy. Most submissions listed on UNESCO’s site run several pages, however the description of Shatili is only 256 words and is limited to the most general descriptions of the site, such as its location, and a short blurb describing its

original defensive and residential functions.

The document also claims that the authenticity of Shatili has been completely preserved in its “architectural forms, materials, location and other necessary attributes,” but this claim is becoming less accurate by the year as the towers continue to degrade under a lack of management plans and are restored ad hoc by private companies.

As things stand, prospects for Shatili to become a UNESCO World Heritage Site are not great. Not only is the 2007 proposal skimpy and uninformed, but the acceptance of the proposal to the tentative list is only the first and easiest step in a long process.

The name UNESCO itself carries authority: by having a proposal on UNESCO’s tentative list of heritage sites, one can easily misconstrue UNESCO’s level of involvement with Shatili. Unfortunately, UNESCO may unintentionally undermine its own mission: raising the profile of Shatili as a potential World Cultural Heritage site in the context of the area’s rapidly growing tourism industry increases traffic to a sensitive area with vulnerabilities that continue to go unaddressed.

The implementation of SPPA’s five-year work plan, available at spa-georgia.org, began in 2014. It includes under item “1.1.6” plans to conduct a “comparative analysis/assessment for nomination of World Heritage Site under UNESCO's convention.” If the nomination process for UNESCO recognition has commenced, this information has not yet been made public. As the SPPA program is set to end this year, observers interested in Shatili’s future should pay special attention to the SPPA program’s 2019 activities with the Agency of Protected Areas of Georgia (APA). Time is of the essence.

BUSINESS

GEORGIA TODAY APRIL 23 - 25, 2019

9

55 Injured in Clashes between Police & Hydropower Plant Protestors in Pankisi

BY AMY JONES

C

lashes occurred between police and local residents protesting the construction of the Khadori hydropower plant (HPP) in Birkiani in Georgia’s Pankisi region on Sunday.

Several hundred local residents attended the protests where clashes broke out.

Protestors reportedly threw stones and sticks at police officers whilst the police fired tear gas and rubber bullets. The Ministry of the Interior announced that 55 people were injured, including 17 civilians and 38 police officers.

The construction of HHPs is controversial in Georgia. Although the power they create is essential for a country that is becoming ever more dependent on electricity, they are often condemned for damaging the environment and fragile eco-systems.

Georgia’s hydroelectric potential still remains largely untapped, in which private investors, international leaders, and private investors are increasingly interested. However, the HPPs built in Georgia have negatively impacted local residents.

For example, Shuakhevi HPP, built in the Ajara region in western Georgia, wreaked havoc on the environment in

the area. 93 hectares of natural habitats were destroyed during the construction of Shaukhevi HPP, whilst a further 30 hectares were demolished to make way for access roads, transmission lines and job facility areas. A report by the Association Green Alternative predicted that a total of 170 hectares of nature would be destroyed, endangering animal species.

As well as devastating natural habitat and wildlife, the construction of HPPs affects the livelihoods of local residents, as water is siphoned off, causing shortages for farming, drinking, and irrigation.

It also threatens tourism in the area due to the environmental damage and restriction of activities such as rafting.

In addition, authorities often forcefully resettle residents to make way for the power plants. For example, the CEE Bankwatch Network, an EU-funded network of grassroots, environmental and human rights groups, reported that 2000 people were resettled for the construction of the Khudoni dam in Svaneti.

The government and investors, keen to exploit Georgia’s hydroelectric potential, have struggled to win over local residents in support for HPPs, and protests have become common. Authorities recently announced that they may halt constructions in Machakhela in Ajara following a demonstration, whilst residents recently protested in lower and upper Svaneti.

Image source: The Ministry of Interior Press Office

The World Bank published an Analysis February 22, 2018, assessing power purchase agreements that the Georgian government signed for various energy products, including hydropower. The damning report revealed huge fiscal costs, such as EUR 1.8 billion for the Nenskra HPP. The government agreed to pay the developer of the Nenskra HPP $90.6

million the first year that the plant creates electricity, increasing by 3% for the following 33 years. Even exporting electricity to Turkey will not prevent the state from having to dig into their own pocket to pay the tariffs.

This weekend’s protest in Pankisi underlines the sensitivity of HPP construction. Interior Minister Giorgi Gakharia and various officials visited the scene

and held a meeting with Pankisi’s Council of Elders. The Ministry of Economy informed OC Media that construction works will stop until an agreement is reached between the local population and the construction company. “We have postponed the construction ofthe HPP and agree that it will only be built if 90% of the population supports the idea,” stated Gakharia.

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BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

Georgia’s Challenges & Opportunities OP-ED BY FRANCOIS PAINCHAUD, IMF RESIDENT REPRESENTATIVE IN GEORGIA

G

eorgia has a remarkable track record of economic reforms. Starting in the mid-2000s, it successfully defeated widespread corruption, introduced sweeping tax reforms, and significantly reduced burdensome regulations. This bolstered economic activity and improved Georgia’s overall ranking in the World Bank’s Doing Business (from 112th in 2004 to 6th in 2019).

Prudent policies have also supported macroeconomic and financial stability.

Fiscal deficits have been contained and public debt remains relatively low. The inflation targeting regime has become more credible and a flexible exchange rate has helped protect Georgia against external shocks. The banking sector, which has been soundly regulated and supervised by the National Bank of Georgia, is well capitalized, liquid, and profitable.

Despite the reforms and prudent policies, Georgia’s economic growth has been decelerating and has not generated sufficient opportunities for all Georgians.

Average annual growth has slowed from 9.7% (2003–07) to 5.6% (2010–14) and 3.6% (2015–17). This reflects weaker external demand and productivity growth following the 2008-09 global financial crisis and the 2014-16 external shock caused by the effects of lower oil prices on the region’s economies. Progress in reducing poverty and inequalities has stalled, with the share of population in absolute poverty broadly flat since 2015.

Robust economic growth is projected over the medium term, but there are many dark clouds on the horizon. Our growth projection, of about 5%, is contingent

upon implementation of structural reforms and subject to risks, including weaker trading partner growth, global trade tensions, and a sharper-than-projected credit

growth after the introduction of new regulations. This calls for persevering with prudent macroeconomic policies, exchange rate flexibility, and a buildup

of foreign-exchange reserves.

Georgia’s structural challenges also require renewed reform efforts going forward. Judicious public infrastructure

investment will improve connectivity and reduce transportation costs, supporting Georgia’s aspiration to become a transport and logistics hub connecting Europe and Asia. Implementing a comprehensive education reform would enhance skills development, labor productivity, job creation, and generate better opportunities for all.

Mobilizing savings and developing local capital markets will help finance needed investments while reducing external vulnerabilities. The funded pension scheme will improve living standards of future retirees and promote savings and businesses’ access to longterm Lari funding. The upcoming legislation on investment funds, improving trading infrastructure, and the new PPP framework would also help mobilize savings for investment.

Despite remarkable progress, the business environment can be further improved to enhance the role of the private-sector in generating growth and jobs. The planned corporate insolvency reform will be critical to bolster the business environment by maximizing recovery values and allowing for timely rehabilitation. Efforts to improve tax administration, including the VAT refund system, and a judiciary reform that would lead to a modern, efficient, and transparent judiciary system would help improve the business environment and support investment.

Georgia’s strong commitment and reform record provide hope that it will succeed in dealing with these new challenges and delivering meaningfully higher living standards for all Georgians. Achieving higher and more inclusive growth will require persevering with structural reforms that would unleash the growth potential of the private sector.

First printed in The Economist’s The World in 2019 Georgian edition.

BUSINESS

GEORGIA TODAY APRIL 23 - 25, 2019

Presentation of Renewed Natakhtari Beer Held at Publica Art House

BY MARIAM MERABISHVILI

T

he company Natakhtari has presented the renewed Natakhtari Beer.

Natakhtari General Director Cuneyt Arat and the Director of the company’s Corporate Affairs, Nikoloz Khundzakishvili, introduced the news and other implemented projects to invited guests in an informal and pleasant environment at Publica Art House.

The Natakhtari beer was renewed for the fourth time in existence this year. This time, special attention was paid to the improvement of the brand symbols, with the topography of the word Natakhtari and its main symbol, the crown - which united the original name and the concept of the beer, both altered. Because the brand concept is 100% beer, the description of beer production process now has a special place on the packaging.

The premiere of a new promo video was also held at the event.

“At Natakhtari, we believe that beer is not just a “drink” and we are not just brewing a product to consume, we believe that part of our job is to create ‘pleasure moments in life,” Cuneyt Arat told the guests. “Natakhtari is one of the oldest beers in Georgian market that has been consumed with that pleasure by most of the Georgian consumers and honored as the leader of the beer market for so many years.”

“Natakhtari beer was first made 14 years ago, and we have been the market leader since,” Nikoloz Khundzakishvili noted. “To match that important status, we feel we have greater responsibility towards consumers and the Georgian beer industry in gen-

eral. Based on the trends in the modern market, we decided to create a new design for the whole line, label and logo of Natakhtari. Important factors are that Natakhtari as a leading brand also responsible for developing the beer industry. On the reverse of the new label the whole process of beer production is written so as to increase awareness of beer. We are really proud to produce a high quality Georgian product, using natural ingredients and natural Natakhtari water.”

"We tasted the renewed beer Natakhtari presented and I can say with pride that the quality is no less than that of German or Czech production. I think it is an interesting and attractive product on the Georgian market. Today is confirmation that Natakhtari develops at a very fast pace and increases the quantity and volume of concrete products on the market,” said Giorgi Katcharava, Executive Director of Georgia-EU Business Council.

“Natakhtari has good communication with customers; has done for years. Such an approach determines that Natakhtari, as a Georgian brand, holds an important place on the country's market.

It also has loyal customers as it possesses a very high level of trust,” says Deputy Business Ombudsman Levan Kalandadze.

The brand’s history and an installation of beer brewing simulation were also presented at the event. The audience had an opportunity to get full information about the professional tasting and assessment of beer.

Nodariko Khutsishvili with a band provided music at the event.

The first Natakhtari beer was fabricated in 2005.

In 2009, the company became the leader of the Georgian beer market and for ten years has maintained its stable leadership position.

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BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

In ECA Boardrooms, Where are the Women?

Five Ways to Accelerate the Pace of Change ative that yields broader benefits over the long term.

How can we accelerate the pace of change, to upend long-held traditions and help ECA companies thrive over the long term by increasing the number of women in leadership? Here are five suggestions.

1. ADDRESS GENERATIONAL SHIFTS IN WHAT WORKERS VALUE

OP-ED BY MERIMA ZUPCEVIC BUZADZIC, IFC CORPORATE GOVERNANCE LEAD, ECA

W

hen I first began advising companies from Eastern Europe and Central Asia on corporate governance some years ago, the degree of uptake on issues around gender diversity in the boardroom was minimal. Today, it’s a different story.

Often, when I meet with representatives of companies with which IFC works, they acknowledge the importance of diversity.

They readily volunteer information about the number of women on their boards and their path to improving gender diversity throughout the organization.

Some of this attitude shift can be attributed to the increased global spotlight on gender inequality. It’s also a result of seeing first movers reap the benefits from the presence of women on their boards.

There’s another dynamic at play as well. Companies in the region are faced with a new reality: Investors care about this issue. And it will become increasingly difficult to raise funds without demonstrating commitment to diversity.

IFC, for instance, has mainstreamed a focus on environmental, social, and governance considerations—including boardroom diversity—into its core investment due diligence, part of its overarching mission to create markets and equal opportunity. Progress towards aligning with international good practices in these areas is now a condition of IFC financing. Women currently represent 30 percent of directors we place on the boards of our investee companies worldwide, and we are pushing toward a goal of full parity by 2030.

While investors are looking for more transparency on the diversity issue as they conduct their investment due diligence, activist shareholders and proxy advisors also are putting pressure on their portfolio companies, demanding more on the gender front.

Despite the heightened awareness, the situation in boardrooms throughout the region is only slightly better than it was a few years ago. Consider this: In Eastern Europe, women held about 8.5 percent of board positions as of 2016, according to the International Labour Organization—just a small uptick from the average of 7.9 percent in 2012. In Turkey, about 61 percent of companies listed on the Borsa Istanbul reported having female board members at year-end 2018, with women representing about 15 percent of directors of large Turkish company boards. Here, the overall trend is positive, with a 27 percent increase in the number of women on large Turkish company boards since 2014. On the other hand, in countries such as Czech Republic, Latvia, and Slovakia, there are fewer women on boards today than in the past.

BOARD DIVERSITY CONTRIBUTES TO BETTER COMPANY PERFORMANCE Business studies on gender diversity

have repeatedly shown that companies with gender-diverse management teams and boardrooms achieve better financial results on average than companies with homogeneous management and boards.

A 2016 OECD report showed that companies with gender-diverse executive committees outperformed those without women in senior-level positions, achieving an average of 47 percent higher return on equity and 55 percent higher gross income. A 2018 Harvard Business Review survey of 1,700 companies in eight emerging and developed markets found a “statistically significant” relationship between diversity in leadership and increased innovation.

In Eastern Europe and Central Asia, studies such as a 2018 report by Sabanci University’s Corporate Governance Forum also have connected genderdiverse leadership with an increased focus on ethical conduct and risk mitigation. This represents an important role for female leaders in a region characterized by a comparatively under-developed private sector in the early stages of growth.

Taken together, such findings should represent a powerful motivating force for ECA companies to prioritize diversity in leadership. Yet, progress remains slow.

In fact, it seems as if company decision makers themselves remain puzzled by this disconnect. After one recent presentation on the business case for diversity in the boardroom and C-suites of ECA companies, an audience member—a principal in a financial institution—approached me with an interesting observation. “We don’t need to be persuaded of the business case. We know it’s there,” he said. His point: it is one thing to appeal to the rational side of human nature. That will only go so far, and there will always be skeptics.

It is another thing entirely to persuade people that changing the status quo— one that is often rooted in a complex stew of gendered societal, cultural and family expectations—to achieve a new and more equitable normal is an imper-

Estimates suggest that millennials will represent 46 percent of the workforce by 2020. And younger workers—who eventually become the seasoned talent pool from which managers are selected— are accustomed to a different reality than their parents’ generation. They are used to working in collaborative and diverse teams as they likely did at university, and they expect a similar level of diversity at work as well as equal pay for equal work. They are more attuned to worklife balance and more concerned about environmental and social stewardship.

They will tailor their job searches accordingly, meaning that companies that fail to place a greater priority on such issues could be at risk of losing out on top talent—including capable women who have the potential to become future leaders.

2. FIX THE “LEAKING PIPELINE” OF FEMALE TALENT In many countries and in certain industry sectors, there’s a nearly equal divide between the number of male and female entry-level workers. As workers transition into mid-career managerial posts, gender imbalances become more apparent, due in part to the number of women who drop out of the workforce or slow down their career development paths to focus on the family. This causes leaks in the pipeline of women with the potential to ascend through the senior-most ranks of management. And, since management experience is a key criterion for board qualifications, the drop-off reduces even more the number of women with the skills and expertise to ascend into the boardroom.

It’s a global problem that also affects ECA. Only 20 percent of firms in the region have female top managers, IFC research from 2013 has found. And, while there are countries in the region, such as Belarus, where the share of firms with women in top management is among the highest in the world, there are also places like Kosovo, which has almost no companies with women at the top.

Encouraging women to remain on the job and work their way up the corporate ladder to grow the pipeline requires action on multiple fronts: implementing women- and family-friendly workplace policies such as flex-time arrangements, providing child-care benefits, and encouraging women to return to work after stepping off the career track by rewarding alternate experience and offering transitional opportunities for

women to ease back in.

3. PROMOTE FEMALE MANAGERS INTO FRONT-LINE ROLES The lack of experienced women with the qualifications to ascend to board positions means that when there is an external push for greater diversity—say as the result of a regulatory requirement or a demand from an activist shareholder—the risk increases that the resulting board appointments are simply tokens.

The designated women might not be up to the task. It’s not necessarily because they lack the smarts, skills or business savvy. Rather, it could be that their career trajectory didn’t give them the hands-on exposure to core operations that would enable knowledgeable contributions to board discussions on strategic direction.

Frankly, the optics of this situation are worse than if there were no women on the board at all.

To address this issue, heightened attention should be on the career trajectory of mid-career female managers. In Eastern Europe, the talent pool clearly exists, with women representing 25–40 percent of the mid-senior level management ranks in countries throughout the region.

But a look beneath this statistic reveals clear stratification by gender and job function: Female managers typically supervise departments that support core business functions, while male managers oversee key operational and financial units. The ILO study cites a recent survey of 100 companies by the Montenegro Employers Federation, which found that around 80 percent of these firms’ female managers work in human resources, communications, or public relations.

Important as these functions are, female managers should be encouraged to seek out—and be given equal access to—additional challenging assignments and key operational responsibilities. This will increase their exposure to the broader range of experience and better prepare them fora future that might include board directorships.

4. INVEST IN WOMEN’S PROFESSIONAL DEVELOPMENT In my role as corporate governance professional, I have presented on the value of diversity in leadership to hundreds of male and female business leaders. The single most common thing I hear from the women—regardless of age, experience level or industry—is that they are not comfortable when they reach that long-wanted directorship. The reasons vary. Some do not feel accepted as an equal to their male colleagues and worry that they got the position because of their gender and not their qualifications.

Others are insecure about their skills and capabilities. Still others simply feel lonely, since most are the only female member and therefore feel like the odd (wo)man out.

Conquering that little voice inside

“The optics of tokenism are worse than if there were no women on the board at all.” women’s heads that tells them they are not up to the task is a monumental challenge. At IFC, we’ve seen first-hand that women—even the most accomplished and experienced—need training and coaching on how to assert themselves, how to tap into their own strengths to build their personal leadership style, and how to communicate in high-powered, male-dominated settings. We have teamed with local organizations in Bosnia and Herzegovina, Kazakhstan, Kosovo, Macedonia, Serbia and Ukraine to offer workshops specifically designed to prepare high-potential women for board service. The feedback from participants has been remarkably positive, with many noting a greater degree of self-confidence that has stayed with them well after the training.

5. RAISE THE VISIBILITY OF FEMALE CANDIDATES In meetings with company representatives I often hear a common refrain when I raise the issue of board diversity: “We’d like to appoint a woman, but the nominating committee doesn’t have any qualified female candidates.” It’s not that the candidates aren’t there, though. It’s that they might not be visible to those with power over the nominations process who may be relying on their own male-dominated social or business networks to identify prospective directors.

Pulling together information on qualified candidates who fall outside of these networks and making this information easily accessible helps address this issue.

Such a seemingly simple fix is having demonstrable results. For example, the database created by Turkey’s Independent Women Directors at Sabanci University is helping Turkish companies tap into a pool of candidates previously unknown to the companies’ nominations committee.

Beyond tokenism and merely ticking the diversity box, such databases ensure that companies committed to increased female representation can identify candidates who meet the company’s business needs.

Other efforts such as the global “Ring the Bell for Gender Equality” events associated with International Women’s Day are raising the profile of female leaders as well. Last year, such events were held at 65 stock exchanges around the world, including those in Istanbul, Tbilisi, and Bucharest, highlighting the push for more gender diversity on boards.

MORE WORK NEEDED I am encouraged by the successes I have witnessed: a woman-founded small enterprise that grew into a significant market player under her leadership; a board chairman who told me that adding women to his board opened his eyes to unaddressed risks and new opportunities; male business leaders who are speaking to large audiences of their peers about the benefits of gender diversity.

Yet, much work remains, particularly in a region with tremendous potential but very real economic and social challenges— including high youth unemployment—and where key industry sectors such as manufacturing and energy remain predominantly male. Accelerating the pace of women joining the boards of companies in all industry sectors stands to make a real difference, contributing to private sector growth, expanded economic opportunity, and job creation.

This editorial was first published in Ethical Boardroom Merima Zupcevic Winter 2019 issue. Buzadzic

14

BUSINESS

GEORGIA TODAY

APRIL 23 - 25, 2019

Georgian Churchkhelas: Thinking Out of the Traditional Box

BY ERIC LIVNY

T

hese are Georgian churchkhelas, a kind of national candy made from a string of walnut halves dipped in grape juice thickened with flour (Tatara or Pelamushi), and dried in the sun. There are essentially 2-3 kinds of Churchkhela. Somebody may be better at making them, somebody worse, but all in all, it is the same stuff sold all over Georgia.

These are the Turkish analogs. If you have been to Istanbul’s Spice Bazaar, you will know firsthand that there is a much greater variety – both in terms of nuts and the fruit one uses to make the “sauce”.

Also, the shapes are much more diverse and imaginative.

Churchkela is just one example of how little “product innovation” there is in Georgia. One will most likely find a very similar pattern in many other spheres of economic activity in Georgia. Walk into any Georgian restaurant, and you will be offered the same, rather limited menu of (delicious) traditional dishes: five types of khinkali, four types of khachapuri and pkhali, three types of mtswadi, etc. People know how to make products their grandparents used to make. They may try to improve the production process, but would not move very far outside the traditional domain.

In fact, the growth diagnostics study the ISET Policy Institute conducted back in 2012, identified a lack of product innovation as a symptom of Georgia’s slow economic development.

The Georgians’ unwillingness or inability to think out of the traditional box is rather puzzling. Georgians are certainly not lacking in the creativity department.

Discipline is surely a problem, but creativity is not. Georgian artists, sculptors and film directors, to take one example, have been renowned for their highly original style back in the USSR days. So why is it that we don’t see many people in Georgia venturing out of the traditional?

Is it that a typical Georgian has no way of knowing what kind of things may exist and, more importantly, may sell? Are we

A sweets market in Istanbul

not “plugged into” the global knowledge exchange (be it internet, international TV and newspapers). But Turkey is next door, what holds somebody back from producing a different kind of churchkhela?

INNOVATION IN THE SERVICE OF RURAL DEVELOPMENT: THE JAPANESE PERSPECTIVE Selling traditional agricultural products and handcrafts along Georgia’s roads is a major source of income for many Georgian households. Over time some village communities have become specialized in certain products. Examples are Shrosha’s clay, Khashuri’s hammocks, Manavi’s churchkhela and tkhlapi (fruit leather), Surami’s nazuki (sweet bread), etc. However, even these “specialized” villages are doing relatively little to cultivate their local brands and innovate.

The lack of dynamism characterizing Georgia’s rural entrepreneurship is at stark contrast with what one observes in Japan, whose culture and traditions are as strong as ours. In Japan, villagers also often sell their products along the highways, yet the way they do is very different. While building new roads,

Japan has invested in the creation of special roadside stations called “Michino-Eki”. There are close to 1,000 of them spread all over Japan, catering to more than 500 million people a year. Rather than selling identical products (BigMacs or Wendy’s), as is the case with rest stations in the US or Europe, Michi-no-Eki emphasize innovation and uniqueness: local tourist information, local culture and entertainment, locally produced and locally branded food, arts and crafts. For instance, a Michi-no-Eki may specialize in apples, yet instead of just selling whole apples it would venture into a whole range of derivatives such as jams, apple chips, apple pies, apple-shaped memorabilia, etc.

The concept of Michi-no-Eki is very well described on Trends in Japan website. “As of April 2013, there are 1004 such facilities, most of which are located in scenic mountainous regions, or along the coast. Using a mechanism whereby the local government constructs the building and private organizations manage the facility, the content of the services is left to local creativity and ingenuity.

Consequently, the rest areas stand out

as unique operations. Some use museums as an attraction to introduce the culture and nature of the region. Others develop a resort around a hotel.”

“Many Michi-no-Eki are turning into tourist hubs, with hot springs and play facilities, workshop practice sessions, and museums etc., and there is an increase

in the number of visitors taking a drive just to visit these rest station”.

In some cases, even the actual buildings themselves have become attractions.

“Oguni-Yu Station lies along National Route No. 387 in Oguni-machi, Kumamoto Prefecture and is a unique conical building whose framework is made of locally produced cedar wood. The building's entire surface is covered with glass, which reflects views of the surrounding scenery and it looks just like a spaceship in a SF movie. In addition, there are many other examples of individual designs that interweave the character of the local region, such as facilities that look like samurai houses from the outside; facilities in the shape of a pottery vessel; facilities with a giant water wheel as a landmark; and so on.”

Georgia and Japan may be worlds apart, but there is nothing wrong in learning from the Japanese experience how to think out of the traditional box and harness local skills and traditions to rural development objectives. With a little nudge from Georgian government, local authorities and donors, including the Japanese International Cooperation Agency (JICA).

ABOUT THE AUTHOR:

Eric Livny is Founder and President at Tbilinomics Policy Advisors and Chair of Economic Policy Committee at the International Chamber of Commerce (ICC Georgia).

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SOCIETY

GEORGIA TODAY APRIL 23 - 25, 2019

15

QSI International School of Tbilisi Celebrates Earth Day

BY GABRIELLE COLCHEN

T

bilisi’s Quality School International (QSI) is a private, non-profit institution that opened in August 1995. It offers a high-quality education in the English language for elementary and secondary students. The school is located in a 5,000-square-meter purpose-built facility located a few kilometers from the U.S. Embassy, to the north of the city in a very green environment.

QSI has made it one of its priority to educate students on the social and environmental issues facing Georgia and today’s world in general, and on Friday April 19, the students celebrated Earth Day in the school gymnasium and presented the social projects they are involved in, with musical performances and partner organizations selling food

In today’s world, when you are privileged, it is too easy to be blind

and raising awareness at stands.

The student association ‘Roots and Shoots’ helps coordinate such projects, raises awareness and works alongside partner organizations. They are currently working with 12 partners organizations for which they raise awareness and money and from which they receive support in exchange. WWF, Sabuko, Hummusbar, UCMAS, Kera, Zero Effect and D.O.G are some of them.

In QSI, at the beginning of each year, students have the opportunity to choose from among different projects and pick one they would like to get involved in.

Many projects are connected with other children and schools in Georgia which need support. ‘Roots and Shoots’ often helps to raise money and give schools supplies or books. For example, QSI’s 7-year-olds are currently fundraising for the Ninigori school situated in north-east Georgia. They sold their own books to be able to buy new ones for the Ninigori students and participated in the decoration of the school. The 10-year-old students are helping the Dvani school situated at the border with South Ossetia by providing science lab materials, books and teaching materials to support the teaching of English, mathematics calculators, photocopiers and electric heaters.

Last week’s Earth Day event was hosted in a very familial and energetic atmosphere. People were free to roam the stands, enjoying food and listen to the musical performances. GEORGIA TODAY had the chance to meet Karin Noll, the director of the school. She has been the director of the QSI school for

two years and has worked 42 years in the global education system. She explained that what differentiates QSI from other schools is the fact that it tries to be “more conscious.”

“We need to be conscious of who we are and what our responsibility is. We are not just expats in Georgia, we have a connection with the Georgian communities across the country and we try

to understand their needs,” she stated.

“Our students are able to understand that they are lucky, that their parents are educated, and that they are privileged.

Then they can understand that other children lack food, money, school supplies or books. Our responsibility is to educate our kids on these subjects, it is a major focus for our school.”

“QSI’s basic philosophy is to help oth-

ers. That’s why we decided to present different projects to the students so that they could choose which they wanted to get involved in. We have to create a culture where we care about others. In today’s world, when you are privileged, it is too easy to be blind.”

The school unites 42 different nationalities and provides $500,000 scholarships to Georgian students.

The 4GB Electronic Music Festival The first 4GB festival was headlined

by Michael Mayer, the German electronic musician and an iconic performer for DJ Gio Bakanidze, who brought together 1,000 listeners. The legendary figure has since become the permanent host of the festival, taking to the stage for over 20,000 visitors in 2017.

One of the unique features of the 4GB festival is the ever-changing location.

The organizers know everything is in

BY KETEVAN KVARATSKHELIYA

T

bilisi has made major steps forwards in terms of developing its night life offerings in recent years and is successfully following the world trends in this respect today, with numerous events organized year-round for music lovers, 4GB being among the

most outstanding.

4GB is an annual international electronic music festival launched in 2011. At the beginning, the festival was small, organized as a tribute to the Georgian pioneer DJ Gio Bakanidze by his friends. However, with the dedication and hard work of the organizers and their partner institutions, the festival has grown, becoming evermore colorful and offering the best electronic music to guests, transforming the memories of their friend into an unfor-

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the details and so always aim to host the audience in a venue suited to electronic music.

The Electronauts Music Awards has five times recognized the 4GB festival as the Best Event of the Year.

2019 is to be no exception and the 4GB organizers are all set to offer unforgettable performances in an incredible environ to thousands of visitors once again.

gettable event for the country, as well as the Caucasus, and raising the bar of local festival culture to a new level.

The festival carries a number of important messages. First of all, it demonstrates how the unity of like-minds and striving for mutual aspirations can turn a small memorial party into a festival of impressive scale, while maintaining the initial values. In addition, 4GB is a non-profitable event and all income is donated for the development of the idea.

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