Issue #1162 Business by Georgia Today

Issue no: 1162/186

FOCUS

• JUNE 25 - 27, 2019

• PUBLISHED TWICE WEEKLY

ON THE RUSSIAN EMBARGO Georgia strikes back with a social campaign to boost (non-Russian) tourism

PRICE: GEL 2.50

In this week’s issue...

PAGE 7

Weekly Entrepreneurial News @entrepreneur.ge NEWS PAGE 2

How Can You Be Sure? On Georgian Agricultural Insurance ISET PAGE 4

IMF Releases Latest Report on Georgia’s Economy BUSINESS PAGE 5

HPPS with Water Reservoirs – Reserve Capacity for Solar & Wind Capacities BUSINESS PAGE 6

First International Public Private Partnership Conference Held in Tbilisi BY SAMANTHA GUTHRIE

The World Bank’s Mercy Tembon Gives an Exclusive Farewell Interview BUSINESS PAGE 8

Keeping with the Trends Brand Director of Kerten Hospitality BUSINESS PAGE 10

n Thursday and Friday, June 20-21, Tbilisi hosted the city’s first International Public-Private Partnership Conference. The aim of the conference was to discuss the structural reforms that the government of Georgia is currently implementing, particularly in the field of management and good governance. There were also discussions on how to leverage public-private partnerships to reduce poverty and make Georgia’s economic growth more inclusive. Several high-level government officials attended and spoke at the event, including Prime Minister Mamuka Bakhtadze and Minister of Economy

What the Protests in Tbilisi Mean for Relations with Russia POLITICS PAGE 11 Prepared for Georgia Today Business by

Markets

Photo: Ministry of Economy and Sustainable Development

and Sustainable Development Natia Turnava. Bakhtadze told the conference participants that his government is striving to attract more investment, including foreign direct investment, specifically for infrastructure projects. He referenced the Georgian Public-Private Partnership Center, calling it a “unique platform” for encouraging and supporting the government’s investment goals. “Public-private reform, which is based on international best practices, will be one of the most successful [initiatives] in Georgia,” he said, calling on private sector leaders to approach the Public-Private Partnership Center to develop opportunities for cooperation, and take advantage of the benefits offered by the center. Continued on page 3

As of 21ͲJunͲ2019

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Bank of Georgia (BGEO LN)

GBP 16.04

Ͳ1,1%

Ͳ6,9%

GEOROG 04/21

104.80 (YTM 4.01%)

+0,1%

+1,1%

Georgia Capital (CGEO LN)

STOCKS

GBP 11.10

+8,8%

+14,3%

GEORG 04/21

106.17 (YTM 3.31%)

+0,2%

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

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

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GBP 2.60

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GRAIL 07/22

109.39 (YTM 4.42%)

+0,3%

+1,5%

GBP 16.96

+5,3%

+1,6%

GEBGG 07/23

102.01 (YTM 5.44%)

Ͳ0,2%

Ͳ0,1%

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CURRENCIES

Price

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65,20

+5,1%

Ͳ9,7%

GEL / USD

2,7744

+1,3%

+0,1%

1 399,63

Price

+4,3%

w/w

+9,8%

GEL / EUR

3,1544

+2,7%

+1,9% +0,4%

GEL / GBP

3,5362

+2,4%

INDICES

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FTSE 100

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0,0440

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0,4603

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8 031,71

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GEL / UAH

0,1062

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180,52

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+7,0%

EUR / USD

0,8796

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NASDAQ MSCI EM EE

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1 053,22

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GBP / USD

0,7847

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SP 500

2 950,46

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+3,0%

CHF / USD

0,9765

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MSCI FM

2 785,80

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+6,0%

RUB / USD

63,0462

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GT Index (GEL)

1 582,68

TRY / USD

5,8173

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GT Index (USD)

1 208,13

AZN / USD

1,6993

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MSCI EM

NEWS

@entrepreneur.ge Gamarjoba! I’m the Editor-in-Chief of the Georgian edition of Entrepreneur magazine and I’m here to share the top weekly Entrepreneurial news with you:

GEORGIA TODAY

JUNE 25 - 27, 2019

Average Expenses of Russian Tourists in Georgia

Expago, a new application for tourists visiting Georgia, is the name of a platform connecting visitors with local ‘experts.’ Guri Koiava, founder of the Tbilisi Startup Bureau is the author of the idea. He says he aims to help tourists better and more quickly adapt to the local situation for the best experience. Inspiration came from Airbnb’s ‘Experience’, and, as the service is not yet available in Georgia, the founders decided to launch a Georgian analogue, though it is far from an exact copy. Registration is free for experts willing to share their local know-how. Expago is currently in test mode and may eventually expand regionwide. Mzianeti, a cheese enterprise from Aspindza, Meskheti, is proving very popular among tourists, so much so that they plan to launch a hotel! The Mzianeti cheese enterprise has been offering cheese tasting and master classes to tourists for two years; they have eight employees and their bread is baked in a 200-year-old oven. Aluda Jvaridze, Head of Mzianeti, says the number of tourists is much higher this year compared to last, the bulk of clientele comprising tourists from Russia, Malaysia, China and Israel. Jvaridze claims a wine house and terraces will also be added to the property in future. Laila café, located in the heart of Mestia, has hosted its millionth guest. Tamuna Japaridze, 26 at the time, decided to launch a venue at the wonderful location nine years ago, when Mestia was not yet popular among tourists. She wanted to create a place for guests to feel at home and her family was among the first to start attracting tourists. Tamuna has a German education and work experience, which helped when starting the business. Even though the first steps were difficult, the love of her homeland and job helped her to overcome and to make a success of it, and Laila, the name of one of the local peaks, has become one of the best-loved places for tourists staying in Svaneti. 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

Image source: Lonely Planet

BY KETEVAN KVARATSKHELIYA

he data of 2018 published by the Georgian National Tourism Agency demonstrates that Russian tourists spent 1,326 GEL per person per visit, on average; the expenditure of travelers from Central and Eastern Europe reached 1,888 GEL, while guests from Western Europe on average spent 2,337 GEL, reports Commersant. 1,404.610 visitors traveled to Georgia

in 2018, 1,083.874 tourists among them. An individual who spends a night on the territory of Georgia is classified as a tourist. The statistics show that Russian tourists stayed in Georgia for 6.3 days on average last year. This case has gained great importance in the past few days, since the President of the Russian Federation Vladimir Putin, as a result of recent developments in Georgia, signed a decree to ban direct flights between the two countries from July 8. Banning flights and the expected decrease in tourist inflow from Russia

has become a matter of strong debate on the one hand, and a symbol of unity on the other. People from different parts of the world have begun social media campaigns, calling on others to visit Georgia and help its tourism industry, uploading pictures, videos and comments extolling the multiplicity of mesmerizing landscapes and sights throughout the country. ‘Spend Your Summer in Georgia’ is the largest campaign so far, virtually bringing together thousands of individuals who share their incredible experience or expectations with regards to Georgia.

BUSINESS

GEORGIA TODAY JUNE 25 - 27, 2019

Georgian Ombudsman: Russians Face No Obstacles in Georgia BY THEA MORRISON

eorgian Public Defender, Nino Lomjaria, says Russian citizens can visit Georgia with confidence and peace and have an equal opportunity to enjoy all the services the country offers, facing no obstacles to doing so. The Ombudsman made the statement in response to her Russian counterpart, Tatiana Moskalkova, who addressed Lomjaria and asked her to help protect the rights of Russian citizens in Georgia following large-scale protests launched in the capital Tbilisi on June 20. Moskalkova claimed the crew of the Russian TV Channel Rossia 24 was attacked by nationalists and thousands of Russian tourists were forced to return to their homeland. The Russian Ombudsman also claimed that the rights of the Russian delegation and its head Sergey Gavrilov were violated at the session of the Interparliamentary Assembly on Orthodoxy that was disrupted in Tbilisi in the wake of the protests. Moskalkova says that the "ongoing processes in Tbilisi are a source of deep concern." In response to Moskalkova, Lomjaria says no citizen of Russia has yet appealed to the Georgian Public Defender’s Office about a violation of rights. She noted that the only case made known to the Public Defender of Georgia so far is related to a single fact of alleged violence and interference in the professional activity of a Russian journalist. She highlighted that the Ministry of Internal Affairs of Georgia has launched an investigation. “Despite the Russian occupation, in recent years, no incident of violence against citizens of the Russian Federation has occurred. Georgia maintains the status of a safe country and there is no reason to change this reality,” she added.

Image source: Netgazeti

Lomjaria underlined that she will protect the rights of all citizens regardless of their citizenship or nationality and will respond to each incident. “Our goal is that the recent developments do not affect the rights of peaceful citizens on neither the territory of Georgia nor of the Russian Federation, and I hope that the Russian Federation's High Commissioner for Human Rights, Ms. Tatiana Moskalkova, will also protect the rights of Georgian citizens on the territory of Russia and will not allow for their discrimination based on nationality or citizenship,” she added. Before the appeal of the Russian Public Defender, the Russian Foreign Ministry also urged the Georgian authorities to ensure the security of Russian

First International Public Private Partnership Conference Held in Tbilisi

Continued from page 1 Also speaking to the conference attendees was Asian Development Bank (ADB) Country Director for Georgia, Yesim Elhan-Kayalar. Elhan-Kaylar affirmed that Georgia’s recent economic and legal reforms have made the country increasingly attractive to foreign investors. “The initiatives of the private sector offered by Georgian and foreign investors, are successfully carried out in Georgia,” she said, emphasizing that Georgia’s geographic location is a major advantage for economic development, one which is not currently being fully utilized. “We are glad to have had an opportunity to support the Georgian government’s efforts towards public-private partnership since 2015,” said ElhanKaylar. In 2015, the government passed a law aiming to encourage and facilitate public-private partnerships. The law supports the involvement of the private sector in major projects, including infrastructure. Louisa Vinton, Resident Representative of the United Nations Development Program (UNDP) in Georgia, also spoke, affirming UNDP’s support for

the Georgian government’s efforts to strengthen public-private partnership in the country. Minister of Economy and Sustainable Development Natia Turnava said that “Public private partnership is a part of the structural reforms that have received very positive assessments by the international financial institutions. It is very important that correct structural reforms allow us to increase economic growth, make it inclusive and integrate it with the welfare of families.” She focused on the need of infrastructure projects, which require significant financial and technical resources, saying “These are the projects that need to be continued, strengthened and implemented. It is not only the central highway infrastructure, but also other infrastructure projects. We will implement them in all regions, and municipalities are actively involved in the construction.” Speaking on the morning of June 21, following the night that anti-government and anti-Russian occupation protests erupted, sparking retaliation from Putin’s government banning air travel from Russia to Georgia, there was no mention of how the social turmoil may affect investment.

journalists and Russian citizens in Georgia. The Russian MFA claims that a radical group attempted to attack Russian journalists in Tbilisi on June 22. “An aggressive radical group attempted to attack the crew of Rossia 24 in Tbilisi. Prior to that, during the widespread disorder, representatives of local and international media were injured in the capital of Georgia. We demand the Georgian authorities ensure the security of Russian journalists and Russian citizens on the territory of the country. We expect a response from international organizations,” the Russian Foreign Ministry stated. In response, the Georgian MFA said that amidst the protest rallies that have been taking place in

Tbilisi over the past few days, the respective state agencies remain on alert to ensure public order and security in the country. “Foreign visitors, journalists and tourists, including those from the Russian Federation, have faced no threat in the capital of Georgia. The police have already opened an investigation into a small incident involving the journalists of the Russian TV Company. The Ministry of Foreign Affairs of Georgia has duly informed the international organizations, including the OSCE, on the steps taken by the government to ensure a secure environment amidst the latest developments in the country,” Official Tbilisi stated. Mass-protests started in Tbilisi on June 20 with the Russian delegation’s presence at the session of the Inter-parliamentary Assembly on Orthodoxy (IAO) in the parliament’s plenary chamber. Opposition lawmakers were outraged by the fact that Gavrilov addressed the event’s participants from the Parliament Speaker’s seat. In protest, they did not allow the IAO session to continue. Later, a decision was taken to wrap up the session and for the Russian delegation to leave the country. The protesters imposed responsibility for the developments on the ruling party, and demanded the resignation of Speaker Irakli Kobakhidze, Prime Minister Mamuka Bakhtadze, Interior Minister Giorgi Gakharia and Head of the State Security Service Vakhtang Gomelauri. The Parliament Speaker resigned after the situation escalated. At the time of going to print, the protests are ongoing. The demonstrators continue to demand the resignation of Interior Minister Giorgi Gakharia for the police crackdown on the night of 20 July that left 240 people injured. They also ask for the release of those protesters who were detained during the dispersal of the rally and that the 2020 parliamentary elections be held with a proportional system, which the government agreed to on June 24, further stating that there would be a “zero election barrier.”

BUSINESS

GEORGIA TODAY

JUNE 25 - 27, 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.

How Can You Be Sure? On Georgian Agricultural Insurance delayed, with negative consequences for income growth.

BY IA KATSIA AND SALOME DEISADZE

THE CURRENT SITUATION gricultural production is associated with a variety of risks, including market, institutional, and production. An important production factor in agriculture is the weather. Its uncontrollable nature makes weather the prevailing risk to agricultural production. Farmers have various informal and formal means of transferring and mitigating these risks. Informal means include

In 2014, the Government of Georgia initiated the Agricultural Crop Insurance (Agroinsurance) Project. The aim of the program is to support the development of the agricultural insurance market to minimize production risks and thus stabilize farmers’ income, encourage investment, and increase agricultural production. Within this project, insurance packages cover losses caused by weather-related disasters such as hail, flooding, and storms,

savings, diversification, off-farm activities, etc. The most common formal means of risk mitigation is insurance. Insurance is a contract that transfers the risk of financial loss from an individual or business to an insurance company. It works on the principle of large numbers: the insurance company collects small amounts of money (premiums) from its clients and pools that money together to pay for losses. In that way, the risk is transferred and distributed across space and time, allowing the insurance company to pay indemnities because it has reserves (the premiums paid by many farmers) from good years, or from farmers in other areas. The absence of a well-functioning agricultural insurance market negatively affects the country’s development perspectives at different levels. In the absence of agricultural insurance, natural disasters (hail, strong winds, floods, frost, and droughts) can cause significant crop losses for farms, increasing the financial vulnerability of farm households and, more generally, increasing uncertainty for all agents engaged in agricultural activities. In this context, investments that might increase agricultural productivity are more likely to be

as well as by autumn frost (though only for citrus). Farmers are granted the opportunity to insure a maximum of 5 hectares of land of crops other than grains. For grain, insurance is available for a maximum of 30 hectares of land. In the case of agricultural cooperatives, the maximum insured sum is 50, 000 GEL but the area of insured land is not limited. The program is subsidized by the state, and eight insurance companies participate in the program. The Government of Georgia provides the following subsidies on insurance premiums: • 50% of the value for vineyard insurance • 70% of the value for insurance of all other crops Since the beginning of the program, 49.3 thousand farmers (unique beneficiaries) have purchased insurance. Demand was particularly high in 2014 and dropped afterwards due to the reduction of the state subsidy from 90% to 70% (Figure 1). While in 2016 and 2017 there was an increasing trend in the number of insured farmers, in 2018 the number of unique beneficiaries declined again due to the requirement that the insured land plot be registered in the public registry. While

it was necessary to link this program (and any other government support) to land registration, it hindered the demand for agroinsurance, as most agricultural lands are still not registered. According to recent data from the Public Registry, only 45% of land in Georgia is registered, although many attempts at registration have been made over the last three decades (see more in our previous publication). In 2018, the greatest number of farmers was insured in Kakheti (2.92 ths.) and most farmers insured vineyards (3.66 ths.). Historically, the program has had the highest number of insured farmers from Ajara, and citrus has been the top crop insured. This is not surprising, given that citrus is the leading crop in Ajara. In summary, under the Agroinsurance program in 2014-2018, 81,453 insurance policies were issued country-wide; 71,413 hectares (cumulative) of land were insured with insurance around GEL 551 mln, and the Agency’s subsidies added up to more than GEL 33 mln. In 2014-2018, insurance companies paid more than GEL 35 mln in compensation for damages. In 2015, THE ISET Policy Institute conducted the “Regulatory Impact Assessment on Crop Insurance Reform in Georgia”. The study assumed that the total area of insurable land in Georgia was 397,943 hectares. To compare, the average area of insured land

experience with agricultural insurance, making them reluctant to insure their production. They do not like the idea of paying money “when nothing happens” (when no losses in agricultural production are incurred). In addition, farmers do not trust insurance companies as they do not fully understand how insurance companies will behave in case of a negative event. This uncertainty and distrust reduces farmers’ willingness to subscribe. Lack of qualified agents in the insurance sector: There is a lack of qualified insurance sales agents, as well as a lack of offices (branches) and information sources about agroinsurance. The relatively lower quality of services (sales agents and loss adjusters) due to the current scarcity of investments in this area, potentially hampers the development of the insurance market. Lack of Agrometeorology data: One important aspect of premium rates is the expected loss cost. To precisely calculate the expected loss cost, it is necessary to have accurate historical data on catastrophic events. However, such data is rarely available in Georgia, forcing private insurers to add a so-called ambiguity load to the expected loss cost in their premium calculations and forecasting. The development of an agricultural insurance market in Georgia is very much constrained by the lack of yield data, as well as the

is only 14,283 hectares a year, which accounts for only 3.6% of the potential insurable land. Despite the government’s efforts, the penetration rate of insurance is still very low, and we see a decrease in the number of unique beneficiaries (as indicated in figure 1).

lack of information on the individual risk profiles of farmers. All this, paired with high administration costs (too many small farmers), leads to high insurance premiums and less affordable insurance products.

CHALLENGES FOR AGRICULTURAL INSURANCE IN GEORGIA There are several challenges that prevent the development of an insurance market in the agricultural sector in Georgia: Low willingness to subscribe: There is a low insurance culture among Georgian farmers as they lack awareness of and

RECOMMENDATIONS The agricultural insurance market faces several challenges on both the demand and supply sides, making government intervention necessary. The government can support the development of agricultural insurance programs in various ways that go well beyond subsidizing premiums. The government can assist by: • Promoting the development of dedi-

cated data collection and management systems, which are a precondition for feasible implementation of insurance programs, such as area yield schemes; • Supporting the design and development of appropriate insurance solutions; • Reaching out to farmers and other stakeholders to increase awareness; • Building the capacity of their employees who specialize in agricultural insurance; • Supporting research on and development of innovative agricultural insurance products and services to reach small farmers and expand the penetration rate. Agroinsurance products should be tailored to the targeted farmers by region and crop; • Supporting the establishment of appropriate public and private structures. Properly structured PPPs can generate synergies that allow each component to contribute to the development and formation of more effective and efficient interventions in the insurance market; • Exploring the usefulness of other types of subsidies for insurance products (e.g. tax exemptions). Tax exemptions are considered a direct subsidy for agroinsurance products. By conducting a costbenefit analysis, the government can assess the merit of reducing or exempting tax on agroinsurance. Therefore, the effect of tax exemption may be marginal on the state budget, however, the potential impact of supporting agroinsurance through tax exemptions could be significant (Oxfam, 2018); • Creating a reinsurance mechanism, which is a risk-spreading mechanism, particularly important in managing financial exposure to covariate natural hazard risks such as drought in agricultural insurance. Reinsurers have expertise in agricultural insurance products and provide risk-sharing through reinsurance. They can support insurers with actuarial pricing of risks and may also provide technical support to programs; • Introducing livestock insurance - The current agricultural insurance program only covers agricultural crops. However, in 2018 the loss of bovine animals was 55,800 head. The corresponding number of pigs was 76,100, and sheep and goats 96,200. Considering the number of livestock as of the end of 2018, the losses of livestock are high. Moreover, the long-term commitment of all stakeholders is crucial for the establishment of a well-functioning agricultural insurance market. The government has to take the lead in this process and engage all other parties, in particular, insurance companies.

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BUSINESS

GEORGIA TODAY JUNE 25 - 27, 2019

IMF Releases Latest Report on Georgia’s Economy BY SAMANTHA GUTHRIE

n June 19, the Executive Board of the International Monetary Fund (IMF) released its findings following the Fourth Review of Georgia’s economic reform program, which is supported by a three-year extended arrangement under the IMF’s Extended Fund Facility (EFF). There were three major findings of the report, which was, overall, largely positive with an emphasis on the role of government reforms, particularly in education, to continue moving the economy forward. First, Georgia’s economic performance remains robust with resilient growth, inflation under control, and reduced external vulnerabilities. Second, continued implementation of the authorities’ reform agenda remains vital to ensure that growth is sustainable and inclusive. Third, comprehensive education reform needs to boost education quality and reduce skills mismatches in the labor force. The end of the review period triggers the release of special drawing rights (SDR) from the IMF for Georgia. The SDR is an international reserve asset developed by the IMF to supplement member countries’ official reserves. The value of the SDR is based on a basket of five currencies: the US dollar, the Euro, the Chinese Renminbi, the Japanese Yen,

and the British Pound Sterling. Now, Georgia has access to SDR 30 million (about $41.4 million), bringing total disbursements under the EFF to SDR 150 million (about $207.2 million). The current arrangement for SDR 210.4 million was approved by the IMF Executive Board on April 12, 2017. Following the Executive Board discussion on June 19, David Lipton, First Deputy Managing Director and Acting Chair, told board members: “Georgia’s economic performance remains robust with resilient growth, inflation under control, and reduced external vulnerabilities. Although the outlook is favorable, the authorities need to be prepared to address any negative spillovers from external developments and persevere with structural reforms to promote higher and more inclusive growth.” He also noted that “The fiscal deficit is projected to remain relatively stable in 2019 and over the medium term reflecting the authorities’ commitment to fiscal sustainability. Higher spending on public education will be offset with slower growth in infrastructure investment. Regarding education spending, salary increases can only be effective if accompanied by other steps to boost education quality, which requires further work on a comprehensive education reform.” Lipton commented on monetary policy, complementing the National Bank of Georgia for its focus on price stability. “As recent increases in inflation are driven by temporary factors, a neutral

Source: IMF

monetary policy stance remains appropriate. Tighter lending standards have slowed credit growth as expected, making credit growth more sustainable. The inflation-targeting framework, combined with exchange rate flexibility, and interventions that help build reserves continue to serve Georgia well.” The reform agenda of the Georgian

government is critical to growth, said Lipton, praising the fact that “authorities are advancing education reform to reduce skills mismatches in the labor force. A new insolvency law, together with making the pension agency fully operational and reforms to promote a transparent and independent judiciary, would help mobilize investment. The authorities’

energy market reforms could improve market competition and energy efficiency.” Lipton confirmed the IMF’s commitment to supporting Georgia, saying “Sound policies and further reforms under the IMF program will help preserve the gains made, strengthen economic resilience, and foster stronger and more inclusive growth.”

BUSINESS

GEORGIA TODAY

JUNE 25 - 27, 2019

Never Waste a Good Crisis BY ERIC LIVNY

chieving economic independence from Russia will be costly in the short-term, but may be well worth it. Mass demonstrations in front of the Georgian Parliament are typically a sign that Georgian politics are pregnant with change. The violent phase of the ongoing popular uprising appears to be largely over after more than 240 people were injured when protesters tried to storm the Parliament building on June 20, but peaceful crowds continue to gather on “Georgia’s perpetual street of protest” for (at time of going to print) the fourth straight day. The protesters’ current demands have little to do with the event that triggered the crisis – a Russian MP’s ill-conceived attempt to occupy the chair of the Georgian Parliament Speaker. What they want, according to reports in Georgia’s media, is (Minister of Interior) Giorgia Gakharia’s resignation, the release of detained protesters, and an immediate shift, already in 2020, to proportional party-list elections to the Georgian parliament. The latter demand is significant in that it would eliminate the primary cause of ruling party supermajorities emerging in Georgian parliaments ever since independence. Georgian Dream leaders would do well, for themselves and the country, to accept this fairly benign demand [EDITORIAL NOTE: The Georgian government agreed to this request on June 24]. In the meantime, the protesters have already scored a fairly consequential victory by triggering a temporary (?) Russian ban on flights to and from Georgia starting July 8. Declarations aside, this move by the Russian strongman could potentially bring Georgian-Russian economic relations back to square one, freeing Georgia from its dependence on the Russian/Eurasian Union market and the whims of Russian political leadership. Achieving economic independence will come at a significant economic and political cost in the short term, but may be well worth it.

Image source: rferl.org (RadioFreeEurope Radio Liberty)

BETTER A HORRIBLE END THAN HORROR WITHOUT END It is widely known that Russia is currently by far the largest market for the exports of Georgian traditional food and agricultural products (wine, water, lemonades, fruit, vegetables and greens) and traditional tourism services. If denied access to the Eurasian Union market, Georgia will have to heavily invest in the quality of its products in order for them to be marketable in Europe, North America and Asia. What is less well understood is that the Russia-led Eurasian Union is far more important for Georgia’s economic prosperity than is suggested by the relatively modest share of agriculture and hospitality in the Georgian GDP. This is so because these labor-intensive industries (under) employ well over a half of the Georgian population. Moreover, the vast majority of people working in the traditional sector of the Georgian economy have no alternative employment options or savings to fall back on. They live very close to the poverty line and can ill afford even a temporary reduction in income. Finally, while precise statistics are not

available, Russian and other CIS country investors are heavily involved in the Georgian real estate market – buying thousands of properties in places like Batumi, Gudauri and, of course, Tbilisi. Slogans like “Go home, occupiers” will make Russian-speaking investors feel less than welcome in Georgia, putting an end to any further acquisitions and potentially triggering a sell-off. All this means that Georgia should be bracing for an economic and (potential) financial crisis that should not be wasted.

NO VENTURE, NO GAIN While Georgia is touted as a global leader in economic reforms, too many Georgians remain “stuck” in subsistence agriculture and low-paid trade and hospitality jobs. For example, of all those employed in agriculture, only about 11,000 (less than 1.3% of total agricultural employment!) were hired workers in 2016, presumably employed in commercial farming activities. The overwhelming majority of the rest were self-employed (or, rather, under-employed) in semisubsistence and subsistence agriculture on very small plots of land. According to the latest Georgian Agricultural Cen-

sus, in 2014, 77% of all Georgian holdings owned less than 1ha of agricultural land (87%, if considering only arable land). Unorganized, operating on tiny plots of land, and lacking in leadership, skills, infrastructure and essential support services (e.g. machinery, veterinary centers), Georgian peasants remain in agriculture due to old age (the average Georgian farmer is about 55 years old and aging), emotional attachment to their land, and a lack of other opportunities. External interventions in the sector, government subsidies, donorfinanced loans and grants, certainly help alleviate rural poverty but fail to fundamentally change farming and business practices in Georgia’s countryside. Perhaps unintentionally, they also slow down the smallholders’ exit from traditional agriculture. Not only are too many Georgians stuck in low productivity jobs, whole parts of the Georgian economy are stuck in a “bad” equilibrium involving a lock-in on traditional products, traditional technologies and traditional (ex-Soviet) export markets. Georgia’s exports to the EU did grow in recent decades, but Azerbaijan and Eurasian Union countries

remain the main (re-)export destination for most Georgian products. Having so many eggs in the Russian/ CIS basket represents an economic and political vulnerability. Importantly, however, this is also a symptom of the underlying problem: dependence on tourism and a very small number of traditional agricultural products that are not priceand quality-competitive outside traditional markets in which Georgian products enjoy a special, nostalgia-based recognition. Escaping from the traditional equilibrium is easier said than done since the prices Georgian products and services fetch in Russia and CIS may be unattainable in other markets. Moreover, meeting the food safety and quality standards imposed elsewhere (consistency over time, homogeneity, traceability) is a daunting task in value chains dominated by a multitude of small, independent producers who are not linked to downstream buyers (consolidators and processors). These structural factors have been reinforcing the lock-in on traditional activities to the detriment of those attempting to modernize the Georgian economy and guide it towards the more price- and quality-competitive markets of the future. Instead of reaching out to new markets, Georgia has been simply following the easy path to its traditional buyers in Russia and other CIS countries. As we all know from our personal lives, getting out of one’s comfort zone (a “bad” equilibrium) may require an external shock, a “good crisis.” This point is best illustrated by what happened to the Georgian wine industry in the wake of the Russian ban in 2006. Thus, while causing a lot of pain in the short run, last week’s protest rallies may trigger very significant changes in Georgia’s political and economic landscape, rendering Georgia more competitive and resilient to ‘meddling’ and manipulation by powerful political actors and neighbors. 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).

HPPS with Water Reservoirs – Reserve Capacity for Solar & Wind

here are many renewable sources of power generation in the world. From them, hydro power plants and sun and wind power plants are the most popular.

THE CURRENT SITUATION IN THE WORLD Solar and wind power systems are among the most dynamically growing sectors of recent times, making the adoption of solar and wind resources to generate electricity one of the most important challenges for the modern world. China, the USA, Germany, Italy, India, France, Great Britain, Spain and others are all major producers of sun and wind electricity. Electricity generation in these types of power plants depends on environmental factors (sun, wind). Therefore, electricity generation can be irregular.

Additionally, generating electricity with such types of power plants is significantly less reliable than hydroelectric power plants, as, while water always flows; sometimes the wind blows, sometimes not. This variability negatively impacts on a systematic / reliable operation. It also results in a need for additional reserve capabilities to deal with this variable and for the systems to function without accidents.

HPPS AS A RESERVE POWER As noted, for the integration of solar and wind power plants into a network as unstable energy sources, reserve capacity is necessary, and hydro power plants are the most viable option in this regard. The advantages of regulatory HPPs with water reservoirs, unlike all other sources of energy, has highly maneuverable ability: such HPPs can change power without limit (from 0 up to 100%) in the shortest

possible time, which is practically impossible with other types of power plants. The experience of solar and wind energy producers shows that they are able to integrate these changing energies into a network with HPPs with water reservoirs. A clear example of this is Germany, which is one of the leaders in the solar and wind energy sectors. Germany's proximity to countries with large hydropower systems, such as Norway and Sweden in the north and Switzerland and Austria in the south, enables their energy system to be balanced and flexible, thus promoting the use of solar and wind energy.

GEORGIA The main source of power generation in Georgia is hydro power plants, although the country plans to use other renewable sources in addition. Similar to world experiences, the issue of unstable energy

sources (sun, wind) is also relevant in Georgia. Consequently, the construction of current and planned HPPs with water reservoirs will support the construction of solar and wind power projects. The construction of the regulatory Nenskra HPP is underway in the Svaneti region with a capacity of 280 mega-watt. It is being constructed by K-Water, Korea Water Resources Corporation, which has 50 years’ experience in the hydropower sector. K-Water HPPs with a water reservoir provide stability to the work

of Solar and Wind Power Plants in South Korea. It is notable that the company owns several Solar and Wind power plants. K-water is the first company to use "floating” solar power plants – with solar panels floating on surface of one of the water reservoirs. Construction of the Nenskra HPP in Georgia will give the country energy system flexibility. With its help, connection of planned unstable energy sources- solar and wind power stations -to the networks will be simplified in Georgia.

BUSINESS

GEORGIA TODAY JUNE 25 - 27, 2019

Putin Attacks Georgian Tourism, Georgians React with Social Campaign

BY AMY JONES

resident of Russia Vladimir Putin has banned flights from Russia to Georgia and suspended Georgian air companies from flying in its territory from July 8. His decision follows days of protest in Tbilisi that began after a Russian MP gave an address from the Speaker’s seat in the Georgian parliament. Protestors gathered in front of the Parliament building on Thursday to contest Russian occupation in South Ossetia and Abkhazia. Moscow considers the protests to be an “anti-Russian provocation”. Encouraging Russians to avoid visiting Georgia, Putin signed a decree on Friday evening stating that flight suspension was necessary to “protect the national security of the Russian Federation.” The escalation in tensions between Russia and Georgia is aimed to pressurize the Georgian economy, that relies heavily on tourism. In 2018, Georgia’s tourism industry accounted for 7.6% of the GDP. With 1.4 million Russians visiting Georgia last year, Russians account for the highest number of tourists in Georgia. In the face of Putin’s attempt to shrink Georgia’s tourist industry, a group of young Georgian women started an initiative to encourage international visitors from around the world to visit Georgia. Launched on Saturday, the social initiative ‘Spend your Summer in Georgia’ attracted over 100,000 members within 48 hours. ‘Spend your Summer in Georgia’ hopes to attract more visitors to Georgia by publicizing the country’s tourism potential. Members from around the world have posted on their good experiences in the country: ‘Georgia is

definitely my favourite travel destination. It was amazing to spend almost a month there,’ wrote one Polish member. “The main aim of the campaign is to interest people in Georgia and encourage them to come here, as well as help Georgian businesses to receive a lot of tourists in summer despite Putin’s announcement,” Mary Jobava, one of the initiative’s organizers, told GEORGIA TODAY. Georgian businesses who rely heavily on Russian tourists will lose a large number of customers this summer. An estimated 80,000 Russian bookings have been cancelled since the announcement of the ban. “We want to help these businesses by reaching out to people around the world to come to Georgia.” As part of the initiative, the organizers hope that foreigners will share their experiences and by using the hashtag #spendyoursummeringeorgia. Through spreading awareness about visiting Georgia, as well as logistical advice, the group aims to become a hub for tourism in Georgia and ultimately increase the number of tourists by diversifying the tourism industry. “We will share information on visiting Georgia: what to see, where to go, how to plan their trip. It should become a hub for tourism,” Jobava said. Distancing themselves from the recent protests and Putin’s statements, the group will remain apolitical. “We want to run a positive campaign and avoid political announcements,” Jobava explains. With so much interest in the first 48 hours of the campaign, ‘Spend your Summer in Georgia’ has attracted a lot of attention from the media and businesses. The group plan to launch a website with travel advice and continue to encourage others to share positive experiences about Georgia.

Image source - Spend your summer in Georgia

BUSINESS

GEORGIA TODAY

JUNE 25 - 27, 2019

The World Bank’s Mercy Tembon Gives an Exclusive Farewell Interview EXCLUSIVE INTERVIEW BY KATIE RUTH DAVIES

ercy Tembon came to Georgia in October 2015 to begin her assignment as the Regional Director for the South Caucasus, which includes Armenia, Azerbaijan and Georgia. In this function she has been responsible for leading the dialogue and development of the World Bank’s Country Partnership program, managing the portfolio of projects and technical assistance, coordinating with other development partners and engaging key stakeholders on economic growth and poverty reduction issues in the South Caucasus. Her tour of duty ends on June 30 and she will be moving to the South Asia Region as the World Bank Director for Bangladesh and Bhutan. “I will surely miss Georgia and its people, but I am taking with me many memories, lessons and experiences” she told GEORGIA TODAY in an exclusive interview.

WHAT WERE YOUR IMPRESSIONS OF GEORGIA WHEN YOU FIRST ARRIVED? My impressions were, overall, positive. From a personal perspective, I will always remember how I felt on the first day of arrival in Tbilisi. I was mesmerized by the Caucasus mountain range, the combination of modern and ancient buildings and infrastructure in Tbilisi, such as the Peace Bridge, the cable cars in the air and centuries old churches. I was also amazed by the beauty of Tbilisi at night, with sparking lights all around, especially when viewed from the Funicular. The cocktail of old and new, Asian and European influences, the Georgian cuisine and wine captivated me upon my arrival. From a professional perspective, I was impressed by Georgia’s economic performance - robust growth averaging 5% annually in the last decade. I was also impressed by the record of prudent reforms that had led to strong performance on macro-fiscal management, monetary policy as well as the banking sector. However, I also saw challenges and the need to sustain the course on reforms in priority areas. Georgia’s small open economy and its specific geographical location and features renders it vulnerable to external shocks and regional challenges. Furthermore, Georgia’s population is aging and shrinking, declining from 5 million at the time of independence to 3.7 million today. This phenomenon undoubtedly reduces opportunities for growth. So, from the very beginning I saw the strategic role of the World Bank Group to partner with the Government and other key stakeholders to think through solutions to these challenges.

WHAT HAVE SOME OF THE HIGHLIGHTS BEEN OF YOUR WORK AND TIME HERE? My time in Georgia has been very productive and fulfilling. Over the past four years I have traveled the length and breadth of the country on project site visits, talking to people and seeing for myself the results and impact we are making to improve their lives. I leave this country with a strong conviction that World Bank supported projects have significantly contributed to making Georgia more inclusive, connected, competitive and innovative. A key highlight of my tenure is the increased focus on education and the quality of human capital, as a strategic priority for Georgia. We have supported the Government’s commitment and drive to invest in its people and build a strong foundation for promoting the competitiveness and prosperity of all the people. I visited schools, talked to students,

teachers and parents, and there is unanimous agreement that quality education is key to the future development of the country. Another highlight is the impact that our infrastructure investments have made in Georgia. Investments in municipal infrastructure and service delivery have fostered inclusive growth and given people opportunities to participate in the economy. For example, the rehabilitation of Telavi and its main highlight Erekle Castle (Batonistsikhe) is attracting millions of tourists to the Kakheti region. Similar effects are being felt in Imereti, Mtskheta-Mtianeti, and Samtskhe-Javakheti regions where we improved the quality of local infrastructure and promoted cultural heritage preservation and sustainable tourism that created job opportunities for many people. Investments in the construction of the East-West-Highway and secondary roads increased Georgia’s connectivity, reduced travel times for users and enabled farmers to get their produce to the markets faster. A third highlight is the impact we have made in promoting innovation in Georgia. By providing financial support and a variety of value-added services, Georgia’s Innovation & Technology Agency (GITA) has been the foundation in building technology centers, and an ecosystem for small and medium enterprises (SMEs) to accelerate growth and commercialize new technology. Launched in 2014, with support from the World Bank, GITA started as an agency seeking to establish itself as the cornerstone of Georgia’s National Innovation Ecosystem and has piloted several programs with the goal to grow innovation within the technology sector as well as traditional sectors. Today, GITA is a leading source of early stage financing and mentoring for innovative firms, through its existing programs. These include GITA’s business incubator grants of GEL 5,000 (received by 52 individuals and 19 teams to date), the highly competitive mini grants, received by 17 out 150 applicants for a total of GEL 750,000, and micro grants, received by over 170 individuals for a total of GEL 522,000.

WHAT WOULD YOU NOTE AS AREAS WHERE GEORGIA NEEDS TO DEVELOP FURTHER,

AND WHAT ADVICE WOULD YOU GIVE TO THE RELEVANT AUTHORITIES? Overall, Georgia has performed well in all the sectors. However, there is always room for improvement. One area I would like to highlight is the need for Georgia to continue to develop the private sector to produce more and better jobs. Georgia needs to continue expanding business access to social and economic infrastructure, ‘hard’ infrastructure (transport, telecommunications, water, power systems, and fixed assets needed to provide education, health and sanitation) and ‘soft’ infrastructure (legal and regulatory frameworks, payments clearance and settlement systems, financial intermediaries and capital markets, collateral registries, credit rating agencies, and skills development) in order to enable productive individuals and productive firms. This requires levelling the playing field to enable all citizens to improve the quality of their human capital, namely through better education and better health. I am proud that the World Bank with the Government have spearheaded the Human Capital Project that focuses on improving education quality and skills, starting from the foundation stages in preschool to higher educational institutions. This is a surefire way to eliminate the social, economic and structural/spatial barriers to employment opportunities.

MINISTER MATCHAVARIANI SAID "THE WORLD BANK WILL CONTINUE COLLABORATION WITH GEORGIA REGARDING INFRASTRUCTURE, PARTICULARLY THE POWER ENGINEERING SECTOR." CAN YOU TELL US MORE? The World Bank Group has been a longterm partner in the energy sector in Georgia to improve the country’s energy supply and reliability. In the last four years, we have completed the construction of transmission lines connecting an additional 180 MW of clean hydropower generation to the grid and have improved the reliability of power supply to the Ajara region. What I am equally proud of is our engagement in providing technical assistance to enable the government to make informed decisions about the fiscal costs and tariff impacts of current and future

Power Purchase Agreements (PPAs). We will continue to support the government’s efforts in such a critical sector to the development of the country.

HOW DO YOU SEE IMPROVEMENTS, FAILINGS AND FOCUS AREAS FOR EDUCATION REFORM IN GEORGIA? WHAT IS THE WORLD BANK'S INVOLVEMENT? I must say that the World Bank has been supporting education reforms in Georgia for a long time and there have been tremendous improvements in the system in terms of provision and access. However, many challenges remain in terms of quality and performance. Georgia remains behind countries with similar per capita income in learning outcomes. Moreover, there are substantial in-country differences in performance, which are determined by location, socioeconomic status, and the availability of school resources. The existing public financing model of higher education does not lend itself to quality teaching and is not linked to the demands of the labor market in terms of skills development. The Government of Georgia has made the strategic move to implement the needed reforms and changes on attitudes and educational approaches that will create a new foundation and generation of human capital akin to the best examples from the USA and the EU. This will require sustained reforms in the education sector that the World Bank will be supporting through our “Georgia I2Q Project – Innovation, Inclusion and Quality.” These investments will be accompanied by a Development Policy Operation (DPO) 2020, currently under discussion, which will include key policy triggers to be supported within the education sector. The Georgian government has been long aware that the country risks marginalization in a competitive global knowledge economy if its education system is not able to equip learners with the skills they need in the 21st century.

WHAT IS YOUR 'TAKEAWAY' FROM YOUR EXPERIENCES IN GEORGIA? The main take-away for me is that “where there's a will, there's a way.” While I have

always cherished this proverb, I have come to see it in full fruition in Georgia. The willpower and ingenuity of Georgians have earned them a reputation as “star reformers” and has led to an outstanding record in improving governance and the business environment through far-reaching reforms. The country has maintained macroeconomic and fiscal stability over the years with its economy growing on average 5% over the last decade. This has led to job creation and poverty reduction. My second take-away is that in every country, there are cultural and historic background differences, there are political, religious and social circumstances. Therefore, listening carefully, working closely with all stakeholders and being swift and responsive is a prerequisite for successful cooperation and production of impactful results for the people.

WHAT WOULD YOU SAY IN YOUR "GOODBYE MESSAGE" TO THE GEORGIAN PEOPLE? First, I am grateful for the opportunity to have lived and worked in Georgia, and I will have fond memories and a sense of accomplishment when I look back on this time in my life. Georgians can also be very proud of their achievements. They have helped their country to come a long way and made sure their future is full of opportunities. I really hope the country will continue to emphasize human capital as a way to inspire and empower the young people. I met with preschoolers, students, and young entrepreneurs and I saw their energy, creativity, and dedication. investing in their skills will ensure a future of prosperity for all Georgians. With a skilled workforce adapting to new markets and connected to the world, I see a bright future for Georgia. I strongly believe that Georgians have what it takes to be a prosperous country, possibly assisting other countries in future and continue to set an example for others to follow. I wish to refer to a line from Ilia Chavchavadze’s, poem ‘Lines to the Georgian mother,’ written on December 15, 1858. “ჩვენ უნდა ვსდიოთ ეხლა სხვა ვარსკვლავს” (“We shall now chase a new star”). I would like to put the sentiment of this quote in my own words: “Keep raising the bar and continue to chase newer stars!” Nakhvamdis!

BUSINESS

GEORGIA TODAY JUNE 25 - 27, 2019

A Chronology of Russian Embargoes on Georgia BY THEA MORRISON

n June 21, Russian President Vladimir Putin ordered a ban on flights to Georgia as part of the Russian state’s reaction to the protest in Tbilisi following Duma MP Sergey Gavrilov’s appearance in the Parliament in Tbilisi. Putin’s order takes effect on July 8, while he also tasked his government with returning Russian citizens on a temporary stay in Georgia and prohibiting Russian tour agencies from organizing travel to the country. The official Russian reaction to developments in Tbilisi also included calls to boycott tourism and trade goods with Georgia. The recent developments are not the first case of a Russian embargo on Georgia. In 2005, the Russian Federation launched a full scale economic blockade against Georgia. The Kremlin chose to target the field of Georgian economy that is most dependent on the Russian market - agriculture. In December 2005, Russia’s Rosselkhoznadzor, a Federal Service for Veterinary and Phytosanitary Surveillance, carrying out functions on control and

supervision in the field of veterinary science, banned the import of Georgian vegetable products for “violating the standards of microbiological composition.” One month on from this decision, on January 22, 2006, Georgia found itself facing another blockade when the main gas pipeline exploded in the North Caucasus. This disrupted all the thermal power stations, the HPPs could not withstand the load, and as a result, entire Georgia was left without power for days. After the energy blockade, Georgia decided to reduce Russia's influence on natural gas once and for all, and as a result, Russia lost its one main area of leverage against Georgia. A month after the pipeline explosion, in March 2006, Russia expanded its embargo area and banned wine imports from Georgia. At the time, 20% of total wine exports from Georgia, a value of $153 million, were sent to Russia. As a result of the blockade, the wine export was halved in the first half of 2006. The embargo was a sign for Georgian entrepreneurs to look elsewhere for custom and, as a result of much work, the Russian share in Georgian wine export fell to 2%. After the detection of Russian spies in Georgia, on October 6, 2006, a Russian cargo plane landed at Tbilisi International Airport with thousands of Geor-

gian citizens who had been expelled from Russia. They were the first of 4,634 citizens of Georgia to be deported. Because of this, 13 years later, the European Court of Human Rights (ECHR) demanded Russia pay compensation to the Georgian victims of the deportation. On October 2, 2006, the Russian Federation suspended postal, automobile, aviation, marine and railway connections with Georgia. With this step, Russia violated the International Civil Aviation Convention, as well as a number of bilateral and multilateral agreements signed Image source: moneycontrol.com

with Georgia. This embargo ended seven years later, in 2013. After this, export increased four times to Russia and between 2013 and 2018, profit from export to Russia amounted to $396 million. On June 19, 2019, Georgia’s national Statistics Office (Geostat) released data on foreign trade January-May 2019, according to which Russia is the top export country for Georgia, with income

amounting to $218.7 million. Geostat says that the share of Russia in total exports made from Georgia is 14.9%. It was 13.3% last year. Georgian economic experts say the Russian ban on flights to Georgia will significantly reduce the country’s income. Economist and researcher of NGO Transparency International Georgia, Beso Namchavadze, claims Russia re-opened its market for Georgia in 2013 in order to have more tools to use against the country. But despite the Kremlin decision, the expert notes that Georgia

exports twice more goods to the European Union. “The Russian market is $1.6 trillion while the EU is 12 times bigger, $19 trillion dollars. Russia has been familiar with Georgian products for a long time, but the European Union is discovering more and more Georgian products by the day. This is a good thing: the EU does not deprive us our territories in exchange for a market!” the expert wrote on Facebook, noting that Russia occupies 20% of Georgian territories. Namchavadze added that “counting on the Russian market, Georgia can improve its economic situation, but with export to the EU market, Georgia can get rich.”

Microsoft Resumes Selling Huawei Laptops in US

icrosoft, one of the most famous and largest technology companies worldwide, has added Huawei back into the product listing on its website after evaluating the importance of cooperation with the company. Microsoft said in a statement that it

has been evaluating the regulations, and will resume sales of its existing Huawei inventory on Microsoft Store. The Huawei MateBook X Pro is listed for $1,499, the Huawei MateBook D for $999 and the Huawei MateBook 13 in Intel core i5 and core i7 versions for $999 and $1,299. "We remain committed to providing

exceptional customer experiences," Microsoft said. "Our initial evaluation of the US Department of Commerce's decision on Huawei has indicated we may continue to offer Microsoft software updates to customers with Huawei devices." This's good news for anyone who owns or purchases a Huawei laptop.

As well, it’s said that Huawei will launch its new Windows laptop in July. HUAWEI products and services are available in more than 170 countries and are used by a third of the world's population. There are 16 research and development centers operating worldwide in the USA, Germany, Sweden, Russia, India and China. HUAWEI Consumer BG is

one of three business units of HUAWEI, mainly focusing on the production of smartphones, personal computers, tablets and cloud services. The HUAWEI Global Network is based on 20 years of experience in the telecommunications business and serves to the production of innovative technologies to customers around the world.

BUSINESS

GEORGIA TODAY

JUNE 25 - 27, 2019

Keeping with the Trends - Brand Director of Kerten Hospitality BY KETEVAN KVARATSKHELIYA

eorgia’s popularity in terms of the hospitality industry is increasing rapidly, seeing different major companies operating in the field entering the country’s market. Kerten Hospitality, one of the largest and the most important players of the hospitality industry, is preparing to launch in Georgia. GEORGIA TODAY sat down with Antony Doucet, Brand, Marketing and Community Director of Kerten Hospitality, to gauge the success of the company and find out about the upcoming plans for Georgia. “Our group launched eight years ago in Turkey where we opened a few hotels. Our strategy is to introduce ourselves to those markets which have dynamic relations with Turkey. There are a lot of people traveling from Turkey to Georgia and vice versa. Therefore, Georgia was of natural interest to us,” he tells us. “Tbilisi and Georgia as a country in general have become more important on the world tourism map and one of the go-to destinations,” he continues. “In addition, we had some connections here who invited us to launch our products in Georgia.” The Kerten Hospitality Brand Director notes the high potential and opportunities in Georgia for attracting a great number of travelers from the Middle East. We asked Antony his opinion regarding Georgia’s potential to become a must-visit destination for tourists from other regions. “With the democratization of travel worldwide, Georgia is still very under discovered. There is a huge opportunity for Europeans and Americans to discover something new. And in the case of Georgia, the reality certainly exceeds expectations,” he tells us. Along with the business prospective of Georgia, we were also intrigued to discover his views of the country itself. “This is my 6th or 7th visit to Georgia,” he says with a smile. “And I have only visited Tbilisi and the region of Kakheti

so far. The food is absolutely amazing; the wine is fantastic, the architecture is beautiful, and the people very nice, genuine and hospitable. The people are warm and we are excited to introduce our guest-centric company culture on the market,” he told us, adding that the idea of combining Georgia and Turkey for wine and gastro tourism is also on the agenda. “There are three projects we plan to carry out in Georgia: a small boutique hotel in the heart of Tbilisi, boasting 17 rooms and restaurants, which is to be opened at the beginning of next year. Our aim there is to show off the authentic Georgian culture- although there are many popular and famous sights citywide, we aim to offer guests a more authentic and unique experience. We also have House Hotel and Residence Vake coming up, a mixed-use project combining office, restaurant, hotel and residence, set to be launched at the end of 2020. We are also moving beyond the

capital and building a hotel with 80 rooms in Kakheti, featuring a contemporary art museum and set among vineyards, with an active wine cellar right underneath. We want to give Georgians a pleasant weekend escape from the busy capital and to attract different conferences, forums and exhibitions, as well as gastro tourism events.” In addition to their three development projects, as part of its growth portfolio in Georgia, Kerten Hospitality plans to launch their own gourmet burger brand Frikadell in Georgia soon. This will be the first gourmet burger concept and is to redefine the burger ordering and delivery process for digital-savvy foodies across the country. “Burger-lovers will be able to create their own burger using our own burger-building app,” Antony told us. We ask him to tell us more about the Kakheti project. “Our Georgian partner has land in Kakheti and it was his dream to build a modern art museum in the

region,” he tells us, and can’t help but mention his appreciation for the food in the region too. “In Kakheti, I was made BBQ pork ribs with salt in the middle of the vineyard. Those were the best pork ribs I have ever had.” We also ask the Brand Director about his expectations on succeeding in terms of domestic tourists. “Our success with Georgians varies in accordance with the concept of our projects. The hotels are mostly targeted to international guests, while we are to offer a unique experience in restaurants and gastronomy for our Georgian clientele,” he tells us. We next ask how Kerten Hospitality keeps us with the ever-changing trends. “You embrace the technological changes, but you have to be very careful at the same time, because as soon as you introduce new technology, there is yet another novelty in the sector. You also need to implement the right technology in accordance with the concept and size of the business. It is vital not to be depend-

ent on technologies and to be customeroriented.” We moved on to discuss the mixed-use projects he had mentioned. “Through the mixed-use projects, we want to propose people owning land or a building; a flexible service integrating different facilities in the same area. We also guarantee guests and residents traffic. The mixed-use projects contribute to the creation of an eco-system to work and utilize other options for a property that are beneficial for the customer, as well as the owner,” he says. Antony Doucet is a known figure in the hospitality industry, having launched various brands while working at Kerten Hospitality. We ask him about his success. “We always follow and challenge the development of the hospitality industry and its trends, taking into account the increasing importance of offices and residences, as well as food and beverage in the sector, and add new options to our portfolio. We have eight brands in the pipeline. I manage four of them. If we want to succeed, it is of paramount importance not to replicate the concepts that are already present on the market and to offer clients a unique experience,” Antony says. We discover Antony also delivers lectures and workshops in Luxury Hospitality in Turkey. As he teaches the new generation, we ask where he sees the hospitality industry in 10 years. “60% of my presentations are workshops and practice rather than formal lectures. As for the future of hospitality, I think we’ll see more mixed-use projects in the future. We are generating huge data from customers. Its appropriate use represents one of the most important criteria for the future of the hospitality industry.” On a final note we asked Antony about the challenges the industry is facing: “There are many cities where locals protest against tourism. Georgia may also face this problem, particularly Tbilisi, which represents an ‘entry door.’ That said, there is so much to discover across the country aside from the capital that I think the government and the private sector should emphasize the development of other regions.”

Grant Thornton Holds Regional Conference in Batumi

rant Thornton organized the annual conference of its member firms across the CIS region in Batumi, Georgia, on 13-14 June. The annual conference is the largest regional annual event, which brings together over 40 partners from 15 different countries of CIS, Europe and the Middle East. Peter Bodin, global CEO of Grant Thornton,

as well as other leaders of Grant Thornton International, attended the conference. “Growth”, “collaboration” and “quality” are among the priorities of Grant Thornton’s global strategy, and throughout the conference delegates were engaged in interactive sessions to address them. Tornike Rijvadze, Chairman of the

Ajara Autonomous Republic Government, and Jaba Phutkaradze, Minister of Finance and Economy of Adjara, were in attendence and presented the investment projects and opportunities in the region. Conference guest speaker Andro Gotsiridze, Cyber Security Consultant, shared his know-how on Cyber Trends and Georgia’s Cybersecurity Ecosystem. Commenting on the conference, Gurgen Hakobyan, Grant Thornton’s regional leader for the CIS region, said: “We are delighted to be hosting our annual regional conference in Batumi. This is our second conference in Georgia (the 2016 conference was held in Tbilisi), and as always we are impressed by the warmth and atmosphere of this country and hospitality of its people. We selected Batumi as this year’s destination to show our delegates the significant growth of the region and the great opportunities that are ahead for this emerging city. We are also proud to state that our firm in Georgia has had yet another year of growth on the market and is actively investing in the development of new services and solutions, delivering an exceptional client experience and supporting our dynamic clients in achieving their growth targets.” Vakhtang Tsabadze, Managing Partner of Grant Thornton Georgia, said: “We are happy to host the Grant Thornton

regional conference in Georgia and to welcome Peter Bodin, our global CEO, during his first visit to the country. We came together to discuss strategic priorities, define new development targets, share best practice and take this back to our firms to bring it to life.”

ABOUT GRANT THORNTON Grant Thornton is one of the world’s leading organizations of independent assurance, tax and advisory firms. Grant Thornton firms help dynamic organiza-

tions unlock their potential for growth by providing meaningful, forward-looking advice. Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. More than 53,000 Grant Thornton members in over 140 countries are focused on making a difference to clients, colleagues and the communities in which we live and work.

POLITICS

GEORGIA TODAY JUNE 25 - 27, 2019

What the Protests in Tbilisi Mean for Relations with Russia OP-ED BY EMIL AVDALIANI

he protests in the center of Tbilisi over the Russian MP’s presence in Georgian parliament caused a nationwide outburst against the ruling Georgian Dream party and Russia. Moscow in turn accused Tbilisi of nationalism, cut direct air-traffic and threatened the country with economic sanctions. Most Russians, however, enter Georgia by land, which makes the ban ineffective from an economic point of view. All other numbers indicate that if imposed, economic sanctions would certainly hurt the small Georgian economy, but it will not be a devastating blow as the Georgian market will try to find new opportunities in other neighboring states. Most likely the situation will stabilize within the next two years. However, beyond that, there is very little chance of further degradation of Georgian-Russian relations as bilateral relations already reached a dead-end well before the current spat.

Although, in the last several years, the majority in Georgia has been regarding Russia negatively, many understand that its geographic proximity to Georgia forces the country into economic relations. The problem is that there has been no chance to improve said relations. The reason is geopolitical as for any actual improvement to follow, Moscow would either need to reverse its recognition of Abkhazia and Tkhinvali regions as states, which they won’t (at least in the foreseeable future), or Tbilisi would need to have direct negotiations with the separatist regions, which the Georgians will not do. Geopolitically speaking, Moscow has already achieved its strategic aims with regards Georgia: the establishment of bases on Georgian soil, prevention of foreign troops from entering the country and control over vital mountain passes from North to South Caucasus. There is simply very little the Russians could further achieve at this moment. Sure, having a pro-Russian government in Tbilisi is always a goal, but why spend money and resources if Georgia cannot become an EU/NATO member anyway?

What can be seen as a mistake on the Russian’s behalf is that anti-Russia (not necessarily nationalistically driven) sentiment has grown deep inside the country. This would limit any chance the Russians would have in getting the Georgians back into their fold.

Even without control over Abkhazia and Tskhinvali, Georgia’s location allows Tbilisi to be a regional transit hub, and it cannot afford to be oriented towards only one country. A multi-vector policy is thus likely. And considering that there is a little room for further degradation

of relations, it is right to presume that Georgia and Russia will still be talking to each other. Perhaps both states will try to keep the existing level of economic cooperation, but nothing beyond that. Georgia's future relations with Russia should be now built on measured cooperation, with intensive work being done on finding new economic opportunities to replace even the little economic dependence on Russia. On the foreign policy front, the spat between Moscow and Tbilisi is unlikely to change the overall picture. Georgia will continue its pro-western course while using a clever strategy of positioning itself not as an anti-Russian state. This short-term crisis with Russia showed that the ideal geopolitical scenario for Georgia would be when all its neighboring countries have a stake in its security. In addition, large players such as China, with its Belt and Road Initiative, the EU, the US, Turkey and others, would also be involved in Georgia’s economics. This might create a certain balance in Tbilisi's foreign policy vis-à-vis Russia’s economic and military power in the future.

RADA Member Victor Yelenskyj on the Latest Russian Mistake detest. The process of recognition of our autocephaly is also showing considerable momentum, which again is a thorn in the Kremlin’s side.

INTERVIEW BY VAZHA TAVBERIDZE

ictor Yelenskyj was the head of the Ukrainian delegation at that fateful Interparliamentary Orthodox Assembly in Tbilisi that sparked the protests still ongoing to this day. GEORGIA TODAY asked the Kiev-bound Yelenskyj for his insight and perspective on what actually happened when the Orthodox Communist debonair Gavrilov put his Kremlin-approved behind where it didn’t belong. “I had a very lengthy document prepared on Inter-Orthodox Solidarity, but unfortunately, or fortunately, we never got that far,” Yelenskyj tells us. “My Georgian colleagues were justifiably displeased at seeing the head of Russian delegation and if what I was told is true – that he participated in the war in Abkhazia, then I fully understand their position. As we exited the hotel, I saw a large crowd of people expressing their outrage at this and I too expressed my solidarity, as I have no doubts as to who the aggressor is in the Russia-Georgia conflict. The Russian media obviously reported that I was there to incite people to protest the Russian presence, but I don’t think Georgian society needs my help objecting to what they see as offensive and hypocritical. Later on, for safety reasons, I was taken to the Ukrainian Embassy.” He tells us there is, in his opinion, no need for “Russian domination or a Kremlin agenda” at the Assembly. “Georgians, Romanians, Ukrainians, Serbians: there are plenty of Orthodox communities that do not need this agenda imposed

THE GEORGIAN ORTHODOX CHURCH IS IN NO HURRY TO FOLLOW SUIT. WHAT’S THE UKRAINIAN PERSPECTIVE ON THAT?

on them. It’s only aim is for Russian politicians to masquerade as benevolent Christians, which they obviously are not,” he says.

YET THAT DOESN’T STOP THE MORE ANTI-WESTERN MINDED SOCIETIES IN BOTH OUR COUNTRIES FROM CLAIMING THAT DESPITE ALL THE KREMLIN MACHINATIONS, RUSSIANS ARE “BROTHERS IN THE SAME FAITH”. Russia is country that has invaded at least three Orthodox countries: Georgia, Moldova and Ukraine. What kind of an orthodox solidarity are we talking about here? Which biblical teachings tell you to invade, kill and bomb people you consider “your brothers”? It’s a hypoc-

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risy the Kremlin is very fond of. And it’s a wide known fact that the Moscow Patriarchate is just another weapon in the Kremlin arsenal. What kind of Church gives its blessing to nuclear weapons? Look at the Ukrainian Church’s autocephaly: Putin convened the Security Council to combat it; Russian hackers tried to hack the website of the Patriarchate in Constantinople. These don’t seem to me as acts of brothers in the same faith, but rather those of an enemy who uses religion as a weapon. I think every sensible person in Georgia and Ukraine realizes that.

REGARDING THE UKRAINIAN AUTOCEPHALY, THE VERY SAME ANTI-WESTERN NARRATIVE FOLLOWERS POINT THE FINGER

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AT UKRAINE AND SAY “LOOK, THEY’VE GOT THEIR TOMOS AND NOW THEY ARE AT EACH OTHER’S THROATS.” HOW MUCH TRUTH IS IN THAT? There is no split and no we are not at each other’s throats. What is happening is that a high-ranking figure inside the Church has a different opinion on certain issues. That is acceptable. There is a high-ranking archbishop in the Moscow Patriarchate that put Patriarch Kiril to anathema and said he will burn in hell, but do you hear about that in Russian media? No, because it’s not in the Kremlin’s interest. The truth is, the Orthodox Church of Ukraine is developing and expanding steadily, which is obviously something The Kremlin and the Moscow Patriarchate have come to

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That’s one head of a two-pronged assault that the Kremlin is waging against the UOC. On one front, they’re trying to undermine the authority of the Constantinople Patriarchate; on the other they are resorting to pressure and outright blackmail on fellow Orthodox churches just to try and obstruct the process of recognition. It’s a badly kept secret that they are threatening recognition of the independence of churches in separatist Abkhazia and South Ossetia if the Georgian Church recognizes our autocephaly. But in the end, the Georgian Church will support us, because Georgia and Georgians know the true face of Russia and the Russian Church. The article is prepared as part of the fellowship funded by the Institute of War and Peace Reporting (IWPR) within the Project “Giving Voice, Driving Change - from the Borderland to the Steppes.” The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Institute for War and Peace Reporting.

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