Issue #958 Business by Georgia Today

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Issue no: 958/84

• JUNE 27 - 29, 2017

• PUBLISHED TWICE WEEKLY

PRICE: GEL 2.50

In this week’s issue...

FOCUS ON THE OVER-INDEBTEDNESS TRAP A look at Georgia's excess borrowing and the microfinance institutions that are helping it happen

PAGE 4

Construction of Shuakhevi Hydro Power Plant Completed NEWS PAGE 2

NRW.INVEST Explores Georgia’s Investment Potential

Disabled Demand More Attention from the State BY THEA MORRISON

International Property Rights Expert on Georgian Plain Packaging PAGE 6

eople with disabilities held a protest rally on Saturday asking for proper infrastructure in the streets and in public transport, as well as for more involvement in social processes and decision-making. The protesters gathered at Rustaveli Metro station and marched in the direction of the old Parliament building. The demonstrators claim that their rights are violated and ask for proper fulfillment of the United Nations (UN) convention, ratified by the Georgian parliament in 2013. “We are protesting the violation of our rights…We are the most invisible community at present,” protester Giorgi Akhmeteli stated. The protesters also say that the life of disabled people is even harder in villages and remote regions. Continued on page 2

PAGE 5

A Look at the Russian Military Moves in Georgia’s Breakaway Territories POLITICS PAGE 11

Young Georgian Students Participate in Active Citizenship Summer Camp Disabled people’s rally. Source: Auditorium 115 Facbook

SOCIETY PAGE 11 Prepared for Georgia Today Business by

Markets As of 23ͲJunͲ2017

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NEWS

Disabled Demand More Attention from the State Continued from page 1 The movement of students - Auditorium 115 - also joined the rally. “It is necessary to allocate funds in order to let the disabled move freely in the streets, get education and find work,” said Levan Lortkipanidze, Auditorium 115 member. Improper living conditions of the disabled were raised by the Public Defender of Georgia, Ucha Nanuashvili, last week. During the presentation of his special Report on the Rights of Persons with Disabilities, Nanuashvili said that independent living for the disabled is not promoted in Georgia. “We do not have an effective mechanism of implementation of the UN Convention. Georgia joined this convention but it is not being executed,” he said. He also spoke about systemic problems that significantly hamper the inclusion of the disabled in society. “The main problem is that these people are isolated from society. There are problems in terms of infrastructure, transport and access to the physical environment and information,” the Ombudsman said. Furthermore, Nanuashvili’s report says that participation of persons with disabilities and their representative organizations in the decision-making process at various levels of government was low. Some barriers were also observed during the voting process. He negatively assessed the measures taken by the State in terms of employment of persons with disabilities, adding that in 2016 the number of disabled people employed in the public sector was 52 while in private sector only 32 disabled people were employed. The Ombudsman called on the government to take proper measures in order to solve the problem.

GEORGIA TODAY

JUNE 27 - 29, 2017

Zip-Line Attraction Brings More Extreme to Tbilisi weighing 25 to 120 kilograms, at any one time and it takes as little as 30 seconds to slide down the wire. The organizers of new zip-line say that safety standards are maximally ensured at the site. Giorgi Chogovadze, Head of Tourism Administration of the Ministry of Economy and Sustainable Development attended the opening ceremony of ZipLine Narikala. "We are glad that new touristic infrastructure is opening in Georgia, especially considering that the number of tourists is increasing dynamically in the country," he said.

BY THEA MORRISON

bilisi visitors and citizens who love that rush of adrenaline can now enjoy a fascinating view of the city by taking the zip-line from Narikala Fortress down into the Botanical Garden. The distance between the two points is 270 meters, the height is 30 meters and it has both slow and fast modes. The zip-line can serve three people,

Construction of Shuakhevi Hydro Power Plant Completed BY THEA MORRISON

ne of the largest Hydro Power Plants (HPP) in Georgia, the Shuakhevi HPP, has reached completion. It is expected to produce 450 gigawatt (GW) hours of power annually and reduce greenhouse gas emissions by more than 200,000 tons per year. Located in Georgia’s western Adjara region, Shuakhevi HPP is the first hydropower project in Georgia certified by the United Nations Framework Convention on Climate Change for carbon emission reduction. The construction works of the HPP were launched in 2013 and in total $416 million was invested in the project. Adjaristskali Georgia – a joint venture between India’s Tata Power and Nor-

way's Clean Energy Invest, International Finance Corporation (IFC), Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD) - contributed to the construction of the HPP. Georgian Prime Minister, Giorgi Kvirikashvili, members of the cabinet and representatives of the project partner and investor companies attended the construction completion ceremony. The PM said that Shuakhevi HPP will employ 300 people and will contribute to motivating locals not to abandon their native region and will assist the State in promoting development of mountainous Adjara. “This project has already brought benefits to the local population in terms of social projects, employment and compensation,” Kvirikashvili said. “This serves the economic development of Adjara and will improve the quality of

Georgian PM said the HPP would contribute to Georgia's energy independence

life of the local population”. He went on to express hope that Shuakhevi HPP will contribute to Georgia's energy independence and will be an exemplary project for potential investors.

Within the framework of the project, 730 citizens of Georgia were employed in construction. Shuaskevi HPP is the largest station to have been constructed in Georgia in the last 50 years.

BUSINESS

GEORGIA TODAY

JUNE 27 - 29, 2017

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.

In Debt & Broke in Georgia BY DAVIT KESHELAVA

n individual living in Kutaisi took a $1500 real estate secured loan from a microfinance institution in 2011 and had to pay a $75 interest rate for the following six months. The purpose of taking this loan was to finance the treatment of her child. She was unable to cover monthly payments and prolonged the term to 10 months, but failed to cover these payments again and was fined several times. In the end, the loan was restructured and monthly interest raised to $83, while the amount of total loan nearly doubled to $2700. As a result, she was unable to pay that much money and got an enforcement decision regarding the auction sale of her property.

EXCESS BORROWING IN GEORGIA This is just one sad story of an individual entering the over-indebtedness trap, while we hear thousands of such stories nowadays in Georgia. It is widely recognized that the majority of the Georgian population has debt with financial institutions, including commercial banks, microfinances and various private lenders. According to the recent Financial Access Survey (FAS) proposed by the International Monetary Fund (IMF), Georgia is among countries that has an excessively high number of borrowers from commercial banks. It turned out that the number of borrowers per 1000 adults has already reached 680 people which is the second highest rate in the world (FAS 2015). It is notable that the number of borrowers was increasing steadily until 2015, when the recent economic slowdown forced commercial banks to be a little more careful while giving out loans to individuals (see Graph 1). In addition, according to the CEO of ‘Credit Info Georgia’, Aleksandre Gomiashvili, there has been a rapid expansion of registered loan contracts in recent three years. On December 31, 2014, the number of loan contracts registered (containing individuals and legal entities) in the system was 8.5 million. This number first increased to 12.5 million by the end of 2015 and then soared to the record high of 18.2 million by the end of 2016. Furthermore, the number of individuals that borrowed money based on these loan contracts amounted to an

alarmingly high 2.4 million people by the end of 2016. Based on these statistics, one can easily estimate that nearly 64% of the total population, including juveniles and pensioners, have some kind of loan contract, or several contracts, with financial institutions, and if we exclude teenagers and pensioners from the reference population, this number will increase even more. The average number of loan contracts per person in commercial banks also seems to be quite high.

INDEBTEDNESS ON A MACROECONOMIC LEVEL Improved access to finance and the rapidly increasing number of adults with debt in different financial institutions are reflected in various macroeconomic indicators commonly employed to measure the indebtedness of the population. For instance, the highest household debt to GDP ratio before the global financial crisis of 2008 was below 15%, while this indicator reached a historic high of 35% at the end of 2016. From this, we can conclude that debt accumulation in the economy is increasing much faster than Gross Domestic Product. Even more alarmingly, household debt to households’ disposable income ratio skyrocketed to 200%. Such a high ratio is rare in the world. For example, there were only 5 countries among OECD nations in 2015 that had a ratio higher than Georgia – Switzerland (211%), Australia (212%), Norway (222%), Netherland (277%) and Denmark (292%). The same measure was relatively low (commonly less than 100%) for less developed countries. No doubt, debt to disposable income is a very simple measure, and policy makers should be cautious when interpreting it. For example, this ratio compares the stock of debt to the flow of disposable income and a person – it doesn’t mean that a person is required to pay off their loan in a single year. Moreover, debt to disposable income ratio measures the debt of people who borrowed money relative to the income streams of people who may or may not have borrowed. To better see the dynamics of debt burden, one could look at the ratio of household debt service and principal payments to income. It is not surprising that the average debt burden of Georgia was relatively low in 2012 and its growth accelerated only from the beginning of 2015, reaching the peak value of 24.6%

Graph 1: BORROWERS FROM COMMERCIAL BANKS PER 1000 ADULTS IN GEORGIA

in the third quarter of 2016. This recent worthening of the debt burden is directly related to the sharp depreciation of the Lari against the US Dollar and slowdown in economic growth. And yet, despite the increasing burden of debt, households seem to be repaying their loans: both by IMF and NBG measures, the non-performing loans of deposittaking institutions remain at a reasonably low level (it is widely recognized that non-performing loans are much higher in the case of microfinance institutions, but it creates less problems in terms of financial stability). Thus, the stability of deposit-taking financial institutions is not yet under threat.

WHAT IS THE RISK OF OVER-INDEBTEDNESS? Just because the non-performing loans ratio is low and stable, it doesn’t mean that we have nothing to worry about. Elevated debt levels create the risk of lower consumption and sluggish GDP growth that further increase the risk of over-indebtedness in the future. In economic literature, over-indebtedness is defined as inability to meet a recurring expense associated with a contracted financial commitment (this inability must be persistent to exclude one-off occurrences like forgetfulness). Society with excess borrowing is prone to over-indebtedness when 'risky life events' take place. For example, a sudden job loss (quite relevant when economic growth has slowed down), a business failure, illness and emergency surgery treatment (despite a universal insurance system, patients still need to share expenses) and sharp currency depreciation (especially for countries with a huge currency mismatch). Furthermore, over-indebtedness might be caused by irrational borrowing by individuals which come from poor financial management skills of the population and aggressive marketing by lenders, which endangers the least educated and the least well-off groups of the population.

sale of the pledged real estate in case of a default. Since the collateral requirements are very high relative to the value of the loan, even if the MFI sells an expropriated property at half price, they can still profit from a loan project. Therefore, there is a strong issue of moral hazard – MFIs are mainly ignoring the financial health of borrowers (they even give loans to people without a permanent income) and rely on the real estate provided as a collateral. Bearing in mind the much stricter loan standards in commercial banks, the MFI type of credit is mainly taken by poor and unemployed people. They are the ones most vulnerable to over-indebtedness trap (Economic Policy Research Center (EPAC) – Management of nonperforming loans in Georgia, 2014). These findings perfectly agree with the empirical data. First, the number of loan contracts with microfinance institutions has been increasing dramatically in the past several years. For example, in the first quarter of 2013, there were 400,000 loan contracts with microfinance institutions, while this measure increased to

700,000 by the first quarter of 2016 and then reached a historical high of 1.1 million in the last quarter of the same year. Second, according to the Financial Access Survey (FAS) of the International Monetary Fund, Georgia was the third country by the number of borrowers from microfinance institutions per 1000 adults in 2015, behind Bangladesh and Peru. Third, the amount of real estate and movable property taken into ownership by microfinance institutions has been increasing rapidly in recent years. For instance, the value of repossessed real estate was 1.6 million GEL in the first quarter of 2012, then it increased to 6 million GEL in the first quarter of 2015 and skyrocketed to a historically high 14 million GEL in the first quarter of 2017 (see graph). Therefore, despite the fact that MFIs are, for the most part, not deposit-taking institutions, we should remember that behind these “impressive” numbers, there are stories of poor and vulnerable people whose finances collapsed under burden of expensive loans and who lost the only property they owned.

MICROFINANCE INSTITUTIONS AND LOST PROPERTY Going back to the story at the beginning, over-indebtedness is especially painful when people lose their property. In this respect, the lending practices of microfinance institutions (MFIs) call for further scrutiny. It is widely accepted that most MFIs get their high profit from charging high interest rates and from repossession and

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BUSINESS

GEORGIA TODAY JUNE 27 - 29, 2017

Czech Defense Minister Visits Georgia for Defense Industry Presentation BY DAVID MONGAZON

he Czech Ministry of Defense Martin Stropnicky visited Georgia alongside a number of Czech defense company representatives, to present the country’s top weaponry, vehicles and aircrafts in the Czech Embassy on June 23, before Georgian Army officials. In a brief introduction, Stropnicky underlined the full support of his country to Georgia’s territorial integrity claims and assured that the Czech Republic was ready to help its Caucasian partner, which was one of the reasons for the meeting. The presentation consisted of six companies showcasing their activities and different products, firstly introduced by Jiri Rezac, Vice-President for Cooperation and Commercial Policy of the DSIA, the Czech Defense and Security Industry Association. This organization, established in 1997, gathers more than 100 member-organizations. Its tasks are to represent this cluster towards national and international institutions, as well as to the media. Rezac insisted on the fact that the Czech defense industry obtained very good results over the few last years, rising from EUR 200 million of exportations in 2010 to more than EUR one billion today, which shows, according to him, the quality of Czech produce. The first company was Omnipol, a

Munich University & Kutaisi University City Become Partners BY THEA MORRISON

G leading firm created in 1934 which deals with aerospace, security technologies and equipment. Omnipol presented two of its subsidiaries. One of them is ERA, a company owned entirely by Ominpol which developed passive surveillance systems and air traffic management solutions called VERA-NG. RAMET came next, providing SDD, a long-range passive reconnaissance system. Then AERO Vodochody, historically the largest aircraft training developer in the world, presented the L-39NG (Next Generation), a trainer and light attack aircraft dating back to 2015 and replacing the Cold Warera L-39. VOP CZ, presented its armed vehicles and services to repair and modernize military equipment. The largest company in the field of training and simulations , VR Group, was also present. The last company to present was Tatra, a company dating back to 1850 which provides civil trucks as well as heavy-duty off-road

trucks in order to meet the expectations of the armed forces. The Czech Minister also took the opportunity to unveil a statue of Vaclav Havel, located in a park of the same name in the neighborhood of Saburtalo-Vake, by sculptor Jumber Jikia. Stropnicky mentioned his honor to be in Georgia and noted that he “had to travel from [his] country to Tbilisi to find a statue of Vaclav Havel, because there are none in Prague”. President Margvelashivili commended the great statesman: “The life of Vaclav Havel is proof that politics is not a dirty thing”. Vaclav Havel was an intellectual who served as first President of the modern Czech Republic after the fall of the communist regime. He played a significant role in the political dissidence leading to the democratic transition. During the inauguration, Martin Stropnicky concluded, “we owe him a lot, we even owe him a statue”.

eorgian Prime Minister, Giorgi Kvirikashvili said that Munich Technical University and Kutaisi University Complex have signed a memorandum which makes Munich Technical University the partner of the project. “Kutaisi University City is a historic project that will have a huge impact on Georgia's development,” the PM stated at the cabinet session on Thursday. “Munich Technical University is one of the world's highest-rated educational institutions and signing a memorandum with it is a very important step, which once again proves that Georgia has huge potential to become an international regional education center,” the PM added. Kvirikashvili also said that Georgia has become popular not only among the neighboring countries but also with European states. “Kutaisi University will be one of the most important educational institutions in Europe,” he claimed. The first University City will be completely financed by the Cartu Fund, a charity fund established and financed by Bidzina Ivanishvili, a Georgian billionair, former Prime Minister and

founder of the ruling Georgian Dream party. Cartu Fund has allocated EUR 1 billion for the project. The complex, which will be able to cater for 60,000 students, will be a typical university-type campus with several university buildings, accommodation blocks, and other learning facilities all in one place - the first of its kind in Georgia. University City will be spread over 140 Hectares of land in the outskirts of Kutaisi, west Georgia, in the middle of a forest which also features a lake. It will take several years to completely build the university complex but the first round of students is expected to be able to start at University City from late 2019. The project was initially announced in September 2016 by the Prime Minister of Georgia and envisions the creation of a regional education and research hub by building the largest, most modern university complex not only in Georgia, but the whole Caucasus region.

BUSINESS

GEORGIA TODAY

JUNE 27 - 29, 2017

International Property Rights Expert on Georgian Plain Packaging INTERVIEW BY MAKA LOMADZE

orenzo Montanari, Director of the Property Rights Alliance at ‘Americans for Tax Reforms,’ was in Georgia recently on a visit that coincided with the Georgian parliament’s amendments to the law on Tobacco Control, which includes packaging. According to the new regulations, from 2018 it will be illegal to use a logo and trademark on packages of tobacco products. Conferences ‘Free Market Road’ were held in Tbilisi and Batumi, organized by the New Economic School as a part of the campaign Coalition for Economic Growth that is being held in Europe under the leadership of the Australian Economics Center. GEORGIA TODAY met with Montanari to talk property security issues in Georgia and worldwide.

WHAT DOES ‘VIOLATION OF INTELLECTUAL PROPERTY RIGHTS’ MEAN? The world standard for IP law is found in the WTO TRIPS (World Trade Organization’s Trade Related Aspects of Intellectual Property Rights) agreement which is designed “to reduce distortions and impediment to international trade… and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade,” as noted in the preamble. In fact, the TRIPS agreement contains

numerous articles to ensure IP rights are protected and that state regulations do not in themselves become barriers to trade, this includes, for example: Article 15: identifies trademarks as protectable subject matter Article 16: confers the exclusive right of trademark owners to prevent all third parties not having the owner’s consent from using their trademark or similar signs which are identical in the course of trade. Article 20: protects the use of a trademarks from being unjustifiably encumbered in the course of trade…in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. In addition: countries challenging Australia’s plain packaging law at the WTO have argued it violates these articles: TRIPS Articles 1.1, 2.1, 3.1, 15, 15.1, 15.4, 16, 16.1, 16.3, 20, 1, 27; Technical Barriers to Trade (TBT): Art. 2.1 and 2.2; and GATT 1994: Art. I, III:4 The WTO panel has yet to make a decision. Any ruling that accepts any of the above changes would dramatically upset the international IP legal framework. If the panel rules in favor of Australia, these should be considered loopholes to be filled rather than an invitation for governments to enact plain packaging. For instance, according to Australia (and perhaps if the WTO panel rules in favor of plain packaging) there is no right to use trademarks in the TRIPS agreement and that removing trademarks would not unjustifiably encumber companies

from distinguishing their goods. Such a decision would significantly weaken IP laws and open the door for governments to deny trademark owners the ability to use their marks without justification. Already in Australia there are movements to plain package sodas, alcohol, and other products. Trademarks of the world’s largest companies are worth billions of dollars, including tobacco brands, encouraging competition in the marketplace and allowing for the creation of millions of jobs. TRIPS-Plus trade agreements explicitly state the right to use trademarks. On average, across the world, every country with stronger IP protections according to the International Property Rights Index (IPRI) has much higher per capita income and rates of entrepreneurship. Georgia should strengthen IP protection, not weaken it.

HOW CAN THESE ARTICLES DAMAGE THE OVERALL INTELLECTUAL RIGHTS PICTURE IN GEORGIA? The Georgia plain packaging policy might affect the IP system in Georgia, especially considering its already low score. According to our IPRI, Georgia’s score is tied with Portugal as the best in the world for Registering Property, with a score of 10, but it is not performing well in IP Protection, with a score of 2.4. I hope the Georgian government will not support the final implementation of this detrimental policy against IP. Last but not least, European Union countries such as Germany are against the implementation of any plain pack-

aging policies.

DOES PLAIN PACKAGING HAVE ANY POSITIVE EFFECTS? The plain packaging measures do not work to reduce smoking. In Australia, there is no noticeable drop in the smoking rate since plain packaging was enacted. Several econometric studies have examined the smoking rate and found no attribution to plain packaging. Instead, the Australian National Drug Household Survey (NDHS) recorded an increase in daily smoking for 12-17 year-olds from 2.5% in 2010 to 3.4% in 2013 (one year after the implementation of plain packaging). Studies conducted to prove plain packaging would be effective were too sanitized from real world variables. They measured aversion to pictures and colors, but didn’t allow for choice of substitutes or variable prices. Studies after the plain packaging has been enacted show smokers dislike the pictures, but still continue to smoke. These amendments are not about reducing the rate of smoking in Georgia. There are other ways to reduce the smoking rate, such as education campaigns. In other countries, such as the United

States, the smoking rate has decreased consistently without plain packaging. Instead of decreasing the smoking rate, plain packaging will invite the government to intervene in the economy based on political whims. However, even if plain packaging reduced the smoking rate, we would still be against because of its violation of IP.

DID YOU MEET WITH ANY GEORGIAN MPS OR POLITICIANS TO SHARE YOUR RECOMMENDATIONS? WAS ANYTHING SIGNED AS A PRECONDITION THAT THEY WILL TAKE THE REMARKS OF THE PROPERTY RIGHTS ALLIANCE INTO CONSIDERATION? We did not specifically set up any meetings with MPs. Our conferences were open to everyone who cares about property rights. That said, we certainly hope that MPs will consider the importance of protecting IP. I’m happy to share with everyone our international coalition letter against any type of plain packaging, supported by 47 international organizations, addressed to Dr. Margaret Chan Fung Fu-Chun, the former WHO Director General.

BUSINESS

GEORGIA TODAY

JUNE 27 - 29, 2017

From the Caspian Sea to the Persian Gulf?

BY DIMITRI DOLABERIDZE

ran is trying to "reanimate" an old project: the construction of a navigable canal nearly 700 km long which will connect the Caspian Sea with the Persian Gulf. It will take about $10 billion to start the project but pay back is expected within the first five years of operation. This project is also interesting for Russia, since the new way to the Indian Ocean will be half as short as the route through the Turkish straits and the Suez Canal and will become an alternative to the existing route through the Bosporus-Dardanelles- Suez Canal and the Red Sea. “The project of the Caspian-Persian Gulf navigation channel was developed by Russian engineers in 1889-1892,” says Candidate of Economic Sciences, Alexei Chichkin, on the website of the Military Industrial Courier. "The appearance of the project was facilitated by the collective refusal of Britain, France, Austria-Hungary and Germany to support the Russian proposals of 1878 concerning conferring control of the Bosporus and Dardanelles to St. Petersburg and allowing the deployment there of its military bases. The fact is that over half the volume of Russia's foreign trade was carried out this way. And it is through it that the invaders supported by Turkey repeatedly penetrated the Black Sea and, accordingly, the shores of the empire”. In 1908, negotiations were suspended: among other things, the pressure on Tehran from Istanbul and London contributed to this. Then the First World War broke out. Under Stalin and later, both sides made several attempts to reanimate the project, but the implementation of the plans was always hampered by one thing or another. In addition, the United States and NATO have created obstacles to the construction. The West has never been happy about the possible appearance of such a channel and is still not happy with it. It was no accident that in 1997, the anti-Iranian sanctions of the United States spread to this project. Since the recent development of troubled relations with Turkey, Russia is interested in a water alternative to the Turkish straits. And now with the lifting of sanctions, Iran can fully return to the old project. All it needs is investment, and this, experts say, is where the latest problems begin. Colonel Oleg Antipov in 2012 told IA ‘REX’ that the topic of the channel is very interesting for Russia and Iran, as well as for the region as a whole, including India, China, Pakistan and others. However, he pointed out that in addition to US pressure, one should also remember ecology: "...we must remember the environment. After all, the Caspian Sea is below sea level and is necessarily littered with its own types of algae and fish. Sturgeon and beluga will become extinct and traditional Russian black caviar will be unavailable to please us even on our biggest holidays. So,

we need to weigh everything before building this channel. And, of course, Iran needs to obtain the consent of all countries of the Caspian basin before construction. I grew up in Baku on the Caspian coast, and I would like this pearl of nature to continue to please our descendants, and not be turned into a gutter”. Political Scientist Ilgar Velizadeh notes that it was in Tehran in November 2003 that the Framework Convention for the Protection of the Marine Environment of the Caspian Sea (the "Tehran Convention") was signed. Among the priority areas of the document is the topic of cooperation between states in developing coordinated measures to mitigate the consequences of fluctuations in the level of the Caspian Sea. "I do not think that Tehran will depart from its practice of carefully weighing all the pros and cons, nor will it make an irresponsible decision," the expert said. Iranian Ecologist Professor Ismail Kakhrom is skeptical about the project. “One gram of water of the Caspian Sea contains 13 grams of salt. The use of such water for agricultural purposes is impossible, and desalting it is unprofitable,” he says, adding that there is no land suitable for agriculture in the Iranian province of Simnan and the central regions as the soil there is predominantly sandy and clay-based. Chichkin argues that “the Caspian-Persian Gulf shipping canal, which runs all over Iran, is able to provide the shortest access to the Indian Ocean basin from the North Atlantic, the Baltic, the Black Sea-Azov, the Danube and the Volga-Caspian basins. This route is necessary for Iran not only as a transport corridor, but also as a source of fresh water supply to the central arid regions of the country". The length of the navigable route under the project will be about 700 km, including along the riverbeds of northwestern and southwestern Iran, including the international channel of the Shatt al-Arab river (about 450 km) bordering Iraq. The new channel could provide both Russia and Iran with transit revenues of $ 1.2-1.4 billion and $1.41.7 billion, respectively. Azerbaijan believes that the idea of the proposed channel is technically unworkable. Expert in the field of water management, Ibrahim Mamedzadeh, asserts that the use of the Shatt al-Arab river in the project is very doubtful. “This river is far from being a navigable artery like the other rivers mentioned in the project”. As for Russian politicians and experts, they have not yet commented on the possible "resuscitation" of the channel. In principle, the authorities' silence is understandable: in these times of low oil prices and sanctions, the budget has become idle, and the country's economy is going through bad times. In such conditions, large investments for Moscow are hardly likely. In addition, no matter how "tempting" is would be to bypass Ankara, investors will not see quick payback. We must also remember the pressure of the West, which has long objected to such a project.

BUSINESS

GEORGIA TODAY JUNE 27 - 29, 2017

NRW.INVEST Explores Georgia’s Investment Potential BY NINO GUGUNISHVILI

of cooperation and possible participation from Germany.

WHAT ARE THE MAJOR FIELDS OF OPERATION OF NRW.INVEST?

RW.INVEST, the state-owned economic development agency of North Rhine-Westphalia (NRW), conducts international marketing for the NRW region, considered to be Germany’s No.1 investment location. NRW Invest, headquartered in Düsseldorf and having subsidiaries in the USA and Japan, and branch offices across China, Korea, India, Turkey, Poland, Russia and Israel, brings foreign direct investment to the NRW region. NRW.INVEST provides services and expertise to companies both from Germany and abroad, while closely collaborating with the local and regional development agencies, ministries, associations, chambers of commerce and other business-related organizations. GEORGIA TODAY met with Ms. Petra Wassner, NRW. INVEST CEO, and Elena Matekina, Head of Unit, during their very first visit to Tbilisi, Georgia, as they explore Georgia’s investment potential and possibilities of partnerships and cooperation with the business sector in their country.

We are a state-owned economic development corporation of our state NRW. Our company was founded in 1960. We have a long tradition and in the past decades we supported economic development, structural exchange and investments from abroad. We provide consultancy and expertise to foreign investors on how they can start their business in Germany, how to find the right partners, and answer different questions. We serve investors as a one-stop agency. We offer investor-related services directly in the target countries where we have our subsidiaries. Currently, we’re focusing on digitalization and start-ups. In North Rhine-Westphalia the density of industry is very high, up to 28 percent, and we’re an ideal location for digitalization of manufacturing processes in different sectors of industry and logistic chains. We’re looking for investors who fit in this value chain, as well as for start-ups. As a service agency, we collect information and develop concepts for investment projects. Our mission is to create a communication platform for organizations and institutions.

WHY DID YOU DECIDE TO COME TO GEORGIA?

WHICH INDUSTRIES ARE YOU FOCUSING MORE ON IN GEORGIA?

We’d been planning a visit to Georgia because it’s one of the strategic countries in the Caucasus region. We started with Ukraine, Azerbaijan and now Georgia. One of our main reasons for coming was to see what could be of interest for business relations between our two states. The second reason is to see how the infrastructure will be developed concerning the One Belt and One Road (OBOR) strategy initiated by the Chinese government. We see a huge impact on all these countries that are connected via the New Silk Road. North Rhine-Westphalia is not only the economic powerhouse of Germany, we’re also a top logistics hub in Europe. For example, we have Duisburg with the biggest inland port DUISPORT worldwide, with a harbor that has industrial and commercial sites for logistics and other manufacturing issues; three of the seven trains coming from China to Europe end there and from there, goods can be distributed by train or by ship. That’s why we’re so interested in the OBOR and also in the countries that are on the New Silk Road or nearby, since we know that there are main routes and side routes, too, which will be developed. We think NRW is an ideal partner. The new city and port to be built in Anaklia are very interesting in terms

This is our first visit. We know that agriculture is one of the dominating industries in Georgia; however it wasn’t our sole focus. We see a big potential for cooperation in the future, for joint projects. Our first visit is to give us an impression how we could connect logistics and service providers in NRW and Georgia. For us, it is important to bring international partners together. German companies have good opportunities to assemble or manufacture in Georgia. For NRW, Georgia could be of interest because of its strategic location in the Caucasus area.

THE NRW REGION IS THE NUMBER ONE FOREIGN DIRECT INVESTMENT LOCATION IN GERMANY. HOW? 25 percent of all the foreign companies are located in our state - companies with more than fifty percent of foreign capital: one third of all the foreign direct investments in Germany are concentrated in our region. How did we achieve it? We attracted foreign companies and supported them in developing a business community in NRW. For example, the Japanese Business Community, with around 600 companies, also has a business club, the Japanese Chamber of Commerce, a kindergarten and schools for the families of the managers.

WHY DO YOU THINK DIGITALIZATION IS IMPORTANT TODAY?

CAN YOU SHARE SOME OF YOUR IMPRESSIONS OF GEORGIA SO FAR?

Digitalization will change our factories and cities in a disruptive way. To support start-ups, our NRW government started an initiative to build Digital Hubs with ecosystems, co-working spaces, incubators and accelerators.

We are very impressed by the country, its countryside, its excellent food. Tbilisi is a fantastic city! We’re so impressed of the spirit we found here, a spirit of creating for the future.

BUSINESS

GEORGIA TODAY

JUNE 27 - 29, 2017

Elle Magazine Showcases Georgian Fashion

BY TAMZIN WHITEWOOD

emna Gvasalia, the famous Georgian fashion designer, has really made it big time within the world of fashion. Earlier this month, he won the International Award at the world-famous CFDA Awards. Elle.com used this news to create an article on Georgian fashion and to showcase just how much the country has moved towards becoming one of the main players of international fashion. "I could never do this job without such a fascination of how clothes can change us and how we can use them as powerful tools of communication and self-expression," the Balenciaga and Vetements designer said upon accepting the award. "My hope is that we can continue to move fashion forward by acknowledging the importance of the human factor".

The article goes on to highlight a number of other current important names within the Georgian fashion industry. “Designers like Mariam Gvasalia and Ani Datukishvili are looking to expand beyond the confines of the country to pave their own ways on an international platform. And with their raw designs, creative spirit, and passionate voices, they're making themselves heard” - the article goes on to say. Some of these talented designers have showcased their clothes both at Tbilisi Fashion Week, and for Elle magazine itself, with photos taken around Tbilisi showing the distinct style of clothes and picturesque views on the capital. “Here, we celebrate the beauty of Georgia's capital, Tbilisi, a city flush with experimental fashion, arresting street style, complicated history, and gorgeous landscapes, by photographing Georgian models wearing Georgian designers at some of Georgia's most famous landmarks,” – the article says.

New Drinks Factory in Guria to Use Local Production BY THEA MORRISON

new modern standard factory was opened in Guria, western Georgia, on Sunday. EUR 40 million was invested in the non-alcoholic beverage factory in the village of Nabeghlavi. The newly opened enterprise, owned by company Healthy Water, along with the largest producer of juices and non-alcoholic beverages in Europe – Rauch, produces a variety of juice, lemonade and other non-alcoholic beverages. Production will also be exported. Georgian Prime Minister, Giorgi Kvirikashvili, and representatives of the legislative and executive authorities, the local authorities and the ambassadors of Austria and Switzerland, attended the opening ceremony. Kvirikashvili congratulated the company Healthy Water and all its employees on its 20-year anniversary and noted he was pleased that such a modern and high quality enterprise was being opened in Georgia. The PM noted that it will be a complex with more than 70 hectares of orchards, which will later be

expanded to 500 hectares. He added that it is very important that the company is oriented to the use of local raw material. “Georgian production will be sold on many foreign markets. I want to congratulate and thank everyone who contributed to this very strategic project. I am very pleased that high standards are being employed in terms of protecting the environment as well,” he added. The project was implemented with Austrian and Swiss partners with the support of European Bank for Reconstruction and Development (EBRD).

POLITICS

GEORGIA TODAY JUNE 27 - 29, 2017

A Look at the Russian Military Moves in Georgia’s Breakaway Territories BY EMIL AVDALIANI

ver the past decade, the Russian Army has repeatedly carried out maneuvers on Georgia’s breakaway territories of Abkhazia and South Ossetia (Samachablo). Quite often, the exercises involve widespread use of unmanned aerial vehicles (UAV) and other military arms. For example, the latest military exercises, which were held in South Ossetia, ended on June 17 with the involvement of the locally stationed 58th Army of the Russian Armed Forces. The exercises included 3,000 servicemen which is more than half the approximately 5,000 Russian troops nominally thought to be stationed throughout South Ossetia. The Russians are no less active in Abkhazia. Military exercises there are quite common, but the geography of the breakaway entities pose different challenges both to Moscow and Tbilisi. But let’s return to South Ossetia. As you drive along the major east-west highway about 80 kilometers (50 miles) north of Tbilisi, which connects Azerbaijan with the Black Sea ports of Batumi and Poti, at some points there is a demar-

cation line less than a couple of kilometers to the north. The Georgians call it the “borderization” and it is managed jointly by Russian troops and separatists from South Ossetia. Turn north, and it becomes easier to notice the artificial fences or concrete barriers on your way. For the Russians, the demarcation line in South Ossetia poses a significant challenge as there are few geographic barriers the Russians could rely on to build a veritable defensive line. The fences in fact zigzag across low mountainous area and small rivers, making it uncomfortable to defend from a purely military posture. From time to time, it is reported that the Russian troops have moved the demarcation line southward. Moreover, much of the boundary is actually without a fence. Although the border’s movement might seem uncontrollable, one explanation behind it could be the geography of the territory: small hills, open valleys, etc. No veritable military infrastructure can be found along the demarcation lines. Thus, the Russians are moving southward to find a defensible territory. However, a much more important factor could be at play: bringing it closer to the main east-west highway (Baku–Tbilisi–Kutaisi– Poti). In some places, it is said that the Rus-

SOCIETY

For most of the boundary line, the Enguri River forms the boundary between Samegrelo (Georgia) and Abkhazia. Source: wherearth.blogspot.com

sian military units in South Ossetia are only several hundred meters from the highway. Indeed, the Russians see that by cutting the highway, they will be able to paralyze the entire South Caucasus. Furthermore, another threat which the Russians are posing is their artillery’s proximity to strategic pipelines and railways that carry oil, natural gas and goods from Azerbaijan and the Caspian Sea to Europe. Cutting this communication line

Young Georgian Students Participate in Active Citizenship Summer Camp Civic Education is relatively new in Georgia, and has been strongly supported by PH International in the context of the Momavlis Taoba Program, funded by USAID, the United States Agency for International Development.

BY DAVID MONGAZON

rom June 19 to 22, 80 young Georgians and 11 teachers participated in a summer camp organized by PH International. The meeting took place in the resort of Bakuriani and gathered kids from the eleven regions of Georgia in order to share their projects and the experiences they had regarding civic education. The children had been selected for their motivation in the projects they carried out in their schools as part of the civic courses they attend. These projects deal for the most part directly with the problems Georgia faces nowadays, at a national level as well as specific local problems. It implied in particular community improvement such as internet and software education for older people, cleaning and the arrangement of public spaces, or sensitization activities to other

The association has over the years trained more than 500 teachers in this new subject and accompanies nowadays 480 schools across Georgia, particularly by furnishing them with textbooks free of charge, including Armenian and

Azerbaijani language schools. It also grants small-amount funding to selected projects for community development and works with the Ministry of Education and Science to raise awareness on this issue.

children on a wide range of subjects. They were often accompanied by local authorities but managed the projects by their own means. The summer camp organized by PH International is a further step for the children to exchange with like-minded students from throughout Georgia about their successes and the challenges they faced. The youth also participated in different workshops and activities such as sketches, again with sensitization purposes. The main goal of the camp was to encourage their initiatives and help them become active citizens, even if they seemed already very engaged in this sense, training them in communication and leadership. Several exterior speakers also came to the camp and raised the curiosity of the students, including a Georgian activist who raised the issue of early marriage, a businessman who taught them how to build a career, and three journalists who talked about their jobs.

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would leave the region defenseless. The Russians did this in 2008, during the Russo-Georgian war, while they occupied Gori, a city in central Georgia on the east-west highway. The country was paralyzed, as was the entire region. Moving westward to the second breakaway territory of Abkhazia, we see similar processes of intensified militarization of the region, with constant military exercises, troops movements, etc. But

there are some crucial differences: unlike South Ossetia, Abkhazia is in a much more comfortable geographic position. Where South Ossetia lacks natural barriers to defend it, Abkhazia, by contrast, has the buffer of the Enguri River. To the east there is the Kodori Gorge – a narrow passage which serves as a natural division line between the breakaway territory and the rest of Georgia. Thence comes the difficulty to prevail militarily over Abkhazia which, like South Ossetia, hosts approximately 5,000 Russian troops. Another consequence of the different geography is the fact that the Russians are not moving the demarcation line in Abkhazia deeper into Georgia, as there is simply no need. From the Russian perspective, Abkhazia and South Ossetia are of more or less similar military importance. However, the defense strategy differs as it depends on the geography of the entities. South Ossetia is more difficult to defend from the geographic point of view, while Abkhazia has rivers, seas and gorges. Despite this, however, for the Russians, South Ossetia could at times be more interesting as it enables Moscow to impose itself on the east-west highway with the potential to throw the region into transportation and energy disarray as happened in 2008.

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