Issue #1078 Business

Issue no: 1078/144

• AUGUST 28 - 30, 2018

• PUBLISHED TWICE WEEKLY

In this week’s issue...

FOCUS

German KfW, Georgia's Oil & Gas Corporation Sign Agreement

ON THE MERKEL VISIT A round-up of the German Chancellor's visit to the region

PRICE: GEL 2.50

PAGE 2, 4

BUSINESS PAGE 5

JSC Nenskra Hydro to Cooperate with Mestia Municipality in New Format BUSINESS PAGE 6

Chancellor Merkel with EUMM-Georgia head Erik Høeg at the occupation line. Source: EUMM

Georgia Loses a Friend

BY DIMITRI DOLABERIDZE

S

enator John MCain, who lost his battle against cancer on Saturday, aged 81, was considered by many a friend to Georgia, often positioning himself as a defender of the country's interests.

In 2007, he supported the bill to support efforts to bring Tbilisi and Kyiv into NATO. On August 26, 2008, after the "August War", McCain stated: "After Russia illegally recognized the independence of South Ossetia and Abkhazia, Western countries should think about the independence of the North Caucasus and Chechnya, which was subjected to bloody violence by Russia."

He often criticized the Kremlin's actions, once stating "American foreign policy should reflect the sobering conclusion that a Russian government that does not share our most basic values cannot be a friend or partner." He also believed that "President Vladimir Putin is a greater threat to international security than the extremist group Islamic State."

In autumn 2009, the Georgian Association in the US awarded the senator for supporting Georgia during the August conflict. On giving McCain the award, then-President Mikhail Saakashvili stated that McCain "was on the main

Armenia & South Caucasus Economic Corridors: The Case of the Meghri Free Economic Zone BUSINESS PAGE 10

WHERE to Go, Stay, Eat, Drink & Buy This Summer BUSINESS PAGE 15 Prepared for Georgia Today Business by

Markets As of 24ͲAugͲ2018

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Bank of Georgia (BGEO LN)

GBP 16.90

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GEOROG 04/21

102.85 (YTM 5.58%)

+1,0%

+1,3%

Georgia Capital (CGEO LN)

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GBP 2.49

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GRAIL 07/22

105.87 (YTM 6.03%)

+0,7%

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GBP 16.46

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GEBGG 07/23

99.23 (YTM 6.18%)

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GHG (GHG LN)

Main photo: Senators John McCain and Lindsey Graham photographed during their visit to Georgia.

Photo from US Department of State

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front line when Russia announced open war against us. He gave up his campaign ... and for a few days he came to Georgia."

McCain tirelessly fought for the idea that Georgia should become part of Europe, united and free.

"Vladimir Putin illegally annexed part of Georgia," he said. "One day Georgia will regain its

unity, freedom and independence."

John McCain visited Georgia in January 2017 to hold meetings with the country's top leadership.

While here, he visited the village of Khurvaleti on the occupation line of the Tskhinvali region, and met with Georgian and American soldiers in the territory of the NATO-Georgia training center (JTEC).

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NEWS

GEORGIA TODAY

AUGUST 28 - 30, 2018

Merkel’s Visit to South Caucasus in a Nutshell

BY ANTOINE DEWAEST

O

n August 23, German Chancellor Angela Merkel began her South Caucasus trip in Georgia, before moving on to Armenia and then

Azerbaijan.

The German Chancellor organized this diplomatic trip shortly after she met the Russian President Vladimir Putin near Berlin in Germany. Economic and geopolitical issues were high on her agenda.

GERMANY CALLS FOR PEACEFUL SOLUTIONS IN THE REGION Each South-Caucasian country faces territorial disputes with its neighbors, for instance in the form of gray-zones, in which Germany and the European Union mght play a key role. Among these issues, Russian-backed breakaway Abkhazia, so called South Ossetia and the Nagorno-Karabakh region were burning topics for the German delegation to discuss.

Chancellor Merkel said that the current situation in Georgia is “unfair”, and highlighted that even though Putin knows her view on Georgia and Ukraine, little has been done. She reaffirmed her support for Georgia’s territorial

integrity and sovereignty and noted, "Germany will do its best to help manage a peaceful resolution to the conflict."

On August 24, Merkel joined a patrol of the EU Monitoring Mission (EUMM) along the Administrative Boundary Line with de facto Republic of South Ossetia.

She then headed to Armenia and discussed in particular the territorial dispute with Azerbaijan. The German leader said during her visit that Germany could be a mediator between both countries to resolve peacefully the Nagorno-Karabakh conflict.

She reaffirmed this will in the Azerbaijani capital, Baku, by telling journalists that "Germany wants to help find peaceful solutions."

DUTY OF MEMORY AND VISA LIBERALIZATION IN ARMENIA In Yerevan, Armenia, she visited the Genocide Memorial complex commemorating the Armenian victims of the Ottoman Empire during the first world war. Turkey still refuses to recognize the massacres as genocide, while Germany did so in 2016.

Merkel also noted that Germany support EU visa liberalization for Armenian citizens, as is the case for Georgia. "We will do everything in our power to progress this issue," Merkel said.

Photo: Angela Merkel with the Azerbaijani President, Ilham Aliyev/ AFP

ENHANCING COOPERATION WITH AZERBAIJAN The German Chancellor also highlighted domestic human rights issues in Azerbaijan and energy deals. Indeed, Azerbaijan is an opportunity for Europe to

Georgia Loses a Friend Continued from page 1 "The lives of thousands of people were destroyed because of Russian aggression," he said at the time. "These people deserve the restoration of the life they

had before the actions of Russia. I firmly believe that the position of the administration of the new president of the United States [Donald Trump], the Senate and Congress with respect to Georgia's support, will not change. We will

work in this direction to continue supporting Georgia and continue the exercise program for the Georgian army," McCain said.

McCain also added: "I believe that we must continue to improve relations

avoid dependency on Russian gas. Regarding that, Angela Merkel said that Azerbaijan is an important country for the European Union to diversify its energy supply.

However, she also called on Azerbaijan

to diversify its economy to make it stronger. The cooperation between both countries, Germany and Azerbaijan, is soon to be enhanced, she said. Currently, more than 150 German firms work in Azerbaijan.

between us and we must understand that if we are not together, then for Putin it will be a chance to win."

Georgian President Giorgi Margvelashvili spoke of the death of his friend, American Senator John McCain.

"On behalf of the Georgian people and personally, I express my sincere condolences over the death of Senator John McCain. The Georgian people lost a great friend who always stood beside our country."

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NEWS

GEORGIA TODAY

AUGUST 28 - 30, 2018

Georgian & German Business Representatives Hold Roundtable Talks

BY SAMANTHA GUTHRIE

G

erman Chancellor Angela Merkel visited Georgia August 23-24, participating in a series of meetings and press conferences. Within the framework of her visit, Georgia’s Minister of Economy and Sustainable Development, Giorgi Kobulia, met with representatives of the German business sector, and roundtable talks were held between representatives of the Georgian and German business sectors. Deputy Minister of Economy and Sustainable Development of Georgia, Giorgi Cherkezishvili, and the German Parliamentary Secretary for Economy and Energy, Thomas Bareiß, opened the discussions.

Attendees from the Georgian side included representatives of different government agencies, the Partnership Fund, the Chamber of Commerce and Industry, Georgian Railways, the Georgian Business Association, and other business unions.

The German side was represented by the heads of large companies, including Knauf Gips KG, Ernst Klett AG, Deutsche Bahn AG, Caisley International GmbH, GP Günter Papenburg AG, Cronimet Holding AG/Cronimet Mining AG, and Giesecke & Devrient.

It was noted at the meeting that Germany is one of the most important partner countries for Georgia and the Georgian side welcomes the deepening of relations between the two countries in terms of enhancing of the trade and economic ties and expanding cooperation in

Photo: Ministry of Economy and Sustainable Development of Georgia

attracting of investments.

Mikhail Khidureli, Director General of the Enterprise Georgia Agency, presented participants with an overview of the economic environment and local business climate in Georgia, followed by a question and answer session where the German business leaders assessed the Georgian sector in more detail.

Before the roundtable, Deputy Minister Cherkezishvili released a statement emphasizing the economic importance

of Merkel’s visit. Germany is one of Georgia’s most important trading partners, noted Cherkezishvili. Georgian exports to the EU have increased by more than 20% over the past seven months, of which 36% of Georgian exports went to Germany. "It is important that [Georgian exports are] diversified and include a wide range of products. During this visit it will once again be noted that Georgia is the best country in terms of reforms and investment attractiveness. This is our

main priority, which we will reintroduce, and we will talk about these conditions with businesses,” Cherkezishvili added.

During her visit, Merkel gave advice to Prime Minister Mamuka Bakhtadze on economic development, emphasizing the importance of inclusive growth.

“Small and medium enterprises are very important,” the Chancellor said, as quoted

by Commersant, “Young people should have the opportunity to establish an enterprise. They should have the oppor-

tunity to develop their own sectors and get a cheap loan. The greater the diversification, the greater variety, the less big enterprises, the better. As the country is developing rapidly, naturally, the number of small and medium companies should increase. The [DCFTA] free trade agreement with the European Union is a great...opportunity for Georgia, providing access to the European market. Those who want to be independent, self-sufficient, must take advantage of these opportunities legally and economically.”

[Edited for clarity] In a statement release by the Prime Minister’s Press Office after the end of Merkel’s visit on Friday, Bakhtadze said, “We have full support for our new policy, covering the achievement of inclusive economic growth in Georgia, support of small and medium enterprises (SME), start-up capital reform and many other initiatives. At the same time, we spoke about regional cooperation, very important projects that envisage energy security, supply of additional resources to the EU market. Georgia has a unique role in this.”

He mentioned the agreement between Germany’s KfW and the Georgian Oil and Gas Corporation to enhance the country’s energy independence by building an underground natural gas storage facility, and transportation projects including the relationship between Deutsche Bahn and Georgian Railway – the company Bakhtadze led before becoming Prime Minister. “It is essential to augment the superb and massive progress achieved between Germany and Georgia with subsequent economic cooperation...We will by all means achieve our goals with the support of our friends," he concluded.

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BUSINESS

GEORGIA TODAY AUGUST 28 - 30, 2018

German KfW, Georgia's Oil & Gas Corporation Sign Agreement

Photo source: Ministry of Economy

BY THEA MORRISON

O

n August 24, the KfW Development Bank of Germany and Georgian Oil and Gas Corporation signed an agreement on the construction of an underground gas storage facility.

The agreement envisages allocation of €150 million for the construction of the facility.

The project will significantly increase Georgia’s energy security and solve seasonal imbalances between the supply and consumption of natural gas in the country, as well as satisfying peak consumption during the winter seasons.

David Tvalabeishvili, President of JSC Georgian Oil and Gas Corporation, and the German KfW Regional Director, Olaf Zimelka, signed the agreement.

The signing ceremony was also attended by Deputy Ministers of Economy and Sustainable

Development of Georgia, Nino Enukidze and Giorgi Cherkezishvili, and the German Parliamentary Secretary for Economy and Energy, Thomas Bareiß.

Georgia’s Ministry of Economy and sustainable development reports that the JSC Georgian Oil and Gas Corporation will start construction works in 2019, while the facility will become operational in 2022.

Enukidze says the project is of great importance to Georgia and noted it will be a strategic object where the gas will be accumulated.

“We will use the stored gas when there is high demand in the country – during the winter season,” she said.

The signing of the contract took place during German Chancellor Angela Merkel’s two-day visit to Georgia.

As Georgian Prime Minister Mamuka Bakhtadze stated last week, “this project is important not only in terms of strengthening energy security, but also for stabilizing the gas supply during winter.”

Ship with Georgian Crew Found in Congo Photo source: 1TV

BY THEA MORRISON

T

he ship Pantelena, which was sailing under the Panama flag with 17 Georgian sailors and which went missing around two weeks ago, has been found in Congo.

The 121-meter tanker, carrying about 7,000 tons of fuel, with 19 crew members, 17 Georgian and two Russian nationals, was spotted by the multinational coordination center in Pointe Noire, Congo, while it was patrolling the maritime area in the Gulf of Guinea.

The Ministry of Foreign Affairs (MFA) of Georgia reported the loss of radio contact with the Pantelena on August 17. It said that the sea transport agency under the economics ministry was in contact with Greece’s Lotus Shipping Co, the ship’s owner, to find the tanker. Britain’s UKMTO and navies of the regional countries were involved in the search operation.

The Russian foreign ministry also said it was keeping a close eye on the situation.

On August 25, the Georgian MFA said all 17 sailors are safe and in the Togo Republic and confirmed it had contacted the vessel crew, which is being provided for in terms of primary needs.

The lives and health of its members are said not

to be in danger.

The MFA added that according to the captain, the ship was captured by pirates.

“The Government of Georgia remains in contact with ship Pantelena and is ready to assist the Georgian sailors in case there is any need,” the ministry stated.

Vladimir Konstantinidi, Deputy Director of the Consular Department of the Ministry of Foreign Affairs, stated an inspection of the ship was carried out by Togo security forces.

“They took a doctor and a psychologist on board and examined the sailors. They have been provided with all necessary things, including water and food,” he stated.

Lasha Gadilia, the captain of the ship, told Georgian media that the pirates attacked the crew late on August 13.

He says the attackers locked the sailors in one room for nine days, threatening them with guns.

According to him, the pirates did not physically attack the crew and periodically supplied them with water and food.

Gadilia remembers that the attackers spoke to the prisoners in poor English with the local dialect and they were unable to understand the demands of the pirates.

The sailors of the vessel Pantelena were released, but they have yet to give details or say why the pirates decided to release them.

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BUSINESS

GEORGIA TODAY

AUGUST 28 - 30, 2018

JSC Nenskra Hydro to Cooperate with Mestia Municipality in New Format PRESS RELEASE

O

n August 23, a Memorandum of Cooperation was signed in Mestia between the Nenskra Hydropower Plant Project company JSC Nenskra Hydro and Mestia City Hall. According to the document, a joint Action Plan will be presented within the next three months, which will include provisions for the implementation of small infrastructural projects in the villages of Mestia municipality – Chuberi and Nakra, as well as the development of social enterprises and cultural and educational projects.

The Memorandum has a four-year term, and the amount of investment will be determined gradually depending on the needs of the villages Chuberi and Nakra. It is already established that in 2019, within the framework of this cooperation, JSC Nenskra Hydro will allocate 1.5 million GEL for infrastructural projects, including the rehabilitation of internal roads, kindergartens and schools.

The projects, which are to be implemented within the scope of the Memorandum, will be jointly financed by the JSC Nenskra Hydro and Mestia municipality.

“We are glad that our cooperation with the municipality of Mestia will witness a new interesting stage. Our company, as well as the Korean water resources corporation K-water, the investor of Nenskra HPP project, attaches great importance to invest-

ments in social projects. In 2017 a special investment project was established – Community Investment Program, which includes facilitating SME development, financing vocational training, and implementing small infrastructural projects. The projects to be imple-

mented within the scope of the Memorandum will be only a small part of the full list of programs and actions, which will take place in this direction,” stated Sunyoung Kim, CEO of JSC Nenskra Hydro.

About Nenskra HPP Project: JSC

Nenskra Hydro is a project-based company established 2015 as a result of cooperation between Korea Water Resources Corporation K-water and JSC Partnership Fund. The company will construct the Nenskra Hydropower Plant in the Nenskra and Nakra river

valleys in Mestia Municipality of Samegrelo-Zemo Svaneti region. The 280 MW Nenskra Hydropower Plant will generate approximately 1’200.00 GWh of electricity annually, which will be fully consumed by the Georgian market. www.nenskrahydro.ge

BUSINESS

GEORGIA TODAY AUGUST 28 - 30, 2018

Photo Source: Reginfo.ge

New Research Reveals Regional Crops are Far from Export-Ready

BY SAMANTHA GUTHRIE

P

MC Research has published new reports on value chain analyses conducted as part of a European Union-funded project titled “Civil Society Organizations Supporting Free Trade with Europe.” The project was implemented by People in Need, a Czech non-governmental organization, in partnership with PMC Research, the Rural Communities Development Agency, Atinati, Bridge, and Georgian Alliance on Agriculture and Rural Development.

The project looked at three regions of Georgia: Kvemo Kartli, Mtskheta-Mtianeti, and Adjara. Teams visited each region and met with civil society organization (CSO) representatives, experts, local action groups and individual farmers. The project aimed to equip CSOs with the tools and knowledge to conduct their own research studies in the future in the agro-food sector, with an eye toward developing the capacity of local farmers to be able to benefit from the DCFTA by exporting their produce to the European market. In 2014, the EU created a Deep and Comprehensive Free Trade Area in Georgia as part of its Association Agreement. The DCFTA came into force in June 2016, and Georgia, along with Ukraine and Moldova, was granted a 10-year transitional period to establish a full free trade regime.

To teach by example, and begin the process of thinking more deeply about the possibilities and challenges of individual crops, researchers selected one crop in each region with the help of targeted stakeholders. They analyzed the value chain of each crop to determine the potential for its production and processing industry domestically and export potential to the EU. In Kvemo Kartli, researchers selected broccoli to analyze, in Mtskheta-Mtianeti, raspberries, and in Adjara, mandarins. The subsequent papers published described the crops’ value chains from producer to consumer, identified the chains’ limitations and advantages, and presented recommendations for developing the crop and improving economic conditions.

As noted in the Adjara report, food and agriculture make up 14-16% of Georgia’s GDP, and “is particularly important for the development of the country’s provincial regions, where the majority of the population is employed in this sector, and agriculture represents one of the main sources of income for many families.” Approximately 30% of Georgia’s exports are agricultural products. The Mtskheta-Mtianeti report elaborates, “around 43% of the Georgian territory is designated for agricultural purposes...The majority of the people employed in agriculture are forced to work in that field due to lack of alternatives. They are not market-oriented, and they consume a large part of their produce themselves.”

In Kvemo Kartli, researchers determined that the soil and climate are favorable for broccoli production, and global demand is growing along with production – an average of 2.9% growth per year.

“Although horticulture in Kvemo Kartli is mainly represented by potatoes, grains and vegetables,” the report reads, “the region also produces broccoli, and ... there are even villages where commercial production of this plant constitutes the main source of income for farmers.” The main takeaway

of the report is that Europe is one of the world’s major producers of broccoli, and “under the current conditions of productivity,” Georgian broccoli would struggle to be competitive “in the European Union, as certification [and transportation costs] would lead to the costs exceeding the sales revenues.” There is, however, the possibility to substitute imported broccoli with locally grown produce, and Kvemo Kartli has the lowest cost of production in Georgia.

Farmers began growing raspberries in MtskhetaMtianeti three-four years ago. Both in Georgia and Europe, demand for the fruit is growing, and, domestically, demand exceeds supply, providing an attractive gap for farmers to target. The main obstacles identified in the report are risks from bad weather, insects, and disease, a lack of knowledge, a limited specialized labor force, and a lack of affordable storage and preservation facilities.

Researchers recommended prioritizing expanding production and developing more freezer facilities to enable local raspberries to be sold year-round, substituting off-season imports and demanding higher prices. They also recommended more access to trainings and informational resources for farmers. Regarding the fruit’s export potential to the EU, there are several hurdles, including the minimum volume required by European importers, and requirements for homogeneity. Supporting the export potential is the fact that the harvest begins much earlier in Georgia than in Europe, and that production costs are lower.

In Adjara, mandarin plantations cover approximately 4,800 hectares and have more than 3 million mandarin trees. There is not currently a realistic possibility for export, however, as Georgian mandarins are far from European standards of quality and the logistics networks required to get there have not been adequately established, researchers explain. One interesting problem regarding the European market is that EU countries produce a variety of mandarin called clementine, whereas Georgia grows the satsuma cultivar. Clementines set themselves apart “through [their] more attractive visual appearance, sweeter taste and a thicker peel...European consumers are used to the clementine and sweeter citrus fruits. However, as Europe is seeking to reduce per capita sugar consumption on the continent, the Georgian satsuma will have an opportunity to establish itself on the EU market.” The paper also presents the staggering figure that mandarin yields of existing farms could be increased by up to 300% if farmers adopt more advanced plant maintenance techniques. The study also notes the potential for agro-tourism in the region.

While the reports each conclude that the possible export of the crops in question to the European market is far from realistic under current conditions, several strategies are presented in each for tackling the obstacles to take full advantage of the opportunities the DCFTA offers Georgian farming communities if resources can be levied appropriately.

The analyses are available in English at http:// research.pmcg-i.com PMC Research is the research arm of Tbilisi-based Policy and Management Consulting Group (PMCG), an international development consulting company focused primarily on transitional and developing countries.

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BUSINESS

GEORGIA TODAY

AUGUST 28 - 30, 2018

Why Turkey is to Dig a Parallel Bosphorus Canal

BY DIMITRI DOLABERIDZE

T

he Turkish Republic is ready to start implementing a grandiose infrastructure project - the construction of the Istanbul Canal (Kanal Istanbul), which is to complement the Bosporus Strait, Turkish President Recep Tayyip Erdogan announced at a congress of the ruling Justice and Development Party.

Kanal Istanbul is a Turkish project for an artificial sea-level waterway, which is to be built on the European side of Turkey, connecting the Black Sea to the Sea of Marmara, and thus to the Aegean and Mediterranean seas.

President Erdogan said that construction of the canal will begin in the near future, making an alternative to the Bosphorus and increasing transport flow between the Black Sea and the Sea of Marmara. Experts believe that the implementation of Kanal Istanbul will not only have economic consequences, as they highlight the fact that international acts

impose restrictions on the passage of warships through the Bosporus, but these norms may not apply to the new canal.

The Turkish President first mentioned the canal in 2011, when he was Prime Minister. In 2013, the Ministry of Transport of the Republic reported on the theoretical readiness the project, however, the start of construction work was postponed.

At the end of last year, the government submitted the final draft of the future structure. The canal will be dug in the west of Istanbul, after which the city will be divided into three districts, with the historic center and business districts becoming an island.

The construction of Kanal Istanbul is set for completion by 2023, when the country will celebrate the centenary of the Turkish Republic. The length of the planned waterway is 43 km, the width around 400 m, and the depth about 25 m.

The canal could potentially serve 150-160 cargo ships per day. The Turkish government has said the key goal of the construction is to reduce the burden on the Bosphorus Strait, which is struggling to cope with the flow of cargo through it.

The new canal will be inscribed in the city infrastructure, featuring modern residential complexes on its coast, to which a metro will be built. According to Turkish media, real estate located in the area of future construction has already grown significantly in price. The project also envisages a new port.

There are opponents of the canal construction in the country. In particular, environmentalists warn that a water artery could destroy the ecological balance in the region and lead to an increase in the level of hydrogen sulfide in the Marmara Sea. For the residents of Istanbul, the canal threatens to emit a constant unpleasant smell, and for the ecosystem - the death of certain species of marine fauna. The canal can influence even the rivers flowing into the Black Sea (the Danube, the Dnieper and the Dniester), as the sea will begin to lose its water faster, scientists warn. Another possible problem is the reduction of sources of fresh water. In particular, the Sazlidere Reservoir, which supplies water to 13 districts of Turkey, lies along the path of the future canal.

The construction of the canal is not

Erdogan's only grandiose project. A total of 30 major infrastructure projects are planned within the framework of the government "Strategy-2023".

In 2017, the construction of the suspended Dardanelles Bridge started, the length of which will be 3.7 km. By 2022, the bridge will connect the cities of Lapeski and Gelibolu and become the longest suspension bridge in the world.

Railway and automobile tunnels under the Bosporus have already been commissioned. The cost of building an underground railway branch was about $4.8 billion, while for the construction of an automobile tunnel, $1.2 bln in private investment was attracted.

In addition, the construction of a third international airport is nearing completion, to be put into operation in autumn

of this year.

At present, communication with the Black Sea via the Bosporus and Dardanelles straits is regulated by the Turkish side. However, according to the Montreux Convention of 1936, Turkey cannot charge fees for passage through either.

But these rules will not apply to the "Istanbul" - passage through which will be charged.

Experts are sure that the construction of the Istanbul canal is a sign that Turkey wants to strengthen its positions in the international arena. For Ankara, this project is important not only from the point of view of economic profitability, but from the point of view of geostrategic interests and the transition from the category of regional to the status of world power.

Herbia Ltd, First Georgian Greens Company to Access the EU-Market

BY ANTOINE DEWAEST

A

new phase of European integration has begun for Georgian entrepreneurs.

A firm from Tskaltubo region, Imereti, has

become the first Georgian producer to export local greens to the EU market.

Herbia Ltd owns greenhouses and vegetable packing houses which have been modernized thanks to an EUsupported credit line provided by the European Bank for Reconstruction and Development (EBRD).

The EU4Business-EBRD Credit Line

project targets small and medium-sized enterprises to help them in their development within the Deep and Comprehensive Free Trade Area (DCFTA) including the EU, Georgia and other border states. The project gives them access to financial institutions and loans.

The company production is focused

on greens and herbs like dill, parsley, coriander, celery, lettuces, green onions and basil.

The founder, Zurab Janelidze, said that in 2017, the production doubled thanks to the European loans. Now, this success has led Herbia Ltd to begin exporting to foreign markets, including the EU.

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BUSINESS

GEORGIA TODAY

AUGUST 28 - 30, 2018

Armenia & South Caucasus Economic Corridors: The Case of the Meghri Free Economic Zone

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BY EMIL AVDALIANI

I

n late 2017, Armenia opened a free economic zone (FEZ) in Meghri, south of the country, aimed at reviving the economic prospects with Iran. Given its geographical position, commercial and logistical capabilities, as well as Armenia’s multi-sector preferential trade regimes, the free zone could become a bridge between Iran, the Eurasian Economic Union and the European Union.

According to the government, approximately 50-70 operators will be involved in the Meghri FEZ over the next several years, with a projected investment of $100-130 million. It was also announced that the FEZ will create 1,500 new jobs and the annual turnover will reach $250 in exported goods and services. Moreover, entrepreneurs at Meghri will not pay taxes, except for the ones on their net income.

The opening follows a positive trend in the bilateral relations between Iran and Armenia. Trade between Armenia and Iran in 2017 grew to more than $220 million (up from 2016 - $199.4 million).

The same year, exports to Iran from Armenia stood at $66.9 million (up from the previous year).

Exports to Armenia from Iran also increased and stood at $144.4 million.

The Meghri FEZ will be developed in two stages.

During the first stage, basic infrastructure for the launch of the FEZ will be prepared. The second phase involves the expansion of FEZ operations with additional infrastructure on approximately 70 hectares of land in order to provide a businessfriendly environment.

GEOPOLITICAL CONTEXT A look at the map shows that Armenia is a landlocked country, its position aggravated by the fact borders with Azerbaijan and Turkey are closed.

All the important regional energy and railroad projects circumvent Armenia and, quite logically, Yerevan wants to break this isolation. From a geopolitical point of view, the Meghri FEZ actually falls within those broader initiatives on behalf of Yerevan which aim at fostering regional cooperation.

Indeed, there are positive trends which could help the Meghri FEZ: Iran has always expressed interest in expanding trade links to Russia and the wider Eurasian Economic Union (EEU). And it falls into Iran’s strategy of increasing its influence in the South Caucasus.

There have been some successes on the Iranian side and Meghri is one of them. However, overall, there are significant constraints which Iran will

continue facing in the South Caucasus. Russia and Turkey are well represented both militarily and economically in the region. Russia might have not been against Meghri, but the Russians would continue obstructing any Iranian moves towards establishing independent/new pipelines or railways to Armenia and Georgia. As a reflection of this, when there were talks several years ago on building a large-scale transit gas pipeline from Iran through Armenian territory to Georgia, Moscow was quick to block the move on behalf of the Armenian government. The Kremlin even bought the majority of shares in the existing ArmeniaIran transit pipeline to effectively forestall any further initiatives on that front.

Tehran and Yerevan also held talks on the construction of a $3.7bln railway to run through Armenia to Georgia’s Black Sea coast. However here too the project stalled as difficulties in securing financing arose. The reality is that Russia owns most of Armenia’s railway infrastructure and as a result can block any pro-Iranian initiative.

Another factor is that neighboring Azerbaijan already has the necessary pipeline infrastructure and the Baku-Tbilisi-Kars railway, launched last October, will only strengthen Iran’s willingness to take the Azerbaijan route.

BACK TO THE MEGHRI FEZ Despite Meghri FEZ’s ambitious projections, there are constraints too. For example, Armenia’s other two economic zones, the Meridian and Alliance FEZs in Yerevan, established in 2014, have between them created just 94 jobs and garnered interest from 17 companies.

Meghri FEZ’s fortunes also depend on the increasing Baku-Teheran cooperation. For Yerevan, this is an unfortunate development as Iran will now be more willing to cooperate with Azerbaijan because of the latter’s already existent infrastructure.

In January 2017, Tehran was recipient of a $500 million loan from Baku to construct a 205-kilometer railway which would connect Azerbaijani and Iranian railways (the Rasht-Astara line). According to the deal, Azerbaijan will rent the railway line for 15 years; the terminals for 25 years. Both countries claim that bilateral trade will increase to 5 million tons per year. This will further limit any effective corridors from Iran to the Black Sea through the Armenian territory.

Thus, while the opening of the Meghri FEZ is an important development and is a part of Armenia’s geopolitical project for breaking out of isolation, there are still numerous developments that point to troubles ahead for the project. Among them, Russia’s dominating aims and AzerbaijaniIranian close cooperation.

BUSINESS

GEORGIA TODAY AUGUST 28 - 30, 2018

11

WHERE to Go, Stay, Eat, Drink & Buy This Summer

T

Wine Exports in the Spotlight

BY SHAWN WAYNE

W

hen speaking about Georgia, it’s almost a certainty that the topic of wine will be raised in the discussion. Over the years, Georgia has become better and better known for the wine it produces. We took at look at the details behind the fame.

Georgia exported 45.4 million bottles of wine to 50 different countries from January to July this year and earned around $107.8 million from doing so.

Revenue increased by 28%, while the volume of exports rose by 19%. As for other alcoholic beverages, Georgia exported 9.9 million bottles of Georgian brandy and 219,500 bottles of chacha from January to July this year. In total, Georgia gained $173 million from sales abroad from January to July this year, including wine, brandy, chacha and others. The top countries importing from Georgia, be it wine, brandy, chacha or all three, is as follows: 1st is Russia with 28,564,609 bottles, 2nd is Ukraine with 5,040,319 bottles 3rd is China with 3,514,066 bottles, 4th is Kazakhstan with 1,996,860 bottles and 5th is Poland with 1,886,618 bottles.

According to the American Association of Wine Economists (AAWE); Georgia ranked 5th in the world by wine export price, with $3.49 per liter in 2014-2016. In front of that is France in 1st place with $6.59 per liter of wine, followed by New Zealand at $5.39, the United States at $3.68 and Austria in 4th just ahead of Georgia, with $3.51 per liter of wine. This number will definitely increase for Georgia in the coming months and years, and, as proof of that, on New Year’s Day this year, Georgia and China implemented a free-trade agreement.

In Beijing and Tbilisi, glasses were raised in celebration for a deal that linked the world’s two oldest alcoholic-beverage cultures. Thanks in part to the trade deal, China became Georgian wine’s third-largest global customer. Most of the Georgian wines are inexpensive, a plus for China where wine remains a luxury purchase for most.

“I would say that Chinese consumers are very sensitive to traditions and cultures,” said George Margvelashvili, one if the two men behind wine producer Tbilvino. “They are very proud of having over 3,000 years of written history, just as we are proud of having an uninterrupted culture of wine for thousands of years; however, Georgian wines are not cheap compared to many New World and European competitors.”

Deputy Minister of Environment Protection and Agriculture of Georgia, Giorgi Khanishvili, had a meeting recently with the municipal heads of the Kakheti region regarding the 2018 grape harvest.

The meeting was held in Telavi, and was attended

by First Deputy Chairman of the Agrarian Issues Committee of the Parliament of Georgia, Gela

Samkharauli, State Representative-Governor of Kakheti, Irakli Kadagishvili, and Acting Chairman of the National Wine Agency, Andro Aslanishvili, along with representatives from information-consulting service firms and local municipalities.

“It is vital for the State to conduct the harvest successfully. In previous years, the harvesting process has required external financial support. As a result of good state policies in the viticulture and winemaking sectors, there is no necessity for this anymore, and business has returned to the right place – the entrepreneur and the farmer agree on prices. Increased exports, diversification of export markets, increased awareness of Georgian wine – these trends are reflected in the economic policy of the country, which provides the basis for a harvest without state subsidies, which is the right business model,” Khanishvili told the meeting’s attendees.

Khanishvili realizes the importance of maintaining international popularity and ultimately increasing export numbers, which Georgia should also realize as a whole. Tourism is a major influence on the Georgian economy; however, wine has the potential to shape the country further economically and agriculturally.

Samkharauli, from Parliament’s Agrarian Issues Committee, pointed out at the meeting that with tourism comes an increased demand for wine consumption on the domestic market. Ultimately, tourism is growing in Georgia and visitors drink wine, so boosting domestic sales; however, once they return from where they came, they speak about Georgian wine, prompting people to either import the wine for themselves or visit the country for the whole experience. As such, he says, it’s a win-win for Georgia and its economy. Georgia needs to take all the wine expertise and skills honed through the ages and point it in the right direction, directions such as their most popular and special wines.

Georgian traditional wine specialties are culturally fascinating and globally unique, however they still have to compete with every other red and white in the world. Rare and intriguing Georgian wines that are being watched closely by wine connoisseurs are Koncho Mtsvivani Kakhuri (white) 2015 Turton Wines, Orgo Rkatsiteli (amber) 2016 Clark Foyster, Orgo Saperavi (red) 2016 Hedonism, Orovela Saperavi (red) 2008 Waitrose, Tbilvino Qvevris (amber) Marks and Spence, Tbilvino Qvevris Saperavi (red) 2015 Georgian Wine Society, Tbilvino Tsinandali (white) 2015 Georgian Wine Society and Vita Vinea Kisi (amber) 2016 Clark Foyster.

Some current leading Georgian wine producers who are also being watched closely are Avtandil Bedenashvili, Casreli, Dakishvili Family Vineyards, Dugladze, Duruji Valley, GWS, Khareba, Koncho & Co, Chateau Lipartiani, Manaveli, Mosmieri, Chateau Mukhrani, Orgo, Schuchmann, Shumi Estate, Tbilvino, Tsinandali, Vinoterra, and Vita Vinea.

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Editor-In-Chief: Katie Ruth Davies

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Dimitri Dolaberidze, Maka Lomadze, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze, Nino Gugunishvili, Thea Morrison Photographer: Irakli Dolidze

he Where.ge August-September issue is packed full of travel recommendations, equally interesting for travelers on any budget and with any taste: from luxury 5-star hotels and resorts to hospitable guest houses; from sunny beaches to mountain camping; from gastronomic experiences to historical and cultural adventures.

Check out the Where.ge team’s tips for travelers interested in a budget stay in Georgia, a country that can be super-affordable for those coming from developed countries, with transport, food and accommodation coming cheap and laws that allow you to pitch a tent almost anywhere, including the beach, high up a mountain or in a road-side glade.

Also discover Where.ge’s top picks from the country’s child-friendly guest houses, and recommendations for those who love to fish!

Museums to discover this issue are the Silk Museum and Art Palace and if, after all that exploring, you’re feeling peckish- head across to Adjara where you can explore Where.ge’s six favorite restaurants in the region.

For those with a thirst for more, the Where to Drink section describes some of Georgia’s best springs to take your fill from and/or bathe in, while author Daria Kholodilina takes you on a very special wine tour of the capital.

Where to Buy presents some of Georgia’s best designers and offers a special section on books

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about the country to keep Georgia in your mind even when you’re not here.

Find the Where.ge magazine in a hotel, restaurant or souvenir shop near you, or get online to check out their daily-updated locations and articles about this wonderful country that has captured so many hearts!

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