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BUSINESS WEEK June 24, 2013 #10

caucasian business week

June 24, 2013, Issue 10

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BE INFORMED, DO BUSINESS

GEORGIA

PM IVANISHVILI TO VISIT ISRAEL

head of his two-day visit to Israel early next week, Georgia’s PM Bidzina Ivanishvili said he wants his country to be a “strategic partner” with Israel. Pg. 2

NEXT AMENDMENTS TO BE MADE TO TAX CODE

he government considered today next draft of amendments, to be made to Tax Code. As Finance Minister Nodar Khaduri declared, one of the amendments is related to agriculture. Pg. 2

THE GEORGIAN WINE INDUSTRY: RECENT PAST AND THE WAY FORWARD

WSJ: INVESTBANK AND FLYGEORGIA OWNERS ARE SUSPECT OF TIES WITH TEHERAN

ran avoids US-established sanctions though Georgia. To avoid US sanctions, Islamic Revolutionary Guard Corps (IRGC) created network in Georgia, which unites 150 companies”, - The Wall Street Journal reports about it. The edition names anonymous representatives of IRGC and head of Tbilisi intermediary agency.

“Number of Iranian companies registered in Georgia increased from 84 to 1500 during last 2 years, which may be connected to abolishment of visa regime among two countries in 2011, also Dubai decision, which established limitations to Iranian business by US pressure”, - Wall The Street Journal writes. Pg. 6

US Embassy commented about WSJ article about Georgia

e are very happy to post the second part of Jacques Fleury’s commentary on the Georgian Wine Industry. In the first part, Jacques reflected on the experience of surviving the Russian embargo, on the one hand, and dealing with a series of heavy-handed and incompetent government interventions, on the other. Pg. 7

BANK SECTOR COMPLETES JANUARY TO MAY PERIOD IN 132.571 MILLION GEL PROFITS

eorgian banking sector completed January-May 2913 with 132 571 million GEL profit. Profit has increased by 30,9 million GEL in May. Pg. 8

MONEY TRANSFERS IN MAY

AZERBAIJAN AZERBAIJAN DRAWS $1.4 BLN DIRECT INVESTMENT, INJECTS $4 BLN ABROAD IN Q1

he Central Bank of Azerbaijan (CBA) has said the total amount of foreign capital in Azerbaijan in direct investments hit $1.4 billion in January-March 2013. The share of the oil and gas sector stood at 83.2 percent. Pg. 10

ARMENIA ARMENIA’S ECONOMIC ACTIVITY UPS 5.3% IN JAN-MAY 2013

conomic activity in Armenia rose by 5.3% in January-May 2013, compared with the same period a year earlier, according to the National Statistical Service of Armenia. Pg. 11

CIS KAZAKHSTAN AND UKRAINE INCREASE TRADE TURNOVER

he trade turnover between Kazakhstan and Ukraine increased by 24 percent last year, Kazakh President Nursultan Nazarbayev said at the meeting with his Ukrainian counterpart Victor Yanukovych. Pg. 12

WORLD NEWS RUSSIAN ROULETTE: LUXEMBOURG NEW OFFSHORE HOTSPOT, CYPRUS ABANDONED

ussians pulled $9.7 billion in investments from Cyprus in the last 2 years, and moved their wealth to ‘safer’ offshore banking in Luxembourg, Ireland, the Netherlands, and the British Virgin Islands. Pg. 13

Pg. 6

FITCH CONFIRMED RATING TO 4 BANKS AND EXPECTS 4,3% OF GDP GROWTH THIS YEAR

ating agency Fitch Ratings confirmed long-term ratings to 4 Georgian commercial banks. According to agency’s press release, ratings were confirmed to: Bank of Georgia, TBC Bank, ProCredit bank and Liberty bank. Rating prognoses of all four banks are “Stable”. Agency stated that confirmation of sustainability and long-terms ratings of these banks reflects, that Georgian economy, despite slowdown of growing speed, has good perspectives, also good financial condition of the banks, level of their management and corporate manages. “Level of Banks’ actives is acceptable. Share of problematic credits (90-day overdue) is from 1 to 4% of the total credits. Restructured credits are also on the moderate level. Fitch thinks that perspective of these banks in the near future are good, we expect 4,35 growth of Georgia’s GDP this year... Banks have good liquidity, which is a good reserve for preservation of sustainability in the case of funding outflow, refinancing risk is limited because main part of long-term refinancing comes on the international financial organizations”, - press release states. According to basic scenario, Fitch expects con-

tinuing of good growth in the short-term and mid-term perspective, but because of government’s change, political uncertainties and risks for worsening of economic indicators rose. Besides, except Liberty Bank, high level of foreign currency lending may create new risks to these banks in the case of national currency devaluation. Sustainability ratings of the Bank of Georgia and TBC bank were defined by “bb”. ProCredit Bank has analogic rating. Sustainability rating of Liberty Bank is “b”. Among these 4 banks, ProCredit Bank has the highest long-term rating and is defined as BB. Ratings of the Bank of Georgia and TBC bank are identical - BB; Liberty bank’s rating is B. Prognosis of all 4 banks is stable. It’s noteworthy that at the beginning of June, Charles Seville, Fitch Rating director of European Developing Countries, gave interview to Georgian edition The Financial, where he stated that this year his agency expects 3% economic growth in Georgia. According to this press release, Fitch expectation regarding this year perspectives of Georgia economy is more optimistic and the agency expects 4,3% growth.

Tea Tsulukiani: Georgia Enforces Iran Sanctions Strictly

Pg. 2

Interior Ministry and Prosecutor’s Office Must Prevent Unprecedented Attempts of Intereference in Private Life

Pg. 5

Irakli Kovzanadze: Partnership Fund Implements Successful Projects in All State-prioritized Sectors Pg. 3 Tornike Abuladze: Bank of Georgia Steps May Lead to Social Unrest Pg. 3

Koka Guntsadze: A 3-hour Trip from Tbilisi to Batumi by Rail is an Illusion Pg. 4

Zurab Gvasalia: Stable Rating Assigned to the Banking Sector does not Mean that Living Standards of the Population Increase Gogi Loladze: Georgian Banks are not Interested in the Stock Market Development Pg. 4

Pg. 5

TOP NEWS

caucasian business week

June 24, 2013 #10

JUSTICE MINISTER: GEORGIA ENFORCES IRAN SANCTIONS STRICTLY

PM IVANISHVILI TO VISIT ISRAEL

head of his two-day visit to Israel early next week, Georgia’s PM Bidzina Ivanishvili said he wants his country to be a “strategic partner” with Israel. “My desire and dream is for Israel to become our strategic partner. I am not hiding this fact, but highlighting it. Israel and Jews are interesting for me, and it is good for my country to establish deep ties,” he said in an interview with the Israeli English-language daily Jerusalem Post. “We need to be such friends that we look at each other as if the other is our homeland [for] any kind of recommendations, advice – strategic or practical, state relations between governments and ministries. But most important is to reestablish the relations between the nations, between the people. People are most important,” Ivanishvili said in the interview in which he spoke much about, as he put it, his and Georgians “special relationship” with and “respect” towards Israel and Jewish people. In the same interview, Ivanishvili was quoted as saying that Iran should not become a nuclear state. “Nuclear weaponry is dangerous. We are implementing all the UN sanctions. We need to be able to manage – along with the international community – not to have a nuclear Iran. We need to unite in the fight against terrorism, and in this regard we need [to] be productive and successful in order for Iran not to become a nuclear state,” he said. He also said that neither Israeli or Western attack on Iran nor Iran with nuclear weapon would be

good for Georgia. “A nuclear Iran should not happen, that is not in our interests, of course. Same thing with a Western attack on Iran. Of course, the ideal would be for Iran to be convinced by the West to abandon its nuclear aspirations,” the Jerusalem Post quoted Ivanishvili, who added that achieving of these goals is hard but possible. Asked why Georgia voted in November, 2012 in favor of the UN General Assembly resolution granting Palestine a non-member observer state status at the UN, Ivanishvili responded without elaborating details: “We always support Israel, but because of a certain decision-making process regarding voting we had to decide the way we have decided.” After the vote in the UN General Assembly (UNGA) in November, 2012 a Georgian representative told the UNGA as a country in close proximity to the Middle East, Georgia was sympathetic to the aspirations of the people of the region, including those of Palestinians for statehood and those of Israelis for security. The Georgian representative also said that ending the conflict was of paramount importance and could only be based on a negotiated settlement between the parties and that the resolution adopted by the UNGA could be understood as conferring privileges and rights in line with those of non-member observer states without implying an automatic right for Palestine to join international organizations as a state. Civil.ge

MCC APPROVES USD 140 MLN AID TO BOOST GEORGIA EDUCATION

.S. government’s foreign aid agency, Millennium Challenge Corporation (MCC), approved on June 19 a five year USD 140 million program for Georgia, which will be focused on development of country’s science and technology education. MCC completed its first five-year, USD 395.3 million program with Georgia in March 2011, which was mainly focused on infrastructure development. In January, 2011 MCC selected Georgia eligible to develop proposal for package of grants for the second compact. “For its subsequent compact, the Government of Georgia conducted an analysis that identified the quality of human capital as a binding constraint to economic growth, particularly acute in science, technology, engineering, and math (STEM),” MCC said. “To improve the quality of education in these fields and increase earning potential, the proposed compact will make strategic investments from the start of a student’s general education to graduation from technical training and advanced degree programs, including a focus on increasing women’s participation in STEM pro-

fessions,” it said. The second compact, which is expected to be signed this summer, consists of three projects – Improving General Education Quality Project, designed to increase quality of general education through rehabilitation of deteriorating schools, training for educators and school managers; the Industry-Led Skills and Workforce Development Project, which will aim at improving the link between market-demanded skills and the supply of Georgians with those technical skills; the STEM Higher Education Project, designed to attract one or more American university partners to modernize science, technology, engineering, and math education by offering high-quality degree programs. “One of the key ingredients to economic growth is equipping citizens with the education and skills they need to succeed in a modernizing economy,” MCC CEO Daniel W. Yohannes said. MCC said that during its meeting on June 19 the agency’s board of directors, chaired by Secretary of State John Kerry, noted “importance of Georgia maintaining its commitment to good governance throughout its partnership with MCC.” Civil.ge

BUSINESS WEEK

caucasian The Editorial Board Follows Press Freedom Principles Publisher: LLC Caucasian Business Week - CBW Director: Levan Beglarishvili DISTRIBUTED FREE OF CHARGE Editor-in-chief: Evgeni Mikeladze Mobile phone: 555 472234 Commercial Department: Irakli Lekvinadze Email: caucasianbusiness@gmail.com

he authorities are closely monitoring business activities of Iranians in Georgia and provide “strict control” over enforcement of sanctions against Iran, Tea Tsulukiani, the Georgian Justice Minister said on June 21. She said that in close cooperation with the judiciary, the government froze about 150 bank accounts of Iranian individuals and legal entities. The Wall Street Journal ran a lengthy article on June 20 reporting about increased business activities of the Iranian nationals in Georgia, among them also including investments in private airline FlyGeorgia and JSC InvestBank. The article says that a large part of the Iran-related business in Georgia doesn’t normally run afoul of sanctions, but U.S. and European officials suspect that some illicit funds handled by other Iranians are mixing into the financial flood. The article also quotes one Tbilisi-based Iranian as saying that in the banking sector, Georgia has become a key place to evade sanctions. Justice Minister, Tea Tsulukiani, said that the cases reported in The Wall Street Journal would be “examined”, adding that that “control” by the Georgian authorities is so “strict” that she will be “surprised” if sections evasion cases are confirmed. “Efforts that were undertaken by the previous authorities and are being carried out by the current government in respect of enforcement of UN sections against Iran have been assessed unambiguously positively by the UN delegation [apparently referring to UN panel of experts gathering and analyzing information on enforcement of UN Security Council sanctions against Iran], which visited [Georgia] several weeks ago. The delegation even noted that strict control in this regard in our country was implemented better than in any European state,” Tsulukiani said. The WSJ article also says that “the surging Ira-

nian presence in Georgia has startled the Obama administration because of deep U.S.-Georgia ties… But when it comes to Iran, Georgia, which recently elected a prime minister [Ivanishvili] who takes a less pro-American stance than [President] Mr. Saakashvili, seeks to forge an independent line, its officials said.” Responding to this part of the article, the U.S. embassy in Tbilisi said on June 21: “Contrary to certain statements in the article, we see undiminished interest on the part of Georgia’s government in strong relations with the United States, and a continued strong desire for Georgia’s EuroAtlantic integration.” “Similarly, U.S. concerns involving Iran sanctions evasion here have grown in recent years, and pre-date the current Georgian government,” the U.S. embassy said in a statement. It also said that the U.S. government “is focused intently on shutting down any Iranian attempts to evade sanctions, including through possible business connections in Georgia.” “We are working closely with the Georgians on this issue,” the embassy statement reads. Civil.ge

NEXT AMENDMENTS TO BE MADE TO TAX CODE

he government considered today next draft of amendments, to be made to Tax Code. As Finance Minister Nodar Khaduri declared, one of the amendments is related to agriculture. Namely, primary production is exempted now from VAT without right of this tax refund, while amendments envisage granting of such right.

Another amendment doubles volume of non-taxable income for disabled persons, up to annual 6,000 lari. Khaduri also declared that it is proposed to increase excise for tobacco since September 1 – by 15 tetri (per box) for filter cigarettes and by 5 tetri for non-filter ones. Whether this amendment will lead to price growth on the market, is dependent of the market itself, the Minister said.

“ONE OF EVERY TWO PERSONS VISITING GEORGIA IS NOT A TOURIST”

iorgi Sigua, new head of National Tourism Agency, declares that merely 57% of persons, who visits Georgia, are tourists, while the others are one-day visitors. Of total number, 38% visit Georgia for recreation and spending their vacations, 20% – to see their relatives, while 19% have a transit visit.

Among tourists, 62% see Georgia’s nature sights, 59% – taste Georgian food and 34% – Georgian wine. Tbilisi (44%) and Batumi (43%) are the most popular places among tourists. How surprising it should be, but according to the Agency, Marneuli is more popular than Mtskheta, Kutaisi, Rustavi, Lagodekhi and Kobuleti.

June 24, 2013 #10

INTERVIEW

caucasian business week

IRAKLI KOVZANADZE: PARTNERSHIP FUND IMPLEMENTS SUCCESSFUL PROJECTS IN ALL STATE-PRIORITIZED SECTORS Significant projects are being implemented in Georgia with the support of the Partnership Fund. Hotels are being constructed in the tourism sector, new steam and hydro power plants will launch operation in the energy sector, a pig farm has been constructed in the agriculture sector. Moreover, active job is provided to transform the partnership fund into the sovereign fund. The CBW has interviewed the Partnership Fund executive director IRAKLI KOVZANADZE on details of the fund’s activities and future plans. - Mr. Irakli, the Partnership Fund’s management was recently changed and you was appointed as the fund’s head. What are your achievements and what are concrete steps the partnership fund has taken? - For the last period the Partnership Fund was one of the leading structures in terms of activity and this tendency will be maintained definately. I would divide the activity and achievements in two main parts: 1) The fund has managed to develop all projects and finish several ones that are united in our portfolio; 2) The management has been enhanced considerably in the organizations that are managed by the Partnership Fund. For several months our main goal was to carry out changes in the management and introduce valuable corporate management elements, independent directors and staff the management and the supervisory bodies by professionals. We have already completed the process and these companies work successfully. -Which concrete projects do you mean? Which projects has the Partnership Fund finished and which projects are being implemented? -The Partnership Fund has already carried out several successful projects, including, constructed a hotel in Akhaltsikhe, the Samtskhe-Javakheti Region, adjacent to the territory of the Rabati Castle. The hotel is considered to be one of the best assets in the Region. The project was completed by our financial support. After the project completion, the Fund was replaced by Slovak EximBank in the project, while another Slovak company EuroCom has become our partner. The total investment value marked 5 million USD. Another successful project was implemented in the agriculture sector after a several-year serious collapse. The implementation of a large-scale and efficient project in the agriculture sdector was of crucial importance from the standpoint of ecconomic and social issues. A pig farm was constructed in the village of Koda, the Tetri Tskaro District. In this case the state and private sectors have successfully cooperated. I believe the farm will be the best one in Georgia and the whole Caucasus in the agriculture sector. GeoAgro was our co-partner in this project. The enterprise was

equipped with modern technologies. In 2013 the farm will supply pork to the domestic market. The farm’s market ratio is expected to be 15% to 20%. This will be one of the best agricultural projects that have been implemented last period. German company Big Dutchman has projected the farm complex and supplied technologies. The company is one of the world’s leading bodies in projecting modern farm complexes and supplying high technology equipment to them. Genetic material has been supplied by British company ACMC that is one of the leaders on the world market is terms of high productive, quickly growing and healthy pigs. The farm of Kalanda company is located near the village of Koda, the Tetritskaro District on 13 hectares. The project is the best sample of partnership between the partnership fund, the private sector and the bank sector. The sample shows how certain directions should be developed in the future. -What is the project the Partnership Fund is implementing at this stage? - At this stage we are constructing a five-star hotel Rixor in Likani. This is a famous state complex. The Kazakh side is our partner in this project. A total investment value of the project is 38 million USD. Another five-star hotel Radisson is being constructed in Tsinandali and the project’s investment value makes up 16.8 million USD. The fund is also taking part in a 2.3 million USD investment project to construct a hotel in Kvareli near the Ilia lake. The Partnership Fund implements significant projects in the energy sector too. We are constructing the Gardabani 230 megawatt steam power plant. The project value is over 200 million USD. We implement the project jointly with Turkish company Calik Group. Moreover, we are also implementing a hydro power project, I mean Nenskra hydro power plant in Upper Svaneti with 210 megawatt power. The International Finance Corporation (IFC) is interested in the project. We work in the sector that is prioritized by the state. These are two main directions the Partnership Fund is working on and I believe we are success. The mentioned projects prove this sucess. The Fund keeps working on new projects that are

of crucial importance for state economy, especially energy projects. -What would you say about plans for transforming the partnership fund into the Sovereign Fund? What is the purpose of this change and when the process is expected to end? -A government group has been set up to lead and monitor the process. The World Bank (WB) and the International Monetary Fund (IMF) have been involved in the process. Moreover, we have hired an international law company experienced in forming sovereign funds. All mentioned processes are in active phase. We plan to develop the package this summer to introduce it to the parliament and amend the bill on the Partnership Fund. Only after this process, the sovereign fund will be transformed into a sovereign fund. The process is in active phase. New working elements are added to the process every day. We receive new information. We expect the process to end this autumn. -What will be the principle the Sovereign Fund will follow? -The fund will meet international standards. The management and the supervisory board functions will be differentiated. An institute of independent directors will be introduced. The so-called Santiago Principles will be introduced that are important for the sovereign fund operation. -Do you expect the sovereign fund to change the investment policy and the partnership fund’s startegy, in general? -Indeed, the will not be just renamed. I have told the changes will make the fund more transparent to meet international principles of operation of the sovereign fund. Naturally, the investment policy will be different. We have launched detailed exploration of the projects in which the sovereign fund wil take part. -How would you appraise the current economic developments and the forecasts the world’s influential financial institutions have lowered? What is the reason behind the economic growth contraction? - I believe the issue is of short-time and transient period. I tend to think the economic growth fell after the major companies related to the previous

authorities lowered activity. These companies turned out in unclear situation in this transient period, but the months passed and the private sector guessed the new government did not plan to introduce new rules. As a result, business structures, including businessmen related to the previous government have resumed active operation. Today we have the different reality - the business sector is free of state interference. Earlier, the state sector represented a major investor in almost all sectors of the economy. The first quarter has recorded a significant contraction in economic growth, but in April the pace climbed up and the growth exceeded 4%. The coming quarter will be much better. -How would you appraise perspectives of the economic development of Georgia, in general? - Naturally, Georgia has got advantages that may draw interest of investors and foster the economic development. The easiness to launch business, liberal tax regime, less bureaucracy and absence of discrimination and corruption, law tax burden and cheaper workforce and other preferences make Georgia attractive to investors. Our country should make use of those preferences and this way will lead us to the success.

TORNIKE ABULADZE: BANK OF GEORGIA STEPS MAY LEAD TO SOCIAL UNREST

An interview with “Arci” Executive Director TORNIKE ABULADZE - “Arci” sues “Bank of Georgia”, what is the reason? - Yes, we filed a lawsuit against this bank. The main reason for this is that at the time we took a loan to build several houses. When the buildings were completed, clients paid full amounts. Apartments were loaded with mortgage. But the clients has paid money completely. Finally, after we paid the amount, “Bank of Georgia” did not consider it despite the fact that the debt amount was covered, they still didn’t repay the debt and covered the debt of another companywhich also belongs to us. In this regard, we have a dispute.

We believe that the bank cannot be a competitor to its own borrowers. The fact is that we paid the debt, but the bank has not covered the loan and used in other direction. - What is the bank’s purpose? - It is difficult to say. We suppose that this is exactly due to the fact that “Bank of Georgia” has its own construction company. Now it is our competitor. I think this is a reason. I think that my opinion is shared by many other developers. I could not see the other motives. - Even though Parliament had to break the deadlock over the issue on non-core assets, ultimately the decision is prolonged. What do you think is the reason? -There are many reasons, many factors, and I cannot name any specific. - How do other banks behave in this situation? Do other banks face the similar problems? - We have had some relationship with several banks. I do not name them because we have reached an agreement with them now. - So, you have no problems with them? - We have reached an agreement with any other bank (there were three banks). I mean memorandumand today agreements are being signed. - Do other banks have non-core assets in the real estate segment? - Other banks do not have non-core assets in the real estate sector. You can find a subsidiary of

any bank on its own site. If you enter “Bank of Georgia” site they can offer you an apartment. Unfortunately, our current legislation allows the bank to have non-core assets. But when we speak about other banks, they do not have noncore assets in the development sector. Any borrower, whose business is profitable, could be in the hands of the bank the next day. This danger exists today and the legislation allows it. Then it depends on the bank’s internal politics to do it or not. It seems to me that this is a very difficult for business development. -Whether the problem is in the developers? - I very clearly state that 50 percent was developers’ fault. - Do you mean yourself under these 50 percent? - In the end, it is incorrect not to mean ourselves. If something good or bad happens, this is our fault,it’s our company’s image. But we always announce that development faces a very big problem in terms of professionalism and competence. This means that most developers are not competent in this business. - Did it cause damage to you? - We have spoken about this since 2007. I have made a presentation in all banks, thus telling about the risks in development and that they did not have to issue loans so easily as they did. In 2007, we started to talk about the need to bring in regulation, but were refused. Nevertheless, I

think that banks’ fault is that they issued loans to non-professionals and did not calculate the risks about which we warned. - For all that, what is the situation in the market? In spite of the current situation, is the user active? - In early 2008, we had 700 customers who had a problem, now that number dropped to 229 people. This means that a very large problem will be overcome. We have to work a lot, but it’s very important in this sector. As for the situation in the market, the situation is quite changed. Certain trends are observed in the market. First - this is a short historical memory that surprised me. Several new companies appeared on the market wand started selling the air. I think that this is bad. As for demand, it is quite high, especially in Tbilisi. Activity has reduced in the last 1.5 months, I cannot tell you why. As for transactions, they are still concluded. In general, the demand is observed for premium segment, which, to tell you the truth, surprised me. - What are the prices for completed apartments and whether there is a shortage? - The deficit is too large. - Then why are surprised that someone starts new construction? - It’s not surprising that someone starts new construction, it’s surprising that the air is sold withoutwarranty. The fact that our sector faces demand and shortage is obvious.

INTERVIEW caucasian business week

KOKA GUNTSADZE: A 3-HOUR TRIP FROM TBILISI TO BATUMI BY RAIL IS AN ILLUSION

REVENUES OF GEORGIAN RAILWAY AMOUNTED TO $64.5M IN Q1

An interview with the Chairman of the Supervisory Board of JSC “Georgian Railway” KOKA GUNTSADZE

SC Georgian Railway reported revenues of $64.5 million for the 1st quarter (about 106.96 million lari). The showing for the same period of 2012 was 105.8 million lari. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the reported quarter amounted to $31.7 million (about 52.57 million lari), i.e. margin made up 49.2%, Georgian Railway said. The company said that transported freight totaled to 4.55 million t, increasing year-on-year by 0.13%.

GEORGIAN RAILWAY: ADDITIONAL FREIGHT OF 900,000 T TO BE TRANSPORTED THIS YEAR

irector general of JSC Georgian Railway Mamuka Bakhtadze declared that planned growth for freight transportation makes up 900,000 t for this year. Last year, total volume of transported freight made up 4.55 milliont. For this year, growth by 500,000 t is planned for transportation of freights within “vertical integration in transportation industry” of Black Sea countries (Bulgaria, Romania, Russia, Turkey, Ukraine), Bakhtadze said at today’s briefing. Upon fulfillment of this plan, customs terminal will be created in freight yard of Batumi station, where freight from Turkey (entering Georgia through Sarpi customs checkpoint) will be transshipped from trucks to railway cars, director of Georgian Railway reported. Bakhtadze said that active negotiations are underway with Azerbaijan regarding establishment of through tariff on such goods as cotton, grain, coal and Afghan freight of NATO. Bakhtadze reported also that there are plans to introduce ERP system in the company and receive ISO 9001 certificate.

GEORGIAN RAILWAY: AVERAGE SALARY INCREASED BY 29%

eorgian Railway said that employees’ average salary in the 1st quarter amounted to 860 lari. If compared with the same period of 2011, the showing has increased by 29%, the company noted. To note, payroll total of the company has increased from 100.7 million lari (2012) to 129 million lari (2013). Distribution of growth between various directions of the company was as follow: infrastructure – 44%, freight transportation – 41%, passenger transportation – 9%, central office – 6%. For 2013, Georgian Railway has envisaged 1 million lari for aid fund and 500,000 lari for charity fund.

June 24, 2013 #10

- “Georgian Railway” held arepresentation event. The meeting was attended by the government’s economic team. “Georgian Railway’s” future strategy and goals were announced at the event. A fact that the entire economic team attended it indicates the importance of “Georgian Railway” for the country? - Of course, we are all well aware that the “Georgian Railway” represents a major component of the transport corridor in the South Caucasus. I mean the Caspian and Black Sea transit corridor. Railway development plan in this respect is very important not only for government officials but also for the public. I do not remember a time when the railway put its strategic development plan to a broad discussion and openly, publicly, without any kind of closed topics discussed the most important current issues. I would also like to point out that this tradition will be established in Georgia’s practice and will not be any taboo topic, which will be closed to the public. Obviously, it is not a state, a commercial secret. - How is changing the life of the railway? At this meeting everyone emphasized that the railway should become much more competitive. What does it mean and what kind of competition are we talking about? - Here we are talking about several priorities. We do not have to consider a railway as a component out of

the transport corridor, a part and main component of which it is. We defined several priorities. First, it is safety, the second - the new principles of tariff policy, harmonization, harmonized tariff policy with all countries through negotiations, which will be attractive to everyone. We also talked about the modernization of infrastructure, introduction of new management systems, which can improve the management of the railroad, as well as about attraction of additional cargo and mastering of a new geography. There was talk of NATO cargo. Since 2014, when the NATO troops will start withdrawing and bring out military cargos, perhaps our corridor will be used for this purpose. There was talk about a new approach, the creation of a marketing group which will work with carriers and forwarders to ease operations in their own business by the removal of barriers. These are the main priorities which are focused on improving the company, to turn it into a business structure, to be open, transparent, and to increase its capitalization. The main thing is that it should perform a function of the geopolitical instrument. - What is changing for the people who travel by rail? You mentioned that infrastructure should be improved, whether there are sources or not, and if not, where will you find them? - Here we are talking about the modernization of infrastructure. First of all, we’re going to introduce auto-lock systems, in order a speed to be higher. As for rolling stock renewal, we have developed astrategy to provide incentives for the private rolling stock fleet, in order to create a competitivesituation. This will provide a substantial renewal of rolling stock, which is very outdated. These are thebasic approaches. - You mentioned the speed, the previous government planned to reduce travel time from Batumi to Tbilisi

to 3 hours. The project is to be completed by the end of 2013. At what stage isthis plan and how realistic was it? - A 3-hour trip from Tbilisi to Batumi is an illusion. Our infrastructure does not have this luxury. At least, at this point. It’s very dangerous and we cannot put passengers at risk. Security is much more priority than to deliver the passengers quickly to Batumi. We should approach this issue more fundamentally, study threats and risks. It is notan end in itself to deliver passengers to Batumi in 3 hours, an end in itself is to increase freight turnover, to make travel comfortable, affordable and safe. This is a very important. The railway’s main function was and remains the attraction of more cargos and actual enhancing of the country’s transit function and role. - Was any kind of final decision taken regarding the bypass railroad? As we all know, you hired a German company, is there any concrete conclusion, is it possible to implement this project? - There are a lot of questions. It is a very expensive project, worth $ 350 million. The project was started so that there was no technical - economic justification, it was not determined how many additional assets this railroad will bring. This is not a profitable project. Approximately 5-6 million are needed annually for maintenance costs. In addition, carrier capacity reduces. This is an unprofitable project, so we had a lot of questions in this regard, negotiations are underway, we have a report of a very serious company which confirms this position. Negotiations with a specific company are underway in order to correct this project so that the railway will see any benefit from here. Very soon, we will get the desired results.

GOGI LOLADZE: GEORGIAN BANKS ARE NOT INTERESTED IN THE STOCK MARKET DEVELOPMENT An interview with the Chairman of the Supervisory Board of the Stock Exchange GOGI LOLADZE - How real do you think is the cooperation between Polish and Georgian stock exchanges? Is there a prospect in Georgia to have the stock exchange that will be able to interest companies? - The stock market, unlike banking, is a different, alternative way of the business and economy funding. There are two main ways of funding the business. This is a bank loan and issue of shares. Accordingly, in our country, unfortunately, only banking direction is developed. We can imagine that our economy and business is standing on one leg. That is why it is absolutely essential to develop the second most important mechanism - the stock market. Therefore, all steps should be taken for this purpose. Stock market is a complex, consisted of many components mechanism. Therefore, it is necessary that all the mechanisms to be properly developed. Among them is a law, infrastructure, people’s awareness, property protection level, the level of the shadow economy, and so on. Unfortunately, for 23 years, Georgia has failed to simultaneously develop all these factors in order the stock market to be sufficiently developed. We hope that this goal is achievable because there is no capitalism without the stock market. We are building a market economy and capitalism. - What is necessary for the first stage to really feel that this market is operating in Georgia? - In 1993, the most important base for the stock market was created with the support of American experts (USAID financial support). It was a legislative framework that was one of the best and is still in the post - Soviet space. Infrastructure was formed, the regulator was created, all this functioned and gradually increased until 2008. Since then, one of the largest operators was interested in the stock market. It applied to the shareholders of Georgian Stock Exchange with proposal at the end of 2007 to buy fully Georgian Stock Exchange. - Did the banks refuse? - Banks with control packages, in fact, fiercely resisted to this, and then did everything the company to lose interest at all. Then there were the events of 2008 - a war, but it didn’t cause so much damage to the Georgian stock market as the legislative amendments that entered into force in 2008. These changes put an end to the effective development of the stock market. - Why were the banks with control package against this? Why was it a problem for them, that “Nasdaq” was interested in the cooperation with you? - There are two alternative ways to start a business.

One - the banking, the second is its alternative. In fact, these two fields are perceived as a competitor. The banking sector is not interested in the development of competitive direction. Unfortunately, it is true. So, actually what happened under the so-called liberalization auspices, caused the fact that virtually 99 percent of the entire trade went outside the stock exchange instead of being a transparent, competitive process. This was a result of the devastating changes that occurred in 2008. So they changed one of the most important principles that trades should be conducted in the stock exchange, that lead to the fact that interest towards stock exchange has disappeared. Accordingly, it was the Istanbul Stock Exchange and the Warsaw Stock Exchange, and so on. When they looked at the market with negative dynamics, of course, they had lost their interest. This is a common phenomenon. -Did you discuss this issue with the then government and what was the response? - The more centralized and monopolized business is, the greater the temptation of the government officials to control business as they should not do. The government, which strives towards autocracy or dictatorship, is not interested in the stock market development. It is interested that business to have as small financing channels as it is possible because it is very easy to control them. - What has changed? Has the government’s position changed? - Something very important is taking place. First of all, the Finance and Budget Committee initiated a bill, which provides for the return to the basic principles which were included at the time (1993) in this legislation on the advice of American experts. This bill was successfully discussed, but the same forces that tried at the time to make changes in 2008, began a fierce resistance. The second issue that is also very important is that Georgian companies try to place their shares in foreign markets, foreign stock exchanges. Previous Prime Minister Nika Gilauri said that we would place “Georgian Railway” shares in the Shanghai Stock Exchange, the London Stock Exchange, and so on. But why should not they be placed on the Georgian Stock Exchange? Does the population of Georgia not deserve it? Do Georgia-based investors not deserve to buy these shares? They were not interested, they did not want Georgian people to become owners and a middle class to be formed. They explained this by one of the popular myths as if there was no money in Georgia. This is

an absolute farce. Deposits with total value 8.5 billion are opened in Georgia (as per the central bank official statistics). 4.5 billion of them fall on term deposits. This is money that could potentially be directed to the securities market. Banks are not interested in doing so. They want the companies to go abroad, to develop Polish, American and the UK stock markets, but they do not want to place shares in Georgia. Therefore, this is a huge myth that the banks are trying to perpetuate. We welcome companies’ access to any foreign exchange, but at the same time, we believe that an investor should be given the opportunity to invest in stocks. This is a very important topic. - Apart from the draft law, if there is any support from the government, including from the parliamentary majority, in order the proposed bill to take a form of the law, do you feel the support today? - I feel the full support from Parliament. This bill has successfully passed through session of both Finance and Budget, as well as Procedural and Sector Economy Committees. Only the minority was against this bill. Today there are attempts to thwart this bill. - When do you expect the bill to be passed? - Plenary hearings are scheduled for the near future, and I hope that this bill will be adopted at this session. As for the cooperation with the Warsaw Stock Exchange, we will accept the offer from them with great interest as well as from other operators, we are ready to begin cooperation at any time.Stock market development is closely tied to the sustainability of the pension system. Pension reform in Georgia will be impossible if the stock market doesn’t develop. These are two very important issueswithout which neither the economy nor the social policy can exist in Georgia.

June 24, 2013 #10

INTERVIEW

caucasian business week

INTERIOR MINISTRY AND PROSECUTOR’S OFFICE MUST PREVENT UNPRECEDENTED ATTEMPTS OF INTEREFERENCE IN PRIVATE LIFE

nterior Ministry and Prosecutor’s Office Must Prevent Unprecedented Attempts of Interference in Private Life The dispute between Vano Chkhartishvili and Ina Gudavadze has become a ground for unhealthy moves of interested forces and mass media. We have been introducing all details of this dispute to the Georgian society. As reported, for the first time, Ina Gudavadze put forward official pretences against Vano Chkhartishvili in February 2013. Mr. Vano offered Ina Gudavadze to choose one auditor company from the world’s leading ones to explore all details of the business ties between him and Badri Patarkatsishvili. Chkhartishvili expressed readiness to concede any assets on the ground of substantiated pretences. He also was ready to remunerate any costs of the auditor company. The sides failed to achieve an agreement because of pressure from the previous government and the dispute moved to the international court by the initiative of Ina Gudavadze. The British court found Gudavadze’s pretences ungrounded in June 2012 and obliged her to pay significant funds to Vano Chkhartishvili. After this, surprisingly, Ina Gudavadze applied to the Georgian prosecutor’s office in June 2012, not in December 2012 as indicated by our opponents. In January 2013 the new prosecutor’s office refused Gudavadze’s action in 9 episodes because of absence of crime signs. The inauguration of a new investigation on the same case is an evident nonsense and it is incompatible with the judicial space of the civilized world. We have doubts that other persons stand behind her like June 2012. Otherwise, it is unclear why a man should additionally seek justice in Georgia’s disordered court system, when the British court keeps probing into the issue and epi-

sodes on the ground of Gudavadze’s action. We would like to draw your attention to the facts after deliberate dissemination of fraud by our opponents. Their main argument is as if Vano Chkhartishvili sold assets in 2008 after the death of Badri Patarkatsishvili, but this is a complete fraud. Part of the assets was bought off from Patarkatsishvili on Augugst 16, 2006 and a respective document was submitted to the Georgian media. In 2008 assets of Badri Patarkatsishvili could not be sold, because all assets were arrested by the Georgian Authorities. To neutralize the pressure on Vano Chkhartishvili, he sold his own assets in 2008, not Patarkatsivhili’s assets. Vano Chkhartishvili used to pay taxes from those assets. Another part of the assets were appropriated by Saakashvili’s authorities and it is unclear how could Chkhartishvili be responsible for those assets? Anyway, there are issues that require clearness and we have never refused to negotiate them. In the end, this case could remain one of the ordinary private disputes if not dangerous interference in the private and business life of the persons involved in the case. Initially, an anonymous author disseminated materials of private and business life of Vano Chkhartisvhili. The materials were obtained by criminal tricks. It is clear these materials are related to the current information campaign, because the English passport used by the anonymous author was to discredit Vano Chkhartishvili and disseminate misinformation. Our society must know intelligence servies of the previous government stole those documents from a private PC of Vano Chkhartishvili. Based on those documents an by use of forged documents, the regime of Saakashvili attempted to blackmail Vano Chkhartishvili and leave him without support of democratic forces. The way the materials turned out in the hands of

the anonymous author can be identified by the Interior Ministry becasue the circle that could have access to those materials is very narrow. Moreover, it is not difficult to idenitfy the personality of the anonymous author either. Anyway, the issue is of obtaining materials of private and business life in a criminal way and this is an unprecedented case of use of those materials for criminal goals. We apply to Interior Minister Irakli Gharibashvili and Prosecutor General Archil Kbilashvili to prevent attempts of rude violation of constitutional rights for private and business life. We also apply to the parliament’s committee for human rights protection and other human rights defender organizations, the association of young lawyers of Georgia and the association of young defense lawyers to impose strict control over the case because this is a new challenge before the Georgian society and if this attempt is not prevented, tomorrow and the day after tomorrow certain forces will try to dictate their rules to the Georgian society through the materials obtained from the archives of Georgian intelligence services.

We are ready to provide overall responses to the questions of law enforcers and the Georgian society. At the same time, we urge Ina Gudavadze to adhere to civilized forms for resolving the issue and stand away from the conductors of the black PR campaign, because, on the one hand, similar disputes cannot be resolved by media blackmails and, on the other hand, similar approaches hinder to resolve the issue at the round table by negotiations. The Georgian society will be informed on their interests and illegal activities in the near future. Meanwhile, they continue blackmails. A Turkish businessman has sued Vano Chkhartishvili as if he had received certain incomes. The so-called initiative group of “timely appeared” human rights defender Melor Vachnadze has showed more zealousness and he organized rally in front of the businessman’s office with the demand for return of Soviet-time deposits. All this makes use smile and there is a single answer to all these issues - businessman Vano Chkhartishvili has never been subjected to pressure and blackmails and this will not happen in the future either.

ZURAB GVASALIA: STABLE RATING ASSIGNED TO THE BANKING SECTOR DOES NOT MEAN THAT LIVING STANDARDS OF THE POPULATION INCREASE An interview with the President of the Association of Banks of Georgia ZURAB GVASALIA

- An influential rating agency “Fitch” confirmed long-term rating to four Georgian banks as well a positive prognosis. These banks are “Bank of Georgia”, “TBC Bank”, “ProCreditBank” and “Liberty Bank”. According to the agency’s official press release, this indicates that the country’s economy, despite a slowdown in economic growth, has good prospects. The agency focuses on a few details, especially important is a share of problematic loans. Do these assessments indicate that after the post-crisis period, the country has passed the post-election period and today it is possible to respond to future challenges? - A fact that an international rating agency such as Fitch confirmed long-term stable rating to the leading Georgian banks unequivocally means that the banking sector is developing in Georgia and there is no danger to the stability of the banks. For us, this assessment was not unexpected because the banks retain their activity. Again, we have

an increase in profits and activity. For a country like Georgia (I mean the country’s economic indicators), forecast stable rating confirmed to 3-4 banks means that their development will be stable and good in perspective. We must consider the country’s economic indicators, the pace of development, we must do a thorough analysis of where the economy is going, and so on. This is because everything is consistent, banks stable development is directly linked to the country’s economic growth. This indirectly indicates that the country has a real prospect of stable development of the economy in the future. This in itself is a very positive signal to investors, which in turn reflects on the country’s future economic development. As for problematic loans, it’s meant that their share makes 1 - 4 percent of the whole portfolio and it was not a surprise either. This figure has never exceeded 5 percent in Georgia. Standards established by banking supervision as well as the risk assessment practice introduced in our country works quite correctly, and the result is evident. - What impact will the fact that a rating agency confirmed rating parameters to 4 banks and said that they had a solid financial performance, have on ordinary citizens in terms of lending, interest rates on deposits as well as on business? I mean that business needs lending but it has recently been reduced. - This reduction was not due to the banking sector. Desire is deposits to be higher and the interest rates on credits to be very low. However, it doesn’t happen this way. They are correlated with each other, depend on each other. The trend is ap-

parent that the interest rates have come down, and of course, this is one of the indicators that interest rates have also to come down. There was talk of whether the interest rates announced by the banks in ads are real. The effective interest rate has come down. But everything has its limit and period. It takes time. As for an impact on the population, it should be reflected in the improved services offered by banking sector, interest rates, special offers and new products. The assigned stable rating doesn’t mean that the living standards of the population will increase as well as their incomes. It’s all tied to the economy. If the economy is not on the way of development and doesn’t develop steadily, the banking sector, naturally, cannot develop. Economic development leads to jobs creation, to enrichment of the population and so on. This does not happen immediately. Everything has its time and time determines everything. Proper management of the economy, the use of local investors, the programs that are being implemented for the development of agriculture, the funds that are one of the factors for the future economic prosperity are the most important.. - Should we expect lending growth in the near future, or it’s already being observed and what is the demand in this direction? In addition, were the funds you mentioned justified and can such funds help the banking sector to actually set the same interest rates in the coming years? - As for agricultural sector, banking sector index was shameful. It took a very small part of the portfolio. A number of issued loans is growing very rapidly. A serious work is underway and a lot ofapplications were submitted in the banking

sector. The problem is to serve everyone on time, so many applications have been submitted. This means that the product is working. A consumer loan is the most problematic issue because it has the highest percentage. The greatest part of consumer loans are tied to jobs and salaries. The problem is here, because the number of jobs is not yet enough in order everyone to be able to use consumer loans. As for the business, we constantly talked that our business was passive, but not now. Big business moved to the active stage. Small and medium businesses have always been active. Large businesses have the resources to wait a while, to exist at the expense of the accumulated funds and when everything is fine to start the activity. Medium and small businesses are not able to endure this, so it was always active. When the 6-month results will be published, you will see that there will be a considerable increase in the loan portfolio. - After a well known meeting, which was held in the central bank, the banks began to implement changes in terms of commercials? We are talking about the fact that the information aboutbank products should be accurately reflected in ads. - Of course. National Bank has explicitly stated that it would make public focus. But it is very difficult to place more detailed information in ads, then a documentary film should be shot. It is very tightly controlled by the National Bank and no bank will allow itself to spoil its image due to the advertisement.The quality of commercials will gradually grow, and it would be acceptable to the population.

BUSINESS

caucasian business week

June 24, 2013 #10

AS SANCTIONS BITE, IRANIANS INVEST BIG IN GEORGIA

conomic sanctions against Iran have made it increasingly hard for Iranians to do business abroad. But Iranian businessmen are flocking to Georgia, a longtime U.S. ally in the Caucasus region, to pursue profits evaporating in much of the world. In recent months, Iranian nationals have taken the reins of a private Georgian airline, a major trade bank and a scrap-metal plant. Persian is often heard, such as on a recent night at a Tbilisi casino, where Iranian tourists played roulette and sipped drinks brought by Russian hostesses. Iranian products ranging from roofing materials to sourcherry jam are pouring into Georgian markets, made more attractive by Iran’s weak currency. Iran’s government itself is buying Georgian land, Iran’s agriculture minister has told Iranian media. “It’s all Iranian, even that one with the sticker ‘Italy,’ “ said Iasha Tsatsanidze, a Georgian trader, pointing to a plastic garden hose among goods he was selling at a Tbilisi market last month. “It’s cheap and good quality.” This is a boom being closely watched by U.S. authorities charged with enforcing sanctions that aim to block Iran from obtaining nuclear weapons. “We are focused intently on shutting down any Iranian attempts to evade sanctions, including through possible business connections in Georgia,” said David Cohen, the U.S. Treasury’s top official overseeing Iran sanctions. “We are working closely with the Georgians on the issue.” Two delegations from the Treasury have visited Tbilisi in recent months to discuss the matter, according to U.S. and Georgian officials.

In some cases, they may have reason for concern. The business branch of Iran’s Islamic Revolutionary Guard Corps has some 150 front companies in Georgia for the purpose of evading sanctions and importing dual-use technology, according to two members of the Revolutionary Guard and to the head of a Tbilisi facilitator agency—who said he helped set up such firms registered under Georgians’ names. “Investing in Georgia is a way of skirting the sanctions,” Iranian media quoted an Iranian development official as saying in December. In Tbilisi, Javad Golchinfar, an Iranian who helps his countrymen set up Georgian businesses, said in an interview: “Especially in the banking sector, Georgia has become a key place to evade sanctions.” Georgian officials said they closely monitor the trade to prevent just that. “There’s intense and routine coordination between the U.S. and Georgia on enforcing Iran sanctions,” a senior Georgian official said. Iran takes the position that the sanctions are illegal and its companies have the right to do business everywhere. Economics Minister Shamseddin Hosseini said in an interview that to offset declining commerce with Europe and Mideast states, Iran looks to expand trade with Asia and the Caucasus region. “It’s the new Dubai here” in Georgia, said a 25-yearold Iranian trader named Amin Akbari, referring to the United Arab Emirates financial center that historically has been the main overseas locus of Iranian business. Mr. Akbari’s Tbilisi company, Saint Rich Amin, imports Iranian asphalt to Georgia and uses Georgia’s Black Sea port to transport Ukrainian wheat to Iran— all legitimate trades. Commerce such as that, a large part of the Iran-related business here, doesn’t normally run afoul of sanctions. Yet U.S. and European officials suspect that some illicit funds handled by other Iranians are mixing into the

financial flood here. Some recent developments suggest why Washington is concerned. In the past two months, Georgian customs has caught Iranians landing from Dubai with a total of $315,000 in smuggled cash, according to the agency’s website. Among Iranian companies marketing products in Georgia is one that counts among its customers back home the hard-line Revolutionary Guard. The company, Parsian Civilization Development Co., sells products in Georgia ranging from Iranian tomato sauce to bathroom tiles. “Georgia is a good market for us,” said its general manager, Hamid Reza Miraftab. In Iran, though, Parsian sells a line of equipment that includes mobile-phone jammers. A list of customers on Parsian’s website is a who’s who of Iranian power centers: Besides the Revolutionary Guard there is the Interior Ministry, the office of the Supreme Leader and the Atomic Energy Organization of Iran. Mr. Miraftab didn’t respond when asked about Parsian’s business in Iran. There is no suggestion the group’s Georgia business violates sanctions. The surging Iranian presence in Georgia has startled the Obama administration because of deep U.S.-Georgia ties that developed after the 1991 breakup of the Soviet Union. In 2008, the U.S. publicly supported Georgian President Mikhail Saakashvili in Georgia’s military clash with Russia. The U.S. also has supported Georgia’s application, still pending, to join the North Atlantic Treaty Organization. In addition, Georgia has been one of the few countries sending sizable troop deployments to back the U.S.-led war in Afghanistan. But when it comes to Iran, Georgia, which recently elected a prime minister who takes a less pro-American stance than Mr. Saakashvili, seeks to forge an independent line, its officials said. A large portrait of George W. Bush stands along the highway to the Tbilisi airport, honoring the former U.S. president for his support in the 2008 war. Yet a few miles along the same road is a billboard for Sepahan Oil Co., an Iranian company subject to U.S. sanctions. Sepahan’s office in Tehran didn’t respond to requests for comment. Georgian officials said they regard Iran as too important diplomatically and economically to isolate or ignore. Although Georgia has shunned heavily sanctioned Iranian crude oil and natural gas, it imports lubricants and asphalt from Iran, some of it over land, according to Iranian businessmen in Tbilisi. Such trade could violate U.S. sanctions if it involves companies such as Sepahan.

ment boom in Georgia, according to corporate documents and Georgian and Mideast businessmen. Houshang Hosseinpour, Pourya Nayebi and Houshang Farsoudeh have jointly established one of Georgia’s first private airlines, FlyGeorgia; have gained control of a bank, JSC InvestBank; and have opened a string of other ventures. They also negotiated last year to buy a Sheraton hotel in Tbilisi and the Poti industrial zone on the Black Sea, both from an investment fund controlled by one of the U.A.E.’s royal families. Mr. Nayebi said those efforts have been put on hold. The trio’s rapid expansion has raised alarms in Washington and Europe rooted in worries their efforts might be linked to Iran’s government, said Western officials. In visits to Tbilisi, U.S. Treasury officials have specifically raised the matter of the men’s acquisitions, according to Georgian and American officials, based partly on their bank’s dealings in the Iranian currency. Messrs. Hosseinpour and Nayebi, in separate interviews, denied any financial ties to Iran’s government. They said they simply saw opportunity in Georgia after Dubai’s welcome mat frayed. “I have no connections to Iran,” Mr. Hosseinpour said. “We have nothing to do with evading sanctions.” Mr. Nayebi said, “We are not working for Iran’s government. We hate them and worked very hard to set up our businesses abroad away from Iran.” The third man, Mr. Farsoudeh, didn’t respond to interview requests. Mr. Hosseinpour, in his mid-40s, was born in Tehran and later obtained residency permits in Canada and the U.A.E., plus in 2011 a passport from the tiny Caribbean nation St. Kitts and Nevis. His two partners also hold St. Kitts passports. Mr. Hosseinpour said he initially ran a trading business in Dubai focused on supplying cars and auto parts in the Middle East and North Africa. His family had hailed from the Caucasus region, he said, and he was drawn to Georgia after the 2008 Russian-Georgian conflict. He said he had bought about 500 acres near Georgia’s border with Armenia to raise corn and wheat. Iranian airlines are increasingly cut off from international destinations as sanctions limit them in buying fuel and spare parts. Mr. Hosseinpour said that last year he founded FlyGeorgia, which established direct flights to Tehran. It is 65%-owned by him and Mr. Farsoudeh, Georgian corporate records show, with Mr. Nayebi as chairman. Business wasn’t booming on a recent FlyGeorgia flight to Tbilisi from Düsseldorf, Germany. On a largely empty plane, fliers were served Georgian wines by hostesses in tightfitting red dresses, practices hardly suggestive of a link to Iran’s theocracy. Messrs. Hosseinpour, Nayebi and Farsoudeh gained control of the Georgian bank InvestBank in 2011 through a Liechtenstein-based investment fund called KSN Foundation, Georgian corporate documents show. The bank that year reported holding some assets in Iran’s rial, the only Georgian bank to do so. This is a red flag for Washington. The U.S. has passed a law, taking effect July 1, that calls for sanctioning any

US EMBASSY COMMENTED ABOUT WSJ ARTICLE ABOUT GEORGIA

According to Georgian government officials, the closer ties between Iran and Georgia stem both from intimidation—after Iran threatened to recognize breakaway Georgian regions—and a need to tap into Tehran’s economic potential. “It’s not our interest to be on a high level of enmity with Iran,” one official said. In 2010, Georgia decided to lift visa requirements for Iranian nationals. It is one of just three countries in Europe and the broader Middle East that grant Iranians such easy access. The others are Turkey and Armenia. Companies registered by Iranians in Georgia shot up to 1,489 last year from just 84 in 2010, a corporate registry shows. More recently, the welcome has led growing numbers of Iranian nationals to move to Tbilisi from Dubai— which, under U.S. pressure, has been tightening its own restrictions on Iranian businesses, according to Georgian officials and Iranian businessmen. Three men, in particular, have driven the Iranian invest-

firm dealing in the currency outside of Iran. InvestBank held no rials at the end of 2012, a newer audit showed. Liechtenstein regulators began a preliminary inquiry into the foundation through which the Iranians bought InvestBank after learning the U.S. Treasury was investigating the bank on concerns it could be used to bypass U.S. sanctions on Iranian banks, said a top Liechtenstein financial regulator. Georgian financial regulators said that they are cooperating with the Treasury in investigating InvestBank. The Georgian regulators said they hadn’t found evidence the bank helped Iran avoid sanctions. They did say that the bank’s Iranian owners hadn’t properly disclosed changes in the bank’s board, and the Georgian central bank is looking into “whether any unlawful change in the ownership structure…has taken place,” said a central-bank legal officer. Mr. Nayebi, InvestBank’s chairman, said that “maybe [bank officials] didn’t update” board changes with the regulator. He said the problem might have arisen because he was “too busy” with other Georgian ventures, such as one in agriculture. “The U.S. government is wasting its time” in scrutinizing InvestBank, Mr. Nayebi said. “We didn’t do anything in breach of sanctions.” Giorgi Kadagidze, the Georgian central bank’s chief regulator, said his government is taking extra steps to make sure no sanctioned Iranian company can penetrate Georgia’s banking system. Georgia recently amended its laws to bar any country subject to international sanctions from opening “microfinance” outlets that make small loans. “Everything regarding Iranians makes us take a much closer look because of the sanctions,” Mr. Kadagidze said. Georgia banking officials said they have thwarted several efforts by Iranian banks or people linked to the Tehran regime to open finance offices in Georgia. Two years ago, Mr. Kadagidze said, top managers from Iran-based Bank Pasargad visited Tbilisi three times seeking to open a branch. Denied a license, the bank complained to the Georgian Foreign Ministry, he said. The U.S. has since blacklisted the bank, a designation that bars Americans from dealing with it and also puts pressure on foreign banks not to. A Pasargad publicrelations official declined to comment. Iranian businessmen search out channels to finance their Georgian enterprises. Mr. Akbari said for his wheat exports, letters of credit are issued using accounts in China and Qatar. One Iranian trader in Tbilisi said he pays for imports from Iran by using a branch in neighboring Armenia of Iran’s Bank Mellat, which is sanctioned by the U.S. and EU but not the U.N. Some Iranians in Georgia said they had to send cash overland to Tehran to pay for imports—worth the risk because Georgia is a rare friendly market. “We send the payments…by car through Turkey and Armenia,” said Mohsen Bashiri, who runs a Tehran-based company selling copper cable in Tbilisi. “We hope we can expand” in Georgia. wsj.com

S Embassy commented about article, published in The Wall Street Journal about Georgia. The article was about operating of Iranian companies in Georgia and their possible connection to Iranian government. “The U.S. Government is focused intently on shutting down any Iranian attempts to evade sanctions, including through possible business connections in Georgia. We are working closely with the Georgians on this issue. Contrary to certain statements in the article, we see undiminished interest on the part of Georgia’s government in strong relations with the United States, and a continued strong desire for Georgia’s Euro-Atlantic integration. Similarly, U.S. concerns involving Iran sanctions evasion here have grown in recent years, and pre-date the current Georgian government”, - says the statement. Based on anonymous sources, WSJ wrote that during last 2 years over 1000 Iranian companies are registered in Georgia and activities of 3 Iranian businessmen cause concern of US gov-

ernment. These businessmen own air company FlyGeorgia and Invest Bank. American edition reports that these businessmen control Invest Bank through KSN Foundation, registered in Lichtenstein (owner of 70% bank’s stocks). Currently Liechtenstein, Georgia and US investigate possible participation of Invest bank in violation of US-imposed sanctions.

June 24, 2013 #10

BUSINESS & ECONOMY caucasian business week

THE GEORGIAN WINE INDUSTRY: RECENT PAST AND THE WAY FORWARD

We are very happy to post the second part of Jacques Fleury’s commentary on the Georgian Wine Industry. In the first part, Jacques reflected on the experience of surviving the Russian embargo, on the one hand, and dealing with a series of heavy-handed and incompetent government interventions, on the other. In the second part of his comment Jacques proposes a new vision for the future of the Georgian wine industry, a future in which the government and the private sector work hand-in-hand to support small vine growers and promote Georgian wines to new markets. PART B: SUGGESTIONS FOR A STRATEGY TO DEVELOP THE GEORGIAN WINE INDUSTRY, 2013-2017

2. Facilitate the financing by IFI’s of the institutional and professional strengthening of the Georgian Wine Association.

1. Open new export markets

Facilitating support of GWA by the International Financial Institutions (IFIs) A close cooperation between the new Government, the Georgian Wine Association, the grape growers, and the IFI’s is essential for the industry’s expansion and the future of Georgian wines. During the past several years the Government has ignored the key role of the private sector, and even positioned itself as a competitor to the private sector. Moreover, a $4 million financing prepared by the USAID to support the institutional build-up of the Georgian Wine Association was cancelled at the request of the Government. Likewise it was impossible to obtain any financing within the large World Bank support package for the sector due to the will of the Government to keep all those funds managed by its own administrative resources. At this stage of development, the Georgian private wine industry needs the support of the state or IFI’s in order to undertake strategic marketing investment similar in size (relative to the sector’s present size) to investments made by other New World countries.

We can safely assume that there is little awareness of the Georgian wines outside the ex-USSR region and the ex-USSR immigrant communities in the West. My own research in the largest import market in the US convinces me that less than 1% of the potential wine consumers are aware of a country called Georgia (they first think of the State of Georgia), producing wine and furthermore being at the origin of the wine history. Therefore, there is no way to diversify Georgian wine exports without a massive effort to create awareness of the fabulous story of the Georgian wine. Why reinvent the wheel? A look at the New World wine countries Georgia’s strategy should incorporate the main lessons learned from the successful experience of such New World countries as New Zealand, Australia and Chile during the last thirty years. 1. Establish close cooperation between the state and the private sector. 2. Create a Marketing Board to promote better awareness and image of the Georgian wines abroad. In other countries, this effort was managed either fully by the private sector, or in close cooperation between state institutions and the private sector, but still driven by the dynamism of the private sector. 3. Launch targeted marketing campaigns designed and monitored by the Marketing Board, staffed by Georgian professionals and having limited support of experienced marketing experts from the New World wine countries or from countries having launched new wines in the last twenty years.

2. Establishing close cooperation between the state and the private sector – development of the GWA In previous years, promotion of Georgian wines has been primarily initiated by the public sector without close cooperation with the private wineries. This has to be reversed. The state cannot replace the private sector, especially in the field of marketing. Georgian wines should be promoted under the leadership of the Georgian Wine Association (GWA) which could create a marketing board within its structure, as is the case in other countries. Helping the private sector to develop the Georgian Wine Association As is well known, the Georgian wine industry was severely hit by the Russian embargo, bringing FDI to a halt. No wine industry in the world had to face so many disasters in the last 6 years! It was quite symptomatic of the situation that Pernod-Ricard, the number 2 company in spirits and wines in the world, has quit Georgia in 2011. Despite this, a handful of private Georgian companies have been growing remarkably. None of them, however, have sufficient size and profitability to engage in international communication campaigns. Thus, if Georgia really wants to come back and be on the world wine map, this still fragile industry is in need of effective coordination and strong support. We suggest to: 1. Redirect public funds from loss-making industrial investments to marketing campaigns properly managed in cooperation with the GWA, representing the private sector.

3. Providing support for the small growers without causing value chain destruction The success of the Georgian wine industry will be complete if the whole chain is successful. The future and the responsibility of small grape growers must not be considered only as an electoral challenge. As long as the Russian embargo is in place and until the wine industry has not fully recovered its pre-embargo volumes, grape prices resulting from a free market situation may be below production costs, forcing some of the growers to abandon the sector. The private sector and the state should closely collaborate on the identification of commonly acceptable solutions. The Georgian wine industry needs the support of the thousands of small growers. The state and the wineries should favor grouping these small farmers into communities of interests so as to deliver technical assistance, support and help for the commercialization of their crops. Small growers should be helped to join an association of grape growers that could merge with the association of wineries as it is the case in several countries of the New World and Western Europe. In the Old World, the production of wines is more fragmented, due to a tradition of vine growers who are at the same time wine processors. Subsequently, the European organizational designs for the wine industry are frequently based on a dual system, where both growers/producers and processors/traders are represented in dedicated organizations, which are responsible for the negotiation of economic matters (i.e. reference prices of grapes or wines) and establishing common promotion strategies through an “inter-professional” approach (especially in France). This kind of structure, where the state – a key stakeholder – acts as a referee, is better than the one in which the state appears as a direct economic actor. Such a structure could inspire the future design of a new, better-balanced wine sector organization in Georgia, serving the interests of all parties by improving the entire value-chain. State funds that are now used to destroy value

in our chain (through industrial investments in the sector or by imposing operating losses on the private wineries) should be redirected towards the support of the small farmers with a view to improving their technical performance. Their income would thus increase not only as a result of the imposition of a “political” price but also from improvements in productivity, which is quite low in many cases. Excess crop should be treated professionally to produce good quality wines and should be put back at the disposal of the private sector under a tender system or subject to an agreement with the industry. Alternatively, it could be redirected towards the local market as explained below.

4. Developing the local market A large quantity of Georgian wines is sold in bulk on the local market, including home-made wines, etc. Despite the fact that some of these wines are of excellent quality, there is a number of bulk wines that are not meeting microbiological quality standards in the market. Everyone here has experienced at least once the next morning headache after a Supra. It is the responsibility of the industry to provide cheaper, safer bottles of wines to the market at prices that would not be so much superior to the existing bulk wines. Instead of mishandling the surplus of grape production, the state in association with the private sector should use these surpluses for the production of cheaper bottled wines for the current home consumption of bulk table wines.

5. Supporting research and new product development Georgia probably has more than 500 varieties of existing vines. Only a few of these varieties are commercially exploited now. All efforts should be made to create new wines from those forgotten vines. Some of the latest archeological findings provide evidence that the story of wine started here some 8000 years ago. We need to pursue this line of inquiry and develop DNA and genetic tests in collaboration with foreign research centers and

universities to identify similarities between the famous world varieties and old Georgian varieties in order strengthen the global awareness of the historical connection of modern winemaking abroad with the ancient Georgian traditions. We also strongly recommend developing an international class Education Center for Oenologists in Georgia.

6. Attracting famous wineries to invest in Georgia We should definitely attract some of the famous names in the world wine industry to invest in Georgia. This would have enormous consequences for the success of communicating the Georgian wine story. We would definitely like to hear more renowned wine producers such as the owner of Pétrus who claimed a few years ago, while responding to the Russian journalists: “My next ambition as a wine producer would be to invest in Georgia, the country where it all started”.

7. Unified approach to negotiations with Russia There are reasons to think that the Russian borders will soon reopen for Georgian wines. It would be important to reenter in a unified way, in close cooperation between the Georgian Government and the Georgian Wine Association. The reopening of the Russian market would probably solve many problems for the Georgian wine sector in general, and for the small grape growers in particular. Nevertheless it should be done with very strict discipline, having the high quality objective in mind. Mistakes of the past should not be repeated. The Georgian Wine Association is asking the Georgian Government to be a part of any negotiations with the Russian Government. GWA is recommending to all of its members not to engage in unilateral negotiations and not to contact other parties before we are given the green light by the newly elected Georgian Government. www.iset.ge

BANKING NEWS

8 LIBERTY BANK TO OPEN NEW BRANCH IN BATUMI

IFC TO ALLOT $4M TO FINCA GEORGIA

iberty Bank announced that it will open new outlet in Batumi tomorrow. The branch, located on Javakhishvili Street, will be 19th outlet of the bank in this city. According to Liberty Bank, its countrywide branch network numbers currently 246 outlets.

TBC BANK REDUCES INTEREST RATE ON DEPOSITS

BC Bank reduces interest rate on My Safe and other saving accounts. From August 1, interest rate of GEL denominated My Safe is reduced by 0,5% - to 5,5%, in USD – from 4% to 2,5%. Interest rate of saving deposit both in national and foreign currencies will reduce by 1$ and will be defined respectively at 2% and 1%. Interest rate of fixed-term deposit also reduced, from June 15 interest rate of 2-years long deposit, denominated in GEL reduced from 10,25% to 8,75%, in USD – from 6,75% to 5,25%. Vakhtan g Butskhrikidze, director general of the bank states that in the medium-term perspective total structure will change. If deposits were mainly mobilized in USD, they’ll be replaced with GEL, because they’ll have higher rate in comparison with USD. Respectively, credit resources in EL will increase, which, according to Butskhrikidze evaluation, will be useful for debtors.

INDIVIDUAL DEPOSITS MARKED 4.163 BILLION GEL AS OF JUNE 1

Individuals’ deposit portfolio in the banking sector equals to 4163 billion GEL by June 1. Deposit amount is increased by 31 million in May, by 548 million GEL - from the beginning of year. From the beginning of the year, retail deposits’ interest rate is reduced by average of 3%, in USD - to 6,5%, in GEL - to 11,5%.

HALYK BANK ENDS JANUARY TO MAY PERIOD IN 52 000 GEL PROFITS

SC Halyk Bank (Georgia) completed January-May 2013 with 52 thousand GEL profit (2012 - 0,7 million GEL loss). By June 1, credit portfolio of the bank is 49 million GEL (2012 - 45 million GEL), deposits - 5 million GEL (2012 - 8,3 million GEL), overall obligations - 50,4 million GEL (2012 - 47,7 million GEL). Bank’s actives equal to 90,3 million GEL (2012 70,6 million GEL), market share - 0,6%. Kazakhstan People Bank (Halyk bank) is founder of the bank. They got license at the beginning 2008. Overall stock capital of the bank is 40 million GEL. Halyk Bank increased authorized capital by 17 million, to 48 million GEL in May.

NBG EXPECTS QUICK GROWTH IN CREDITING VOLUME IN CASE OF DEMAND

ational Bank of Georgia considers that Georgian banking system has great number of liquid resources and capital, which will make possible quick, increased of credit activities in the case of demand intensification on loans. It’s stated in the press release, disseminated by National Bank of Georgia after Wednesday session of Monetary Policy Committee. The committee reduced refinancing rate by 25 basic points, to 4,0%, which is a record minimal mark. “Recent Mitigation of monetary policy by National Bank of Georgia, expressed by reduction of policy rate, also enlargement of mortgage base of NBG operations, was already reflected on the interest rates, which enhances intensification of the joint demands”, - press release states. It also indicates that after the May session infla-

tion prognosis data has not changed, according to which inflation will remain on the low level during a year and will return to target level by the end of next year. Overall inflation equaled to -0,1% in May. Monthly inflation was registered at 0,7% level. Cheapening of energy price reduction and seasonal increased prices on fruits and vegetables influenced price dynamics. Market effect and one-time reduction of administrated prices were also important. “Since according to existing prognosis, inflation rate is lower than target level in the mediumterm, National Bank of Georgia continues mitigation of monetary policy and reduces monetary policy rate”, - stated the committee, which will held next meeting on August 14. GBC

BANK SECTOR COMPLETES JANUARY TO MAY PERIOD IN 132.571 MILLION GEL PROFITS

eorgian banking sector completed January-May 2913 with 132 571 million GEL profit. Profit has increased by 30,9 million GEL in May. By June 1, like in previous reporting month, 13 banks out of 20 are profitable. For the reporting period, own funds of the banking sector (stock capital) equals to 2,609 billion GEL (first quarter

2913 - 2,5 billion GEL). Supervisory capital equals to 2,688 billion GEL (first quarter 2013 - 2,6 billion GEL), capital adequacy ration - 17,8% (first quarter 2013 - 17,7%). for the reporting period, Return on Equity (ROE) is 12,6%, Return on Actives (ROAD) - 2,2% (first quarter 2013 - 10,5%, 1,8% accordingly). Consolidated data includes results of 20 commercial banks. GBC

MONEY TRANSFERS IN MAY

n May 2013, the volume of money transfers from abroad constituted 114.7 million USD (188.4 million GEL), which is 1.9 million USD (3.2 million GEL), or 1.7 percent less than the same amount for May 2012. 93.6 percent of total money transfers from abroad fall on those 12 big donor countries, from which the volume of such transfers exceeded 1 million USD in May. In May 2012 the share of these 12 countries constituted 94.6 percent of the total volume of money transfers.

PROGRESS BANK ENDS JANUARY TO MAY PERIOD IN 107 569 GEL PROFITS

SC Progress Bank completed JanuaryMay 2013 with 107 569 GEL profit (2012 loss – 1,5 million GEL). By June 1, deposit (non-banking) portfolio is 11,9 million GEL (2012 – 4,053 million GEL), loans – 22,5 million GEL (2012 – 16,024 million GEL), overall obligations – 14,9 million GEL (2012 – 5,5 million GEL). Actives are 30,1 million GEL, market share – 0,2% (2012 – 20,7 million GEL, 0,14%). Kala Capital owns control package of the stocks. Beneficiaries are: Minister of Energy Kakha Kaladze (78%) and Prime Minister Bidzina Ivanishvili (22%). Stock capital of the bank equals to 15,3 million GEL (2012 – 15,2 million GEL).

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caucasian business week

In May 2013, 12.2 million USD (or 20.0 million GEL) were transferred from Georgia instead of 9.0 million USD (or 14.6 million GEL) in May 2012. In the reference month, the structure of remittances by electronic wire systems is shown on the graph below.

nternational Finance Corporation (IFC, member of the World Bank group) will allot 4-year credit of $4 million to Georgian micro-financial organisation FINCA Georgia. Respective agreement was signed in Tbilisi today. As IFC said, this loan will assist FINCA Georgia in funding of micro and small business through its branch network countrywide. As of today, the network serves more than 45,000 clients in almost all regions of Georgia. IFC is owner of 14.72% in FINCA Georgia’s parent company, FINCA Microfinance Holdings. Georgia became IFC member in 1995. Since that, IFC had allotted $607 million for 49 projects in various branches of the country.

BANK OF GEORGIA INTRODUCES ONLINE INSTALLMENT PLAN

ank management informs that customers will be able to purchase desired item from partner shops’ websites with installments from home. “Usage of online installment is very simple. The customer chooses desired item on the website of the partner shop and dills application for online installment there. In the case of submitting application during business hours, the customer gets response after 15 minutes. In the case of positive answer, the customer will get code by SMS. This code will be required to confirm conditions and agreement of the installment. Afterwards shop employees will bring purchased item to its owner’s home”, - bank explains. Purchase of 3 items is possible with one application on Bank of Georgia online installment. All individuals of 20-70 age ranges, whose monthly income is 200 GEL can use online installment. Loan amount is defined to 150-5000 GEL, loan term – from 3 to 24 months. GBC

CHINESE STAKEHOLDER GROWS CAPITAL IN BASISBANK BY 30 MILLION USD

hinese Hualing injected $30 million in the Basis Bank’s supervisory capital and Chinese company share in the bank increased to 96,03% (first quarter - 93,49%). Total issued shares (stated capital), as well as realized stocks (paid-in capital) equaled to 9 078 780 by the end of the first quarter. In May increased by 7 389 703 units, to 16 468 483 and number of realized stocks (paid-in capital) - to 15 433 924 GEL. Consequently, stock capital of the bank increased from 54 979 887 GEL (first quarter) to 105 010 406 GEL. Xinjiang Hualing Industry & Trade (Group) Co ltd owns 14 821 635 stocks. Shares of other stockholders are reduced - European Bank for Reconstruction and Development (EBRD) - to 1,92% (295 588 stocks) and Zurab Tsikhistavi bank’s founder - to 2,05% (316 701 stocks). By the end of May bank’s supervisory capital is defined by 103 257 229 GEL (first quarter - 52 922 440 GEL), adequacy coefficient - 37.90% (norm ≥12%). at the end of the first quarter it was 23,9%. Large Chines Company became 90% share of Basis Bank in July, last year and stated about readiness to invest $100 million in bank’s development. Jan Jun, director general of the group states that Bank aims to intensify direction of the lending of trade operations. Financial support of import and export operations is priority. Hualing Group operates on Georgian market since 2006; in the wood, mining and processing industry and Basis bank will be its strategic service bank. Jan Jun gave special importance to 2012 deal, as first precedent of entering private Chinese bank in the banking sector. GBC

June 24, 2013 #10

STATISTICS

caucasian business week

MONETARY POLICY RATE DECREASED TO 4%

ational Bank of Georgia reported that its Monetary Policy Committee decided today to decrease monetary policy rate (refinancing rate) by 25 basic points. Accordingly, the rate makes up now 4%. To remind, refinancing rate made up 5.25% in the beginning of the year, being decreased by 50 points in February and by 25 points each time – in March and May. NBG notes that after last meeting of the Committee (i.e. since May), there were no changes in inflation forecast, which says that “inflation will remain on low level during a year and will return

to target level by the end of next year”. NBG considers that recent measures on monetary policy softening (decrease of refinancing rate, broadening of mortgage base for NBG operations) have already reflected somehow in interest rate, which should facilitate in turn an intensification of combined demand. At that, NBG forecasts that rapid growth of credit activity is possible in case of intensification of money demand, as banking sector has accumulated sufficient liquid resources and capital. Next meeting of NBG’s Monetary Policy Committee will be held on August 14.

AZERBAIJAN caucasian business week

AZERBAIJAN SAYS COMMITTED TO DEVELOPMENT OF INSURANCE SECTOR

zerbaijan will continue to strengthen the legal and institutional framework for the development of the insurance sector, Finance Minister Samir Sharifov said at the fourth International Insurance Forum in Baku on June 20. “The growth and development of the insurance sector is closely linked to the economic situation in the country. During the last 10 years, Azerbaijan’s GDP tripled, the poverty rate declined sixfold and foreign reserves and investments in the economy seriously increased. Such a situation has beneficial effects and in particular on the development of the insurance sector,” Sharifov said. According to him, in the past two years, the insurance sector in Azerbaijan has doubled, the market volume reached 350 million manat in 2012 and the insurance premium per capita increased from seven manat to 47 manat. “The market is growing at a good pace of about 20 percent a year,” Sharifov said. The insurance forum held in Baku is a good platform for the expansion of ties between insurers and reinsurers from different countries, he added. “This forum is dedicated to not only the prospects of development of the insurance market of Azerbaijan, but at the same time is a good tool for establishing business relationships between insurance companies. Interest in the forum is growing from year to year,” Sharifov said. Azerbaijan’s Finance Ministry will double the

minimum requirement for the total capital of insurance and reinsurance companies, Sharifov said. In the coming years, the Ministry plans to increase the capital requirement of insurance companies from 5 to 10 million manats (up to over $12,700). Accordingly, the capital requirement for reinsurers will be increased from the current 10 to 20 million manats (up to about $25,400). The increase of the requirements will not cause serious problems for companies, according to Sharifov. “The insurance sector is specific, as it relates to the wider population. From this point of view, we should pay special attention to the supervision in the sector. Financial capacity of market participants should be sufficient to provide quality services to the public, to ensure full and timely payments,” he said. However, according to Sharifov, in order to develop the market measures to toughening regulatory requirements will be undertaken gradually. “The capitalization of the insurance market has grown by 16 times in ten years, and the income of insurance companies by 17.5 times. In 2002-2013 the minimum capital requirement for insurers increased from one to five million manat, resulting in strengthening of the sector’s financial stability, the total capital of all the insurance companies in the country increased from 18.4 million manat to 300 million manat. Net profit of the companies increased to 48 million manat in the period,” he said. The chairman of the Parliamentary Committee on Economic Policy Ziyad Samadzadeh in his speech at the forum said the growth rate of the insurance sector in Azerbaijan has seriously exceeded the growth rate of the economy. The market has the potential to increase to one billion manat in 2020. However, he said, there is still a need to work towards the improvement of mechanisms in the insurance market, its structure and in particular in the field of agricultural insurance. The total capital of the insurance market made up 343.44 million manat last year, including paid-up share capital of the market, which was at 294.06 million manat, and other capital reserves were 49.39 million manat. There are 28 insurance and one reinsurance company in Azerbaijan. azernews.az

REGIONAL BANK TO MULL ALLOCATION OF ITS BIGGEST LOAN TO SOCAR

he Black Sea Trade and Development Bank (BSTDB) will consider the allocation of its largest loan for Azerbaijan’s state energy company SOCAR on June 22, BSTDB chairman Andrey Kondakov was quoted by Trend news agency as saying. “The Board of Directors of the bank will consider this issue on Saturday during a meeting in Baku. If the deal is approved, the credit will be the largest in the history of the BSTDB. The amount of the credit will be $5 billion,” Kondakov told journalists. Acording to him, the allocated amount will be directed to the implementation of a project related to oil refining outside Azerbaijan. “Such a big deal is a good indicator of trust. BSTDB considers Azerbaijan as a very reliable partner,” Kondakov added. Kondakov went on to say that in the course of the work planned within the framework of the BSTDB Annual Meeting, the bank will study Azerbaijan’s experience in economic diversification. Baku will host the 15th Annual Meeting of the BSTDB Governing Council on June 20-23. A business forum to be joined by international financial institutions of the bank’s member countries will be held at the event. “One of the goals of the business forum is the presentation of the Azerbaijani economy and establishment of a [favorable] business and investment climate for foreign investors and international financial institutions in the country. This will strengthen and expand economic ties among the bank’s member countries,” Kondakov said. Policymakers, experts, representatives of financial institutions and the private sector will exchange views on the international experience and lessons

learned on economic diversification. The business forum will also offer excellent opportunities to the Azerbaijani and regional business and investor communities to network and discuss business proposals with BSTDB and other financial institutions. The business forum, which will take place on June 21 at Four Seasons Hotel Baku, is organized in cooperation with the Azerbaijani government, Azerbaijan Export and Investment Promotion Foundation (AZPROMO) and the local business community. The Business Council of the Black Sea Economic Cooperation will also participate in the event. BSTDB is an international financial institution established by Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The bank supports economic development and regional cooperation by providing trade and project financing, guarantees and equity for development projects supporting both public and private enterprises in its member countries. Currently, the bank’s activities are mainly focused on the financial sector. BSTDB has opened credit lines to 10 Azerbaijani banks - International Bank of Azerbaijan, Access Bank, AGBank, Unibank, Texnika Bank, Demir Bank, Kapital Bank, AzerTurk Bank, Bank Standard and Bank Respublika. At present, Greece, Russia and Turkey remain the bank’s largest shareholders with stakes of 16.5 percent each. Romania owns 14 percent, while Bulgaria and Ukraine - 13.5 percent each, Azerbaijan 5 percent, Albania 2 percent, Armenia and Moldova - one percent each, and Georgia - 0.5 percent. The bank’s governor from Azerbaijan is Minister of Economic Development Shahin Mustafayev and his deputy is Finance Minister Samir Sharifov. azernews.az

June 24, 2013 #10

AZERBAIJAN’S CENTRAL BANK INCREASES FOREIGN EXCHANGE RESERVES IN Q1

he Central Bank of Azerbaijan (CBA) increased its foreign exchange reserves held in securities by 13.24 percent in January to May 2013 compared to the same period of last year, the CBA’s statistical report released on Tuesday says. As of late May, some 2.72 billion manat or 21.8 percent of the total foreign exchange reserves held by the Central Bank were placed in securities. According to the report, 9.11 billion manat are held in deposits in the accounts of other central banks, the Bank for International Settlements and the International Monetary Fund. Their volume increased by 16.6 percent compared to the same period in 2012, while the share of total assets held by the Central Bank increased to 73.29 percent (72.6 percent in April 2012). The total volume of foreign exchange reserves held by the Central Bank in May 2013 amounted to 12.44 billion manat, increasing by 15.51 percent compared to the same period in 2012. The Central Bank reserves stored in foreign currency as of late May amounted to 12.2 billion manat, an increase of 1.6 billion manat in comparison with the same period of 2012.

Earlier, the CBA said that the strategic currency reserves of the country rose by 2.3 percent, or $1.1 billion, in the first quarter of 2013 compared to early this year. The ratio of the strategic currency reserves to the country’s GDP is close to 70 percent. According to the CBA report on the Q1 results, the bank’s foreign currency reserves grew in this period by 5.5 percent to $12.3 billion, which is enough to finance imports of goods and services over a year. The official exchange rate on June 19 is 0.7846 AZN / USD. azernews.az

AZERBAIJAN DRAWS $1.4 BLN DIRECT INVESTMENT, INJECTS $4 BLN ABROAD IN Q1

he Central Bank of Azerbaijan (CBA) has said the total amount of foreign capital in Azerbaijan in direct investments hit $1.4 billion in JanuaryMarch 2013. The share of the oil and gas sector stood at 83.2 percent. According to the balance of payments released by the CBA, the investments were mainly directed to financing the work carried out in the territory of Azerbaijan, particularly under the energy projects on the part of BP Exploration Ltd at the Shah Deniz gas field and the Azerbaijan International Operating Company (AIOC) on the Azeri-ChiragGuneshli (ACG) block of oil and gas fields. Azerbaijan is an important current and future supplier of both oil and natural gas. ACG and Shah Deniz are the country’s largest hydrocarbon deposits, which are located in the Caspian Sea. The country received $2 million in bonuses for oil contracts in 2012, against $20 million in 2011. According to the CBA estimates, the volume of direct investments attracted to the non-oil sector totaled $238.1 million, accounting for 16.8 percent of the total amount. The CBA reported that the share of oil and gas products in exports stands at 94.5 percent. In January-March 2013, Azerbaijan exported $7.4 billion worth of petroleum products. The share of refined oil products totaled $0.4 billion, while oil exported by the country was worth $7 billion. The AIOC produced oil products worth $6.6 billion of the total volume of exported oil. Other companies exported $0.4 billion worth of oil, of which $42.7 million fell to the share of condensate from the Shah Deniz field, and $332.5 million - to the share of the Azerbaijani state energy company SOCAR. Total value of exports attributable to the nonoil sector amounted to $452.1 million, increasing by 28.6 percent over a year. Azerbaijan’s exports during the reporting period amounted to $8.3 billion. The country invested $4 billion abroad in January-March 2013. According to the balance of payments, the funds were formed through direct investments ($184.8 million), portfolio investment ($53.7 million) and other investments ($3.74

billion). Other investments included trade loans and advances ($1.59 billion), loans and advances ($14.6 million) and deposits and cash ($2.13 billion). During the reporting period, liabilities in the amount of $1.34 billion, of which $1.01 billion fell to portfolio investments, formed in Azerbaijan. The analysis of the balance of payments by sectors shows that as in previous years, foreign trade operations in the oil and gas sector had a positive balance, while red ink was observed in the non-oil sector in January-March. The total foreign trade turnover in Q1 2013 amounted to $10.7 billion, and the trade surplus made up $5.9 billion. During the reporting period, trade relations were maintained with 125 countries. 9.4 percent of the trade turnover accounted for the CIS countries, and 90.6 percent - other foreign countries. Intensive trade relations were observed with Italy, the UK, Turkey, the United States, Russia, Thailand, Indonesia, Germany, Japan, and Taiwan. They accounted for 67.7 percent of export and import transactions in Azerbaijan. In January-March, the current account surplus amounted to $4 billion or 13 percent less than in the same period last year. Current account surplus of the oil and gas sector of Azerbaijan amounted to $5.8 billion. However, according to the balance of payments, current account surplus of the oil and gas sector fully covers the current account deficit in the nonoil sector in the amount of $1.8 billion. Overall balance of payments surplus amounted to $1.67 billion, a decline of 31 percent. azernews.az

ARMENIA

June 24, 2013 #10

caucasian business week

ARMENIA’S INDUSTRIAL PRODUCTION ROSE BY 8% TO 464.1BLN DRAMS IN JAN-MAY

IRAN BARTERS OVER 1.5 BCM OF GAS WITH ARMENIA ELECTRICITY IN 6 YEARS

rmenia’s industrial production grew by 8% to 464.1 billion drams in January-May compared to the same period of the last year, ArmStat reports. Agricultural production increased by 1.3% in the period and

ran has bartered more than 1.5 billion cubic meters of gas with Armenia’s electricity over the past six years, reports Armenpress referring to Press TV. National Iranian Gas Company (NIGC) said on Sunday that around 1.558 billion cubic meters of gas has been traded with Armenian electricity during the period of 2007 and 2012. Last year, the Islamic Republic exchanged some 481 million cubic meters of gas with the neighboring country’s electricity, the largest amount of bartering between Iran and Armenia in six years. On June 12, the UK-based energy giant, BP, classed Iran as the world’s top gas reserves holder with 33.6 trillion cubic meters. Iran has been trying to boost its gas production by attracting foreign and domestic investments, especially in South Pars gas field. South Pars is part of a wider gas field that is shared with Qatar.

totaled about 144.2 billion drams, according to the report. Construction slid as much as 8.8% to 89.1 billion drams in the first 5 months of 2013, compared to the same period of the year before. ($1=410.96drams). ARKA

ARMENIA’S FOREIGN TRADE TURNOVER SURGED 0.2% TO $2 192,3MLN IN JAN-MAY 2013

he foreign trade turnover of Armenia increased by 0.2% to $2 192,2 million in JanuaryMay 2013, compared to the same period a year earlier, according to the National Statistical Service. Export within the reported period valued at $561 million, which was by 9.2% higher from a year earlier. Import slashed by 2.6% to $1631,3 million. The trade deficit hit $1070,3 million in January-May 2013. ($1 – 410.96 drams). ARKA

ARMENIA’S ECONOMIC ACTIVITY UPS 5.3% IN JAN-MAY 2013

conomic activity in Armenia rose by 5.3% in January-May 2013, compared with the same period a year earlier, according to the National Statistical Service of Armenia. The consumer prices climbed by 3.6% in Jan-May 2013 from a year earlier, and industrial production cost jumped by 5.5% within the reported period.

Industrial output valued at 464.1 billion drams, which was by 8% higher from Jan-May 2012. Foreign trade turnover in Armenia hit nearly $2192,3 million, which was by 0.2% higher from Jan-May 2012. GDP growth is projected at 6.2% in 2013. ($1 – 410.96 drams). ARKA

VTB BANK (ARMENIA) JOINS AVERS MONEY TRANSFER SYSTEM

TB Bank (Armenia) said Wednesday it had joined the system of immediate money transfers –AVERS. Individuals can transfer and receive cash in the national or foreign currency in 81 states which are under AVERS network. Armenian residents can transfer money in USD through AVERS to Russia, Ukraine, Moldova, Georgia, Tajikistan, and in EUR and RUB to Russia only. Kyrgyzstan and Uzbekistan are expected to join the system soon. “In order to transfer cash, one should show the passport at one of 67 branches of the bank. In order to receive the transfer, it is necessary to show the passport and the transfer code. The commission at 1.3% should be paid by the sender in Armenian drams. The recipient is not charged,” the bank clarified.

Yuri Gusev, General Director – Chairman of the Board of Directors, has said the democratic tariff policy of AVERS, constant expansion of the network, almost immediate transfer period comply to the customer policy of VTB Bank (Armenia). As of 1 June 2013, VTB Bank (Armenia) offers the following money transfer systems: Unistream, InterExpress, Anelik, RIA Money Transfer, etc. VTB Bank (Armenia) CJSC became a member of international financial Group VTB in April 2004. Currently the second largest in Russia VTB Bank (OJSC) owns 100% of the shares of VTB Bank (Armenia). The bank traditionally ranks among the leaders of the banking system of RA in a number of key indicators. Now the Bank has the largest branch network in the country – 67 branches. ARKA

ARMENIA POSTED 3.6% YEAR-OVERYEAR INFLATION IN JAN-MAY 2013

rmenia posted 3.6-percent yearover-year inflation in JanuaryMay 2013, according to the National Statistical Service of Armenia. Along with this, the economic activity in the republic rose by 5.3% in January-May 2013, compared with the same period a year earlier. Inflation is projected at 4% (±1.5%), and GDP growth –6.2% in Armenia in 2013. ARKA

The larger field covers an area of 9,700 square kilometers, 3,700 square kilometers of which are in Iran’s territorial waters (South Pars) in the Persian Gulf. The remaining 6,000 square kilometers, referred to as the North Dome, are in Qatar’s territorial waters. ARMENPRESS

SHARP PRICE INCREASE IS NOT EXPECTED IN ARMENIAN REAL ESTATE MARKET

he stability in Armenian real estate market will be kept and price increase will be modest. Such forecast during the talk with “Armenpress” made Armien Davityan from State Committee of the Real Estate Cadastre. “There can not be recorded price increase as monthly increase is less than 0.5 percent. And the annual increase which is nearly 6 percent during the last years is considered to be a stable indicator,” said Davityan.

In her prediction in future there is not expected a sharp price increase in real estate market. At present the price for one square meter of flat in Arabkir is 355 500 AMD, in Kanaker-Zeytun – 282,2 AMD, Nor Nork – 250 000 AMD, Avan – 258 000 AMD, Erebuni 0 284 200 AMD, Shengavit – 254 000 AMD, Davtashen – 273 500, Ajapnyak – 246 500 AMD and in Nubarashen – 151 000 AMD. The most expensive flats are in the center of the city – 428 000 AMD for one square meter. ARMENPRESS

ARMENIA TO ASSUME CHAIRMANSHIP OF BSEC ORGANIZATION

rmenian foreign minister Edward Nalbandian will travel to Ukrainian Odessa to attend a meeting of foreign ministers of countries making the Black Sea Economic Cooperation organization (BSEC). During the meeting scheduled for June 21 Armenia will assume the chairmanship of the organization. The Black Sea Economic Cooperation is an Istanbul-based intergovernmental organization consisting of 12 states from Southern Balkans and the Black Sea region. Members of the organization are Armenia, Azerbaijan, Albania, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Serbia, Turkey and Ukraine. ARKA

ARMAVIA’S “AIR TAX” DEBTS REACHED AMD 5 BILLION 400 MILLION

he “air tax” liability of “Armavia” Airlines reaches AMD 5 billion 400 million. The Minister of Finance of the Republic of Armenia Davit Sargsyan stated this at the course of the June 12 session of the National Assembly of the Republic of Armenia, while answering the question of the Deputy from “Rule of Law” fraction Hovhannes Margaryan. As reports “Armenpress” among other things the Minister of Finance of the Republic of Armenia Davit Sargsyan underscored: “The “air tax” has been included in the cost of the tickets since 2009, and in accordance with the report intro-

duced by the Chief Department of Civil Aviation, AMD 9,5 billion state taxes have been put on the list.” Armenia’s national air carrier “Armavia” has made a decision to suspend the flights starting from April 1, 2013. The air company informed Armenpress that during the last three years the owner of the company implemented funds from other enterprises belonging to him aimed at the development of the Air Company. The situation became very complicated and hence, a decision was made to suspend all the flights and start the bankruptcy procedure. ARMENPRESS

CIS

12 TURKMENISTAN COLLECTS ONE MILLION TONS OF WHEAT

caucasian business week

RUSSIA AND CHINA TO SEAL AN UNPRECEDENTED OIL CONTRACT, WORTH MORE THAN $60 BN – PUTIN

ne million tons of wheat was received by the Turkmenistan procurement stations, the Ministry of Agriculture of Turkmenistan said on June 18. “Reaching this high boundary gives us confidence that the farmers will cope with the main target of the 2013 harvest season, will clean the entire rich harvest of grain without any losses and deliver to the granaries 1,600,000 tons of selected grains,” the statement says. This year the country’s grain wedge is 860,000 hectares and the harvest continues. More than 1,880 Case, New Holland, John Deere and CLAAS brand combine harvesters are operating. In 2010 Turkmenistan started to export food grains. In particular, out of the crop that was grown in the country at that time through the State Commodity and Raw Materials Exchange of Turkmenistan 150,000 tons of wheat were sold on the foreign market and 30,000 tons were sold on the domestic market. Last year the Turkmengallaonumleri (Turkmenhleboprodukty) state association was allowed to sell 300,000 tons of wheat on foreign markets from the volume of the harvest of 2011 which exceeded the domestic needs. “In general, all these are an eloquent confirmation of a successful solution to the challenges on the abundance of food in the country including completely meeting the needs of the domestic market by making bread from our own production,” Turkmen dovlet khabarlary state news service wrote in its comments on june 18. According to a published presidential decree, the State Commission for the conduct of the 2013 grain harvest was created in Turkmenistan. In 2012, more than 1,200,000 tons of wheat was harvested in the country. azernews.az

BELARUS-EU TRADE REPORTED DOWN 28.7 PERCENT IN FIRST FOUR MONTHS OF 2013

elarus’ trade with member countries of the European Union decreased by 28.7 percent year-on-year in the first four months of 2013 to total $7,396.6 billion, compared with a 46.1-percent increase in the same period the previous year, reported the National Statistical Committee (Belstat). According to Belstat, Belarus’ exports to EU member countries decreased by 46.3 percent year-onyear to total $4,226 billion, while imports from the EU increased by 26.2 percent to total $3,170.6 billion. Belarus’ exports of goods to Russia totaled $5,271.2 billion in January-April 2013, or 3.9 percent more than in the same period in 2012, with imports from Russia falling by 25.2 percent to total $7,630.1 billion. Exports to Ukraine fell by 15.7 percent to total $1,360.7 billion and imports from Ukraine rose by 23.1 percent to total $706.2 million. Exports to the Netherlands totaled $1,923 billion, down 51.2 percent from the same period in 2012. Exports to Germany decreased by 4.8 percent to total $573.8 million, exports to Poland by 24.3 percent to total $257.3 million, exports to Latvia by 88.8 percent to total $184.9 million and exports to Lithuania by 29.7 percent to total $284 million. Exports to China increased by 84.1 percent to total $250 million, exports to Italy by 27.1 percent to $384 million, exports to the United Kingdom by 200 percent to total $268.8 million, exports to France by 53.4 percent to total $26.1 million, and exports to the United States by 35.4 percent to total $29.9 million In the first four months of 2013, Belarus imported $123.4 million worth of goods from the Netherlands, down 1.9 percent from the same period in 2012, $1,004.7 billion from Germany, up 48.7 percent; $823 million from China, up 42.7 percent; $452.3 million from Poland, up 16.4 percent; $300.9 million from Italy, up14.9 percent; $111 million from the United Kingdom, up 10.2 percent; $118.7 million from Lithuania, up 32.2 percent; $51.3 million from Latvia, up 31.7 percent; $174.9 million from the United States, up 6.7 percent; and $161.8 million from France, up 23.9 percent. BelaPAN

June 24, 2013 #10

ussia and China have drafted a major oil contract, Russian President Vladimir Putin told Chinese State Council Executive Deputy Prime Minister Zhang Gaoli at the St. Petersburg International Economic Forum. “A major contract - it would not be an exaggera-

tion to call it unprecedented - with the Rosneft Company has been drafted. Prospective crude deliveries to China will top hundreds of millions of tonnes and exceed 60 billion in the dollar equivalent,” Putin said. The issue of increasing exports of Russian oil to China has been repeatedly raised this year.Ros-

neft’s intention to boost oil supplies to China has been underpinned by opening the second line of Russia’s East Siberia-Pacific Ocean (ESPO) pipeline in December 2012. “Expansion of cooperation between Rosneft and China is utterly positive for the company, as it creates additional market outlet, which is important given the aggressive growth of its resource base,” according to Ivan Anoshkin, an analyst at Invetscafe. Rosneft is the only Russian company producing oil for exports to China. Tatneft, Russia’s oil transportation company, also has contracts with China, with its oil exports estimated at 6 million tonnes a year. However, the oil transporter buys the commodity from Rosneft. Rosneft oil supplies to China stand at 15 million tonnes a year, which is planned to be boosted 250% - to 37.8 million tonnes. Given that the projected capacity of the ESPO stands at 31 million tonnes a year, Rosneft needs to use alternative export routes. These might include via the pipeline network through Kazakhstan or via the Kozmino oil port. “However, as a vector to the tightening energy relations between the two countries, the optimal variant looks to be to construct additional pipeline capacity,” the Investcafe analyst concluded. rt.com

KAZAKHSTAN AND UKRAINE INCREASE TRADE TURNOVER

he trade turnover between Kazakhstan and Ukraine increased by 24 percent last year, Kazakh President Nursultan Nazarbayev said at the meeting with his Ukrainian counterpart Victor Yanukovych, who visited Astana to attend the session of the Eurasian Economic Community on May 29. Kazakhstan hosted the session of the Eurasian Economic Community, which was attended by the president of Kazakhstan, Ukraine, Belarus, Russia and Kyrgyzstan. Speaking at the session, Nazarbayev said that the integration should be beneficial for all its participants. He said the establishment of the Customs Union of Belarus, Kazakhstan and Russia, Single Economic Space and the Eurasian Economic Union is complex. However, the political will of the heads of the countries is very important in this issue.

The integration process is beneficial for all participants not only for the increase of the trade turnover but also for gaining appropriate place in the developing world and the modern economic situation, he said. Nazarbayev went on to say that Kyrgyzstan has already requested to join the Customs Union. A working group was created which is developing an appropriate “roadmap.” Ukraine also expressed its intention to participate in future at the work of the Customs Union, Single Economic Space and the Eurasian Economic Union with the observer status. Due to this, Kyrgyzstan and Ukraine were invited to this session and participated at the discussions, the president said. The parties have confirmed their intention to launch the work on the Eurasian Economic Union by January 1, 2015, he added. According to Nazarbayev, the increase of the trade turnover between the countries leads to the

creation of new working places and provides the preparation for competition in the global scale. Later, the heads of states discussed a number of issues on the main directions of integration, in particular the activity of the Eurasian Economic Commission on the development of further interaction of the countries. A special attention was drawn to perspectives of the participation of Kyrgyzstan and Ukraine in the work of the Customs Union. In conclusion of the session, the parties signed a number of documents, in particular on the implementation of main directions of the integration, creation of integrated information system of the foreign and domestic trade, expansion of interaction in the statistics field, coordinated agro-industrial policy of Russia, Belarus and Kazakhstan. The next sessions of the Eurasian Economic Community will be held in October in Minsk and in December in Moscow.

KAZAKHSTAN, EU TO STEP UP TALKS ON NEW PARTNERSHIP AGREEMENT

new, enhanced and more comprehensive cooperation agreement will open a new era in the relations between Kazakhstan and the European Union, said European Commission President Jose Manuel Barroso, who was on his first official visit to the Central Asian state on June 2-3. During his visit, Barroso discussed the current state of affairs in the relations between Kazakhstan and the EU as well as regional and international issues with Kazakh President Nursultan Nazarbayev. The parties agreed that the development of relations between Kazakhstan and the EU has revealed a promising potential for a more strategic partnership and created a solid basis for further expansion of bilateral relations. The sides also confirmed their interest in concluding a new, enhanced Partnership and Cooperation Agreement as soon as possible and agreed on the need to intensify the negotiation process. Considering that good governance, human rights and basic freedoms are a fundamental part of the relations and the political dialogue between Kazakhstan and the EU, the parties agreed on the importance of continuing engagement and cooperation in promoting human rights protection and reform of the legal and judiciary system. The importance of bilateral and multilateral interaction in the fight against terrorism, countering violent extremism, organized crime, illegal drug and weapons trafficking was emphasized as well. The sides welcomed the efforts directed at the

strengthening of international security and confidence building measures and the launch of an EU-Central Asia high-level security dialogue, which is to be held for the first time in Brussels on June 13. Barroso voiced his support for Kazakhstan’s membership in the World Trade Organization (WTO). Citing Kazakhstan’s importance for the EU as a reliable energy partner, Barroso underlined the importance of the commissioning of Kashagan, an oil field in Kazakhstan’s sector of the Caspian Sea. Speaking at the Eurasian National University, Barroso said that the development of the Kashagan field is one of the largest joint projects of Kazakhstan and the EU in the world in recent decades. It would become a symbol of success of Kazakhstan and is also a symbol of strong relations between Kazakhstan and the EU. Barroso went on to say that the EU’s aim is to broaden the scope of bilateral cooperation in all areas of mutual interest and to support

Kazakhstan’s reform and modernization efforts. According to him, bilateral trade between the EU and Kazakhstan has been growing very rapidly over the past decade. Europe has become the top investor in Kazakhstan, accounting for about half of the total foreign direct investments in the country. The Kazakhstan-EU trade amounted to €31 billion in 2012. In 2012, the EU import from Kazakhstan amounted to about 24.4 billion euros while the export from the EU made up 6.9 billion euros. azernews.az

June 24, 2013 #10

WORLD NEWS

caucasian business week

WORLD MILLIONAIRES’ WEALTH TOTALS $46.2 TRILLION, OVER 3 TIMES US GDP

he combined wealth of the world’s millionaires increased by 10 percent in 2012 to $46.2 trillion. This is more than three times the annual economic output in the US. Another million people were also added to the list of super-rich in the past year. According to the World Wealth Report 2013 there are a total of 12 million millionaires around the globe, with the US topping the list of countries home to the super-rich. In the US the number of millionaires shifted grew by 11.5 percent in 2012 to 3.73 million, who’s combined wealth is estimated at $12.7 trillion. Asia-Pacific region used to be in first place and is now running second, with the combined wealth of its 3.68 million millionaires totaling $12 trillion. The number of super-rich investors in the region was up more than 9 percent from 2011. Japan boasts 1.9 million people on the superrich list, while another million are Germans. The UK comes next with the fifth-largest group of

465,000 millionaires. Meanwhile the whole of Africa is home to just 140,000 millionaires. Still the figure climbed 10 percent year on year in 2012. A total of 3.4 million high net worth individuals are Europeans. The number of super-wealthy grew slower in the single-currency region, where the economy has now been in recession for 18 months. The number grew by 7.5 percent compared to 2011. The researchers also calculated the number of multi-millionaires among the super-rich individuals, having found that there are a total of 110,000 people worth $30 million or more, and hold assets worth more than $16 trillion between them. Just over a million people hold a combined $10 trillion in assets are “mid-tier millionaires”. Each of the remaining millionaires holds between $1 million and $3 million. There a 10.8 million such people in the world. The World Wealth Report was prepared by French finance technology firm Capgemini

together with Royal Bank of Canada Wealth Management. Anyone with $1 million or more in “investable assets” made it onto the list. The definition excludes the value of a main home and any “consumer durables” including cars,

The Guardian says. The authors of the study collected information on assets in 71 countries around the world, which account for 98 percent of global earnings. rt.com

RUSSIAN ROULETTE: LUXEMBOURG NEW OFFSHORE HOTSPOT, CYPRUS ABANDONED

R F

ussians pulled $9.7 billion in investments from Cyprus in the last 2 years, and moved their wealth to ‘safer’ offshore banking in Luxembourg, Ireland, the Netherlands,

and the British Virgin Islands. According to the Central Bank of Cyprus, the once offshore paradise lost out on Russian accounts, as investors pulled their money as they sensed the banking crisis looming.

In Luxembourg, Russian investments grew by $7 billion, in the British Virgin Islands by $4.7 billion, in Ireland by $4.6 billion, and in the Netherlands by $2.8 billion, the Russian newspaper Izvestia reported.Head of Investments at the ‘Solid’ Investment and Financial Company, Michael Koroljuk explains the decline in market attractiveness in Cyprus since the crisis broke out. “The emergence of this ‘stigma’ of Cyprus is perceived as a bad tax authority and business partner,” Korljuk told Izvestia. Offshore oligarchs, trying to minimize their losses in Cyprus, didn’t bring their money to back Russia, but have reinvested their capital in other, more feasible, offshore zones. “Instead of Russia, it is rushing off to other offshore areas,” Maxim Osadchiy, head analyst at BKF Bank, told Izvestia. Because they provide more financial security than Cyprus, other offshore zones are a little more expensive, but the figures show Moscow’s millionaires are happy to pay extra for peace of mind. The more ‘respectable’ offshore destinations still offer similar tax breaks, and offer more protection for businessmen Though the financial crisis sent many investors into a slight hysteria and prompted them to aban-

don ship, the actual losses incurred as a result of crisis appear to be fractional. Russia’s largest commercial bank, VTB, which had assets up to $1.8 billion in Cyprus, reported to be virtually unaffected by the collapse.

Strengthening ties between Moscow and Luxembourg By increasing their holdings in Luxembourg, Russians are reciprocating the small European financial hub’s long standing tradition of Russian investment. Luxembourg is the third largest country in total investments in the Russian economy, and has invested 28 billion euros in Russian projects. Russian investment only accounts for 4.4 billion euros of Luxembourg’s 43 billion euro economy. Luxembourg may be Russia’s new window to Europe, the Minister for Economy and Foreign Trade, Etienne Schneider, has stated. “To develop serious business contacts and create new joint projects, we need to look ahead and prepare professionals who are familiar with economic realities of our countries,” said Schneider. rt.com

CHINESE, U.S. FACTORIES STRUGGLE, EUROPE STILL IN SLUMP actory output in China weakened to a nine-month low in June while U.S. manufacturing closed out its worst quarter in the last four, suggesting the road to recovery for the worldeconomy remained an uneven one. A day earlier, the Federal Reserve said the U.S. economy was expanding strongly enough for the central bank to begin slowing the pace of its stimulative bond purchases later this year. Other major economies are lagging America’s, however, which could limit the strength of global growth. China, the world’s second largest economy, grew at its slowest pace in 13 years in 2012 and incoming data this year has been weaker than expected. That’s evident in the country’s large manufacturing sector, which, according to the flash HSBC Purchasing Managers Index, contracted again in June as demand fell. “A slowdown in the Chinese economy doesn’t help the outlook for the U.S. particularly, but American growth isn’t entirely dependent on what happens in China,” said Philip Shaw, chief economist at Investec. U.S. growth picked up in the first three months of the year, boosted partly by a recovering housing market, though the pace is expected to drop off in the second quarter. Manufacturing in particular has struggled. Ac-

EUROPE, CHINA FRAGILE

cording to information service Markit’s latest survey, the second quarter was the worst for the sector in the last four as the pace of hiring and overseas demand weakened. “Companies are certainly circumspect about any sustained revival of demand,” said Markit chief economist Chris Williamson, who added that employment was also being suppressed by “the need to boost productivity, especially with intensifying competition from overseas and in export markets.” Recession in the 17-country euro zone has contributed to that lack of demand. While Markit’s

Flash Eurozone Composite PMI edged up this month, it remained below the dividing line between growth and contraction. But economists expect the U.S. economy to rebound in the second half and beyond, an outlook shared by Fed Chairman Ben Bernanke, who said on Wednesday that solid growth and an expected decline in the jobless rate mean the central bank would likely begin winding down its stimulus program before the year is out. Separate data on Thursday showed factory activity in the U.S. mid-Atlantic region at its highest level in more than two years.

The euro zone PMI was at its highest since March 2012. But the index has been below the 50 mark dividing growth from contraction for 21 of the last 22 months. A PMI covering services firms, which make up the bulk of the bloc’s economy, jumped to 48.6 last month from 47.2, its highest since January but its 17th straight month below 50. Markit said the latest PMI data suggested the economy would contract 0.2 percent in the current quarter. The European Central Bank has come under growing heat to take more action to help bring a quicker end to the bloc’s longest recession, but economists polled by Reuters last month did not predict any easing of policy in coming months. China’s central bank may also come under pressure to ease policy as weak demand hurts its big exporters. But while the pace of growth is slowing, few expect a hard landing. “The chance of economic growth slipping below 7 percent is quite low, because existing measures are still effective in helping stabilize the economy,” said Wang Jin, analyst at Guotai Junan Securities in Shanghai. Reuters

AVANT PROGRAM caucasian business week

June 24, 2013 #10

TBILISI INTERNATIONAL FESTIVAL OF THEATRE 2013

15 SEPTEMBER- 8 OCTOBER

MAIN PROGRAM Robert Lepage

THE FAR SIDE OF THE MOON

PROGRAM “NEW” DERDIEDAN

Ex Machina, FRANCE, Directed by Robert Lepage

German State Theatre, Timişoara, ROMANIA Director Florin Fieroiu

William Shakespeare

MEMBERS OF OUR LIMBS

MACBETH

Opole Theatre, POLAND, Directed by Maja Kleczewska

Jonathan Swift

GULLIVER’S TRAVEL

“Radu Stanca” National, Theatre, ROMANIA Directed by Silviu Purcărete

Samuel Beckett

WAITING FOR GODOT

“Radu Stanca” National, Theatre, ROMANIA Directed by Silviu Purcărete

Pippo Delbono

Kallo Collective, FINLAND Devised by Jenni Kallo, Sampo Kurppa and Thom Monckton

MOA ASKLÖF PRESCOTT “ZENITH AM/FM”

Sputnik Productions, Director Moa Asklöf Prescott

NOSFERATU

Autonomous municipal Institution of Culture «Youth theatre «Angagement» in the honour of V.S. Zagoruiko» Tyumen, RUSSIA Director Oleg Borisovich Getze

AFTER THE BATTLE

SO COLD, SO VERY COLD

THE ANIMALS AND CHILDREN TOOK TO THE STREETS

“THE BROTHERS KARAMAZOV”

Emilia Romagna, Teatro–Compagnia Delbono, ITALY Directed by Pippo Delbono

Independent Project, ISRAEL Director Nana Beradze

Provisorium Theatre, Fyodor Mikhaylovich Dostoyevsky Director Janusz Opryński

Company 1927 , UK, Directed by Suzanne Andrade

THE MISSING

Gecko Company, Directed by: Amit Lahav

“THE BIRDS”

Shtera Theatre, Director Igor Shternberg

June 24, 2013 #10

Embassy United States of America Embassy 11 Balanchivadze St., Dighomi Dstr., Tbilisi Tel: 27-70-00, 53-23-34 E-mail: tbilisivisa@state.gov; askconsultbilisi@state.gov United Kingdom of Great Britain and Northern Ireland Embassy 51 Krtsanisi Str., Tbilisi, Tel: 227-47-47 E-mail: british.embassy.tbilisi@fco.gov.uk Republic of France Embassy 49, Krtsanisi Str. Tbilisi, Tel: 272 14 90 E-mail: ambafrance@access.sanet.ge Web-site: www.ambafrance-ge.org Federal Republic of Germany Embassy 20 Telavi St. Tbilisi Tel: 44 73 00, Fax: 44 73 64 Italian RepublicEmbassy 3a Chitadze St, Tbilisi, Tel: 299-64-18, 292-14-62, 292-18-54 E-mail: embassy.tbilisi@esteri.it Republic of Estonia Embassy 4 Likhauri St., Tbilisi, Tel: 236-51-40 E-mail: tbilisisaatkond@mfa.ee Republic of Lithuania Embassy 25 Tengiz Abuladze St, Tbilisi Tel: 291-29-33 E-mail: amb.ge@urm.lt Republic of Latvia Embassy 4 Odessa St., Tbilisi Tel: 224-48-58 E-mail: embassy.georgia@mfa.gov.lv Greece Republic Embassy 37. Tabidze St. Tbilisi Tel: 91 49 70, 91 49 71, 91 49 72 Czech RepublicEmbassy 37 Chavchavadze St. Tbilisi Tel: 291-67-40/41/42 E-mail: czechembassy@gol.ge Web-sait: www.mzv.cz Japan Embassy 7 Krtsanisi St. Tbilisi Tel: 75 21 11, Fax: 75 21 20 Kingdom of Sweden Embassy 15 Kipshidze St. Tbilisi Tel: +995 32 2 55 03 20 , Fax: +995 32 2 22 48 90 Kingdom of the Netherlands Embassy 20 Telavi St. Tbilisi Tel: 27 62 00, Fax: 27 62 32 People’s Republic of China Embassy 52 Barnov St. Tbilisi Tel: 225-22-86, 225-21-75, 225-26-70 E-mail: zhangling@access.sanet.ge Republic of Bulgaria Embassy 61 Agmashenebeli Ave. Tbilisi Tel: 91 01 94, 91 01 95, Republic of Hungary Embassy 83 Lvovi Street, Tbilisi Tel: 39 90 08 E-mail: hunembtbs@gmail.com State of Israel Embassy 61 Agmashenebeli Ave. Tbilisi Tel: 95 17 09, 94 27 05 Embassy of Swiss Confederation’s Russian Federation Interests Section Embassy 51 Chavchavadze Av., Tbilisi Tel: 291-26-45, 291-24-06, 225-28-03 E-mail: RussianEmbassy@Caucasus.net Ukraine Embassy 75, Oniashvili St., Tbilisi Tel: 231-11-61, 231-12-02, 231-14-54 E-mail: ukraina_pu@wanex.net; emb_ge@mfa.gov.ua Consular Agency: 71, Melikishvili St., Batumi Tel: (8-88-222) 3-16-00/ 3-14-78 Republic of Turkey Embassy 35 Chavchavadze Av., Tbilisi Tel: 225-20-72/73/74/76 E-mail: turkemb.tbilisi@mfa.gov.tr Address: 8, M. Abashidze str. Batumi, Georgia tel: (8-88-222) 7 47 90 Republic of Azerbaijan Embassy Kipshidze II-bl . N1., Tbilisi Tel: 225-26-39, 225-35-26/27/28 E-mail: tbilisi@mission.mfa.gov.az Address: Dumbadze str. 14, Batumi Tel: 222-7-67-00 Fax: 222-7-34-43 Republic of Armenia Embassy 4 Tetelashvili St. Tbilisi Tel: 95-94-43, 95-17-23, 95-44-08 E-mail: armemb@caucasus.net Web: www.armenianembassy.ge Consulate General, Batumi Address: Batumi, Gogebashvili str. 32, Apt. 16

TBILISI GUIDE

caucasian business week

Kingdom of Spain Embassy Rustaveli Ave. 24, I floor, Tbilisi Tel: 230-54-64 E-mail: emb.tiflis@maec.es Romania Embassy 7 Kushitashvili St., Tbilisi Tel: 38-53-10; 25-00-98/97 E-mail: ambasada@caucasus.net Republic of Poland Embassy 19 Brothers Zubalashvili St., Tbilisi Tel: 292-03-98 Email:tbilisi.amb.sekretariat@msz.gov.pl Web-site: www.tbilisi.polemb.net Republic of Iraq Embassy Kobuleti str. 16, Tbilisi Tel: 291 35 96; 229 07 93 E-mail: iraqiageoemb@yahoo.com Federative Republic of Brazil Embassy Chanturia street 6/2, Tbilisi Tel.: +995-32-293-2419 Fax.: +995-32-293-2416 Islamic Republic of Iran Embassy 80, I.Chavchavadze St. Tbilisi, Tel: 291-36-56, 291-36-58, 291-36-59, 291-36-60; Fax: 291-36-28 E-mail: iranemb@geo.net.ge United Nations Office Address: 9 Eristavi St. Tbilisi Tel: 225-11-26/28, 225-11-29/31 Fax: 225-02-71/72 E-mail: registry.geo@undp.org Web-site: www.undp.org International Monetary Fund Office Address : 4 Freedom Sq., GMT Plaza, Tbilisi Tel: 292-04-32/33/34 E-mail: kdanelia@imf.org Web-site: www.imf.ge Resident Mission of the Asian Development Bank (ADB) Address: 1, G. Tabidze Street. Tbilisi Tel: +995 32 225 06 19, EXT:101 Cell: +995 577 900 128 e-mail: qtvalavadze.contractor@adb.org World Bank Office Address : 5a Chavchavadze Av., lane-I, Tbilisi, Georgia Tel: 291-30-96, 291-26-89/59 Web-site: www.worldbank.org.ge Regional Office of European Bank for Reconstruction and Development Address: 6 Marjanishvili St. Tbilisi Tel: 244 74 00, 292 05 13, 292 05 14 Web-site: www.ebrd.com Representation of the Council of Europe in Georgia Address : 26 Br. Kakabadze, Tbilisi Tel: 995 32 291 38 70/71/72/73 Fax: 995 32 291 38 74 Web-site: www.coe.ge

Hotels in Georgia TBILISI MARRIOTT Tbilisi , 13 Rustaveli Ave. Tel: 77 92 00, www.marriott.com COURTYARD MARRIOTT Tbilisi , 4 Freedom Sq. Tel: 77 91 00 www.marriott.com RADISSON BLU HOTEL, TBILISI Rose Revolution Square 1 0108, Tbilisi Tel: +995 32 402200 radissonblu.com/hotel-tbilisi RADISSON BLU HOTEL, BATUMI Ninoshvili Str. 1, 6000 Bat’umi, Georgia Tel: 8 422255555 http://radissonblu.com/hotel-batumi SHERATON METECHI PALACE Tbilisi , 20 Telavi St. Tel: 77 20 20, www.starwoodhotels.com SHERATON BATUMI 28 Rustaveli Street • Batumi Tel: (995)(422) 229000 www.sheratonbatumi.com HOLIDAY INN TBILISI Business hotel Addr: 1, 26 May Square Tel: +995 32 230 00 99 E-mail: info@hi-tbilisi.com Website: http://www.hi-tbilisi.com BETSY’S HOTEL With Marvellous Tbilisi Views Addr: 32/34 Makashvili St. Tbilisi Tel: +995 32 293 14 04; +995 32 292 39 96 Fax: +995 32 99 93 11 E-mail: info@betsyshotel.com Website: http://www.betsyshotel.com

Restaurants CHARDIN 12 Tbilisi , 12 Chardin St. , Tel: 92 32 38 CHINA TOWN Tbilisi , 44 Leselidze St. (ent. from Chardin St.) Tel: 43 93 08, 43 93 80, Fax: 43 93 08 BREAD HOUSE Tbilisi , 7 Gorgasali St. , Tel: 30 30 30 BUFETTI - ITALIAN RESTAURANT Tbilisi , 31 I. Abashidze St. , Tel: 22 49 61 DZVELI SAKHLI Tbilisi , 3 Right embankment , Tel: 92 34 97, 36 53 65, Fax: 98 27 81 IN THE SHADOW OF METEKHI Tbilisi , 29a Tsamebuli Ave. , Tel: 77 93 83, Fax: 77 93 83 PICASSO Tbilisi , 4 Miminoshvili St. , Tel: 98 90 86 SAKURA - JAPANESE RESTAURANT Tbilisi , 29 I. Abashidze St. , Tel: 29 31 08, Fax: 29 31 08 SIANGAN - CHINESE RESTAURANT Tbilisi , 41 Peking St , Tel: 37 96 88 VERA STEAK HOUSE Tbilisi , 37a Kostava St , Tel: 98 37 67 BELLE DE JOUR 29 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 VONG 31 I. Abashidze str, Tbilisi Tel: (+995 32) 230 30 30 BRASSERIE L’EXPRESS 14 Chardin str, Tbilisi Tel: (+995 32) 230 30 30 TWO SIDE PARTY CLUB 7 Bambis Rigi, Tbilisi Tel: (+995 32) 230 30 30 LOFT 11. I. Mosashvili str, Tbilisi Tel: (+995 32) 230 30 30 RESTAURANT NERO 21 Abano Street, Tbilisi Tel: (+995 32) 292 10 15

SH. RUSTAVELI STATE THEATRE Tbilisi. 17 Rustaveli Ave. Tel: 93 65 83, Fax: 99 63 73 TBILISI STATE MARIONETTE THEATRE Tbilisi. 26 Shavteli St. Tel: 98 65 89, Fax: 98 65 89 THEATRE OF PANTOMIME Tbilisi. 37 Rustaveli Ave. Tel: 99 63 14, (77) 41 41 50 Z. PALIASHVILI TBILISI STATE THEATRE OF OPERA AND BALLET Tbilisi. 25 Rustaveli Ave. Tel: 98 32 49, Fax: 98 32 50

Galleries ART GALLERY LINE Tbilisi. 44 Leselidze St. BAIA GALLERY Tbilisi. 10 Chardin St. Tel: 75 45 10 GALLERY Tbilisi. 12 Erekle II St. Tel: 93 12 89 GEORGIAN NATIONAL MUSEUM - PICTURE GALLERY Tbilisi. 11 Rustaveli Ave. Tel: 98 48 14 KARVASLA’S EXHIBITION HALL Tbilisi. 8 Sioni St. Tel: 92 32 27, KOPALA Tbilisi. 7 Zubalashvilebi St. Tel: 99 99 02, Fax: 99 99 02 MODERN ART GALLERY Tbilisi. 3 Rustaveli Ave. Tel: 98 21 33, Fax: 98 21 33 M GALLERY Tbilisi. 11 Taktakishvili St. Tel: 25 23 34 ORNAMENT - ENAMEL GALLERY Tbilisi. 7 Erekle II St. Tel: 93 64 12, Fax: 98 90 13

Akhvledianis Khevi N13, Tbilisi, GE. +995322958377; +995599265432

Cinemas AKHMETELI Tbilisi. “Akhmeteli” Subway Station Tel: 58 66 69 AMIRANI Tbilisi. 36 Kostava St. Tel: 99 99 55, RUSTAVELI Tbilisi. 5 Rustaveli Ave. Tel: 92 03 57, 92 02 85, SAKARTVELO Tbilisi. 2/9 Guramishvili Ave. Tel: 8 322308080,

Theatres A. GRIBOEDOV RUSSIAN STATE DRAMA THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 93 58 11, Fax: 93 31 15 INDEPENDENT THEATRE Tbilisi. 2 Rustaveli Ave. Tel: 98 58 21, Fax: 93 31 15 K. MARJANISHVILI STATE ACADEMIC THEATRE Tbilisi. 8 Marjanishvili St. Tel: 95 35 82, Fax: 95 40 01 M. TUMANISHVILI CINEMA ACTORS THEATRE Tbilisi. 164 Agmashenebeli Ave. Tel: 35 31 52, 34 28 99, Fax: 35 01 94 METEKHI – THEATRE OF GEORGIAN NATIONAL BALLET Tbilisi. 69 Balanchivadze St. Tel: (99) 20 22 10 MUSIC AND DRAMATIC STATE THEATRE Tbilisi. 182 Agmashenebeli Ave. Tel: 34 80 90, Fax: 34 80 90 NABADI - GEORGIAN FOLKLORE THEATRE Tbilisi. 19 Rustaveli Ave. Tel: 98 99 91 S. AKHMETELI STATE DRAMATIC THEATRE Tbilisi. 8 I. Vekua St. Tel: 62 59 73

THE BEST GEORGIAN HONEY OF CHESTNUTS,ACACIA AND LIME FLOWERS FROM THE VERY HART OF ADJARA MATCHAKHELA GORGE IN THE NETWORK OF GOODWILL

PUBLICITY

caucasian business week

June 24, 2013 #10