Kazakh-Georgian Business Relations: Working Together for the Progress of All - Diplomat Magazine

One of the most important events witnessed recently is the strategic meeting held between big business establishments operating in Georgia and Kazakhstan. At the meeting, a memorandum reached on further cooperation between the countries in the areas of investment, trade, tourism, social life, and cultural preservation, that was signed by all 8 companies represented at the meeting (Halyk Bank Georgia, Batumi Oil Terminal, Rompetrol Georgia, AIR ASTANA representative in Georgia, Wagon GK, AlimWay, Parmigiano Group, Georgian Partners).

The main purpose of the union is to provide legal, information and marketing support to the members of the union (Kazakh companies/investors operating in Georgia, as well as Georgian companies/investors operating in the Republic of Kazakhstan), to promote the interests of both countries, and to deepen cooperation between Georgia and Kazakhstan.

“Modern realities dictate its terms. But if we unite, we can handle all the difficulties. Our countries have deep historical roots and close cooperation. The signing of the memorandum will not only strengthen but also further expand our cooperation,” - Baurzhan Mukhamedzhanov, Extraordinary and Plenipotentiary Ambassador of the Republic of Kazakhstan in Georgia.

In this interview, Giorgi Jakhutashvili, the executive director of the investment management company, Georgian Partners, who played prominent roles in the development of the idea and co-authored the memorandum, spoke to us about the importance of forming the union.

How important is this cooperation for both Georgia and Kazakhstan especially in light of the COVID-19 challenges?

This cooperation was important before the pandemic, it is important during the pandemic and will be important in the future, as it relates to the rapid development of the public, private and socio-cultural relations between the two countries. At any time, it is necessary to solve problems in a timely and effective manner, and to do this, it is vital to establish communication based on mutual trust. For example, currently in Kazakhstan, a difficult epidemiological situation has developed, and the country needs help in the field of medical methodology. In this regard, the best practices and equipment can only be provided by states, and it underscores the need for human relations, friendship, business partnership, etc. This plays out in very small ways and we see a vivid example when a Georgian businessman handed over 10 sets of breathing apparatus to the Embassy of Kazakhstan in Georgia. 10 may seem like a small number, but if you think about it, you will realize that 10 devices can save 10 lives in a day and that has potential to increase exponentially. In peacetime, good and reliable partnerships between nations promotes love and friendship between nations, and in difficult times, the abundance of such relationships becomes the basis for peace and survival.

In your opinion, what changes do you think can promote interests in the socio-cultural life of Georgia among large Kazakhstani companies?

I would say that the third stage of Kazakh-Georgian relations will begin under this agreement.

The first stage - The important role played by Kazakhstan in the socio-cultural life of Georgia first appeared in the 12th century, when in 1118, King of Georgia, David the Builder moved 40,000 Kipchak families (one of the Kazakh tribes) from the South Caucasus to Georgia. The goal of such move by King David the Builder was to strengthen the Georgian army and march on the conquerors of that time, which was carried out successfully and for the first time in history, he was able to expand the territory and unite Georgia. The Kipchaks remained in Georgia even after the campaigns and were honestly given to service to maintain stability in Georgia, which was very important following the unification of Georgia.

The second stage of Kazakh-Georgian relations began in 2006, when Georgia actively began to carry out economic reforms which, were supported by the First President of the Republic of Kazakhstan N. Nazarbayev. At that time, Georgia was pursuing a new path in the western direction, and that move prompted Kazakhstani national and private companies to actively invest in Georgia. Indeed, Kazakhstani direct investments were one of the first international investments in Georgia apart from that of neighboring countries (which already had strategic needs in our territory and made certain investments for this purpose), which gave a significant boost to the investment environment of Georgia. For 14 years, Kazakhstani direct investment exceeded 450 million US dollars. Unfortunately, in this second period, both countries were new players in the capitalist and global economies, therefore, none of them had relevant individual work experience, and most investments were financially unsuccessful, which to some extent affected the influx of new investments. However, despite the material losses, the experience gathered has proven to be invaluable for the success of future cooperation.

The third stage will begin precisely with the systematization and dissemination of mutual experience gained in cooperation with large Kazakhstani companies. To this end, a non-profit bilateral Kazakh-Georgian association is being created. In addition, the economic relations of both countries are rife with many untapped opportunities in the field of investment, trade, tourism and culture and they all require constant research and development, which will lead to a significant contribution to the economy of both countries.

What can you tell us about the foray of Georgian businesses into the Kazakhstani market? In particular, what areas can these Georgian businesses impact the Kazakh?

Before we move on to the attractiveness of the Kazakhstani economy, it is necessary to note its geographical significance. Kazakhstan is located in the central part of Central Asia; it shares borders with Russia, China, Kyrgyzstan, Uzbekistan, Turkmenistan and has access to the Caspian Sea. Kazakhstan is one of the main contributors of the Silk Road, which makes it a very important player in the Asia-Europe connecting link and is a very interesting country in terms of logistics.

At the same time, the Republic of Kazakhstan ranks ninth in the world in terms of areas where oil is the main resource, and is the main driving force of the country’s economy, although it possesses almost all mineral resources and is one of the world leaders in grain production. As you know, these major resources possessed by Kazakhstan are very interesting for Georgian business, since Georgia is a country completely dependent on imports of oil and wheat and 90% of total wheat imports in Georgia come from Russia, therefore, Kazakhstan is an interesting country for the economy of Georgia. However, Kazakhstan is also a developing country where the heavy and light industry, food production, tourism, financial, communications, transport and the logistics sectors have endless opportunities. Many Georgian businesses can develop their operations around these sectors and they can help the people of Kazakhstan with the production of export-import substitute goods, by creating jobs and by paying taxes.

For clarity, we must mention three main Georgian investments in Kazakhstan, one is a new automated Ferro-alloy plant launched by the Karaganda Ferro-alloy Plant YDD Corporation last year. This is a completely new level of investment witnessed in the Kazakhstani industry, and it is aimed at increasing the export potential of the Republic. The main product manufactured by Karaganda is high-quality Ferrosilicon (FeSi75), which is one of the most important elements in the production and alloying of steel. The other one is a coal enrichment plant and modernization operating foundry in Karaganda. This project is innovative because it involves the use of the latest technologies for the enrichment of raw coal with an input ash content of 15% and makes it possible to bring 2-3% to mother ash. The uniqueness of the selected technology is that the enrichment process does not affect the environment of the region, since the whole process takes place indoors, where many areas for water clarification pools are not required. The third very interesting case is NEYCO, a fintech company, whose name stands for mo(ney+co) in and its mission is to create a bridge between traditional and crypto currencies. In 2020, NEYCO registered in Kazakhstan and started operating under Astana International Financial Centre (AIFC). The company is originated from Georgia with over 7 years of experience in the industry.

What are the major areas of interest for Kazakhstan companies in Georgia?

First of all, Georgia is important and interesting from the point of view of logistics, because, like Kazakhstan, Georgia is also a contributor to the historical Silk Road and is one of the main channels for the countries of Central Asia to gain access to the Black Sea, and then to global water bodies.

In addition to logistics, Georgia is a very interesting and very attractive country thanks to its free trade agreements with Europe and China. For this reason, Kazakhstani manufacturers, who need to increase the competitiveness of their products in Europe and China, will be able to displace competitors in those markets when they produce part of their products in Georgia and exporting them without taxes.

Kazakhstan also needs to supply the food, non-alcoholic and alcoholic drinks they need, and Georgia has the opportunity to export products.

We also mentioned that Georgia is an oil importing country and, although you know that there are up to 6,000 rivers of different sizes in the country, under conditions of renewed energy production, this will make the country one of the leaders in oil production in the region. This remains an untapped potential which has not been used and is ripe for investors, and it is an interesting direction for Kazakhstani energy companies.

It is also interesting for strong Kazakhstani groups operating in the field of tourism, real estate, finance, banking and insurance, communications and healthcare, because, despite the small consumer size of Georgia, it is a favorable location for simplified operations and when compared to other countries of the South Caucasus, it provides simplified access to other medium-sized consumer market.

It should be emphasized once again that there are many opportunities in both Georgia and Kazakhstan, which requires more in-depth research, and then assistance is needed to ensure that the identified opportunities are realized by the private sector with the help of governments.

Some of the laudable examples of the above are:

• Georgian Partners is a private company managing small and medium investments. I am the head of Georgian Partners. You and your readers will most likely be hearing this name for the first time, however the company has been operating under the name “Capitol Management” for seven years. In 2013, my friend and I took over a portfolio of Kazakh investments, which in turn consists of assets worth approximately $50 million covering several sectors (real estate, agriculture, processing, etc.). At that time, the portfolio was almost at zero and crisis management was required. We have overcome these obstacles and are currently managing assets worth $150 million, without having any ties to a Kazakh owner. We are local partners, and therefore chose to operate with the name “Georgian Partners”. Although we do not participate in the stake, we simply prepare our operating groups of companies to clearly articulate our interests and try to improve performance. Improving performance guarantees the increase of the value of our assets.

• Halyk Bank Georgia JSC, a subsidiary of Halyk Bank of Kazakhstan JSC, has been operating in the Georgian banking market since 2008. Halyk Bank of Kazakhstan JSC which owns a 100% stake in Halyk Bank Georgia has a 95-year history of successful development and is one of the largest financial institutions in the Republic of Kazakhstan. Halyk Bank Georgia JSC offers a full range of banking services - retail and business lending, bank payment cards, deposits, cash settlement services, money transfers, remote banking services, etc. The Bank contributes to preferential lending programs available for farmers and producers in Georgia.

• In February 2008, Batumi Oil Terminal LLC was acquired by KazTransOil JSC, a subsidiary of KazMunayGas JSC. Batumi Oil Terminal LLC has exclusive management rights in relation to a 100% stake in Batumi Sea Port LLC. Based on the implementation of decisions reached based on the need to comply with the legislative requirements of Georgia, international and interdepartmental standards, KazTransOil JSC in carrying out its daily activities, takes into account the requirements of all interested parties; carries out large-scale environmental activities aimed at mitigating the historical and current factors of the negative impact on the environment; considers labor protection and occupational safety as an integral part of its activities; provides transshipment, transportation, forwarding, acquisition and sale of oil, oil products and gas, as well as their processed products. KazTransOil JSC also creates new competitive facilities and reconstruction of the existing technical and technological infrastructure.

• The Rompetrol Georgia company (KazMunaiGas management company) was founded in 2005 and operates a network of 76 gas stations. In addition to its gas station network, the company is also involved in the wholesale of petroleum products from the fuel depot located in the port of Batumi, as well as from the Tbilisi oil depot, which has been completely modernized to increase storage capacity. The company is well known to its customers as a market leader in terms of product quality.

• Parmigiano Group is an umbrella body of several companies united by a common mission: to make the life of many people more comfortable, cozier and tastier. They run restaurants, healthy food delivery services, round-the-clock food orders, catering services and fast food services which serves more than 80,000 guests in Kazakhstan. Parmigiano Group is a restaurant management company, founded in 2012. It focuses on the launch and development of its own restaurants to promote various concepts in Kazakhstan. The mission of the Parmigiano Group is to introduce an entirely European approach to the restaurant business. A common factor that unites restaurants is the high quality of work at every stage and the level of detail involved in the design, construction, interior design, and technology development, Parmigiano’s expertise, and, of course, the highest level of professionalism of Parmigiano’s employees. The first Parmigiano Group restaurant is also opening in Tbilisi.

• AlimWay is a business founded in Georgia in 2019, with operations in the travel industry. AlimWay organizes various individual and group tours. One of the priorities of AlimWay is business tourism, based on the organization of business travel and corporate services. The company takes on the organization of international travel forums, congresses, conferences, exhibitions, international charity events, scientific expeditions, and helps to conduct corporate trips - seminars, trainings. Georgia’s tourism opportunities offer a great value to people from various destinations. And taking into account the unique climatic conditions, Kazakhstan tourism to Georgia can become very promising. In summer, the coast is of interest, in winter, the Ski resorts, and the Sanatorium treatment at Georgian resorts are available throughout the year. It will also be interesting for Georgian citizens to visit Kazakhstan to explore its vast territories, where you can see mountains, steeps, and beautiful Kazakhstan sea. All of these are huge reserves for building up bilateral cooperation.

Does the organization plan to expand cooperation and increase the number of member companies?

The purpose of finalizing the memorandum itself is to carry out preliminary preparatory work, which, based on the organization’s mission, provides for the creation of the main activity, strategy, structure, management model, budget and other necessary plans. Following this, conditions will be created to increase the number of members of the organization, their participation in the activities of the organization and only after that will the organization will become officially registered.

When will the steps defined in the memorandum be taken, and what processes have you identified?

A working group has already been created which is tasked to complete the work defined in the memorandum within the next 6 months, that is, by the end of December. We hope that by January of 2021, the organization will be able to begin full operations.