Capitol Investment Group - a Success Story Started with the Management of Kazakh Investment Projects

Capitol Investment Group, an investment management group established in 2014 has recorded huge successes in the management of Georgian and Kazakh investment projects in real estate development and management, construction, tourism, agriculture and manufacturing. The Capitol Investment Group is also connected to the representation of the American hotel brand, Best Western International, and the Spanish hotel management group, Hotel Collection International, in Georgia. The Executive Director of Capitol Investment Group Giorgi Jakhutashvili, had a conversation with us at Diplomat Magazine and spoke about the company’s path and Georgian-Kazakh trade relations. He hopes that Capitol’s investment portfolio will grow in the coming years and investors from other countries besides Kazakhstan will also be represented by the group.

How did the Capitol Investment Group start, and how is it related to Kazakhstan?

In 2014, the Capitol Group was created, to unify the management of various projects that had started between 2006 and 2013 from Kazakh investments. At the time, those projects were in a crisis position due to the severe consequences of the 2008 Russo-Georgian war and the global financial crisis. For that reason, there was a need for qualified management and it coincided with the fact that the team needed for this task was assembled as quickly as possible. We named the management company “Capitol Management”, while the “Capitol Group” was selected as the name for the united group of companies mentioned above.

One of the main directions of the company is attracting foreign investments, how would you evaluate the investment environment in Georgia and how do you work in this direction?

The investment environment in Georgia is attractive but incomplete and needs to be improved in many ways. However, with its tax regime, preferences, and various international treaties, the investment environment in Georgia is still attractive to many countries, including Kazakhstan. Georgia is in a very good location, and this allows Kazakhstan to cross the Black Sea to reach world waters and export its products and vice versa.

As for us, we use local competence in project management, along with international practice. Our investors are mostly foreign nationals who do not personally work in Georgia and rarely arrive - several times a year, so we perform the functions of investors and founders as it were, taking care of their business so that their goals and strategies are implemented.

Capitol Investment Group is developing rapidly and attaining a lot of success. What has been the company’s key achievements and what challenges do you face in the market?

Since we began operations in 2014, we quickly identified a medium-term strategy for group development, and this provided a clear idea of the kind of investments we were going to attract and implement over the next 10 years. Therefore, we only took all the necessary steps that led to our current achievements.

One of the big directions that we decided to work on was real estate and hospitality. We understood that the challenge was managing competencies and human resources and infrastructure development in the regions. Consequently, we became partners with many international organizations, such as Best Western International, an American hotel brand that has around 16 sub brands all of which are available through us in the Georgian and Azerbaijani markets. We also became representatives and partners of the Spanish hotel management group, Hotel Collection International (HCI) in Georgia. HCI is an accredited manager of 22 hotels, including brands such as Hilton, Actor, Intercontinental, Sheraton and Marriott. With these two partnerships, we were able to penetrate the regions, create an investment project for tourism, have an international brand and manage international quality in the area of hospitality. Currently, three hotels enjoy the privilege of qualified management and eight hotels are a part of the brand’s representation, which places us at a unique position to provide predictable international quality in the regions.

Our main achievement is a rapidly growing team, through whose help we are building on all the projects that will be transformed into very solid investment projects for the present and in the future. These projects will bring relevant dividends to our and our investors.

It’s also worth to mention tripling the portfolio. We’ve tripled our portfolio of investment projects in six years. When we started it was about $ 45 million, today we’re managing projects of about $ 150 million.

Given the potential of Kazakh investments, it can be said that they are on a small scale in Georgia, how do you explain this? And what are the main obstacles for Kazakh investors?

After the collapse of the Soviet Union, Kazakhstan, just like Georgia, had a very difficult path in terms of economic and political development. There were sufficient challenges in the country, so there was no private capital accumulated for investments outside the country. As a result, Kazakhstan’s investments became a part of the international market, mainly through state organizations. There is a similar precedent in Georgia - KazMunayGas, which carried out gas distribution throughout Tbilisi. Major Kazakh investments are now represented in Georgia as Rompetrol, and Khalik Bank. Also by co-investment, a Kazakh company built a hotel in Borjomi, which started with the Rixos brand and continued with the Borjomi Likani brand after the Kazakh partnership ended. It seems that in the last ten years, Kazakhstan has also accumulated enough capital in the private sector and they have decided to diversify in the region, and expand their businesses to different countries.

As a result, Kazakh capital became activated in Georgia in recent years and it should be said that Georgian capital has also been activated in Kazakhstan - there are Georgians who are thinking about diversifying their businesses, and moving to the region and Central Asia. In both Uzbekistan and Kazakhstan, in the countries where there are more financial and legal guarantees, Georgian investments are also flowing, so we expect that in the coming years it will grow and deepen, and will bring more direct investments to Georgia from Kazakhstan.

Also, as to the reason behind Georgia’s attraction for Kazakh investors - I would add that Georgia is a leader in the development of democratic institutions in the region, and despite its economic growth rates that have slowed in recent years, it still holds a good position in terms of doing business and business competitiveness. Georgia has an excellent location in terms of logistics and geopolitics, although there are security risks, it is very important for Kazakh companies to participate in a market they are familiar with and is more or less understandable and predictable. There is also a positive context for the historically very good relationship between Kazakhstan and the Georgian people - they arrive in a country with no language barrier, with an all-year round tourism industry due to its diverse nature and climate which, is rare for them, as there is a very harsh natural climate in Kazakhstan. Georgia is attractive to Kazakhs. Georgian gastronomy is also fascinating and is an extra point of attraction for Kazakh visitors. The result is an investment with a pleasant benefit.

What areas of Georgia do you think are most attractive to Kazakh investors and what would you recommend to those who are thinking of starting a new business, but are still hesitant to choose Georgia?

In the private sector, of course, real estate is leading, as the real estate business in Georgia is stable and predictable. So, real estate investments are naturally the highest in the private sector. As for advice, first of all, I would say that Georgia is a very good and untapped market, as there are many interesting projects not only in real estate but also in agriculture, energy for small and medium businesses. Large projects are slightly difficult to implement, as these projects are tied to central infrastructure and logistics, though it is understandable and my advice would be that if they do not have experience with Georgia, they should start with small or medium-sized businesses. The directions here are different as well; perhaps I would prefer that any interested person gets involved in a business where they have experience in their own country or need to get in touch with their own country - for example, in the transport-logistics field, if they are importing something. The direction of production is also interesting given that Georgia has free trade agreements with the largest markets - these are the largest markets in Europe, the European Union and China, and Georgia has very favorable trade agreements with the US and former CIS states so, it is attractive for any production if the investor or the investment company has enough competence.

Georgia is a very attractive country for the establishment and development of financial institutions. The banking and financial system of Georgia is very developed because of the strength of qualified staff in the country. Georgia’s financial industry can be said to occupy one of the leading positions in Eastern Europe and the European Union. Tourism is a growing sector, followed by domestic consumption, and Georgia has great prospects for exporting such products, particularly in the area of agriculture, food, wine and spirits come to mind. So, for any Kazakh investment group or individual with any interest, Georgia is a very attractive country to diversify its portfolio. Of course, there may be much higher-cost projects in other countries as well, and Georgia may not compare in this regard, but in order to diversify some capital and balance the risks, Georgia is definitely the country which an investment group or private investor should consider as a second or third step.

How do you assess Georgia-Kazakhstan trade relations and how do you view the opportunities for development?

Georgia-Kazakhstan trade relations are, first of all, very important for both parties. To assess the areas of logistics, both countries contribute to, and are a part of the Silk Road (China’s New Silk Road Initiative, where Georgia and Kazakhstan, along with other countries, are involved in the construction of the logistics corridor). Therefore, trade links are very important. Georgia is a wheat importing country, which mainly comes from Russia. The demand for wheat alongside logistic issues have made Georgia a consumer of Kazakh wheat. Kazakh wheat is in demand in European markets, therefore trade and export relations between Georgia and Kazakhstan are very much needed in the Kazakh primary export sector. It is of course very attractive and holds huge prospects.

It is also very attractive to Kazakhstan for the import and export of minerals, and other agricultural products between countries. Energy, petroleum products, financial services - these are all services and products that both countries may need and benefit from each other. Georgia can be said to be a tourist destination, and Kazakhstan can be regarded as a tourist destination as well because it has very important and interesting places for different interested parties, even for off-roaders, and hunters. This is an ideal nature and climate, with wide opportunities for extreme destinations. So the question of how Georgia might be of interest to Kazakhstan and Kazakhstan to Georgia is still subject to elaboration by both sides, but in my personal belief and experience, both sides have so many opportunities that have not yet been discovered which will be precisely discovered through bilateral cooperation. These opportunities can be opened via different platforms and used by both private and public structures.

What are the future plans of Capitol Investment Group? How do you see your company after 10 years?

After 10 years, Capitol Investment Group will still maintain its mission of attracting investment and promoting effective management to aid Georgian economy. It is likely that our investment portfolio would have increased to about five times its current size, with investors from countries other than Kazakhstan also represented. Capitol Investment Group will be a diverse and multi-sector group as it is today, with a lot more benefits for its investors and the public.