C M Y K 12 HEADLINE NEWS & ANALYSIS FINANCIAL FactCheck 4 May, 2015 | finchannel.com Bank of Received EUR 40 million from the Bidzina European Investment Bank Ivanishvili: The FINANCIAL By Madona Gasanova

he European In- vestment Bank (EIB) is lending “In order to alleviate external EUR 40 million to Bank of Georgia, Tthe country’s largest bank, to shocks, the Government of finance investment projects promoted by SMEs and mid- cap companies. Georgia decreased the 2014 The EIB loan will support the implementation of proj- ects important for the devel- budget deficit.” opment of Georgia’s private sector as well as undertakings in the areas of social and eco- also decreased at the end of a positive outcome. Mariam Chachua nomic infrastructure, climate Mostly2014. Instead of a 5% growth Of FalSefurther note is the un- change mitigation and adap- FactCheck rate as planned, the GDP real even execution of the 2014 tation. As a result, the opera- growth rate is 4.8% according budget. In the main, infra- tion is expected to contribute to the preliminary estimates structural expenditure, fund- he depreciation of to job creation and mainte- of the National Statistics Of- ed principally by the foreign the national cur- nance. fice of Georgia whilst the debt, was in a constant state rency in Georgia “We are very pleased to nominal GDP equals GEL of lagging behind. At the end started in Novem- start cooperation with the 29,187 million. According to of the third quarter of 2014, ber 2014. GEL de- European Investment Bank, National Bank of Georgia Union’s bank. It is the only Tpreciated by 10% throughout the data of the National Trea- only half of the foreign debt especially in the light of Geor- and includes Privatbank’s bank owned by and repre- sury of Georgia, the budget was transferred owing to in- 2014 and dropped by another gia’s increasing economic market shares. The Bank of- senting the interests of the deficit in 2014 was GEL 863 complete project planning 15% (GEL 0.25) in the first and political ties with the fers a broad range of corpo- European Union Member million which constituted whilst GEL 478 million was two months of 2014. The de- EU, which has become the rate banking, retail banking, States. The Bank works close- 2.9% of the GDP. Therefore, transferred at the end of the preciation of GEL is caused by country’s largest trading part- wealth management, bro- ly with other EU institutions the budget deficit was indeed year. a high demand and a reduced ner. The Euro’s influence on kerage and insurance and to implement EU policy. decreased. We have to underline that supply of USD. Beginning the Lari has significantly in- healthcare services to its The operation brings the It must be noted that the when GEL started to depreci- from the second half of 2014, creased in recent years, with clients. As of 31 December volume of signatures for the decrease of the budget deficit ate rapidly in December 2014, the inflow of USD from the the Lari effectively becom- 2014, the Bank served ap- benefit of SMEs and midcaps was not a result of the deliber- the Government of Georgia basic sources of foreign cur- ing a euro proxy, as a result proximately 1.5 million client in Georgia to EUR 150 mil- ate actions of the Government did not reduce spending. On rency (tourism, remittances, of which we are now focused accounts through one of the lion. Total EIB lending com- of Georgia. The Government the contrary, in the last quar- exports) started to decrease on raising euro funding. This largest distribution networks mitments in Georgia amount of Georgia did not amend ter of 2014 budgetary spend- and this trend remains un- EUR 40 million loan, ear- in Georgia, with 219 branch- to EUR 530 million and con- the Law on Budget to slash ing started to accelerate. For changed until now. The bud- marked for financing our mi- es, the country’s largest ATM cern a number of other priori- budgetary expenditures as instance, in the period of get deficit spending at the end cro and SME customers, will network, comprising 523 ty sectors including transport, claimed by the Prime Minister January-September 2014, the of 2014 also contributed to enable us to further increase ATMs, 2.239 Express pay water and energy as well as of Georgia. The decrease of budget deficit was GEL 274 the depreciation of GEL. our competitiveness in the (self-service) terminals and support for SMEs and mid- the budget deficit was largely million which rose to GEL issued sector and support growth a full-service remote banking caps. caused by an incomplete ab- 863 million (by GEL 588 mil- a statement regarding the and job creation” said Irakli platform. sorption of expenditures. In lion) in the fourth quarter. Of depreciation of GEL and de- Gilauri, CEO of Bank of Geor- “A well-developed and ro- addition, the tax incomes part these amounts, the budget clared that in order to allevi- gia. bust SME sector is crucial of the budget was fulfilled deficit spending in December ate external shocks, the Gov- Bank of Georgia is the for economic growth and with a surplus and, conse- alone amounted to GEL 288 ernment of Georgia decreased leading Georgian bank, employment. This EIB loan, quently, the budget deficit at million which subsequently the 2014 budget deficit by based on total assets (with like similar loans the EIB has the end of the year was less contributed to the deprecia- GEL 300 million. a 35.5% market share), total extended across the Eastern than planned which in itself is tion of the national currency. FactCheck took interest in loans (with a 34.9% market Partnership countries, will the accuracy of the statement. share) and client deposits facilitate access to finance for According to budget projec- Chart 1: (with a 31.5% market share) the most vulnerable group of tion, a deficit of GEL 1,038 Budget Deficit in January-December 2014 as of 31 December 2014, all companies – SMEs and mid- million was planned for 2014 data based on standalone fi- caps,” said Wilhelm Molterer, and which constituted 3.5% nancial information filed by EIB Vice-President. of Georgia’s GDP. The budget banks in Georgia with the The EIB is the European plan was executed unevenly throughout the year. At the beginning of 2014, infrastruc- ture expenditures were lag- ging behind schedule whilst budget expenditures acceler- Ukrainian Crisis Costing Georgia ated at a very fast pace at the end of the year. The deficit spending of the budget was more than USD 300 Million one of the contributing factors to the depreciation of GEL. es, export and tourism from major sources of remittances Georgia’s GDP growth rate Continued from p. 4 Russia brought Georgia losses to Georgia. of USD 215,964,200. capital inflows through this The prolonged economic channel reaching a staggering recession in Russia holds Conclusion USD 5.936 billion since the much more danger for Geor- According to the budget projection, a deficit of GEL 1,038 million was planned for 2014 which year 2000. gia than any embargo Moscow constituted 3.5% of the GDP. At the end of the year, the actual budget deficit was GEL 863 During 2014 and January- could impose. The recession million which constituted 2.9% of the GDP. Therefore, the budget deficit in 2014 was indeed March 2015, money transfers affects not only certain Geor- decreased. However, the statement that the Government of Georgia deliberately decreased the from Russia amounted to gian products and producers, budget deficit is far from the truth. It has not made any corrections to the Law on Budget. The USD 797,553,200, down from but all export products, in- decrease of the budget deficit was caused by an incomplete spending for infrastructural projects 958,182,700 from 2013 and the vestments, the financial sec- and by surplus tax incomes. first quarter of 2014. The lost tor, and more importantly, it Of particular mention is the fact that when GEL started to depreciate rapidly at the end of the worth was USD 160, 629, 500. affects Georgian emigrants year, budget spending rose considerably. The budget deficit increased by GEL 588 million The reduction of remittanc- in Russia, who are one of the during the last three months of 2014. Of these amounts, the budget deficit rose by GEL 288 million in December alone which in turn contributed to the depreciation of GEL. Therefore, Bidzina Ivanishvili’s statement: “In order to alleviate external shocks, the Government of Georgia decreased the 2014 budget deficit,” is MOSTLY FALSE.

Mostly FalSe

The views expressed in this website are those of FactCheck.ge and do not reflect the views of The FINANCIAL or the supporting organisations C M Y K FINANCIAL HEADLINE NEWS & ANALYSIS 13 finchannel.com | 4 May, 2015 FactCheck How the Age Structure impairs Davit “Inclusive Growth” Sergeenko: Minister of Health, Labour and in Rural Georgia Social Affairs of Georgia

as transport, private house- culture], like providing ma- Continued from p. 2 hold employment, and trad- chinery to Georgian farmers “Prices of about 500 types of ing. The sample of the self- or incentivizing them to form Applying this theory to employed interviewed was cooperatives, but did not medications have increased by 15%- Georgian agriculture, most made up of about one-third lead to substantial productiv- economists would agree that of people above 60 years old, ity improvements. A lack of there are plenty of opportuni- while 24 percent of them were verve among Georgian farm- 20%... However, according to recent ties to be exploited, and also less than 39 years old and 44 ers would explain the often the institutional framework is percent were between 40 and ambivalent outcomes of such data, the growth of prices has stopped.” no big obstacle. Hence, both 59 years old. initiatives.” (“Farmers with- the material mode and the As it turns out, the age vari- out Verve”, to be found on the institutional mode are condu- able in this study is indepen- ISET Economist Blog, Janu- Teona Absandze According to the data of the reflectsTrue the monthly prices of th National Statistics Office of pharmaceutical companies cive to entrepreneurial activi- dent from economic activ- ary 20 , 2015) FactCheck ties. The question is, however, ity. One finds self-employed A “lack of verve” could be Georgia, the prices of widely for about 78 medications. We whether older inhabitants of engaged in non-agricultural caused primarily by the usual- used medications increased obviously could not calculate rural areas have visions how activities both below 39 and ly advanced age of those who n 25 February by an average of 7.1% in 2014. the average indicator based to develop their small farms, above 60 years old. Age is remain in the rural areas of 2015, the Minister In contrast to that, the prices upon such incomplete data; and whether they are willing also independent from “for- Georgia. Yet unlike other fac- of Health, Labour of medications decreased ev- however, in order to deter- to take the concrete steps that mality variables” such as hav- tors discussed in Gelashvili’s and Social Affairs ery year during the previous mine certain trends, we com- have to be undertaken to fos- ing a bank account, keeping article, which may be respon- of Georgia, Davit several years. pared the prices of 20 of the OSergeenko, commented upon We requested data about most widely used medications ter those visions. accounting, and dealing with sible for the low motivation of written contracts. And while Georgian farmers, one cannot the depreciation of GEL and the price changes of medica- from this list and noted how the majority of self-employed do anything about peoples’ stated: “Prices of about 500 tions from the Ministry of the prices changed from No- ELDERLY WITHOUT are “necessity driven entre- ages. This is bad news, as types of medications out of an Health, Labour and Social vember 2014 to March 2015. preneurs” at all ages, the raising productivity in Geor- overall 15,000 have increased Affairs of Georgia as well; There is a significant increase ENERGY oldest segment of this study gian agriculture is crucial, for from 15% to 20%.” Later, on however, the Ministry did in the prices of the majority of 12 March 2015, the Minister not provide this information. these medications. The research project clearly differentiates itself example for taking advantage from the youngest when it from the DCFTA. stated that the growth of the The official answer letter sent The Association of Phar- “Emergence and Evolution prices of medications had to us by the Ministry states: maceutical Companies also of Entrepreneurship”, led comes to motivation, confi- If, on the other hand, those dence, and attitude towards who develop Georgian agri- stopped. “The distributors of phar- observes the price changes of by abovementioned Paul H. FactCheck attempted to maceutical production have medications. Wespoke with Dembinski, was carried out risks. There is a higher per- culture do not originate in the centage of younger self-em- villages but are young, highly- analyse the changes in the no obligation to provide the the Executive Director of the within the scope of the Aca- prices of medications based Ministry of Health, Labour Association, Ilona Kokiash- demic Swiss Caucasus Net ployed who plan to “sell more” skilled and motivated agricul- within the next 6 months to 2 tural entrepreneurs, coming upon various sources. and Social Affairs of Georgia vili, who stated: “The ma- (an initiative of the Gebert The National Statistics Of- with the distribution prices of jority of the medications are Rüf Stiftung in cooperation years. By the same token, 74% from the cities (or even from of the self-employed below abroad), it will be difficult to fice of Georgia observes the these products.” imported. Resources for local with the University of Fri- price changes ofwidely used We attempted to obtain in- production are also imported. bourg). The overarching goal 39 would be ready to follow achieve inclusive growth, i.e. training courses to improve letting everybody benefit from medications. These include: formation about the prices of Hence, the changes in the was to examine entrepre- antibiotics, vitamins and medications from the LEPL exchange rate of GEL with neurial dynamics in Georgia their businesses, while only economic development. 20% of those above 60 would The only way to solve this painkillers as well as cardio- State Regulation Agency for regard to USD and EUR af- through a longitudinal study vascular, anti-inflammatory Medical Activities, subordinate fect the prices of medications following both potential and agree to do so. Similarly, 57% conflict is to convince more of those below 39 would be young people to stay in their and gastrointestinal medica- to the Ministry of Health, La- directly. The prices of medi- existing entrepreneurs. More tions. According to the in- bour and Social Affairs of Geor- cations grew by an average specifically, the project aimed willing to take more financial villages. As part of multi- risk in exchange for the op- generational families, they formation provided by the gia. In his interview with us, of 10%-12% from December to identify how entrepreneurs National Statistics Office, the the Deputy Head of the Phar- to February. There was no move from the so-called ‘un- portunity to produce more, may contribute the entrepre- while this number for those neurial drive members of the prices of widely used medica- maceutical Affairs Department sharp decrease in the prices observed’ to the ‘observed’ tions increased significantly of the Agency, Davit Macha- in November and December economy and how enter- above 60 stands at 14%. Half elder generations are lacking. of the self-employed below If entrepreneurial spirit of the from November 2014 as com- rashvili, stated: “The prices as the pharmaceutical com- prises, including micro en- pared to the same period of of up to 500 medications did panies managed to maintain terprises, develop and grow. 39 feel confident to start an- younger generation drives the other activity with the skills development of farms from the previous year. In Decem- indeed increaseby 15% to 20% the prices due to existing re- However, the data collected in ber, January and February in February; however, accord- serves.” She also said that the the research project also elicit they have, compared to only within, the older people who 32% of those above 60. Fi- live in the villages will par- the prices of medications in- ing to recent data, the growth pharmaceutical companies the entrepreneurial potential creased not only as compared of prices has stopped.” are trying to keep the prices and motivation of (elderly) nally, “fear of failure” would ticipate in this development, prevent 39% of the young even if they lack the energy to to the same months of the The State Regulation from increasing further by ne- Georgian farmers, the topic of previous year but to the previ- Agency for Medical Activities gotiating with the producers, this article. More information self-employed to start anoth- become entrepreneurs them- er activity, while the number selves. ous months of the same year provided FactCheck with reducing profit margins and on the research project can as well. certain statistics as well. It through other ways as well. be found at ww.ascn.ch/en/ is 60% for the old ones. The Whether (and how) this can research/Entrepreneurship. results are summarized in the be achieved, however, is high- html. table. ly uncertain. Table 1: Growth of Prices ofMedications (%) The dataset produced with- By and large, these results confirm what one may have in the scope of the project was 2014 (No- 2014 2015 2015 created through interviews expected, namely that the “en- trepreneurial drive” decreases vember) (December) (January) (February) which were conducted every Compared to the same month of the 6 months since 2013, cover- when people grow older. 8.1 14.2 16.1 11.4 previous year (%) ing 350 self-employed as well as 250 micro enterprises and KEEP THE YOUNG Compared to the previous month (%) -1.0 3.6 1.3 2.4 small enterprises in Georgia. 60 percent of the self- IN THE VILLAGES employed interviewed were living from agricultural ac- As Salome Gelashvili Conclusion tivities. The rest got their writes: “Many ideas were According to the data of the National Statistics Office of Georgia, the prices of widely used incomes from services such tried out [in Georgian agri- medications increased by an average of 16.1% in January 2015 as compared to the same period of the previous year whilst in February the increase was 11.4%. The prices of widely used YES YES medications increased by an average of 7.1% in 2014.The prices of medications had a trend of less than 39 years old more than 60 years old decrease in 2011, 2012 and 2013. The Ministry of Health, Labour and Social Affairs of Georgia did not provide us with Would fear of failure prevent you to start information about the price changes of medications. However, the Ministry confirms that 39% 60% another activity? the prices of up to 500 medications did indeed increase from 15% to 20% in February. It also clarified that, according to recent data, the trend of an increase of prices has stopped. This is With the skill you have, do you feel 50% 32% confirmed by the Association of Pharmaceutical Companies as well. confident to start another activity FactCheck concludes that Davit Sergeenko’s statement about the prices of medications is TRUE. Would you be ready to take financial risks 57% 14% to improve your business Would you be ready to follow training 74% 20% courses to improve your business true

The views expressed in this website are those of FactCheck.ge and do not reflect the views of The FINANCIAL or the supporting organisations