Georgia – Regional Hub and Asia's Gateway to Europe

INTERNATIONAL INVESTMENT FORUM Georgia – Regional Hub and Asia's Gateway to Europe

Forum Proceedings Tbilisi, Georgia 29–30 October 2014

Note: In this report, “$” refers to US dollars.

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from selling, redistributing, or creating derivative work for commercial purposes without the express, written consent of ADB.

Irakli Garibashvili, Prime Minister of Georgia

Ladies and gentlemen, distinguished guests, I am very pleased to have this opportunity to address this distinguished audience of great business leaders today.

First, I would like to thank the Asian Development Bank (ADB) and the Ministry of Economy for helping organize this International Investment Forum. I consider it a great privilege to address this audience of global business, finance, and political leaders.

ADB has supported numerous reforms and projects in Georgia and has been a true partner of our country. I believe ADB sees Georgia’s true potential and is helping us reach it. Our government looks forward to continue working with them in many other initiatives in the future, and I know all of you who will hopefully choose to invest in Georgia will benefit from their activities. Many of you are experienced international business leaders who have seen economic transitions around the world. Some of you are familiar with Georgia’s transformation since the end of the Soviet Union.

The Georgia today is another world compared with 2 decades ago. Every aspect of our country—from health and education to political stability and national security, and, especially for the purpose of today’s forum, economic development—has progressed by leaps and bounds.

Now, Georgia is focusing on developing its role as a regional hub. We are taking concrete steps to build strong relationships with all our neighbors and near neighbors. As you know, Georgia is strategically located between Europe, Asia, and the Middle East. We are a key platform in revitalizing the Silk Road and a bridge between east and west.

Politically, we have strengthened relationships with our direct neighbors: Armenia, Azerbaijan, Turkey, and the Russian Federation. Even though we have some challenges with the Russian Federation to put it mildly, we have still made some progress in de- escalating relations and opening trade and other exchanges. With our neighbors, we actively cooperate and have many joint projects.

We are also actively deepening our ties with our near neighbors abroad. Looking west, our European and Euro-Atlantic integration has been a key component in Georgia’s development path. Our commitment to aligning more closely with the United States (US) and Europe goes hand in hand with our commitment to continued economic and democratic transformation.

Our new Association Agreement and the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union (EU) and our ever-deepening ties with the North Atlantic Treaty Organization (NATO) underpin this relationship and provide a master plan for even more robust engagement. The new EU–Georgia DCFTA provides the road map, incentives, and protection needed to finally bring EU–Georgia trade to its full potential.

The DCFTA will contribute to economic growth, integration with world markets and global supply chains, and open new prospects for Georgia and for entrepreneurs in our

country. The DCFTA provides an opportunity to gradually achieve integration in the EU internal market, and products or services produced in Georgia can freely access the EU market. In addition, the DCFTA significantly increases the investment attractiveness of our country and creates new investment opportunities. Estimates indicate that the DCFTA will increase Georgia’s exports by 12.4% and imports by 7.5%, implying at the same time an improvement of trade balance.

In the first 6 months of 2014, Georgia’s trade turnover with the EU grew 15% year to year, with an amazing 41% year-to-year increase in exports and 9% increase in imports. This was without the DCFTA in force. We cannot wait for the DCFTA to unlock the full potential of this trade.

While it may not look like the near-abroad on a map, we consider the US as close to us as Europe is. The US has been a key ally of Georgia; and our economic relationship continues to grow.

Looking east, we regularly cooperate with the countries of East Asia, Central Asia, and the Middle East, and look for new ways to expand this relationship. We have strong relationships with businesses in the Republic of Korea and Japan, and our relationship with the People’s Republic of China (PRC) is growing. The Deputy Prime Minister, who is also Minister of Economy, was in the PRC just a few weeks ago. I will be traveling there in a few months. More Georgians are going to the PRC to study and more companies from the PRC are coming here. We are regularly cooperating with Central Asia. Our relationship with Kazakhstan is especially strong. Many companies in the Middle East have invested heavily in Georgia, and our political relationship is getting stronger. I traveled to the United Arab Emirates just a few months ago and there are regular exchanges back and forth.

Supporting our position as a regional hub, Georgia enjoys free or near-free trade with all its neighbors. Building on these relationships increased exports by 22.4% to over $2.9 billion in 2013. This growth continued in 2014 with a 15% year-to-year increase in exports in the first half of the year.

To attract more foreign investments, we have launched numerous initiatives to help reduce risks and increase returns. On the grand scale, new public and private investment funds with billions at their disposal have been established to help finance foreign investments in Georgia. Among them, the Georgian Partnership Fund invests in large-scale investment initiatives and agriculture management funds, which successfully finance the production of agricultural products. In addition, a newly established private equity fund, the Georgian Co-investment Fund, serves as an investment vehicle dedicated to investing in Georgia and provides opportunity for investors to get exposure to Georgia’s economy.

While the successes of Georgia’s development are the result of the hard work of many over decades, the important reforms our government has enacted over the last 2 years have brought us to this moment. As you all know, a country like Georgia can have the lowest tax rates in the world and many other business incentives, but investors will not come if there is no rule of law—at least not the investors you want. We have brought the rule of law back to Georgia. We have aggressively cracked down on corruption and we have ended government impunity. Georgia is not only open for business, but it is safe for business.

Additionally, we recognize that the health and education of the people of Georgia are key to our economic success. As a result, we are investing huge sums in dramatically improving education and health care, especially in rural areas.

The top goal of our government is to ensure and guarantee • macroeconomic stability, • open and fair competition in the market, • proper protection of property and intellectual rights, • freedom of access to an independent judicial system, • effective financial systems, and • a stable, predictable, and transparent legislative environment.

For you, investing in Georgia is as safe as investing in any country in Europe, except that your costs and taxes will be lower, there will be fewer regulatory burdens, and your returns will be higher. Of everything I have said, I hope that this sentence got your attention.

Let me repeat it: investing in Georgia is as safe as investing in any country in Europe, except that your costs and taxes will be lower, there will be fewer regulatory burdens, and your returns will be higher.

These reforms have not gone unnoticed and Georgia is attracting more and more foreign investment.

I’d like to share some key statistics with you:

• We have seen a 6.1% increase in gross domestic product (GDP) in the first 7 months of this year. Total growth in 2014 is expected to exceed 5%. • A recent survey by the Heritage Foundation ranked Georgia the 22nd freest economy in the world, citing improvements in 6 out of 10 economic freedom categories, including freedom from corruption, property rights, business freedom, trade freedom, investment freedom, monetary freedom, and the management of public finance. • In addition, in 2014, Moody’s and Fitch upgraded the outlook of Georgia’s sovereign ratings from stable to positive and affirmed BB–. That is a very positive signal for investors. • Georgia’s foreign trade continues to grow. In the first half of 2014, trade expanded 16% year to year to $5.44 billion.

New developments related to Georgia’s strategic location are game changers for Georgia and present great opportunities for global companies. In support of Georgia’s role as a regional hub, we have identified a number of priority sectors for development and investment: transportation, manufacturing, agriculture, energy, and tourism.

In transportation, Georgia is investing on its own railway infrastructure to better facilitate regional trade and trade from Asia to Europe. The new Baku–Tbilisi–Kars railroad to be completed in 2015 will connect Azerbaijan, Georgia, and Turkey, and allow the efficient and faster delivery of containers, freight, and passenger traffic from Asia to Europe. Once completed, the cargo and passenger handling capacity of the railway line will be 5

million tons and one million passengers in the first year, which will triple in the succeeding years.

Georgia is also expanding its internal railway capacity. Two large tunnels are being constructed to connect east and west Georgia, which will increase rail speed by 50% and triple its capacity. We are also constructing a new highway through Georgia. We have several new airports under private management.

These initiatives complement other projects to connect the PRC, Central Asia, and the Caucasus. We are working to harmonize tariffs and customs procedures to make this transportation as easy as possible. Goods can now transit through Georgia from Asia to Europe and back again with surprising ease and low costs. This will only get better.

Related to this, demand at Georgia’s ports has increased significantly, reflecting an expected economic trend. Container handling in total has increased sharply in Georgia’s seaports in the past few years. In the first 8 months of 2014, it increased by 18% compared with the same period in 2013. Because of this increase in demand, the government is pursuing the development of a new deep-sea port in Anaklia on the Black Sea coast, which will be able to handle 100 million tons of cargo per year. From around the world, 12 consortiums have expressed interest in the project. We are now reviewing their proposals.

In manufacturing and agriculture, because we enjoy free trade or near-free trade with all our neighbors, manufacturers and large agriculture companies looking for a much safer and easier business environment are choosing to establish their projects in Georgia and utilize our great transit services to ship their products tariff free around the region. Georgia has many incentives and co-investment and finance programs to support manufacturing and agriculture investments. As many of you have heard, Georgia has some of the best agriculture land in the world. There is much untapped potential due to the quality of land and the high number of climates. I predict that with the DCFTA, smart manufacturing and agriculture companies that are looking to sell to Europe, the Commonwealth of Independent States (CIS), or Turkey will expand their activities to friendly Georgia.

Tourism is also on the rise—while being a small country, Georgia offers seaside resorts, skiing, vineyards, and famous spa and wellness resorts. In 2013, 5.4 million people visited Georgia, 22% more than in 2012. The occupancy rate in Tbilisi regularly exceeds 70% and dozens of new hotels are about to open. The full potential of this sector has not yet been realized. The government is actively working on developing tourism infrastructure as well as diversifying existing services and new avenues, including meetings, incentives, conferencing, and exhibitions (MICE) tourism and the development of a new convention center. As a growing tourist destination, there are excellent opportunities for investors in real estate development, construction, and commercial infrastructure development, especially for hotels, offices, shopping facilities, and other high-demand facilities.

Energy resources are a key driver in Silk Road economic development and regional integration. Due to Georgia’s strategic location, Georgia is playing an important role in the energy independence of Europe and its neighbors. Georgia supports the only route for Caspian Sea oil and gas to travel to Europe without going through the Russian Federation–controlled territory or pipelines. Last year, the Shah Deniz Consortium

announced a massive $28 billion expansion of the South Caucasus pipeline through Azerbaijan and Georgia, which will bring 16 billion cubic meters of new natural gas to Turkey and Europe. A few weeks ago, I was in Azerbaijan to break ground and lay the first segment of this new pipeline. This expansion will lead to approximately $2 billion in new investment by the consortium in Georgia and result in Georgia receiving significant quantities of natural gas as part of the transit agreement.

Similarly, Georgia has one of the largest untapped hydro resources per capita worldwide. Green energy comprises up to 90% of our energy consumption. We have significant potential for renewable energy generation, only 20% of which has been utilized so far. Investment in this priority area will generate massive long-term returns. As a result of Georgia’s abundant and growing hydropower capacity and this supply of natural gas, Georgia is becoming a net exporter of energy. More importantly, energy prices in Georgia are falling regularly and the source of that energy is getting greener and greener. So, Georgia is not only a great place for manufacturing and agricultural exports; it is a great place for any industry that consumes a large amount of power.

In closing, let me stress again that Georgia is committed to using its strategic location to connect Asia, Europe, and the Middle East; expanding trade from one end of Eurasia to the other.

The reopening of the Silk Road is one of the greatest achievements brought about by the end of the Cold War. The potential for the region is great, but more is needed to turn potential into reality. Georgia is ready to use its location as a strategic crossroads and to do its part to fully revitalize the Silk Road. To this end, I intend to establish a Silk Road Forum in 2015. We seek to launch in Georgia an annual high-level meeting of all states and international organizations interested in the future of the Silk Road. The forum will discover new ideas for enhancing cooperation in the fields of transport, energy, trade, and people-to-people contacts across the Silk Road. The forum will move beyond discussion to action.

We, as a government can be an enabling instrument, but it is up to business to seize the opportunity. We want the business community to see us as reliable partners in this endeavor. My team is ready to work with you to make your entry into Georgia as easy and profitable as possible.

Once again, I would like to thank the organizers and all of you for your interest and time.

Thank you.

Wencai Zhang, Vice-President (Operations 1) of the Asian Development Bank

Your Excellency, the Prime Minister of Georgia, Honorable Ministers, esteemed members of government, excellencies, distinguished guests, ladies and gentlemen.

I would like to join the Prime Minister in welcoming you to the International Investment Forum in this beautiful city of Tbilisi. We at ADB are privileged to cosponsor this event. On behalf of all of us, I would like to express our sincere appreciation to the Government of Georgia for the excellent arrangements made in organizing this forum and to the people of Georgia for their gracious hospitality. I am confident that this event will succeed in further enhancing Georgia’s role and image as a regional crossroads and important link between Europe and Asia.

As the leading international multilateral financing institution in the Asia and Pacific region, ADB’s mission is to help its developing member countries reduce poverty and improve the quality of life of their people.

Georgia joined ADB in 2007 and we at ADB are impressed with the progress Georgia has made over the past decade. We commend the government for its far-reaching initiatives to transform Georgia’s business and economic environment—to streamline business regulations, liberalize trade policies, simplify the tax system, reduce the size of civil service, and combat corruption.

Georgia has seen strong real GDP growth averaging nearly 6%, rising real wages, a declining fiscal deficit, and improved competitiveness over the past decade. Despite slower growth in 2013, ADB forecasts an acceleration of GDP growth to 5.5% in 2014 and 2015, with a positive overall economic outlook. The potential drivers of this growth include tourism, manufacturing, agribusiness, and energy exports, among others.

We believe that Georgia’s economy has proven resilient because of strong fundamentals. At 26%, government external borrowing is modest, comprising long-term concessional debt, and is considered sustainable. Macroeconomic policy is stable with a manageable budget deficit, streamlined taxes, and adherence to fiscal prudence. The economy is extremely open to trade and investment, and the banking system is well regulated and liquid with Georgia’s two main banks enjoying London listings. The government’s development strategy, Georgia 2020, builds on these fundamentals. It aims to make growth in Georgia more inclusive and sustainable through more effective public administration, improved private sector competitiveness, enhanced human resource development, continued infrastructure improvements, and expanded access to finance for businesses. These are critical areas that align with ADB’s assistance strategy for Georgia.

ADB supports the country’s development objectives in a number of areas. Since 2007, ADB loan and technical assistance grant approvals for Georgia have totaled nearly $1.4 billion. ADB has assisted Georgia to improve the East–West Highway, Georgia’s major international transport corridor; to modernize municipal infrastructure, including water supply and sanitation systems in secondary cities; to expand mass transit systems; and to upgrade electricity transmission infrastructure, providing the necessary system-wide stability for reliable local and export-oriented supply. Many of these improvements will strengthen Georgia’s connection to its neighbors and promote regional trade and cooperation.

Complementing this support for physical infrastructure, ADB is assisting Georgia with critical sector and policy reforms, including technical advice on transport policy, public sector management, capital markets and pension reforms. We are working closely with the government over the next 3 years on a comprehensive program to increase domestic resource mobilization in Georgia with clear benefits for financing private sector development.

ADB is also committed to extending nonsovereign financing for private sector projects that serve Georgia’s development goals. As of 2013, ADB had provided $125 million in loans to the private sector to maintain bank liquidity and support on lending to small and medium-sized enterprises. In 2014, we executed an additional $90 million in nonsovereign financing for the Adjaristskali Hydropower Project, including a direct loan of $75 million and administration of a $15 million loan from the Canadian Fund for the Private Sector in Asia. For this project, ADB worked together with our fellow development partners, the European Bank for Reconstruction and Development and the International Finance Corporation. In the coming years, we look forward to expanding our private sector lending in other areas, particularly in finance, transport logistics, and renewable energy development.

As a development partner, ADB is particularly well placed to help promote and support Georgia as a transit corridor and regional trade and logistics hub. This will help Georgia realize its potential with its neighbors to the east. The East–West Highway will reduce travel times and costs on the main regional trade route. ADB’s support for a multimodal transport policy and regional power trade will help Georgia integrate into regional and global markets. We will also encourage private investment in value chains and logistics facilities to help improve trade competitiveness.

Already, through the ADB-sponsored Central Asia Regional Economic Cooperation, the CAREC initiative, ADB is helping to enhance regional connectivity by supporting transport corridor infrastructure and logistical and governance coordination from Georgia’s border with Azerbaijan to the People’s Republic of China.

ADB is proud that our partnership with the government is bringing tangible improvements in priority infrastructure that will benefit the entire economy.

I look forward to today’s discussion on the opportunities for growth and investment in Georgia.

Thank you.

PANEL 1: DISCUSSION OF WORLD ECONOMIC TRENDS AND OUTLOOK FOR UPCOMING YEARS

Speakers: Giorgi Kvirikashvili Vice Prime Minister Minister of Economy and Sustainable Development of Georgia Kurt Tong Principal Deputy Assistant Secretary Bureau of Economic and Business Affairs US Department of State Makram Azar Vice-Chairman, Investment Bank; and Chairman of Barclays Bank PLC, Middle East and North Africa Simeon Djankov Rector of the New Economic School in Moscow, and Former Deputy Prime Minister and Minister of Finance of Bulgaria Moderator(s): John Defterios Emerging Markets Editor and Anchor of CNN’s Global Exchange, CNN's new prime time business show focused on the emerging and BRIC markets

Summary of Panel Content:

The panel centered on a question and answer (Q&A) session between John Defterios and the members of the panel, which was then joined by Q&A from the audience. The discussions included Georgia’s environment for business and the opportunities it provides, specifically pointing to its status as a regional hub connecting Europe, the Middle East, and Asia. Below is a summary of the main points offered by each panelist.

Giorgi Kvirikashvili Vice Prime Minister and Minister Ministry of Economy and Sustainable Development of Georgia

“It is very important to strengthen Georgia’s DNA as a European country, but at the same time offering more flexible bureaucracy, offering lower taxes, offering an excellent location. This is what makes Georgia competitive and this is what makes Georgia interesting, not only for Europe but also for Asian countries and for Middle Eastern countries; and as a result, in the next decade, Georgia will have very strong economic growth.”

Mr. Kvirikashvili started by providing an overview of the overall economic context and Georgia’s competitive advantages in terms of trade. This highlighted the following points:

The good trade environment makes Georgia a good hub:

• Trade agreements give Georgia an advantageous position globally. The DCFTA and the Association Agreement open up a market of 500 million people. • Georgia enjoys free trade with neighboring countries, including Turkey and all of the CIS region, and has GSP and GSP+ with a number of western countries, including the US, Canada, Norway, and Switzerland. • Georgia has low labor costs, relatively low energy costs, and relatively low utility costs. • Georgia’s geographic location makes it a natural hub.

The macroeconomic environment shows healthy progress:

• GDP growth of 6%, • 10% growth in trade, and • Moody’s rating has recently been upgraded from stable to positive.

In response to questions about global instability, Mr. Kvirikashvili also explained the ways in which the country is now able to withstand changes in the markets. In particular, he highlighted that

• Georgia has a diversified range of products to sell. • Georgia has a diversified range of countries to sell to. In particular, Georgia has good dynamic export growth in Europe and Asia as well as newly reopened access to the Russian Federation market. • As a result, Georgia should be seen as having fundamentally grown as a market.

Mr. Kvirikashvili said that we can expect to see growth in Georgia in a number of areas in the next few years:

• In 2013, 22% of foreign direct investment went into the energy sector, and yet relatively little of the water resources are utilized. There is a large potential growth in this sector with export potential and growing local consumption.

• Manufacturing is interesting because of trade openness. This has created interest from the region, the Middle East, and even the PRC. • Tourism and hospitality is a growing sector with hotel occupancy rates of 75%– 80%, with six international hotel brands in Tbilisi and six in Batumi, as well as wine tourism and ski tourism. Additionally, the government is also investing in infrastructure for this sector. • Transport and logistics, and particularly wide interest in the new deep-water port, as container shipments are growing at 20% per year. Deep seaports are the kind of infrastructure improvements that will encourage growth in other sectors. • About 53% of the country is involved in agriculture, though the sector only produces 10% of GDP. This shows significant opportunity for growth. That is why the government is supporting growth and investment in a range of ways.

Mr. Kvirikashvili also elaborated on the changes in the governance environment that provide opportunities for expanded financial sources—from reforms in pension to the equity market.

On the Russian Federation, Mr. Kvirikashvili highlighted the consistency of the government in its aspiration to join NATO, while noting

• the need to be pragmatic to show the Russians that Georgia’s aspirations are not in conflict with Russian Federation interests. • And that EU and Euro-Atlantic integration and support from the west has been important to Georgia’s ability to maintain a nuanced relationship with the Russian Federation.

Kurt Tong Principal Deputy Assistant Secretary Bureau of Economic and Business US Department of State

“Georgia is a sterling example of how getting the fundamentals right, both in politics and economics, will pay off in strong economic returns, but also stability, good governance, and ultimately sustainable development for the country.”

In highlighting the importance of the recent democratic transition, Mr. Tong made the following points:

The strategic vision and clarity of purpose of the country:

• Georgia was successful in holding multiple recent elections, including the first direct local elections in the region. • Georgia has embraced and been embraced by NATO and has expanded its EU engagement.

Mr. Tong also answered a question about why the US continues to consider Georgia an important strategic partner.

• Georgia gained US support because it deserved this support as it tried to achieve democracy. • There is enormous potential for the Caucasus region to be part of a new Silk Road. • The US wants to help build connections across the region, and so needs to help work on trade, customs, and building trust.

Makram Azar Vice-Chairman Investment Banking and Chairman of Barclays Bank PLC Middle East and North Africa

“70% of the investors [for the TBC Bank IPO, the largest in the country’s history] came from the US and the UK. That is really telling of the appetite that those two markets have for Georgia.”

Mr. Azar was asked about the initial public offering (IPO) of TBC Bank, which took place in London during the Russian Federation/Ukraine crisis, and was asked to comment on how this reflects changing attitudes toward risk among foreign investors.

• On 6 June, the TBC launched its IPO, which was the first since 2006, raising over $260 million. • In spite of the uncertain situation, there was a strong interest in this IPO. • Since the IPO, trading has been extremely good. • 70% of the investors came from the US and the UK. • Interest is underpinned by strong fundamentals in market environment, macroeconomic stability, diversified GDP, export market, etc.

Discussing future IPOs, Mr. Azar made several suggestions:

• There is a global interest in Georgia for other opportunities and Georgia should capitalize on the recent precedent presented by TBC. • There are a range of large infrastructure sectors where opportunity exists, particularly in gas and rail. • The capital markets are increasingly nuanced to the particularities of the individual countries, and Georgia stands out.

Prof. Simeon Djankov Rector of the New Economic School in Moscow Former Deputy Prime Minister and Minister of Finance of Bulgaria

“Over the last decade, Georgia has been the case study, THE case study, on how you can start regulatory reform from an environment that is amongst the world’s worst to a regulatory environment that is in the top 10 in the world.”

Prof. Djankov discussed the regulatory environment and its relative importance.

• He stressed the need for a strong regulatory environment in situations of uncertainty. • Georgia is a clear example of positive reform and it needs to keep marketing its success, as there are few countries that can do what Georgia can do. • Regulatory strength and clarity is important for the Association Agreement and will ensure that Georgia’s growth is stimulated by this opportunity. In the 3–4 years before countries joined the EU, their GDP improved by 3%–4% more than one would normally expect for several years. This is going to happen in Georgia. • Georgia is not only a success regionally; it is far ahead of the region. Its regulatory environment even compares favorably with many EU countries—so that investors will not just compare Georgia with the region, but also with countries in Southern Europe, when they are making their investment decisions. • Georgia is a small country that is open to investment and has good relations with its neighbors. • The current crisis with the Russian Federation and its sanctions presents opportunities for Georgia’s growth.

In further highlighting the opportunities for the future, Prof. Djankov noted the importance of education and Georgia’s strengths in this area:

• Students have mandatory English studies. • National exams standardize the education system. • There is a high level of private expenditure on education and good local private universities.

On the EU and Georgia’s EU membership, Prof. Djankov suggested that Georgia is in a good place.

• It often seems like membership is further away than it is. In the early 1990s, just after the Soviet Union fell, many people predicted that Eastern Europe’s integration into the EU would take 30–40 years. • Georgia is already more developed in regulatory reforms than many other accession countries and, in fact, compares favorably with some existing members with regard to regulatory environment.

Q&A from the audience also included the following topics:

• Changes to the visa regime • Investment facilities in Georgia • What the country needs to do to improve its investment environment • Public–private partnerships

PANEL 2: TRANSPORT, LOGISTICS, AND MANUFACTURING PANEL

Speakers: Mikheil Janelidze Vice Minister of Economy and Sustainable Development of Georgia Chris Schlueter Country Manager BP, Georgia Wolfram Senger-Weiss Managing Director Gebruder Weiss Michael Hampel General Director Heidelberg Cement Georgia

Moderator(s): Ralf Jahncke Chief Executive Officer TransCare: Innovative Logistics and Transportation Consulting

Summary of Panel Content:

The panel centered on the company representatives giving their experience of working in Georgia and pragmatic advice for investors. While not all of the companies are from the sector, they all highlighted the ways in which their businesses are crucially dependent on the sector. This was then followed by Q&A from members of the audience. Below is a summary of the main points offered by each panelist:

Ralf Jahncke Chief Executive Officer TransCare: Innovative Logistics and Transportation Consulting

“…100 million neighbouring people in the Black Sea and 100 million people east of Georgia, so it’s a natural transit market that is for sure.”

Mr. Jahncke gave a brief overview of the sectors before introducing the speakers. His summary included:

• Georgia is part of a large neighborhood, and so it is a natural place for transit. • High-value cargo is growing alongside a growing consumption force. • It has geo-strategic advantages: - Intercontinental, as it rests on the Silk Route. - Regional, as a hub for Armenia, Azerbaijan, and Turkey. • Infrastructure, such as the seaport, airports, road, and rail are important for transporting cargo. • Costs per kilometer are higher when crossing Belarus than the Caspian Sea, so ocean transport is not necessarily a problem.

Mikheil Janelidze Vice Minister Ministry of Economy and Sustainable Development of Georgia

“I am happy to see that there are less concerns with the public services and more concerns with the underdeveloped market, because it is a sign for you that there is a big space for investors to come to Georgia and take this underdeveloped market and be active to bring know-how and knowledge to Georgia. You can see that the government is open, and the market is open.”

Mr. Janelidze opened his talk by giving background information on the manufacturing sector in Georgia.

• The manufacturing sector is supporting the real development of the country. • There have been huge economic developments since 2000, with open, liberal trade and investment policies. • Foreign trade has grown 10 times, including exports and imports. • Exports were not well diversified before, but they are becoming more diversified. • There is a need for local production and competitive manufacturing. • Manufacturing today is only 13% of GDP and it employs only 5% of the population so the government is now trying to encourage growth in this area with an open investment policy.

Mr. Janelidze also discussed the new state program “Made in Georgia”: • This program targets any company that wants to start an agricultural processing or industrial facility, and gives them incentives to do so. • It provides state-owned land or infrastructure for free. • It also provides easier access to finance and technical assistance to local and foreign companies on how to do competitive business in Georgia. • Georgia’s market and purchasing power is small but the trade regime is attractive.

Why is Georgia interesting?

• Georgia has free access to the markets in Europe, the CIS, and Turkey. • Georgia has low taxes, low bureaucracy, and simple business environment. • There is still work to do, but the government is committed to make reforms, especially in the trade sector in order to be in line with the EU Association Agreement. • Customs procedures are good, and these are being further streamlined to make them even more efficient than Europe’s legislation requires.

Chris Schlueter Country Manager BP Georgia

“Georgia has been, for a long time, an important energy corridor … and it is the route for the Caspian oil and gas to get to international markets… At the current time, 1% of the world’s hydrocarbons are coming through Georgia.” Mr. Schlueter first discussed Georgia’s importance to the Silk Road corridor for energy transport:

• Georgia is an important energy corridor. • The first pipeline came in 20 years ago and has operated very successfully. • 1% of the world’s hydrocarbon flows through BP Georgia.

The logistics of using and maintaining the pipeline:

• BP Georgia is involved heavily in transport and logistics for its own operations, so it heavily relies on the infrastructure and service delivery of this sector. • BP has its own storage facilities and warehouses throughout the country. • It brings in 2,000 shipments a year from outside the country, which takes a lot of work to support.

The Southern Corridor expansion’s scale and dependence on transport and logistics:

• The Southern Corridor is no longer a proposal; the expansion is being built now in Georgia. • Over $10 billion worth of contracts have already been made. • The project will - be worth around $2 billion in Georgia, - bring an additional 2,000 jobs to Georgia, - deliver gas to Georgia, and - use 20% of the investments for purchasing local goods and services in Georgia. • The Government of Georgia has been reliable as a partner for BP, which is why BP invests for the long term in Georgia. • Georgia’s growing infrastructure is crucial for BP, as 350,000 tons of pipes will come through Georgia’s railways from Poti port. • Investments in the country have helped BP to move forward.

Wolfram Senger-Weiss Managing Director Gebruder Weiss

“We don’t like to take too high a risk, so this was also an issue I wanted to cover in Georgia, where we felt the risk level was not as high as in neighboring countries so we felt comfortable to invest here.” Mr. Jahncke asked Mr. Senger-Weiss to give an overview of his company and their experience in Georgia.

• The risk level in Georgia is not as high as in neighboring countries and so it is a good place from which to connect with the Central Asian market. • The company started in 2012 with a local partner. It was very easy to find a local partner and this really helped. • Gebruder Weiss created the first warehouse to offer a full range of transport and logistics services in Georgia—air, sea, overland, etc. • National and Caucasus, not just international, distribution is also very important to make Georgia a regional hub. • Customs handling can be a high-risk issue, but in Georgia it has been possible to transit to other markets without needing to pay customs duties.

He also discussed key figures for his company.

• This year they will have $5 million in revenue. • The company has invested twice as much as they received in revenue, so it is a long-term investment.

And he provided insights on building the warehouse.

• Location is the main issue and the location next to the airport was the best for us. • He said that they faced some issues with construction, because the companies needed to meet a certain standard for the warehouse. • Project management was also an issue that needed extra attention because there were different companies that had to work together despite language barriers. • He addressed a question from Mr. Jahncke about corruption, saying there was no corruption involved in their dealings with the government.

Mr. Senger-Weiss touched upon some of the issues his company faced while working in Georgia.

• The company did need to train people, as there were not enough people with the necessary skills for blue collar to the management-level jobs. • Financially, there was a currency issue as the lari has fluctuated many times in the past year, which resulted in some losses. • The value-added tax refund took longer than anticipated—and should be anticipated in business planning.

He also discussed groupage, which is the ordering or selling of smaller shipments in groups.

• The market for groupage is still underdeveloped in Georgia and can be considered on the emerging market level. There is a lack of price transparency and no concrete schedule. • The price level is low, but the service level is also low and there is still risk of theft and damage. • There is a growing demand for this service, including a demand for better service at a more international price.

Lastly, Mr. Senger-Weiss touched upon international transport.

• Recently, there have been many changes for international transport, specifically with the Russian Federation, Ukraine, and Belarus, that will affect the market. • The flow of goods is not paired, i.e., there are high imports and low exports, which means that the international transport market in Georgia depends on the markets in other countries.

Wolfram Senger-Weiss, Managing Director, Gebruder Weiss

Michael Hampel General Director Heidelberg Cement Georgia

“Georgia was the best place in the Caucasus region to invest, and we thought there would be stable development. When I came here, the cement consumption was 1 million tons. This year we will be at 1.8 million tons. And this high cement consumption means a high development of the country, and we expect more cement to be sold.”

Mr. Hampel started by providing an overview of Heidelberg Cement in Georgia.

• Georgia was the best place in the Caucasus to invest, based on Heidelberg’s assessment that Georgia will have stable development. • The high cement consumption in Georgia, even when compared with developed countries, suggests a high level of development in the future.

Mr. Hampel outlined the way in which the cement business is dependent on effective internal transport.

• Truck transport totals 4 million tons a year and railway transport is 1.5 million tons a year. So, Heidelberg Cement is one of the two or three biggest clients of Georgian Railway. • There are only 50,000 tons in vessel transports coming in, which is good for Georgia’s trade balance. • The state provides a high level of road, rail, and port infrastructure. • The business depends heavily on the railway line from Tbilisi to the Black Sea.

He then discussed specifically about cement transport.

• Cement is a heavy good, so it is expensive to transport over large distances, which encourages fairly local production. • Good highways are necessary, and Georgia is making progress through investments in the last few years by cutting transport times from Tbilisi to the Black Sea. • The government is pushing to create better infrastructure, which would drive down the logistics costs for transport. • Mr. Hampel predicts that the cost for transport logistics will be 5% lower when the government fully realizes the highway project.

Michael Hampel, General Director, Heidelberg Cement Georgia

PANEL 3: ENERGY

Speakers:

Ilia Eloshvili Deputy Minister of Energy, Georgia

Seethapathy Chander Special Senior Adviser, Infrastructure and Public–Private Partnerships Asian Development Bank

Radoslav Dudolenski Executive Officer Hydrolea LLC: Hydro Development and Investment Vehicle for Georgia

Ramadurai Chandrasekaran CFO Adjaristsqali Georgia LLC

Seo Taek-Won Head of Project Finance Team on Overseas Business Division K-Water (Korea Water Resources Corporation)

Moderator(s):

Jake Delphia Deloitte Consulting

The moderator, Mr. Delphia, briefly reviewed the business-enabling environment in Georgia.

• Electricity and gas laws provided more power to the energy regulator. • Draft national energy policy has already taken comments from the public. • Half of the transmission grid code has been adopted and the other half is going through public review. • The regulators in Georgia and Turkey are working together to harmonize regulation on both sides of the border. • Generally accepted power contract has been defined, based on European standards. • New regulatory processes have been put in place and have increased transparency. • The investment environment is improving and is expected to continue to improve.

Ilia Eloshvili Deputy Minister Ministry of Energy, Georgia

“We’ve changed the legislation in a way that will be very flexible and very acceptable for the investor. We tried to get rid of every negotiation, to put everything in the rules, so whoever comes to the ministry does not have to come to any high official. They can just see the rules, apply for the permit, and get approval. As soon as I hear about a new project being finalized—this is the happiest moment for me—when there is a new investor and they went through the process without needing to come to see the high officials.”

Mr. Eloshvili expanded on Georgia’s future in energy production and transit.

• The goal is to be less dependent on neighbors. • Transit possibilities include east–west and north–south, but rehabilitating gas lines will be necessary if we are to be good partners for gas transit. • One of these new lines will be the Shah Deniz, giving Georgia an additional capacity of 16 BCM and an investment of $2 billion.

He noted that the major challenge is the energy deficit in the winter.

• Georgia’s electricity consumption is expected to increase by 5% each year. • 7% of this is imported from the Russian Federation, mostly during winter and autumn; 15% comes from domestic power plants; and 78% comes from domestic hydropower plants.

The Deputy Minister notes that energy independence is the ultimate goal and a necessity for Georgia.

• Georgia will reach a point where it will not be technically possible to import the needed electricity. • Price is undefined, needs to be renegotiated each year, which is unstable and unsustainable. • Georgia is focusing on energy production through different means. The government is not considering nuclear power, solar energy is not economically feasible at this time, as it is too expensive for consumers, and so the government is focusing on hydro and wind power.

An update on the hydropower sector in Georgia:

• Georgia is the second in the world for hydropower potential per capita. • The government is looking to develop all the hydropower plants that are economically viable, technically possible, environmentally friendly, and socially acceptable. • There are four large projects that are possible to do in Georgia now. These would create 1,800 megawatts. For these projects, the government is considering

giving power purchase agreements and creating a market for this energy in Georgia rather than exporting it to Turkey because of the deficits in Georgia’s electricity production. • The small and medium-sized plants can export to Turkey, which is their only way to be sustainable and feasible, rather than try to compete with larger plants domestically. • Small and medium-sized plants will be able to sell 80% of their electricity to Turkey, and 20% will stay in Georgia, while the electricity from the large plants would be for Georgia. • This approach allows us to develop 3,000 to 3,500 megawatts in the next 7 to 10 years, which will cover the electricity deficit.

Wind power plants:

• 20-megawatt pilot project undertaken by the government to show that wind projects are feasible in Georgia, but right now the capacity for wind energy is limited.

Infrastructure development:

• Any developments in the hydropower sector in Georgia will need to be made in conjunction with infrastructure development, especially in Svaneti and western Georgia. • The free market is crucial for energy trade in Georgia and its neighbors.

Summary: Where is Georgia now?

• 900 megawatts of power plants are currently under construction. • 700 megawatts are under consideration, and 50% have a good chance to be developed. • There are another 800 megawatts of hydropower plants for which the tenders have been announced.

Mr. Eloshvili ended his talk by highlighting the government’s commitment to making the process for investors easier and more transparent:

• New legislation makes the process easier for investors and the rules are clearly spelled out, so it is not necessary to see high officials to get paperwork done. • The government is continuing to work to become more efficient.

Ilia Eloshvili, Deputy Minister, Ministry of Energy, Georgia

Seethapathy Chander Special Senior Adviser, Infrastructure and Public–Private Partnerships ADB

“Georgia is today dominated by hydropower, renewable power. Question: Should we invest more? The answer is ‘yes’. Are there investable funds across the globe, in Asia for example, to support such investment? The answer again is ‘yes’.”

Mr. Chander focused on the electricity industry in Georgia and what other industries can be developed through surplus electricity in Georgia.

He highlighted several issues pertaining to energy that the government should be aware of in the future:

• The open market, which is not always the best for hydropower as a market, is short term, but investments in hydropower development are long term. • The government needs to actively create a market for hydropower, which Mr. Eloshvili has pointed out is a priority. • Caution needs to be exercised in designing transporting and dispatch regimes, because everyone is depending on these for success. • Distribution companies that collect money for the entire value chain need to be reliable otherwise the lenders will treat that as a major risk no matter how solid the project is.

He discussed electricity as a commodity. As hydropower sees fluctuation in supply and demand during the year, there are other uses for the surplus electricity.

• Georgia has a deficit in hydrocarbon, so there is a possibility to use the surplus electricity to drive transportation through the use of electric cars. • By being a development or production center of electric cars, Georgia could also service the regional markets. • Also, there is a shortfall in agricultural storage; Georgia imports back commodities because of the lack of storage facilities, which is another area where surplus electricity can be used. • Having a large electricity infrastructure gives the option to develop communications infrastructure as well.

Renewables:

• Even if costs are not conducive to developing other renewable energy sources, like wind power, the Government of Georgia should start doing resource surveys now. So that if costs drop in the future, Georgia will not have to wait for survey results to start making investments.

Radoslav Dudolenski Executive Officer, Hydrolea LLC Hydro Development and Investment Vehicle for Georgia

“Europe is in turbulence in the energy sector, concerning renewables, concerning consumption, economy-wise. I would say energy, which was more or less considered stable in the past, will become more bumpy and market-driven.”

Mr. Dudolenski outlined his work experience in the hydropower sector in Georgia:

• Issues in cash collections and losses in the grid that have been mentioned are still there, though he has seen some improvement in the past 8 years working in Georgia. • He mentioned the importance of being able to understand how the different energy markets work. Turkey is a free market, while Georgia is more like a regulated market, and therefore the approach to both markets should be different.

He also provided a regional view of the energy sector.

• Europe is in turbulence in the energy sector, concerning renewables. • Energy, which was considered to be stable, is going to become more bumpy as it becomes a commodity on the free market, and it will become more like a normal business.

Risks for investing in energy in Georgia now:

• Prices for gas will go down, which could make gas turbines in other places like Turkey more attractive. This could potentially create challenges for hydropower exports from Georgia. • The players in the renewable sector in Georgia need to be prepared for a more competitive energy market in the future.

Ramadurai Chandrasekaran CFO Adjaristsqali Georgia LLC

“The Government of Georgia has always been interactive—always two-way communication—and supportive, and we are very happy to do business and work with the Government of Georgia.”

Mr. Chandrasekaran detailed the Adjaristskali Georgia HPP project in Adjara, specifically mentioning the progress the project has made with the help of local and international partners.

• Sponsors have invested $125 million, and the total project costs $400 million for Phase 1. • Project is progressing well and civil construction has continued on schedule. • The project is compliant with all appropriate regulations, including environmental and social safeguards. No significant relocation was necessary under this project. • The project employs 1,000 staff, with a good mix of local and international staff at the management levels.

He concluded by reiterating when it is necessary to sell energy to Georgia and when it can go abroad:

• In November, December, and January, the plant will sell electricity to the Government of Georgia; and on the other 9 months, the plant can sell to Turkey through the cross-border lines that are being developed.

Seo Taek-Won Head of Project Finance Team on Overseas Business Division K-Water (Korea Water Resources Corporation)

“From the point of view of the investor, we think Georgia needs a standard package for the implementation agreement and the power purchase agreement. If there is a standard package, then the negotiation time is not needed.”

Mr. Taek-Won discussed his project with K-Water, the Nenskra hydropower plant, in Georgia, noting that

• the plant capacity is about 280 megawatts; and • there was no need for resettlement and there were no major environmental or social issues.

Mr. Taek-Won also discussed the conditions for investing in Georgia.

• He highlighted that Georgia needs a standard package for the implementation of hydropower and a power purchase agreement to preclude disputes during negotiations. This should also include clearer tariff rules, so that it is possible for investors to have a better sense of the returns they can expect. • He notes that based on a domestic supply requirement (previously noted), electricity will go to Georgia’s national grid for 3 months in the winter.

Exporting to Turkey:

• A study financed by K-Water showed that the export market in Turkey is not as optimistic as they originally thought, as there are some technical issues with the lines between Georgia and Turkey. • Also, the Turkish market is in transitional stages and the market is changing rapidly, so it cannot provide a strong binational contract and the market cannot be depended on so far.

PANEL 4: TOURISM AND RETAIL

Speakers:

Keti Bochorishvili Vice Minister of Economy and Sustainable Development of Georgia Roger Hobkinson Director | Destination Consulting Colliers International Elie Younes Senior Vice-President, Rezidor Hotel Group André Gribi Managing Partner, Kohl & Partners Tomas Gizas Director, CBD Development

Moderator(s):

Ann Quon Public Speaker and Former Spokesperson for ADB

Summary of Panel Content:

The panel centered on a Q&A session between Ann Quon and the members of the panel, which was then joined by Q&A from members of the audience. Below is a summary of the main points offered by each panelist.

Ann Quon Public Speaker and Former Spokesperson ADB

Ms. Quon provided a brief overview of the sector. She elaborated on the remarkable changes that have taken place in Georgia since her first visit in 2008. She also gave a quick summary of the key numbers relating to the sector. • There were 300,000 visitors in 2003, which had risen to 5.4 million by 2013. • High annual growth, the highest in Europe. • Tourism and retail sectors now account for over 17% of GDP. • A key question remains: what is Georgia’s brand? And what are the opportunities for investors?

Keti Bochorishvili Vice Minister Ministry of Economy and Sustainable Development of Georgia

“During the 2000s, we would not receive more than 300,000 international visitors, but over the past few years we have seen a dramatic growth of 35% a year and we have reached 5.4 million visitors in 2014, and still the trend is growing.”

Ms. Bochorishvili was asked about the opportunities in this sector, and the particular segments the government would like to see grow. She answered by highlighting the following dimensions of the sector:

• Georgia can be a four-season destination, with resorts on the Black Sea coast, and winter ski resorts. • Wine tourism has become popular recently. • Natural hot springs and mud with curative properties, around which spa centers are being developed. • Many of Georgia’s neighbors and near neighbors have banned gaming, which makes Georgia a hub for entertainment and gaming.

She also discussed the tourism sector in Georgia more broadly:

• Tourists mainly come from Turkey, Azerbaijan, Armenia, Ukraine, Iran, and the Russian Federation. • 45% of people coming to Georgia stay in hotels. • On average, tourists stay for 4 or 5 days. • The most visited place is Tbilisi, as it is a hub for activities and conferences, and Georgia is looking to become a destination for MICE tourism. • There are several 4- and 5-star hotels in Tbilisi already with more on the way, but there are still opportunities for 3-star hotels and boutique hotels. • The country has an open sky agreement with the EU and constructed another international airport in Kutaisi. • The government is working to increase the number of direct flights to Georgia.

In the Q&A: Ms. Bochorishvili added that the retail demand in Georgia is huge, given the fact that on top of tourists flying in, there are also tourists from Armenia and Azerbaijan who drive to Georgia for the shopping.

Ms. Quon mentioned that 88% of tourists are coming from the region, from Armenia, Azerbaijan, and Turkey, and asks how to attract tourists from outside the region, to which Ms. Bochorishvili responded that the government

• has made a marketing campaign to attract new tourists; • is working closely with companies, like airlines, to increase the number of flights to Georgia; and • is heavily invested in infrastructure, which is important for tourism.

She noted that the repeat tourists are very important for Georgia, so the quality of service is very important, and that is why the ministry created a hotline to support tourists in the country.

Keti Bochorishvili, Vice Minister of Economy and Sustainable Development of Georgia

Roger Hobkinson Director Destination Consulting, Colliers International

"If you look at the way the real estate market is progressing… [Georgia] is increasingly on the radar. The international perception of Georgia is crucial and there seems to be a lot of work being done to get the word out that Georgia is open for business." Ms. Quon asked Mr. Hobkinson to give the perspective of an international investor in the retail and tourism sector. Is Georgia an attractive business investment? • Given the way the real estate market is progressing, Georgia is starting to come up on the radar of international business. • The international perception of Georgia is crucial, and there is good outreach to send the message that Georgia is open for business.

Specifically, he detailed how Colliers International sees the commercial real estate market in Georgia. • A successful destination has an attractor, strong infrastructure, service, good management, and a good brand. • The visitor economy is about understanding your target markets and meeting their expectations. • The second part of the visitor economy is the business element, as business tourists spend more and stay longer. The hotel sector: • Demand for Georgia as a destination is increasing. • There is a supply-side response in upscale premium hotels. • 250,000 to 300,000 visitors come from the EU annually. This is important as it signals an opportunity for Georgia to provide for Europeans who want to take short city breaks to Tbilisi.

Review of the retail market: • City center and downtown area are good for retail, especially for eating and drinking. • Tbilisi is the dominant retail economy in the country. • The spending on clothing and footwear is increasing as people in Georgia have more disposable income.

He concluded by talking about the idea of European city regions. Big cities in Europe are trying to attract tourism and investment through their brand by trying to be clear about what they have to offer. This is something that Georgia will need to do.

Roger Hobkinson, Director, Destination Consulting Colliers International

Elie Younes Senior Vice-President Rezidor Hotel Group

“We’ve found success in Tbilisi because of two things: first, we saw an opportunity in the market and believed in it, and second, because we found a great partner.” Ms. Quon reiterated that the hotel sector in Georgia is growing, and the fact that large numbers of tourists are staying in hotels. She asked Mr. Younes to expand on his personal experience in the hotel sector in Georgia. • He noted that the Rezidor Hotel Group has been very successful in Georgia. • Their hotel is the largest upper-upscale brand in Europe, the CIS, and the Russian Federation. • The “Yes I can” mission is critical to the success of the business in emerging markets. • It is important to invest in people, and he stressed that investing in local talent is key.

He talked about the different hotels in the group, and specifically how those hotels have been successful in the region. • The company saw an opportunity in the region, came early, believed in the market and committed to it, and invested in people and adapted the business to the culture. • Rezidor hotels in Tbilisi and Batumi have been successful and now there are three new hotels under development in Georgia. • The success has been largely because of our partners, and investing in good partners is crucial.

He concluded by talking about the growing market in Georgia. • Strong business and economic indicators today in Georgia, strong GDP growth, modest inflation. Rates, and Georgia’s high ranking on the World Bank’s Ease of Doing Business list will attract more FDI. • The market will grow fast compared with regional competitors in the next year. • There is an opportunity in the midscale hotel sector not only in Tbilisi, but also in regional cities. • The public sector is taking stock of the tourism industry, and that support will play a key role in the growth. • Even with issues of inaccessibility, such as lack of direct flights, the number of tourists is growing, which shows that the sector has room to grow even larger as these issues are addressed.

Ms. Quon followed up by asking about how far businesses should go in adapting their business model to the local environment. Mr. Younes responded by speaking about the brand’s DNA, which is present in all locations, but also the importance of hiring local staff to help run the hotels so that it can be oriented locally.

André Gribi Managing Partner Kohl & Partners

"Tskhaltubo has a long history and it’s part of the Georgian culture … [so] we needed to form something innovative, something new, but you’ll still have the historic [aspect] there.”

Kohl & Partners have designed a project to develop the Tskhaltubo resort as a medical and wellness destination. Mr. Gribi discussed the development of the spa sector in Tskhaltubo, which Kohl & Partners have developed as a business. • They worked with the Partnership Fund to redesign Tskhaltubo and make it into a tourist destination once again. • Kohl & Partners made a feasibility study for future PPP projects for Tskhaltubo. • Tskhaltubo is still a brand in many countries, especially in CIS countries, so the branding efforts need to build on that. • In total, there were 18 buildings and Kohl & Partners are searching for investors for 15 of the buildings. • Because the destination will be dependent on service, which is an issue in Georgia, one of the buildings will be an education center to train local and national staff.

He also discussed the need to expand Tskhaltubo’s target group for tourism. • Tskhaltubo was successful in the medical tourism sector, but it is clear that the development cannot rely on this small sector, so it will have to expand into the wellness sector in order to reach goals. • The vision is that it will become a medical and wellness spa and a major destination for Central and Eastern Europe, potentially becoming a member of the European Historical Thermal Towns Association. • Additional leisure activities will also attract tourists and entertain those coming for health and wellness reasons.

He concluded by praising the decision of the government to first create the concept for Tskhaltubo before allowing investors in on the project.

André Gribi, Managing Partner, Kohl & Partners

Tomas Gizas Director CBD Development

"When we first came to Georgia, it looked like a country that demanded everything. After the double shock of the economic crisis and the 2008 war, the people and the markets were ready for new development." Mr. Gizas used his company’s experience in developing a shopping mall, as the basis for explaining the opportunities that exist in the sector. The development of the shopping mall: • The first decision was to come to Georgia, and then the second biggest decision was to develop an open-air shopping center and develop a destination point in the city. • There will be different stores, as well as entertainment like the IMAX Theater to make it a center for people to spend time.

The growing demand of the retail sector: • There is a mix of local and international stores; any shopping center needs certain international brands to attract traffic to the mall. • But it is increasingly important to have local brands, too. Q&A included discussions on:

• improvements to the service provision, • retail and hotel as attached components as a potential idea for Georgia, and • hospitality education.