Investor.A MAGAZINE OF THE AMERICAN CHAMBER OF COMMERCE IN GEORGIA ge

ISSUE 35 OCT.-NOV. 2013

Georgia Is Number

The Comeback Kid: Georgian Wine Outperforming Expectations in Russian Market

Georgian Ski Resorts Receive A Major Upgrade

Why the Georgian Economy May be in Better Shape Than You Realize

Impact of Agricultural For Ease Amendment on Investment Of Doing Business

Investor.ge

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AmCham Executive Director 6 Investment in Brief 32 Independence of the Judiciary Amy Denman A brief synopsis of new investments in Georgia: Trends and and business news. Challenges Editor in Chief BGI’s Otar Kakhidze looks at Molly Corso 6 New Millennium Challenge changes and challenges for the Compact to Bridge Work-Skill judiciary in an editorial. Copy Editor Alexander Melin Gap 34 The Direction of Georgia’s Marketing & Promotion 7 The Comeback Kid: Georgian EU Policy: What November’s Sophia Chakvetadze Wine Outperforming Eastern Partnership Summit Expectations in Russian Means for Georgia Promotional Design Market Levan Baratashvili 37 New Restrictions on Foreigner 8 ISET: The future of Georgia’s Ownership of Agricultural Magazine Design and Layout and hospitality industry Land Negatively Impacting Giorgi Megrelishvili An analysis of the tourism Investors Writers sector based on the tourism and Eva Anderson, Emil Avdaliani, Molly hospitality industry chapter in the 39 Georgia’s Per-Diem and Corso, Maia Edilashvili, Rusudan ISET Policy Institute’s Georgian Reimbursement- Cost Kemularia, Eric Livny, Alexander Melin, National Competitiveness Report Framework A Strong Rati Morchiladze, Nelson Petrosyan, 2011-12. Candidate for Reform CordeliaPonczek, Andrei Sarychev, IrakliSokolovski, George Welton 12 ISET: Georgian Ski Resorts 40 Protection of Information Receive A Major Upgrade Assets: A Work in Progress Photographs Levan Baratashvili, Molly Corso 14 Urban Renewal Program 42 The Tax Dispute Resolution Special thanks to the AmCham Editorial Offers New Life for Villages, System In Georgia Board and the AmCham staff, especially Soviet-era Resorts the CLT and AgriBusiness Committees, 44 Restitution and Justice: for their helpand EPRC and ISET for 18 EPRC: The Price of the State The Process Of Addressing their submissions. Property Rights 20 Why the Georgian Economy May be in Better Shape than 46 Representational Expenses in © The American Chamber of You Realize Georgia Commerce in Georgia, 2011 All rights reserved. No part of this magazine 24 Unbundling Labor: A 48 Singer Georgia: A Touch may be re-printed, or reproduced or utilized Snapshot of Georgia’s of the West in the Russian in any form or by electronic, mechanical or other means now known or hereafter invented, Workforce Empire including photocopying and recording, or in any information storage or retrieval system without 26 Georgian Entrepreneurs: An 50 MY CITY, TBILISI: Reviving the permission. Interview with Wissol Group’s Georgian Stage The opinions expressed in this magazine do not Samson Pkhakadze refl ect the opinion of the American Chamber of Commerce in Georgia nor its Board Members or 28 Mapping the Middle Class staff, unless otherwise stated. AmCham Georgia neither endorses, nor can be held liable for any eventuality arising from the use of any product or 31 Georgia Named One of Top service advertised within the pages of this issue. Ten Countries For Doing Investor.ge is printed by CEZANNE Business ...... 52 AmCham Georgia 36a Lado Asatiani Street, 3rd fl oor AmCham Georgia Patron Members: Tel: 2 22-69-07 [email protected] [email protected], www.amcham.ge www.investor.ge

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Wendy’s Franchise Opens in million loan to the Georgian real estate Investment Tbilisi group Redix. The 247-room Hilton Ba- Wissol Group, the Wendy’s franchise tumi includes plans for retail shopping, in Brief holder in Georgia since 2012, opened a casino and a health club. the fi rst Wendy’s restaurant in Tbilisi on September 12 on Rustaveli Avenue, at Renovated Kazbegi Border the former Georgian Post Offi ce location. Crossing with Russia Opens Approximately fi fteen Wendy’s restau- Offi cials claim the new, modernized rants will be opened across the country border crossing will be able to process Gebrüder Weiss, Tegeta Motors over the next fi ve years, according to the nearly three times as many people, ac- Open Logistics Center in Tbilisi Wissol Group. cording to the Finance Ministry. A Gebrüder Weiss groupage-freight The Wendy’s on Rustaveli Avenue is The new, 9-million-lari border cross- service has already been in operation one of the largest Wendy’s restaurants in ing opened on September 10. Civil.ge since the start of 2012 on the Passau – the world, with 1,000 square meters of reported there were 329,601 entries via Tbilisi line, according to the company’s dining and entertainment space. Wissol this border-crossing point in the fi rst six press service. The 10,500 square meter Group is working with OPIC to fi nance months of the year, more than half of center was built by Gebrüder Weiss additional Wendy’s restaurants across those by Russian citizens. and Tegeta Motors, its partner in the Georgia. Caucasus. The center currently employs Poti Sea Port Plans to Expand 50 people. Hilton Announces Expansion ICT GEZE into Georgia APM Terminals announced plans to Ivanishvili’s Private Equity Hilton Hotels & Resorts, together expand ICT GEZE to seventeen hectares Fund Opens with local partners, plans to open two ho- by July 14, which will allow the facil- Prime Minister Bidzina Ivanish- tels in Georgia starting in 2016. The fi rst ity to handle all the containers coming vililaunched his $6 billion Georgian property, the Hilton Garden Inn Tbilisi through the port. Co-Investment Fund on September 30. Chavchavadze, will be fourteen stories Currently just nine hectares, the facil- The fund, which will fi nance projects in and have 165 rooms. The European Bank ity will also be connected to Poti by a 2.5 priority areas, will include $1 billion of for Reconstruction and Development kilometer rail link, and a 1.4 kilometer Ivanishvili’s personal wealth. is fi nancing the project with an $18.7 road linking it to the port.

New Millennium Challenge Compact to Bridge Work-Skill Gap

he $140 million grant, Georgia’s pact will allocate $140 million to three MCC grant, which focused largely on second compact, will target edu- specific areas: improving the quality infrastructure. Tcation and human capital to help of elementary education, modernizing The 2013 agreement, noted MCC Georgians compete in the 21st-century vocational education to meet market de- CEO Daniel W. Yohannes, refl ects Geor- workplace. mands, and partnering a U.S. university gia’s desire to create a modern, competi- Georgia is focused on curtailing with local partners to provide students tive workforce. brain drain and improving labor market with international-standard degrees in “[What the government] determined skills in the country’s second compact science, technology, engineering, and is that education is a critical sector for with the U.S. government’s Millennium math. economic growth and the proposed Challenge Compact (MCC). The new compact is a strong de- compact would help the country become Signed on July 26, the new com- parture from Georgia’s original 2005 more competitive in the global market —

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I think it is expected to increase wages and it is also designed to prepare the The Comeback Kid: next-generation work force,” he said in an interview. Georgian Wine Outperforming “That is going to help the country Expectations in Russian Market compete in the global market… The program of science, technology, math, Russian demand for Georgian fter seven years of em- engineering — that will meet the de- wine has exceeded predictions, bargo, Russian wine mand of this country’s market needs in creating an exciting potential for Adrinkers welcomed the future.” Georgian exports returning to the Georgian wine with open arms, Yohannes, who was in Tbilisi in July market for the first time since the purchasing seven times more 2006 embargo. Investor.ge spoke for the offi cial compact signing, noted wine since the market reopened to Château Mukhrani, Georgian that the new compact’s programs will Wines & Spirits Company and in June than anticipated, accord- marry top-rated education with inter- Teliani Valley about their sales to ing wine producers like Château national-standard accreditation. MCC the Russian market and how it will Mukhrani and Georgian Wines is already in discussion with shortlisted influence future production. & Spirits Company. American universities who are interested The Ministry of Agriculture in partnering with a local school to create reported that Georgia exported 1.7 million bottles of wine to Russia in just an American degree program. Prestigious the fi rst month after the embargo was lifted; 65 wine companies and four American universities like San Diego mineral water producers received permission from Moscow to export their State University and Michigan State products to the Russian market. University have expressed interest; a “[T]he conclusions of the fi rst months are that the Russian consumer has fi nal decision is expected in 2014. not forgotten the Georgian wine, but on the contrary rushed to the shops to The compact is also working closely buy the fi rst wines imported from Georgia leaving our distributors in a dif- with the business community in Georgia fi cult situation to fi ll up the shelves in Russian shops,” noted Jacques Fleury, to make sure new programs match cur- CEO of GWS/ Georgian Wines & Spirits Company. rent — and projected — needs in the “All Russian importers are presently trying to originate more wines than market. By closing the gap between skills they expected from Georgia.” and demand, and providing Georgians Tea Kikvadze, the marketing executive at Teliani Valley, said currently with better tools to compete in the labor 10 percent of the company’s production is going to Russia but, based on market, Yohannes noted, brain drain the demand, 15 percent will be earmarked for the Russian market next year. should decrease. But, despite the surge of initial demand, wine producers are not abandon- “I think this investment is also going ing the markets outside of Russia that helped them survive the embargo years. to encourage businesses to make addi- Before the 2006 Russian embargo, 80 percent of Georgian wines were tional investment here in this country and exported to Russia. In 2005, Georgian wine exports were worth $81 million; that way they don’t have to go outside in 2012, after years of struggling to fi nd new markets, exports were only where they can fi nd skills,” he said. $65 million. “I think in the long term that is going “We do not want to change anything in other markets,” Kikvadze to have a huge impact on this country noted.“We operate in more than 25 countries and we are stable there. So we because it is going to prepare the next- want to continue and increase sales in these countries.” generation workforce that is going to Fleury stressed that no one is willing to forget the lessons they learned have specialties in a lot of the areas that from the embargo – but if the Russian market remains open, there is room we are putting an emphasis on — sci- for Georgian wine producers to grow. ence, technology, math, engineering. “The lesson from the 2006 embargo has taught us not to return to such a Those are major required skills and I situation and to continue diversifying the markets for Georgian wines, and think that will help to stop the drainage in any case … we shall keep … the markets that saved the Georgian wine that has existed.” industries during those ultimate 7 years,” he said.

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most other countries can be issued visas The Future of Georgia’s Tourism (and, until last year, also bottles of wine!) and Hospitality Industry at the border. Still, these measures did little to boost the number of arrivals from farther-away destinations. In 2012, 86% An analysis of the tourism sector eight months of 2013 the number of of all arrivals were from neighboring based on the tourism and hospitality international arrivals hit a new high of countries: Armenia, Azerbaijan, Russia industry chapter in the ISET Policy 3.57mln (26% above the record achieve- and Turkey. Institute’s Georgian National ment of last year). Second, and related to the above, Competitiveness Report 2011-12 With all the hype about the tourism Georgia remains a rather expensive and sector’s potential to create jobs and bring hard-to-reach destination. The opening foreign currency, it is important not to of the Kutaisi airport and the entry of- ERIC LIVNY AND ANDREI SARYCHEV lose sight of the negative externalities the WizzAir are certainly steps in the right current form of mass tourism and transit direction; however, at present most eorgia used to be a premier carry for Georgia. foreign visitors enter Georgia by land. tourist destination in the USSR In a year or two Georgia’s entire Third, with the notable exception Gera, and recent data suggest transport and tourism infrastructure, of Turkish visitors (see below), foreign that it has the potential to regain its starting with sea, air and land border arrivals are extremely concentrated in appeal with sunseekers, nature lovers, crossing points, may face major con- the high season around July and August. skiers, extreme sports enthusiasts, and gestion issues, certainly during the high This highly pronounced seasonal pattern other holidaymakers from around the season. Several observations are worth negatively affects the entire hospitality globe. Indeed, since 2005, the number emphasizing in this context. industry (by reducing incentives to invest of international arrivals to Georgia has First, Georgia has done a lot to lift in physical capital and skills), strains the been growing exponentially, reaching restrictions on travel to and through the environment, and creates congestion. 2.8mln in 2011 and 4.4mln in 2012 (an country. In particular, it has no visa re- Fourth, three countries stand out as increase of more than 57%). In the fi rst gime with almost 90 nations; citizens of far as growth in the number of foreign

THE SEASONAL PATTERN OF INTERNATIONAL ARRIVALS TO GEORGIA. TOP 5 SENDING COUNTRIES IN 2012-2013

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arrivals is concerned: Turkey (up 117% in the fi rst 11 months of 2012); Russia (up 85%); and Iran (up more than 45%). Russia. Georgia’s unilateral move to abolish visas, the opening and mod- ernization of the border crossing point in Larsi (in 2009, and, most recently, in September 2013), and the reinstate- ment of fl ights have all played a role. Moreover, Russian tourism remains way below its potential, and could double or triple in 2013 and 2014. Iran is a very special case: the economic sanctions imposed on Iran by the international community are pushing many Iranians to seek work and study opportunities abroad. Until July 2013 Georgia has been one of only 37 coun- tries around the world that had a visa-free regime with Iran, making it an attractive Engineering A Shift To High- accommodate future growth in tourism, destination for Iranian students, workers End Tourism particularly in the high season. and businesspeople.The recent (tempo- It is a no-brainer that Georgia should Second, the level of hospitality rary) reintroduction of the visa regime is strive to increase its share of wealthy services remains very modest. Given likely to act as a restraint on the number tourists from Western Europe and North the seasonal pattern of employment, of arrivals from Iran. America, who currently account for less professional workforce is in short sup- Finally, what about Turkey? The than 5% of total border crossings by ply. The interviews we conducted with more than doubling in foreign arrivals foreigners. major industry players suggest that the from Turkey is apparently related to Additionally, it would be important to problem is particularly acute outside of Georgia’s growing importance as an east- increase the number of tourists visiting Tbilisi, e.g. in ski resorts and along the west transportation corridor. As interna- the country in the low season period. If Black Sea coast. Temporary high season tional sanctions are beginning to bear on successful in engineering such a shift, positions are often fi lled with people who Iran, more and more of Azerbaijani and Georgia’s hospitality industry would be do not speak foreign languages and are even Iranian trade is being diverted from able to attract additional investment in unwilling to learn them. Bandar Abbas and other Iranian ports to human and physical capital, improving Third, affordable, frequent and direct Turkey and Georgia. Thus, many of the the quality of services and boosting the fl ights are of utmost importance for the Azeri, Turkish and Iranian “arrivals” are sector’s productivity. development of tourism. Until recently, in fact truck drivers who transit through Yet there are several serious obstacles Georgia had two international airports, Georgia. to overcome before the more discerning located in Tbilisi and Batumi (both This is consistent with the results crowds come to discover Georgia.These operated on a concessionary basis by of a survey carried out by the Georgian relate to the limited supply of accommo- the Turkish fi rm TAV), serving approxi- National Tourism Agency (GNTA) from dation and amenities, service standards, mately 1mln passengers per year. April 2011 until May 2012: 27% of all and transport. The Kutaisi airport, which opened international visitors do not spend a First, while a number of international last year, is operated independently and is single night in Georgia; the median visi- chains are already operating or building primarily designated for budget airlines. tor spends less than 2 days (the maximum hotels in Tbilisi, Batumi, Kakheti and The Tbilisi airport currently offers direct allowed transit period); 78% are repeat Gudauri, the overall hotel capacity and fl ights to just 34 destinations, while the visitors. tourist amenities are still insuffi cient to corresponding numbers for Batumi and

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Kutaisi airports are a woefully low fi ve synchronized with public investment Georgia’s national government. Geor- and two, respectively. in infrastructure such as air and ground gia’s regions, such as Adjara, Imereti, transportation and water and sewage Kakheti, Racha and Svaneti could use Ongoing Coordination systems that provide important public a bit of thinking and a very modest in- Attempts At The National Level goods, such as potable water. vestment in local public goods — better There are many aspects of the hos- All the above suggests that the tour- signs, environmental cleanup operations, pitality industry that create scale effects ist industry is suffering from a classic fairs and festivals — to attract poten- and threshold effects, providing justi- coordination failure, justifying govern- tial visitors and convince them to stay fication for coordination efforts by a ment action. This is not to say that the overnight. benevolent social planner (the Georgian government should directly engage in Adjara, for example, has all the at- government, in this case). For example, the construction of hotels or casinos. tributes of a tourism hub (in addition to a minimum number of daily users is Scarce public resources should be transport and trade logistics): an excel- needed to justify investment in a mod- used to provide public goods with the lent location close to the Turkish border, ern ski lift; a resort location must have broadest possible spillover effects. Na- Black Sea resorts, beautiful landscapes, at least 800 beds to be able to engage a tional transport infrastructure —e.g. the a train connection to Tbilisi, and the major travel agency; a minimum number Kutaisi airport, East-West rail and road Batumi seaport and airport. of regular passengers is required for a communication systems — clearly falls Very importantly, it has an autono- commercial airline to offer a new route. into this category. Next in the order of mous status, allowing its government By the same token, staff training priority should be coordination failures to pursue a consistent strategy, allocate programs are costly and take time. For affecting particular regions, such as the funds for public investment and coor- investors to commit to provide employee local road networks. Finally, there may dinate (and bargain) with the national training, , they must be reasonably as- be scope for coordinating the actions of government over overarching initiatives sured that their employees will continue individual investors — through planning that affect the region. to remain continuously employed. and infrastructure development — in The Kobuleti bypass road, to be com- The sharp seasonal fl uctuations in the key touristic sites along the Black Sea pleted in 2013, is an excellent example number of tourists (particularly outside coastand Georgia’s ski resorts in Mestia, of the latter. Tbilisi) reduce the incentives for both Gudauri and Bakuriani. The new road will promote Ko- employees and employers to invest in buleti’s tourist potential by diverting training. Thinking And Acting Locally through traffi c from the sea resort area. Finally, private investment in hotels Addressing coordination failures A decision by the regional government and other tourist amenities must be should not be the exclusive concern of to abolish the license fees for gambling establishments created a minor boom in INTERNATIONAL ARRIVALS TO GEORGIA: 2005-2012 casino tourism, of importance during the long low season. The experiment in local self-gov- ernment reform on which Georgia is about to embark at the initiative of the Ministry of Regional Development and Infrastructure will hopefully contribute to the ability of Georgian communities to act locally. Local initiative, if coordinated with the national and regional authorities (and, in many cases, the international donor community), may indeed hold the key to the future of Georgia’s economy, the tourism sector included.

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onsidering the small number of structure, including international airports Georgian international ski visitor and lim- within a radius of 120km of the resorts. Cited local demand, the Georgian Ski Resorts market is currently simply too small for The Case Of Gudauri large international investors. Given this Located on the sunny side of the Receive and the fact that ski resorts are very capi- mountain, Gudauri has a very low risk of tal intensive, the social planner’s role is avalanches and lots of sunny days. Yet, A Major to bring the industry to the point where it coordination among individual inves- becomes attractive from the international tors is essential for Gudauri to become investor’s point of view. an attractive international destination. Upgrade There are several options to develop Construction on the mountain takes Georgia’s potential as a regional ski time, the landscape is diffi cult, and the destination: Popularize skiing in Geor- construction season is very short. At gia, beginning with school education; present, Gudauri has only 800-1000 com- attract visitors from Ukraine, Rus- mercial beds, whereas the international sia, Belarus, Baltic countries and benchmark for a commercially viable ski Poland for “mass ski tourism; resort is about 5000 visitors/day. attract visitors from Western The Gudauri Development Fund was Europe (Austria, Swiss, Ger- created in 2011 to coordinate public and many) for niche (heliskiing) private investments in road access, ski skiing, highlighting Georgia’s lifts, grooming equipment and a modern cheaper, less regulated, more attrac- pedestrian alpine village providing retail tive landscapes. In addition to two shops, night life, and hotels. The Fund traditional resorts in Bakuriani and undertook investment in water, electric- Gudauri, the Georgian government ity, sewage, internet infrastructure, and has started developing two new roads. It also built new ski runs and a resorts in Mestia and Adjara. gondola lift, bringing total lift capacity Financially, investment in ski from 2,700 to 5,600 person/hour. It is resorts may not be commercially now up to private investors to build new viable at this stage, especially not hotels according to available designs. at the going interest rates, but there Three private hotels are already under is an important rural development construction (with investment of $5-10 externality to consider. The industry mln each), including Radisson Blue. is very labor intensive: at the 4-star Total planned capacity is 1,500 beds. level, the number of beds at a resort is The Fund also rehabilitated all ma- equals the number of people providing jor installations to avoid lift accidents, hospitality services. installed generators, and trained rescue An important way to improve ca- personnel. pacity utilization and thus increase Additionally, it improved queue productivity of private investment management and increased the number in ski resorts is to enhance sum- of ticketing booths. mer tourism at the resorts. As a result of these improvements Bakuriani and, particularly, and the opening of the Larsi border Mestia, have four-season crossing with Russia, the 2011-2012 destination potential, but season saw a 65% increase in ski visits need additional invest- compared to 2010-11 (including both ment in summer infra- tourists and locals).

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tor … by making the regions attractive to private sector to invest [in] and thus create investment, invest jobs,” he said. “While doing that we are improv- ing the living conditions of people, we are improving connectivity, and we are improving the situation and targeted intervention in each region based on its competitive advantages.” The WB has already had some suc- cess: after investing in Kakheti’s tourism infrastructure, roads, water systems, and modernizing the region’s approach to marketing, the regional development project helped bring $17 million of direct and indirect private investment, includ- Sanatoriums in Tskaltubo are predominately state owned. Some, however, have been purchased by private investors. ing the country’s fi rst wine spa, Kvareli Eden Spa. Urban Renewal Program Offers New Life The resort opened in March, and now, according to marketing manager Khatia for Villages, Soviet-era Resorts Benidze, is working on attracting tourists and educating people about its unique The World Bank’s Regional From the mud baths and wine vine- spa facilities. Development Program, together yards of Kakheti, to the thermal water “The potential of Georgia to become with local governments and the springs of Imereti, Georgia was once a spa destination is pretty strong, consid- Ministry of Infrastructure and synonymous with Soviet holidaymaking ering that this will be a new destination. Regional Development, has already We will have to educate even better the brought an estimated $17 million and curative water treatments. of direct and indirect private Years of neglect, however, turned population, organize more activities and investment to Kakheti. Now, they once prosperous villages into poverty- promotions,” she said. hope to duplicate their success with stricken rural communities that lacked “Our target market is [the] popula- the western Georgian region of the resources to attract tourists or mod- tion of Georgia with medium and high Imereti. ernize their fading resorts. income, wine lovers and experts, who Today, however, the Georgian gov- appreciate the wine-making tradition ernment, together with WB and private of Georgia and are open to live a differ- investors, are eyeing the aging sanato- ent experience using wine not only via riums for a possible foothold in the $2 drinking, but also in [a] therapeutic way.” trillion global spa and wellness market. Other resort areas are also hoping Ahmed Eiweida, the sustainable to tap into Georgia’s potential as a spa MOLLY CORSO development sector leader for South destination. Caucasus at the WB, said the program is Mariam Surmava, the administrative multimillion dollar World Bank focused on using the regions’ strengths manager at Sairme Hotels and Resorts, (WB) program is betting better – like their spa legacy – to help attract agrees Georgia has the potential to attract Aroads, modern sewage systems, investment. guests for spa and wellness treatments. and updated infrastructure can convince “We have a regional development Sairme is already attracting guests from Georgian and foreign businesses to invest program for Georgia and we are using around the world: this year, most of the in the once-famous village resorts that the regional development approach … to main hotel’s 5,000 visitors came from dot the Georgian countryside. generate employment in the private sec- post-Soviet countries like Kazakhstan

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GNIA is in the process of creating a strategy for developing the sanatoriums in Tskaltubo and Azerbaijan. destination for the entire Soviet Union,” for the resort. Tskaltubo, a well-known sanatorium he said. “Tskaltubo has a huge potential, be- center during the Soviet Union, is also A resort of sanatoriums, Tskaltubo cause of the water fi rst of all … because a potential favorite for spa tourism. was a playground for the Soviet elite and of the nature and because of the buildings Together with the government, the WB a place of rest and healing for the USSR’s that we have right now,” he said. is investing $37.5 million in upgrading sick for generations. Thermal water and “One of the important things, on the region’s infrastructure; 75 percent mineral springs provided curative treat- top of everything else we have, is that of the funds have been earmarked for ments for everything from skin diseases Tskaltubo is already a brand. In Georgia Tskaltubo. to infertility. people don’t know so much about Tskal- Plans for the aging resort include an The Georgian government is also tubo as in Moscow and in Kazakhstan.” overhaul of its water and sanitation sys- interested in developing Tskaltubo: the Eiweida noted that a revival is tems, as well as the resort’s 80-hectare question of investing in the resort was already underway in the resort: one city parks and train station. raised during the offi cial launch of Prime sanatorium, the Tskaltubo Spa Resort, Revitalizationis a key part of the Minister Bidzina Ivanishvili’s initiative opened in 2011. World Bank’s strategy for aiding eco- – the Georgian Co-Investment Fund – on He said Tskaltubo also has the poten- nomic development in the region, Ei- September 30. tial to tap into the global trend for spa and weida stressed. Giorgi Pertaia, the head of the Geor- wellness tourism. “[T]he vision for our investments in gian National Investment Agency, told “It is a specialized kind of tourism.… Tskhaltubo is for Tskhaltubo to regain Investor.ge that the agency is planning Tskaltubo targets a special niche of tour- its glory. You know in the Soviet time, it to commission an international study to ists who look for spa and wellness,” he was the spa and wellness and sanatorium explore the best development options said.

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fi nancing the public broadcaster – only 6 GEL per year, and providing aid to internally displaced persons – 9 GEL per year. The “bill” explains to citizens how much the state “overspends,” which results in a budgetary defi cit. As of 2013, 82% of the budgetary expenditures are planned to be fi nanced through tax and non-tax revenues, while the remaining 18% will be fi nanced through borrowing, privatization receipts and other infl ows. The Price of the State In 2013 the state debt will increase by 193 GEL per capita to reach 2,136 GEL per capita by the end of the year. veryone demands something priorities of budgetary expenditures; This “cash register receipt” from the state budget: state debt of the country; personal represents an easy-to-use tool for Epensioners — increased contributions in providing healthcare, distributing and explaining this pensions, public-sector employees — education and other programs; personal information to ordinary people, that higher salaries, the needy — adequate contributions for paying salaries to is, where their taxes end up and what social assistance, everyone else — government offi cials; how much one amount they contribute for public free healthcare, education, etc. Not works for oneself and how much services. The “bill” presents state- many realize that there is no such for the state. Moreover, the website provided services and their per-capita thing as a “free lunch.” As a matter of presents budgetary expenditures from a cost. At the same time it provides fact, that “someone” is every single per-capita and per-employed-individual information on defi cit spending per citizen of the country. Post-Soviet/ perspective, thus helping visitors capita as well as growing public debt. post-Socialist societies, like Georgia’s, to better understand the real “state Due to the calculation method — per fi nd it diffi cult to comprehend who a burden” for each citizen and each capita — it is clear that the data only taxpayer actually is. In Georgia, much working individual. illustrate the existing costs of services; like elsewhere, a taxpayer is not only As of 2013, state budget on the other hand, this method allows a hired individual or an employer, but expenditures exceed 8 billion GEL. everyone to calculate how much the rather any consumer in the economy, According to the “bill” for government per-capita tax burden would grow, if, and therefore virtually every citizen. services presented below, this fi gure for example, pensions should rise by To put it simply, society has little or translates into a 2,134 GEL “burden” 10%. no understanding of the “price” it pays per capita annually. Given the low The web portal further presents a for running the state. A layperson does number of individuals who are number of simulation “games” to its not understand the true fi nancial load employed as “hired” (approximately users. For example, a virtual shop, that he or she bears individually for 662,000, roughly 14% of the entire “Buy Your Own State,” helps to receiving public services. To remedy population), and not taking into illustrate everything that the state does this, an innovative web portal designed account the self-employed, the today and how much money it costs by the Economic Policy Research “burden” is as high as 13,203 GEL taxpayers; at the same time, by entering Center (EPRC) will give answers to per year. The most “expensive” of this imaginary shop one will be able to a wide range of questions regarding such “burdens” is transfers to the choose which services he or she really public fi nances. The website user can local budgets – 285 GEL per capita; wants from his or her personal state gain awareness of the size of the state next come pension provisions and and those for which he or she would budget; its annual collectables (tax road infrastructure with 231 GEL per not pay even a single tetri. The price revenues as well as other infl ows); capita. The “cheapest” services are of the “personal” state will then be

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calculated based on the choices made and the user will discover how much PUBLIC BUDGET cheaper or more expensive his or her GEORGIA 2013 state would be. YOUR RECEIPT FOR GOVERNMENT SERVICES The site’s calculator, entitled “What Do You Pay,” will help to count how Item Price per Capita much a person pays for state-provided 1 Pensions 231 services. After entering information 1 Healthcare Program 128 on monthly gross income, monthly 1 Local Budgets 285 expenditures in total (while breaking 1 Social Assistance 99 these down further as per monthly rent/ 1 Road Infrastructure 231 mortgage, spending on fuel, smoking 1 The Parliament 128 and drinking habits), the calculator 1 Agricultural Program 40 will show the person’s own monthly 1 Rural Aid Program 10 balance, and even how much in an 1 Regional Projects 91 1 Election Committee 10 eight-hour working day that person 1 Servicing foreign debt 134 works for him- or herself and how 1 Servicing domestic debt 30 much for the state. 1 Public Broadcaster 6 Conducting such research and 1 Energy Sector infrastructure 12 making it available and accessible 1 School Infrastructure 17 for the public in an understandable 1 Scientific Research Programs 26 manner will help citizens realize their 1 Primary Education 86 personal fi nancial role in the state, 1 Security and boarder Police 111 which will raise civil awareness. 1 Armed Forces 120 Individuals will have an easy reference 1 Penitentiary System 29 to understand the sources of budgetary 1 Culture and arts 16 expenditures, to assess the necessity 1 Foreign Affairs 16 of particular budgetary expenses 1 Aid to IDPs 9 proposed by the state, and to analyze 1 Sports and Youth Affairs 10 the economic effects that an increase 1 State Security 10 in budgetary expenses has on their 1 Other 249 pockets. Thus, the aim of the project is Total 2134 to empower citizens with knowledge and information needed to engage actively and meaningfully in critically important budgetary processes at every stage — formation, allocation, implementation and monitoring. The capacity to understand the budgetary In 2013 82% of total consolidated budget expenditures was processes and priorities of the financed through tax and non-tax revenues, the remaining 18% government is a necessary step toward was financed through borrowing, privatization receipts and other the greater objective of developing inflows. In 2013 the state debt per capita will increase by 193 GEL to a politically engaged citizenry and a reach 2,136 GEL at the end of the year. more accountable government. THANKS FOR YOUR PURCHASE!

Find out more by visiting www.priceofthestate.ge www.priceofthestate.ge. www.eprc.ge

OCTOBER-NOVEMBER 2013 19 Investor.ge

0.8 percent of lost growth. Similarly, con- Why the Georgian struction dropped by 15 percent, and this sector is worth 5 percent of the overall Economy May be in Better economy, so this is worth 0.75 percent of growth. Put another way, if we exclude Shape Than You Realize these sectors then growth would be 3.5 percent rather than 2 percent and this does not even take into account the mul- On September 18, GeoStat announced that the overall growth rate of tiplier effects that stronger performance Georgia’s GDP for the second quarter was 1.5 percent. This sounds awful. However, a more detailed consideration of the breakdown of that number, in these sectors would have. and other information coming out of the government statistical office, tells Understanding why these sectors a far more optimistic story. Outside of the government sector, the economy have declined is, therefore, critical. is actually doing better and FDI also looks better than the headline figure Both fi gures confi rm the common suspi- might suggest. This is quite surprising given the state of uncertainty in politics cion that the biggest drag on economic and may suggest a positive outlook for 2014. growth is slow government spending on infrastructure. In the area of public GEORGE WELTON sector and the absolute importance of a administration, while the nominal growth sector at the same time. Below is a table is -8 percent, the “real growth” for the he simplest way to understand that, based on GeoStat fi gures, shows the sector, provided by GeoStat, is +2.4 per- the basis of this growth is to relative importance of major sectors as cent. This discrepancy exists because the Tlook at nominal (non-infl ation well as the nominal growth in that sector nominal fi gure given by GeoStat includes adjusted) growth. This is a reasonable between Q2 2012 and Q2 2013. the depreciation of current government approach as infl ation has been very low Relatively slow “trade” and “manu- assets, while the “real” fi gures do not. over the last year (less than 1 percent) facturing” growth are defi nitely a big This large depreciation would usually and because “real” growth fi gures, for part of the overall picture, but the most be offset by new government expendi- a range of reasons, can miss dynamic signifi cant decline in the economy, in ture on infrastructure. That fact that this changes in the structure of economic nominal terms, was in public adminis- does not happen here is refl ective of the activity. tration. As this sector had an 8 percent slow-down in government spending on When thinking about growth it is decline and the sector is worth 10 percent infrastructure. important to look at relative growth in a of the economy, this drop alone is worth This slow-down is also the main

Sector Size and Growth in GDP (Q2 2012 to Q2 2013)

Sectoral percent of GDP Nominal growth by sector Trade 17 % 3 % Manufacturing 10 % 4 % Public administration 10 % -8 % Agriculture 10 % 11 % Transport 8 % -2 % Health and social work 6 % 8 % Real estate 6 % 13% Education 6 % 12 % Construction 5 % -15 % Financial intermediation 3 % 8 % Communication 3 % -5 % Other 16 % -1 % Overall 2.0 %

Source: GeoStat GDP Breakdown by sector at current prices (reviewed Oct. 2013)

20 OCTOBER-NOVEMBER 2013 Investor.ge

reason for the decline in construction. In addition, a slow-down in some government spending is also supported GeoStat further breaksdown construction parts of construction can also help to by a report released by the IMF this sum- into three subcategories. explain some of the slow movement in mer. In that report, the IMF urges “the What this first shows is that the other sectors. Steel and cement, are large authorities to reverse the shortfalls in majority of the construction sector is parts of the manufacturing sector and government spending” and even suggests doing well. This is consistent with the they are heavily dependent on construc- that the Georgian Government relax its experience of most people who look tion. Similarly, large volumes of “trade” public sector defi cit targets in response to around Tbilisi and see fairly consider- are imports related to government and the more diffi cult growth circumstances. able building work taking place at the infrastructure construction. And as FDI also seems to offer a more moment. However, the construction of a significant employer, a slow-down positive outlook than the headline fi gure, roads and infrastructure is down by more in construction has a range of other though the picture is complicated. FDI than 50 percent, so that even though its multiplier-effects. has grown 7 percent year-on-year since overall contribution to the economy is The suggestion that the economy’s Q2 2012. But this number actually hides not dramatic, the impact is considerable. malaise might be largely due to slow some interesting details.

Breakdown of GDP Growth (Q2 2012 to Q2 21013)

Contribution to GDP Growth Q2 2012 to Q2 2013 Construction of buildings and civil 3 % 10.6 % Construction of roads and infrastructure 0.8 % -50.9 % Other construction 0.8 % -27.8 %

Source: GeoStat GDP Breakdown by sector at constant prices (reviewed Oct. 2013)

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OCTOBER-NOVEMBER 2013 21 Investor.ge

The first thing that immediately Finally, the strange negative FDI in offer three notes of cautious optimism for stands out from this chart is that many hotels and restaurants, which by itself, any businessperson or potential investor. of the large FDI sectors actually grew pulls down growth by 5%, is almost cer- First, in spite of a dramatic change by quite a lot more than 7 percent. Most tainly a refl ection of uncertainty coupled in the political environment, the chal- notably, FDI in energy grew by 12 per- with great success. FDI refl ects incoming lenges of political cohabitation and an cent, manufacturing grew by 75 percent foreign investments and the profi t made inexperienced team in government, the and construction grew by 800 percent. by foreign companies in Georgia which economy is not doing too badly. Of course, one should not get too is not repatriated (as it is assumed it is Second, the economy will do consid- excited by these fi gures. Growth of 800% locally invested). Therefore FDI is nega- erably better when the government starts should not be taken to suggest that the tive if Georgians are investing abroad or spending more money on infrastructure. sector is exploding. FDI is often very er- if foreign owned companies are repatriat- The fact that this expansion in spending ratic, and one big deal or one successful ing profi ts. is being encouraged by international company can signifi cantly confuse the The large negative FDI in hotels is at fi nancial institutions is also an indica- general picture. But overall, the trend least partially the result of the fact that tor that government fi nances are not in looks strong. the hotels are currently full, and unusu- particularly bad shape. The declines that balance this out are ally profi table. Finally, there is still dynamic activ- clearly more connected to nervousness This may sound odd, but for the large ity going on even during these diffi cult about investment than a more profound negative FDI to be possible, the compa- times. The construction sector, outside of slow-down in any of these sectors. For nies need to be producing a lot of profi t, government contracts, seems to be grow- example, slow agricultural investments as without this profi t, they would have ing again. Agriculture seems to be gener- are occurring in spite of clear GDP nothing to send home. Therefore one can ally responding to the various efforts to growth in the sector. This could, for see these fi gures as both good and bad. It stimulate it, though FDI is weak. Hotels example, refl ect uncertainty over the im- is a shame that the hotels do not want to and restaurants remain profi table. The pact of the various proposed agricultural invest their profi ts right now in Georgia energy sector, long promoted, is fi nally “funds” or could suggest that cheap local but it is great news for the economy that seeing strong investment. At the same credit has made FDI less attractive. Slow they are doing so well. time most of the rest of the economy is growth in fi nance-related FDI is also None of this changes the fact that the holding steady, in anticipation of a more happening in spite of the banks posting economy has slowed considerably since predictable environment. dramatic increases in profi ts. the October election. However, it should I wait with optimism for 2014.

Foreign Direct Investment by Sector

Sector Amount (1000 USD) Percent of overall FDI Percent growth from Q2 2012 Energy 66,337 29 % 12 % Manufacturing 59,103 25 % 75% Transports and communications 45,979 20 % -4 % Construction 38,594 17 % 801 % Financial sector 13,077 6 % -16 % Mining 9,735 4 % FDI was negative in Q2 2012 so no percentage is possible Consultancy 7,417 3 % 79 % Real estate 4,605 2 % -52 % Agriculture 3,822 2 % -27 % Health and social work 1,769 1 % -19 % Other sectors -5,475 -2 % -114 % Hotels and restaurants -12,571 -5 % -221 % Overall 232,395 100 % 7 %

Source: GeoStat FDI by sector (reviewed Oct 2013)

22 OCTOBER-NOVEMBER 2013 Investor.ge

OCTOBER-NOVEMBER 2013 23 Investor.ge

Unbundling Labor: A Snapshot of Georgia’s Workforce

Georgia’s high level of unemployment and troubling labor-skills mismatch is MAIA EDILASHVILI often in the spotlight. But who are the employed? How do women’s salaries stack up to those of their male colleagues? Investor.ge’s Maia Edilashvili One Step Forward, Two Steps looks at the numbers. Back here is good news, bad news, and even worse news about the TGeorgian labor market. Good news: salaries are increasing, and a no- ticeable number of skilled professionals from the private sector have taken gov- ernment jobs in an effort to bolster the level of expertise and experience in the public sector. Average minimum monthly salaries in Georgia are up nearly 300 percent, from 204 lari in 2005 to 636 lari in 2011, the latest year for which data are available. The increase is even more noticeable when compared with salaries

24 OCTOBER-NOVEMBER 2013 Investor.ge

in 2000, when workers averaged just 72 (+14 percentage points), Turkmenistan active employers are sales and market- lari per month. (+11 percentage points) and Georgia (+7 ing specialists, as well as technicians But the bad news overshadows the percentage points). — including everything from engineers good. Women earn less than men, and “Despite the continuous improve- to electricians. have a harder time fi nding a job in the ment in headline labor market indicators, Midstream’s database has 8,000 reg- country’s diffi cult employment market. the widespread and growing presence istered candidates but the highest paid ca- In Georgian businesses, the aver- of informal employment indicates that reers in Georgia are in management and age monthly salary for men is 793 lari, the quality of employment has deterio- IT: the monthly salary for IT specialists while women receive just 582 lari per rated,” the report notes. In addition, the is 6,000 lari on average, while fi nancial month.That discrepancy exists across the report highlighted that this trend in this manager can earn as much as 9,000 lari. board for Georgia’s female workforce, region comes in “stark contrast with However, such offers are limited and according to the International Labour other emerging regions in the world mostly come from international employ- Organization’s (ILO) 2012/2013 Global where broadly informal employment has ers, Tsagareishvili underlined. Wage Report. declined as countries managed to imple- Georgia ranks tenth in terms of ment anti-poverty measures and success- Business Sector in Focus gender pay gap. By way of comparison, fully applied formalization strategies.” According to GeoStat’s second- in Belarus women earn more than their quarter figures,the number of people male counterparts. ILO’s research into The Numbers employed by enterprises in Georgia is the labor market also underscored that Nearly 60 percent of Georgia’s em- 503,000, 39 percent of whom are female. the skills mismatch — both under- ployable two million people have jobs, Large businesses employ 60 percent of qualifi cation and over-qualifi cation —is according to Geostat, Georgia’s offi cial all workers, medium-size enterprises still high, although it has improved since statistics body. employ 15 percent and small businesses 2002. While offi cially unemployment is at employ the remainder. In addition, the lack of “quality 15 percent, nationwide surveys by the Trade, automobile repairs, and re- employment” has eroded opportunities Caucasus Research Resource Center pairs of home and personal items are the in Georgia at a much faster pace than found that 31 percent of its 3,838 re- dominant job providers in the business other emerging countries, ILO’s Global spondents are unemployed and working sector, comprising 21 % of all employ- Employment Trends 2013 report noted. for work. ment. The processing industry provides- The report found that between 2000 Lana Tsagareishvili, director at jobs to 17% of all employed people, and 2010, informal employment in- Mindstream, a Tbilisi-based company health care and social care provides jobs creased particularly sharply in Caucasian specializing in recruiting, headhunting, to 11%, transport and communications – and Central Asian countries: Azerbaijan training and job fairs, says that the most 11 %, and real estate transactions – 9.9%.

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OCTOBER-NOVEMBER 2013 25 Investor.ge Wissol Group’s Samson Pkhakadze and U.S. Ambassador Richard Norland and U.S. Wissol Samson Pkhakadze Group’s Georgian Entrepreneurs: An Interview with Wissol Group’s Samson Pkhakadze

Investor.ge is launching a new series of interviews exploring the biggest trends in Georgian business innovation and entrepreneurialism. In each issue, the best and brightest minds in Georgian business will discuss their ideas, market trends, and the obstacles that face Georgian entrepreneurs today. In the first conversation, Investor.ge’s Maia Edilashvili spoke with Samson (Soso) Pkhakadze, the president of Wissol Group.

26 OCTOBER-NOVEMBER 2013 Investor.ge

issol Group’s Samson tial in various areas, including a conve- Pkhakadze has made a ca- nient geographic allocation and transit Wreer out of taking risks – and potential, Pkhakadze sees an opportunity. succeeding – in Georgia’s challenging “Many countries of the same size retail market. as Georgia have a 30-times-bigger Rolling out ambitious projects – like economy,” he said. Georgia’s fi rst Wendy’s franchises at a “What matters more than the size time when majority of businesses are of the population is how developed the delaying their most serious projects in economy is, and I think Georgia has good anticipation of the October 27 election potential.” – is business as usual for Pkhakadze. In order to achieve this potential, Georgian business, he noted, is about Pkhakadze thinks that “very good co- taking “bold steps.” operation” should develop between the “[E]ven if there is a period of slow- government and business and a higher down, we would not allow ourselves to level of political stability should be be passive,” he said. reached. “Assuming responsibility for your “The government, business and own decisions is part of being in business society - all these sides should reach a and it’s the same in every country. Yes, consensus that economic development countries in economic transition have is a prerequisite for the country’s devel- higher risks, but at the same time, higher opment and then each should do its own risk means higher yield per one dollar part,” he said. invested. Then it’s up to the business Though, this process, Pkhakadze group how to implement and manage believes, is going to take time. the project.” “Not just hundreds of businessmen Taking calculated risks is a critical but the whole society should decide that part of being an entrepreneur anywhere, improving purchasing power is our main but especially in Georgia – and in par- goal and only that can lead to a higher ticular in the retail sector, which depends employment rate,” he said. on a small, developing middle class. “The development of a strong middle When investors analyze the competi- class is paramount and for this to happen tiveness of Georgia’s business landscape, those who create jobs should be appreci- either locally or internationally, they ated and supported.” frequently complain about the small Pkhakadze noted that Wissol Group size of Georgia, estimated at around four still has “many things to do” and it plans million. For Wissol, however, the biggest on expanding its retail holdings – as well obstacle is the lack of strong middle as investing capital in education. class and the price of new products and “We have many things to do – to services on the market. strengthen each of our businesses and According to offi cial statistics, as of develop them further. For this to hap- August 2013, the monthly subsistence pen, the country’s economy should be minimum in Georgia for an average supportive and the overall environment citizen is just 129 lari (approximately [should be] stable,” he said. $78) and for an average family – 145 lari “In future, we see ourselves in the ($87), while most professions top out at retail business because, in our opinion, 1,588 lari ($960) a month . when you know something very well you But with Georgia’s untapped poten- should do it for your whole life.”

OCTOBER-NOVEMBER 2013 27 Investor.ge

in 2003 to $3,500 in 2012. Retail trade is Mapping the Middle Class the second largest sector in the economy, employing 168,800, nearly 10 percent of people have average of 400 lari (based the working population in 2011, the latest In Tbilisi, new retail shops and international franchises are pushing on interviews) to spend in a month on year for which data are available. Georgian shoppers to change their different things, indicates that situation New retail shopping projects like habits. is not yet alarming. Tbilisi Mall, Rustaveli 42, and EastPoint Funds from work, parents, and remit- Mall (which plans to open in 2014) are tances are fueling the purchasing power hoping to cash in on the trend. of teenagers and young adults in Tbilisi, While Georgians used to depend on despite the country’s relatively low small boutique shops and traders from wages and high unemployment levels. Turkey to bring clothing and other goods RATI MORCHILADZE While the source of income for middle to the market, major brands, from Mango class youth various, there is growing evi- to Ermenegild Zegna, have recently espite the downturn that has dence Georgians are increasingly turning opened shops in Tbilisi. overshadowed the Georgian to retail shops and online suppliers rather They are ushering in a new era Deconomy for the past two quar- than the bazaars and outdoor markets. of retail shopping for a generation of ters, young Georgians have money to Retail shopping is picking up trac- Georgians more accustomed to haggling spend on clothes, food, and gadgets - and tion in Tbilisi as, over the past decade, over Turkish knock-offs in ramshackle new retail shops are eager to help them the country’s gross domestic product bazaars (known locally as the bazroba) do it. The fact that middle-class young grew 6.1 percent, from $920 per capita than leisurely perusing the pressed racks

28 OCTOBER-NOVEMBER 2013 Investor.ge

OCTOBER-NOVEMBER 2013 29 Investor.ge

in air conditioning. the cost of a coat and pair of shoes at pay with plastic. Nini Gorgodze, the sales and mar- Mango – it is unclear how sustainable But economists like Paul-Henri keting director at CBD Development, the retail market really is. Forestier, the former director for the saidthe Georgian market is ready for a While there is no publicly available Caucasus, Moldova and Belarus at the major, Western-style shopping mall. data on how Georgians use credit cards, European Bank for Reconstruction and Georgian CBD Development, to- or what they spend remittances on, 64.5 Development, noted that the new shop- gether with the international investment percent of household income goes for ping trends do not indicate there is more group Cube Capital, are investing $60 food and beverage compared to just 5.8 money being spent – just that the mental- million in East Point, a 65,000 square percent for clothing, according to a 2012 ity about shopping has changed. meter shopping mall scheduled to open report on the retail sector by Jones Lang “What is interesting is the business in Tbilisi suburbs near the international LaSalle and the Institute for Polling and model defi nitely became outdated faster airport in the autumn of 2014. Marketing (IPM), a local research and than we thought,” he said. “We are very educated, normal peo- consulting company. “[I]t is not just that there is another ple, we have good taste and we know it is In an informal survey of middle way of shopping. There is also prob- much more comfortable to go in a good class Tbilisians aged 15-26, 70 percent ably a middle class, which has grown… shopping mall and be there than to go to indicated they use both cash and credit [and] is very open to what is happening the bazaar where you are in the dust, in cards to pay for entertainment, food, and in the west, wanting to have that for the rain, and in the sun,” Gorgodze said. consumer goods. Café managers at the themselves. [They are] a better informed But with median households earning restaurant-lined Abashidze Street in Vake shopper.” just 473 lari ($284.70) a month – roughly also indicated that half of their customers Additional reporting by Molly Corso.

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30 OCTOBER-NOVEMBER 2013 Investor.ge

Georgia Named One of Top Ten Countries For Doing Business

The annual Doing Business report, published by the World Bank and the International Finance Corporation, ranked Georgia ninth in the world for the ease of doing business, putting it ahead developed of economies like Germany and Australia.

The Sarphi Customs Terminal

he numbers are out and Georgia to over a dozen offi cials, lawyers, consul- report has served as a benchmarking tool is number nine – three ranks tants, economists, and policymakers to to measure efforts to create an attractive Thigher than last year – in the collect the data necessary to rank Georgia environment for investors. annual Ease of Doing Business report. on Starting a Business; Dealing with Over the past nine years, Georgia’s From Singapore to the Central African Construction Permits; Getting Electric- ranking has steadily rose, from one of Republic, 185 countries were ranked ity; Registering Property; Getting Credit; the poorest countries for investors to one according to their laws and regulations Protecting Investors; Paying Taxes; Trad- of the best. Here is a quick overview of on everything from starting a business to ing Across Borders; Enforcing Contracts; where Georgia has improved over the enforcing contracts. Resolving Insolvency. past year. The survey, which focuses on eleven The survey is not, however, a cheat regulatory areas that affect business, sheet to every issue that concerns inves- Starting a Business – measures how reforms implemented by tors. For instance, the survey does not 7th out of 185. governments have helped – or hurt – ef- look at security, corruption, labor skills, One of Georgia’s strongest areas, forts to streamline bureaucratic obstacles or the strength of the fi nancial system. the government continues to tweak the for investors. The report’s authors spoke For Georgia, the Doing Business processes and procedures necessary for

OCTOBER-NOVEMBER 2013 31 Investor.ge

Protecting Investors – 19th out of 185 Georgia slipped two slots in protect- ing investors, one of only two categories where the country is backsliding, sliding from 17 in the ranks to 19 in 2013. The category measures several specifi c areas: transparency of transactions, liability for self-dealing, shareholders’ ability to sue offi cers and directors for misconduct and Strength of Investor Protection Index.

Paying Taxes - 33rd out of 185 Georgia jumped up 12 places in the survey in 2013, thanks to the limited number of payments on an annual basis and the overall low total tax rate. It still requires more hours to pay taxes in Geor- gia than the regional average. starting a business. With just two days pared with seven procedures and 153 Trading Across Borders – needed to start a business – less than days in Eastern Europe and Central 38th out of 185 the regional average and the average for Asia, on average. Costs, however, are Georgia’s continued efforts to turn developed European economies – Geor- still much higher than the average in the country into a transit hub are bear- gia remains one of the easiest places to developed economies. ing fruit, according to the survey. The open a business. There was no change in limited number of documents needed, Georgia’s ranking from 2012. Registering Property – and time required, to export helped lift 1st out of 185 Georgia from number 47 in the world to Dealing with Construction Georgia is the world’s star for the number 38. Permits – 3th out of 185 ease of registering property: it is faster, Receiving permission for construc- easier, and cheaper to register property Enforcing Contracts – tion in Georgia takes just 74 days and in Georgia than the average in Eastern 30th out of 185 nine procedures, a fraction of the time Europe, Central Asia, or developed It is becoming easier to enforce con- necessary in Eastern Europe and Central economies. tracts in Georgia, based on the number Asia (19 days and 226 procedures). There Due to reforms, it takes just one pro- of days, cost and procedures to enforce was no change in Georgia’s ranking cedure, two days and 0.1 percent of the communal contracts, pushing the country from 2012. cost of property for registry. up nine slots in the ranks, from number 39 to number 30. Getting Electricity – 50th Getting Credit – 4th out of 185 out of 185 Georgia jumped fi ve places due to Resolving Insolvency – Georgia jumped from number 88 to efforts to improve the scope, access, and 81th out of 185 number 50 on its ability to bring electric- quality of credit information, moving up Georgia’s biggest slip, however, was ity to projects faster and more cheaply from number 9 last year to number 4 in in resolving insolvency – or how the than the regional average. For investors 2013. More detailed information on how law’s deal with bankruptcy. The country in Georgia, it takes just four procedures the category is measured can be found at fell six places in the ranks, sliding from and 71 days to secure electricity, com- the doingbusiness.org. 75 to 81.

32 OCTOBER-NOVEMBER 2013 Investor.ge

OCTOBER-NOVEMBER 2013 33 Investor.ge

political and economic ties with the The Direction of EU. The Association Agreement represents access to programs and Georgia’s EU Policy: mechanisms that favor partner countries and help them build their own infrastructure—programs like What November’s Eastern Partnership the Deep and Comprehensive Free Trade Agreement (DCFTA)—that Summit Means for Georgia have huge potential for Georgia’s budding market. In an interview with RFE/RL on September 9, 2013, Since July of 2010 Georgia CORDELIA PONCZEK Ivanishvili commented that he believes has actively pursued closer an EU-partnership is vital to Georgia ties with the European Union eorgia is a country with specifi cally because it has programs through the framework of the forward momentum. It is also that promote European values like Eastern Partnership (EaP) and a country developing within human rights, a competitive market, Eastern Neighborhood Policy. G These programs have given two different spheres of policy— and the absence of corruption. the mechanisms for Georgia to domestic and EU, the two intersecting “Europeans are the most successful simultaneously create change like a Venn diagram. The overlapping and interesting people…People always within its own borders while also qualities of each set Georgia apart from strive for a better life,” he said, adding fulfilling requirements set by the its peers in the Eastern Partnership, and that Georgia needs these programs not EU. The anticipated signing of EU leaders are taking note. Perhaps only to develop its foreign policy, but Georgia’s Association Agreement in November is the culmination of these qualities are the reason European to bolster its domestic policy, as well. this intersection, and it may begin to Commissioner Stefan Fule said that the Expectations are high, indeed, from set the path for Georgia’s relations European Commission will stretch its Georgia, which began negotiations with the trade union in the years to legal boundaries to ensure a signature for its Association Agreement in July come. before its term expires on October 31, 2010. These negotiations included 2014. benchmarks set by the EU—a critical Perhaps this is also the reason aspect in which the EU required Georgian Prime Minister Bidzina measureable progress in Georgia’s Ivanishvili spent so much time at this political and economic development. year’s Riga Conference hobnobbing In response, Georgia adopted a series over the topic with other EU heads of normative policies, and for three of state like Estonian Prime Minister years aggressively implemented Andrus Ansip and Polish Foreign reforms designed to show quantifi able Minister Radosław Sikorski. Such advancement consistent with EU statements and conversations mark an standards. intersection of Georgian and EU policy Be it the optimistic publicity or the and crystallize Georgia’s growing momentum of long-awaited change, status in both. Georgia’s metamorphosis has been Georgia is primed to put its initials largely successful. This intensive to the agreement during the November process has included, among other Eastern Partnership summit in things, an overhaul of the country’s Vilnius. Once signed, the Association judicial and police systems. These Agreement will mark the continuation reforms publicly emphasized a zero- of Georgia’s ascent to strengthen tolerance policy for corruption and

34 OCTOBER-NOVEMBER 2013 Investor.ge

accountability to the rule of law in change of government in its October Georgia expect in return from the EU Georgia. 2012 Parliamentary elections. for Georgia’s continued dedication? The political restructuring started Yet, for all its lauded achievements, These broader questions can be by Saakashvili and continued under Georgia sees a disconnect in mirrored in a smaller sampling of Ivanishvili has put Georgia in the top expectations:What exactly will Georgia raised concerns. For example, there strata of Transparency International become to the EU once the Association is general consensus that the political and Freedom House ratings. In an Agreement is signed and ratifi ed? Will ties Georgia shares with the EU are analytical piece, Rafał Sadowski of it be simply a neighbor to Europe? not proportionally represented by the Center for Eastern Studies (OSW) Or, as Georgian Foreign Minister the economic ties between the two in Warsaw, Poland, wrote that among Maia Panjikidze wants to put it, a countries. During his two-day visit to EaP countries, Georgia is a positive “European neighbor”? And if, as it has Tallinn in September, Prime Minister political example of success after done, Georgia continues to adopt and Ivanishvili remarked to Estonian Prime undergoing peaceful democratic implement policy reforms, what can Minister Ansip that although political

OCTOBER-NOVEMBER 2013 35 Investor.ge

relations between the EU and Georgia must agree on the future trajectory of Panjikidze is not alone. There is are strong, their economic cooperation their country and stick to it. Comments general consensus among Georgian could be better. like Prime Minister Ivanishvili’s hint leaders that the EU should vocalize “Regrettably levels of economic at consideration of the Russian-led confi rmation that Georgia will be cooperation are not at the same level Customs Union do not lend themselves rewarded for its perseverance, an with existing excellent political to a unifi ed policy. Such comments extrinsic affi rmation, in contrast to ties,” said Ivanishvili to his Estonian lend themselves to duplicity and doubt, the intrinsic benefi ts democracy has counterpart on September 9. especially when the two competing afforded. Many EU member states This comment is reinforced by factions appear to be mutually have been quick to show Georgia Sadowski of the OSW. “Interestingly, exclusive. support. At the Riga Conference, the EU’s shares in the trade of Ukraine Second, in Georgia’s relationship to countries like Estonia, Latvia, and Georgia, the two countries, itself: While Georgian leaders should Lithuania, and Georgia’s long-time which along with Moldova have endeavor to continue meeting EU- staunch ally—Poland—were fi rst in made the greatest progress in political guidelines for political and economic line to offer words of support and rapprochement and free-trade area cooperation, they should not hurry to promises that the EU will recognize negotiations with the Union, are implement reforms that could either Georgia’s efforts. Most recently, this smaller than its shares in the trade of undermine stability by too swift a has meant the possibility of an earlier the other EaP countries,” he wrote change, or dampen public opinion Association Agreement signature. in his July 2013 OSW Point of View with unpopular for-show policies. Assuming Georgia initials the Report, “Partnership in Times of Crisis: Change does not come overnight, and Association Agreement in November Challenges for the Eastern European if Georgian leaders want reforms and 2013, the anticipated date of signature Countries’ Integration with Europe.” a mentality that will last, it will take should be at the next summit—a At €2.63 billion per annum, the time. Georgia has been extremely full year later—in October 2014. EU may be Georgia’s largest trading successful with implementing high- Polish Foreign Minister Sikorski says partner, but the country, ever mindful profi le reform campaigns, and it needs Georgia may not have to wait that of the future, asks, where can we go to ensure that those go deeper than just long. “There was a readiness within from here? How can we make this currying public popularity. It is here the EU to consider signing of the better? that Georgia will enjoy the long-term agreement earlier if Georgia fulfi lls In my opinion, it seems that no benefi ts that EU-sponsored programs the conditions.” This, Sikorski matter what form policy takes, it is can offer. Rushing things might get a says, is a motivating message for vital that Georgia and the EU become faster nod from the EU, but Georgian Ivanishvili to bring home to Georgians reliable partners, and so, as Georgia policies on EU paper offer a different as encouragement to continue the embarks to fi nalize the Association reality than Georgian policies on sacrifi ces that Sikorski considers Agreement, there are two guidelines it Georgian ground. “necessary to modernize the Georgian should keep in mind. The promise of a better tomorrow economy and to make it fully First, in Georgia’s relationship comes with the signature of Georgia’s compatible with the largest free market with the EU: Georgia should send a Association Agreement. There, too, on earth.” cohesive message to the EU about what is sensitive probing of expectations it expects in return for its continued for what such an agreement could He speaks, of course, of the EU. commitment to EU principles. Working and should mean for Georgia’s future. out an approach with an ambiguous In September, Foreign Minister Cordelia Ponczek is a graduate of (and somewhat skittish) EU can be a Panjikidze commented that because Miami University in Ohio where she challenge, especially for a country that Georgia has fulfi lled its end of EU earned her B.A. in Political Science, is still constructing its narrative as an reform policies, the country has specializing in post-Soviet development independent democracy and for a trade merited a clear statement in Vilnius and energy geopolitics. She has union that is recovering from a divisive that the European perspective can be spent a year in Georgia teaching and worldwide recession. Georgian leaders opened for countries like Georgia. researching energy transit policy.

36 OCTOBER-NOVEMBER 2013 Investor.ge

is solved.” New Restrictions on Foreigner “The recent amendment that sus- pends the possibility for foreigners or Ownership of Agricultural Land foreign entities to own agricultural lands in Georgia will have a very negative ef- Negatively Impacting Investors fect on foreign investments in the wine sector. In the last fi fty years the devel- A new amendment that bans confl icts between foreign land owners opment of the wine industry in Chile, the sale of agricultural land to and their Georgian neighbors. Argentina and California has been driven foreigners until 2014 is already The amendment banned foreigners by the acquisition and the development costing Georgia valuable investment acquiring or inheriting agricultural land of new vineyards owned by foreign in- in the wine industry, as well as other sectors. While the government might until the end of 2014. It also stops cur- vestors,” he told Investor.ge. offer a half measure – the possibility rent foreign owners from expanding their “In order to develop the international of long term leases – investors holdings or selling their property to other awareness of Georgian wines, it is most and business associations like the foreigners. necessary to attract in Georgia some very American Chamber of Commerce Extremely restrictive for foreign famous names in the wine sector, same remain concerned the ban could investors, the amendments were a shock names who have invested in California create long lasting negative repercussions. for businesses spanning from small pri- and South America. I doubt that those vate investors to major projects. companies will put a foot in Georgia if David Lee, the general director of they cannot valorize their investment.” MOLLY CORSO Magticom and a private investor in Geor- But Davit Onoprishvili, the head of gian agriculture, stressed that the law the budget committee in the Georgian oreign investors might be offered causes investors to pause and reconsider parliament and a member of the ruling a temporary reprieve from a investing in property they already own. Georgian Dream coalition, told Inves- Frestrictive ban on acquiring agri- Lee, who also co-chairs AmCham’s tor.ge the amendment is not trying to cultural land with a last minute decision Agribusiness Commitee, noted that the frighten off investors – or harm busi- by the government to allow long-term amendment has “very wide implications” nesses. He noted there is a fundamental leasing of land. But will that be enough for foreign investors in many sectors. issue facing the government: the new to convince investors the sector is safe? Jacques Fleury, the CEO of Georgian administration claims it is unclear how The temporary ban, which is part Wines & Spirits Company (GWS) and much agricultural land is owned by for- of a parliament-led effort to tackle land the director of Château Mukhrani, told eigners today in Georgia. reform, went into effect in July after Investor.ge that GWS has halted plans While preliminary reports put the months of speculation and a growing for a 10 million euro investment pro- number at around two percent of the total number of media reports highlighting gram in new vineyards until “this issue agricultural land in the country, the per- ception that it is much higher has added urgency to the issue of land reform – and

OCTOBER-NOVEMBER 2013 37 Investor.ge

creating a better cadaster system. “We are talking about the status of the parency International Georgia, has Long term leases, an idea supported land, rather than the purpose of the land,” applied to the Constitutional Court to by Onoprishvili and Prime Minister she said, adding that distinction has im- overturn the new amendment since it BidzinaIvanishvili, are being discussed mediate implications. For instance, Kvar- violates the 2012 decision, but the review as a possible measure to ease investors’ tskhava noted that “a lot” of land around process could take several years. concerns. Tbilisi has agricultural status even if it is In the meantime, however, some For some industries, like the wine not used for agricultural purposes. investors are concerned the amendment industry, however, a long term lease falls “The implication of this law goes will adversely impact a struggling part of short of the guarantees investors need to way beyond the scope of pure agricul- the economy. Agriculture, once an engine have before entering – or expanding – in tural land.” for the Georgian economy, has dropped a market, noted Fleury. For Esben Emborg, a managing prin- below 10% of the country’s GDP even “In our industry the value of the busi- cipal of SEAF’s Georgia Regional Devel- though 46.8% of the population still lives ness after years is essentially translated opment Fund (GDRF), the amendments in rural communities. in a price per hectare of the property represent a threat for investments – and AmCham, working through its according to the Appellation zone it is for the future development of the sector. AgriBusiness and Commercial Law located in, or the international value of “For a fund like us [it is a problem]. and Tax Committees, is actively follow- the wine brand,” he said. We were encouraged to invest in ag- ing the government’s response to the “I doubt that a long term lease of 30 riculture, like everyone else who was amendment. In a detailed analysis of the years as suggested by some members of encouraged to invest …,” he said. amendment’s possible repercussions for the government will solve the issue. It “It affects our investment because we investors, the committees found that it may work for annual crops such as cere- cannot sell or divest or exit any of our could negatively impact foreign and local als or vegetables, but not for wine proj- investments unless it to a 100 percent landowners by limiting the potential pool ects, which have long term perspectives.” Georgian business or person. And it is of purchasers. In addition, it makes direct Passed by the Georgian Dream- highly unlikely that is going to happen.” investment into the agriculture sector controlled parliament in June, the amend- Emborg noted there is also a “psy- “much more unlikely.” ment seeks to circumvent a 2012 Con- chological” impact of the amendment. “Foreigners literally cannot buy equi- stitutional Court decision that opened up “The idea that you are not wanted is ty in agriculture companies and they are direct ownership of agricultural land to one thing but the idea is if they can do unlikely to make green-fi eld investment foreigners. The changes ban foreigners this, what will they do next?” he said. based on leases,” the committees found, from acquiring, selling to other foreign- But PavleMgeladze, a spokesperson noting that the potential problems created ers, and inheriting agricultural land until for the Ministry of Agriculture, stressed for the fi nance and investment sectors the end of 2014. Previous to the ruling, the change is merely a temporary mea- seem to be particularly problematic. foreigners could only own land in Geor- sure designed to give the government “Banks and international fi nancial gia by establishing a company registered time to study the situation and create a institutions may not be able to use agri- in Georgia. modern land use policy. cultural land as collateral for new loans Under the newly amended legisla- Even if the government views the and collateralon existing loans may have tion, noted Ketti Kvartskhava, a partner measure as short term, however, there to be devalued. Investment funds, gov- at BLC Law Offi ce in Tbilisi, investors is still a question of the amendment’s ernment funds, and even Prime Minister from a range of businesses could run constitutionality. Ivanishvili himself, as a French citizen, into problems. Mathias Huter, an analyst for Trans- will be restricted in their activities.”

3838 OCTOBER-NOVEMBEROCTOCOCTCTOOBOBEBBEERR-R-NRN-NNOVEOOVVVEEMBEMMBBBEER 201320201313 Investor.ge

Georgia’s Per-Diem and Reimbursement- Cost Framework A Strong Candidate for Reform

The current calculations for per diem business expenses are too low

ALEXANDER MELIN company employees are entitled to for being with. For example, any payment business travel-related expenditures on beyond 20 lari for an in-Georgia per diem er diem allowances and the meals and incidentals; lodging is often is subject to taxation at 20 percent; it is reimbursement of expenditures considered a component as well. Why are simply unreasonable to think that a busi- Pfor business travel have suffered per diems a standard business practice? ness traveler, who cannot cook at home, in Georgia from a lack of focused atten- First, as a matter of fairness, it is not can eat normally on 20 lari per day. Num- tion, affecting businesses and employees. right to force employees to pay for busi- beo.com puts the price of an inexpensive Some eight years ago, the Order of the ness expenses out of their own pockets. meal in Tbilisi at a median price of 13.31 Georgian Finance Minister No. 220 Second, without reimbursement there is lari; just three cheap meals alone would established low rates for reimburse- less incentive for employees to undertake be about 40 lari. Keep in mind that this ment of expenses for food, lodging, and travel to seek out new business, create 20 lari limit has not been updated with incidentals on business trips (a separate trade opportunities, receive training, go regard to infl ation or cost of living in- order covered government employees’ to trade fairs, and so forth; without reim- creases since 2005. Also, all post-Soviet per diems). Since then there have been bursement for business-travel expenses, countries besides Russia have identical practically no adjustments of meal and business development would be stunted. rates, indicating that these rates are cho- incidental per diems—only adjustments In the U.S. and in European Commu- sen somewhat arbitrarily.To give some to lodging costs, which are still lamenta- nity (EC) external-aid-funded projects, sense of typical rates, the following chart bly low, and mostly changed in 2008—to per diem rates are updated regularly, compares Georgia’s combined per diems bring them in line with international typically yearly. In Georgia, this has not and lodging reimbursement with the norms and the present realities of the been the case, and per diems have not U.S. and EC projects in USD, based on Georgian business milieu. kept up with infl ation and cost-of-living the Georgian Finance Minister’s Order, “Per diem” refers to reimbursements increases, and were often too low to and the 2013 U.S. and EC schedules.

OCTOBER-NOVEMBER 2013 39 Investor.ge

The month selected under the U.S. schedule was September, and the lodging rate for Tbilisi was set at $136 for purposes of this graph, Protection of refl ecting the 2012 lodging average, according to STR Global (as within Georgia lodging is substantiated on basis of receipts). Information It is immediately obvious that Georgia’s rates are out of sync with the EC and U.S. This is simply not fair to those doing business inter- Assets: nationally, as they are stuck between the two unpalatable choices of not compensating employees suffi ciently, or overcompensating with A Work in their per diems beyond the threshold limit and paying tax for what is a legitimate business expense. The latter case may also have the knock-on effect of incentivizing Progress shadow accounts or misappropriation of funds to pay per diems, creat- ing a corruption issue. Indeed, the best practice is to make sure per A few years ago the Georgian diems are a close approximation of actual costs, not higher or lower. government embarked on major e-governance projects to ease In today’s business environment Georgia’s regulation operates and streamline delivery of public beyond the necessary scope of reasonable limitations to prevent services for citizens, non-residents per-diem fraud in a way that penalizes companiesand wastes time and organizations.E-governance in accounting. is also an efficient and effective The whole framework is in need of reform. Making per diems communication channel among correspond with actual prevailing cost conditions in respective locales, government agencies. For this purpose the Data Exchange Agency keeping them updated annually based on actual data, and extending (DEA) was formed as the designated them to NGOs’ volunteers and interns would be a great start. If the government body for supporting Georgian government is concerned about the burden of data gathering, e-governance initiatives, both one possible solution is to create a revised list and index it to infl a- technically and legally. One of the tion in each respective country so that it may be updated more or less main aspects of DEA’s operations automatically each year, or, alternatively, adopt rates that are based is the development of information security policies and procedures, on an average of U.S. and EC rates, or some other basket of other especially for the public entities countries’ rates, such as adopted by other countries within the EU. whose business continuity is deemed By making per diems accurate and fair, business will thrive, tax to be critical for country’s economic enforcement headaches will be minimized, and accountants will be and defense security. thankful.

NELSON PETROSYAN

Government’s Efforts in E-governance n post-Soviet countries, Georgia has been the pioneer in many aspects Iof the move toward better public service through e-governance. For quite some time now, information and com- munications technologies have been in- creasingly integrated into the operations and business processes. And in the search for better governance, the business of

40 OCTOBER-NOVEMBER 2013 Investor.ge

“public governance” had to embrace Demand for Information vironment, which includes 144 controls this opportunity, like it is done in the Security for implementing information security business sectors. Clearly, in industries The Government of Georgia has management systems. Implementation like banking and telecoms, information made a foundational step in regards to of the ISO 27001:2005 standard allows technologies are the game changers. cyber security, by setting up respective banks to secure protection of one of their regulation. This regulation puts cyber most important assets — the information Information Security for the security on the same page in terms of asset — based on internationally accept- Financial Sector importance with land, naval and air able standards. As with any system, an In the fi nancial sector it is an im- protection. Moreover, the March 2013 information security management system perative, and, in many cases, mandatory decree by President relates to the sphere also requires an information security requirement, to ensure secure handling of of applicability of these rules and makes specialist for implementation and further information. It is worth mentioning that it clear which entities and structural maintenance. There are very few such in the last two to three years enormous units are considered as the most critical professionals, and certainly not enough effort has been made to meet information for sustainable operability. Since ISO to meet the current demand. security requirements, especially in the 27001:2005 does not distinguish imple- The answer is in training and certifi - banking sector. mentation between public and private cation of professionals, as the common Besides that, new technology and companies, the methodology and pro- education institutions do not yet prepare modern approaches to corporate gov- cesses are the same. Obviously, each such specialists. ernance contribute to credibility among legal entity has its own specifi cs and Professional Education and Cer- the society at large, foreign investors this should be taken into account dur- tification Board (www.pecb.org) has and international fi nancial institutions. ing standard implementation. However, a partnership agreement for Georgia More often requirements for information implementation of ISO 27001:2005 for authorizing it to carry out certifi cation security are being met in different inter- state agencies constitutes also the adher- training and conduct certifi cation exams national standards in the areas of audit, ence to country’s cyber and information for ISO 27001:2005 Lead Auditor, ISO fi nancial statements and internal control security. Specifi cally, the Data Exchange 27001:2005 Lead Implementer, and other systems (Sarbanes-Oxley, COSO, CO- Agency (DEA), the key agency respon- professional certifi cations. BIT, IPPF). sible for nation-wide cyber security, has already issued a number of legislative Market Perception of acts in that regard. “Protection of Information” Nelson Petrosyan is the Managing and “Information Security” Expected Changes and Scarcity Partner of Grant Thornton in Georgia. Concepts of Professionals He has over 14 years experience in man- The most obvious information secu- ISO 27001:2005 is a component of agement consulting, corporate gover- rity role and need are seen in the fi nancial internal control systems. It defi nes basic nance and business risks, fi nancial audits services sector. The regulators, central principles of information security, infor- and management. For more information, and national banks, establish information mation systems security and control en- please visit www.granttornton.ge. security risk management requirements for the banking sector, including the commercial banks. These requirements are commonly adapted versions of ISO 27002:2005 set of security controls. Be- ing the international standard for infor- mation security management systems, it is expected that in the next few years ISO 27001:2005 will become a mandatory requirement for the banking sectors in many post-Soviet jurisdictions.

OCTOBER-NOVEMBER 2013 41 Investor.ge

The Tax Dispute Resolution System In Georgia

The tax dispute resolution system is crucial to business confidence and sideration for confl icts that they may gen- has gone through several waves of reforms. Throughout this period, erate. For example, a previous analysis businesses have never stopped discussing the independence of the system, conducted by the Commercial Law and the degree of trust it holds and the need for further reform. In this article, Tax Committee, found that in 2011 there Rusudan Kemularia, General Counsel at Millennium Challenge - Georgia, former Deputy Minister of Finance (2010-12) and a member of Amcham’s had been 285 separate amendments to Commercial Law and Tax Committee project, discusses the changes the tax code, made on 15 separate dates. currently under consideration and their possible impact on the reliability of the tax environment in Georgia. Dispute Resolution The dispute resolution process is one of the mechanisms intended to protect taxpayers against problematic interpre- tation of the code. This process allows two independent appeal mechanisms to review decisions taken by the Revenue Service and provide an opportunity for RUSUDAN KEMULARIA causes of concern. taxpayers to argue their position. Grant Thornton’s Nelson Petrosyan The tax appeal system within the Continuing Challenges with the noted that clearer tax rules and less am- Ministry of Finance has two stages. First, Tax System biguity is needed. following an initial decision of the Rev- here is little doubt that improve- “We need to continue efforts to enue Service, an individual can submit ments in the tax code and the minimize instances where tax legislation an appeal with the Revenue Service. Tmanagement of the tax system in allows for multiple interpretations. To Second, if the individual still disagrees Georgia have been considerable in recent illustrate with the example of football – with the decision, he or she can make years: electronic declaration of taxes was the rules of the game have to be clear for an appeal to the Tax Dispute Resolution introduced in 2007 and the tax code has all – players (taxpayers), coaches (inves- Council under the Ministry of Finance. undergone several major reforms (most tors), referees (government), and not less An alternative to the dispute resolu- recently in 2010). In addition, an alterna- importantly, the spectators (society),” he tion process in the Revenue Service or tive tax audit mechanism is available for said in an email interview. the Ministry of Finance is to take the most taxpayers and an improved website “When referees’ judgment calls are dispute into the courts for resolution. exists to help clarify the interpretation based on rules of the game that are clear However, in Georgia this has rarely of the code. to all, then you would expect fewer ob- been the preferred option, as the courts However, ambiguities over the inter- jections from players and the coaching were not considered to be technically pretation of the tax code and concerns bench, and far less disapproving whistles competent to independently arbitrate over its consistent application have been from the spectators’ crowd.” disputes and so would tend to defer to the a persistent problem facing businesses Ironically, some areas of tax reform Revenue Service for their interpretation in Georgia and have, at one time and may have made the situation worse, of the code. another, been highlighted by the likes as changes to the tax code were often Nonetheless, while the dispute reso- of the US Government and the EU as brought in quickly, and with little con- lution mechanism of the Revenue Ser-

42 OCTOBER-NOVEMBER 2013 Investor.ge

vice has been widely used, there continue sions. Over time, this would then provide sibilities. This is a problem because there to be concerns about its operation. Under a body of guidance on how to interpret is no clearly defi ned group of people to an EU-funded project PwC is currently the tax code and on predicting likely collectively train and develop dispute finalizing a report on how to reform decisions of the Council. resolution and review skills. It is also a changes to the dispute resolution process, problem because the scale of the work and the Minister of Finance Nodar Kha- Independence makes it diffi cult for those involved in duri has said that the Ministry will care- The second major problem of the dis- dispute resolution to give it their full fully consider the recommendations from pute resolution council is independence. attention. This is made worse by the this report and how to implement them. At the current time, the individuals increasing use of this system. In 2011, However, before the report comes involved in the appeal process are also the Revenue Service received 7,900 tax out, one can already highlight the issues responsible for the initial decision. In the appeal claims. In 2012, this fi gure almost under consideration, particularly the case of the fi rst tier of dispute resolution, doubled to 14 890. challenges of improving the predictabil- this confl ict is most clear, as the disputes One of the potential solutions to the ity of interpretation, adjudicative inde- are decided by members of the Revenue problems of independence, professional- pendence and professional competence. Service, and there is a sense that they ism and workload would be to separate are likely to defer to the decisions of the those involved in dispute resolution from Improving the Predictability of original Revenue Service auditors. the day-to-day operation of the Revenue Interpretation of the Tax Code Confl ict is less clear in the case of Service and Ministry of Finance. Lack of predictability of interpreta- the Dispute Resolution Council, as the At the same time, by making this tion of the tax code has been a consis- members come from the Ministry of group exclusively responsible for dispute tent problem of Georgia’s tax system Finance and not the Revenue Service. resolution, this may make it easier for the for years. It is not only a problem for However, indirect confl icts may exist as group’s members to develop their train- business planning but has also left the the members of the Council are still, for ing and internal processes and make it concern that the tax code might be se- the most part, employees of the Ministry easier for them to manage the increased lectively applied. of Finance. This is problematic as the workload. One problem that makes predict- Ministry of Finance has revenue-raising Discussions over this issue are ongo- ability and consistency of interpretation as one of its key responsibilities and this ing and the Ministry has expressed an diffi cult is the lack of published guidance may create a pro-government bias in its eagerness to engage with stakeholders on the tax code, and particularly the lack decision making. on the best possible reform. of published guidance that is binding on The inherent issues of independence To that end, AmCham will be facili- future interpretation. In an attempt to have led some to suggest that dispute tating discussions between the Revenue help this situation, the former govern- resolution should not take place in the Service and any members who are ment launched the website www.matsne. Ministry of Finance at all, but should interested in participating. Any indi- ge. This website is gradually publishing take place in some kind of separate “tax viduals who would like to provide input guidance on the tax code, but is still in its courts.” However, this option is not or feedback should contact Rusudan at early stages. An alternative mechanism currently being considered by the new [email protected]. for gaining confi dence in interpretation government and, anyway, may confl ict is to apply to the Ministry of Finance for with the Georgian constitution. This report is made possible by the an Advance Tax Ruling. This is a useful generous support of the American people instrument, but is expensive, and gener- Improving Professionalism of through the United States Agency for ally only suitable for larger companies. Dispute Resolution International Development (USAID), One means of helping to improve The fi nal problem facing the dispute EWMI and EPF, within the Judicial the predictability of dispute resolution resolution process is how to deal with Independence and Legal Empowerment decisions, currently under consideration, the work level and professional focus Project. The contents are the responsibil- is that the Dispute Resolution Council of those involved. The dispute resolu- ity of AmCham and do not necessarily could publish its decisions and make its tion process, at both levels, involves refl ect the views of USAID, the United interpretations binding on future deci- individuals who also have other respon- States Government, EWMI or EPF.

OCTOBER-NOVEMBER 2013 43 Investor.ge

Restitution And Justice: The Process Of Addressing Property Rights

Thousands of people have accused the former government of Georgia of compensation to be possible. However, a forcing them to “gift” their assets to the state. Prior to the parliamentary general principle of legal due process (res election, the Georgian Dream Coalition vowed to remedy these alleged judicata) requires that the fi nal verdict of property rights abuses. However, current Georgian law does not allow for a court is rarely open to legal reconsid- easy remedy of these disputes in the courts, none of the proposed legislation seems likely to fix the problem and most of the claims, currently with the eration. To do so, in a Georgian context, prosecutor’s office, are frozen. it is usually necessary to bring forward new evidence. This new evidence is usu- EVA ANDERSON, IRAKLI SOKOLOVSKI, were forced to transfer assets to the ally lacking. In the light of these existing AMCHAM’S CLT COMMITTEE state. Most often property was allegedly legal constraints, many claimants have transferred as a result of a plea bargain been searching for alternative legal meth- here is no clear solution to this arrangement, dictated by the prosecutor, ods to gain restitution of property. In the problem. Any resolution creates in return for a lesser criminal sentence or analysis that the Commercial Law and Thuge challenges for the national dismissal of the charge. Other forms of Tax Committee team conducted for this budget as compensation claims could state pressure were also allegedly used. article, we identifi ed four main avenues be onerous, but to ignore the claims will There are two main reasons why through which claimants are currently create political problems and may under- these cases cannot be easily remedied seeking restitution of their assets. mine trust in the rule of law. To facilitate under current legislation. First, many The majority of claims are simply the process of public debate on this is- of the cases operate under a statute of being sent to the Prosecutor’s Offi ce in sue, the AmCham Commercial Law and limitations, and too much time may the hope that the prosecutor will inves- Tax Committee Project is analyzing the have passed to look for restitution in tigate, unilaterally reopen the cases and legal situation facing individuals seeking the courts. For example, those whose provide mechanisms for overturning “res restitution and the challenges facing the property titles were deprived by virtue judicata.” However, most of these cases government in trying to deal with this of a civil agreement (as opposed to a are frozen as the prosecutors offi ce waits thorny political issue. plea bargain arrangement) may seek for a political decision regarding how to Following the electoral victory of to argue that these contracts should be proceed. In addition, the restitution of the Georgian Dream coalition in the declared void by the court because they title, which could potentially be obtained parliamentary elections of 2012, Archil resulted from duress by state offi cials. from these actions, entails a lengthy and Kbilashvili, the newly appointed Chief However, the Georgian civil code sets a expensive legal process and multiple Prosecutor, addressed the public on na- strict one-year limit on the time period layers of court proceedings. tional television, and stated that “if you it allows claimants to bring their claims A second avenue for gaining res- have a complaint, if your rights have in the courts, and this excludes the vast titution, particularly in cases claiming been infringed by the UNM government, majority of claimants. duress, is to seek an interpretation of apply to me.” According to the Prosecu- Another hurdle under the current law the law views the durass as a continuing tor’s Offi ce, following this statement is that if a claimant tries to claim that his wrong, thereby circumventing the statute they received 20,000 complaints in three or her property was misappropriated of limitations and allowing cases to be months, including 9,350 claims seeking due to an illegal criminal prosecution, considered for longer. the return of property or assets. he or she needs to overturn the original For example, the Georgian Young Generally claimants allege that they verdict of that prosecution in order for Lawyers’ Association (GYLA), are

44 OCTOBER-NOVEMBER 2013 Investor.ge

representing the former shareholders existing situation and so will actually entitlement of the new owner, if acquired of JSC Tbilaviamsheni (TAM), a major create more cases than it resolves. in good faith, may prevail over the title of Georgian aerospace development and A different mechanism for correction the original owner and the original owner manufacturing company. The sharehold- of alleged former-government wrongdo- would be forced to seek damages from ers claim that they were forced to gift ing is the draft law on aTemporary State the state. This also highlights the fact that their shares to the state, under conditions Commission on Miscarriages of Justice the biggest problem with any restitution of duress, in June 2010. Under a standard proposed by the Ministry of Justice of remedy is the cost to the state of making interpretation of the statute of limitations Georgia, with assistance from the Coun- restitutions and paying compensation. one might expect that they could not cil of Europe. This has received the back- The Ministry of the Economy has esti- pursue a claim as more than one year ing of the ruling coalition. Some govern- mated that the claims could total $3 to $4 has passed since the original duress. ment offi cials view this law as pivotal in billion. If direct restitution is no longer However, GYLA will assert that duress curing the miscarriages of justice. They possible, then the government would be exerted against former TAM sharehold- assert that the proposal entails effective forced to pay compensation. This could ers only ceased in October 2012 with the remedy for those seeking restitution re- be a huge burden on the state. changes in the Government of Georgia. dress. But, in its current form, this draft Even if direct restitution is possible This case is particularly important applies exclusively to criminal cases, and then it would interfere with the current because, if the shareholders represented will not provide restitution for pending use of the asset. This could also be by GYLA win, then they would set civil and administrative claims. Fourth, disruptive to the government and the a legal precedent for a broader inter- if no effective restitution mechanism is economy. Balancing the needs of jus- pretation of duress which many other forthcoming then this may also force tice, practicality and the economy will claimants could also use. Third, many many claimants to seek a remedy from be diffi cult. To ignore these claims risks claimants are waiting for changes in the the European Court of Human Rights political retribution at the ballot box, law to provide them with a mechanism (ECtHR). This could be damaging to the could create negative decisions of the for redress. Two different legislative reputation of the country, particularly at European Court of Human Rights, and drafts are under consideration. One a time when Georgia is highlighting a perhaps more importantly, could ensure proposal on restitution was put forward renewed interest in judicial and legal re- continued distrust and dissatisfaction by Paata Kiknavelidze, a majoritarian form. If there are suffi cient cases it could with due process and the rule of law in MP from the Georgian Dream coalition, even risk Georgia’s suspension from the the country. Conversely, full investiga- and come before the Parliament this fall. Council of Europe. Underpinning all of tion of the cases could be fi nancially crip- This law would provide restitution or these issues is a set of problems faced pling to the state, could undermine trust compensation in any situation where the by the state. While the Georgian Dream in government property transactions and claimant could show that he or she had coalition has committed in its election could mire the government in disputes transferred the asset to the government manifesto to the concept of restitution, it of historic proportions. But, whichever free of charge. This law, however, faces faces a range of practical hurdles. Prop- direction it chooses to take, how the new gloomy prospects of successful adoption. erly investigating all of these cases would administration resolves this issue will be Government representatives, including place a huge burden on the Prosecutor’s one of the key standards by which it will Alexander Baramidze, a Deputy Minister Offi ce, which, according to Archil Kbi- be judged. of Justice, and Dimitri Kumsishvili, a lashvili, simply lacks the manpower to This report is made possible by the Deputy Minister of Economy and Sus- do this work. In addition, an independent generous support of the American people tainable Development ,say the draft is criminal investigation of these claims through the United States Agency for too wide, unclear and unworkable and will be diffi cult, as Kbilashvili admits International Development (USAID), its current form would be very dangerous that nearly all prosecutors are themselves EWMI and EPF, within the Judicial to the interests of justice. Lawyers for implicated in the alleged misappropria- Independence and Legal Empowerment Transparency International (TI) Georgia, tion of assets. Project. The contents are the responsibil- Eka Bokuchava and Gia Gvilava, have Another problem is what to do if the ity of AmCham and do not necessarily also pointed out that the draft does not property was subsequently sold or trans- refl ect the views of USAID, the United take into account the complexities of the ferred to a third party. The ownership States Government, EWMI or EPF.

OCTOBER-NOVEMBER 2013 45 Investor.ge

Representational Expenses in Georgia

Paying for potential clients and customers to visit facilities or countries in which they are considering investing, dining with them, and putting on other promotional activities are a natural and important part of many businesses in many different sectors of the economy.

ALEXANDER MELIN

rticle 8 of the Georgian Tax Code provides a defi nition of representational expenses using an enumerated list. AArticle 106 exempts certain expenditures from deduc- tion; two that are worth mentioning are entertainment costs and costs not related to economic activity. The problem with these provisions is threefold: legitimate representational expenses can occasionally include items be- yond the enumerated list (e.g. dining), “entertainment” is not defi ned, and costs not related to economic activity are disal- lowed from deductibility. Why are these of concern? First, using a rigid black-letter defi nition for representational expenses may exclude legitimate representational expenses not covered by the enumerated list. Second, entertainment is also expressly allowed to be deducted under the laws of many countries, but even more troublesome isthat because entertainment remains undefi ned, it is diffi cult for companies to gauge compliance with the law. This is especially important since entertainment expenditures (like representational expenses) are generally subject to VAT under Article 173 of the Georgian Tax Code. The third concern is of particular import to NGOs and non-profi ts. According to Tamar Gvaramadze at The Georgian Young Lawyers’ Association, NGOs cannot deduct representational costs like a business because they are not “costs related to economic activity.” Al- lowing them to deduct their representational costs would allow them to better fulfi ll their missions and be socially equitable. Not all representational expenses that qualify for deduction can necessarily be deducted, and this is another area of possible improvement. Georgia employs a bright-line rule: Article 116 of the Georgian Tax Code caps tax-deductibility of representa- tional expenses at 1 percent of turnover in a tax year. Such a rule provides a somewhat arbitrary fi gure and appears to be an imitation of similar “hard-cap” laws elsewhere in the countries of the former Soviet Union like Russia, Kazakhstan and Armenia. Belarus and Ukraine, on the other hand, have

46 OCTOBER-NOVEMBER 2013 Investor.ge

amended their rules in recent years to ting a deduction of a set percentage of employees where there is corroborating allow absolute deductibility of repre- all representational expenses, e.g. at 50 evidence that the invoice is actually a sentational expenses subject to strict percent or 75 percent. This assures equity company, not employee, expense. substantiation requirements. However, across business sectors and discourages In conclusion, Georgia’s framework in practice such requirements are exclu- unnecessary representational expense could be improved byproviding for a sionary and the latter two rank poorly spending – especially at the end of tax more principle-based rather than black- in Ease of Paying Taxes category of the year – because there will be at least letter determination about whether World Bank (WB) Ease of Doing Busi- some tax burden associated with such certain expenses are representational ness Rankings, suggesting that this is a expenditures. (or entertainment) and substantiated dubious model. Substantiating representational ex- by usingwell defined criteria; by ex- One interesting variant is in the Phil- penses also is diffi cult in Georgia; Article tending the deduction to non-profit ippines, where manufacturers of goods 105 of the Georgian Tax Code states that entities; by expressly allowing elec- are accorded a one percent deduction all expenses must be documented, but tronic documentation; and, fi nally, by as a function of turnover, producers of it is Article 72 that tells taxpayers what critically reevaluating the fairness of the services are accorded two percent, and constitutes a suffi cient document: a hard current one-percent-cap-as-a-function-of those companies that are engaged in copy is required, and must identify the turnover-scheme. Georgia improved this both sectors use a proportional sliding parties, i.e. be directly invoiced. Better year in its Ease of Paying Taxes category scale. Yet, although countries employ a would be to expressly allow electronic of the WB’s Ease of Doing Business multitude of nuanced schemes, probably documentation – the way of the future Survey – but there is always room for most common internationally is permit- – and to allow deduction of invoices to improvement.

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OCTOBER-NOVEMBER 2013 47 Investor.ge

Singer Georgia: A Touch EMIL AVDALIANI Thousands of Machines, of the West in the Russian Millions of Rubles redited with ending women’s Empire servitude to sewing around the Cworld, the Singer Sewing Ma- Singer Sewing Machines, a rags-to-riches American success story, has deep chine also introduced production, sales, roots in the South Caucasus where it was one of the largest Western foreign and marketing in the Russian Empire on direct investments of its time. a scale previously unknown in the region. Singer Sewing Company was found- ed in the United States by Isaac Mer- rittSinger (1811-1875) who exhibited his fi rst creation in 1851. In the 1880s the company spread its offi ces all over the continental Europe. The sewing machine giant opened its fi rst store in the empire in 1897 at a high point of Russian-American trade. Two years later the fi rst Singer manufactur- ing plant opened near Moscow and, as it expanded, plants were opened in Tbilisi and Baku. Singer was one of the largest for- eign enterprises on Georgian soil: no other company had such a large number of workers — or agents, as they were known in the Russian Empire. Accord- ing to statistics compiled just before the start of World War I, at the height of production, there were 30,328 Singer employees stretching the length of the empire – 800 of whom were in the South Caucasus, 388 of those in Georgia. The Singer sewing machine was quick to catch on in Georgia, where people were eager to save time – and fl aunt the fact they could afford the 75-83 ruble price tag — ordinary salary was just 3-4 rubles per month. In 1905, the fi rst year statistics were available, 8,344 sewing machines were sold — 586,317 rubles worth of sales — in the South Caucasus. By 1912, sales had nearly doubled in the region to 15,675 sewing machines, worth 1.38 million rubles.

48 OCTOBER-NOVEMBER 2013 Investor.ge

The popularity of Singer sewing ma- chines withstood even political instabil- ity – the uptick in demand was unabated despite political unrest that even threat- ened Singer management in Georgia. Beginning in 1906, revolutionary views spread among the Singer work- ers in Tifl is (Tbilisi). Several German directors were forced to fl ee; one chief executive was murdered on December 12, 1906. His successor managed to alleviate the situation. Nevertheless, the central Singer offi ce in Hamburg decided to put the Tifl is department under its direct con- trol. This continued right to the October Revolution of 1917 when Singer was forced out by the Bolsheviks.

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OCTOBER-NOVEMBER 2013 49 Investor.ge

language, history and culture. “It is very important that theater for MY CITY, TBILISI: Georgians was instrument and a weapon to fi ght against the Empire, to save your Reviving the Georgian own national face and ideas, of course,” Salitashvili stressed. Just three years after Georgia de- Stage clared its independence in 1917, the new government created the theater institute, For the past year, Investor.ge has brought you a series of six guides where legendary Georgian directors like about Tbilisi, from what to do with children to a tour of the city’s 1930s KoteMarjanishvili and SandroAkhmeteli architecture. For the next six issues, Investor.ge will speak with locals about helped infl uence the Georgian school of different neighborhoods and events in the city in a six-part series to bring acting and stage. The traditions crafted Tbilisi’s grand history, graceful streets, and great cultural life alive for all by Marjanishvili, Akhmeteli and their readers, whether local, expat, or visitor. Investor.ge welcomes readers’ input; if you have any ideas or suggestions for the series, please contact the editor: students created a basis that produced [email protected] some of the most famous actors and directors – in fi lm and theater- in the Soviet Union. Salitashvili noted that the Georgian method for acting takes the best of the legendary Russian school and im- proves on it by adding Georgians’ ability to evoke strong and sincere emotions. Today, theater critics from around nce the star of the region, its language and culture. the world are beginning to appreciate Georgian theater struggled for “In the middle of the 19th century, the skills and craftsmanship of Georgian Osurvival after the collapse of the Georgian language was not the state actors and directors on an international the Soviet Union: it lost some of its big- language. And everywhere, even in scale. Last year, Salitashvili’s staged ver- gest talent as actors, actresses, directors churches for instance, the mass was in sion of “Our Town” was honored as one and others left for opportunities abroad. Russian – all newspapers, everything of the best shows in the London National But today, the Georgian theater world was in Russian language. At that time Student Drama Festival. is enjoying a comeback, with young ac- a Georgian playwright decided to make Salitashvili said that more contacts tors and experienced directors receiving theater to save the Georgian language,” with foreign universities and festivals accolades in international festivals and he said. will help the university and Georgian with audiences at home. “The most important meaning of theater continue its comeback. For the Georgian theater is thought to date Georgian theaters and the beginning audience, he said, watching a Georgian back to at least the middle ages; remnants of professional theater was to save the play is a bit like peeking into a window of a stage were found at the Uplitskhe Georgian language.” the nation’s culture. ruins near Gori. But the roots of modern That playwright, GiorgiEristavi, was “I think that fi rst of all theater is the Georgian theater are clearer, noted direc- killed by the Tsar’s government not long type of art where you can see the face of tor GiorgiSalitashvili. after he helped produce a Georgian lan- the nation, you can see there the emotion Salitashvili, a prize winning director guage production in 1851, at what is now of this nation, and the artistry of this and lecturer at the ShotaRustaveliThe- the First School on Rustavali Avenue, nation – the painting and the musical atre& Film State University in Tbilisi, Salitashvili said. tradition together,” he said. noted that modern Georgian theater can Eristavi’s idea, however, took root. “[Despite the wars and confl ict]we be traced back to the days of the Rus- Other Georgian intellectuals like Ily- did not lose the spirit of art. War has been sian Empire, when Georgia – as a part aChavchavadze also saw the potential of our history, really it has been. But we of the empire – was in danger of losing the stage to help Georgians preserve their were [creating] all the time…”

50 OCTOBER-NOVEMBER 2013 Investor.ge

OCTOBER-NOVEMBER 2013 51 CONTENT

58 AmCham’s Back to Business Cocktail Party for Members

53 AmCham Members on Senior 55 AmCham Meets Banks, IFIs 60 Social: Sheraton Metechi Executive Panel at ISPI EMEA and Other Agribusinesses Hosts Oktoberfest Conference to Discuss New Agriculture Ownership Law 60 Social: COATS 53 Meeting with US State and Treasury Department 55 Agriculture Committee Mets 61 Social: Asseco Sponsors Polish Representatives on US to Discuss Implications of New - Georgian Outdoor Movie Sanctions Rules on Agriculture Land Theatre Ownership 53 NDI’s Luis Navarro Presents 61 Social: American Friends of Latest Political, Economic 55 Rule of Law Project to Track Georgia Open’sNikozi Art Survey Data Property Dispute Cases Education and Rehabilitation Center 54 GNIA: Investment Up in 2Q, 56 Membership Directory Outlook Strong for FDI Post- 62 Board of Directors Election 58 Social: AmChamBack to Business Cocktail Party 55 CLT Committee Highlights Potential Economic Implications from Several Draft Laws

52 OCTOBER-NOVEMBER 2013 AmCham Members on Senior Executive ecutive panel discussion on performance improvement at the ISPI EMEA 2013 Panel at ISPI EMEA Conference conference on September 28 in Tbilisi. Respected senior executives represent- ing academia, telecommunications and heavy industry shared their thoughts and insights with conference participants on the challenges and rewards of managing and improving performance culture in the real world of their business experi- ence within emerging markets. The conference participants had the opportunity to hear from and interact with the panel of senior executives in a special two-hour session. The ISPI EMEA conference was organized by the International Society for Performance Improvement (ISPI), Chemonics/USAID in partnership with AmCham Georgia and aimed to help AmCham Vice-President Michael Lee of Magti and AmCham member companies improve individual and Cowgill of Georgian American Univer- Farooq Siddiqui of Rustavi Metallurgi- organizational productivity and total sity, AmCham Chairman Emeritus David cal Plant participated in the senior ex- performance results in the workplace.

Meeting with US NDI’s Luis Navarro Presents Latest Political, State and Treasury Economic Survey Data Department Representatives on National Democratic Institute’s Country Director Luis Navarro outlined US Sanctions the latest trends in politics and the Geor- gian economy in a special, pre-election At a private lunch meeting on Thurs- presentation for AmCham members at day, September 18, A mCham representa- the Georgian American University on tives from the banking, audit and legal September 27. sectors met with high level delegates During the hour-long presentation from the U.S. to learn about Iranian sanc- and extensive questions period, Mr. the Georgian Dream coalition govern- tions and how to best comply on both Navarro provided a candid assessment ment, although they remain skeptical direct and indirect sanctions. of Georgian voters’ preferences head- about Prime Minister Bidzina Ivanish- The delegation was led by David ing into the campaign for the October vili’s plans to leave offi ce early. Mortlock, U.S. State Department Deputy presidential election. Presidential candidate Giorgi Mar- Sanctions Coordinator, and a delega- The survey, based on 3,838 respon- gvelashvili remains a solid favorite tion of four from the Treasury and State dents around the country, is part of NDI’s for the electorate, although both David Departments. The goal of the delegation regular polling program. Based on the Bakradze, the United National Move- visit to Georgia is to engage governments changes in how voters’ are accessing the ment candidate, and Nino Burjanadze, and companies to help raise awareness government and economic performance, have seen an uptick in support over the on sanctions and compliance. Georgians are still largely supportive of past several months.

OCTOBER-NOVEMBER 2013 53 Giorgi Pertaia, the head of the Georgian GNIA: Investment Up in National Investment Agency, told AmCham members that there is growing interest in 2Q, Outlook Strong for Georgia from foreign investors and invest- ment fi gures are inching up after a slow start FDI Post-Election this year. Pertaia was speaking at the September roundtable event on September 11 at the Sheraton Metechi Palace hotel. The meeting, a regular event for AmCham members, was opened by US Ambassador Richard Norland, who provided a frank, off-the-record assess- ment of current political and economic events in the country. Following the ambassador, Pertaia outlined major pluses – and minuses – that investors watch when they are considering coming to Georgia. While investors are put off by political tension between the opposition and the new ruling coalition, there is a sense of renewed interest in the country since Prime Minister Bidzina Ivanishvili has successfully reengaged Moscow and opened the market for Georgian wine. Russian investors are increasingly in- terested in coming to Georgia, Pertaia noted. Ivanishvili’s new investment fund – and the government’s restructured sovereign wealth fund – are gearing up to start, a development that should also attract investment, he said. The investment fund, which has $6 billion to spend over the next fi ve years, is seek- ing “bankable” projects that it can build up and exit from. The sovereign wealth fund, formally the Partnership Fund, will invest in less bankable projects that are a priority for the government. Pertaia also noted that GNIA is working with the government to restart international advertisement for Georgia in focused markets to educate potential investors and tourists about the country. Other announcements included introduc- ing the new head of the USAID EPI project, Nika Chachkhiani, and a special invitation for the “Improving Performance in Emerging Markets” conference from September 26-28.

54 OCTOBER-NOVEMBER 2013 CLT Committee Highlights AmCham Meets Banks, IFIs and Other Potential Economic Implications Agribusinesses to from Several Draft Laws Discuss New Agriculture Ownership Law

The Agribusiness and CLT Com- mittees met jointly on September 26 to discuss implications of new rules on agricultural land ownership. The meeting was attended by representatives of Geor- gian banks and international fi nancial institutions who shared their opinions on the moratorium imposed by recent amendments. The attendees discussed concerns about the unanticipated out- comes the law presented and debated its possible negative impact on foreign investments. AmCham continues work- ing on this issue at the highest levels of government. The AmCham Commercial Law and Safeguard Measures in Trade. The com- Tax (CLT) Committee met on Thursday, mittee members also reviewed possible Agriculture Committee September 26 to discuss the moratorium changes in Alternative Tax Audit system Meets to Discuss on foreign ownership of agricultural and relayed the information from the Implications of New Rules land. AmCham continues to lobby its Minister of Finance on the recent Am- members’ interests on this issue. To date Cham meeting on this issue. on Agricultural Land the committee has met with the Ministers The CLT committee meeting was fol- Ownership of Economy and Finance, and with the lowed by the Competition Law Working Speaker of Parliament. Group meeting where some outstanding The AmCham Agriculture Com- AmCham is concerned about several points in the fi nal draft of the law on free mittee met on September 6 to discuss unintended consequences to IFIs and trade and competition were summarized. recently passed amendments that restrict banks, and is highly concerned about the AmCham and TI are in the fi nal stages foreign ownership of Georgian agricul- effect on FDI. of agreement before submission of joint ture land. Also discussed was the draft law on comments to the Ministry of Economy. The meeting, led by Committee Co-Chair David Lee, included a frank discussion of how the new amendments Rule of Law Project To Track Property could affect foreign direct investment in Dispute Cases the agriculture sector, as well as banking, hydro projects and businesses in other AmCham’s Commercial Law and committee meeting at the AmCham economic spheres. Tax Committee discussed the Rule of office on August 23. The committee The committee decided to present its Law project’s ongoing study of property also heard a presentation by Alexander fi ndings to the AmCham board during dispute cases, as well as the debate sur- Melin on travel expense deductibility the September 10 board meeting and rounding the foreign ownership of agri- in Georgia and recommendations on determine the Chamber’s position on cultural land issue, during the monthly deductibility of representative expenses. the issue.

OCTOBER-NOVEMBER 2013 55 AmCham Company Members as of October 2013

PATRON MEMBERS Chartis Europe S.A. Georgia Gryphon - FK Sheraton Metechi Palace Hotel Branch 8603 Westwood Dr. Suite 310 20 Telavi St. BP Exploration Georgia 7 Bambis Rigi St., 0105 Vienna, Va 22182, USA Tel: 2772020; Fax: 2772120 38 Saburtalo St. Tel: 2439025; Fax: 2439026 Tel: 1 703 992 8664 www.sheraton.com/tbilisi Tel: 2593400; Fax: 2593488 www.chartisinsurance.com www.gryphonairlines.com www.bp.com T&K Restaurants (McDonald’s Chemonics International Georgia) 6a N. Ramishvili St., 0179 GT Group Exxon Azerbaijan Ltd 48 B. Cholokashvili St. 1 Dzmebi Kakabadze St. Landmark Suite 300, 95 Nizami St., Tel: 2234311; Fax: 2234309 Tel: 2921246; Fax: 2251422 www.chemonics.com Tel: 2740740 Baku, AZ1010 Azerbaijan www.gtgroup.ge www.mcdonalds.ge Tel: (994-12) 4982460; Fax: (994-12) Dechert Georgia LLC 4982472 7th fl oor, Pixel building, TBC Group Iberia Refreshments, JSC www.exxonmobil.com 34 Chavchavadze avenue 7 Marjanishvili St. Tetri Khevi Hesi District, Orkhevi Tel: 2334719 Tel: 2272727; Fax: 2228503 Tel: 2241091; Fax: 2241090 PricewaterhouseCoopers www.dechert.com www.tbc.com.ge www.pepsi.ge 7 Bambis Rigi St., 0105 Tel: 2508050; Fax: 2508060 Deloitte TBSC Consulting www.pwc.com/ge 36a, L. Asatiani St., 0105 KPMG CIS Ltd. Tbilisi Branch 3, Rapiel Eristavi Street, IV Floor Tel: 2244566; Fax: 2244569 3rd Floor, Besiki Business Center, Tel: 2959019; Fax: 2420215 UGT www.deloitte.ge 4 Besiki St., 0108 www.tbsc.ge 17a Chavchavadze Ave., 7th fl oor Diplomat Georgia Tel: 2935713; Fax: 2982276 Tel: 2220211; Fax: 2220206 65, Kakheti Highway www.kpmg.ge www.ugt.ge Tel: 2984950 CORPORATE B MEMBERS www.diplomat.ge Maersk Georgia LLC Assecco Georgia 6 Khetagurov St. 7 Bambis Rigi St. CORPORATE A MEMBERS DLA Piper Georgia LP Tel: 2200800; Fax: 2200815 Tel: 2720901 10 Melikishvili St. Alliance Group Holding, JSC www.maerskline.com www.assecco.ge 47/57 M. Kostava St., 0179 Tel: 2509300; Fax: 2509301 Tel: 2424181; Fax: 2998112 www.dlapiper.com Magticom Aliance Georgia Ltd www.agh.ge Economic Prosperity Initiative 5 Politkovskaya St. 33 Samurzakano St. (EPI) Tel: 2243773 Avon Cosmetics Georgia LLC Tel: 2171717; Fax: 2171171 6 Samghebro St. www.magticom.ge www.groupaliance.com 117 Tsereteli Ave. Tel: 2438924 Tel: 2226805; Fax: 2226806 www.epigeorgia.com www.avon.com Marriott Hotels, Resorts & Suites GZ American Academy in Tbilisi EY 13 Rustaveli Ave. Lisi Lake surrounding territory F H Bertling Georgia Ltd. 44 Kote Abkhazi St. Tel: 2779200; Fax: 2779210 Tel: 2227441; Fax: 2227889 10 Shevchenko St. Tel: 2439375; Fax: 2439376 www.marriott.com www.aat.ge Tel: 2252287 www.ge.ey.com APM Terminals www.bertling.com Microsoft Georgia LLC FINCA Georgia 52 D. Aghmashenebeli St., Poti 34 Chavchavadze Ave. 71 Vazha-Pshavela Ave. 3rd fl . Tel: 493-20660; Fax: 493-20688 Betsy’s Hotel / Prosperos Books Tel: 2970123 Tel: 2207410 www.apmterminals.com 32/34 Makashvili St. / 34 Rustaveli www.microsoft.com Ave. www.fi nca.ge Bagebey City Group Tel: 2987624, Fax: 2923592 Frontera Resources Georgia MSD (Schering Plough Central 49b Chavchavadze Ave. www.betsyshotel.com 12 Paliashvili St. East AG) Tel: 2913152; Fax: 2290169 Tel: 2252412 Offi ce 1/3, 3rd Floor, 1 Tabidze St. www.bagebeycity.com Booz Allen Hamilton, Inc. www.fronteraresources.com 4 Freedom Sq. Tel: 2953388 Tel: 2481348; Fax: 2481349 Georgian American Alloys, Inc. www.merck.com Baker Tilly Georgia Ltd. www.boozallen.com 200 S Biscayne Blvd Suite 5500, Meidan Palace, 44 Kote Abkhazi St. Miami FL 33131 USA NRC Tel: 2505353; Fax: 2505353 British American Tobacco Tel: (1)3053757560 9 Khvichia St. 0160 www.bakertillyinternational.com 71 Vazha Pshavela Ave. www.gaalloys.com Tel: 2244141, 2382825 Tel: 2157500/01/02; Fax: 2157503 www.nrccintl.com Bank Constanta www.bat.com Georgian American University 139 Tsereteli Ave. 8 Aleksidze St. Tel: 2401401 Pfi zer Luxembourg SARL Catoni & Co. Georgia Tel: 2206520; Fax: 2206519 www.bankconstanta.ge Representation Offi ce in Georgia 3 Lesia Ukrainka St. Apt.7 www.gau.ge 58 I. Abashidze St. Tel: 2989230; Fax: 2922264 Bank of Georgia Georgian Audit & Consulting Tel: 2252986 www.hapag-lloyd.com 3 Pushkin St. Company www.pfi zer.com Axis Business Pl, 2 Gamrekeli St. Tel: 2444134; Fax: 2983269 Caucasia Trading Tel: 2904522; Fax: 2904523 www.bog.com.ge Philip Morris Apt 11, Bld 7, 16 Krtsanisi St. www.gacc.com.ge Tel: 14433050083; Fax: 1 Tabidze St. Bank Republic 14433788388 GMT Group Tel: 2439001; Fax: 2439005 2 Gr. Abashidze St. www.caucasiatrading.com 4 Freedom Square www.philipmorrisinternational.com Tel: 2925555; Fax: 2925544 Tel: 2988988; Fax: 2988910 www.republic.ge Caucasus University www.gmt.ge ProCredit Bank 77 Kostava St., Bld.6, 4th fl . 154 Agmashenebeli Ave. Basis Bank JSC Gosselin Moving Georgia Tel: 2377777; Fax: 2313226 Tel: 2202222; Fax: 2202222-2226 1 Ketevan Tsamebuli Ave. 3 M/D, Didi Digomi www.cu.edu.ge www.procreditbank.ge Tel: 2922922; Fax: 2986548 Tel: 2596601/02/03; Fax: 2596600 www.basisbank.ge CGS Group www.moving.gosselingroup.eu 4 Freedom Sq. Radisson BLU Iveria Hotel Batumi Oil Terminal Grant Thornton LLC 1 Rose Revolution Sq. Tel: 2433410 3 Mamardashvili St. GMT Plaza, 4 Freedom Sq. www.cgsgroup.ge Tel: 2402200; Fax: 2402201 Tel: 2241818; Fax: 2241817 Tel: 2604406 www.radissonblu.com www.grantthornton.ge www.batumiport.com CH2M Hill 5th Floor, GMT Plaza, Freedom Greco Group SEAF Management LLC BDO LLC Square 1 Nutsubidze St. 7, Niko Nikoladze St. II Floor. Pixel Center 8th fl oor Tel: 2474040; Fax: 2470210 Tel: 2393138; Fax: 2311107 Tel: 2998115; Fax: 2923533 Tel: 2545845; Fax: 2399204 www.ch2m.com www.greco.ge www.seaf.ge www.bdo.ge

56 OCTOBER-NOVEMBER 2013 BGI Advisory Services Georgia Globalink Logistics Group New School - Int-l House VD Capital 18 Rustaveli Ave., II fl oor 14-A Shartava St, 2nd fl , Suite 7 35 Tskneti Highway, Bagebi 77 Kostava St., 0175 Tel: 2997292; Fax: 2996615 Tel: 2253262; Fax: 2439002 Tel: 2231728 Tel: 2363672; Fax: 2364302 www.bgi.ge www.globalinkllc.com www.newschoolgeorgia.com Wimm-Bill-Dann Georgia Ltd BLB (Business Legal Bureau) Goodwill (G-Mart) Nodia, Urumashvili & Parnters Village Ponichala, Tbilisi 0165 1 Shevchenko St, Apt.1 1 Parnavaz Mepe Ave. 0131 Offi ce #28, IV Block, Tel: 2475290 Tel: 2995797 Tel: 2243673; Fax: 2243673 71 Vazha-Pshavela Ave. www.wbd.ru www.blb.ge www.goodwill.ge Tel: 2207407 www.nplaw.ge Wings and Freeman Capital BLC Law Offi ce Gvinadze & Partners LLC Green Building, 6, Marjanishvili St. 4 Gudiashvili Sq. 44 Kote Abkhazi St, Tbilisi 0105 Orifl ame Georgia Tel: 2940051; Fax: 2940053 Tel: 2922491; Fax: 2934526 Tel: 2438970, Fax: 2438971 57 Uznadze St. www.wfcapital.ge www.blc.ge www.gvinadzeandpartners.ge Tel: 2911064; Fax: 2911068 www.orifl ame.ge Wissol Georgia Capto Group Holiday Inn 74b Chavchavadze Ave. 67 Aghmashenebeli Ave. 1, 26 May Sq., 0171 Overall Management Group Tel: 2915315; Fax: 2915615 Tel: 2558899 Tel: 2300099 (OMG) Inc. www.wissol.ge www.rsmcapto.ge www.hi-tbilisi.com 29 Marjanishvili St. Tel: 2436052; Fax: 2436052 Casino Adjara Hualing International Special 1, 26 May Sq. Economic Zone Paine Stevens LLC NON-PROFIT ORGANIZATIONS Tel: 2335519; Fax: 2334520 25 Apt. 34/36 Kobuleti St. 1 Ivane Javakhishvili Sqr. Agricultural University of www.casinoadjara.com Tel: 591005900 Tel: 2903211, Fax: 2903291 Georgia www.hualing.cn www.painestevens.com Caucasus Online LLC 13 km. David Aghmashenebeli Alley, 71 Vazha-Pshavela Ave. Imedi TV Policy and Management 0159 Tel: 2480048; Fax: 2480048 51 Ljubljana St. Consulting Group (PMCG) Tel: 2594901 www.caucasus.net Tel: 2464646 57 Uznadze St., 4th Floor www.agruni.edu.ge www.imedi.ge Tel: 2921171 Château Mukhrani, J.S.C. www..pmcg.ge American Friends of Georgia III fl oor, Didube Plaza, Imperial Tobacco International 77 Nutsubidze St. 116 Tsereteli Ave. Limited Representative Offi ce in Publicis Hepta Tel: 2397174; Fax: 2388495 Tel: 2201878; Fax: 2201878; Georgia 17 V. Jorbenadze St. www.afgeorgia.org www.mukhrani.com 12 Dariali Turn, 0162 Tel: 2745672; Fax: 2745671 Tel: 2232438 www.publicishepta.com CARE International in the City & Co. www.imperial-tobacco.com Caucasus 4 Besiki St. Rakeen Development LLC 37 Tsagareli St., 0162 Tel: 2920921 JTI Caucasus 20 Telavi St. 5th Floor Tel: 2291941 VII Floor, Pixel Business Center, Tel: 2933393; Fax: 2933993 www.care-caucasus.org.ge Crystal, MFO JSC 34 Chavchavadze Ave. www.rakeen.ge 72 Tamar Mepe St. Kutaisi, 4600 Tel: 2604111 East West Management Institute, Tel: 431253343 www.jti.com Rustavi Azot Ltd. Inc (EWMI) www.crystal.ge 2 Mshvidoba St. Rustavi-3702 3rd Floor, 5 Marjanishvili St. Kordzahia, Jgenti Law Firm Tel: 995341270900 Tel: 2505404; Fax: 2202441 David Tvildiani Medical Univesity 10 Petriashvili St. www.azot.ge www.ewmi-gpac.org 2/6 Ljubljana St. Tel: 2921878 Tel: 2516898, Fax: 2527196 www.kjlaw.ge Rustavi Steel LLC Eurasia Partnership Foundation www.aieti.edu.ge 12 Y. Gagarin St., 3700 Rustavi 3 Kavsadze Str. KSB Bank Tel/Fax: 260 66 99 Tel: 2253942; Fax 2252763 (ext. 112) Dexus 3 Ketevan Tsamebuli Ave. www.rmp.ge www.epfound.org 150 David Agmashenebeli Ave. Tel: 2550000, Fax: 2507707 Tel: 2207887 www.ksb.ge Silknet Ltd. www.dexus.ge 95 Tsinamdzgvrishvili St. Free University of Tbilisi Legal Partners Associated LLC Tel: 2910345; Bedia St., 1st Micro District Dika Ltd. Offi ce #203, Besiki Business Center, www.silknet.com Nutsubidze Plateau, 0183 40 Rustaveli Ave. 4 Besiki St. 0108 Tel: 2200901 Tel: 2990994; Fax: 2990994 Tel: 2200203; Fax: 2250458 Simple as That LLC www.freeuni.edu.ge www.lpa.ge 3rd Floor, 36a Lado Asatiani St. GeoCapital Microfi nance Tel: 2945568 Georgian Wine Association Organization Ltd. Liberty Bank JSC www.simple-georgia.com 5 Marjanishvili St. 5 Tsereteli St, Kutaisi 74 Chavchavadze Ave. Tel: 2505456 Tel: 431 267070 Tel: 2555500; Fax: 2912269 SRG Investments LLC www.geocapital.ge www.libertybank.ge 49a Chavchavadze Ave, 3rd fl oor International School of Tel: 2253581 Economics at TSU Luca Polare Geocell www.silkroad.ge 16 Zandukeli St. 54 Oniashvili St. 3 Gotua St. Tel: 2507177; Fax: 2984815 Tel: 2990399 Statoil Tel: 2770100, ext. 7435; www.iset.ge GMT Plaza, 4 Freedom Sq. Fax: 2770119 www.lucapolare.com Tel: 2471002 QSI International School of www.geocell.ge Marilisi Jewelry House www.statoil.com Georgia 8 Lebanidze St. GeoEngineering LLC Village Zurgovani, Tbilisi Tel: 577797919 Teliani Valley JSC 15a Tamarashvili St. Tel: 2537670; Fax: 2322607 www.marilisi.com 2 Marshal Gelovani Ave. www.qsi.org Tel: 2311788; Fax: 2311787 Tel: 2313245; Fax: 2313249 www.geoengineering.ge Mgaloblishvili Kipiani Dzidziguri www.telianivalley.com Salvation Army (MKD) 16 Ikalto St. Georgian Airways 71 Vazha-Pshavela Ave., Theco Ltd. Tel: 2333786; Fax: 2330227 12 Rustaveli Ave. Offi ce 24 16 Chikovani St. www.salvationarmy.org Tel: 2999730; Fax: 2999660 Tel: 2553880/81; Fax: 2973884 Tel: 592107515 www.georgian-airways.com www.mkd.ge www.tbilisia.ru Transparency International Georgian Resources Company Mina JSC Thermarsenal Ltd. Georgia 3-5 Kazbegi St. 4 Besiki St. 101, Tsereteli Ave. 26 Rustaveli Ave. 0108 Tel: 2936676 Tel: 2449981/82/83; Fax: 2449980 Tel: 2473112 Tel: 2932129 www.georgianresources.com www.mina.com.ge www.arsenal.ge www.transparency.ge

OCTOBER-NOVEMBER 2013 57 AMCHAM CELEBRATES

Back to Business Cocktail Happy Hour

On September 13, AmCham hosted its annual Back To Business happy hour reception at the Funicular Restaurant.

The guests were welcomed by AmCham President Sarah Williamson, who introduced the U.S. Embassy’s new economic team, KG Moore, the Deputy Chief of Political and Economic Affairs and Senior Economic/ Commercial Officer, and Anson P. McLellan, the embassy’s new economic officer. Ms. Williamson also briefly outlined the Chamber’s plans for the rest of the year.

The reception, which featured the Funicular’s signature cocktails and canapes, was attended by many AmCham member companies, as well as members of the board.

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AMCHAM CELEBRATES

OCTOBER-NOVEMBER 2013 59 AMCHAM CELEBRATES

Sheraton Metechi Palace Hosts Oktoberfest From September 28 to October 3, Sheraton Metechi Palace Hotel hosted a traditional Oktoberfest, treating guests to live music, Bavarian cuisine and beer.

COATs Hosts Annual Charity Event C.O.A.T.S (Clothing Others Against The Snow) was held on Saturday, September 28th, in the Radisson BluIveria Hotel. Founded by Michele Dunn in 2010, each year, local schools and corporations have donated everything from warm winter coats to scarves, socks, and shoes. This year 281 children ages 6-18 years – and more than 300 children in need will be delivered a bit of winter warmth before the snow arrives.

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AMCHAM CELEBRATES

Asseco Sponsors Polish - Georgian Outdoor Movie Theatre Ambassador AndrzejCieszkowski and Tbilisi Mayor Gigi Ugulava opened the first show in Tbilisi on September 24.

G

AFG Opens Nikozi Education and

The Tbilisi Premiere of In Art Center in the Bloom The director, producer and the Conflict stars from In the Bloom, joint Zone Georgian-German-French film, hit the red carpet in Tbilisi on September 19 at AmiraniMovie Theater.

OCTOBER-NOVEMBER 2013 61 Sarah Williamson, PRESIDENT In Tbilisi since June 1998, Sarah Williamson is the co-owner and Vice President of United Global Technologies (UGT), the largest IT company in Board Of Directors 2013 Georgia.

R. Michael Cowgill, Irakli Baidashvili, First Vice-President Vice-President & Treasurer In his 15th year in Georgia, Michael Cowgill is the Irakli Baidashvili is the Senior Vice President of President and co-founder of Georgian American Univer- sity (GAU) in Tbilisi, Georgia, with schools of business, GMT Group. The company is one of the largest US law & social sciences, natural sciences & engineering and direct investments in Georgia, the owner of two liberal arts & humanities. He also continues to develop Marriott hotels, production facility SANTE and international energy projects which he has done for the several major real estate sites in Tbilisi . past 38 years in over 40 countries.

Neil Dunn, Director Esben Emborg, Director Neil Dunn is the general manager of BP Esben Emborg has been in Georgia since 1999. He Georgia since October 2008. He has 30 years of has worked a General Manager for Caucasus Region experience in the oil and gas industry, having for Cadbury Schweppes and Nestle until 2008. Now various engineering and operations assignments. he is working as Principal Partner for an Investment Fund (SEAF) that is currently managing a 30 mil USD portfolio of investments all over Georgia.

Lasha Gogiberidze, Director Badri Japaridze, Director Lasha Gogiberidze is a founding partner of BGI Badri Japaridze has been the Deputy Chairman of Advisory Services Georgia and the director of the Supervisory Board of TBC Bank since 1999 BGI Legal. Previously, Lasha worked at Ernst & and the Vice-President of Georgian Glass and Young’s Georgian offi ce. Lasha graduated from Mineral Water Co. (GG&MW) since 1995. Tbilisi State University, has a LL.M. from the University of Illinois, and is licensed to practice law in NY state.

Steve Johnson, Director Ted Jonas, Director Steve Johnson is the proprietor of Prospero’s Ted Jonas is the Managing Partner of DLA Piper’s Books and the General Manager of The Hotel Tbilisi offi ce. He advises clients on international Betsy. Prospero’s Books and Caliban’s Coffee business transactions, energy and infrastructure House is the leading English language bookstore projects, government relations, and dispute in Georgia. resolution.

Ketti Kvartskhava, Director Robin McCone, Director Ketti Kvartskhava is a Partner of BLC Law Offi ce. Robin McCone is a NZ lawyer. He leads PwC’s Her professional experience includes her work as tax and legal practice in Georgia and Armenia. He a Commercial Law Advisor at the USAID Georgia has been with PwC mainly based in CEE countries and as an instructor at Tbilisi State University. for over 16 years. Prior to moving to Tbilisi he She also worked as a Legal Counsel for the US- spent two years in New York as the leader of Georgian Commercial Bank JSC Absolute Bank the CEE Desk. He looks forward to utilising his and JSC Transcaucasia Bank. large international network in his role as a board member.

David Lee, Chairman Emeritus John Ashworth, Ex-Officio Member David Lee is the General Director of Magticom, the John Ashworth is the Deputy Chief of Political largest telecommunications operator in Georgia and and Economic Affairs and Senior Economic/ took up his position March 2004. David is also the Commercial Offi cer at the U.S. Embassy. He Chairman of the Eurasia Partnership Foundation worked previously in Uzbekistan, Barbados, and is a Chartered Accountant with an MBA from and on the State Department’s India Desk in Warwick Business School. A Russian speaker, he Washington. has worked extensively in the former USSR and served as a Royal Naval Offi cer for 9 years.

Betsy Haskell, Founding Advisor Amy Denman, Exec. Director Betsy Haskell is an 18 year resident of Georgia who Amy Denman came to Georgia in 1996 from Chicago started four successful businesses, and is currently where she worked in the Marketing Department in the developing a resort hotel and villas in the wine secondary education division of publishing company country. For the past 15 years, she has been the Houghton Miffl in. After working for the IFRC for a Georgia Contractor for Metrica, Inc, a US Treasury year, she became the coordinator then the founding Department sub-contractor. Executive Director of the Chamber.

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