Amcham Launches Youth Program
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THE UNTAPPED AMCHAM MEETS PRESIDENT ARMENIA POTENTIAL OF GIORGI MARGVELASHVILI OPTS FOR THE REMITTANCES EURASIAN UNION Investor.geA MAGAZINE OF THE AMERICAN CHAMBER OF COMMERCE IN GEORGIA ISSUE 41 OCT.-NOV. 2014 Amcham Launches Youth Program OCTOBER-NOVEMBER/2014 • Investor.ge | 3 Investor.ge CONTENT 6 Getting More Bang From The Remittance Buck Dollars and Euro from abroad are an important source – at times the only source – of income for some Georgian families. But is the Georgian economy making the most of this valuable resource? 8 Careful Analysis, Planning Needed To Make Most Of Trade Deal As Georgia works to simultaneously attract investors and implement EU-approved trade regulations, the united states and the european union continue negotiations over the transatlantic trade and investment partnership (TTIP). 12 A New Plan Of Action For Georgian Agriculture Investor.Ge’s Heather Yundt interviewed Agriculture Minister Otar Danelia about the government’s new action plan to bring European standards to Georgian 12 agriculture and how cooperatives can fit in. 14 Irakli Margvelashvili: New Prescription Rules Will Usher In Higher Standards For Medicine 15 Government, Private Sector Working To Address Concerns Over Proposed Postal Law Parliament is considering a law that could give the Georgian postal service a monopoly in the market, analysts and private shipping companies warn. 15 19 Enabling The Lights To Burn Bright: Georgian Electricity Sector Tackles Issues Of Quantity And Quality 22 Stricter Visa Rules Disappoint Foreigners, Trigger Economic Concerns 26 From Fierce Maidan To New Global Order A reporter’s view from Ukraine 32 The South Caucasus: Regional Division And Divergence 34 Tbilisi: The Caucasus Muse For centuries, Tbilisi – and the rest of the country – 40 has served as a muse for foreigners. From Pushkin to Dumas, Tbilisi has been a gateway to the exotic. Russian writers and poets used to flock to the city’s ancient walls and bewitching culture in search of a safe haven to work. Today, writers and poets from Germany and the Netherlands, great britain and beyond are discovering Tbilisi and finding their own inspirations. 52 NEWS ...... 38 4 | Investor.ge • JUNE-JULY/2014 OCTOBER-NOVEMBER/2014 • Investor.ge | 5 “Remittances may be the unsung hero of the Georgian economy. Remittances from abroad amounted to $1.477 billion in 2013, or 9.3% of GDP – similar to agriculture and the services sector.” – particularly in times of crisis. When ment can do. It cannot control where GETTING Georgia’s GDP contracted by 7% in these remittances go, or how they are 2009, remittances decreased by about used. But it can enable recipients to make MORE BANG 16%, while FDI shrunk by over 57%. the most of the money they receive. Here, Of course, remittanceshave vices the authorities have got two things right. too. Most notably, they can subsidize Effective regulation means that sending FROM THE unproductive areas of the economy (the remittances to Georgia now costs less so-called “Dutch Disease”), and create a than 1% of the total sent; worldwide, REMITTANCE culture of dependency among recipients. the average is around 9%. Neither does Nor are they immune to geopolitics. For the government tax the remittances sent example, over half of Georgia’s remit- to recipients. That is wise; experience BUCK tances come from Russia. As a recent elsewhere suggests it simply encour- report from the European Council on ages senders to use informal methods REMITTANCES ARE AN Foreign Relations points out, that gives of transfer. IMPORTANT PART OF THE Moscow signifi cant leverage over the GEORGIAN ECONOMY BUT Georgian economy, should it choose to “BANK” TO THE FUTURE THEY ARE LARGELY IGNORED use it. A remittance ban, although hard to Encouraging greater fi nancial literacy BY POLICY MAKERS AND implement, could be one way of infl ict- would be another important step. The RESEARCHERS. DOLLARS AND ing damage; expelling Georgian migrant country’s Soviet past means that con- EUROS FROM ABROAD ARE workers (as happened in 2006) would cepts such as savings, investment and AN IMPORTANT SOURCE – be another. private pensions are relatively new to AT TIMES THE ONLY SOURCE Georgian society. As a result, Georgia – OF INCOME FOR SOME HOW TO SPEND IT has a relatively low national savings rate GEORGIAN FAMILIES. BUT IS Yet despite their importance, Geor- (about 20% of Gross National Income). THE GEORGIAN ECONOMY gian remittances receive comparatively More than anything else, this is a func- MAKING THE MOST OF THIS little attention from policy makers and tion of poverty: if incomes rise, savings VALUABLE RESOURCE? researchers. As a result, an important rates are likely to rise, too.But ignorance question remains largely unanswered: of personal fi nance is also a factor. GUY EDMUNDS is Georgia making the most out of this Greater use of the banking system cash cow? would also help, given its role in allocat- emittances may be the unsung Most remittance money is spent on ing money effi ciently between savers hero of the Georgian econo- basic needs. In the 2012 study Socio- and borrowers. Only 56% of Georgians Rmy. Remittances from abroad economic Problems of Return Migration say they have bank accounts or bank amounted to $1.477 billion in 2013, or in Georgia, researcher Mirian Tukhash- cards, according to 2013 data from the 9.3% of GDP – similar to agriculture and vili found that over half of it was spent on Caucasus Research Resource Centres the services sector. Add in money sent by food, healthcare and the like. Payment of (CRRC) – despite the fact that all social informal channels (such as handing cash debts accounted for approximately 10% security and pension payments are made to friends or bus drivers), and the total of remittances expenditures as did chil- through the banking system. (Any dis- is higher still. dren’s education and property purchases. crepancy here may refl ect the fact that On a micro level, remittances help This is not a bad thing: economists and many people do not use banking services to keep some of the poorest families other scholars praise spending on health beyond receiving money). in Georgia afl oat. In macro terms, they and education as contributions to “human Moreover, Georgians have mixed provide an important counterweight to capital formation.” But equally important feelings about banks. According to the country’s trade defi cit, and help to for Georgia’s longer-term development CRRC, only 35% of respondents say balance the economy. They are also a is the proportion of money saved (16%) that they trust banks, while 22% distrust more stable source of foreign exchange or invested in businesses (less than 5%). them; 31% appear to be indifferent to than Foreign Direct Investment (FDI) There is only so much the govern- them, while 9% say they don’t know. 6 | Investor.ge • OCTOBER-NOVEMBER/2014 “There is only so much the government can do. It cannot control where these remittances go, or how they are used.” Instead of opening up savings accounts, cording to CRRC. The “Kerketi” mobile currently Chief Financial Offi cer of the many Georgians prefer to stash their wallet system, which allows people to Georgian Co-Investment Fund. cash at home. Another problem is ge- transfer money and make payments, “Thus far, a combination of market ography. Banks and other micro-fi nance was launched in Georgia in 2013, and factors has not rendered such instruments institutions are expanding their presence has ambitious roll-out plans. Banks and attractive for Georgia,” she adds,“but in Georgia: since January 2012, for micro-finance institutions could also as the growth of the Georgian economy example, the numbers of bank branches expand the range of remittance-related shifts into higher gear, this alternative and services centers have increased by services available. For example, Crystal source of cheap and convenient fi nanc- 12% and 37%, respectively. But since and Bank Constanta offer special loans ing for banks will be worth revisiting. roughly half of remittances fl ow to the that use future remittance fl ows as col- So called future-fl ow securitizations are countryside, access remains a diffi culty lateral. For now, the numbers taking diffi cult and costly to set up, but once for those in remote areas. advantage remain small. But the idea has structured, can be re-used indefi nitely.” One idea that could work is “mobile” potential to expand. banking, which enables people to access Finally, banks looking for additional Guy Edmunds works for the Dan- basic banking services and to receive sources of liquidity to fund their grow- ish Refugee Council in Tbilisi. DRC is remittances through mobile phones. ing business could “securitize” future currently implementing a project called The idea has a strong track record in remittance fl ows as the basis for bor- “Enhancing the Role of Georgian other countries, such as Kenya and the rowing money. “Inbound transfers are a Emigrants at Home” in partnership with Philippines, and has strong potential well-tested source of securitized lending the International Centre for Migration in Georgia, where 89% of households globally,” says Thea Jokhadze, Char- Policy Development, which is funded by claim to have a mobile telephone, ac- tered Financial Analyst (CFA), who is the European Union. ADVERTISEMENT ver the summer, Tbilisi hosted a kashvili, Georgian Minister of Economy joint Georgia-EU international and Sustainable Development? Indeed, Oinvestment conference. At- the representative group of speakers was tendees were greeted with a gleaming, comprised of EU Commissioners, while 21-page booklet detailing answers to the the attentive audience was mostly private question, “Why Invest in Georgia?” The businesses. response came not only in the form of a CORDELIA PONCZEK, cohesive list of Georgian companies, but TRADE RELATIONS ABROAD: KOŚCIUSZKO FOUNDATION also in an eloquent point-by-point expla- ECONOMICS OR POLITICS? RESEARCH GRANT RECIPIENT nation of Georgia’s investment position.