EXPORTING WHAT’S NEXT FOR AN INTERVIEW GEORGIA’S MENTAL THE LARI? WITH BP ON THE REVOLUTION SHAH DENIZ 2 Investor.geA MAGAZINE OF THE AMERICAN CHAMBER OF COMMERCE IN GEORGIA ISSUE 43 FEB.-MAR. 2015 2015: The Comeback of Georgian Film FEBRUARY-MARCH/2015 • Investor.ge | 3 Investor.ge CONTENT 6 Economic Freedom in Georgia: An Overview of the 2014 Heritage Foundation Index Grant Thorton provides an overview and analysis of Georgia’s ranking in the annual report on economic freedom. 8 Exporting Georgia’s Mental Revolution 12 BP: Georgia is Off to a “Running Start” on Shah Deniz Project 8 14 ISET Looks at the Numbers Behind Foreign Direct Investment 16 DCFTA: Promising Growth Insights from Grant Thorton’s International Business Report 20 Keeping Out the Cold: Tbilisians Embrace Insulation, Tentatively 22 Taming Tbilisi’s Troubling Homeless Cat and Dog Problem 25 Georgian Banks Spin Off Non-Banking Business 26 ProCredit Bank Focuses on SME Sector, Sells Portfolio to TBC Bank 28 IMF’s Azim Sadikov: Georgian Lari adjusting to major external shocks 12 30 Tracking Tourism 32 KPMG Finds Untapped Potential in Georgia’s Hospitality Sector According to KPMG’s annual analysis of the Georgian hospitality sector, demand for lodging accommodations still exceeds supply. 33 Playing the Host: Georgia’s First Olympics at Home 35 Georgia via Food, Tradition and Cows 38 A New Strategy for Tourism 22 40 Nana Janelidze: “All Flowers Grow from a Dirty Earth” An interview with the director of the Georgian National Film Center, Nana Janelidze, about the new wave of international success for Georgian films and filmmakers using art to grapple with Georgia’s complicated recent history. 35 NEWS ...... 42 4 | Investor.ge • FEBRUARY-MARCH/2015 FEBRUARY-MARCH/2015 • Investor.ge | 5 Economic Freedom in Georgia: KETEVAN KHORAVA, GRANT scores in each of the foregoing catego- clear leader is Estonia, which is ranked THORNTON ries. Based on its average score, each 11th in the world and is included in the country falls within one of fi ve degrees list of countries having “Mostly Free” of economic freedom: 1) Free (80-100); economies. 2) Mostly Free (70.0-79.9); 3) Moder- Estonia’s high score refl ects years of INDEX OF ECONOMIC FREEDOM ately Free (60.0-69.9); 4) Mostly Unfree reforms, including the country’s linear etermining the specifi c level (50.0-59.9); 5) Repressed (0-49.9), income tax reform, which has contrib- of economic liberalization of which clearly conveys information about uted to the rapid growth of the economy. Ddifferent countries’ economies a country’s freedom. Estonia “linear income tax” experience has recently arisen as necessary and an was so successful that other countries important value for investors, politicians MOVING AHEAD OR FALLING – Lithuania, Latvia and then Russia - and others. BEHIND? copied it in 2001. Ukraine and Georgia The American thinktank Heritage In 2014, the Heritage Foundation also introduced fl at income taxesin 2004, Foundation, in collaboration with the published an analysis of 186 economies as did Slovakia and Romania in 2005. Wall Street Journal, has developed a throughout the world – a report that sent Georgia’s scores refl ect the country’s unified Index of Economic Freedom a clear signal for post-Soviet countries mixed success at reforms; it scores higher that examines countries in the context about their progress. than its neighbors, but still has room for of 50 different parameters, which are For example, results from the South improvement. grouped into 10 major categories: 1) Caucasus and Eastern Europe show that The country is ranked 22nd in the TradeFreedom; 2) Fiscal Freedom; 3) countries, where there are signifi cant 2014 index. Georgia’s highest score is Government Spending; 4) Monetary institutional reforms and where the for labor freedom at 91.2. The country Freedom; 5) Investment Freedom; 6) government is creating a favorable en- also received high marks for business Financial Freedom; 7) Labor Freedom; vironment for investment, are more ef- freedom, 87.8, which is an important 8) Property Rights; 9) Freedom from fectively transitioning to modern, mobile indicator for investors. Corruption; and 10) Business Freedom. economies compared to those struggling Georgia’s score is based on its easy The index is an overall score, which is to implement reforms. business-incorporation policy, which al- derived by averaging equally weighted As for post-Soviet countries, the lows entrepreneurs to register a business 6 | Investor.ge • FEBRUARY-MARCH/2015 An Overview of the 2014 Heritage Foundation Index with just two procedures in two days. There is no minimum capital require- ment. Completing licensing require- ments typically take just two months to complete. The country also boasts several other advantages, like fl exible working hours, that have helped its score. Unfortunately Georgia has low scores in Property rights, at 40.0 and Freedom from Corruption at 42.8. But ranked between Luxembourg and Swe- den, Georgia’s score earned accolades from offi cials. The country improved in several areas, like business freedom and monetary freedom – and its overall score was higher than the 2013 rank- ECONOMIC LESSONS From a “repressed” economy almost ing, continuing its trend of year on year The Economic Freedom index can be 19 years ago, Georgia has gradually ad- improvement used as a guide for Georgia as it choose vanced to the ranks of the economically the best road to economic growth. Geor- “mostly free,” achieving its highest score REGIONAL TRENDS gia should use the reports published by ever in the 2014 Index. Interesting trends are also observed the Heritage Foundation and the annual But there is still more to do. The in Georgia’s neighboring countries: Ar- edition of the Wall Street Journal on the report’s authors found that “deeper in- menia is ranked 41st; Azerbaijan is in the Index of Economic Freedom to assess stitutional reforms to eradicate lingering 81st position, and Turkey is ranked 64th. reforms aimed at improving economic corruption and increase judicial inde- The improvement of Azerbaijan’s freedom that are planned for each year. pendence are critical to ensuring greater ranking is due to the state’s policy to If one analyzes Georgia’s score for economic freedom in Georgia.” Dynamic promote trade, encourage investments Economic freedom for 2014, one sees positive changes occurred with Georgia’s and establish a moderate tax system. The that itsoverall score is 0.4 point higher with property freedom score from years report found, however, that the country than 2013, with improvements in six of 2007 to 2013, but unfortunatelynow needs institutional and systemic reforms the ten categories of economic freedom, Georgia’s property freedom score is 5 for property rights (the country scored including government spending, invest- points lower than last year. 20), as well as anti-corruption measures ment freedom and monetary freedom. If one assumes that property freedom (the country scored 22.7). “Georgia is ranked 12th out of 43 is one of the determinant factors for Turkey’s ranking was an improve- countries in the Europe region and its investment, then one will come to see a ment over past years. But the report score is well above the regional average,” certain corelation between the two: FDI makes it clear that despite reforms the report noted. as a percentage of the national GDP has implemented in recent years, the govern- Over the 19 years that Georgia has also decreased since 2011. ment still interferes in the economy, and been included in the Index, its economic The Index of Economic Freedom is dynamic entrepreneurial activity requires freedom has advanced over 28 points, the proof that economic growth is not an liberalization of regulations and taxes. third best of any country. isolated event, but rather a consequence According to the 2014 data of the “The impressive growth of Georgia’s of economic freedom. Without it, no Heritage Foundation, Russia ranked 140 economic freedom has been propelled by country can overcome poverty andfurther out of 186 countries of the world due to broad-based score improvements in such itsdevelopment – a lesson the Georgian issues concerning property rights and critical areas as regulatory effi ciency and government should take to heart as it corruption. market openness,” the report stated. continues the country’s reform policy. FEBRUARY-MARCH/2015 • Investor.ge | 7 There are three foreigners in the Ukrainian cabinet, including Georgian-born Aleksandre Kvitashvili various capacities, was named a deputy EXPORTING GEORGIA’S justice minister. On February 11, Geor- gian media reported the former Georgian President Mikheil Saakashvili was ap- pointed as an advisor to the Ukrainian MENTAL REVOLUTION president. Foreigners in the newly formed gov- A GENERATION OF GEORGIAN LAWMAKERS MADE A ernment, especially the two Georgians NAME FOR THEMSELVES AFTER THE ROSE REVOLUTION- (who may be joined by other teammates) ERA REFORMS. NOW KYIV IS EAGER TO MAKE USE OF are being hired primarily to recreate Georgia’s 2004-2012 successful eco- THEIR EXPERIENCE AND EXPERTISE. nomic reforms. Their success would alsoprovide a boost for Georgian President Mikheil Saakashvili’s United National Move- HELENA BEDWELL – Aleksandre Kvitashvili, Georgia’s ment, which is now an opposition party healthcare minister in 2008-2010, and back in Georgia. orget about Georgian wine and Eka Zghuladze, who was Georgia’s cheese exports to surprise the deputy interior minister from 2006- REINVENTING GEORGIA’S ROSE FWest. It’s now Georgian knowl- 2012 – were appointed as members of REVOLUTION SUCCESS edge and experience that sells like the Ukrainian government. After gaining power in 2003 follow- hotcakes today, after two Georgians Gia Getsadze, a former offi cial in ing the Rose Revolution, Saakashvili 8 | Investor.ge • FEBRUARY-MARCH/2015 FEBRUARY-MARCH/2015 • Investor.ge | 9 strengthened Georgia’s alliance with the U.S.