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Books on Georgia
REPUBLICAN REFERENCE
Area (sq.km)
69,700
Population
4,693,892
Principal
ethnic groups
Georgians 68.8%
Armenians 9%
Russians 7.4%
Capital
Tbilisi
Currency
Lari
President
Mikhail Saakashvili
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Update No: 291 - (29/03/05)
New post-Zhvania government
A fortnight after the apparently accidental death of Prime Minister Zurab
Zhvania on February 3rd Georgia's parliament voted in a new cabinet that pledges
to make economic recovery its top priority. The new prime minister, Zurab
Noghaideli, indicated that the government's immediate challenge would be
reducing unemployment.
The huge majority, 175-24, in the vote on February 17th in favour of Noghaideli
came as no surprise. President Mikheil Saakashvili's ruling National
Movement-Democrats Party dominates the Georgian legislature and the confidence
vote had been largely viewed as a mere formality, following Saakashvili's
nomination of a new cabinet following Prime Minister Zhvania's death.
Saakashvili dominates Georgian politics in a more comprehensive fashion than his
predecessor, Eduard Shevardnadze, who was ousted in the Rose Revolution of
October 2003. He has a mandate for radical change in the impoverished Caucasus
country. He is a highly educated man, who knows five languages, and has a
cosmopolitan outlook. Moreover, he has left Shevardnadze the presidential
palace, while he occupies a modest flat in central Tbilisi. The drive against
corruption and ostentatious consumption is a cornerstone of the new order and
the new president exemplifies it in his own person.
Nonetheless, there is an opposition all right, as always. Opposition deputies
used the vote on February 17th to criticize the government sharply. The lack of
tax exemptions for small and medium-sized businesses and an unwieldy state
bureaucracy were among the points raised by the Conservative and Republican
Parties, while New Rights-Industrialists leader David Gamkrelidze attacked
Defence Minister Irakli Okruashvili for dismissing the armed forces' entire
general staff on February 15, an extraordinary move that has gone largely
without official explanation. All three parties voted against the Noghaideli
cabinet.
The new government remains largely unchanged from the last cabinet reshuffle in
December 2004. Valeri Chechelashvili, Georgia's ambassador to Russia, will
replace Noghaideli as finance minister, while former Supreme Court Chairman Kote
Kemularia will head the justice ministry. Former Justice Minister Giorgi
Papuashvili will instead head the Environment Ministry. All other posts will
remain intact.
Economic revival the top priority
Analysts interpreted the 41-year-old former finance minister's appointment as
prime minister a sign of the central role Saakashvili needs economic
revitalization to play for the success of his reforms. On February 15,
Noghaideli confirmed those forecasts, telling reporters that the government's
"key priority" during the next three months will be cutting
unemployment and developing "entrepreneurship," the Inter-Press news
agency reported. On February 17, the prime minister went on to list improvements
in Georgia's lackluster investment environment, revitalization of agriculture
and the country's energy network as well as the completion of ongoing
educational and military reforms as also on the post-Zhvania task list, the
television station Rustavi-2 reported.
Since Zhvania's death, government officials and Noghaideli himself have
emphasized continuity in economic policies, but details on how the government
plans to tackle unemployment remain elusive. The quarterly Georgian Economic
Trends cites national rates for 2004 at between 10.7 and 13.1 percent, depending
on methodologies. One highly placed government official said that it is, in
fact, not "realistic" to expect Georgia's unemployment rate to drop
significantly in "only one year."
What is known is that the state budget is growing, fuelled in large part by
privatisation. The government has announced that it plans to revise its 2005
budget revenue figures upward by as much as 500 million lari or roughly $275
million. Right now, planned expenses currently outstrip revenues by some $200
million to stand at 2.2 billion lari, or $1.2 billion. Budget amendments with
revised figures are expected to be submitted to parliament the week of February
21st.
Privatisation the key
Pinpointing the role to be played by Noghaideli in setting the future course
for privatisation, however, has proven difficult to define. Previously, the late
Prime Minister Zhvania appeared played a central role, announcing sales and
pending deals. The prime minister's involvement, though considered unusual by
some analysts, was explained by the economy ministry as critical for the
resolution of "strategic" sales such as that of the Georgian Ocean
Shipping Company, which sold in late January for a record US$161m.
Since Zhvania's death, State Minister for Economic Reform Kakha Bendukidze, a
former economy minister, has been the official most frequently seen on
television addressing privatisation questions, even though technically the
portfolio falls to Economy Minister Alexo Alexishvili.
The minister's visibility, however, has prompted some opposition members to
charge that Bendukidze, who earned millions as head of the Russian firm United
Heavy Machineries, sees the sale of state properties as a prime business
opportunity for former Russian business colleagues.
"Mr. Bendukidze has equated the [government's] entire economic policy with
property sales instead of really developing a free market and free
business," charged New Rights Party leader David Gamkrelidze in parliament
on February 10. "He equated it with transferring this property to his
friends and acquaintances in a hasty, illegal and non-transparent way."
Driving the speculation is the January 19 sale of the Chiatura manganese mining
complex and Vartsikhe hydropower plant to the Russian firm EvrAz Holding and the
Georgian-Austrian concern DMC Ferro for $132 million. EvrAz Holding won the bid
despite remarks by Economy Minister Alexishvili that the Ukrainian Interpipe
Corp. had submitted the "better" bid. To explain the decision,
officials, including Bendukidze, charged that Interpipe had allegedly urged the
government to let it also take control of Zestaponi Fero-Alloy Plant, a property
owned by DCM-Ferro. In response to Bendukidze's accusation of
"banditry," Interpipe has charged that Georgia's privatisation
campaign is "a vague process with no rules."
Controversy has dogged the privatisation process since its kick-off in the
summer of 2004 when then Economy Minister Bendukidze's declaration that the
government would sell everything "but our conscience."
The latest flare-up occurred on January 31, just days before Zhvania's death,
when the late prime minister announced that he had made a mistake in naming ASP
Shipping Company as the purchaser of the Georgian Ocean Shipping Company.
Instead, the sale went to Armstrong Holdings Corporation, with ASP Shipping
Company, a British-Australian firm, holding responsibility for management of the
company's ships.
For the detail-oriented Zhvania, the slip-up was unusual, but officials have
been quick to stress that this was a minor mistake that does not jeopardize
privatisation's future in any way.
"We have overcome all difficulties," Deputy Economy Minister Natia
Turnava said in a February 17th interview. Amendments to improve the efficiency
of the evaluation and sales process for listed state properties are expected to
go before parliament. Turnava did not provide details on these amendments, but
noted that a law that stipulates a 50 percent discount in asking prices for
firms not purchased following the announcement of a sale as a major obstacle to
the efficiency of the government's privatisation campaign. Turnava commented
that the law "needs to be more flexible," to allow a greater range of
possible discounts.
Privatisation-related sales are expected to bring in as much as $250-$300
million in 2005 to state coffers, according to the most recent official
statements. The amount would total as much as 8 percent of Georgia's Gross
Domestic Product for the first nine months of 2004.
Compared with past deals, the government's latest sale appears to have gone
relatively smoothly. On February 17, Yekaterinburg-based Dema Computers bought a
51 percent stake in the Elmavalmshenebeli electric locomotive plant for $4.2
million, the television news channel Rustavi-2 announced.
But fresh controversy could soon hit. Among the properties reported slotted for
disposal is the Rustavi metallurgical complex, a Soviet-era dinosaur that has
been the subject of a longstanding ownership dispute with the Italian company
Ares International, which bought a controlling stake in the company, Mili LLC
that bought Rustavi in 2003. On Feb. 7, the Georgian Supreme Court upheld a
lower court ruling nullifying the state's sale of Rustavi to Ares. Local media
have reported that Zhvania discussed the sale of Rustavi with EvrAz Holding in
late January. The status of the government's talks now is unknown, but
Bendukidze has said that other companies have also expressed interest in the
plant.
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AVIATION
Tbilisi airport terminal project attracts 3 bids
A new international airport terminal, which will be modern, European and will
provide more routes to different countries, is coming up for citizens of Tbilisi
from May 2006. According to officials, this terminal would turn the current
airport into a major regional hub. The tender commission comprised of
representatives from Georgia's Ministries of Economic Development and Justice,
Tbilisi Urban Planning Service and Tbilisi International Airport announced that
it received a total of three bids: Two bids from the companies Tacom (Germany)
and Paladi Palace (Georgia) and one bid from Georgian architect, Giorgi
Tukhahreli, who submitted his own project.
After reviewing the bids, the tender commission will soon announce the winning
company, which is expected to receive US$35m credit for the construction of the
new terminal. This sum will be taken by the airport for construction and would
be paid off over the next 10 years, the Director of Tbilisi International
airport, Nika Manjgoladze, said, the Messenger reported.
"The Tbilisi International Airport, with the agreement of the ministries of
economic development of the ministries of economic development and finance, will
take a 10-year loan amounting to US$35m," he said. Manjgaladze is confident
that the loans would be paid off in just seven to eight years because the number
of passengers has already increased by 28%. He recalled that the loans taken
from European banks were paid much before schedule due to the rise in the number
of passengers so it is expected that the same trend would continue in this new
loan for the airport terminal. To pay off the construction fees, the airport
intends to demand surcharges of US$18-20 per ticket. Some of the conditions of
the airport administration set for the new building are that it must be able to
handle 2,000 passengers per hour. The airport authorities claimed that currently
only half this number is handled at peak hours. Instead of the current single
gate there should be six to eight gates for planes.
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FOOD & DRINK
GMW water firm to triple production by 2008
Georgian Glass and Mineral Water Company (GMW), which produces Borjomi water,
became the largest mineral water company in the CIS on December 14th when it
merged with two Ukrainian companies, IDS and Morshin Mineral Water Factory, New
Europe reported.
"We want to create one of the biggest companies in the CIS," company
Vice President, Levan Bagdavadze, said, adding that further mergers with other
mineral water companies in Russia, Central Asia and the Caucasus will help it to
gain greater control of the CIS market.
"There will be deals this year with mineral water companies in the Caucasus
and central Asia," said Bagdavadze, while press officer Sergei Rybak, who
is based at the company's Moscow office, underlined that "we are actively
looking to expand in Russia."
The company plans to triple production over the next three years, while it is
planning a major advertising offensive in Russia for 2005, the Messenger
reported.
"Brand development was difficult before because in 1995, 95% of Borjomi
water sold in Russia was counterfeit," Rybak said. In Borjomi, the company
is investing US$2m in new bottling lines, and plans to rehabilitate a glass
bottle-producing factory in nearby Khashuri in the near future.
Rybak explained that GMW hopes to capitalise on the fact that Borjomi was one of
the two most popular brands of mineral water in the Soviet Union. Some 450m
bottles were produced annually and the brand name remains well-known throughout
post Soviet space. With rapid expansion of production, eight years after winning
the Borjomi licence, GMW finally has the exclusive rights to produce Borjomi
that the licence guarantees. While the company is looking to expand its business
further, Bagdavadze stressed that the company must honour its social
responsibilities, part of which include supporting those small producers that
have now lost the right to produce Borjomi.
Social responsibility extends not only to small producers and employees, but
also to the region as a whole. "We fulfil about 90% of the Borjomi district
budget," Bagdavadze claimed, "and we are trying to help develop
infrastucture in the region."
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