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GEORGIA



 

In-depth Business Intelligence

Key Economic Data
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 3,937 3,324 3,100 126
         
GNI per capita
 US $ 830 650 590 145
Ranking is given out of 208 nations - (data from the World Bank)

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



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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