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GEORGIA



 

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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)

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Update No: 319 - (26/07/07)

South Ossetia broke away from Georgia following a bloody conflict in the early 1990s. Georgia's Western-oriented leaders, who came to power in 2003, have been trying to bring the republic under their control ever since. 

Russia has supported South Ossetia in its diplomatic standoff with Georgia, and Tbilisi has accused Moscow of fuelling separatist sentiments in the unrecognised republic.

Georgian-Russian relations on hold 
Georgia could make sweeping concessions to Russia if Moscow stops supporting the breakaway region of South Ossetia on its territory, a leading Russian daily said on July 9th. According to Kommersant, Georgian Foreign Minister Gela Bezhuashvili met his Russian counterpart, Sergei Lavrov, at the Black Sea economic summit in Turkey to discuss the settlement of a protracted Georgian-South Ossetian conflict. 

Bezhuashvili said in early July that Tbilisi had "a number of serious and interesting proposals for Russia," in exchange for Moscow's promise to break off all contacts with the unrecognised government of South Ossetia, led by Eduard Kokoity, and to deal in the future only with the Georgia-supported provisional administration, headed by Dmitry Sanakoyev. Sanakoyev, the winner of an "alternative" presidential election in Georgia's breakaway region of South Ossetia, was inaugurated by Georgian authorities in the conflict zone last December. 

Saakashvili to the fore at GUAM summit
The outspoken Georgian leader, Mikheil Saakashvili, said in early July that the south Caucasus state would regain control of South Ossetia, one of two breakaway regions on its territory, in the next few months. "[South Ossetian President Eduard] Kokoity's tenure is expiring, and we will finally resolve all problems in the next few months, demonstrating to the world how ethnic conflicts should be tackled," Saakashvili said at a GUAM summit of four ex-Soviet countries, Georgia, Ukraine, Azerbaijan, and Moldova. 

A Georgian government source told Kommersant that stripping Kokoity's government of Russia's economic and political support was central to Tbilisi's plan to regain control of the separatist region. The source said if Russia accepted the proposals, Tbilisi would allow Moscow to assume the role of official guarantor in future agreements on granting South Ossetia broad autonomy within Georgia. "We are even ready to officially recognize the presence of Russian troops on our territory for an indefinite period and lift all obstacles to Russia's accession to the World Trade Organization," Kommersant quoted the source as saying. 

Georgia earlier said it would cease to block Russia's bid to join the WTO only after Moscow honours its commitment to close its border checkpoints. 

Sochi Olympics could unblock frozen conflicts 
A sporting event of some significance is in the offing. In Ancient Greece truces were held to any ongoing conflict for the duration of the original Olympic Games, that began in 776 BC. Diplomats attended the games and many a peace was declared. The irenic function of Olympic Games was never needed more than in the Caucasus today, as we have seen.

Although the Georgian government has lauded the decision to hold the 2014 Winter Olympic Games in Sochi, Russia, on the Black sea near Georgia, some regional experts believe the event could create yet another obstacle to the resolution of the so-called frozen conflicts in Abkhazia and South Ossetia, rather than the reverse. 

Georgian President, Mikheil Saakashvili, offered hearty congratulations to Russian President Vladimir Putin after the International Olympic Committee (IOC) awarded the 2014 winter games to the Russian resort city. Sidestepping his own country's bid to host the 2014 winter games, Saakashvili claimed on July 4th that he had supported Sochi's candidacy "from the very beginning." 

However he was quick to tie the event to the frozen conflicts. Noting that "ethnic cleansing" took place a mere 50 kilometres (approximately 30 miles) from Sochi, Saakashvili said, according to news reports, that he expected the IOC's move to promote a more "civilized approach" to the peace process. "I really want Russia to get this right," Saakashvili was quoted as saying in Russia Today on July 6. "The Olympics in the Caucasus, which has long been seen as unstable, will promote peace and understanding between nations."

Analysts, however, are divided on exactly how, or if the games will hasten agreement on the separatist territories' political future. Like Tbilisi, the de facto governments of both Abkhazia and South Ossetia issued statements hailing the Russian-hosted games. According to Abkhazian de facto President Sergei Bagapsh, Sochi's victory is "our own victory. Together with you, dear neighbours, we were looking forward to this moment," he reportedly wrote in a congratulatory telegram on July 5thy. 

Zurab Bendianishvili, a conflict-resolution expert currently serving on the Georgian parliament's temporary commission for territorial integrity issues, believes that the Sochi Olympics will have a "direct" effect on the conflicts, especially in Abkhazia. He noted that over the next seven years, while the region is in the spotlight, Russia will have to be on its best behaviour. "Now Russia cannot support the separatists so openly," he said, noting that Moscow will have to prove to the international community that it is playing the role of honest mediator. "Russia must consider our proposals." 

But other analysts believe that the Olympics could possibly do more to enhance Abkhazia's independence aspirations than to promote Georgia's territorial re-integration aims. According to Ana Jelenkovic, an associate at the New York-based Eurasia Group specializing in the Caucasus, while regional instability is not in Russia's interests, the Winter Games give Moscow the opportunity to invest more heavily in Abkhazia and in the regional infrastructure. She noted that with the additional government funds earmarked to prepare for the Games - a reported US$12 billion according to media reports - Moscow will have more resources to help Abkhazia. A significant boost in Russian assistance would work directly against Georgia's current strategy of showcasing itself as Abkhazia's best economic provider. 

"The more Russia can offer [Abkhazia]…the less [the territory] will be interested in [rejoining] Georgia," Jelenkovic said 

Jelenkovic noted that, conflict resolution aside, the Olympic Games could have a direct benefit for Georgia since increased international attention should act as an incentive for Moscow to improve relations with its southern neighbour. "It is important to the overall relations between Russia and Georgia," she said, adding that aggressive sanctions, such as the economic embargo, are not in Russia's "interests" as it gears up for the games.

Over the past few weeks, however, there has been little evidence of a possible thaw in Russian-Georgian relations. Shortly after the official announcement about the Sochi Games, Moscow Mayor Yuri Luzhkov stated that Russian investments in the conflict zone would continue, despite Georgian opposition. "We have chosen a number of investment projects in Abkhazia, particularly in the energy and healthcare sectors," Luzhkov said on July 9th according to a report by the official RIA Novosti news agency. "We are glad that the socio-economic situation is improving in Abkhazia and we are ready to further support this process." 

In response, officials in Tbilisi warned that privatisation and investment in Abkhazia is illegal. "Everyone should know that the time will come when illegally purchased property will be returned to the legal owners," Georgian Foreign Minister Gela Bezhuashvili said on July 9th during a press conference in Tbilisi. 

Dubious advantages of belonging to the CIS
The Commonwealth of Independent states (CIS) held its most recent summit in June. The member states are supposed to enjoy benefits for being a member of the organization, but Georgia is a clear example that this is not guaranteed. In principle, the CIS member states should have visa free regimes between member countries as well as trade privileges.

Since the spy row last September, Georgia has basically no visa regime with Russia much less a visa free regime. In fact it hasn't had a visa free regime with Russia since December 2000. It also not only enjoys no trade privileges with Russia, it suffers from trade sanctions. Last spring, Russia banned Georgian wine and mineral water as well as other products from their market.

Many in the opposition have been calling on the authorities to withdraw from the CIS, not only for these reasons but because of Georgia's intention to integrate into NATO and other Euro-Atlantic structures. The Baltic states show the way forward here. The leader of the Labour Party, Shalva Natelashvili, said it was "irresponsible" for President Saakashvili to have attended the informal summit of CIS leaders and once again called on the administration to withdraw from the body. Though the administration hints that they would like to leave the CIS space, they argue that the time isn't right as they are trying to patch things up with Russia.

And patching things up, it appears, they are. Most statements were markedly on the positive side compared to statements from the last meeting between the two heads of state in November. All kinds of commitments seemed to be made though mostly coming from the Russian side. They've moved in Georgia's direction in talking about lifting sanctions as well as commenting on the importance of Georgia's territorial integrity. Some Georgian media even commented that statements were made about handing the Lars checkpoint over to Georgia. Rustavi 2 reported that Saakashvili stated that the message of the Russian side to not review positions about Georgian borders and to question Georgia's territorial integrity was "very important."

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The following is self-explanatory:-

New foreign investors are entering the Georgian market
By Lili Di Puppo in Tbilisi
Attracting foreign investment has been the Georgian government's number one objective since the Rose Revolution. Foreign investors are expected to bring well-needed capital inflow, contribute to the building of new infrastructure, the transfer of management skills and the creation of jobs. Kazakstan has gained a prominent position in the Georgian market in the last years with a total of approximately US$300 million Kazak investment in 2006. New investors are entering the Georgian market in 2007, in particular the United Arab Emirates (UAE) and the Czech Republic, while Iranian investments are anticipated this year. 

Transport and tourism are the two major investment sectors in Georgia, while the agriculture sector has also potential. A recent U.S. Agribusiness Trade and Investment Mission to Georgia in June 2007 was aimed at increasing investment in the agricultural sector, in particular wine and beverages. Since Georgia's independence, the largest investors are the United States, the United Kingdom, Georgia's neighbours Azerbaijan and Turkey and until recently, Russia. Political tensions between Russia and Georgia in 2006 have led to a sharp decrease in Russian investment in 2006. The completion of the Baku-Tbilisi-Ceyhan (BTC) pipeline in 2005, whose construction has provided a major boost to foreign investment in 2003-2004, was also a factor behind decreasing investment in 2005. Nonetheless, the Georgian government's liberal reforms seem to bear some fruits with FDI reaching US$539 million in 2005, and expected to exceed 1 billion US$ in 2007. Georgian Prime Minister Zurab Nogaideli recently announced that foreign investments will amount to 2-2.5 billion USD in 2007 due to anticipated huge investments from the United Arab Emirates (UEA) and Iran. 

New investment projects in 2007 
Among new investors that have entered the Georgian market in 2007 are the Gulf emirate of Ras-al-Khaimah in the north of the United Arab Emirates (UAE) and the Czech Republic. During a February visit by Georgian President Mikhail Saakashvili to Ras-al-Khaimah, a business partnership worth US$3 billion was established between Georgia and Ras-al-Khaimah aimed at tourism, real estate and shopping. Part of the business partnership is the real estate development plan "Tbilisi Heights" that envisages the construction of a spa-like resort, business and residential era covering 200,000 square meters in Tabakhmela, near Tbilisi. A similar real estate project is "Uptown Tbilisi", which will cover an eight hectare plot of land in Tbilisi's Digomi District. Other investment in tourism facilities in Tbilisi are planned under the partnership. During his visit to Ras-al-Khaimah, President Saakashvili declared his interest in attracting Arab tourists to Georgia in the future. 

Rakeen Development, a real-estate company owned by the Gulf emirate of Ras-al-Khaimah, RAK Airways and RAK Properties, plans to invest up to US$1.5 billion in Georgia. The company has purchased the Sheraton Metechi Palace hotel in Tbilisi in June 2007. The purchase was followed in the same month by a visit of the Deputy ruler of the Gulf emirate Sheikh Saud bin Saqr Al-Qassimi to Georgia. The Sheikh visited Georgia's Black Sea port of Batumi on June 16. The Rakeen company has also expressed interest in the development of a free economic zone in the Georgian Black Sea port of Poti. A law was recently voted in the Georgian Parliament on the establishment of a free economic zone in Poti. 

During a visit to Czech Republic in June 2007, Georgian Prime Minister Zurab Nogaideli declared that the Czech Republic could potentially become Georgia's top investor in 2007. Several Czech companies are reportedly interested to invest in infrastructure projects in Georgia, in particular in railways and road networks. The biggest Czech investment to date is the purchase this year by the Czech company Energo-Pro of six hydro power plants and two electricity distribution companies. The Czech company has become the leading electricity distributor in Georgia, controlling 62.5 % of the market. Some opposition politicians have argued that the Czech company is linked to the Russian electricity monopoly UES, which owns the Telasi electricity distribution company. The Georgian government underlined that the Energo-Pro's investments were backed by the Czech government with the Czech state-run Export Bank acting as financial guarantor. Some observers also see Russian capital behind the numerous Kazakh investment projects in Georgia.

Favourable investment climate?
Structural reforms after the Rose Revolution have been aimed at creating a favourable investment climate. Reduction in the number of licenses, reduction in taxes, the introduction of the one-stop shop principle and liberal labour regulations are some of the measures introduced by the government to help boost business. As a result, Georgia was named a top world reformer by the World Bank in its 2006 Doing Business Survey. 

Nonetheless, several factors are still impeding foreign investments in Georgia. Recent privatisations have been criticized for their lack of transparency. A weak judicial system and concerns on property rights are also perceived as obstacles to the protection of foreign investments. Local businesses are more affected by this lack of predictability than foreign businesses. For this reason, local businesses often seek to form a joint venture with foreign companies to protect themselves against possible pressures from the government. 

Several observers criticize the attention given by the government to big businesses, while local or foreign small and medium-size enterprises (SMEs) are not benefiting from it. Large capital inflows due to increased FDI have led to an increase in imports, while exports have strongly decreased, resulting in a negative trade balance. The development of the domestic economy and exports are crucial elements if Georgia's economic growth is to become sustainable. Foreign investors can contribute to the development of a domestic economy through the transfer of management skills and an improved infrastructure, which can in turn contribute to increase exports. However, the government must also intervene to help local production. A recent government programme is aimed at boosting the tourism sector through credits to tourism-oriented SMEs. The lack of human resources in developing sectors such as tourism and construction also necessitates a government intervention to invest in the training of professional staff through the opening of training centres and schools. 

It remains to be seen whether the Georgian government will meet its challenge of boosting the country's economy by counting primarily on huge foreign investments and pursuing a radical deregulation policy, while neglecting at the same time local production and the development of SMEs. 

The privatisation process initiated after the Rose Revolution has also been criticized for its rapid pace. A recent draft law was presented to the Georgian parliament which aims at redefining the list of assets that qualify for privatisation, including strategic assets such as the railway system. Some opposition politicians see in this measure the risk that Georgia might lose its strategic potential as transit country. 

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AVIATION

Airzena Airways drops plan for Moscow flights


Plans for Georgia's Airzena Airways to run charter flights between Tbilisi and Moscow for three months starting on July 3rd have been dropped because "we still haven't received an official confirmation from the Russian side," Airzena spokesman, Aka Sanikidze, said on July 2nd, Interfax News Agency reported. "There has been an oral understanding" on the proposed flights, Sanikidze said.
Air traffic between Russia and Georgia has been suspended by Russia since October 3rd, 2006, after relations between the two countries soured. Russia claimed the reason for the air traffic ban was alleged Georgian debt of more that three million Euro for air traffic control services. There have been just a few charter flights between the two countries since the ban was introduced. There were three such flights between Tbilisi and Moscow at Easter organised by the Georgian Orthodox Church. Airzena was to do three round trips per week.

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FOOD & DRINK

Tbilisi, Moscow start wine consultations

Georgia and Russia have started consultations on re-launching sales of Georgian wines in Russia, Union of Georgian Winemakers head Levan Koberidze said on July 2nd, Interfax News Agency reported.
"It is important to further the dialogue at a working level and get in touch with all agencies whose approval is vital for restarting sales of Georgian wines in Russia," he said. "Russia's attitudes are mostly positive, which inspires hope for successful talks," Koberidze said.
Earlier reports said that Russia and Georgia reached an agreement at a Commonwealth of Independent States chambers of commerce's meeting in Tbilisi in June, to negotiate the return of Georgian wines and other products to Russia. Before March 2006, when a ban on Georgian wine imports was imposed, Georgian wines had accounted for nine per cent of Russia's wine imports and some five per cent of the Russian wine market, Vadim Dhobis, spokesman for the National Union of Alcohol Market Participants reported. Over 80 per cent of Georgian wines had been exported to Russia, he said.

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FOREIGN INVESTMENTS

Foreign investments expected for 2007 

Georgian Prime Minister, Zurab Noghaideli, recently announced at a government session that Georgia has spent US$575 million in foreign investments in the first quarter of 2007. According to Noghaideli, foreign investments for the entire year should amount to US$2.0-2.5 billion. The biggest investors were Denmark, Turkey, and Netherlands, The Messenger reported.
Over the past few years the government was attracting western investors but this year promises attention from the East. About US$ one billion in investments are anticipated from Iran and United Arab Emirates. Political opposition members find cause for concern in this, saying that the business interests of particular government officials are behind the Eastern investments. "Small and medium-sized European entrepreneurs are not entering the country. The reason for that is the unstable economic situation. Instead of them, states including Kazakstan and Turkey are entering Georgia," newspaper Alia quoted the leader of the political movement Georgia's Way, Salome Zourabichvili, as saying.

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