Issue 1, 2013 February-March - Investor.ge

© The American Chamber ofCommerce in Georgia, 2011All rights reserved. No part of this magazinemay be re-printed, or reproduced or utilizedin any form or by electronic, mechanical orother means now known or hereafter invented,including photocopying and recording, or in anyinformation storage or retrieval system withoutpermission.The opinions expressed in this magazine do notreflect the opinion of the American Chamber ofCommerce in Georgia nor its Board Members orstaff, unless otherwise stated. AmCham Georgianeither endorses, nor can be held liable for anyeventuality arising from the use of any product orservice advertised within the pages of this issue.Investor.ge is printed by CEZANNEAmCham Georgia 36a Lado Asatiani Street, 3 rd floorTel: 2 22-69-07amcham@amcham.geeditor@amcham.ge, www.amcham.gewww.investor.ge

There are several qualitynews sites online that provideGeorgian news in English,Russian, and other languages.But if you crave the news, onradio or television, Investor.ge’sEteri Maisuradze has compiledfor you the times, days, andstation numbers for radio andtelevision news programs inEnglish.Gipa Radio, FM 94.3: Startsbroadcasting NPR at 6am,with hourly broadcasts until 11am. From 11am to noon: BBCbroadcasting. From noon to1:00pm: local news.Radio Maestro, FM 94.7:Five minute English-languagenews broadcast at 11am, witha second ten minute Englishlanguagebroadcast at 7pm.Maestro, www.maestro.ge, channel 241 on Silknet.Ten minute English-languagebroadcast at 7pm.GEOTV, www.georgianews.ge: online television service,providing English-languagenews clips throughout the day.“IDS Borjomi” confirmed the 2012sale of 55.8 percent of the company’sshares to the Russian Alfa Group. Theremaining 53.2 percent of the companyis owned by the Patarkatsishvili family(37.2 percent) and minority stockholders,according to Forbes Magazine.Pasha Bank plans to create a branchin Georgia, located in Tbilisi. Initial authorizedcapital for the bank is 35 millionlari; while over the next two years thebank plans to have assets worth at least$60 million.IFC will provide a loan of $7 millionto Kor Standard Bank to extend termfunding for small and medium enterprises,which are often underserved bycommercial banks. The funds will helpthe bank to increase funding to SMEsin order to support growth, job creation,and to increase the competitiveness ofthe Georgian economy.Funds from the Asian DevelopmentBank (ADB) will be used to financeloans to small- and medium-sized enterprises(SME). In addition to the loan,ADB will provide technical assistance toenhance TBC Bank’s service delivery toits rural SME clients. Since 2007, ADBhas approved more than $1.1 billionin financing operations for Georgia, ofwhich $163 million went towards directfinancing of the private sector.BPI.ge reported that the EurasianDevelopment Bank, together with Turkishand German investors, is planningto build a $250 million metal factory inPoti, the Black Sea port city.The convention center, a $40 millioninvestment developed by Hestok LLC,will be connected to the city center bya gondola lift. It was built by Austriancompany Doppel Meyer and installedby JSC Elektrostroitel.Trend Agency reported that theairline will fly its final Tbilisi-London-Tbilisi flight on March 29. Airline representativesstated that the flights wereunprofitable; British Airlines returned toGeorgia in 2012.

In power for just three months, thegovernment of Prime MinisterBidzina Ivanishvili appears tohave struck gold in economic relationswith Russia: officials in Moscow havetentatively given the green light toresuming Georgian wine and mineralwater imports, reopening a majormarket for Georgian farmers andbusinesses.While critics in Tbilisi haveslammed the overture as striking adeal with an occupying power, thetrue test of PM Ivanishvili’s Russiangambit will be his ability to balancethe country’s economic need for itsnorthern neighbour with Moscow’spenchant for undermining Georgiansovereignty and its stated goal ofmoving closer to the EU and Nato.On February 4, a Georgiandelegation is scheduled to meetwith Russia’s de facto wine tsar,Gennady Onishchenko, head of theRussian state consumer protectionagency. Onishchenko famouslybanned Georgian wine, mineral waterand other goods on alleged healthconcerns in 2006, though it was almostcertainly politically motivated, giventhe deep hatred and mistrust betweenVladimir Putin’s Kremlin and GeorgianPresident Mikheil Saakashvili.The February meeting betweenthe new Georgian government and theRussian government, long anticipatedby the Georgian media, has been billedas the country’s re-entry to the Russianmarket – a virtual mecca for Georgianwine producers and mineral waterbottlers that has been off limits sincethe embargo.For the past six years, Georgiancompanies have gone to great lengthsto circumvent the restrictions,exporting Georgian goods through thirdcountries and even selling controllingshares in some businesses to Russiancompanies. While Saakashvili and hisgovernment tried valiantly to makeup for the Russian market during theyears following the embargo, it is hardto underestimate its importance to theGeorgian economy.Prior to the embargo, an estimated75% of all Georgian wine was exportedto Russia. In 2007, just a year afterthe embargo, wine exports reportedlydropped from €59m to just €21m. Overthe past six years, exports have slowlyincreased, nearly doubling to €40m in2011, but despite opening new marketsin China, India, and other countries, thesector has never fully recovered.In reality, the embargo effect wentmuch deeper than just wine sales:Georgian households around thecountry suffered from the loss of theRussian market; from the wine-richregions of Kakheti and Racha, wherefarmers depend on grape crop sales,to citrus producing regions in westernGeorgia where families supplementedtheir income by shipping lemons andnectarines to the Russian market.Those farmers helped secure a victoryfor Ivanishvili’s Georgian Dreamcoalition in the 2012 elections, whichran on a platform of relieving povertyin the regions by resuming traderelations with Russia.In a recent prognosis for Georgia’seconomic growth in 2013, theInternational Monetary Fund (IMF)tied Georgia’s prospects to its relationswith Russia. IMF Representative AzimSadikov said growth rates could slowto 6% if the country falters underincreased political uncertainty and poorrelations with Moscow. “There is areal possibility of increased trade withRussia, and new sources of foreigninvestment,” Sadikov said in a Januaryinterview with Reuters. “However, ifthe current uncertainty persists… thengrowth in Georgia could be lower thanwe project currently.”In the weeks and months sincePresident Saakashvili and his partywere trounced in the October 2012election, officials in Moscow andTbilisi have flirted with reconciliation:there have been conferences on trade,new committees formed, even a newTbilisi office created for a specialenvoy on Russian relations - the firstsuch step since the two countriessevered all diplomatic relationsfollowing the August 2008 war.In January, the countries’leaders were alsoseen making stridestoward better relations.President Putin took timeout to meet Patriarch Iliathe Second, the mostrespected public figurein Georgia, whilePrime Minister

Dimitry Medvedev chatted withIvanishvili during the Davos WorldEconomic Forum in January.But these overtures have beenmet with growing skepticism bySaakashvili’s party, the now oppositionUnited National Movement (UNM),and its supporters. In a televised debatebetween Georgian Dream and UNMmembers of parliament in January, MPGiorgi Gabashvili repeatedly accusedGeorgian Dream of underminingthe country’s territorial integrityby seeking relations with Moscoweven as Russian troops occupy theseparatist regions of Abkhazia andSouth Ossetia, which Russia declaredto be independent nations following itsvictory in the 2008 war with Georgia.Amid unconfirmed Russian mediareports that Moscow and Tbilisi arediscussing Georgia’s return to theCommonwealth of Independent States,a union of former Soviet republicsthat Georgia left in 2009, Saakashviliannounced plans to initiate a lawto legally tie all future Georgiangovernments to the country’s prowesternpolitical track.But while Georgian Dream officialshave tied closer trade relations withRussia to economic growth, theyhave repeatedly denied allegations thegovernment is prepared to sacrificeGeorgia’s pro-Western aspirations overwine and mineral water sales.The Ministry of Foreign Affairshas strongly denied the Russian reportsover CIS talks. “Our foreign policy istowards Europe and the Euro-Atlanticspace and we remain committed to thiscourse,” First Deputy Foreign MinisterDavit Zalkaliani said in comments tothe media on January 29. “Our foreignpolicy priorities remain unchanged;that is full integration into Euro-Atlantic structures.”

Based on data from November2012, ISET PI has released itsnext forecasts for Georgia’sreal GDP growth rates. The forecast forthe last quarter of 2012 dropped furtherdown and the final number stands at6.2% . This reduction was not, however,enough to change the annual forecast forthe whole of 2012, which stays at thelevel of 7.2%. In the meantime, the forecastfor the 1st quarter of 2013 has alsobeen reduced and now stands at 6.2%.Quickly summarizing last year(2012), we can say that it was a successfulyear for Georgia in terms ofeconomic growth. The country exceededthe expectations (6.0% annual growth)of the World Bank by maintaining anannual growth rate at nearly the level(7.0%) of 2011. Even if the growth rateof the last quarter of 2012 turns out to beless than the forecasted 6.2%, the annualgrowth rate level of 2012 will still beclose to 7.0%.At the same time, Georgia bestedits neighboring countries. If we look atthe table, Georgia’s growth rates clearlystand out.2012 was election year in Georgiaand the government changed as a resultof those elections. Naturally, these politicalshocks influenced the performance ofthe Georgian economy. The pre-electionperiod was characterized by oversizedgovernmental expenses, mainly on roadinfrastructure, which resulted in largegrowth rates (varying around 20-25%) inthe construction sector. However, therewere also high growth rates in sectorslike manufacture (around 20%) andfinancial activity (15%), which indicatesustainable growth.The growth started relatively slowlyin the 1st quarter (growth rate 6.7%)and rose to 8.2% in the 2nd quarter.It went down again in the 3rd quarter,which culminated in the pre-electoralcampaign, to stand at 7.5%. However,economic activity also slowed down inthe 3rd quarter in the countries neighboringGeorgia: Russia’s GDP grew onlyby 2.9% (y-on-y) in the 3rd quarter; theTurkish economy almost did not grow atall in that quarter (a growth rate of only0.2%), and Ukraine even experienced adrop of 1.3%.The 4th quarter of 2012 coincidedwith the post-electoral period and, giventhe change of government, political uncertaintiesstemming from the politicaltransition influenced this period. Demandon money, the growth of VAT turnover,and external trade (both imports andexports) decreased during the quarter,which indicates a decline in economicactivity. The new government started todecrease governmental expenses, whichmight slow down economic growth inthe short-term. However, this decreasewas largely caused by an optimization ofgovernmental expenses and the reductionof “other expenses” by 50%. This willincrease the country’s fiscal transparencyand is good for the future.Our forecasting model is based on theLeading Economic Indicator (LEI) methodologydeveloped by the New EconomicSchool 2. We constructed a dynamicmodel of the Georgian economy whichassumes that all economic variables,including the GDP itself, are driven bya small number of factors, that can beextracted from the data well before theGDP growth estimates are published. Foreach quarter, ISET-PI produces five consecutivemonthly forecasts (“vintages”),which increase in precision as time goeson. Our first forecast (1st vintage) isavailable about five months before theend of the quarter in question. The lastforecast (5th vintage) is published in thelast month of the quarter.

fiA: The MCC Board of Directorshas selected Georgia as eligible for aseond MCC-Georgia Compact, and theGeorgian Government has been workingin coordination with MCC on the designof an investment proposal that we hopeto finalize for presentation to the MCCBoard for approval in June, 2013.Following an analysis of the keybarriers to economic growth in Georgia,the proposal focuses on education andworkforce development, particularly inareas related to the sciences, technology,engineering, and their related job sectors.The components being developedinclude investments in general educationto improve rural schools and the teacherprofessional development system; professionaleducation and workforce development;and higher education programs. A: Georgia has chosen to align itsprofessional education system to theEuropean system. They have adopteda qualifications framework based onthe European framework and have developedstandards based on processesused in Europe. The challenge now isto develop a quality framework for theGeorgian professional education sectorthat gives confidence to students, employers,industry and the government thatthe skills gained are recognizable andreliable and are those needed by industry.Georgia also needs to develop a technicaland professional education sectorthat is in partnership with business andindustry, and understands the currentand potential employment demand. Thisdirection is reflected in the government’spriorities and is part of the current compactproposal.A: There is plenty of data highlightinga mis-match between the output ofthe education sectors and the needs ofGeorgian industry for skills. Industryreports poorly developed skills in certaingraduates as well as difficulty gettingpeople with the right skills. There isevidence that business and industryimports skilled workers into Georgiaeven though there are high local levelsof unemployment.Changes to the sector can result inGeorgians having the skills needed byindustry and getting long-term well-paidjobs, as well as generating new sectorsof skilled workforce for future growth.This is not only true for Georgia. Look,for example, at the heavy interest in communitycolleges in the US, or at the professionalcertificate programs in Europe.A: The grant facility being developed

seeks to capitalize best practice and innovationin the professional educationsector in Georgia. It will be open to allpublic and private providers of technicaltraining and professional education, withthe objective of developing new coursesthat are linked closely to employmentoutcomes. This will allow existingcourses to be improved; ensure coursesalign to the needs of employers; andallow existing good practice in Georgia(and there are some really good examplesbeing supported by international partnersand domestic providers) to be furtherdeveloped, documented and showcasedto the whole sector. We hope to focuson projects with strong links to industry. A: The Millennium Challenge Account– Georgia (MCA-G), togetherwith the Ministry of Education and Scienceand MCC, has recently conductedpublic consultations throughout Georgiato inform the design of the grant facility.I think the government and MCC agreethat consultations with public and privatepartners are a key part of designingeffective economic growth policy andinvestments.In the first stage through February,the government and MCC are solicitingfeedback through an open “Call forIdeas” from potential partners- allowingthem to share their priorities and possibleprojects. Pending the approval ofthe MCC-Georgia Compact, an opencompetition for grant funding would bepublicized with the specific rules andcriteria for awards openly available. Weexpect that phase to begin in late 2013.

The Georgian private K-12 educationmarket is ripe with competition.Parents, it seems, arespoiled with the diversity of choicebetween Georgian, American, British,Italian, French, German, Turkish andinternational-style education. There aremore than 110 registered private secondaryschools in Tbilisi alone, and anadditional 128 in the country, accordingto the National Center for EducationalQuality Enhancement.What has prompted such an increasein the number of private schools, and isthe rising competition due to the lucrativeprofits that this sector promises?Study abroad programs could be onefactor pushing parents to pay for theirchildren’s education: nearly 500 Georgianstudents chose to enroll at highereducation institutions in the U.S. in 2012,up by five percent from last year and a36 percent increase from six years ago,according to the Institute of InternationalEducation Open Doors 2012 report.Admission to overseas colleges anduniversities is no easy feat, especiallyif the applicant aims to secure financialsupport. Some of the private schools inTbilisi boast a track record of graduateswho win scholarships to study abroad – avaluable commodity that allows schoolsto charge high tuitions and, consequently,become especially alluring businessopportunities for both local and foreignentrepreneurs.Mariam Kutateladze, director ofthe XXI Century School, said greaterdemand has spurred this extraordinarygrowth in the supply of private schools.“We believe that the growing communityof well-educated and successfulparents in Tbilisi is looking for a schoolthat builds onto [Georgia’s] traditions[of higher education] and provides aneducation that is ideal for students whowish to continue their studies in Georgiaor would like to apply to universitiesabroad. It is important to be versatile andresponsive to market needs.”Director of QSI International Schoolin Tbilisi Tom Tunny stressed that thereis bigger demand for higher education ingeneral. “The number of private schoolshas grown tremendously in the past few

years due to the increased interest ofstudents who wish to go on to Universitystudy, either in Georgia or abroad,” hesaid. “Whether or not it is an attractivebusiness sector, there is a real need forprivate school education.”Head of the European School (InternationalSection) Robert Thorn addedthat the accelerated pace of economicintegration within the region has createdspecial demand for English-languageeducation.“Georgia has made attempts to attractinvestors and it [has] a strategic positionin the region. It is, for some businesses atleast, a place to be successful,” he said.“Also, regional politics has had aninfluence- with Turkish, Azeri and Iranianbusinesses moving into the area.With this, business people and other expatriotslike to come with their familiesand so we have seen a huge growth inex-pat students applying to the school.”Gary Crippin, head of the GuivyZaldastanishvili American Academyin Tbilisi (GZAAT), noted that theincreased supply of private secondaryeducation institutions in the city isclosely tied with business development- high-quality educational institutionsare essential for attracting and retaininginvestments within the country.According to Crippin, “good privateschools are essential to a healthy businessclimate. If business owners and managerscannot find top quality schools in whichto enroll their children they will considerrelocating or will be forced to pay sizablefees to send their children to boardingschools abroad.”Unlike more traditional businessareas, however, competition among theschools is more complex. Many parentsmeasure good private education by thequality of the faculty and their availabilityto students. Libraries; science andcomputer laboratories; well-equippedclassrooms; dedicated theater, arts andmusic rooms; and sports halls are also allpart of creating a stimulating educationalenvironment that allows children to testtheir exciting new skills and knowledgein action.When asked to define their market advantage,most private education providersemphasize highly-qualified teachers,a student-oriented learning environment,and activities that include communityservice, arts, music, and sports. Othersconcentrate on providing professionaldevelopment skills that make for moreopen-minded and well-rounded youngadults. The Georgian private educationmarket has evolved to include schoolswith ambitious aspirations and impressivecurricula. As with all business, competitionmakes for a better value offeringto the parents. Nevertheless, this is oneproduct that does not wholly depend onthe producer. Tamar Karchava, EducationUSA adviser at the InternationalCenter of Education, stressed that studentsplay an equally important role inmaking sure they utilize the opportunitiesthat private schools provide.“A lot of the students from bothpublic and private institutions come toour center for additional help and guidance.We have a very good record forboth types of schools. Although there isno magic formula or easy answer - goodeducation is a lot of work, and none ofour students have attained easy success,”she said. “It is not possible to make upfor years lost in the elementary and secondaryschool systems during the finalgrades of high school. Consistency isthe key.”

Wake up and smell the coffee,Tbilisi.For a city where coffeehas meant fake Turkish grounds or CaféPele instant for the past two decades, anew love affair with Italian brews anddeep, rich and foamy coffee drinks istaking over – from higher sales at supermarketsto new cafes and coffee shops.The new business has been a boomfor coffee imports, according to GeoStat,the state statistics body. Instant coffeeimports have doubled from $6.62 millionin 2006 to $15.86 million in 2011, thelatest available figures.The import of unroasted and roastedcoffee beans has also grown- from $6.45million in 2006 to $ 13.11 million in2011). No data is available for 2012,although studies among coffee drinkersindicate the numbers will continue togrow: the average annual coffee consumptionper household in Georgia was2.7 kg in 2011, up from 2.5 kg in 2006.Iliauni Business Review, an onlineportal of Ilia State University’s Facultyof Business, studied coffee consumptiontrends at supermarkets in November2012, concluding that, out of 1,038buyers interviewed, 86 percent- or 187–said that they are coffee drinkers, with28 percent drinking coffee more thantwice a day.Nearly half the respondents buy coffeebased on taste, while 13 percent areguided by price.Enter Thee, Starbucks?Georgia has always had a love affairwith coffee, especially the tiny tumblersof Turkish brew whose coffee groundsare said to hold the key to the future, aswell as a healthy dose of caffeine.But unlike coffee connoisseurs in theWest, Georgians were largely limitedto instant Nescafe if they wanted theirmorning cup of joe in any other form.The new fascination with coffee drinks,however, is changing that.Lali Pipia, a manager at Latte, a coffeehouse in the café-heavy Vake neighborhood,told Investor.ge the business ofcoffee brewing is “bustling.” “If I wereto assign a score, I would give it nine outof 10,” she said.According to Pipia, the café servesaround a thousand coffee drinkers amonth, who consume five kilograms ofcoffee beans. The most popular brews arecappuccino, latte, espresso and Americano.Long-standing cafes, like CoffeeHouse on Kazbegi Avenue in Saburtalo,which opened in 2002, say the growingnumber of cafes has not gone unnoticed– even though they have not yet resultedin diminished sales.“Back in the 90s, wesimply had no rivals. Now competitionis increasing but our clients remain loyalto us,” said Tea Kvatadze, manager atCoffee House.Coffee House is the city’s veteranbrand in this business, with its first caféhaving opened in 1998 in Vake, and twoyears later a second in Vera district. Thecafé on Kazbegi Avenue, apart fromserving drinks, also sells coffee groundswhich are imported from the US andhas daily sales averaging around twokilograms. Zurab Liparteliani, owner ofCoffee Time Starbucks Coffee, also inVake, said the growing trend of highendcoffee drinkers led him to invest$40 thousand in the coffee business.He opened his café in November, andhopes sales will eventually lead to a realStarbucks license – the first of its kindin Georgia.“For a while we will be merelyobserving the situation in order to understandwhether the market is ready toexpand,” Liparteliani told Investor.ge.The key indicator, he stressed, is turnover.Once sales reach 60-70 kg monthly,they will consider expanding the business,which may also include purchasingthe Starbucks license. Currently, the caféconsumes 10 kg coffee per month.Reaching that magic number hasbeen a challenge in the past: the muchawaited Starbucks café in Tbilisi Mallhas been postponed, reportedly due aperceived lack of potential customers.“We had open negotiations, but Starbucksthinks that the Georgian market isnot ready for them yet. We think it is butthey have their standards,” Mariam Kutateladze,marketing manager at TbilisiMall, said. Starbucks, according to her,did not elaborate what would be the desiredindicators that Georgia is “ready.”Coffee drinkers in Tbilisi, however,remain hopeful: there are over 12,000‘Likes’ on two Facebook pages dedicatedto bringing Starbucks to Tbilisi.

In the eight months since theinauguration of the new Houseof Parliament, Kutaisi has notseen much of a surge in business,according to Daan Harmsen, financialmanager of GeoCapital, a microfinanceorganization based in Kutaisi.“I know of one restaurant thatopened... I don’t know of a lot of otherplaces. There are some new places indowntown Kutaisi that I’m not sureare actually related to Parliament. Ihaven’t seen a big boom in businessactivity because of Parliament,” hesaid.A few chain stores and restaurants- such as Whisky House, Beermania,and Caffe Vergnano 1882 - haveexpanded from Tbilisi into Kutaisirecently, but other notable national andinternational chains, such as Populi,Mirzaani, and McDonald’s, had alreadypaved the way, demonstrating theireconomic viability in Kutaisi beforeParliament arrived. The renovationof several Kutaisi tourist sites, likethe city center, Prometheus caves, andBagrati Cathedral, also deserve creditfor bringing new businesses (and newtourists) into town.Harmsen says that while Parliamenthas not caused an increase in the rateof people seeking out loans to start asmall business, GeoCapital has issuedloans used to renovate homes in hopesof attracting Parliamentary rent money.“What we’ve seen a couple of times isthat people actually fix up their houses,because they expect Parliamentariansand people working in Parliament tocome in and want to rent houses,” henoted. For these Kutaisi residents,unfortunately, the Parliament’s moveback to Tbilisi could mean fewerrenters, potential trouble recoupingthe cost of renovations, and difficultypaying back loans.On the other hand, lower rentscould benefit Kutaisi’s growingindustrial sector by helping companiesattract skilled labor to Kutaisi. MikheilTigishvili, Director of GeorgianInternational Holdings, says Parliamenthas meant recruiting trouble for themanufacturers operating in the KutaisiFree Industrial Zone (FIZ) that hiscompany organized. “When thegovernment built the Parliament the

eal estate went up too much and therent was not acceptable. For exampleif you pay engineers and technicians1000 lari or 1200 lari...half of thesalary he has to spend on rent, plus heneeds food, he needs transportation,and [he will have] no savings.”According to Tigishvili, the KutaisiFIZ currently employs 1725 people andplans to add seven or eight hundrednew employees this year. By theend of 2013, the FIZ will consist offourteen factories, including FreshCeramic and a new textile plant thatwill import Egyptian cotton andproduce clothes for sale in the US.Tigishvili says prospects are good.“Our investors are happy, they areplanning to develop and develop, andhonestly Parliament will be in Kutaisior will be in Tbilisi; for us it’s not a bigdeal,” he said.With the economic engines ofKutaisi firing on all cylinders, Harmsenthinks Kutaisi is just getting out ofits post-Soviet slump. “There’s a lotof trade going on here, and there’slots of agriculture taking place in theregion.” Harmsen also cites the newlyrenovated David the Builder KutaisiInternational Airport as indicative ofthe economic potential of Kutaisi. “Isee a lot of people are taking jobs atthe airport. For young people whohave some education there’s not thatmany job opportunities in Kutaisi...”Provided the airport offers flights tomore destinations, Harmsen says, “Ithink it could have a very positiveimpact.”According to marketingprofessional Giga Vashakidze, theairport will bring economic benefitswith or without Parliament, due to howit is being marketed and developed.“The way I see that they are developingthe airport there is a clever way: theyare developing it as a low-fare airport,”he said.Vashakidze noted this could helppromote tourism in the region: peoplewho have wanted to visit Georgia butwere deterred by Tbilisi airport’s highprices, will now fly into Kutaisi airportinstead - and will “stay in the regionfor several days, which will draw theeconomic growth into the region.”The airport would only serve tocement Kutaisi’s position as a regionalhub. According to the Kutaisi mayor’soffice, the city is already an importantcrossroads between eastern, western,and northern Georgia, connecting viahighway and rail to the rest of thecountry and the rest of the Caucasus.From Imeretian farmers bringing theirgoods to market, to Turkish containertrucks stopping to refuel at the gasstations, and Turkish restaurantsdotting the highway on the westernoutskirts of town: the city continuesto play an important role in local andregional trade - as it has for over 3,500years. With or without Parliament,Kutaisi has history and geography onits side.Vashakidze, who lives in Tbilisi,says that while the move to Kutaisi atleast had the potential to benefit thecity economically, a move back to thecapital would not have any effect onTbilisi. “Moving Parliament to Kutaisiwas a way of bringing more peoplewith higher income to a city whichwould bloom - at least the restaurantmarket there and some servicesmarkets... I don’t think anything willchange directly for Tbilisi. We didn’tlose much when the Parliament left andwe will not gain anything back.”

Recent statistics indicate thatGeorgia’s real estate market isrebounding: in 2011, the turnoverof the construction sector jumpedto 3.3 billion lari (approximately $2 billion)from 1.7 billion lari (approximately$1.03 billion) in 2010.As the real estate market showedturnaround, investors’ interest increasedas well: in 2010, the country’s real estatesector was the fourth sector aftertransport and communications, industrialand financial sectors. In 2011, real estatesector outpaced all the other sectors andtopped the list with $ 224.8 million.“The best time for our sales was between2006 and 2008, when we woulddeliver around four completed projectsannually; but the recovery is already insight and we see profit, a minor one,but still profit,” says Lasha Gelashvili,technical manager at Kid Architecture,a developer company which has been onthe market since 1998.Currently, Kid Architecture is aboutto finish a 54-apartment residentialblock on Saburtalo District’s NutsubidzeStreet, the first block of its single projectafter the crisis - launched in November2011. In total, eight 12-storey blocks areplanned under this project.“We have carried out approximately25 projects in total, mostly in the housingsector,” Gelashvili told Investor.ge, noting that sales had dropped to an1/8th of its pre-financial crisis level.“But it’s speeding up again. In this blockwe have already sold 90 percent of theapartments.”7 Sky, another Georgian developercompany, was forced to temporarilyclose in 2008 and was only able to resumework in November of 2010. “Weeven could not dream of profit just coupleof years ago. Our only goal was just tocover the debts. Though, we can saythat we have already survived,” AnzorOdikadze, the company’s director, said.According to Odikadze, the KavtaradzeBlock was the first project theyhave completed since the crisis. Out of21 thousand square meters, just 2,500square meters have not yet been sold.“People still had fears leftover fromthe crisis that, even if they would pay thecost, the company would fail to deliverthe apartment; so they have refused tobuy anything until the block has beenfully completed,” he said. “Since itscompletion we sell around four apartmentsper month.”The crisis has not, however, madean impact on costs. One square meter ofa completed facility costs up to $600 inTbilisi suburbs, between $700 and $850in Saburtalo and, in high end Mtatsmindaand Vake, ranges between $1,000 and$1,800.Like the housing sector, commercialoffice construction is also growing.Tinatin Kapanadze, sales managerat Ideco, a developer company whichcompleted Opera Residence -- a residentialhouse with commercial space inMtatsminda district in the summer of2012 -- noted demand is up.“Starting from the second half of2012, we see increased interest fromcustomers. Currently 40 percent of 550square meter space which is 15 offices intotal has been already rented.,” she said.Both local and international customers,according to Kapanadze, have showninterest in renting offices. “To be moreaccurate, the demand has increased for Aclass segment,” she said. “The country’sA-class market clearly has problemsand the situation is improving at a slowpace.”In Tbilisi, the total vacancy rate formodern offices currently stands at 13percent, according to a December 2012report on the real estate sector preparedby Jones Lang LaSalle, a US-based commercialreal estate services provider, theconsulting company IPM Georgia, andTbilisi Municipality.However, vacancy rates differdepending on the neighborhood: thehighest vacancy rate is in Vake-Vera at30 percent; and in the developing areaaround Davit Agmashenebeli Avenue,on the outskirts of Tbilisi, vacancy isclose to zero.The report notes that, with limitedsupply added to the market in 2012 - atotal of 9,000 square meter, the averagerent is expected to stay stable in theshort-term. In 2013, however, an estimated34,771 square meters of space isdue to be finished, which could end uplowering rents.The Jones Lang LaSalle study foundthat, with 13,571 square meter spacescheduled for delivery in Vake-Vera,the vacancy rate will further increase.“The pipeline is very limited in Davit[Agmashenebeli Avenue] and it is in thisdistrict where the best opportunities canbe found for new office developments,”the report stated.There are opportunities in otherneighborhoods, as well, based on Kapanadze’sexperience: the Opera Residencehas 65 apartments and, to date, halfhave been sold. “I think that the supplyon the housing segment, as well as in thecommercial one, meets the demand,” sheconcluded.

Today, Georgia is still utilizing Sovietera technical standards (СНиП, the Russianabbreviation of Soviet ConstructionNorms and Rules) for new constructionprojects- most of which are outdated.Some СНиПs are written in the Georgianlanguage, and structural engineers usethese in structural design. As for rest,they remain unused in practice. Poorregulations, coupled with ineffectiveenforcement, compromises the qualityof buildings, safety of occupants and thereputation of the Georgian constructionindustry, one of the country’s biggestcommercial sectors.The need for an updated buildingcode is urgent.There are two main competing internationalsystems of technical regulationfor construction: Eurocodes, and theICC Family of Codes; and Georgia mustdecide which system to follow. Both aregood, but they have little in common.The International Code Council (ICC)Codes (a set of rules including referencedstandards) represent a comprehensive,compatible and regularly updated regulatorysystem that foresees the preventionof hazards while designing, constructing,and operating buildings. The ICC Familyof Codes is US-based but can also beutilized internationally.Eurocodes (European standards) isa set of harmonized technical standardsdeveloped by the European Committeefor the standardization of structuraldesign in construction works. Otheraspects, covered under the ICC Familyof Codes - such as fire safety design,other non-structural provisions, andbuilding services – are handled by eachEU member state as separate legislation.Even for structural design, Eurocodesare designed to be used with a “nationalannex” produced by each EU memberstate to fill in gaps left in the Eurocodes.With the help of USAID, the Georgiangovernment has already takensome important steps towards fixing thecountry’s building codes: it has signed anMOU with ICC to collaborate in reformingconstruction standards in Georgia;and has obtained a license to use theInternational Building Code (IBC) asthe base for its national building codeselaboration. It also has a step by stepimplementation schedule, due to thevolume and complexity of the document.Georgian Law regarding Spatial Arrangementand Urban Development isalso a mix of Soviet and western planningprinciples, and is therefore problematic.One issue is the lack of planning documentson a countrywide and regionallevel. On the local level, there are generalplans for land use in several of the largecities, as well as development plans forsome recreational territories. Specialists,however, have widely criticized theseplans since, in most cases, they do notmeet the basic needs for urban/ruraldevelopment.There is a draft “Spatial Planningand Construction Code of Georgia,”prepared by the Ministry of Economyand Sustainable Development, whichwas agreed on in 2011. It would be possibleto use this draft with a few minorchanges, such as the introduction of amain policy document for spatial planning,and the updating of existing zoningregulations. Such changes would provideevery self-governing entity with the legalinstruments necessary to better plan theirterritories.Progress in streamlining permits hasgot faster: from 2006 to 2013, Georgiajumped 148 places on the “Dealing withConstruction Permits” indicator of theannual World Bank Doing Business (DB)Survey, moving up from rank 152 on DB2006, to being the top third country onthe list in 2013. Recent changes – such asit no longer being a requirement to havethe structural section of constructiondocuments, or an engineering-geologicalsurvey for a construction permit - aimedat further simplifying permit acquisition,however, have caused alarm amongsafety specialists. Dealing with ConstructionPermits152 42 11 10 7 7 4 3Procedures (no.) 29 17 12 12 10 10 9 9Time (days) 282 137 113 113 98 98 74 74Cost (% of income per capita) 145 71.7 28.9 20.3 21.6 23.2 20.2 17.7

Chubinidze, who started workingin real estate in 2004, said prices havebeen fairly stable for the past two years.He noted that while sellers often inflateprices, there are few apartments thatmatch the expectations of high-end buyers/renters.One of the largest issues facing themarket, Chubinidze noted, is the lack ofoptions on the market that meet currentdemands.While a large volume of apartmentshave been sold in Tbilisi recently, “itis rare that the cost and quality of theapartment match,” he said. “All thiscomplicates sales of real estate. Sometimes,several months are required tofind an appropriate residence for a client.The building’s façade, the state of theentrance, and car parking area [have tobe] taken into account.”Palavandishvili, a real estate brokerfor 23 years, said prices are primed toincrease over the next several years forboth property sales and rentals due toincreased consumer confidence, lowsupply, and expectations the economywill continue to grow. He noted that anestimated 90 percent of the populationis still living in multi-family apartments,which means the pool of prospectiverenters – and new property owners – isdeep.A key to keeping the sector healthy,however, is lowering the cost of mortgages,Palavandishvili stressed, adding

that this year prices will increase 15 to20 percent. He noted that rental pricesfor commercial property are already followingthat track: on Pekin Avenue, commercialspaces cost as much as $12,000per square meter prior to the war. Followingthe financial crisis, prices dipped to$5,000 per square meter but today theyare bouncing back, and the average costis around $11,000 per square meter.He noted that if there is peace andstability in Georgian politics, the pricescan continue to grow.“Despite the fact that, over the last15 years, the cost of apartments in Vakehas risen from $300 to $1,500-$2,000,the cost of apartments in Georgia overallremains lower than, for instance,in Azerbaijan; in Baku the cost of onem2 can reach $5,000, and in the Balticregion- $12 000.”For prestigious districts like Vake,Vera, Mtatsminda, and Sololaki, Palavandishvilibelieves apartments couldcost as much as $3,000-$5,000 per squaremeter over the next two years if the currenttrends in pricing continue.“Real estate rent today is too expensivein the central districts,” Eristavi toldInvestor.ge, noting that the average costof apartments for Rentals Ltd clientsis between $1500 and $2500 dollarsa month. House rentals can go muchhigher, with prices from $3,500 to $4,000a month.Eristavi explained that high rentprices are due to a number of factors,including the increased cost of incometax for leases - in 2010 it was 12 percent,but it increased to 20 percent in 2011.A second factor is the shortage ofavailable apartments – especially apartmentsthat meet the high standardsrequired by foreign workers and diplomats.“[S]ince 2008, practically no newapartments have been constructed. Theapartments constructed earlier have alreadybeen occupied, and delivery of newones has been restricted,” Eristavi noted.“Today, the Georgian market suffersfrom a deficiency of apartments withstandards that meet client’s requirements,”he said. “Very often leaseholderspropose very high costs for theirapartments… In Georgia, constructionof large apartments is common, but itis very difficult to lease an apartmenthaving approximately 1800 m2 with itsown swimming-pool, cinema and so on.The cost of such a lease, in some cases, isas much as $15,000. However, the mostpopular demand is for houses with threeor four bedrooms, with yards, at a costof $4000 a month. And there is a deficitof such houses on the market.”

There is a heated debate in Tbilisitoday over how the city shouldlook in the future: which historicbuildings and squares should bepreserved, which neighborhoods shouldhost new, modern architecture, and whoshould be consulted before new buildingsand structures go up.While the City of Tbilisi’s Old Tbilisiadministration did not answer questionsabout the city’s plans for the district,architects have plenty of ideas on howto find the right balance between thechanging needs of the city and the desireto preserve its historic roots.“There is no question- the city needsto be developed, and development meansconstant changes- changes according totime, needs and new modern tendencies,”noted Dr. Lena Kiladze.“Balance can be reached only bystrong regulation and zoning codes.Georgian architects need to develop thelanguage of contemporary Georgian architecture,and, at the same time, try toaddress global architectural issues suchas the limitations of energy, space andtime; along with issues of global warming;environment degradation; socialcohesion; and value creation.”Uarchitect founders Misak Terzibasiyanand Emile van Vugt noted thatthere is a “unique situation” in Tbilisiright now – and the process of workingthrough community and history will helpthe city determine the right mixture of oldand new buildings.“This city is starting to rebuild itshistoric substance, and there is a strongconsciousness about- and appreciationfor- the past. It is a starting point fromwhich to make the local identity of Tbilisiclearer and more interesting. The buildingswhich are being planned and built inTbilisi at this moment are in part eithernot reacting to or taking into accountthe city’s past. Of course, the questionarises: is it important for modern architectureto take into account the existingsubstance? We see it as an emotionaldiscussion to have this choice made bythe city and the people,” they wrote in anemail interview.“Discovering the different layers andconnections of the city, and emphasizingsome of them, is also a challenge forTbilisi. We have noticed that the city ofTbilisi is working on the reconstructionof these historic layers and connections.This process of balancing historicbuildings and modern architecture is anexchange of information between localidentity and global society. We think thatafter a period of ten years we will bettersee the results of this careful process.”

The steadily growing number offoreigners traveling to Georgiais stimulating growth in the hotelsector, according to two recent reports onthe industry.Two hotel sector studies – the GRE-MO report by Jones Lang LaSalle/IPMand the monthly review by KPMGGeorgia – both found that the numberof guests is increasing, as is investmentsin the sector.“According to the data provided bythe Border Police of Georgia, 4,389,256foreigners visited Georgia in 2012 - representinga 56 percent increase comparedto 2011,” noted the KPMG report, whichcited better visa regimes with Turkey andRussia for some of the increase.“If the political situation remainsstable, a 10 percent annual increase inthe number of visitors to Tbilisi in 2012-2016 is expected.”While the GREMO report noted thatonly 30 percent of the total number oftourists arriving in Georgia register inhotels, that number is steadily growing– meaning higher occupancy rates forhotels in 2012.“In the past five years, the numberof registered guests in accommodationfacilities has almost quadrupled andreached 853,049 in 2011,” it stated.Hotels in Tbilisi note 2012 was aneven better year, with occupancy ratesas high as 80 percent for hotels likethe Sheraton Metechi Palace Hotel, accordingto General Manager AndreasHeidingsfelder.An estimated 75 percent of theSheraton’s guests are business travelers,but Heidingsfelder is optimistic about anincrease in tourists, as well.“If the political situation is stableand there is no big change, and it goessmoothly further, the tourists will come,”he said. “There is so much advertisementfor Georgia – unexpected advertisement,not done now by the Department of Tourismor the Ministry of Economy – it isdone for the interest of country. For examplein November there was one weekof Georgian focus on German TV…Theysee that people are interested in Georgia.”The Holiday Inn, the newest chainhotel on the market - and the largest, wasquick to find a niche in Tbilisi for its 252beds, noted Oto Berishvili, the hotel’sbusiness development manager.“We opened our hotel at the end of2010… we grabbed our market sharebecause the quality and standards andservice we have is really in proportionwith the price we have,” he said.“Of course, there was a huge increasein 2012 compared to 2011, because it wasalready our second year and we alreadyhad a lot of accounts and a lot of satisfiedand loyal guests and companies.”Steady growth is bolstering demandfor hotel rooms in Tbilisi, according tothe Jones Lang LeSalle/IPM and KPMGreports.The Jones Lang LaSalle/IPM report,published in December 2012, found thatthe number of guests staying in hotelrooms increased 140 percent over thepast three years, from 2009 to 2012. Bycomparison, new hotel rooms have beenslow to hit the market, with the numberof beds growing by just 38 percent overthe same period.KPMG reported the growing demandfor hotels has inspired a steady increasein investment in the sector over the pastdecade: there are currently five hotelprojects in the works including a HiltonGarden, Intercontinental, Rixos Hoteland the Golden Tulip.“In 2007-2011, investments in fixedassets in the hotel, restaurant and catering

(HoReCa) sector in Georgia totaled $228million,” the report noted.“Additionally, for the period of 2007-2012, foreign direct investment in theHoReCa sector in Georgia amounted to$516 million.”Based on those projects, KPMG predictsthe number of hotel beds in Tbilisiwill grow by eight percent annually overthe next four years.“To be honest, I think there is [room]for more hotels…I have got a feeling thatthe demand will grow further because itis great to do business here. If you stepin, you see how many big companieshave settled down here, big internationalglobal players,” Heidingsfelder noted. “Ibelieve the demand for hotels will grow.”But while the increase in tourists hasbeen good for the industry, the sheervolume of hotel beds set to hit the marketcould have an adverse affect on allthe hotels, Steve Johnson, the owner ofBetsy’s Hotel, warned.“In 2011there was 68 percent occupancy,in 2012 a 82 or 83 percent[occupancy rate] and we really had towork hard; we have 57 rooms,” he said.“The rates are going down, down,down…With the government pushingthree stars to come in, it is just going tokill everybody who is above a three starbecause they are going to charge $60,$65 – they are going to go to Europeanrates.”With more hotels to choose from,travelers’ preferences will shape thefuture of the Tbilisi market.KPMG found that out of five factorsfor choosing a hotel room (friendlinessof staff, cleanliness of rooms, location,image/reputation, and price), travelersput more importance on the staff thanany other single indicator.

AmCham President,Sarah Williamson,and theCo-Chairs and DeputyCo-Chairs of the AmChamCommercial Law and TaxCommittee;Ted Jonas,Andrew Coxshall, LashaGogiberidze and RobinMcCone, along with Am-Cham ED, Amy Denman,met with Director Generalof the Revenue ServiceLasha Khutsishvili, DeputyHead Giorgi Bakradzeand International RelationsDepartment representativeDachi Kinkladzeon January 31.Several issues of importance werebrought forward during the 2.5 hourmeeting, and are outlined below.Thank you to all the members whobrought forward issues and problems toassist us in preparation for this importantmeeting. We incorporated as manyas possible, and continue to work withthe Revenue Service and the workinggroup on additional issues raised by ourmembers.AmCham expressed the concern ofmembers over the large number of, andhastily performed, tax claims (i.e., collectionacts) issued at the end of 2012.We stressed the need for an effective andlogical risk-based audit approach ratherthan a “carpet bomb” approach to the taxaudits of companies.We also stressed that the mediationprocess should be put back into place.The GRS replied that many of thecollection acts were issued later in theyear due to a suspension of audits duringthe months around the elections.TheGRS informed that they are workingtowards a more consistent system of arisk-based audit approach which shouldbe in place by the 4th quarter of 2013.The risk analysis formula is being revisedand the scheduling and planning of auditswill be regulated more effectively. Mr.Khutsishvili assured us that the mediationprocess will be put back in place,and agreed with AmCham that the timeperiod for the taxpayer to respond tothe draft claim prior to the initiation ofmediation should be extended from 5days to 10 days.AmCham strongly objected to therecent tax audit practice of charging VATon transactions that are, by law, VAT exempt.This has been an issue of concernfor many of our members. And while theclaim is almost always overturned in theappeals process, the incorrect issuance ofthe claim in the first place wastes enormousamounts of time, money and staffresources of our members.Mr. Khutsishvili agreed that this isan issue. He suggested that companiesmight need to produce clearer and wellorganized supporting documentation onthis issue.AmCham responded that it is ratheran issue of training tax inspectors andeducating them on this issue. When aninspector makes the same erroneousclaim repeatedly, causing not only bad

will between compliant tax payers andthe RS, but also administrative andfinancial burdens for companies – thisinspector should be pulled from the field,and given the opportunity for training tounderstand the details of VAT exemption.AmCham raised the issue concerningchanges to the Tax Code in 2011 andagain in June 2012.The amendment in 2011 providedthat an interest expense deduction couldonly be taken when interest was in factpaid [on a cash basis]. Previously, itwas on an accrual basis. The June 2012amendment provided that, if interest hadbeen deducted in the past on an accrualbasis and the interest plus principal hadnot since been capitalized, then interestwithholding tax was still due.This amendment caused considerableconcern for many of our membersthat have intercompany loans to financeoperations. The rule that interest shouldonly be deductible on a cash basis is fairand common practice in most countries.However, the retroactive nature of theamendment was what most offendedour members.Mr. Khutsishvili explained that parliamentat the end of 2012 had tried toalleviate the problems this might cause tobusiness by making a further amendmentthat means the interest withholding of5% is no longer due for all years in onelump sum, but rather that 2006 was duein 2012, 2007 is due in 2013, etc.It seems that a late payment penaltywill apply for any company that did notmake the 2006 interest withholding paymentby 31 December 2012. An underreportingpenalty may also apply if theydid not report by 15 January, 2013. Thesame applies going forward.Members may also gain relief fromapplying a Double Tax Treaty if one isavailable. However, this should be confirmedby your tax advisors.We stressed our stance that ATAsshould be made available to companiesas an option again, and that the ATAworking group that was formed in 2011be brought together again to ensure theATA system is improved where needed.The GRS leaders agreed with Am-Cham that companies should have theoption for an ATA. Trainings are currentlyunderway in the Revenue Servicefor Group C (smallest companies) privatesector auditors to be certified in ATAs.AmCham agreed and relayed that, inorder for the program to work, the auditcompanies performing the ATAs shouldbe well-trained in the process. AmChamagreed to work with the RS towardsimprovement of the ATA program andto cooperate on a revision of the ATAreport forms.Our Chamber called for tax free reorganizationrules: where the ultimatebeneficial owners/shareholders of thecompany do not change, a re-organizationof assets, subsidiaries and affiliatesshould be tax-neutral. Robin McCone ofPwC has already provided the Ministryof Finance with model legislation onthis issue, and AmCham will continueto lobby for this change in the tax code,which is common international practice.We continue to push for publishedand practical norms and standards forproduction losses. The current requirementfor companies to justify daily theirproduction losses is extremely onerousand often not accepted by the tax authorities.The need to have an independent 3rdparty verify production losses (often inperson) is simply not practical and hindersthe development of the productionsector in Georgia. AmCham suggests thatwe work with our members from particularindustries (e.g., restaurants, retail petroleumproducts supply, wholesale gassupply, water supply, etc), drawing oninternational standards and expertise, topropose production loss norms and standardsfor particular industries that can beagreed with the Revenue Service on thebasis of international best practice. Adoptionof fixed and accepted productionlosses – percentage standards for eachindustry – would be a win-win situationfor both the RS and the private sector.AmCham emphasized that businessesare concerned about the lack of informationon this issue. Mr. Khutsishvili notedthat the issue is a very complex one,and partly due to the lack of Georgianexpertise in this area, the promulgationof regulations has dragged out for years.He invited AmCham to provideprofessional support of our membercompanies towards creating a workable,transparent practice based on internationalbest practices. He assured us thatour members need not fear the suddenappearance of transfer pricing rules, asthe agency is nowhere near being in aposition to issue them, will involve thebusiness community before it does, andthe issue is not a high priority in lightof all the other priorities that need tobe addressed more urgently. AmChamwould like to express gratitude to Mr.Khutsishvili and his colleagues at theRevenue Service for the very productivemeeting. And again, we will continueour cooperation to best represent ourmembers’ concerns in the area of tax andrevenue collection.

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Kote Sulaberidze discovered hewas colour-blind aged 18, onthe eve of his entry exam to theTbilisi Arts Academy. Not ideal if youwant to be an artist. Under Soviet rule,he needed a medical certificate stating hewas healthy in order to get into the academy.But since it was 1985, a bribe gothim the document. He went on to becomean internationally-recognized painter.“I’m daltonic; I confuse red andgreen,” explains the 44-year old artistwhile juggling a red diary. “To my eyes,a green meadow full of poppies is a seaof red with green dots...”Far from holding him back, hiscolour-blindness provided him witha world to explore. He made his owncolour-wheel chart to match what he sawto what other people see. Now his work,

“By Eyes of Colour-Blind” has beenselected by Sotheby’s as part of its firsteverselling exhibition on contemporaryart from the Caucasus and Central Asia.The event, which will take place inLondon from March 4th, will showcasenon-conformist and socialist-realisticart from the 1960s, as well as emergingtrends in Georgia and other post-Sovietstates.“We are looking at developing salesfor post-1960 artists from these regions,”explains Joanna Vickery, senior experton Russian art at Sotheby’s in London,in an e-mail interview. “This collectingcategory is new to the internationalmarket, in which many exciting andtalented artists are coming to the fore.It will certainly present collectors withsome extremely exciting and appealingacquisition opportunities.”Georgia used to be the most affluentrepublic in the USSR, with a richcultural history and strong intellectualelite. Yet, as in so many other post-Sovietcountries, decades of censorship- followedby economic collapse- stuntedthe development of the art scene in morerecent times.Art in the latter half of the twentiethcentury was dominated by State-approvedpropaganda, which is now moreof greater historical interest than of aestheticvalue. Kitschy, slipshod imitationsof XIX painters like Niko Pirosmaniabound near the Dry Bridge- Tbilisi’soutdoor art market, where once-revered

artists hawk their wares to tourists atlow prices.Some Georgian artists do figure onthe international art scene, however.Classical names like Pirosmani, ZurabTsereteli, and Lado Gudiashvili canfetch seven-figure prices. Gudiashvili’sBy The Black Stream, for example,was auctioned for almost $1.5 millionat Sotheby’s in London last November.But the category of “Georgian Art” isunder-developed: both Tsereteli andGudiashvili tend to feature as “ImportantRussian Art.”“There is a Georgian trait, but it isdifficult to define, as you do need to putit in context,” says Berlin-based artistSophia Tatabadze, founder of GeoAir,an organization that provides a databasecovering more than 40 contemporaryGeorgian artists. “East and West, thefall of the USSR, and the search foran identity, could all be key themes.Amongst artists from the first half ofthe XX century, you can see a clear“escapism;” an avoidance of reality andan attempt to beautify. The 80s’ and the90s’generations are trying to set themselvesfree from this and to be moreconceptual,” says the 35 year old artist,who represented Georgia at the 52ndVenice Biennale in 2007.Tatabadze maintains strong ties withTbilisi, but she is better placed in Berlin.Like her, the big Georgian names on theinternational scene only made it afterrelocating to the US or Europe – TheaDjordjadze, Gia Edzgeveradze, andAndro Wekua, to name but three. Thelatter, for example, sold his collagedimages Black Sea Surfer in London lastyear for $53,000.“Their work is remarkable, but theyare not the result of a developmentprocess in the local market,” says BaiaTsikoridze, founder of the Baia Galleryin Tbilisi. “Their work is different- moreconceptual. Artists operating here aremore influenced by the Georgian environmentand culture.”Another difference is price: buyingart in Tbilisi is significantly cheaper thandoing so in Europe. “The same paintingwould fetch twice as much in the US,”smiles Alexander Mujiri, who foundedTbilisi’s Vanda Gallery with his twinsister. “The economy is healthier, thebuyers richer and, in general, the artmarket is more dynamic.” Mujiri is alsoan art collector and, for over a decade,ran an art gallery in Atlanta, US, and, forfive years, a gallery in Kiev, Ukraine.For savvy buyers, the Georgianmarket could be worth discovering. Butchoosing the right artist for an investmentis tricky. “Without a doubt- Merab Abramishvili,whose quotations skyrocketedsince his death in 2006,” agree bothTsikoridze and Mujiri. Others includeKote Sulaberidze, Irakli Parjiani (whoboth feature in the Sotheby’s exhibition),Oleg Timchenko, and David Kakabadze.“There is an appetite for new discoveries,”Vickery says, “but this is notthe fundamental reason for having thisexhibition. We live in a changed world,and artists from these regions are underrepresentedon the global market.”Still, international profile boils downto finance- something which is hard tocome by in Georgia. Artists, curators, andgallery-owners advocate for additionalstate support. Having the right peopleand the right idea help too, Tatabadzenotes.The Georgian government has beenbusy as well. In 2007, the Ministry ofCulture enabled Georgian artists toparticipate in the Venice Biennale. In2008, it commissioned Magda Guruli, acurator, and Iliko Zautashvili, to launch“Artisterium,” a two-week internationalcontemporary art festival which has beenheld every year since.But the key to putting Georgia on theinternational map lies in consolidatingthe local market. Currently, many artprojects depend on foreign organizationslike the British Council or the GoetheInstitut.Both Tsikoridze and Mujiri stressthe need for “a structured art policy, acontemporary museum, and a supportivelegal framework.” Artists find it difficultto insure art work for exhibitions or saleabroad.Unlike in many Western countries,for example, businesses and privateindividuals do not get tax breaks forsponsoring art events, and purchased artworks are not tax-deductable.Perhaps the Sotheby’s exhibitionwill provide the kind of stimulus that theGeorgian art market needs.

You have been to the NationalMuseum, checked out thegracefully crumbling architectureon the side streets, and walked pastthe ancient wall on Pushkin Street. Isthere anything else to do along RustaveliAvenue?In a word, yes. The 1930s was not ahappy time in Georgia’s history: Tbilisi(and other towns and villages) werehit hard by the purges, like most of theformer Soviet Union. While it may notbe a period many people enjoy discussing,there is a rich history to be exploredthrough the iconic buildings built duringo the decade, and through the homes offamous Georgians who suffered at thehands of the Soviet government. Formore information on Tbilisi during the1930s, and a map for a walking touraround neighborhoods with special tiesto the period, check out www.sovlab.ge.When workers started tearing downthe interior of the former Instituteof Marxism-Leninism to prepare thebuilding for its new life as a hotel, theystumbled upon a gruesome discovery:cemetery gravestones had been used tobuild the Institute’s interior walls andcolumns.Historians believe the gravestoneswere taken as construction material afterthe Soviet government destroyed threecemeteries in Tbilisi in the 1920s and1930s. But that was not the only secretthe former institute held. Deep underground in the courtyard, workers foundtunnels and cells that appeared tohavebeen used during the purges in the 1930sas jails and holding rooms for politicalprisoners. The Institute, a branch ofMoscow’s Institute of Marxism andLeninism, was a pet project for LavrentiBeria, the first secretary of the SovietCommunist Party’s Regional Committee

of the Transcaucasus, and, later, the headof the NKVD, the Soviet secret police.Work began in 1934 was completed in1938, a timeline that coincides with theGreat Purge.The building at 17 Rustaveli Avenuewas once the home of Georgian directorAleksandre (Sandro) Akhmeteli.Akhmeteli, who is credited as oneof the founders of modern Georgiantheatre, was arrested on November 19,1936, and charged with espionage. Hewas sentenced to death on June 28, 1937and his property was seized. Along withAkhmeteli, other actors and theatre personalwere killed, including Platon Korisheli,Elguja Lordkipanidze, Ia Kantariaand Ivane Laghidze. One month later,three more theater employees - TamarTsulukidze-Akhmeteli, Buzhuzha Shavishviliand Nino Ghviniashvili - weresentenced to ten years in jail.Georgian poet Titsian Tabidze livedin this building until his arrest and executionin 1937. Tabidze was one of thefounders of Tsisperi Khantsebi (BlueHorns), a famous Georgian literary groupand magazine, and one of the leadersof the Georgian symbolist movement.His friend, the novelist Boris Pasternak,translated his poetry into Russian. In1936 his work fell into disfavor with theauthorities and, in 1937, he was arrestedon a fabricated charge of treason. He wassentenced to death on December 15 buthis execution was not announced andmany hoped he was still alive. In 1940,Pasternak reportedly helped Tabidze’swife petition Beria to release the poet.His death was officially recognized in the1950s, two decades after his execution.A museum dedicated to his life andwork is located in the building.If walls could talk, the Tbilisi Marriottwould be able to retell the tale ofGeorgia’s history for the past century,from the dying days of the Russian Empireto the bloody 1921 war with theSoviet Red Army, and the 1991-1992civil war. The Majestic Hotel was thefirst European hotel built in Tbilisi. Itopened in 1915 and housed the firstcinema in Georgia. After briefly servingas a military hospital in 1917, it becamethe headquarters for the Soviet LaborCommittee in Georgia in 1921. TheSoviets turned it back into a hotel in1939, however, renaming it Hotel Tbilisi-- which became famous as one of theSoviet Union’s top ten hotels.The former (and likely future) Georgianparliament was built as a complexof government buildings on the groundsof the Alexander Nevsky Military Cathedral,which was destroyed in 1930. Alsodestroyed was the cathedral’s yard -- theburial ground for the military schoolcadets who died fighting against theSoviet Red Army in 1921. The Sovietsstarted construction on the site in 1938;the complex was completed in 1953, andwas partially built by German prisonersof war who had remained in the country.It was while living in this house thatGeorgian bacteriologist, Giorgi Eliavahelped create the Tbilisi BacteriologicalInstitute of People’s Commissariatof Healthcare (later renamed the EliavaInstitute) and developed an alternative toantibiotics. Eliava was a pioneer in phagetherapy, a form of treatment that usesbacteriophage, a type of virus, to fightinfections. Phage therapy was researchedand used extensively in the Soviet Union.Eliava was arrested on January23, 1937 and charged with espionage,although it is widely believed that itwas his reputation as a playboy, not hispolitics, that led to his death: reportedlyhe fell in love with the same woman asBeria, and was subsequently punished.He was sentenced to death on July 9,1937, and executed the next day.Elisabed (Liziko) Kavtaradze was aGeorgian dissident who spent more than28 years in exile. A member of an undergroundMarxist organization as a younggirl, she was first arrested in 1928 anddeported to a village outside of Tomsk,Russia. She returned to Georgia in 1936but was exiled again just six years later,this time to Kazakhstan -- to Alzhir, aRussian acronym for the Akmola Campfor the Wives of Traitors to the Motherland.Twenty years later, she was backin Tbilisi, and rehabilitated. She diedin 1988.Built in the 19th century, the buildingat 22 Ingorokva has had a violent history.It was original the home of the Selikovfamily and became a school for boysfrom noble families in 1892. In 1906,however, police stormed the buildingin retaliation for a terrorist attack that

wounded the head of the police. Teacherswere beaten and one, Shio Chitadze,was killed.In 1918, the building was home toseveral government ministries, includingthe Ministry of Defense. The Sovietgovernment turned it into the TranscaucasianEmergency Commission and,between 1926 and 1934, the rooms onthe first floor were used as prison cellswhile torture and executions took placein the basement.Likely built at the turn of the 20thcentury, 11 Machabelis Street is notablebecause for seven years, from 1931 to1938, it was home to Lavrenti Beriawhen he served as First Secretary of theCommunist Party of Georgia, before wasnamed head of the NKVD, the secretpolice.All information about the buildingwas considered a state secret – eventoday, according to SovLab, the nameof the architect is off-limits.One detail has emerged, however:Beria, who was quite the builder duringhis time in Tbilisi – the parliament andthe former Institute of Marxism and Leninismwere among his projects – had undergroundtunnels put in the yard, whichwere rumored to lead to an undergroundbunker and to the parliament building.Today, the building is the headquartersfor the Georgian National OlympicCommittee.The house was built at the turn of the20th century, and housed the first ambassadorof the Russian Socialist SovietRepublic to Georgia, Sergei Kirov.Its most famous resident, however,was Sergo Orjonikidze. A close friendof Joseph Stalin, Orjonikidze lived in thehouse from 1921 to 1926. Orjonikidzeled the Bolshevik invasion of Georgia in1921 and is credited with crafting policythat seriously reduced Georgian autonomywithin the USSR, including thedecision to combine Georgia, Armenia,and Azerbaijan as Transcaucasian SFSR,instead of allowing Georgia to have fullmember status in the USSR.

AmCham Georgia has been hard atwork in 2013, working within its committeesand cooperating with the newgovernment to introduce policy changesthat will improve conditions for businessesand investors.Plans for a new labor code, change tothe tax laws, and a new anti-monopolylaw have created new opportunities forAmCham to work for pro-business lawsand better policy.The Chamber, through its CommercialLaw and Tax Committee (CLT), hasbeen actively following the developmentof a new anti-trust draft law. Boardmember Ketti Kvartskhava, a partnerat BLC, has analyzed the proposed lawand,AmCham has been working withmembers to craft suggestions for theauthor of the law on how to improve thecurrent version.In addition, the CLT Committeehas been working with the head of theRevenue Service, Lasha Khutsishvili,on issues related to charging VAT; themediation program; the timing of interestdeductions; the Alternative Tax Audit;production losses; and several otherissues of major concern to the businesscommunity. The committee also agreedto raise issues regarding tax free reorganizationwith the Revenue Service.A review of the meeting with the Headof the Revenue Service was sent to allmembers. To learn more, or to participatein the discussion, please contact theAmCham office.Board member Robin McCone,PWC, has also been working with theCLT Committee to analyze and commenton proposed amendments to thetax code regarding tax-free corporatere-organization (a big issue for lawyersand accountants, and their clients) andreforming the administrative appealsprocess for tax cases.Additionally, committee membershave discussed issues and statementsmade by the Coalition for a Transparentand Independent Judiciary (of whichAmCham is a member), including thelaw on common courts, jury trials incorruption cases, and issues concerningpolitical prisoners.The Chamber has also been activelyworking with the Ministry of Justice asit prepares a new draft labor code. Withassistance from AmCham’s Labor Committee–especially Board member LashaGogiberidze – the Chamber has been ableto engage the ministry in a productivedialogue, cooperating to amend proposedchanges that could harm Georgia’s businessclimate.AmCham, along with other businessassociations, has been proactive aboutmaking suggestions and discussingpotential problems with the ministry.The government has been extremelyreceptive to suggestions from the businesscommunity and the Chamber looksforward to continuing to work with theministry, through its Labor Committeeand other venues, to produce a progressiveand effective new labor code. Formore information, or to participate inthe process, please contact Kote Koridze,k.koridze@amcham.ge.

On Friday, December 14th, BLCLaw Office hosted a reception at theTbilisi Marriott to welcome its newpartner Giorgi Batlidze. Since 2007,prior to his promotion to the partnership,Giorgi has served as a Senior Associateof BLC. He has outstanding educationalbackground and intensive professionalexperience. Honored guests, clients andcolleagues of BLC enjoyed the remarkablesongs by Liza Bagrationi and NatoMetonidze accompanied by the incred-ible performance of Nikoloz Rachveli.BLC is one of the first western-stylelaw offices in Georgia, established by USeducated Georgian attorneys. Currently,BLC is one of the largest and most successfullegal practices operating a headoffice in Tbilisi, with a second branchin Batumi. Through its practice, BLChas been oriented towards reliable andeffective advice of the highest businessstandards. Its particular strength iswidely known to be its result-oriented,knowledgeable attorneys with excellentlocal and foreign education, and the targeted,well- tailored, efficient and timelylegal advice.Clients praise BLC Law Office foroffering the “highest quality for reasonableprice.” Attorneys of BLC constantlydemonstrate an in-depth knowledge ofnot only local legislation and practices,but also of the international practice andregulations applied in different parts ofthe world.AmCham Board Member Lasha Gogiberidze, a partner atBGI Legal, outlined the chamber’s comments on the currentdraft labor code during the roundtable meeting at the SheratonMetechi Palace hotel on January 30.US Embassy in Georgia Deputy Chief of Mission BridgetBrink started the meeting with a candid, off the record discussionabout international politics and US-Georgia relations.Gogiberidze and the labor committee have worked withAmCham staff and an expert on ILO labor standards to identifypositive changes presented by the draft code, and recommendationsto improve specific areas of the legislation.A group from AmCham will meet with the Ministry ofJustice on February 1 to continue discussions on improvingthe draft code.For a detailed analysis of the current draft code, please seethe presentation on the AmCham website, www.amcham.ge.

Gryphon -FK is a US corporationengaged in logistics and airlineservices throughout the Middle East,Africa and Europe. Gryphon FK is aVirginia LLC.www.flygryphon.comOnyx consulting was establishedin 2008. The company has beengradually expanding its activities andis now a IT consulting company thatprovides software solutions and outsourcingservices across wide rangeof industries. The company offerssolutions in business intelligence,human resource management, datamanagement, etc.Onyx has successfully accomplisheda number of large projects ofhigh importance such as a new bankset-up, banking data warehouse systemimplementation, etc. Currentlythe company has implemented morethat 100 projects and is simultaneouslyworking on another dozen.Paine Stevens is a regional lawfirm based in Georgia, providingEnglish law services to clients oninternational transactions in theCaucasus and Central Asia. The firmadvises on finance, corporate andcommercial matters.In 2011, Rustavi steel LLC wasestablished to acquire the assetsof the Rustavi Metallurgical Plant.The Plant is the largest metallurgicalcomplex in the entire Caucasusregion. The Plant’s new managementand owners are embarking on a majorprogram of investment and re-structuringto re-establish the companyin regional markets, and expand intonew markets. The Plant is operatingsuccessfully and is manufacturingreinforcing bars, seamless pipes,square billets, pig-iron castings,metal constructions, mechanicalparts, shaped castings, granulatedslag, silicon-manganese, lime andlimestone. The Plant currently exportsto the European Union, US,Russian and Middle Eastern marketsas well as to Armenia, Azerbaijanand Turkey. On the local market,the customers of the plant are theleading construction companies andmanufacturers. Rustavi Steel LLCemploys over 1,800 people.LLC Simple as That offers one shop businesssolutions to investors entering Georgianmarket. Our vision is to achieve completesatisfaction of the client and work on oneto one basis in order to maintain long termpartnership relations.Entering foreign markets is always a strategicdecision. Whether investors know theirtargets, or are just looking for an option, weassist them through the entire business process,ensuring comfort and peace of mind --making doing business in Georgia as Simpleas That. Our wide range of services aim toassist investors abroad and on their arrivalin various lines of business including: realestate, agriculture, tourism, import/export,global franchising, and other.Agricultural University is Georgia’sprimary institution of higher education foragriculture and related fields. The universityhas a history stretching back to 1929 and is theumbrella institution for more than 17 distinctresearch institutes and laboratories engagedin a wide range of activities throughoutthe country. In March, 2011, the universitybecame a private, not-for-profit universityowned by the Foundation of AgriculturalEducation and Science. Since then, the universityhas undergone extensive renovationand now boasts fully equipped facilities,including state-of-the-art laboratories for educationand research. Much of the academicfaculty has experience studying and workingin institutions of higher education andresearch in the USA, Europe, and elsewhere.Agricultural University seeks partnershipswith universities, research institutes, privateenterprises, and other organizations engagedin education, research, and innovation inagriculture, engineering, and related areas.Free University is dedicated to pursueexcellence in teaching by providing highestquality education and funding opportunitiesfor the country’s most talented students. Itsunique scholarship opportunities along withthe extensive outreach campaigns ensurethat talented students from across the nation,regardless of their economic background, getthe best chance of achieving success. FreeUniversity remains at the forefront of highquality education and is now the home of anelite learning community. Its undergraduateprogram emphasizes intellectual freedom,critical thinking, and creativity through abroad range interdisciplinary exposure toencourage leadership and entrepreneurshipin the students. The University seeksto implement innovative teaching methodsand set standards that meet those of worldclassinstitutions while being dedicated tomaintain Georgian as a primary language ofinstruction.

Alliance Group Holding (AGH) is a privately owned financialand consulting services firm established in 2005 byGeorgian, American and European shareholders. Managed by ateam with solid backgrounds in financial services, the companyoffers a range of services to meet specific client needs.“We started this company to fill a gap in the market; toserve SMEs and non-bankable clients, as well as to introducenew products and services to the local market, simultaneouslycreating value for our customers, shareholders, the Georgianeconomy and our company’s employees,” says Aieti Kukava,CEO and one of the co-founders of the Group.Currently, the Group manages seven subsidiary companiesoffering diversified financial services in microfinance, leasingand investment management, consulting services in propertymanagement, energy projects, IT and business informationservices.ofi- finances individuals as well as micro-, small- and mediumsizedenterprises in urban and rural areas of Georgia from itsfive branches in Tbilisi, Zugdidi, Batumi, Kutaisi and Tsalka.In September 2011, AGM obtained International Certificate forQuality Management Standard – ISO 9001. - the only independent,non-bank owned leasing company in Georgia, offers variousleasing products and services. In September 2011, AGLobtained International Certificate for Quality ManagementStandard – ISO 9001. - an investment andcapital markets advisory firm offers financial advice to privatecompanies of all sizes. AGC also connects investors with profitableinvestment opportunities in Georgia. AGC is an approvedconsulting firm by USAID and EBRD in Georgia. - a businessinformation provider, focused on gathering and distributingbusiness information. NCIB currently manages the largestcontinuously-updated business information database in Georgia,encompassing information on more than 10,000 companiesregistered in the country. - an energy consulting andproject management company focused on opportunities in theGeorgian energy market. AEN is building one small hydroelectricpower plant in Nabeghlavi and will, in the future, developand manage other renewable energy projects in the hydro, wind,and solar power sectors. - a property consultingcompany which provides professional real estate managementand property valuation services to Georgian and internationalclients. The company offers an integrated service to banks andother financial institutions on all areas of real estate valuation,development and management.offersa variety of IT services including network management,software development and IT consulting services to local aswell as international clients.The Group, together with its partners, has already investedmore than USD 100 million in key sectors of the Georgianeconomy – in finance, communications, manufacturing, energy,agriculture and food. At the end of 2012, the company had totalassets of GEL 30 million (USD 18 million) and an equity ofGEL 15 million (USD 9 million).

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In Tbilisi since June 1998, Sarah Williamson isthe co-owner and Vice President of United GlobalTechnologies (UGT), the largest IT company inGeorgia.In his 12th. year in Georgia, Michael Cowgill iscurrently the President and co-founder of GeorgianAmerican University’s business and law schools inTbilisi, Georgia.Irakli Baidashvili is the Senior Vice President ofGMT Group. The company is one of the largest USdirect investments in Georgia, the owner of twoMarriott hotels, production facility SANTE andseveral major real estate sites in Tbilisi .Neil Dunn is the general manager of BPGeorgia since October 2008. He has 30 years ofexperience in the oil and gas industry, havingvarious engineering and operations assignments.Esben Emborg has been in Georgia since 1999. Hehas worked a General Manager for Caucasus Regionfor Cadbury Schweppes and Nestle until 2008. Nowhe is working as Principal Partner for an InvestmentFund (SEAF) that is currently managing a 30 milUSD portfolio of investments all over Georgia.Lasha Gogiberidze is a founding partner of BGIAdvisory Services Georgia and the director ofBGI Legal. Previously, Lasha worked at Ernst &Young’s Georgian office. Lasha graduated fromTbilisi State University, has a LL.M. from theUniversity of Illinois, and is licensed to practicelaw in NY state.Badri Japaridze has been the Deputy Chairman ofthe Supervisory Board of TBC Bank since 1999and the Vice-President ofGeorgian Glass and Mineral Water Co. (GG&MW)since 1995.Steve Johnson is the proprietor of Prospero’sBooks and the General Manager of The HotelBetsy. Prospero’s Books and Caliban’s CoffeeHouse is the leading English language bookstorein Georgia.Ted Jonas is the Managing Partner of DLA Piper’sTbilisi office. He advises clients on internationalbusiness transactions, energy and infrastructureprojects, government relations, and disputeresolution.Ketti Kvartskhava is a Partner of BLC Law Office.Her professional experience includes her work asa Commercial Law Advisor at the USAID Georgiaand as an instructor at Tbilisi State University.She also worked as a Legal Counsel for the US-Georgian Commercial Bank JSC Absolute Bankand JSC Transcaucasia Bank.David Lee is the General Director of Magticom, thelargest telecommunications operator in Georgia andtook up his position March 2004. David is also theChairman of the Eurasia Partnership Foundationand is a Chartered Accountant with an MBA fromWarwick Business School. A Russian speaker, hehas worked extensively in the former USSR andserved as a Royal Naval Officer for 9 years.Betsy Haskell is an 18 year resident of Georgia whostarted four successful businesses, and is currentlydeveloping a resort hotel and villas in the winecountry. For the past 15 years, she has been theGeorgia Contractor for Metrica, Inc, a US TreasuryDepartment sub-contractor.Robin McCone is a NZ lawyer. He leads PwC’stax and legal practice in Georgia and Armenia. Hehas been with PwC mainly based in CEE countriesfor over 16 years. Prior to moving to Tbilisi hespent two years in New York as the leader ofthe CEE Desk. He looks forward to utilising hislarge international network in his role as a boardmember.John Ashworth is the Deputy Chief of Politicaland Economic Affairs and Senior Economic/Commercial Officer at the U.S. Embassy. Heworked previously in Uzbekistan, Barbados,and on the State Department’s India Desk inWashington.Amy Denman came to Georgia in 1996 from Chicagowhere she worked in the Marketing Department in thesecondary education division of publishing companyHoughton Mifflin. After working for the IFRC for ayear, she became the coordinator then the foundingExecutive Director of the Chamber.

OUR BANKING ANDFINANCE PRACTICEwww.dlapiper.comTed Jonas, Office Managing Partner (ted.jonas@dlapiper.com) | Otar Kipshidze, Partner (otar.kipshidze@dlapiper.com)DLA Piper Georgia LP, 10, Melikishvili Street, Tbilisi 0179, Georgia | T +(995)32 2509 300 | F +(995)32 2509 301DLA Piper is a global law firm operating through various separate and distinct legal entities.A list of offices and regulatory information can be found at www.dlapiper.comOCT12 | 2430204