The FINANCIAL — “Arti is still operating at the Georgian market, but it is not a group any more, but a separate legal entity”, Martins Vecvanags, former General Director of Arti Group, involved in political scandal last year declared to the FINANCIAL.
ARTI GROUP was a leading Distributor Company in Georgia, Azerbaijan and Armenia, offering the wide range of logistic and distribution services, with annual turnover 130 million USD. ARTI was established on 1996 in Georgia as an exclusive distributor of large international companies – Procter & Gamble, Gillette, Wella, Always, Selpak. Last year, there were 850 employees in the group, including 600 persons in sales force.
On September 24, 2007 approximately 100 armed employees of Financial Police intruded into the Company by force and closed the main as well as all regional offices of the company. Arti was accused of breaching customs rules. Irakli Okruashvili, former Defense Minister, one of the owners of the company was arrested later.
On December 23, a fire gutted the offices of ARTI Group late at night causing millions of dollars in damage. Reportedly, firefighters saved the office containing the company’s computers and archives, but a storage facility was completely destroyed. No one was injured in the blaze.
“Actually, Arti Group stopped operating last year. Now it is split into the separate companies. Arti Group had businesses in Azerbaijan and Armenia. In December 2007, shareholders made decision to split the group into separate parts. Now there are five separate companies. I am not a general manager of Arti Group; company Arti Group, as such, does not exist any more”, Martins Vecvanags, a management consultant of ARTI, told The FINANCIAL.
“This is not only a story of Arti Company but also a story of what problems foreign investor can face if they decide to launch a business in Georgia. Investments in Georgia are not 100% safe”, Martins says.
What prospects could Arti face in future?
Mr. Vecvanags has been working in Georgia since 1998, first as a District Manager at P&G, and since 2006, as the General Director at ARTI Group (the largest distribution company in the South Caucasus).
MV Consulting is a consulting company that was established to address the growing interest about investment opportunities in the South Caucasus Region. “MV Consulting” specializes in Business and Law Consulting.
The head office of MV Consulting is located in Tbilisi. MV Consulting partners are: ARGE – Distribution and Logistics Company in Armenia, ARTI – Distribution and Logistics Company in Georgia, BKV Travel – Travel services in the Caucasus, Caucasus Peak Investment – Real Estate development and brokerage company, ID – Creative advertising agency and others.
Q. How far does Arti Group history date back and how competitive was the market when the group was first established?
A. Arti was established 12 years ago and it was one of the biggest distributional companies in the region. From the very first day of its establishment, Arti looked very opportunistic. Distributional system was not well developed in Georgia for that period. There were several small distributors who were importing goods from Turkey, so the system was not refined.
Arti started distributional company with opportunistic wholesales’ operations. Our company, as well as several other companies grew into serious distributors. Permanent distribution companies captured the market very soon, as a rule, customer always prefers to be provided by one company with same tariff than by different companies with different tariffs. Of course, there were and still are the competitor companies in distributional business.
Arti Group has a long list of distributional products: Ariel, Tide, Always, Pampers, Selpak etc. The lack of these brands in the leading stores and supermarkets has been noticed since April, 2008. It is caused by several reasons: in September, 2007 Financial Police made a tax audit of ARTI Group several times, later, fire caused over four million dollar damage to the Company. In October we were closed, in December our main warehouse burnt down and in April we got tax fine for roughly 25 million GEL Due, to all this, our suppliers lost trust into continuity of the business in Georgia, thus we have not received shipments since April 2008.
Q. What would you comment on the fact that products distributed by your company to different leading supermarkets and drug stores of the city are rather difficult to find, but it must be mentioned that they are still available at the market?
A. It is not dependent on the market set up. It does not mean that they are importing those products from Turkey. But there is some products remained on the market. I can say that Arti still has supply of several million GEL distributed products, so the same thing is with our customers. But fast moving products: Pampers, Always, Selpak will be over in several weeks. Obviously, there are some opportunistic plans to import these products from neighboring markets.
Q. What does the Arti do to assure international companies – Procter & Gamble, Gillette, Wella not to stop business in Georgia?
A. Arti got three the most serious blows in the last few months; it is difficult to find any logical arguments to assure our suppliers that Georgia is absolutely safe at the given stage.
I can say that business is safe in Switzerland, but I cannot say that business is safe in this region. It is quite safe for 100% foreign owned companies, but not so much for those with Georgian partnership.
As for Arti it is established by Turkish person and he has not been able to protect his investments. He basically has close relations with Turkish officials as well as Georgian ones. It is very profitable to enter the Georgian market for investor companies but risk is much higher here than in Switzerland or in France.
Q. ARTI Group was owned by businessman Kibar Khalvashi, a close friend of the former Defense Minister, Irakli Okruashvili. How has the situation changed now, who is the owner of ARTI Group?
A. ARTI Group was not owned by businessman Kibar Khalvashi. He is not the owner of the company, but one of the owners. A Year ago Khalvashi sold his 28 % share.
So he has never been the owner of the company. For the given moment, the company has 6 stakeholders. The ownership of Arti is Turkish as well as Georgian.
Q. How much was the annual turnover of the group in 2007 and how much will it be by the end of 2008, as Arti Company?
A. When there was a group, its annual turnover exceeded hundred million American dollars. Now Arti is too small compared to the previous years. The current problems shoot the annual turnover of the company directly.
I can’t tell how many times the profit of the company will be reduced by the end of 2008 as I don’t know exactly whether Arti will continue operating or not. Besides, we were one of the most honest taxpayers in the country. To say frankly, I want to work in this country, but it is not up to us. If company and owners will be pushed out of this country we will have to leave.
Written by Natia Taktakishvili
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