The FINANCIAL — Despite the August War Russia remains one of the biggest investors in Georgia. The country that occupies almost 1/3 of Georgian territory today controls the most important energy facilities and infrastructure in Georgia. The FINANCIAL investigated what Russia owns in Georgia and how Georgian businesses consider the potential of partnering with Russians in their respective spheres.
Russian capital including the banking sector, energy, mining, oil, mobile communications, plants, air companies – have all felt at ease in Georgia up till now. During the conflict, which is generally expected to be resolved soon, VTB, Beeline, Telasi and Lukoil continued working normally and did not come under attack from the local population.
President Mikheil Saakashvili said he won’t impede Russians from doing business in Georgia, rejecting criticism that allowing companies such as OAO Inter RAO UES to control strategic assets poses a threat to security.
“We’re not going to hinder Russian companies from coming to Georgia,” Saakashvili said in an interview in the Black Sea port of Batumi last week.
“The more business interest we get, the less political pressure there will be. I’ve never said that Georgia doesn’t need Russian business.”
Irakli Gurchiani, President of Toyota Centre Tbilisi, one of the biggest auto dealerships in Georgia, says he is against partnership with Russian investors even if it means his company facing bankruptcy.
“Political and national interests very much influence the economy,” Gurchiani told The FINANCIAL.
“I can’t talk on behalf of the whole of Georgia but for me it would be inconceivable to have a partnership with the representative of a state which is occupying my country’s territory, which bombed Tbilisi and destroyed Georgia,” Gurchiani told The FINANCIAL.
“I’ll never collaborate with Russians even if it means becoming bankrupt. I don’t have anything against Russians but these are people that are working and paying taxes to a government whose orders are bombing us. Accordingly I won’t have anything in common with Russians. I feel oppressed and won’t have a business partnership with a person who has humbled me and my country,” Mr. Gurchiani notes.
Since 2007, Toyota Centre Tbilisi has been the official Toyota Dealer in Georgia. The company was named Golden Brand 2008 last week.
Akaki Kheladze, Head of the Management Department at Caucasus School of Business (CSB), Caucasus University (CU), says business partnership is associated with trust, stability and democracy. Accordingly a country which does not recognize these fundamental principles is unacceptable for the international environment. “If a company starts a partnership with a country with a bad reputation it will also harm his image. Another reason is the personal preference and beliefs of the head of the company. Any one country might be associated with negative things to the head of a company which will therefore affect their relationship with any business from that country,” Kheladze says.
“The Russian military bases are being pulled out of Georgia. Instead of Russian bases, Moscow will enjoy much greater positive influence on us in the name of Russian capital. This process has already started, and we acclaim the increase in Russian capital. This will help to improve our mutually advantageous relations on the whole,” said President Saakashvili.
“According to international business rules, an organization is first of all the mission and vision of the company’s management. That’s why no one can criticize a person because of his prejudices. The decision of one person in charge of others might be caused by many different reasons,” Kheladze declares.
For Olympic Star, one of the leading construction companies, the origin of potential investors is not an important factor. “The most important thing is to fulfil their demands,” says Zaza Razikashvili, Chairman of the community Olympic Star, President of the Business-Group Olimp.
“Our criteria for investors are always the same. The most important thing for us is how acceptable his circumstances are for our company, what the portfolio of his assets is like, which group and company he presents and what his guarantees are,” Razikashvili says.
He says that his company is ready to negotiate with Russian investors. But up till today Olympic Star has not had any concrete proposals from Russians.
Razikashvili does not think that the attraction of Russian investments in Georgia will influence Georgia’s relations with its close ally the USA. “As even in the USA there is a huge amount of Russian investment,” he added.
“At present more attention should be paid not to the origin of investors but to the derivation of capital,” Razikashvili says.
“While negotiating with potential partners the most important thing for us is the company’s reliability, interests in our development, personal relationship and accordance of interests in the long-term perspective,” George Mshvildadze, General Director of Tegeta Motors, says.
“Although new investments do require very careful examination,” Mshvildadze says.
George Kapanadze, Director of Axis, another leading construction company in Georgia, says his company does not negotiate with foreign investors, also there are no plans to do so in the nearest future, neither with Russia, nor with any other countries.
“At the given moment, Axis is not negotiating with any concrete investor, though we must note that the basic criteria for choosing an appropriate investor are the following: the image of the company, its strength, reliability and mutual interests.”
“Political tension generally reflects negatively on the business sector, but it should not make it acceptable to choose investors by their nationality,” Kapanadze says.
Mshvildadze thinks that in healthy business circumstances competition is always acceptable. That’s why relations with for example Russian investors won’t influence relations with other countries, the USA or others in the West.
“The importance of business lustration has become a top question not only in Georgia but worldwide. It should be clear who and what stands behind one concrete business and what are the goals of it. In our case Georgia should hold the balance. No one should be against the opening of new shops, restaurants and other business organizations by foreigners. But when we talk about strategically important objects then we should be more principled and careful,” Shota Makatsaria, First Vice-President of the Georgian Chamber of Commerce and Industry, says.
“Whoever thinks that the descent of money is not important is wrong,” Makatsaria believes.
“We have the example of how European countries have become energy dependent on Russia. Our society needs to know clearly the origin of all companies and their political background. These issues are important for us to determine our strategic advantages,” Makatsaria notes.
“We also have the example from a long time ago when an Arabian company won a tender for the ownership of U.S. ports but the USA Government blocked it,” Makatsaria declares.
“Currently in the modern market the nationality of capital is very important. That’s the reason for the cancellation of different business transactions. Capital is not only money, it has a huge influence on environmental decisions in economical and political life. If an investor has some kind of hidden political or national intentions, capital will became his means for fulfilling it. The truth is that it’s not that simple to state what is behind this or that company’ interests. Still there are lots of factors which will help to find out what the intentions of a company are, and whether a business is just a shield for leading political and national interests,” Kheladze, CSB notes.
According to Kheladze, the experience, history, ability and actions of a company will help to identify what kind of interests investors really have.
“I think that with the help of well planned and managed strategies the nationality of capital can’t have a great influence,” Kheladze notes.
“As for Russian investments we should not refuse to attract Russian investments in industries which are not absolutely key. It’s important that objects which are sold with the help of tenders are more lucid. There is a need for the increase in the level of transparency of businesses that enter the Georgian market. Business plans should not be mysterious to the very people who are involved in these negotiations from the Georgian side,” Makatsaria declares.
Makatsaria says that in our reality there are lots of people whose names remain a secret to us. People still don’t know who the owners of Rakeen, Energy pro and other companies in Georgia really are. Many Russian investors have businesses in the United Arab Emirates, they are acting on the local market on behalf of companies registered in free industrial zones.
“Georgian wine exporter countries have managed to restore what they lost to the amount of USD 15 million only. Whereas before the embargo the total annual turnover of wine importers was USD 50 million. Now we face the reality of a redundant amount of wine. Georgian wine makers will face this problem every year until they switch to diversification of the market,” Makatsaria, GCCI, says.
Makatsaria doesn’t think that even if Georgian wine companies had Russians investments this would protect their products from embargo.
Kheladze says that 80% of Georgian wine was exported to Russia while the share of Russian wine on the Georgian market was only 10%. “We realized that our winemakers incurred losses about 8 times more than our neighbouring country”, Kheladze says.
“Politics and the economy cross each other but there are partner relations based on responsibility and trust which are fundamental for further relation between countries. We frequently see examples when political relations between countries are not good, meanwhile the economical partnership is strong. We can even name the example of Russia and Georgia,” Zurab Margvelashvili, CEO of Georgian wine making company Tbilvino, says.
Currently Tbilvino is not in need of foreign investments.
“For a long time our partner was Russian company Mozel, which entered in to the top five wine importer companies in Russia. We collaborated with this company before Russia’s embargo on Georgian products in 2006. Even that time we did not have good political relations with Russia. But we thought that at that time Russia was our strategically important partner useful for the development of our business,” Margvelashvili notes.
“With our business we employ a lot of people, produce a national product and populate it abroad. I think that businessmen should pay attention to business partners and an investor’s nationality but it should not be the sole principal. I think that the more clear business relations there are between countries the more human resources there will be for strengthening relations,” Margvelashvili, Tbilvino, declares.
Margvelashvili admits that there can be some companies with hidden interests when entering Georgia. But they are not always representatives of Russia.
“We have kept up contact with our Russian partners, so even though we were interrupted because of the August war, when the situation stabilizes we will both be ready to restore our partnership. As a representative of business I think politicians should be focused on basing strong relations between representatives of local and potential foreign partners,” Margvelashvili notes.
“We have to divide businessmen in to two categories; ones who are directly connected with politicians and others who are only focused on developing business. We never ask for the list of a company’s founders when starting negotiations with a new partner.”
“The most important thing for our company is the strong experience of our future partners, good portfolio and the results of his work and strong banking sector that will be responsible for its economical obligations,” Margvelashvili says.
Written By Madona Gasanova
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