The FINANCIAL — The transitional period between the Russo-Georgian war and further stability is a big risk management issue. Buba Ledzava, Chairman of the marketing department of Caucasus School of Business (CSB) and Executive Director of advertisement company Sanguko, delivered useful tips on the subject.
Q. As a rule, companies do run risk management policy but nobody could have forecasted the war. How should they act during the post war period?
A. It’s hard to talk about risk management in this situation, as it was an occasion of force majeure. No one could have foreseen it. Maybe there were some rumours in society but everybody accepted these as gossip. Foreseeing such risks are hard but not impossible usually.
We must not lose hope and must look for ways of getting out of the economic slump that has ensued. I’ll discuss the concrete segment of construction as their sales were badly hurt. First of all they must act carefully and must not put any investment in new projects as new projects mean spending monetary resources.
Instead resources must be spent on current projects. Companies can also shorten some marketing activities, just maintaining some for necessity rather than for luxury.
Q. Banks are still working on renewed loan types for real estate, which will be presented at the beginning of November, what can companies do with their own sources?
A. Another most important step is protecting investors, which is much too hard today. They know that there was war in the country against the giant Russian empire, the situation has been destabilized and no one knows how long it will last and what will happen in two or three months or even tomorrow.
But you must act correctly, to show real examples to investors of how attractive your country was before the war, how many foreign investors there are who are continuing work in the country. These are the stable documented arguments that must be presented to potential investors.
Q. How justified is the decision taken by some companies to reduce their staff number?
A. Rational use of monetary resources is essential, but not staff reduction because they are an important part of the chain. Companies must fluently satisfy the demands of their employees in terms of salaries. However they can refuse extra spending such as bonuses and premiums. In situations like this I’ve discussed how by focusing on concrete action plans with the staff all working together can help the company to be stronger during such a period until everything has stabilized. If companies can overcome the difficulties, then in the future they will be able to arrive in a better condition with a full workforce, at a stable environment when banks have fully restored all their products.
Q. How satisfactory can the argument from different companies, especially developers, be, that the force majeure situation is under their control?
A. Every company which has an obligation to clients must act responsibly. A force majeure situation doesn’t give them the right though to feel free of their duties. That’s why the situation is the most difficult in the real estate business, they don’t have their own resources and are directly connected with and dependant on banks.
The banking sector must support the minimum functioning of the construction sector, which means finishing those projects already started. They must avoid peripheral spending. I often hear questions about how they can sell objects when there’s no advertising, I’m not saying that they must ignore this factor completely, but just have a short pause till credit lines at banks are fully restored.
Q. How come almost all of the construction companies interrupted their work because of banks’ credit shortage?
A. Banks had stopped giving out credits, which is now restored and I hope that they will soon restore all of their products. Bank loans were additional resources for people who didn’t have a sufficient amount of money to get a house, and for financing real estate. Any break in the chain will have a knock-on effect. Banks were the main financial resource for both customers and companies. We are being encouraged by the West though which has supported us with money during this period. At such a time as now companies must just hang on to survive.
Q. Before the war there was a large number of construction companies, many of which today face crisis. What caused this, was it because of a lack of control?
A. The huge increase of construction was natural because there was big demand and of course profit being made. Many people chose the segment which had a high rate of capital – construction. In Georgia banks increased the rate of construction and made it profitable. And now we are facing a reality where the situation is changed to the contrary and the profit of this industry may seriously decrease or even disappear.
Q. In foreign countries one of the most common occurrences after a crisis is when one big company buys another bankrupted one, will it be the same in Georgia?
A. Buying assets is important first of all for a company so as not to get left high and dry and the satisfaction of customers who stand behind this company is also essential. I don’t know how the situation will develop, but maybe some companies will be sold to their competitors. It depends on specific negotiations. I hope that the companies in trouble won’t make decisions too hastily and that each will find a suitable solution.
Q. One of the Georgian developers was happy to insure buildings still under construction, and any loss incurred would be restored. Even such a big crisis didn’t raise the demand on insurance and the most popular products in this sphere are still in auto and health insurance. What’s your explanation for this?
A. In the insurance industry there is a different situation when an insurance company decides to insure your case, and some tough procedures follow. Strict control is necessary from insurance companies and a lot of developers were not ready for it. It is a difficult process, as business has to become transparent.
I hope that construction insurance will become popular as it’s a protection guarantee for the customers.
Q. Banks are re-launching their products including loan offers with unprecedented low rates. How do you think, will this raise customers’ confidence?
A. Banks’ new initiative to issue loans in the national currency is a way of promoting the GEL, which is correct in my opinion. Today, the GEL in relation to USD is very strong. It won’t be difficult for banks to get their customers back as they’ve already got used to banks’ products and services. Earlier it was a different situation in regards to banks, as people didn’t know much about their products. If you have never tried a bank’s products it won’t be difficult to avoid them, but if you have, even credits, in a month you’ll be getting another one.
Written By Madona Gasanova
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