The FINANCIAL — JSC Nikora plans to launch a modern bread and confectionery enterprise, as well as start the production of ready-made food in 2016. Investing in its existing projects is also on the agenda. Total volume of investments will range from USD 3 to 5 million. Additionally, by the end of 2015 JSC Nikora will start issuing bonds on the market.
“The current year has been quite difficult not only for our company but for the overall business community. The serious devaluation of the Georgian Lari against the USD has reflected on all businesses, including ours. The existing situation forced us to delay some projects that we had previously planned. In general, it was a difficult year for all businesses. However, we did not stop our development altogether, we just reduced the pace of it and reviewed our priorities. The main news concerning our group was the purchase of the retail chain ‘Nugeshi’. In this way we increased our market share on the organized retail market up to 26%. Since the amalgamation of the Nugeshi chain we overviewed the price policy of our chain. Due to consumer solvency we reduced product prices. As for the main advantages of the Nikora supermarket chain, like service quality, interior and infrastructure – these have been spread to the Nugeshi supermarkets now too. We are optimistic about getting good results in the end,” Irakli Bokolishvili, Director General at JSC Nikora, told The FINANCIAL.
According to Bokolishvili, the main positive development for businesses during 2015 was that for the past three years of government changes there has still been no more taxation pressure put on businesses. “The pressure on businesses that was taking place before 2012 is no longer taking place. This is the most important factor. It inspires businesses to move forward more bravely. Another year has passed and nothing has changed for the worse in this direction,” he said.
In Bokolishvili’s words, devaluation of the Georgian Lari against the USD was unavoidable, however sharp fluctuations could have been avoided. “The GEL’s devaluation has been mainly caused by external reasons. The overall conditions developing in the region were negative. We were witnessing an oil price drop; decreased incomes in Russia and Azerbaijan; military tensions in Ukraine; Armenia almost faced default; and problems in Turkey. So when everyone faced such difficulties it was impossible to maintain an upward trend here. In particular, we shouldn’t forget that all of these countries are our main trade partners. Due to reduced solvency in our neighbouring countries Georgian exporters reduced export to these countries. Remittances inflow has also been dropping. So, it was impossible to avoid the impact of all of these objective reasons. As for subjective reasons, maybe NBG could put more effort into developing processes less harmfully, step by step and not with giant leaps as we have been seeing.”
Q. During recent months the exchange rate of the GEL against the USD has stabilized. Does this give a sense of steadiness?
A. Let’s first talk about what has stabilized the currency. Due to the dramatic devaluation the prices of imported products increased significantly. A reduction of import could not be reached rapidly. So, step by step we have seen its reduction. It decreased the big demand for USD. So the Georgian Lari stabilized over the USD. The current exchange rate describes the existing reality. Another reason for the stabilized exchange rate was that the money supply has been saturated. I am quite optimistic about next year. There are some huge upcoming projects that will be launched in 2016. In addition, there will be elections in Georgia which means increased spending. This will have a great impact on our citizens and the currency pressure will be eased. All of this will happen provided that no cataclysms take place around us.
Q. JSC Nikora has some big projects mapped out. Do you plan to implement them next year?
A. We do have some projects scheduled for next year and we will implement them. Currency and general economic stability are our main premise for fulfilling them. The company will launch a modern bread and confectionery enterprise. We also plan to provide a modern enterprise for salads and other ready-made food. In addition, we will continue investing in already-existing projects, as in line with development it is always important to invest. We will continue opening new supermarkets, however not as intensively as previously. New supermarkets will be mostly opened in the regions in order to be better positioned there. Over USD 5 to 10 million will be invested in our new projects.
JSC Nikora has almost completed the process of issuing bonds. By the end of the current year our bonds will be launched on the financial market. Galt & Taggart will emitter these bonds. The attracted fund will help us to partly repay our credit obligations to the bank and use the rest for the development of new projects.
Q. Your decision to start issuing bonds is positive news. What are the primary steps that need to be done for the development of the Georgian capital market?
A. First of all there should be companies that will be locomotives for stock exchange. Otherwise it will never become a real trade platform. As I am aware, there are some works being done in order to establish the Georgian stock exchange as a real platform for trade. The next step of our company will be listing JSC Nikora first on the Georgian market, and later abroad.
Q. There was a criminal attack at one of your supermarkets recently. In addition to the financial loss, a security employee was wounded. Such incidents have become quite common in recent times. How do such incidents impact on the mood of the business society?
A. No financial damage can compare to human loss. Fortunately our worker survived. The fact itself has been shocking. However, such incidents have always taken place under any government, and happen in any country. The good news is that since 2004 the level of crime in Georgia has been decreasing. From our company’s experience though, I would say that we are not witnessing a deterioration of the level of crime in the country.
Q. What impact will the Russia-Turkey tensions have on Georgia?
A. There might be positive as well as negative effects on Georgia. In general, when one’s two core economic partners have some disagreements it has a negative impact on our economy as well. As for opportunities, while Russia restricted the import of some agro products from Turkey, this opened an opportunity for our exporters to increase the volume. However, since Turkey lost such a huge market as Russia, the cost of products might drop there and these comparatively cheaper products will enter the Georgian market. It is always hard to insert economy into some frames. I will not exclude the possibility that Turkish products will pass through Georgia as a transit country and ultimately enter the Russian market without hitting local products.
Q. An FTA deal with China is expected to be reached in 2016. Will this increase competition for local producers?
A. Due to the small size of the Georgian market it is questionable for me how interesting we can be for the Chinese market. As for local exporters, the huge size of the Chinese market could be really beneficial. We have wine which is increasing on an annual basis in China. As for the increased import of Chinese products in Georgia they have always been imported here. So I do not expect a significant increase after the FTA comes into force. In addition, the distance between our two countries is so big that transport cost will not allow Chinese-made products to be cheaper than local ones.
In our reality, while making such bilateral deals we have frequently faced the fact that the import of products is quite simple while our exporters have faced some difficulties. Supporting export is therefore the main task of the Georgian Government.
Q. How can Georgia minimize external risks?
A. When two giant countries have a kind of disagreement we should try hard to maintain balance and not to express direct support for one side or the other. For both of them we are too small and any negative processes can have an impact on our development. So, we should continue with our neutral policy and focus on our development.
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