The FINANCIAL — The Georgian economical brake influenced by the Russo-Georgian war made people to look for alternative ways of investing. Representatives of the National Bank of Georgia and leading Georgian Business Schools speak on the subject “Where To Invest Your Money”.
Gold
“Gold was always thought of as good investment, especially if we look at its history and our reality today, that we don’t have financial papers, it can be considered a good way to invest,” David Iremadze, Director of the Graduate Studies Department of CSB, told The FINANCIAL .
Investment coins are offered for sale at the Money Museum of the National Bank of Georgia and at the regional branches of the National Bank on a daily basis (except weekends) from 10.00 AM to 15.30 PM (break 13.00-14.00 PM). The National Bank of Georgia establishes the selling price of GEL 1,000, 300, 100, 50 and 25 denomination coins on a daily basis according to the prices established by the London Bullion Market Association.
Weight of the gold coins (ounce) Nominal Price
10.00 (311.0 gr.) 1,000 11,905.00
5.00 (155.5 gr.) 300 5,952.00
1.00 (31.1 gr.) 100 1,190.00
0.50 (15.5 gr.) 50 595.00
0.25 (7.7gr.) 25 298.00
0.10 (3.1 gr.) 10 119.00
According to National Bank of Georgia’s (NBG) officials, after July 2008 gold sales were increased six times. In July total sales of Investment Coins were 18 ounces, in August – 23.75 ounces, in September – 53.5 and in October – 121.5 (3,430 kg).
From the very beginning NBG decided to offer gold to customers as an alternative means of investment. As Gocha Gordeziani, Director of Desk Operations and Cash Flow Department announces, 90% of gold sales are motivated by investment.
Savings & Investments – Deposits
As for the restoration of customers’ trust in the banking sector, economists think that it’s high time to start deposit insurance.
“Deposit insurance is very important. In the USA for example, the government insure deposits itself. Every bank is obligated to pay a federal deposit insurance fee, which makes your deposits guaranteed by the government. During an economic boom or economic recession, even if the bank becomes bankrupt none of the deposits of clients will be hurt. Each deposit of more than USD 1,000 is insured. I think it’s high time for our government and financial sector to start thinking and making practical steps toward insuring our money in the banks. This will raise customers’ confidence considerably,” Iremadze says.
“In Georgia the economical crisis was caused by the war. At the same time there is a world economic crisis happening, based in the USA. There were USD 13 billion investments in the USA and the whole world is connected to this country. This fact is the reason for the deficiency in alternative investigative sectors. That’s why it has seriously affected spheres of investment like banks, real estate and metal,” says Temur Kuprava, Master of Economic and Finance Programmes at ESM business school.
According to Iremadze, CSB “During a recession, one of the safest investments are sectors represented as consumers’ staples. As well as those called inelastic demand. People still need for example: healthcare, medicine, food, basic transportation and so on. For all of these sectors, the level of demand will remain the same, no matter what kind of recession is happening in the market.”
As Kuprava says, the shortage of financial institutes in Georgia will help the situation to be easily regulated. In the USA the biggest demands are for Big Macs. “In Georgia and abroad there are certain sectors which are staples, which are always in demand. We can look at Telecom as an example. Communication has become one of the most profitable businesses today. It has large scope for development because the internet has become too important to us already. We can live without many things today, but not the internet.”
The economical crisis and devaluation of stocks are actually very profitable for some investors.
Buying Businesses
“There are sectors that when in trouble truly go down in value. Banks, real estate, construction companies, they are in trouble. But some economists and investors may discuss this situation as the good time to start looking for targets and value. The upcoming stocks of the inelastic sector can create an excellent opportunity for investment,” says Iremadze.
“When investors make the decision to buy a company, whether in an economic crisis of the whole world or not, they will start looking at the company’s fundamentals, at if they look good. A good management team, financial statement, clinical base, branch capital and so on. Even in a troubled sector, or today’s banking sector, you may find a company whose fundamental indicators look good. So, some companies may suffer because of a recession, but companies with all the above-mentioned advantages will continue,” Iremadze explains.
Despite the situation and working pause in the banking sector economists think that the Georgian banking sector is not at a complete loss. More sceptical people’s advice though is to appeal to banks for foreign investment.
“There are banks in Georgia, for example, Procredit Bank and Bank Republic, Societe Generale Group, with foreign investments which won’t have to curtail their activities. Another example is HSBC, the British Bank. But even our local banks have a very strong background. There was a time when Kazakhs were proud of their banking system but it did not last for long. Today they are coming to Georgia to invest money here and also to use our banking products,” Kuprava, ESM explains.
David Iremadze does not advise decisions made in a panic: “During the Russo-Georgian war a lot of people withdrew money from the banks and exchanged our national currency in to EUR because it was very high in that period, but they have hurt their financial situation in the long run. What has happened to the EUR now? In August EUR 1 cost GEL 2.17 whereas now it costs 1.74. It’s not good to make decisions in a panic. It’s also non profitable to keep money at home, money belongs in the banks.”
“The banking system will be restored soon with the help of monetary funds and cheap loans. The strength of the banking sector was the reason why all other spheres were dependant on it. There is actually no reason to keep money in a safe at home. Money belongs in the banks,” Kuprava stated.
Economically the real estate sector is having difficulties and they might continue for a while.
“The problem is that they were much dependant on loans. The construction companies themselves and their customers. “Selling air” was always connected with risks. They started new projects, new initiatives, without finishing old ones. In regards to the real estate market my advice would be to stop putting money in the air or on future projects, when an already finished building can be a good and profitable sector for investment. ” Iremadze says.
“Problems in Real Estate started before the war. Demand was not equivalent to supply. The war caused the withdrawal of additional monetary resources from the banks. According to my information this consisted of USD 400 billion in total. Restoration of the banking sector will move this segment again. At this time, as a customer I would wait for a while. I would wait for the discounts, which are almost inevitable,” Temur Kuprava, ESM says.
Next to food and communication high demand will remain on educational business, Iremadze, CSB says. “Educational centres have a good ability to help, even for businessmen, to rebuild and restore their skills for the modern market. Also in terms of the provider sectors, offering to find new jobs, HR companies. Food centres and restaurants are very popular in Georgia. So they won’t see much damage during the recession.”
Written By Madona Gasanova
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