The FINANCIAL — Imposing a visa regime on Georgia initially had a very negative effect on the welfare of many Georgian citizens, this was the time when Georgian and Russian interests demarcated. Even the feeling of kinship, such a natural thing for Georgians having been raised in a Russian cultural and political environment started to slowly disappear. Russia became us unreachable as European countries used to be for former Soviet people. Later, Russia made another strategic mistake in Georgian-Russian relations and in line with energy blockage, officially imposed economy blockage by banning Georgian mineral waters and wines on the Russian market.
Regardless of the allegations of Russia’s Chief Sanitary Genadi Onishenko of Georgian wine and mineral water being falsified and of low quality, politics of the Russian government is still regarded as the key reason of this decision. Although the current state of the Georgian economy is quite critical, after leaving the Russian political-economic environment, Georgia seems to have new perspectives.
Kakhaber Jakeli, Sarke Consulting market specialist and a candidate of economic sciences talked to us concerning the specifics of the current Georgian economy and market.
Q. What are the specifics of the Georgian market and what is its development perspective?
A. The current Georgian market as well as the whole economy is in the phase of development. Georgians are not sparing efforts in introducing innovative technologies. Our country is slowly becoming attractive to foreign investors. Simultaneously, Georgian business is going beyond borders and is exporting products to foreign markets.
Q. Regardless of these efforts, Georgia lost the Russian market due to its political choices. What is the threat for Georgian business and economy development in general under the conditions of the Russian embargo?
A. Investments in Georgian wine-production were traditionally made by a country having strategic interests in Georgia and the whole Trans-Caucasus region. In the previous century, such a country was the USSR. However because America is now regarded the strategic partner of independent Georgia, respectively, very soon American investments will be made in the sector of Georgian wine-making. This is just a matter of time, but it will definitely take place! That’s what the logics of current business and political development is telling us.
Historically, partnership with Georgia always meant investment-making in Georgian wine production, while hostility would result in the ruin of this sphere. Even Shah Abas and Themur Langue realized that the Georgian economy was based on grape vines and started the destruction of vineyards. If you really want to defeat your enemy, the first thing you should do is block all channels of economy – this is one of the most harmful things you can do.
It is clear why Russia started its hostile politics by attacking wine production and imposing an absolutely illegal embargo on Georgian wine. It seems they know well in Russia what wine and vineyards mean to Georgians. If we go back in history, the Romanovs’ court was well aware of how important control of Georgia, a central point of the Silk Road, was. Moreover, they realized that it was worth investing money in wine production, the most major sphere of the Georgian economy.
In the first half of the XIX century, the Georgian Lord Kifiani exhibited wine made at his own farm at an exhibition of the Emperor’s royal court. Shortly after that, Kifiani’s clients became the cream of Georgian society who often visited the Emperor’s court. Later, this wine was called Khvanchkara. Together with Kindzmarauli, Khvanchkara became so assimilated with Russian culture, art and life that the best Russian classic writers even dedicated their poems and prosaic works to these wines.
Q. Apart from historic background, what particular indicators are telling you that American investments should be made in Georgian wine production?
A. There are already some signs of this. Besides, don’t forget that the first serious investment in Georgia and the entire region is connected with the USA. I mean capital investment (financial as well as political) in oil and gas pipelines. As a rule, at the initial stage of economy development, investments are usually made in natural resources and privatization of mineral deposits.
Reliability factor is always important and considering the fact that this factor is always low at the beginning, the investor usually shows interest in these spheres. Hence it was not occasional that enormous investments were made in the pipeline and transit of natural resources.
At the next stage, if investment politics is developing successfully, investment-making will move to production, tourism, service, financing and banking spheres.
After the November Revolution, the American Millennium Program was created for Georgia aiming at investment-flow to Georgia. Within the framework of this program, a USD 295 million investment will be made in infrastructure, agribusiness, tourism, real estate and finance sector development in 5 years time.
Furthermore, the American Senate allocated finances for the reinforcement of Georgian infrastructure, democracy, and self-defence: USD 10 million from international safety sources, democracy – USD 9 million; children’s healthcare program – USD 5 million.
If we recall Marshal’s plan in Germany, which was the pre-condition of huge investments later made by the private sector in this country, we will see how important the Senate’s decision is in terms of attracting future investors.
Respectively, the next stage should focus on making investors interested in the traditional Georgian businesses like wine and mineral water production. There is active work taking place in this respect.
Moreover, the interest of American businessmen in Georgian wine and particularly in the tour arranged by the Georgian-American business council in Kakheti during September is very important. It is also planned to develop wine tourism.
At the same time, a large forum of economists will be conducted in Vienna on October 29, while another forum but this time held in London “Invest in Georgia” will take place on October 31. These forums will concern real estate, industry and investment issues of the financial sector.
The process will continue in New York on November 5 on the forum “Dr. Jones’ investment in Georgia.” It will be dedicated to the modern economy, financial, telecommunication and agricultural sectors, where the Georgian wine production topic will also be reviewed. “Invest in Georgia,” a New Delhi forum will end investment activity in the economy sphere. The entire process, which will start in Europe, continue in the USA and be completed in Asia, is being initiated and promoted by the US government.
Q. What steps is Georgia taking as a response to this support?
A. An assessment of the Georgian investment environment, as a rule, is usually based on competent data. It is interesting to have a look at the data provided by one of the world’s leading investment companies Ernst&Young. The data concerns reforms and official indicators of the Georgian government. According to this information, today Georgia is the best country to make investment in. Ernst&Young names ten reasons why it is worth making investments in Georgia:
1. World’s number one reformer country
2. Strategic geographic location
3. Stable macro economic environment
4. Competitive trading system
5. Low taxes
6. The most liberal labour legislation
7. Simplified procedures of licensing
8. Aggressive privatization
9. Competitive banking sector
10. Corruption-free environment
Q. How dangerous is the Russian anti-Georgian propaganda in terms of foreign investment flow and local market development?
A. The propaganda is so senseless and poor that in many cases it does not affect the success of Georgian products at all, especially the sales of Georgian wine in America, Europe and China. Obviously there are some difficulties and I am sure that the world market will overcome them and will slowly adapt to Georgian wine. When I visited America I went to a wine boutique and asked for Georgian wine. The sales person told me that recently quite a lot of people have been showing interest in Georgian wine. Respectively, they are already planning to export a wide range of Georgian wine brands. Currently, one can only buy Khvanchkara and Kindzmarauli there.
However, in the future, after American investments enter Georgian wine production, the investor will make sure that distribution takes place. He will make an agreement with the retail network by this supporting large-scale realization of Georgian wines on the American market. Georgian wine makers are not able to reach this stage alone. It is very hard to achieve agreement with the American retail network unless you are an American businessman. As for the Russian embargo, it reminds me of the French-English war in medieval times, when England closed its markets to French wine. Consequently, French wine changed its taste. – Why? Because after the English embargo, France changed its direction to the Flamand and German markets, where unlike the English, they have a preference for dry wines. Thus, French wine became dry after this period.
The same is expected of Georgian wine – if up till now, there was a demand for semi sweet wines, because of Russian market demand, from now onwards, dry wines will be produced: more brands like Saperavi – the flagman of Georgian wine, Manavi, and Rkatsiteli will be sold. Consequently, the technology of dry wine production will move forward.
Q. What should Georgian wine-makers consider in the future?
A. First of all, they should pay more attention to such characteristic features as aroma, body of wine, and the production of wine gathered from one particular vineyard confirmed by a respective certificate.
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