The FINANCIAL — While Russia has seen foreign reserves decline, a sign that the market is more nervous about investing in the region since the recent Russian-Georgian conflict, US affiliated businesses seem to be feeling more comfortable in Georgia.
The US Treasury issued a statement on the G7 countries’ behalf saying they would be ready to help Georgia “to maintain confidence in Georgia’s financial system and support economic reconstruction”.
The World Bank, European Bank for Reconstruction and Development, Asian Development Bank, European Investment Bank, and European Commission were also called to “identify and support reconstruction needs and the restoration of services that will build a base for future economic growth”.
FDI flows are crucial to financing Georgia’s current account deficit and have been a key driver of growth.
Foreign investment stood at 19.8 percent of GDP in 2007 compared with 13.9 percent in 2006, according to the Georgian Government. Georgia attracted more than USD 2 billion (EUR 1.3 billion, GBP 1.06 billion) in FDI last year mainly in banking, real estate, mining and agriculture.
As Goga Robakidze, Coca Cola Bottlers Georgia Commercial Director told The FINANCIAL, the company has suffered around GEL 1 million losses in terms of destroyed equipment till now.
“Concrete loss figures are being calculated but no final picture has been drawn so far. Our equipment like fridges and other machinery has been damaged by being thrown out in to the streets. We’ve seen serious losses in Gori, Kaspi and western Georgia towns,” said Robakidze.
Robakidze noted the company has at least a month’s storage and expresses his hope that import possibilities will soon be reopened. As for the price policy, no changes are expected in the near future.
Summer 2008 appeared to be a lost tourism season in Georgia. As Levon Travel, with main office in California, told The FINANCIAL, it is impossible to calculate exact loses, but approximately all together (ticketing, incoming, outgoing tourism) actual damage is around at least USD 100,000.
“But this is for now only, as for future loses it is not calculable, as we are having to start from square one again I can only guess that to reach the same level of sales we’ll need at least 3-4 years,” says the company. “We are not leaving and never thought about it, but there is little confidence in the situation and the future of the local market, everything depends on the political situation, if it’ll stabilize everything will be OK, but on top of that we’ll need 3-4 years to reach the same level of before the war.”
Levon Travel, an American Express Travel Services Representative, was established in 1960 as a full service IATA agency specializing in air travel and tours to Armenia, Georgia, Moldova and the Middle East.
Even the companies who have not seen losses yet, because of Poti Port damage, they might still encounter them in the long term. “We’ve seen no financial losses so far, though because of Poti Port issues the situation at the company is rather pessimistic,” said David Mirianashvili, Import Specialist of Maersk Georgia.
Maersk Georgia LLC is an agent for Maersk Line, the world’s leading International container carrier.
Local universities delivering western education retain the hope that there is no threat to their businesses in Georgia.
As Georgian-American University (GAU) says, they’ve seen no losses at this point.
“Although GAU is closed during the month of August and we might still see some impact on our non-degree programs this fall semester,” R. Michael Cowgill, the founder of GAU.
In his words, GAU has no second thoughts at all about quitting the market. “I am very confident in the future of the local market. Education is a type of business that in the short term is least affected by wars and conflicts. In the longer term, the impact on graduate hiring could be problematic.”
GAU has 10 foreign students, including five incoming 1st year students.
“At this time we have no information that any of them have decided to leave the country,” said Cowgill.
GAU began as the MBA project of Helen Jamarjashvili during her studies at Georgia State University in Atlanta, Georgia in 2001. The university, named Caucasus American University was conceived as a Law School, providing post-graduate (JD) and undergraduate (LLB) degrees.
After almost 3 years of unsuccessful investment scenarios with a single investor, in November 2004, an LLC consisting of American and Georgian investors was formed. This LLC and its Board of Directors brought together a group of credible and honest individuals committed to ensuring that the financial as well as operational control of the university would comply with the strictest international legal, ethical and educational standards. The investors also represented a diverse range of expertise, including: US, Georgian and International Law, US, Georgian and International Business, Banking, Finance and Management, Georgian and International Public Relations US, Georgian and International Education.
According to Caucasus University (CU), as it’s an educational institution, and is not functioning in the month of August, we can’t yet tell exactly about their financial losses. That’s why the main losses at this time are emotional.
“Of course we are not planning to leave the market, the opposite; we are planning to be even more innovative and aggressive in the future. As of now we are sure that the whole world is with Georgia, and we serve the future of Georgia by preparing its future leaders for local and international needs,” Tiko Gugberidze, CU PR Manager, told The FINANCIAL.
As she stated, CU students in business, law, media, technology, and public policy will help the country to build a democratic and modern society. And there is no power which will hint them to do this. “Approximately 10 percent of our students are foreign, but no one wants to leave the country at the moment. However we will have more exact information by September.”
Caucasus University was established in 2004. CU is a new institution founded on the basis of Caucasus School of Business which was established during the transitional period of the country in 1998 when Georgia was making the first attempts to move from planned to free market economy. Now Caucasus University has got five schools: Caucasus School of Business, Caucasus School of Law, Caucasus School of Media, Caucasus School of Technology and Caucasus School of Governance, a relatively new school.
The continued visits of high U.S and European officials in a row these days were hosted by a U.S hotel brand.
Irma Tabatadze, Marketing Coordinator of Tbilisi Marriott Hotel & Courtyard by Marriott Tbilisi claimed there were no losses regarding the Georgian-Russian conflict, on the contrary the hotels are fully booked with all the high delegations and reporters and journalists from all over the world.
As for price changes, Tabatadze noted that it before this conflict situation it was already planned to increase rates at the Tbilisi Marriott Hotel, so they have nothing to do with the present crisis situation.
“Both hotels are fully booked and most of the guests are foreigners,” said Tabatadze. “I cannot name all of them, but I can assure that all the high delegations, groups, journalist/reporters were hosted by our hotels.”
Tbilisi Marriott Hotel, opened in September 2002, is the first hotel of the International Marriott Hotel Chain in the Caucasus. It offers 127 rooms and suites (8 Junior Suites, 2 Presidential Suites, 1 Vice-Presidential Suite), a fully equipped Health Club, Business Centre, Restaurants and Lounges (Majestic Restaurant and Outdoor Patio with International cuisine, Café Parnas, The Wine Bar with International cuisine, Lobby Lounge and Private Dining Room). Also available are seven international standard meeting/conference rooms, of which the Ballroom has the largest capacity. The Courtyard by Marriott Tbilisi also managed by Marriott International was put into operation during 2003.
According to DLA Piper, a global legal services organization, their office in Georgia continues working. August 12 was the only day off at the company.
“We don’t see the necessity in ceasing operations and so are keeping on with regular work,” Irina Elisabedashvili, DLA Piper Assistant, told The FINANCIAL.
Since the media front is another very important issue during the Russian-Georgian conflict, the Georgian side made the decision to block Russian channels in order to avoid false and inaccurate spread of information to the local population.
“We were urged to replace Russian channels with other foreign ones,” Nana Namoradze, Program Director of Ayety, the biggest cable TV channel, told The FINANCIAL.
As she later explained, unfortunately as the Russian language remains the best understood foreign language for Georgians, Ayety TV has left the Russian TV channels which run foreign production with Russian translation.
In respect to losses due to the replacement of Russian channels with ones from other countries, Namoradze said the financial estimation has not been made yet.
The American-Georgian joint venture Ayety is a satellite cable TV company, also rendering internet broadband services, operating since 1993. American founder of Ayety – Metromedia Group inc., has invested up to USD 50 million in the Georgian economy.
“No loss calculations could be made at this stage but if the conflict lasts longer it’ll have a serious effect on our business. Our clients are here and waiting for the situation to stabilize; all of them have been hurt in some ways,” Clifford Isaak, Managing Director for the Caucasus region at Price Waterhouse Coopers, told The FINANCIAL.
PWC immediately stepped in to help two schools where refugees are sheltered.
Price Waterhouse Coopers provides industry-focused assurance, tax and legal and advisory services for public and private clients. More than 120,000 people in 146 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.
Written by Kate Tabatadze.
Discussion about this post