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Strategically located between the Black and Cas-pian seas, at the crux between Europe and Asia,

Georgia has long been an important link between East and West. Today, the country is aiming to revi-talize the importance of its geography through the construction of the Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus gas pipeline, which forms part of the Shah Deniz II Southern Gas Corridor project. It is also working to modernize railway links with the Kars-Akhalkalaki line and is building port and road infrastructure that will open new transport possibilities westward into Europe and southward into Turkey. Talks for a new Silk Road railway are even in the works – which will allow goods to be shipped from China in just 17 days.

Beyond its literal capacity as a physical link between the hinterlands of Central Asia and the bustling urban centers of Eastern Europe, however, is Georgia’s significance as a bridge between the vast former Soviet territories and Western democracies. Since its independence from the former Soviet Union in 1991, Georgia has steadfastly maintained its inten-tion to form part of the Western world. The United States is its most strategic ally, and membership in the European Union is a cherished goal.

Since 1991, Georgia has worked hand in hand with international bodies to grow its democracy, imple-ment institutional reforms and the rule of law and liberalize its economy. It has succeeded on all fronts. The country ranks 8th in the World Bank’s “Ease of Doing Business” 2014 survey; it has been granted an enhanced package from NATO and it recently signed a new free trade agreement with Europe. Each day, it is one step closer to the Georgian dream of becoming fully integrated with the West.

“We are undergoing rapid change and are experi-encing a transformative period in Georgian history,” says Prime Minister Irakli Garibashvili. “The Georgia of today is another world compared to two decades ago, or even two years ago. Every area of our coun-try – from health and education to the economy and, especially, democracy, rule of law and human rights – has progressed in leaps and bounds.”

“When we signed the Association Agreement with the European Union, we made it very clear to the world that Georgians want to become a part of the European family because that is where we belong,” says the PM. “We share the same common values, the same culture and the same ideals of freedom and democracy. This is not the decision of any single leader. We are following this path because it is the will of the Georgian people. We want to transform this country into a modern and free European nation. This is our goal and this is where we’re going.

“I have no illusions that it will happen overnight. But if we follow the path step by step, together we will get to that point. I strongly believe that Georgia has a bright future.”

The United States has been a consistent partner for Georgia along this path. President Obama and Vice-President Biden met with Prime Minister Garibashvili twice this year, reaffirming the United States’ support for Georgia’s sovereignty and for the Georgian people as they pursue their Euro-Atlantic aspirations. They also pledged continued U.S. assistance to help the prime

minister’s new government as it pursues reforms and discussed opportunities for further strengthening trade and investment ties between the two economies. President Obama also thanked Georgia for being a valued friend and reliable partner in supporting the U.S.’s regional and global priorities, including Geor-gia’s significant contribution to the NATO mission in Afghanistan, where roughly 1,500 Georgian soldiers are deployed.

“We maintain close ties with the United States, and appreciate this close relationship. The United States strongly supports Georgia and is our premier strategic ally,” says Prime Minister Garibashvili.

Though a major item on his policy agenda over the next year will be to implement the terms of the E.U. association agreement and adapt Georgia’s institutions and regula-tory regime across a wide range of areas in line with E.U. policy, Prime Minister Garibashvili says his coali-tion government, aptly named the Georgian Dream, is also committed to reducing poverty and raising the quality of life. Since Georgian Dream won the parliamentary elections in 2012, the government has increased pensions 36.36 percent, created universal healthcare in the country and mod-ernized more than 1,000 schools.

“We are focused on improving the lives of all Geor-gians, so education is our priority, healthcare is our priority, the manufacturing and agricultural sectors are a priority,” says the prime minister, adding that the economy will not continue to grow without a properly educated workforce. “We are focusing on sciences and technology. We have established an Agency for Innovation and Technology and we want to bring in new knowledge.”

The government aims to use new technologies to modernize its agricultural sector, Georgia’s largest

employer, and is working closely with an Israeli com-pany to implement new technologies to boost yield and expand value-added activities in food processing.

A new $6 billion private equity fund, the Georgian Co-Investment Fund, has also been formed to pro-mote new investment in agriculture, tourism, energy and manufacturing. Government reforms to make doing business easier in the country will further sup-port new investment inflows, says the prime minister.

Georgia has reduced red tape, taxes and corrup-tion in order to attract this new investment, and has received high marks from the World Bank for its anti-corruption efforts. While increasing social spending, the Georgian Dream-led government has also continued to implement free market policies and

is now finalizing its 2020 Economic Development Strategy that will fur-ther promote the development of targeted sectors.

“We have completed a number of institutional reforms over the past two years,” says Mr. Garibashvili. “There is zero interference from the government in business. We

have ensured the protection of private property and intellectual rights, which didn’t exist in our country just two years ago. We have also ensured the indepen-dence of the judiciary. So the business environment is absolutely friendly, and we have a stable economic and political situation. Therefore, we expect to see greater FDI.”

With the free trade agreement with Europe, Georgia will have access to a market of 900 million people. “We already had free trade agreements with the CIS countries and Turkey, and now we can add the Euro-pean Union, which is the biggest market in the world, to that number. In the future, Georgia will play an even bigger role as an important bridge for accessing both Eastern and Western markets.”

The Georgian Dream ruling party is making the national vision become reality

This advertising supplement is produced by Haddock & Associates and did not involve the reporting or editing staff of The New York Times

See this report at www.haddockassociates.co.uk

Project Team: Blanca Barajas, Project DirectorCam Schinhan, Journalist Peter Andres, Journalist

Georgia Various investment funds give projects the boost they need

Pages 3-5

Long gone is Soviet-era Georgia. Today, the country at the crossroads of Europe and Asia currently boasts the 22nd freest economy in the world and is only a few years

away from entry in the E.U.

Facts and figuresl FORM OF STATE Georgia was an independent republic between 1918 and 1921, but in 1922 it was incorporated into the Soviet Union, from which it declared its independence in April 1991 l LAND AREA 69,700 km2 (26,900 mi2) l AREA – COMPARATIVE Slightly smaller than South Carolina l GEOGRAPHY NOTE Strategically located east of the Black Sea, Georgia controls much of the Caucasus Mountains and the routes through them l POPULATION 4.5 million (July 2014 est.)l CLIMATE Western Georgia has a humid, subtropical climate. The climate in the east

varies from subtropical to temperate. The average temperature ranges from 2°C (35ºF) in January to 24°C (75ºF) in August l LANGUAGE The state language is Georgian and also Abkhazian in Abkhazia

l CURRENCY The lari was introduced on September 25th 1995, replacing the Georgian coupon

l GDP – PER CAPITA (PPP) $6,100 (2013 est.)

l GDP (PURCHASING POWER PARITY) $27.3bn (2013 est.) l GDP (OFFICIAL ExCHANGE RATE) $15.95bn (2013 est.) l NATURAL RESOURCES Timber, hydropower, manganese deposits, iron ore, copper, minor coal and oil depositsl AGRICULTURE – PRODUCTS Citrus, grapes, tea, hazelnuts, vegetables and livestockl INDUSTRIES Steel, machine tools, electrical appliances, mining (manganese, copper, gold), chemicals, wood products and wine Sources: Economist Intelligence Unit and CIA World Factbook

New power projects onstream, exploration to begin soon

Page 5

Georgian Railway makes tracks for the new Si lk Road

Page 6

A glass raised high to a growing wine industry

Page 7

A “country of l ife” inspires unique travel experiences

Page 8

THOUGH FULL diplomatic relations have not been restored and there has been no improvement in politi-cal dealings following a brief but intense conflict with Russia in 2008 over the territories of South Ossetia and Abkhazia, since the Georgian Dream came to power in 2012, a new economic dialogue has begun. Russia has reopened the border to Georgian freight and imports of Georgian wine and mineral water resumed in the first half of 2013, bringing to an end a ban that had been in place since 2006.

Have relations with Russia improved?When we came to power in 2012, there was no di-

rect dialogue with Russia and the situation was very difficult so we initiated a dialogue. We appointed a Prime Minister’s Special Representative for Russian Relations who began talks with his counterpart, the Russian Deputy Minister of Foreign Affairs Grigory Karasin. Before this, the Russian market was not open for our products since they established the embargo in 2006. This had a very negative effect on our economy at that time because we were fully dependent on the Russian market.

What form did the dialogue take?We took a lot of constructive steps in order to de-

escalate the tension and to start a direct dialogue, and Russia eventually opened its market for us, first for Georgian wine and mineral water, and now agriculture goods. But we separated relations, and were careful to make clear that we were only talking about the eco-nomic and cultural relationship. We said, let’s improve our technical relationship in trade and economic areas.

In our political relations, we remain firm. We will never give up the principle of the country’s sovereignty and territorial integrity and we will make no compro-mise when it comes to our territories.

Do you feel that the talks have been successful?When we de-escalated the tension between the two

countries, we reinforced the peace, security, and stabil-ity of the region, and we did it not only for us, but also for our neighbors. Georgia is the heart of the Cauca-sus, and if there is no peace and stability in our country, there will be no peace in the Caucasus or in the corri-dor. Also, there are important pipeline projects crossing our territory so Georgia plays a very important role, and there must be peace and stability in this country.

But, unfortunately, our constructive steps have not brought concrete results in terms of resolving politi-cal issues. On November 24, 2014, the Russian Fed-eration signed the so-called “treaty on alliance and strategic partnership” with the Sokhumi occupation regime. We view the signing of the so-called agree-ment as a step taken by Russia toward the actual an-nexation of Georgian territories.

Despite this challenge, the trajectory of Georgia’s foreign policy remains unchanged. Our European and Euro-Atlantic aspiration is our choice and is not di-rected against any country. It is for us, for our people, for better protection and for a better future for the next generations.

Prime Minister Irakli garibashvili

discusses relations with Russia

“We really want to transform this country into a modern and free european nation”

Irakli garibashvili, Prime Minister of georgia

ADVERTISEMENT ADVERTISEMENTGeorgia / P2

nATo and e.U. membership aspirations further

strengthen U.S. relationsTrade agreements are set to increase trade for regional ally

Georgia has emerged as a peace-ful and democratic presence in

the region since the breakup of the former Soviet Union, with increas-ingly close ties with the West. The former Soviet republic, which has long stated its interest in joining both the E.U. and NATO, moved a bit closer to this latter union after the security’s alliance’s Septem-ber meeting in Wales, when it was granted enhanced member status.

“Since the late ‘90s, joining NATO has been a priority in Georgia’s foreign policy,” explains Dr. Archil Gegeshidze, Georgia’s Ambassador to the U.S. “Since then, we have taken sometimes modest, some-times bolder steps to get closer to this goal, even though it has at times been risky for us. Despite this, we have not changed our for-eign policy orientation and we will continue on this path.”

The country’s strengthening re-lations with the U.S., with whom it established diplomatic ties shortly after its independence from the former Soviet Union in 1991, have speeded its journey to full NATO membership. The U.S. is commit-ted to helping Georgia deepen its Euro-Atlantic ties and strengthen its fledgling democracy, and has been a source of constant sup-port for the new nation, says Dr. Gegeshidze, who adds that the as-sistance provided by the U.S. “can-not be overestimated.”

“Politically, the U.S. has always supported Geor-gia’s sovereignty and territorial integrity, and this support has been demonstrated in bilateral frame-works, relationships and multilateral settings. As a permanent member of the Security Council, as an influential member of the O.E.C.D., and as a very powerful actor in world politics, the U.S. has helped Georgia reform, perform and mature as a new democracy. We owe our independence, our level of democratic development, and the degree of security we enjoy to this friendship with the U.S.,” he says.

However, the ambassador is quick to add that Georgia’s decision to access NATO and secure E.U.

membership should not be taken as a rejection of Russia, but rather as steps to secure regional peace and progress. “We have a strong belief that this is something which con-tributes to the common good, com-mon peace and common welfare of the region,” he says. “The stron-ger, more secure, and wealthier the countries in the region are, the better future prospects of develop-ment are. So we do not consider that Georgia’s choice of accessing NATO or seeking membership in the European Union is something that necessarily goes against Russia’s interest, just the contrary.”

Growing relations with the U.S. resulted in the 2009 U.S.-Georgia Charter on Strategic Partnership, which focuses on four priority areas: democracy, defense, trade and en-ergy issues, and cultural exchange. Policy makers from both countries meet yearly to review commit-ments and update their activities. Economic relations between the two countries have benefited from the General System of Preferences, which has increased Georgia’s trade with the U.S. by 180 percent, says Dr. Gegeshidze. Talks are now under way for a free trade agreement. “The U.S. is becoming one of our primary export destinations. It hasn’t topped the list yet, but it has moved up the ladder. The number of U.S. investors in the country has also increased,

and we are looking to improve conditions so that U.S. investors will enter the Georgian economy in even greater numbers.”

An additional enticement is Georgia’s recently completed trade agreement with the E.U., which will open new trade avenues with the U.S. via the latter’s Trans-Atlantic Trade and Investment Partnership (TTIP) when finalized.

“Through Georgia’s Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union, investors will also have access to another 300 million market in the U.S. for Georgian products, so these are huge opportunities which should be taken into account,” says the ambassador.

“Politically, the U.S. has always supported georgia’s sovereignty and territorial integrity, and this support has been demonstrated in bilateral frameworks, relationships and multilateral settings”Dr. Archil M. gegeshidze, georgian Ambassador to the U.S.

economy catches ‘positive tailwinds’ in its sails to post 6% gDP growth in first half of 2014

eConoMY Trade and investment, which already enjoy growth, are set to leap forward with the signing of new trade deals

Earlier this year in June, Georgia’s Prime Min-ister, Irakli Garibashvili, signed the landmark

Association Agreement, including the Deep and Comprehensive Free Trade Agreement, with the European Union. With more than 80 percent of Georgians in favor of E.U. integration, the new deal is designed to help the country move closer to legisla-tive and regulatory reform and the standardization of rights and freedoms.

The agreement, which abolishes tariffs on Geor-gian goods exported to the E.U., paves the way for free trade with the 900-million strong E.U. consumer market, the world’s largest, as well as visa-free travel, and is set to boost Georgian GDP by an es-timated 4.3 percent, while increasing the country’s exports by 12 percent.

This is good news not only for Georgia, but also for U.S. investors looking to set up in the country, which is quickly establishing itself as an important transit route between East and West. The Georgian economy has registered growth in excess of 6 per-cent since 2010, except last year when a contraction in public spending resulted in 3.6 percent growth. This year, the economy rebounded again, register-ing 6 percent growth in the first half of the year. The Economist says that the Georgian economy is experiencing “positive tailwinds,” with robust bank lending, a rise in public spending (owing to the increase in pensions and implementation of infra-structure projects) and a rise in private investment.

The new trade agreement with the E.U. will further strengthen these tailwinds. Here, Giorgi Kvirikashvili, Minister of Economy and Sustainable Development and Vice-Prime Minister, talks about the Association Agreement with the E.U., how it will affect trade relations with the United States, banking sector consolidation and priorities for the future.

How will Georgia benefit from the new trade deal with the E.U.?

Signing the Association Agreement with the Eu-ropean Union, and the accompanying Deep and Comprehensive Free Trade Agreement (DCFTA), was a remarkable event. It will be a big attraction for international investors to be able to produce goods and services in Georgia and sell them without customs tariffs in the E.U. The strategic positioning of Georgia in the coming decades will be through strengthening its European DNA and increasing the perception of Georgia as a European country, but at the same time with more flexibility in terms of red tape and taxes than a typical European country would have. This will boost our attraction for financing from the region and the East, which is a goal for us. So we can act as a transit corridor, with the high levels of democracy and political and legislative stability of a European country, but with much more flexibility and lower taxes than the average European country.

How will the E.U. agreement affect Georgia’s trade relations with the United States?

First of all, our strategic partnership with the U.S. has been vitally important for Georgia, for maintain-ing our sovereignty and territorial integrity. We have received a great deal of support from the United States, which has been very important for us. We are gradually moving towards a free trade agreement with the U.S. It is definitely part of our high-level policy dialogues, and we have begun carrying out reforms needed to make this happen, but it will take time. The U.S. is now negotiating the Transatlantic Trade and Investment Partnership with the E.U., and of course, our ultimate goal is E.U. membership. So, we are preparing for this now in close cooperation with the U.S. trade representative.

What level of U.S. investment is Georgia receiving? We have had several large investments from the

U.S. in the hospitality sector and in manufacturing. Two American consortiums have also expressed their interest in the new port construction in Anaklia, which will continue to offer new investment op-portunities as it is a multiphase, multibillion dollar project. The port will boost our annual container shipments by 20 percent and have a significant im-pact on Georgia’s importance as a transit corridor. Even now, companies from China and Central Asia such as Azerbaijan and Armenia are using us as a transit hub.

As minister, what are your top priorities? There are two projects that are the highest pri-

orities for our ministry. First is the development of the capital market, which has been really dormant during the last years and is in need of a serious overhaul of legislation. We are working on this with the World Bank, the Asian Development Bank, USAID and various E.U. authorities.

We are working on regulatory reform and creat-ing regulators that are separate from the Central Bank. These regulators will cover the insurance, pension and capital market divisions. We are also working on the instruments of the capital market, including the development of bond markets, and on encouraging Georgian companies to go public – first on the Georgian Stock Exchange, and then on other markets like the London Stock Exchange or the Warsaw Stock Exchange.

Portfolio investors will not come to Georgia unless they have an exit option on the local stock exchange so the potential that the development of capital markets will bring for our banks is also significant. We are also interested in an affiliation with a major European

“We can act as a transit corridor, with the high levels of democracy and political and legislative stability of a european country, but with much more flexibility and lower taxes than the average european country”

“We are working on the instruments of the capital market, including the development of bond markets, and on encouraging georgian companies to go public”

giorgi Kvirikashvili, Minister of economy and Sustainable Development and Vice-Prime Minister

Georgia offers investors:

Duty-Free Access to 900 million market

A politically stableinvestment destination

A secure, corruption-free and transparent business environment

Simple, low and fair taxation

www.investingeorgia.org

stock exchange, and we are now in talks with several of them. This will allow Georgian investors to access European securities and vice versa, but in order for this to happen, it is critical to first establish a viable local exchange and a credible clearing system.

And the second priority?The second priority is pension reform, which is

closely tied to capital market reform because we will need to introduce pillar 2 and pillar 3 pension systems. In collaboration with international financial institutions, we are designing a package that will be a combination of these two pillars, with some compul-sory elements but also with a combination of incen-

tives for a voluntary saving system. So, this is a very important reform that will have a large impact over the long term and it is needed. In addition to provid-ing dignified living standards for our elders, pension reform will also allow for new sources of investment for the capital market, which is why the two reforms are closely related and need to be carried out in parallel.

The Georgian banking sector clearly weathered the financial crisis that took place in 2008-09 in the U.S. and Europe, but what are the new challenges facing the sector in terms of the globalization of international capital flows?

The banking sector in Georgia did navigate that period of crisis quite well, partially because of our conservative regulations. Also I would say that the degree of integra-tion of the Georgian economy in the global economy was quite low, so this was another reason why Georgia was not affected drastically by the crisis. But there are challenges ahead for the Georgian banking sector. Major challenges are the new regulations and new risk management criteria introduced internationally such as Basel III, so there is a lot of work ahead for our regulators. But the banks themselves also need to understand that the world is changing and they will be more and more exposed to international fluctuations. We need to be pre-pared for that. We need to have some risk management in the system. We need to be fully in line with international

Continued on page 3

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practices. There will also be new international players entering the Georgian banking sector.

So there are challenges ahead, and the consolida-tion of the banking sector is inevitable because without higher capitalization, it will not be possible for banks to be competitive. With borders opening and globalization, the sector must be prepared for challenges and for crisis, and our local banks must be competitive enough to deal with the entrance of major players. We already have several international banks in our country and there are others that are showing interest. The finan-cial sector here remains quite lucrative for investors so there will be new players and a consolidation and capacity strengthening of our existing banks.

Can you tell us about the “Produce in Georgia” program?It is an agricultural promotion program, which is

overseen by the Ministry of Economy and promotes local business in four ways: First, we sell govern-ment land to the business for a symbolic price of one lari. Second, we share collateral obligations up to 30 percent against commercial banks for four years. Third, we subsidize the interest rates on loans from the commercial banks so companies only pay 1 to 3 percent interest on their loans during an incubation period of two years. Fourth, we provide foreign exper-tise and know-how not only in agriculture but also in light manufacturing so we bring in new technology.

At the ministry, we have an Entrepreneurship Devel-opment Agency, which funds this program and where interested parties can get all of the information they need. Also under our roof is the State Property Man-agement Agency, which identifies suitable property for “Produce in Georgia” projects. It is our mission to get this property working in our economy, and we still have about 40 percent of our agricultural land yet to privatize.

Georgia / P3

The economy minister foresees an inevitable consolidation of the financial sector, if georgian banks are to be more competitive on a world level

GDP - REAl GRoWTH RATE2.5 % (2013 est.)

Industry21.6%

Services69.9%

GDP - CoMPoSITIoN BY SECToR

Agriculture8.5%

Cont. from page 2

ExPoRTS$2,618 billion (2013 est.)

ExPoRTS - CoMMoDITIESVehicles, ferro-alloys, fertilizers, nuts, scrap metal, gold, copper ores

ExPoRTS - PARTNERSAzerbaijan 25%, Armenia 11%, Ukraine 7%, Turkey 6%, Russia 6% (2013 est.)

Financing Georgia’s future

www.fund.ge

JSC Partnership Fund’s (PF) goal is to support private companies through investments in commercially viable projects. In addition, the fund’s aim is to manage the assets of Georgia’s largest state-owned enterprises, including: Georgian Railway, Georgian Oil and Gas Corporation, Georgian State Electrosystem, Electricity System Commercial Operator and 24.5% of shares of JSC Telasi. Currently, as the fund’s assets have reached GEL 5bn ($2.9 bn), it focuses on energy, infrastructure & logistics, manufacturing, real estate & tourism and agribusiness sectors.

Investment Activities • Three completed projects (hotels in Akhaltsikhe and Kvareli and a livestock breeding farm in Koda).• 9 projects under implementation (among them are 230 MW Gardabani CCTPP; 210 MW Nenskra HPP in Svaneti; development of the New Black Sea port in Anaklia; 5-star Rixos Hotel in Likani; 5-star Radisson Hotel in Kakheti; development of Tskhaltubo Spa Resort in Imereti; and Polyurethane Sandwich Panel Production Facility. • More than 15 projects in the pipeline.

Thermal Power Plant in Gardabani

That JSC Partnership Fund has its finger on the pulse of Georgia’s future prosperity is no exaggeration. It

represents a formidable partner for investors looking to move into the region. Capital assets include Georgian Railway – the country’s largest state corporation and a major global transit link between the Caucasus and Central Asia and Europe’s international markets – and Georgian Oil & Gas Corporation (GOGC), which owns and operates nearly 2,000 kilometers (1,242 miles) of gas pipeline connecting Russia, Azerbaijan and Armenia, and a 375-kilometer Baku-Supsa oil pipeline.

The Partnership Fund is also the owner of state giants Georgian State Electricity System (GSE) and Electricity System Commercial Operator (ESCO) – in a country with enough hydroelectric potential to be-come a regional exporter.

A state-owned investment fund established in 2011, JSC Partnership Fund today boasts assets in excess of $3 billion. With a Fitch rating “BB-”, equal to the sovereign ceiling of Geor-gia, the fund promotes investment in the country by providing co-financing in large-scale projects at their initial stage of development, thus support-ing private investors with stable long-term equity and risk sharing.

Separated into two business units, asset management and investment activity, the fund boasts projects im-plemented or under implementation in various sectors with a value of over $1.5 billion.

Mandated to invest solely in Georgia and with a special focus on energy, real estate and hospital-ity, infrastructure, agro-business and manufacturing due to the development potential of these sectors, the Partnership Fund made its first successful exits from two hospitality projects. These include the Hotel Gino Wellness and Spa in the historic Rabath Castle and the Hotel Royal Batoni in Kvareli, and one agri-cultural project (a livestock breeding farm in Koda) in 2013.

Last year, the fund also completed structuring and resumed construction of its first large-scale energy project, the Gardabani Combined Cycle Gas Fired Thermal Power Plant. C.E.O. Dr. Irakli Kov-zanadze says. “Currently our biggest projects are in the energy sector. One of these is the Gardabani plant, which is the largest thermal plant devel-oped since Georgia gained independence. It is a 230 megawatt plant with an estimated cost of $220 million, and the Partnership Fund, together with GOGC is taking an equity participation in the plant.

The contractor is the Turkish business group Ça-lik Energy. Another giant energy project is Neskra Hydro Power Plant, near the Russian-Georgian border. It’s an international project with a cost of $750 million, which will begin next year.”

Until now, says Dr. Kovzanadze, most of the fund’s partners have been regional investors – Az-eris, Kazakhs, Turks and Israelis, who have moved in while European and U.S. investors have taken a wait-and-see attitude. Many of these regional part-ners are interested in real estate investments. The Partnership Fund is now developing a five-star, 152-room spa resort with Kazakh partners in Bor-jomi, famed for its mineral waters, and a five-star Radisson resort in historic Tsinandali.

Though U.S. investors have lagged behind, Dr. Kovzanadze says that he sees significant po-tential for them in Georgia’s larger infrastructure projects, such as port, railway and road projects, as well as in the energy sector, which abounds with greenfield oppor-tunities that have been attracting significant interest.

Georgia’s pipeline of hydro power plant investments prom-ises robust export capacity with Turkey as one of the key elec-tricity export destinations, given that country’s tariff structure and the countercyclical nature of Georgian-Turkish consumption

(Georgia consumes the bulk of its energy in winter, while Turkey’s peak demand and consumption are in summer).

“Georgia has a very good location as it is situated at a crossroads with access to Turkey, Azerbaijan, Armenia and Russia. We are organizing some road shows in America and I hope that this will increase their interest in these projects, as well as others in the energy sector and in tourism,” says Dr. Kov-zanadze, who is also an economics professor au-thor of written various books on banking crisis and prevention.

“I think the interest will come in the next two or three years. Our economic environment now is quite stable. I am a banker and I have more than 20 years of experience in this, and I can say that the situation in Georgia is quite stable. The budget deficit is under 3 percent, which is below the IMF mark for Georgia. GDP growth is 6 percent, and the exchange rate is also stable. These factors indicate a stable economic situation.”

JSC Partnership Fund, a government-mandated partnerWith assets of over $3 billion, the fund targets most potent sectors

Dr. Irakli Kovzanadze, C.e.o. of JSC Partnership Fund

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The country of Georgia knows there are probably a number of misperceptions about it. “When people

hear about Georgia right now, they might think about the post-Soviet countries; they may think about the Ukraine-Russia conflict and about Armenia and Azer-baijan’s problems,” admits Giorgi Pertaia, director of the Georgian National Investment Agency. The GNIA, a governmental agency focused on attracting foreign direct investments, is working hard to show just how far from reality that perception is.

“We try to be involved in every step with the inves-tor during the procedure of investment in Georgia,” Mr. Pertaia explains. The agency provides infor-mation, help with staff training, tax modeling and more. “We do simple consulting, but once inves-tors are in the country and they feel good, we try to step back and not be in competition with consulting companies,” he adds.

In fact, the GNIA provides information to consult-ing companies, particularly when the GNIA knows of specific projects that would interest the companies’ clients. Attending international economic forums enables the GNIA to efficiently meet with many po-

tential investors. Contact with local chambers of commerce and embassies also helps the agency publicize the benefits of investing in Georgia.

According to Mr. Pertaia, one of these benefits is the speed at which important tasks can be accom-plished. Customs clearance, company registrations and assets registrations are completed much more quickly than in European Union countries. “We do it actually in hours,” Pertaia points out.

Taxes in Georgia are another attractive element, and Mr. Pertaia is proud of this. “Our tax legislation is considered one of the best in the world, actually, with low tax rates.” And the process of creating and adopting tax legislation has changed to seek out and encourage input from businesses before final decisions are made.

These benefits apply to all sectors, including hy-dropower. Georgia’s powerful rivers can produce power that is relatively inexpensive compared to the cost of electricity in Turkey, one of the fastest-growing consumption markets. Companies from In-dia, Norway, Turkey and South Korea have already invested in this fast-developing sector.

Tourism is another vital sector in Georgia as the country looks to attract conferences and business forums, particularly to the country’s capital, Tbilisi. A spa resort in Tsqaltubo, an area popular during the Soviet era, is under development with an eye to becoming an international brand, as is Batumi, Georgia’s largest city on the Black Sea and a leading summer resort.

The logistics sector is important in Georgia as well, due to its geographic location. The Azerbaijan-Georgia route is ideal for exporting natural resourc-es from Central Asian countries. Price, security and time are all factors that contribute to Georgia’s competitiveness with northern Russian routes and Iran’s Bandar-e-Abbas southern routes. Increased investments in infrastructure will only strengthen this sector.

Agriculture is the final major sector in Georgia. According to Mr. Pertaia, around 50 percent of the population is involved in agriculture. The current government has invested a good deal into installing irrigation systems, creating grant programs for pro-cessing companies and implementing a loan system

by which farmers can get loans at very low rates. Mr. Pertaia’s vision of Georgia in 2020 is one that

shows the fruits of GNIA’s work. He sees improved infrastructure, a booming hydropower sector, bus-tling tourism and a high GDP. “We have a lot of po-tential that we are not using right now,” he says. But once that potential is realized, Mr. Pertaia predicts, “I see Georgia as one of the leading destinations for choice of investments in the world.”

Georgia / P4

“We try to be involved in every step with the investor during the procedure of investment in georgia. But once investors are in the country and they feel good, we try to step back and not be in competition with consulting companies”

giorgi Pertaia, Director of gnIA

georgian national Investment Agency works to boost georgia’s brand

Georgia aims to be a prime investment destination in the region and globally

The Azerbaijan-georgia route is ideal for exporting natural resources from Central Asian countries

Prime sectors highlighted by the gnIA that investors could benefit greatly from include hydropower, tourism, logistics, infrastructure and agriculture, among others

Customs clearance and registrations of companies and assets are completed much more quickly in georgia than in many e.U. countries

Backed by investment communities from Georgia, Azerbaijan, Turkey,

Kazakhstan and the U.A.E., the $6 billion Georgian Co-Investment Fund (GCF) will be used over the next five to ten years to attract significant invest-ment inflows from international inves-tors in specifically targeted areas of the nation’s economy. The four expanding sectors currently prioritized by the GCF are energy and infrastructure, hospi-tality and real estate, agriculture and logistics, and manufacturing. The fund regards the last sector as possessing the greatest potential for attracting FDI over the coming decade.

On the strategic allocation of its re-sources, the GCF considers investments in both green-field and brownfield projects, as well as in distressed companies. “The main investment criteria is the com-mercial viability of the projects,” says the GCF’s C.E.O., George Bachiashvili. “Our co-investors are usually large private equity funds or corporations looking for strong local partners in such frontier markets as Georgia. By providing this service, we have opened up Georgia to an even larger pool of investors.”

The GCF made its first acquisition in May: a $98 million hydropower project on the Mtkvari River. In September, the investment fund plowed a further $40 million into a greenhouse development project designed to boost the country’s growing agricultural sector. The investment will enable the development of a 35-hectare (86.5-acre) green-house in Georgia’s Kvemo Kartli region and is expected to reduce the country’s tomato imports by 30 percent.

Another project initiated this year anticipates financing Georgia’s largest ever real estate development: Pan-orama Tbilisi. The $500 million, 270,000m² (2.9 million ft²) project will create four new city areas in the capital and involves constructing hotels, serviced apartments, offices, exhibition halls, and health, leisure and sports centers, as well as the supporting transport infrastructure.

Among the various projects GCF has lined up for next year, Mr. Bachiashvili highlights the Tskhenistskali River cascade of four hydropower plants. “GCF will bring a total of $700 million of investment and add 350 megawatts of generation capacity to Georgia,” he says, adding that annual energy generation will be 1,744 gigawatt hours.

“Energy is one of the main sources of wealth for many countries, yet Georgia is utilizing only 20 percent of its hydro resources,” Mr. Bachiashvili notes. “By investing in this capital-intensive industry we are not only providing returns to investors, but also helping the country to use

georgian Co-Investment Fund boosts FDI

Launched in September 2013, the Georgian Co-Investment Fund pro-vides investors with unique access to opportunities in Georgia’s fas-test-growing industries and sectors through a private equity structure

its natural resources more efficiently.”These investments, along with vari-

ous other hydropower, real estate, ag-ricultural and manufacturing projects, bring GCF’s total approved investments for 2014 to $1.3 billion.

“The main idea behind the fund was to create the most efficient structure that would align investors’ and the country’s interests, providing nu-merous positive externalities to the country,” explains Mr. Bachiashvili. “This goal is best achieved though a private equity structure, which cap-tures good value in investments and creates sustainable enterprises that continue to contribute to the country’s

economy after the fund exits them. Our activities have knock-on effects on the Georgian economy, boosting employment, attracting smart capital, and improving Georgia’s overall competitiveness.”

GCF has also set aside $500 million for projects out-side its priority sectors, as evidenced by its investment in the BitFury Group in June 2014. A leading provider of semiconductors, servers and data center solutions to the Bitcoin and crypto currency industry, it is also one of the world’s largest Bitcoin processors. The proceeds from the financing were used by BitFury to roll out its next generation proprietary semi-conductors, ASICs (Appli-cation Specific Integrated Circuits) and custom servers. They additionally support the development of the world’s largest Bitcoin mining data center located in Georgia.

“BitFury chose Georgia because of the country’s attrac-tive investment climate and ease of conducting business,” says Valery Vavilov, C.E.O. of the San Francisco-based company. “I believe having one of the world’s leading Bitcoin companies base its operations in Georgia puts the country on the world’s ‘technology and innovation’ map.”

BitFury’s entry into Georgia has caught the atten-tion of other industry players. “There is a big interest, especially from the Bitcoin-related companies,” says Mr. Bachiashvili. “We are working on a project to create a special IT zone in Tbilisi which will benefit from special regulations attracting various kinds of datacenters and related facilities.

“We believe that it is the right time and place to be investing in Georgia, considering the rapid transforma-tion it has gone through in the past 10 years. The current government’s stated objectives are much in line with business needs and given the geopolitical turmoil in the region, Georgia indeed can be viewed as a gateway connecting Europe to CIS and Central Asia.”

george Bachiashvili, C.e.o. of the georgian Co-Investment Fund

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Georgia’s geographical location, flanked by the Black Sea, Russia, Armenia, Azerbaijan and Turkey, gives

the country a huge advantage in terms of energy policy. Its power transmission lines are connected to its neigh-boring nations and huge advances in internal delivery reliability from 2004 onward – electricity generation in the country rose from 6.9 terawatt hours to 10.1 TWh – have allowed Georgia to transform itself into a even start ex-porting electricity in the summer when local consumption is low”. Furthermore, the country’s strategic location in regional terms allows it to provide energy transportation services for neighboring countries through its territory from east to west (Azerbaijan – Turkey) and north to south (Russia – Armenia).

The country’s key generator though is hydropower, which accounts for around 85 percent of domestic pow-er production. Estimates state that Georgia’s vast net-work of rivers gives it the potential to reach 40 TWh per annum, which when achieved will place it among the largest hydroelectric power producers in the world per capita. Meanwhile, a deregulated national electricity market for new generation plants is a hotbed of foreign direct investment, a major part of the national sector’s drive to achieve total energy sustainability.

However, the country still faces challenges of energy security as it largely depends on imported energy re-sources. Utilization of domestic natural resources is re-quired to ensure long-term 24-hour energy supply to its population of some 5 million and the economy at large. Although production and consumption in Georgia are roughly equal, the seasons provide an unbalancing fac-tor: when winter freezes the rivers, production slumps and demand spikes. When the thaw comes, production increases but demand eases.

“Currently Georgia has a dependence on imported energy,” notes Minister of Energy Kakha Kaladze. “And I’m not talking about just electricity. This figure includes gas and oil, and electricity. Roughly about 80 percent of our needs depend on imports; for seven to eight months a year we depend on imported electricity.”

Georgia imported 500 million kilowatt hours last year from Russia, rising to a forecasted 700 million in 2014. However, the path to self-sufficiency lies within the coun-try’s borders: “Georgia has 22,000 rivers. Out of those 22,000, there are some 300 which can be utilized to build hydropower plants,” says Mr. Kaladze. “And this is the re-source which we are promoting in order to achieve sus-tainability of the energy sector and electricity generation.”

Georgia’s chief source of FDI is the energy sector, in which major investors include Turkey, Norway, India and China. One example of international cooperation is the Adjaristsqali project. In partnership with Norwegian firm Clean Energy Invest, the undertaking in the Autono-

mous Republic of Adjara, in Georgia’s southwest on the border with Turkey, the hydroelectric project will provide installed capacity of 175 to 300 megawatts with average annual production of 700 to 1200 gigawatt hours.

Other hydro projects under development scheduled to enter the construction phase in 2015, when com-bined, will command 1,560MW of installed capacity with a total investment of over $3 billion.

“To be realistic in the current existing landscape in terms of hydro resources, 4,000MW of generation can be provided from the projects that are now underway. But that does not limit us in terms of future upcoming proj-ects because we are currently in the process of utilizing and fully understanding our hydro potential,” says Mr. Ka-ladze, who adds that Georgia is also “seeking other alter-native sources of green energy such as wind and solar.”

Along those lines, the European Bank for Recon-struction and Development has approved an $80 mil-lion package to develop a 108MW power plant in Dariali, in partnership with the Green Growth Fund and Dutch development bank FMO. A $30 million project backed by the Georgian Energy Development Fund (GEDF) has also led to Georgia’s first wind energy project to con-struct a 20MW-capacity power station in Gori, in the east of the country. Mr. Kaladze told a recent conference that the station would be online in the near future and would be merely the beginning: “There is more out there. We have wind power potential of more than 2,000MW.”

“We have projects ranging from 1MW all the way to 700MW, so there is no limit, and no cap on the size of investments,” adds Mr. Kaladze. “And in as far as incen-tives go, it’s Build, Own and Operate.”

The energy minister also hopes that U.S. participa-tion in the country’s energy sector will continue on its current upward trend: “The U.S. is our strategic partner. Through USAID, over the past 20 years, there have been numerous projects and numerous grants to rehabili-tate this sector and we’re very thankful for that and we hope that in the future this will continue. A consortium of energy companies is to invest $2 billion in Georgian territory in order to expand the gas pipeline system that crosses Georgia within the Shah Deniz Stage II pipeline project. This will bring some additional 16 billion cubic meters (565 billion cubic feet) in volume of natural gas flowing through Georgia.”

Georgia / P5

new power projects come on streameneRgY ‘No cap on the size of investments,’ says Energy Minister

THE GEORGIAN Oil and Gas Corporation (GOGC) is one of the main suppliers of natural gas in the country. In addition, GOGC owns the domestic high-pressure gas pipeline system in Georgia and is of paramount importance in ensuring the security of the country’s supply and handling the inflow of natural gas from abroad.

GOGC is also branching out into electricity generation through a thermal power plant project near the capital, Tbilisi, which will have installed capacity of 230 megawatts and represents the first combined cycle thermal power plant in Georgia.

As the national oil company, GOGC actively encourages investors to pursue the country’s relatively untapped upstream potential; around a million barrels of crude oil a day and billions of cubic meters of natural gas a year pass through Georgia from the Caspian Sea via three pipelines that supply European countries further west, but national production is negligible. However, industry experts believe that Georgia’s geographical location near the Southern Caspian system, where Azerbaijan’s vast reserves lie, harbors great potential for Georgia to uncover significant reserves of its own.

“Currently we have just 50,000 tons of oil production per year; this is nothing of course,” says GOGC General Director David Tvalabeishvili. “And we produce about 10 million cubic meters of gas per year; that equates to just one day’s natural gas consumption in Georgia. But during the next two or three years some of the investors who are active in Georgia are going to conduct some drilling in some

of the prospective sites and reservoirs. We hope that in two years’ time we will have a major discovery of oil. Again it will not be comparable to Azerbaijan and Russia, but if Georgia manages oil and gas production on a scale to satisfy at least 50 percent of our needs and demands, that would be a huge success for us.”

The main areas of exploration are in the Black Sea and the Kakheti region, where two prospective fields have been identified. But Georgia’s importance to the continental exchange of natural resources is significant and growing. “We have already achieved a major accomplishment because the South Caucasus Pipeline has been operational for seven or eight years,” says Mr. Tvalabeishvili. “This year a decision was made to increase the pipeline’s capacity up to 22 billion cubic meters. That means that at least 10 billion cubic meters of gas will be supplied to Europe. But that’s not enough for Europe’s energy and security.

They need more: 30 to 60 billion cubic meters a year.”

The proposed Trans-Caspian Gas Pipeline from Turkmenistan that will feed through to Georgia, Azerbaijan and Turkey will be a key element of continental supply, as Europe seeks to lessen its reliance on Russian oil and gas, while meeting rising demands.

As a signatory to the European Deep and Comprehensive Free Trade Agreement, Georgia is obliged to meet E.U. criteria in terms of supply safety soon, and GOGC is at the forefront of ensuring that is the case. The North-South pipeline running through Georgia, for example, is entirely managed by GOGC. However, as the South Caucasus Pipeline running from Baku through Tbilisi and on to Ceyhan in Turkey is controlled by an international agreement, GOGC has little control over supply and must make sure there are different sources of gas during the winter.

“The pipeline is there, of course. But all of this supply from different countries depends on how the production or pipeline operates in different countries as well,” Mr. Tvalabeishvili notes. “It is quite a complex thing. It’s not like in Europe that everything rolls according to the contracts. We have various challenges.”

One of these is to provide Georgia with the means for underground natural gas storage. “This facility is a key component of Georgia’s energy independence and energy security. GOGC is going to enter into negotiations to invite financing for this project. Work will start in 2015 and this is our priority for next year,” Mr. Tvalabeishvili says.

The Georgian Oil and Gas Corporation ensures Georgia receives the energy it needs, while maintaining international pipelines

georgia, a key player in transcontinental power supply

David Tvalabeishvili, general Director of gogC

THE GEORGIAN Energy Develop-ment Fund (GEDF) was estab-lished by the Government of Geor-gia in 2010 with the main objective to develop and invest in renewable energy projects with further transfer to the private sector. The fund operates as a joint-stock company working on a public-pri-vate partnership basis, with a high level of flexibility in terms of what international investors can expect. Essentially, the GEDF works to minimize risks for partners and to ensure the success of a project from the ground up.

“We develop projects, gener-ally we are not involved in

construction or operations,” says Giorgi Bezhuashvili, the GEDF’s C.E.O. “Our main idea is to reduce the risks that are usually associated with getting projects off the ground.”

GEDF will create a special purpose vehicle (SPV) for each project. The preferred legal status

of each SPV will be a joint stock company. The fund shall make ini-tial equity investment in the range of 5 to 10 percent of total project cost with the objective of selling each renewable energy project at the initial stage of construction. GEDF may need to inject more funds in a particular SPV if a project could not be sold.

SPVs shall carry out all initial development work on a proj-ect, namely conceptual design, topographical and geological studies, hydrological calcula-tions, environmental and social assessment, land acquisition for construction and impoundment areas for energy projects. They must also begin derailed project engineering and design, imple-ment infrastructure development (access roads, grid connection, low voltage power supply lines), obtain all required licenses and

permits, begin site construction, submit the Project Design Docu-ment for validation, place orders for mechanical and electrical equipment and enter into power purchase agreement with the local or foreign counterparty, as well as other project develop-ment activities.

An SPV should be able to obtain loans from international and private financial institutions to leverage a project. The preferred approach is project financing. Completion of debt financing will occur once sufficient equity invest-ment is acquired. The debt-to-asset ratio can be in the range of 50 to 70 percent. Upon successful completion of the above, the gov-ernment can announce an IPO of all or part of its shares in the SPV.

One such project is the Dari-ali 108MW hydroelectric power plant in the north of the country,

in partnership with U.S. firm The Robbins Company and a local construction company, which GEFD was instrumental in getting off the ground. Further-more, the project was the first in Georgia to embrace carbon-neutral construction by laying out a reforestation plan in the preliminary studies and receiv-ing non-recourse loan financing from the European Bank for Re-construction and Development.

As well as guiding foreign in-vestors into the Georgian renew-able energy sector, GEDF may also provide a consulting service to investors in case they desire state participation in the project.

Mr. Bezhuashvili notes that “only 24 to 26 percent” of Georgia’s hydro potential has been realized, and GEFD is in the process of offering tenders to screen and identify new hydro-

power projects in Georgia’s four largest river basins: the Rioni, the Alazani, the Mtkvari and the Inguri. The former has already been awarded to Swiss company Stucky and the remaining three were put up in November.

However, Mr. Bezhuashvili also holds a lot of faith in Georgia’s ability to tap wind and solar en-ergy. “We are developing the first wind farm in Georgia, in Gori. It is really perfectly situated and, if not the top place in the world, we will be in the top 10 places globally in terms of energy production at that site. We are also very interested in solar. We have done recon-naissance studies and spotted the places to develop, but the economics do not match our tariff system in Georgia at the moment. We don’t say ‘no’ to solar – we are ready and when the time comes we will be in a position to move.”

giorgi Bezhuashvili, C.e.o. of geDF

Kakha Kaladze, Minister of energy

GEDF helps the country realize its potential in renewable energy

The nation’s energy investment vehicle

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Sustainable forest management law planned, protected areas soon to expand

enVIRonMenT Georgia’s Ministry of the Environment and Natural Resources Protection is working toward restoring balance to Georgia’s nature

Georgia’s agricultural ecosystems and natural grasslands comprise “43 percent of the country’s

territory and are an integral part of the country’s biodiversity” says Elguja Khokrishvili, Minister of Environment and Natural Resources Protection, so it has been Georgia’s priority to improve environmental conservation through governmental process and legislation. After the country’s independence in 1991, Georgia created the Ministry of Environment and Natural Resources Protection (MOENRP), mandated with the responsibility of restoring balance to the environment so devastated by Soviet policies that had industrialized agriculture, which, in turn, negatively impacted the nation’s agricultural ecosystems and natural resources.

Luckily, since the 2000s, Mr. Khokrishvili says, “some important initiatives have been implemented aiming to improve the conservation status of the agricultural biodiversity of Georgia.” The long list of initiatives includes the establishment of new agencies, advancing research projects and rehabilitating de-graded agricultural lands. The Georgian government is clearly committed to investing in its environmental future – in May 2014, it endorsed the MOENRP’s initia-tion of the process to revise the National Biodiversity Strategy and Action Plan 2014-2020, a comprehensive document that addresses broad environmental topics such as species/habitat conservation, agricultural biodiversity, public awareness and protected areas.

Protected areas, including nature reserves, national parks, natural monuments, protected landscapes, world heritage and wetland sites, have become a major tenet of Georgia’s environmental policy. The Agency of Protected Areas acts as the main authority responsible for the development and management of these areas. The “development of these protected areas [has been one of] the priority directions of our Ministry for many years,” says Mr. Khokrishvili.

“Today we have over 600,000 hectares (1.48 million acres) of protected areas,” or 8.6 percent of the entire country, he adds, with the majority being national parks, including Borjomi-Kharagauli National Park, one of the largest of its kind in Europe. The number of protected areas, the minister says, is set to increase by over 300,000 hectares, which will raise the percentage of protected areas to 13.05 percent of total territory.

Currently, 8.6% of the entire country is protected, a figure which will soon rise to 13%

“now we are working on a Sustainable Forest Management Law which will regulate our forest management in a sustainable way”

elguja Khokrishvili, Minister of the environment and natural Resources Protection

georgian Railway makes tracks for the new Silk Road

As the shortest link between Europe and Asia, Georgia is central to the revival of the historic trade route

“THE RAILWAY has a long history in Georgia,” says the C.E.O. of Georgian Railway (GR), Mamuka Bakhtadze – a history filled with generations of families involved with the railway since its founding in 1865, a tradition that remains very strong. With its place in its nation’s annals assured, GR is now looking to make a lasting imprint on its future.

Mr. Bakhtadze currently oversees the operations of an organization that employs approximately 13,000 people and a fully electrified railway line serving Central Asia that spans over 900 miles. Although the company is state-owned, in 2012 it became a joint-stock company managed on a growth and profit-making basis, with Mr. Bakhtadze steering GR toward what he says will be a record-breaking year, with revenues of over GEL500m ($274 million). GR’s international status is such that it has been able to successfully issue bonds on the London Stock Exchange, the latest being $500 million Eurobonds in 2012.

The Georgian Railway’s main railway line is extensive, shipping cargo between the border of Azerbaijan and the Black Sea; but, the C.E.O. notes, cargo can be received from as far as China.

Currently, revenue is generated by an equal split of dry and liquid cargo, such as oil, though dry cargo is on the increase. “For the last 10 years on average, our ports have increased their container shipments by around 20 percent on an annual basis,” says Mr. Bakhtadze. This year it is again anticipated to be around 20 percent. This kind of consistent growth leads the C.E.O. to believe that there is a “bright future” for container shipments through the corridor, and in the next 10 years, “this will be the main business” of GR.

Georgia is the shortest link between Europe and Asia, Mr. Bakhtadze emphasizes, and it’s a Silk Road route that GR wants to optimize. Historically speaking, the Silk Road implies a route that facilitates trade between Europe and Asia. Georgia, a country located between the Black and Caspian seas – the “shortest link” – now plays a very important role in

the new Silk Road. And Georgian Railways, as a transportation service located between the two continents, has become an integral part of Georgia’s national and economic growth.

The development of this corridor into a strategic hub for the region, Mr. Bakhtadze says, depends on multiregion, multi-industry and governmental collaboration. “If only the GR develops its infrastructure, it will not be enough to make Georgia a regional hub,” he says. “We are coordinating our projects with our partners in the corridor, with countries like Azerbaijan,

Kazakhstan and Turkmenistan.” He highlights Kazakhstan’s construction of a 1,000 kilometer (620 mile) rail line to Port Aktau as one example. These “synchronized efforts” will ultimately result in Georgia developing into a dependable and necessary transportation hub in the region.

The company has a comprehensive, multi-pronged strategy to keep growing in light of the demands of the new Silk Road. For one, it is building a new Baku-Tbilisi-Kars line, a route that will ship to the border of Turkey, slated for completion in 2015, according to Mr. Bakhtadze. The goal is to get containers from the Black Sea to the Caspian Sea in about 60 hours. “It’s doable and we are going to do it,” he says with confidence.

There is also the improvement of the existing line’s infrastructure, part of what the C.E.O. calls the Modernization Project, which includes the construction of two new tunnels between the east and west of Georgia to increase capacity and speed.

The mountainous geography of the country being a limiting factor, the plan aims to triple existing capacity through infrastructural upgrades. This goes hand in hand with current capacity building projects focused on acquiring the most advanced technology, such as new engines to increase train speed, new wagons for improving performance and an upgraded signalization system.

Although GR is a regional leader in investing in rolling stock, another aspect of its strategy is to expand the number of container terminals in the country. In addition, with a 12 percent increase in turnover, passenger/tourism business is also a top priority (GR is number one in this category in all post-Soviet countries) and the company is working with various ministries to improve coordination to make service more convenient and comfortable for customers.

“It’s just the right place and the right time to invest,” Mr. Bakhtadze stresses. “Although we are not a big country, with a big railway, we are actually serving a rather large population and geography.”

On a higher level, as a result of the 2014 sign-ing of the Association Agreement, the MOENRP is facing new challenges, one of the biggest being harmonizing with and conforming to EU standards and regulations. Developing, adapting and integrating legislation along European lines (as well as achieving their implementation among the private sector) is important as the nation hopes for full E.U. member-ship in the near future.

Another complexity, the minister adds, is the neces-sity to take into account the impact of new environ-mental laws, so they are adapting accordingly, “step by step, because every new environmental standard or law not only creates additional cost, but also creates opportunities for business and for the private sector.”

Another ongoing challenge is sustainable develop-ment, trying to find balance between economic growth and environmental protection, Mr. Khokrishvili says. Some 40 percent of the country is covered in forest, and the rural population’s reliance on forests as a source for heat production is unsustainable. Parlia-ment is considering a sustainable forest development strategy – the National Forest Strategy – and “now we are working on a Sustainable Forest Management Law, which will regulate our forest management in a sustainable way,” Mr. Khokrishvili says.

Despite the numerous challenges, the MOENRP has promising projects in the pipeline and is making outstanding strides. For example, genetically modi-fied organisms were banned this year, and, currently, there are two pilot projects underway which focus on the use of biomass as an alternative fuel source – an-other method to reduce dependence on forests. And yet another sign of encouragement, environmental tourism is on the rise. There has been a nearly 25 percent increase in visitors since 2013, largely due to Georgia’s natural beauty and protected lands.

Protected areas have “big potential,” Mr. Khokrish-vili believes, and that potential is reflected in the at-titude of the nation’s citizens: when citizens see that they are part of nature, and that tourists are interested in the country’s biodiversity, “there is a change in the mentality,” the minister has explained. They become more willing to take on responsibility for caring for their environment. “We can see these changes and that’s interesting.”

“If only the georgian Railway develops its infrastructure, it will not be enough to make georgia a regional hub. We are coordinating our projects with our partners in the corridor, with countries like Azerbaijan, Kazakhstan and Turkmenistan”

“The goal to get containers from the Black Sea to the Caspian Sea in about 60 hours is doable and we are going to do it. It’s just the right place and the right time to invest”

Mamuka Bakhtadze, C.e.o. of georgian Railway

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Over the last two years 750 million Georgian lari, or GEL, ($413 million) have been invested

in the sector and Georgian Minister of Agriculture Otar Danelia has high hopes and a detailed game plan for addressing the challenges that lie ahead.

Twenty-five years ago, the Georgian agricultural sector was very different than it is today. Collective farms were in place and while Georgia was managing to supply many U.S.S.R. countries with agricultural products, following the collapse of the Soviet Union, the land was divided into many small parcels which inhibited efficient production. Reuniting that land into bigger, more streamlined plots and drastically improving irrigation are among the many objec-tives that the Georgian government is committed to accomplishing.

“We are cofinancing,” explains Mr. Danelia, in regards to the government’s support for the ag-ricultural sector. “We already have 89 cofinanced businesses that we are supporting in different fields:

this could be wine-making, storage facilities, cold-storage facilities, farms, poultry, in any direction.” The key is to keep expanding and eventually become a competitive exporter.

As an impetus to boost exports, Georgia has signed a free trade agreement with Europe, which presents a potential market of nearly 900 million consumers. Over 200 civil servants have been de-ployed all over the country to help educate and train farmers in the labeling process and certification procedures required to prepare for export. There are no fewer than 425 new directives that need to be complied with before exports can be approved, but they are being tackled in conjunction with the Ministry of Economy, and progress has already been made.

Georgian businesses are already sending sam-ples of their products to Europe for quality assess-ment and to ensure that they meet with the E.U. standards for export. Honey, for instance, was

among the first products to be sent for analysis, given that Georgia is already known for the quality of this product. Plans to build labs for the analysis of soil inspection are also in the works, so that in the future products can be tested domestically.

While the Georgian government has set aside money to vitalize the agricultural sector, the coun-try is also receiving huge support from the E.U., U.S.A.I.D. and the U.S.D.A., and possible support on the irrigation front from the World Bank. Pri-vate investors from Europe, Japan and China have also begun to inquire about making investments in Georgia, and Mr. Danelia makes it very clear that the country is still eager to continue entertaining offers.

“We need investments. We support the invest-ments. It really motivates others,” he says, explain-ing that the country is putting particular emphasis on food safety and argues that the country’s smaller scale of arable land – as opposed to that of its much larger neighbors, like Turkey – lends itself nicely to developing a niche in organic production.

In order to promote the agricultural sector and encourage rural Georgian inhabitants to remain in rural areas, the government is also focused on developing the country’s infrastructure to include educational facilities, hospitals, roads, electricity and gas in its more remote regions. Because not all 50 percent of the population currently involved with agriculture will continue to be involved with the sector in the future, there are also plans to develop the factory sector, including storage areas, as well as food and beverage production facilities.

One beverage that Georgia seems predisposed to successfully produce is wine. With over 8,000 years of history, Georgian wine – the majority of it white – is a source of national pride. Georgia is the chair country of the World Wine Trade Group and is proactively promoting the quality of its grapes, which recently brought in an unprecedentedly fruitful har-vest that amounted to over GEL170 million ($93.5 million). Following a government trip to Bordeaux, Georgia will also have a corner detailing its oeno-logical history in the Wine Civilization Museum that is being constructed there. While Georgia is mainly exporting wine to Russia, there has been interest from China, and local vintners are working to ensure that Georgian wines may one day be able to compete in Europe as well.

With respect to all of the plans being made to mo-bilize the agricultural sector in Georgia, Mr. Danelia is careful to make it clear that while the government is facilitating and subsidizing as needed, it is criti-

cal for Georgia and its potential trade partners to understand that the rules to the industry are being completely rewritten.

“It is like moving from post-Soviet standards into European standards,” he explains. “Today is a different reality; it’s a market economy and the government cannot get involved in the private sec-tor, in the banking sector, and so on.”

Well aware of the many challenges that lie ahead, he is nonetheless optimistic. By 2020, he expects that the number of tourists visiting Georgia will have tripled, that the majority of farmers will work under better conditions, and that imports will have been substituted by local production, with enough left over to create a serious change in export figures as well. “Of course it will not be easy but it’s possible and it’s achievable,” he says.

Georgia / P7

AS FAR BACK as the 11th century, Georgia had a wine academy. Oenology was already an established domain of higher education, as important as philosophy, medicine and mathematics. The royal court even had a “Minister of Wine,” and by the 19th century, before Europe had gotten around to acknowledging wine-making as a form of higher education, Georgia already had a special committee regulating the wine industry and vineyards.

Today, that committee is called the National Wine Agency. Operating under the Ministry of Agriculture, the Agency is chaired by Levan Davitashvili and is responsible for quality control and certifications, as well as domestic and international marketing for Georgian wines.

Comprised of a team of 60 employees who supervise vineyards, inspect wineries, manage promotional activities and oversee the additional rotating staff of blind tasters who help control for quality and conformity, the agency is connected to

the Georgian Wine Producers Union and its activities are cofinanced by the state and the private sector.

According to Mr. Davitashvili, the certification process for wines exported from Georgia is very strict, as the country is trying very hard to establish a solid reputation for its wines abroad. Over the past five years, exports have increased by an average of 20 percent, and by the end of 2014, 60 million bottles valued at around $200 million will have been exported. At the same time, the agency is also diversifying its offerings by promoting the export of

wine brandy, a grape-origin spirit, as well as what is now commonly known as ‘orange wine’; a type of white wine that is fermented with its seeds and skin, and ends up being a very deep shade of amber.

While 50 to 60 percent of Georgian wines go to Russia; Ukraine, Poland and the Baltic countries are the next top export destinations, followed by China, to which Georgia recently exported 1 million bottles. “We have around 30 percent growth every year in the Chinese market,” says Mr. Davitashvili, pointing out that no other Central and East European wine-making countries have had the same success in the Chinese market.

Georgian wines stand out for their unique fermentation process, which happens in large earthenware jars known as Kvevris. The skins and seeds are left to macerate for six months in these underground jars, creating an extra-long fermentation process that generates more antioxidants than the average wine, meaning that fewer sulfites need to be added.

“The product is different from any other product or any other way of producing wine,” says Mr. Davitashvili, but ultimately, what both he and the National Wine Agency hope resonates most with consumers is that wine-making is embedded in the Georgian culture. “In 8,000 years, in this territory wine-making never stopped. Even when we had hard times, Georgians always fermented wine. This is part of our life.”

A strong tradition of wine making and clever marketing have made Georgia’s wine exports soar

A glass raised high to a growing wine industry

Investment sought to modernize agricultureAgRICULTURe The agriculture industry in Georgia currently employs over 50 percent of the population, and following its recent

establishment as a Deep and Comprehensive Free Trade Area, it is now in the midst of a grand transformation

“Today is a different reality; it’s a market economy and the government cannot get involved in the private sector, in the banking sector, and so on”

otar Danelia, Minister of Agriculture

Georgia is currently the chair country of the World Wine Trade Group The government is keen to reunite the small parcels of land from the Soviet era to streamline plots

“We have around 30% growth every year in the Chinese market. The product is different from any other product or any other way of producing wine”

levan Davitashvili, Chairman of the National Wine Agency

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Situated well off the beaten track, Geor-gia is a reminder that some of the

most enchanting places on Earth are not those that appear on the average traveler’s itinerary. Furthermore, Georgia’s eclectic makeup illustrates that even the most ingenious architect could not create the beauty that the collaboration between na-ture and generations of human civilization is capable of molding.

The rich and complicated history – one that, according to archeological exca-vations, dates back to the second mil-lennium B.C. – endows Georgia with a landscape enriched with irreproducible footprints of the past: cave towns, me-dieval monasteries sculpted out across mountain faces, cathedrals rising from hilltops, medieval towers, city walls and fortresses. The three UNESCO World Her-itage sites – the Ancient Capital of Geor-gia, Mtskheta; the town of Kutaisi and the Upper Svaneti region – barely represent the tip of the iceberg of the treasures left behind by Georgia’s peoples.

From the snow-capped Caucasus Mountains that mark the border between Europe and Asia, to the endless valleys dressed by dark green forests and the various coasts of the Black Sea, it is evi-dent that nature is Georgia’s main char-acteristic and, to this day, an element inherent in the Georgian people. In fact, apart from their humbleness, hospital-ity and curiosity about foreigners, both the tenacity and balance with which the people live with the land is a loud and ad-mirable feature of Georgia’s inhabitants.

“Georgia; a country of life,” the brand recently created by the Georgian Na-tional Tourism Administration (GNTA), articulates the smorgasbord of experi-ences that the country offers: whether it is spending an afternoon skiing sur-rounded by sights that equal the beauty of the European Alps, exploring the 8,000-year-old tradition of Georgian viti-culture by attempting to try at least a few of the 500 varieties of endemic grapes, or getting lost along the cobblestoned

alleyways that run through Georgia’s capital, Tbilisi.

“The country is very small but it has a lot to offer,” explains Tatia Chikvaidze, deputy head of GNTA, emphasizing that the current brand functions as an open book, one that encourages each individ-ual – based on personal experience – to create their own meaning of Georgia.

Tourism is the fastest-growing sector in the global economy, one that has been particularly kind to Georgia, having en-ticed the country out of the wild and onto a growing number of itineraries. Accord-ing to the United Nations World Tourism Organization, last year alone, Georgia’s tourism sector experienced growth of 22 percent, the highest growth in Europe, welcoming more than 5 million visitors. In as little as the first nine months of this year, Georgia’s tourism sector has already experienced growth of 2 percent.

In 2013, a World Travel and Tourism Council report stated that the direct con-tribution of travel and tourism to Geor-

gia’s GDP amounted to $1 billion. Indeed, tourism is now comfortably one of Geor-gia’s main exporting sectors, significantly contributing toward reducing the current account deficit. Despite the geographical distance and relatively complicated con-nection, in the first nine months of 2014, 22,000 tourists came from the U.S.

“I’ve talked to a lot of American tourists and they never thought that they would find such diverse touristic offers in Geor-gia; numerous types of cultural or histor-ical monuments, natural beauty, cuisine, modern facilities. It’s very interest-ing and new for them,” Ms. Chikvaidze says proudly.

With 37 percent of tourists visiting Geor-gia for recreation and holidays, GNTA is paying special attention to further develop the recre-ation tourism sec-tor. The introduction of new tourism prod-ucts – namely, trekking as well as rural, adventure and cultural tourism – aims to provide even more entertainment op-tions. Other challenges that abound with the sudden interest in Georgia – such as the relatively low service quality due to a lack of beds and hotels, as well as the language barrier and small infrastruc-ture problems – are also keeping the GNTA occupied.

With plans to host the European Youth Olympic Festival as well as the UEFA Su-

per Cup and the European Bank for Re-construction and Development annual meeting (all in 2015) – and, not to mention, considering the continual growth of visi-tor numbers – investment opportunities in Georgia are springing up like mushrooms after a storm. The main investment sec-tors are in the hotel as well as the gam-bling industries.

“The government offers different in-centives and initiatives: as investors come they have different incentives. They can always start business here and

it’s very profitable for them,” explains Ms. Chikvaidze. The GNTA also

plans to attract more busi-ness tourism – which

currently makes up 4

percent - by opening a convention bureau next

year in order to provide a venue for conventions, confer-

ences and exhibitions. With a growing number of new facili-

ties and ambitious plans, the home of the first Europeans is elegantly unfold-ing into a safe and developed 21st century destination. Simultaneously, by virtue of its deeply ingrained heritage and culture, Georgia continues to exist according to the rhythm of its own metabolism, un-spoiled by modern tourism.

Georgia / P8

‘A country of life’ inspires unique experiencesToURISM The land where Europe started has launched a new slogan to highlight the nation’s appreciation of nature, culture and other good things in life

nearly 84% of georgians follow the georgian orthodox Church. Since 1921 there has been a separation of church and state

Rural, adventure and culture tourism are being avidly promoted

Tatia Chikvaidze, Deputy Head of the georgian national Tourism Administration