Georgia's moment

At a time when many European countries are in dire economic straits, Georgia is booming – and many Israeli investors have jumped at the opportunity.

Georgia 521 (photo credit: Bernard Dichek)
Georgia 521
(photo credit: Bernard Dichek)
Georgia has changed so rapidly that even young people in the former Soviet republic have seen their lives change from night to day.
“I remember as a child when there was no electricity and no food to eat, just handouts from the Red Cross,” recalls Levan Danelia. The 24-year-old banker is referring to the disarray in his country after the collapse of the Soviet Union during the Nineties.
Danelia is describing those days to a visiting journalist as he briskly climbs the impeccably polished marble stairs of the TBC Bank’s headquarters in the national capital of Tbilisi. Flowing around him are smartly dressed fellow workers in their twenties and thirties. Like many other private enterprises in present-day Georgia, the dynamic atmosphere in the bank reflects a surging economy. At a time when many European countries are in dire economic straits, Georgia is booming.
Many Israeli investors have come to share in that moment. On Gudiashvili Street, a major artery lined with museums and galleries, a $15 million luxury apartment project is being built by Itsik Moshe.
“The business logic of this project is quite simple,” says the Georgian-born Israeli. “It costs less to build here than in other places like Romania or Hungary and the return is greater.”
Moshe, who represented the Jewish Agency in Georgia during the Soviet era, estimates that Israelis have invested in more than 50 building projects nationwide and that total Israeli investment in the country surpasses $300 m.
Moshe is targeting his high-end apartments to the growing number of Georgians with high incomes. But the vast majority of the country’s 4.5 million people, whose average monthly income is $450, will not be able to afford the expensive suites. That mass market is being catered to by Israeli business people with other types of services.
Oren Weiman, a marketing expert who recently moved there, found a business opportunity when he realized that Georgians were eager to obtain quality consumer goods.
“People here don’t have the money to buy goods in bulk as they do in Israel,” he explains, “So we market products like name-brand shaving blades and disposable diapers as single items.”
Israelis are not the only foreigners doing business in Georgia. Real estate mogul Donald Trump recently announced plans to build two large office towers. Clothing chain Zara is about to open its first Georgian branch, as is Wendy’s, the American fast-food outlet. The general impression is reminiscent of the burgeoning Israeli market in the heady days that followed the Oslo Accords when international businesses vied to get a foot in the door.
But can the boom times last?
IN 2008 Georgia fought a war with neighboring Russia over the disputed territories of South Ossetia and Abkhazia. Known as the Five Day War, the hostilities ended when Western governments brokered a cease-fire agreement. However the two countries have yet to restore diplomatic relations and tensions persist.
One person who is confident about Georgia’s future is Dimitri Gvindadze, the country’s finance minister. He points out that the flare-up with Russia occurred during the same year that the global financial crisis caused financial institutions around the world to go bankrupt.
“But there was no need to bail out any of our banks and investors did not run away,” he says during a press conference for Israeli journalists. The Harvard-educated Gvindadze, 38, is typical of the Western-oriented young people who hold key positions in government and business in Georgia. The current president, Mikheil Saakashvili, now 44, was first elected when he was 36.
The relative tenderness of their age is accompanied by an almost utopian ambition to create a super-capitalist free-market society. There are almost no labor laws, no trade unions and no minimum wage. Taxes are low and uniform – wage-earners pay 20 percent income tax regardless of how much they earn (compared to as much as 48% in Israel). The corporate rate is 15%, compared to 25% in Israel.
“We believe that the main role for government is in building infrastructure,” says Gvindadze.
He surprises his visitors by mentioning that he just finished reading Start-Up Nation, the best-seller about Israel’s economic success.
“One thing I got from that book was the need to develop the education system,” says Gvindadze, noting that the government plans to enable every first grader to have a laptop computer.
When asked if his government has not gone too far in its laissez-faire approach to the economy, he points out that the economy is expanding at an impressive rate of about 7 percent. He acknowledges that unemployment, which runs at about 16%, is still high, but draws attention to government- assisted infrastructure projects, especially in the tourism industry, that are generating many new jobs.
The number of tourists coming to Georgia has been increasing at the rate of 35% a year, with more than two million arriving in 2010. An increasingly popular destination is the Eilat-like resort town of Batumi, located on the Black Sea. With direct charter flights from Israel scheduled to start this summer, an even larger slice of the Israeli tourist market is expected to head to Georgia.
“Israeli tourists have an extra reason for feeling comfortable here,” suggests Archil Kekelia, Georgia’s ambassador to Israel, leading up to a claim no other European country can make. “There is no history of anti-Semitism in Georgia.”
He explains that the Georgian Orthodox Church is independent of other churches.
“There is a traditional belief that it was Jewish emissaries that brought Christianity to this country and Jews have always been treated favorably.”
He notes that a recent trip to Jerusalem by Ilia II, the current head of the Georgian Church, was widely reported in the Georgian press.
Tbilisi, a two-and-a-half-hour flight from Tel Aviv, is only a 90-minute drive from Swiss-style ski slopes and spectacular mountain scenery.
“Israeli tourists seem to especially like wilderness jeep tours,” observes Nino Suticze. The 22-year-old tour guide makes this observation while leading her Israeli guests to the top of a mountain lookout on the road leading to the Russian border.
As she speaks, a group of motorcyclists wearing black leather jackets pull in.
Suticze mingles amiably with them and learns that they are Russian tourists who have made the 1,100-kilometer trip from Moscow.
When Suticze is asked afterwards how tourism is possible between the two rival countries, she points out that “we have no problem with the Russian people, only with the Russian government.”
She points out that Georgia continues to allow Russians to enter the country without a visa, along with tourists from the other bordering countries of Turkey, Armenia and Azerbaijan, as well as from nearby Iran.
About a year ago, the relationship between Georgia and Israel expanded beyond commercial investment and tourism, when the TBC Bank, Georgia’s second- largest, set up an office in Israel.
The office enables Israelis to make short-and long-term savings deposits with the bank, explains Doron Shevel, the Director of TBC Invest, located in Ramat Gan.
“It’s significant that TBC chose Israel as the bank’s first foreign location,” says Shevel, noting the close ties between the two countries. He points out that as the bank offers interest rates that are significantly higher than those offered by Israeli banks, Israelis have responded favorably and deposited more than $30 million to date.
Shevel, who immigrated to Israel from South Africa nine years ago, has noticed that many of TBC Invest’s customers in Israel come from the local English-speaking community.
“One reason is perhaps because people from English-speaking countries often have savings accumulated in dollars and other foreign currencies. Those types of TBC accounts offer interest rates that are 6% or 7% higher than in other banks in either Israel or their home countries.”
Shevel is making these comments in Tbilisi, where he has met up with the visiting Israeli press tour at a popular eatery. He uses the opportunity to demonstrate the traditional way to eat acharuli khachapuri, a local delicacy. The boat-shaped cheese pie made out of pizza dough arrives at the table with a steaming cheese filling topped with a raw egg and a slab of butter.
Shevel adroitly stirs the mixture.
“Now you break off a piece of the crust and dip it into the filling,” says Shevel.
After the diners taste the morsels they nod their heads with approval. In more ways than one, the trip has shown that this is Georgia’s moment.