Private sector and human-resource development in Georgia

 

Drinkable mineral waters are used for health-restoration not only at resorts, but also outside them in the form of bottled mineral waters. Such as Borjomi, Nabeglavi, Sairme, Ucera, Djava, and Zvare.

 

Borjomi Mineral Water. The Borjomi resort is considered as one of the most spectacular locations in Georgia. It is located at 950 meters above sea level between the evergreen slopes of the Meskheti and Trialeti Ridges.

 

Besides its beautiful nature and climate, the Borjomi region is famous for its mineral waters, which represent the other major natural curative factor of this place. Instead of natural springs known since older times, gusher-boreholes are being used at present.

 

In terms of chemical composition the mineral waters are of acidulous, hydrocarbonate, sodium variety, containing 0.5 to 1.5 g/l of free carbon dioxide. They also contain ions of chlorine and small amounts of bromine, lithium, barium and some other substances. Temperature of the water in various springs ranges from +17 to 38 C. There are ten capped boreholes at the resort wit a total yield of 700-800 thousand liters.

 

Mineral waters are mainly used as a curative drink, for medical baths, inhalation, and levage of stomach and intestine. They are used as a curative and table drink outside the resort.

 

Borjomi mineral water is the most popular mineral water available in the CIS. In the 1980s exports reached over 420 million bottles per year. However Borjomi production and sales declined significantly between 1990-1995 due to the economic collapse in the former Soviet Union

 

In September of 1995 the Georgian Glass and Mineral Water company. N.V. (GG&MW) began to produce Borjomi mineral water at two Soviet - era bottling plants in Borjomi. A short period later the bottling plants, pipelines and quality control systems were brought up to world standards.

 

The Khashuri Glass plant, located 30 km from Borjomi, has also been reconstructed. After being purchased by GG&MW, the production process was modernized and a new automated bottle-packaging system was installed.

 

In 1997, GG&MW obtained the license and exclusive right to use the Borjomi name until 2007. In order to restore Borjomi mineral water and make it compatible with international standards, GG&MW found it essential to cooperate with international financial institutions, such as: IFC, EBRD, ING Barings, and TBC Group of Georgia.

 

GG&MW mainly orients its exports towards the Russian Federation, Ukraine, Baltic States, USA, and Israel, and it is considered as the biggest, financially strongest and most progressive Borjomi bottling company.

 

Sairme Mineral Waters. The Sairme resort is situated in the valley of the Tsalabris tskali river 950 m above sea level and 55 km south of the second biggest town in Georgia - Kutaisi. The nearby mountainsides are overgrown with leaf bearing (oak, beech, etc.) and also coniferous woods. The resort has been operating since 1930. Climate of the region is moderately humid, subtropical, average temperature of the air totals 8.8 C, the annual amount of precipitation makes up on average 1100mm, average humidity of the air is 80%.

 

The word “Sairme” in Georgian means “a place of deer”. In winter many deer and roes used to come down to the mineral watering places from the nearby woods, therefore the hunters called the place “Sairme.”

 

As it was mentioned above, the Sairme resort is rich with mineral water springs - the major natural curative factor of the resort. Sairme mineral waters are known since the end of the 19^th century. In terms of their chemical composition, they are of acidulous hydrocarbonate calcium-sodium kind of acidulous hydrocarbonate sodium Borjomi - like variety. It has been established that “Sairme” acidulos waters have a curative action against diseases of kidneys, urinary tracts, and liver.

 

The only company that bottles Sairme is the CARTU group. The company uses a German bottling line and produces water in 1 liter PET and 0.33 and 0.5-liter green glass bottles. The only raw materials the company imports are capsules for its bottles from Turkey, bottle caps from Bulgaria and Turkey, and clay from Turkey. The company mainly orients its export towards the FSU republics.

 

A new foreign company with better experience in promotion and distribution could easily enter the Sairme bottling market. This takes into consideration the fact that CARTU has a normal license and is not the exclusive company to bottle Sairme water.

 

Mitarbi Mineral Water. The Mitarbi source is located near the Borjomi resort and is surrounded by picturesque mountains in an unspoilt and unpolluted environment. The debit of the water constitutes 40.000 M per year.

 

Mitarbi was bottled and very successfully marketed during Soviet times throughout the USSR and in some foreign countries. Success to the waters came due to their taste and curative features. These are colorless, odorless, fully transparent waters with a mild taste.

 

Mitarbi is prescribed in cases of chronic gastric diseases, stomach and duodena ulcer in remission, chronic hepatitis, chronic cholecystitis, chronic pancreatic disease, and diabetes.

 

Production and sales of Mitarbi reached its peak in the late eighties, particularly annual sales volume of Mitarbi then totaled 19 million bottles. After the collapse of the USSR, due to severe political and economic circumstances bottling of water was temporarily seized.

 

At present the CARTU Group is the only company which has the ordinary type of bottling license (which is not exclusive). The volume of output is low due to promotional and sale problems. Accordingly, a newcomer with better experience and knowledge of the potential markets for mineral waters might find itself in a more advantageous position than CARTU.

 

Nabeglavi Mineral Water. The Nabeglavi resort is located in the Chokhatauri district, 35 km south of the district center and 50 km from the railway station of Samtredia, in the valley of the Gubazeuli river (a tributary of the Supsa river) at the foothills of the Meskheti ridge and 470-490 m above sea level. The resort is protected on the south by mountains covered with mixed woods (oak, beech, hornbeam, fir, and pine).

 

The major natural curative factors are mineral waters, which in terms of their chemical composition fall into the category of acidulous hydrocarbonated sodium waters with a salination of 7.5-8.0 g/l. They also contain solicic acid, bromine and other biologically active substances. Mineral waters are used for medicinal drinking and balneologic procedures.

 

The company “Ckali Margebeli” (Healthy Water) obtained a license for use of the above mentioned water.

 

The company uses PET type plastic bottles (1 L, 1.5-L capacity) and green colored glass bottles (1 L). Presently the company is having problems with the promotion and sale of the product, accordingly it is not working at its full capacity and is looking for a foreign partner with professional knowledge and expertise in the field of mineral waters.

 

Zvare Mineral Water. The Zvare resort is located in the Orjonikidze district, on the western slope of the Likhi Ridge (connecting the lesser and great Caucasus mountains), 600-700 m above sea level, in the valley of the Zvarula-River, 4 km away from the railway station of Moliti. The nearby mountainsides are mainly covered with leaf-bearing woods (oak, beech, hornbeam and other species).

 

Mineral water from Zvare belongs to the class of acidulous, chloridehydrocarbonate, calcium-sodium waters with a mineralization of 5-6 g/l. The daily yield of springs is up to 20,000 litres.

 

Water is considered beneficial for its health properties, it was traditionally used as a refreshing beverage and, at the same time recommended for prophylactics of intestine diseases and healing of metabolism disorders.

 

The company ZVARE Ltd. obtained an exclusive license on Zvare water production (its license for abstraction and use is valid until 2009).

 

Presently the company does not operate. It is looking for a foreign partner, who would help it to update the available facilities, conduct hydro-geological and other professional studies, construction works, and purchase of transport facilities.

 

The Georgian law dealing with all aspects of abstraction, development, exploitation of natural reserves (water) is enacted. Water regulations are Western oriented and cover the labeling, packaging and content of bottled water. The only possible change in regulations could be connected to inevitable transition towards international standards (ISO). In the first place, changes are expected in the field of assessment and quality control of water where the former Soviet State Standards (GOST) are still binding.

 

The present situation of the water market in Georgia and possibilities for development of the water business (due to its unique properties; significant intangible assets, experience of water production, infrastructure and low cost base), and the general situation of the international water market and other significant aspects leads one to predict the possibility of the successful operation of a newcomer in the form of a strong foreign company.

 

Nuts. The hazelnuts of Mediterranean origin have been well known in Georgia since ancient times. Scientists conclude that this species of thick hazelnuts originates from the Caucasus. Since the mid-1990s farmers started a mass planting of hazelnuts in Western Georgia, particularly in the Black Sea coastal region and in Eastern Georgia in the region of Kakheti. It should be mentioned that since 1998 Georgian nuts have become one of the country's major export products.

 

One of the advantages of Georgia's agricultural sector is the high percentage of produce that is organic in nature. The country has not been using fertilizers and pesticides for some 10 years. Now the country is preparing a certification process whereby all farmers producing organic food will have their farms approved and certified as organic. This is expected to generate new interest in Georgia's agricultural sector, particularly from markets in the West where demand for organic food is increasing far beyond supply.

•  

Georgian Tea. Georgia is a northerly tea growing country with a relatively shorter growing season than other tea producing nations. Tea is grown in West Georgia in Guria, Samegrelo, Ajara, and Imereti Regions. According to official statistics for 2001[2], these regions possess slightly more than one-quarter of the country's total 564,518 hectares of agricultural land.

 

At independence in 1991, the country had 64,500 hectares of state-owned tea plantations. Civil war, decline in demand from former markets in the FSU and the loss of state financing have caused much of the area formerly planted to tea to be abandoned. As of January 2002, 37,296 hectares of agriculture land were planted to tea. Tea plantations now occupy 65 percent of Guria's total agricultural land, 27 percent of Samegrelo's total agricultural land, 58 percent of Ajara's total agricultural land and 6 percent of Imereti's total agricultural land (Table 1). Following the abolition of collective agriculture, land under tea plantations has mostly been privatized in Guria, while in Samegrelo, Ajara, and Imereti most of the tea plantations have been leased out.

 

Tea leaf production data in the early 1990s is extremely unreliable and so not reported here. It is clear that production levels have fallen greatly from those of the late 1980s. Production has generally continued to drift downward since the mid-1990s (Tables 2-3, Figures 1-2).

 

According to the Ministry of Agriculture and Food, as of January 1, 2001 there were 146 tea processing enterprises in Georgia (including Abkhazeti) with a total annual capacity of 722,800 tons. There were 50 tea factories in Samegrelo, 30 in Guria, 16 in Imereti, and 18 in Ajara. Forty-six of the 50 enterprises in Samegrelo had been privatized, while 30, 11 and 1 enterprises had been privatized in Guria, Imereti, and Ajara, respectively. These enterprises mostly use worn-out, obsolete equipment and are in poor financial condition. Some of these enterprises are reported to have vertically integrated operations, while others operate on a contractual basis with tea growers. As might be expected, almost all tea grown appears to be sold to the factories so that the processing trends follow those of production (Table 4, Figure 3). The nature of tea also means that the producers are much more dependent on the processors than are, say, owners of vineyards. Homemade wine is a reasonable and widely practiced option for primary producers; homemade tea is not.

 

During 1994-2001 Georgia was a net exporter of tea, although it also was a substantial importer and the balance of trade appears to be turning against Georgia (Table 5, Figure 4). In the early and mid 1990s the major importers of Georgian tea were in the FSU, but since 1997 geographic coverage has widened as processors developed new markets. Exports of Georgia tea to US, Germany, and Poland show an increase (Table 6).

 

Tea remains an important cash crop among rural households in most of West Georgia. The share of households in total tealeaf production in 1999 was 43 percent, in 2000, 34 percent, and 93 percent in 2001 (Table 7).

 

 

Table 1. Land under Tea Plantations, 2001

Region	District	Total Agricultural Land, ha	Total Area under Tea Plantations, ha	Area of Tea Plantations Damaged, ha	Area of Usable Plantations, ha	Percent of Plantations Damaged, %	Share of the Region in total agricultural land of Georgia	Area of Land under Tea as Percent of Total Agricultural Land in Region
Ajara	Regional Total	9590	5,518	1,674	3,844	30%	1.70	58
Samegrelo	Zugdidi	10,169	5,061	654	4,407	13%	1.80	50
	Martvili	9,334	2,721	330	2,391	12%	1.65	29
	Senaki	9,699	1,202	324	878	27%	1.72	12
	Chkhorotsku	4,830	2,492	463	2,029	19%	0.86	52
	Tsalenjikha	3,886	2,993	0	2,993	0%	0.69	77
	Abasha	9,654	67	67	0	100%	1.71	1
	Khobi	10,340	1,438	0	1,438	0%	1.83	14
	Regional Total	58524	15974	1838	14136	12	10.37	27
Guria	Ozurgeti	5,501	7,358	890	6,468	12%	0.97
	Lanchkhuti	7,864	1,988	445	1,543	22%	1.39	25
	Chokhatauri	3,720	1,786	518	1,268	29%	0.66	48
	Regional Total	17085	15,974	1,838	14,136	12%	3.03	65
Imereti	Tskaltubo	12,025	1,141	385	756	34%	2.13	9
	Tkibuli	3,811	1,073	200	873	19%	0.68	28
	Chiatura	7,323	246	38	208	15%	1.30	3
	Vani	5,335	130	70	60	54%	0.95	2
	Zestafoni	6,127	38	0	38	0%	1.09	1
	Terjola	7,741	120	39	81	33%	1.37	2
	Samtredia	8,103	380	0	380	0%	1.44	5
	Khoni	6,971	1,544	790	754	51%	1.23	22
	Regional Total	73065	11,132	1,853	9,279	17%	12.94	6
Georgia, Excluding Abkhazeti	TOTAL	564,518	37,296	6,887	30,409	18%	28%	7

Source: State Department of Statistics of Georgia, author's estimates. The data for Ozurgeti clearly contain an error.

 

Table 2. Annual Tea Leaf Production in Georgia, 1985-2001

(tons)

1985	581,200
1990	501,700
1994	60,700
1995	38,500
1996	34,000
1997	33,200
1998	47,200
1999	60,330
2000	23,999
2001	23,000

Source: State Department of Statistics of Georgia

 

Table 3. Tea Leaf Production by Regions, tons

	Ajara	Imereti	Samegrelo	Guria	Georgia
1999	7,326	6,693	28,791	17,520	60,330
2000	2,914	2,662	11,453	6,970	23,999
2001	1,924	1,050	12,518	7,508	23,000

Source: State Department of Statistics of Georgia, author's estimates

 

Table 4. Tea Processing, 1994-2001

(tons)

 

	1994	1995	1996	1997	1998	1999	2000	2001
First Stage Processing, Including	13,424.3	7,992.0	8,895.7	9,158.5	9,988.9	12,897.8	4,793.1	4,478.6
Black Baikhi		6,732.0	5,804.7	6,152.6	8,360.7	11,789.8	4,361.9	4,219.4
Green Baikhi		1,260.0	3,091.0	3,005.9	1,628.2	1,108.0	431.2	259.2
Natural Tea, Including	4,473.3	4,230.0	3,747.4	7,759.2	4,871.0	4,509.0	3,014.7	3,765.1
Packed	4,003.9	1,997.2	2,796.2	6,420.0	2,955.7	2,648.4	1,904.8	2,695.5
Green Break	469.4	2,232.8	951.2	1,339.2	1,915.3	1,860.6	1,109.9	1,069.6
Granulated Tea				144.0	890.1	605.3	474.1	658.7
Liquid Tea							39.0	58.0
Total	17,897.6	12,222.0	12,643.1	17,061.7	15,750.0	18,012.1	8,320.9	8,960.4

Source: State Department of Statistics

 

Table 5. Georgia's Tea Trade

	Imports, USD	Exports, USD	Coverage Ratio, %
1994	12439	11555495	929.0
1995	157876	8380262	53.1
1996	151898	16814164	110.7
1997	292190	13872490	47.5
1998	434761	8918643	20.5
1999	380428	11394714	30.0
2000	536702	6084280	11.3
2001	544454	5792750	10.6

Source: State Department of Statistics, author's estimates

 

Table 6. Top 10 Export Destinations of Georgian Tea, 1994-2001

	1994	1995	1996	1997	1998	1999	2000	2001
1	RUS	TKM	TKM	RUS	RUS	RUS	RUS	RUS
2	UKR	RUS	RUS	UZB	UZB	UKR	UKR	POL
3	BLR	UKR	UZB	TKM	DEU	DEU	DEU	USA
4	TKM	KGZ	TJK	TJK	TJK	TKM	USA	DEU
5	UZB	KAZ	UKR	MNG	SYR	USA	MNG	UKR
6	TJK	UZB	KAZ	UKR	NLD	UZB	UZB	MNG
7	KAZ	TJK	MNG	POL	MNG	MNG	POL	UZB
8	TUR	MNG	AZE	KAZ	BLR	TJK	UKR	TKM
9	MDA	BLR	BLR	BLR	UKR	BLR	KAZ	IDN
10	POL	MDA	KGZ	KEN	KAZ	POL	TKM	TJK

Source: State Department of Statistics, author's estimates

 

Table7. Household Contribution to Total Production

All of Georgia excluding Abkhazia

	1999	2000	2001
Production by Households, tons	25,942	8,160	21,390
Total Production, tons	60,330	23,999	23,000
Household Share in Total Production, percent	0.43%	0.34%	0.93%

Source: State Department of Statistics, author's estimates

 

3.3 Trade

Georgian Foreign Trade Statistics. In 2002 Georgian foreign trade turnover (registered) totalled US$1045,0 million, that is 104,6 % of previous year's data for the appropriate period. From this export is US$325,0 million (101,5% accordingly) and import -US $720,0 million (106,1%). Negative trade balance of Georgian trade for 2002 stood at US$395,0 million. The following table shows the trends in Georgia's trade balance:
Number of Countries Foreign Trade Balance - US$ million Negative trade balance Year 2001 88 378,8 Year 2002 89 454,2 Positive trade balance Year 2001 30 20,1 Year 2002 40 59,2 All trade partners Year 2001 118 358,7 Year 2002 129 395,0
In 2002 Georgia had a negative trade balance with 89 partner countries, with whom the trade gap amounted 454,2 million US Dollars in comparison with the last year when the same figure was indicated by 378,8 million US $ with 88 partner countries. Georgia had a positive trade balance of US $ 59,2 million with 40 countries, and in 2001 with 30 countries (positive balance of US $ 59,2 million). In 2002 the foreign trade with CIS countries have increased. The 30.6% of the trade gap covers these countries (29.7% for the same period of the last year). The foreign trade with CIS countries amounted US $ 4337.4 million in 2002 (the amount increased by 10.6% in comparison with the same period of the year 2001). CIS countries share 41,9% of Georgia's foreign trade turnover, among them exports share 48,7% and imports 38,8% (accordingly 39.6%; 45.1% and 37.0% - in the year 2001). Trade turnover with Russia reflected US $ 162.8 million and has declined by 1.2% in comparison with the same period of the year 2001, and Georgian foreign trade turnover with Russia have decreased by 0.9 per cent points from 16.5% to 15.6%. Georgian Foreign Trade: 2001-2002 (in US$ millions) Georgia's Top Ten Export Destinations in 2002 (in US$ millions) Major export products in 2002 (in US$ millions)

3.4 Construction

Overview of Georgian Construction Sector. Georgian construction sector mainly consists of civil, industrial, hydro-technical, transport, and communication construction projects.

 

The construction sector was established long before the formation of the country as a legal state and has passed from primitive buildings to complicated and sophisticated complexes. Throughout various stages of the country's development, buildings and other construction projects reflect the period in which they were built. For nearly the last two centuries Georgia was part of the Russian empire and the Soviet Union, thus, the development of the construction sector was in accordance with the laws and conditions accepted by Russia and the FSU, i.e. massive construction of industrial facilities. During that period the construction sector employed almost 250,000 people and produced construction materials worth approximately US$1.5 million annually.

 

After the collapse of the Soviet Union, the Georgian construction sector ceased development, which was mainly caused by the political, social and economic conditions of the country (i.e. a coup, civil war, and armed conflicts in Abkhazia and South Osetia), and also by non-efficient, highly energy consuming technologies and outdated equipment and machinery. As a result, almost one hundred percent of the construction factories and facilities ceased functioning.

 

During the early `90s, when Georgia became independent and positioned itself towards democracy and integration into the world economy, the Georgian construction sector realized that it was totally unprepared to meet the demands and standards of country's development phase. The main negative aspects characterizing such non-preparedness were: 

1. Non-efficient and partially destroyed equipment and machinery.

2. Lack of investment in majority spheres of construction (except private construction).

3. Weak management of the sector from the government's side.

4. Lack of professional managers and specialists with knowledge of international principles.

5. Great need of specialized trainings for the staff.

6. Harsh economic condition of scientific, projecting and architecture institutions.

7. Import of foreign construction materials and workforce.

 

Among other important factors, considering the importance and crucial character of the construction industry for the country's economic development, the Georgian government made several positive steps towards rehabilitation of the construction industry to create a favourable investment environment including passing the law on promotion and guarantee of foreign investment activities, and instituting a process of restructuring and privatisation. A few years ago the government of Georgia launched a process of restructuring and privatisation of large Soviet era construction enterprises. As a result, various non-efficient, illiquid and monster enterprises have changed their organizational structure and been converted into small cost and energy efficient, liquid plants. Derived from the privatisation process the majority of state construction companies have become private joint stock and limited liability companies. In addition, a huge number of uncompleted construction sites have been privatised and completed.

Main Indicators of Development in the Construction Sector. The slight revival and positive trends in the construction sector have been noticed since 1995 - the period when the Georgian national currency the Lari (GEL) was introduced.

The table below indicates the main financial flow in the construction sector during 1995-2002 (first nine months).

Year	Monetary unit	Investment in main capital	Government investment	Construction and engineering work	Personal funds of population*	Foreign investment
1990	Million Rubles	2545	2233	1313	93	-
1991		2698	2435	1882	140	-
1992		12368	11521	8636	532	-
1993	Billion Coupon	311	142	270	168	-
1994		55821	30769	41758	25000	-
1995	Million Lari	127	65	90	19	43
1996		170	60	91	24	86
1997		266	67	114	19	180
1998		512	915	244	16	401
1999		364	119	248	76	169
2000		349	141	181	89	119
2001		362	201	101	33	128
2002		246	158	86	59	29

Source: Ministry of Construction and Urbanization

* The construction of dwellings in Georgia is mainly based on up-front deposits made by people who will live there after the construction is completed.

 According to the table investments in main capital from 1995-2002 constitutes 2396 million Georgian Lari (1109 million USD) which includes: Government investment - 906 million GEL (419 million USD) - 37.8%, personal funds of the population - 335 million GEL (155 million USD) - 14.0%, foreign investment - 1155 million GEL (534 million USD) - (48.2%). Derived from this data we can state that investment in main capital shows a trend toward a positive increase (+2.7) from 1995-2001 compared to 1995. In addition, the increase in foreign investment is quite noticeable. This was mainly due to the construction of the oil pipeline and Supsa oil terminal in 1998.

In 2002 the positive developments in the construction sector continue to accelerate, resulting in construction of 545 buildings, among theses are the construction of a new Marriott hotel, 62 stores, 38 gas stations, and 12 food outlets (all in Tbilisi).

Market demand (Construction Materials). Even though several local construction material manufacturing plants have been restructured and rehabilitated, the goods manufactured by them do not have a high demand among Georgian customers. Mainly this is due to low quality and narrow assortment. The only Georgian made product of comparatively good quality is cement, produced by the Rustavcement and Kaspicement companies. This situation represents a good opportunity for U.S. firms to invest in and/or upgrade local building materials manufacturing plants. Presently, product imported from Turkey, Dubai, Iran and Russia occupies almost 95% of the Georgian building materials market. Even though they are perceived to be of a lower quality, the majority of people still buy them because of the low price. Nevertheless, another Georgian customer segment, the high income family, still prefers building materials made in the U.S. or Europe, due to the high quality and regardless of the higher price.

The following imported materials are in the highest demand on the Georgian market:

Ceramic Products (tile, mats)

Insulated American style windows, doors.

Various colored wood and flooring materials.

Heat, ventilation, air conditioning systems.

Roofing materials

Varnish paints

Plastic tubes for water communication

Wallpapers

Lights and bulbs

Vinyl sidings

Due to the growing wave of construction, a large market share still remains unoccupied and is ready for new companies and potential investors. The construction sector will play an essential and important role in Georgia's further economic development and integration into the world economy.

4. Business

4.1 Company Registration and Licensing System

4.1.1 Company Registration System

Enterprise register. Registration of an enterprise is to be carried out by the Court by making due records in the Enterprise Register. The information concerning the registration is to be recorded into the Register Card. The Register Card specimens are presented below:

Registration card (sample) for Limited Liability Companies (LLC)

Ser. No.	Date	Subject of activity and aggregate capital of the society	Name, date and place of birth, occupation, address of partners	Name, date and place of birth, occupation, address of directors	Name, date and place of birth, occupation of members of the supervisory council (if any)	Representation of directors	Trade representatives (procurators)

Registration card (sample) for Joint Stock Companies (JSC)

Ser. No.	Date	Subject of activity and capital	Tapes of shares; sharing	Name, date and place of birth, occupation, address of directors	Name, date and place of birth, occupation address of members of the supervisory council	Representation of directors	Trade representatives (procurators)

The Law on Entrepreneurs provides that data on newly registered companies should be published in the official newspaper. The Law also guarantees information on any company entered into the enterprise register held by courts be available to the public. Any person should be able to view the records and obtain extracts from the registration file.Procedure for registering (establishing) an enterprise. 2. Business Registration ProceduresFigure 4.1.1.1 provides an outline of the sequence of the procedures to register and establish a business in Georgia.

Figure 4.1.1.1 Business Registration Procedures

* Statistical Department registration and stamp approval. Although the law no longer requires these procedures, they are still being followed by some entities and required by certain authorities due to uncertainty, lack of information, and corruption.

In practice, the entire registration process reportedly takes 2 to 3 weeks. However, it is possible to register a company within few days by means of unofficial payments.

Registration with the Local Court. In accordance with the procedures set forth in the Law on Entrepreneurs, all legal businesses are required to register at the local court that has jurisdiction over the legal address of the enterprise. Further, all registered companies are required to officially record any changes in their registration data.

In order to register an LLC, the following documents must be submitted to a local court:

(1) Application form signed by the founders. Application form must include:

Firm name (firm);

Organizational and legal form;

Location (legal address);

Subject of the activity;

Information on the start and end of the fiscal year;

For each founder - the family name, first name, date and place of birth, occupation and place of residence of the entrepreneur;

Representative authorities.

(2) Charter (five copies)

(3) Minutes of the foundation meeting

(4) Founder's decision to set up the company

(5) Director's sample of signature

(6) Document confirming the legal address of the company (this may be a lease agreement, a certificate issued by manager of the company that subleases the office space, or notarised consent of the owner of a flat)

(7) Copy of the company founder's passport, if the founder is an individual person; or a registration certificate (e.g., extract from the register of enterprises), if the founder is a legal entity. If the founder is a Georgian company, the certificate of the local court should be less than 1 week old.

(8) The amount of the authorized equity capital and the documents confirming payment of at least 50 percent of the equity capital (a certificate from the bank or, for in-kind contributions, an auditor's assessment of its value)

(9) A document confirming payment of the registration fee.

To register a JSC, the decision of the supervisory board to appoint directors is required in addition to the above-listed documents.

The following supporting documents are required to register a branch or a representative office:

(1) Charter of the foreign company

• (2) Decision of the foreign company to set up the representative office
• (3) Document certifying the solvency of the foreign investor (e.g., a letter from a foreign bank or a foreign tax service)
• (4) Bylaws of the representative office.

All registration documents must be submitted in the Georgian language and must be notarized. Foreign documents must be certified by an apostille Because Georgia is a member of the 1961 Hague Convention, on the abolition of legalization requirements of documents issued in foreign countries, only documents originating from countries not signatories to the Hague Convention require legalization by the consular offices. or undergo a procedure of legalization and be translated by a certified translator.

According to the law, the courts are required to process registration applications within 7 days. Registration of amendments to a charter or any other changes to entries are to be processed within 7 days. No official expedited service is available, but reportedly registration can be performed in 1 day if the court registrar has the time and if an additional unofficial payment is made (roughly 100-400 GEL). Box II.2 provides a summary of the official registration fees.

A company receives a court resolution when the company is registered. The law on entrepreneurs provides automatic registration by default if the court fails to respond within 7 days.

If a company changes its legal address to an address that falls within the jurisdiction of another local court, the company is not required to change its court registration and its registration file stays at the initial court of registration. However, the company must re-register with the local tax office that has jurisdiction over the new legal address.

Registration Fees. Registration fees are determined by the company's legal form. The court stamp duty is currently $180 to register a JSC, $80 to register a LLC, $90 to register a branch of a JSC, and $40 to register a branch of a LLC. Fees for registering changes to entries are half of the fee for registering the respective type of company (i.e. $40 to register changes for an LLC and $90 for a JSC).

All the payments charged for notarization of an enterprise's charter are different in each case and depend on the amount of the authorized capital. The percentage of the amount to be paid is reduced with the increase of the authorized capital and ranges from 3 to 0.05 per cent of the authorized capital. The charge must not be less than GEL 25 and must not be more than GEL 50. It should be noted that a 20% VAT is added to the sum charged for the notarization.

Peripheral services can be provided by private lawyers and related professionals at additional cost. Lawyer charge in the range of $300-600 to draft a company's charter and to provide advice. A notary public typically charges about $30 to certify the documents and about $2 per page to certify copies of the documents.

Taxation Department Registration. In accordance with the Cabinet of Ministers Decree 899 (December 31, 1994), within 10 days of completing the company registration process, an investor must register with the local office of the taxation department that has jurisdiction over the legal company address. This registration requirement applies to all tax types except the value-added tax (VAT). VAT registration is required for all firms with total taxable transactions greater than GEL 24,000.

A taxpayer registration application package should contain the following documents:

(1) Taxpayer registration form (4 copies)

(2) Court resolution showing company registration (notarised copy)

(3) Charter (original or notarised copy)

(4) Minutes of the foundation meeting (original or notarised copy)

(5) Decision to set up the company (original or notarised copy)

(6) Director's sample of signature (notarised)

(7) Document confirming the legal address of the company (original or notarised copy).

In accordance with Decree 899, the Taxation Department is required to issue a taxpayer registration certificate within 10 working days. The compliance with the 10-day limit depends on whether or not operations at local taxation offices are computerized. There is no fee for taxpayer registration.

Taxpayers are assigned a 9-digit taxpayer identification number (TIN). The first digit specifies the taxpayer type (1 is for an individual person, 2 is for a legal entity), the next 7 digits are sequential numbers (each local tax office has its own block of 7-digit sequential numbers), and the last digit is a control digit. There is no relation between a court registration number and a TIN.

• If a company changes its legal address, opens a branch, changes bank accounts, or makes any other changes that require registration at the enterprise register, then the investor is required to notify the tax department within 10 days of the change.

As of June 2001, sole proprietorships are no longer required to register with the courts. They need only to register with the relevant local taxation office.

If a company's total taxable transactions over the previous 12 months equal or exceed 24,000 GEL, the company is required to register for VAT within 1 month of the change in tax liability status. A separate VAT registration certificate is issued.

Stamp Approval. In accordance with the amendments to the Law on Entrepreneurs (effective June 1, 2001), company stamps are no longer required, and state institutions have been explicitly prohibited from requiring a company to present a stamp for any purpose. Information regarding this change in the law apparently has not been widely disseminated because in July 2001, many companies and lawyers still complied with the old requirements for company stamps. Further, it appears that the police department continues to issue stamp approvals (at a fee of 10 GEL) despite the change in the law.

Department for Statistics Registration. Amendments to the Law on Entrepreneurs and the Administrative Code have eliminated the requirement that a business must register with the Department of Statistics. Under the new regulations, this requirement has been replaced by a notification process between the courts and the Department of Statistics. The new regulations may be summarized as follows:

In accordance with the Law on Entrepreneurs, Article 4.3 the courts are required to send copies of the court business registration resolutions to the Statistical Department on a monthly basis. This information should be submitted by the 5th day of every month.

On June 19, 2001, parliament amended the Law on Entrepreneurs and abolished the provision that the courts must assign tax and statistics codes when a company has registered with the relevant bodies.

Amendments No. 2132-11s to the Administrative Code in July 2001 have removed the provision that companies must provide a statistical code in order to open a commercial bank account.

However, in practice, companies throughout Georgia still go to the central bureau of the statistical department in Tbilisi to register in order to comply with the previous provisions of the law.

Public Availability of Information. Company registration data are recorded in the registration card as approved under the law (see in the above). The same format is used to respond to requests for company registration information. The following information is required to complete a registration card:

· Name of the local court

· Court registration number

· Company name

· Address

· Activities

· Equity capital

· Names of partner(s), their occupations, and addresses

· Names of director(s), their occupations, and addresses

· Members of the supervisory board, their occupations, and addresses (if a supervisory board was established)

· Representation powers of director(s)

· Trade representative (procurator)

· Legal status

· Date of registration

· Remarks

As mentioned above, a company may be registered in any one of 66 local courts throughout Georgia.

4.1.2 Company Licensing System 

General. The law of Georgia on "Licensing of Entrepreneurial Activity" adopted on 14 May, 1999 defines those business activities which can be carried out only by licenses issued by the corresponding state agencies.

The law lists those types of business activities about which corresponding state bodies must be notified. The law does not cover export-import relations, environmental control and utilization of natural resources, electric power, oil and natural gas, communication and post services, where licensing procedures are regulated by special legal acts.

Activities to be Licensed and Licensing Agencies. The types of business activities that require obtaining a license and the respective state licensing agencies are as follows:

a) Insurance activities and intermediary (agency) services in the field of insurance - Insurance State Supervision Service of Georgia;

b) Banking activities, activities of foreign currency exchange points - National Bank of Georgia;

c) Production, repair of and trading with arms and ammunition - Ministry of Justice of Georgia (within the limits defined by National Security Council of Georgia);

d) Air transportation of passengers and goods or/and carrying out aviation related work at the territory of Georgia, maritime transportation and hauling - Ministry of Transport and Communications of Georgia;

e) Activities of the regulated participants of the securities market (brokerage companies, brokers, stock exchanges, central securities depositary and securities registrars) - Ministry of Finance of Georgia;

f) Organizing lotteries and other money-making games - Ministry of Finance of Georgia;

g) Production of medicines and substances that are subject to special control, medicines used in veterinary, activities of health care organizations - Ministry of Labor, Health and Social Protection;

h) Activities of diagnostic centers for technical examination of motor vehicles -Ministry of Internal Affairs of Georgia;

i) Design - construction works - Ministry of Urbanization and Construction of Georgia (in the cases defined by the law);

j) Activities of auditing firms - Parliamentary Council on Audit Activity of Georgia;

k) Activities of private educational institutions - Ministry of Education of Georgia;

l) Production and repair of metrological and measurement equipment - Department of Standardization, Metrology and Certification of Georgia;

m) Production of food products (including child's food products) and tobacco - Ministry of Agriculture and Food of Georgia.

Notification about Carrying Out Activities. The following fields of activities are subject for compulsory notification of the relevant state agencies as defined in this paragraph:

a) Activities related to precious metals, precious stones and their products - Testing Supervisory Inspection of Ministry of Finance of Georgia;

b) Aero photographing of the country's territory, creating state geodesic network, works related to the publication of maps and plans - State Department of Geodesy and Cartography;

c) Activities related to job finding services (including abroad) - Ministry of Labor, Health and Social Protection;

d) Geologic activities - State Department of Geology;

e) Transportation of passengers by a minicab - Relevant Department of local government (self-government) authorities;

f) Activities of public dining halls, which can simultaneously accommodate 25 persons or more - Relevant Department of local government (self-government) authorities.

The notification is made as a statement, which includes:

a) For an individual - data about the identification card of a citizen of Georgia, registration into enterprise register, occupation, home address);

b) For a legal entity - the company's name, legal status, location (legal address), name of authorized representative;

c) Indication about the type of activity and the place, where the person carries out this activity.

Within 15 days from starting the activity, a person is required to notify about starting this activity the relevant agency, which is obliged to issue a document certifying the receipt of such notification within 3 days after receiving the notification.

The Documentation that has to be Submitted for Obtaining a License. A license seeker submits a written application about obtaining the license to a licensing agency. The application about obtaining the license should include:

For an individual:

a) First name, last name, date and place of birth

b) Registration data from the registry

c) Registration number

d) Occupation

e) Work and home addresses

f) Type of license requested

g) Document proving the payment of license fee

For a legal entity:

a) Company name

b) Organizational-legal status

c) Legal address

d) First and last names of company representative

e) Type of license requested

f) Proof of payment for license fee

Licensing Fee. A license seeker pays a licensing fee for issuing a license certificate. The amount of a licensing fee, the procedure of its payment into the budget and claiming back is defined in "Law of Georgia on Licensing Fees". For issuing a copy of a license, the license holder covers the cost of making a copy of the license.

Duration of a License. A license is issued for an indefinite period of time. A license holder carries out the activity defined by the license since the date of making decision by the licensing agency about issuing the license. The transfer of a license to another person is prohibited.

License Register and its Maintenance. There are two types of license register: a) Departmental license register; and b) The state license register. A licensing agency enters the data related to a license into a departmental license register within 3 days after making the decision about issuing a license. The following data is recorded into a departmental license register:

For an individual:

a) Data about the holder of a license (first name, last name)

b) Home address

c) The type (types) of licensed activities

d) The number of a license and the date of issue

e) Data about suspending, resuming, revoking a license or issuing a copy of the license

For a legal entity:

a) Data about the holder of a license (the company's name)

b) The company's legal status

c) The data of the state registration

d) Location (legal address)

e) The data about making amendments into the company's name, legal status and location (legal address), as well as about the reorganization of the company

f) The type (types) of licensed activities

g) The number of a license and the date of issue

f) Data about suspending, resuming, revoking a license or issuing a copy of the license

 

 

4.2 Local Enterprises

4.1.3 Joint Stock Companies traded at Georgian Stock Exchange

First, we will analyse the aggregate figures concerning all Joint Stock Companies (JSC) traded at Georgian Stock Exchange (GSE) and then will present the data on individual enterprises.

Market Capitalization. The figures describing the market capitalization of all Joint Stock Companies traded at GSE are presented in Table 4.1.1.1:

Table 4.1.1.1 Market Capitalization of all JSCs

Year	2000	2001	2002
Market Capitalization (GEL)	66,799,785	184,017,886	218,402,008
Source: GSE

The more useful benchmark for judging the market performance of the private companies usually is the ratio of the market capitalization over the Gross Domestic Product (GDP) of that country. Figure 4.1.1.1 shows the values of this ratio for Georgia and also for other Eastern European (mainly former Soviet Block) countries, whose economies are in transition mode from the command economy to a market driven system likewise Georgia. It can be seen from this Figure that Georgian stock market is rather underdeveloped in comparison to other Eastern European countries, not to speak about the Western European Countries and the USA, which have much higher values of this ratio.

Fig. 4.1.1.1. Market Capitalization as % of GDP for Eastern European Countries, including Georgia

It is interesting to note that about 82.8% of the total market capitalization is formed by only 10 companies. The remaining 278 companies that are admitted for trading at the GSE constitute to only about 17.2% of the total market capitalization. This is shown in Fig. 4.1.1.2:

Fig. 4.1.1.2 Market Capitalization of 10 Leading Georgian Joint Stock Companies

Volume and Value of Trades. The figures given in Table 4.1.1.2 reflect the combined volume and value of trades of all Joint Stock Companies conducted at GSE since its inception to date.

Table 4.1.1.2 Volume & Value of Trades at GSE

Year	2000*	2001	2002	2003**
Volume of Trades (Shares)	4,354,640	10,862,784	11,418,196	5,103,555
Value of Trades (GEL)	5,892,326	13,077,244	8,401,206	1,398,781
* Apr. - Dec. 2000; ** Jan. - Oct. 2003. Source: GSE

Value Turnover. The value turnover is calculated by dividing the annual value of trades over the total market capitalization in that year. This is shown in Table 4.1.1.3 for years 2001 and 2002:

Year	2001	2002
Value of Trades (GEL)	13,077,244	8,401,206
Market Capitalization (GEL)	184,017,886	218,402,008
Value Turnover	7.11%	3.85%
Source: GSE

Table 4.1.1.3 Value Turnover at GSE

The large part of the total value of trades comes on the trading of the securities of 10 leading companies mentioned in the above. This is shown in Fig. 4.1.1.3:



Fig. 4.1.1.3 Value of Trades of 10 Leading Georgian Companies

Liquidity. All the factors considered in the previous paragraphs, i.e. Low Market Capitalization, low Volume and Value of Trades, and low Value Turnover, all indicate that there is little (or even no) liquidity at the GSE. Indeed, out of 282 companies, whose shares are currently admitted for trading at the GSE, the shares of only 93 companies (i.e. 33%) were traded in 2002. The shares of the remaining companies were not traded during the year at all. This is shown in Figure 4.1.1.4:

Fig. 4.1.1.4 Number of Admitted Companies Actually Traded in 2002

Even those companies, whose shares have been traded in the past, do not satisfy the requirements for getting listed at the GSE. The main listing criteria are: a) Company should be functioning for more than 3 years; b) Equity Capital of a company should be greater than 100,000 USD; and c) Company should be profitable for 2 years during the last 3-year period (GSE, 2003). Out of 282 companies, only 2 companies were listed at the GSE in 2001, while only 1 company has been left listed in 2002, after the GSE removed 1 company from the list. Furthermore, the total number of trades and therefore an average number of trades per trading session are also extremely low, as shown in Tab. 4.1.1.4: