Курсовая работа: Private sector and human-resource development in Georgia

Investments in Fixed Capital

Source: SDS, 25.01.2001

Foreign investments in fixed capital by fields and years

(in actual prices, mln Lari)

Source: Investment activities in Georgia, State Statistic Department, 1999

Most Exportable Agricultural Products.

Georgian Wines. Georgia is known as the birthplace of viticulture and winemaking and has 5000 years of wine culture. The rich land, hot sun and hard work have developed about 500 varieties of wine in Georgia.

According to the State Department of Statistics exports of different types of Georgian wine during first nine month of the 2001 made up 18186,5 thousand USD which is 7,8 percent of the total Georgian exports.

At the end of the 20th century, the collapse of the Soviet Union has caused an economic decline in Georgia, which negatively affected the Georgian wine sector. To be more precise – the overall territory of vineyards has decreased by 50%, (1990 – 112,6 thousand hectares, 2000y 60,5 thousand hectares). This tendency was mainly caused by the following reasons: lack of enough funds among farmers to purchase chemicals, technical devices and machines for vine cultivation, also huge numbers of farmers had to convert their vineyards into land to grow edible products such as corn, vegetables, and grain.

In addition, from the mid 1990s the tendency of vineyard rehabilitation has been quite dynamic, still the total area of vineyards is far less than it was even 20 years ago. 

Table # 1 Tendency of wine sector development for the last ten years

Source: Samtrest, Ministry of Agriculture.2002

Even though the Georgian wine sector is famous for its 500 traditional grape varieties, the vast majority is currently grown and available only in limited areas and numbers. Traditionally in accordance with climate and soil characteristics – Georgia is divided into 5 main wine producing regions. Kakheti, Kartli, Imereti, Racha-lechkhumi and the Black Sea Subtropical zone.

In accordance with the development and strength of the wine sector Kakheti could be easily considered as the leader. The region is characterized by huge variety of grapes and assortment of wine.

From the structural point of view, 80% of Georgian vineyards is allocated to white grapes: Rkaciteli amounts to almost 75% of all white wines and the remaining 25% is allocated to Cicka, Colikauri, Mcvane, and Tetra. The dominant type in red grapes is presented by Saperavi which holds 70%. The remaining 30% is allocated to the following red grapes: Aleksandriuli, Mijuretuli, Ojaleshi, and Vaios Saperavi.

Table # 2 below indicates the total area by regions (1000 hectares) as of year 2001.

Source: Ministry of Agriculture, 2002

Table #3 below indicates the information on main types of Georgian grape, as of 2001

Source: Samtrest, Ministry of Agriculture, 2002

Today the production of two main types of grapes per hectare of land is the Rkaciteli – 7.0-8.0 tons, and the Saperavi – 5.0-6.0. These numbers are can increase by 25-35 % under normal working conditions and with all necessary tools and machinery readily available. 

By taking into consideration the fact that during the grape processing period the market price for one kilogram of white grape ranges from $0,10 to $0,20, which is slightly above of its base price, then accordingly it could be forecasted that in the case of an increase in the volume of grapes the price per kilo will drop and the farmer’s revenue will increase, thus creating the ability for the farmer to procure some necessary tools, chemicals and machinery and increase the volume of his grapes for the next season. This could lead to the rehabilitation and positive redevelopment of the whole Georgian wine sector, though it should be mentioned that this positive tendency will not be implemented without sophisticated grape processing factories and new export markets.

In Table #1 it is clearly indicated that during the first part of last decade of the 20th century there was a huge drop in the volume of processed grape. This was mainly caused by the following reasons: Weak economic condition of the country, loss of traditional Russian market and huge amount of fake vintage Georgian wines, both in the Georgian and Russian markets.  It should be mentioned that during the same period both farmers and wine factories had huge amounts of grapes in their warehouses, which did not find its path towards wine, simply because of the aspects mentioned above. And this is happening in Georgia – a country, which during the Soviet period was producing 55% of the total vintage wines and more than 25% of brandy in the USSR.

Despite all the negative factors mentioned above, in the second part of last decade of the 20th century developmental steps ahead were made in the Georgian wine sector, which on its behalf has led to the participation of foreign investors in the sector. The positive aspects were mainly caused by the fact that a new generation businessmen have acquired western knowledge of management and marketing, the consumer’s nostalgia for Georgian wines, and the government’s support.  Lately, the participation of foreign companies is getting clearly noticeable – both in the fields of wine-making and in establishing new vineyards.

As a result, the number of local Georgian wine-making companies could be easily outlined in accordance with their financial strength, good marketing campaign, progressive management and export volume. These companies are: GWS (Georgian wines and spirits),  “Telavi wine cellar”,  “Akhasheni”,  “Tbilwine”  “Vaziani”, “Kinzmarauli”,  “David Sarajishvili and Eniseli”, “Okami”, “Teliani Veli”, “Rachuli Gvino” and “Zmebi askaneli”.

Mineral and Spring Waters. According to the State Department of Statistics exports of different types of Georgian mineral waters during the first nine months of 2001 made up 6646,9 thousand USD which is 2.8 percent of the total Georgian exports.

One of the biggest assets – essential for the resort development in the country is represented by mineral waters. In Georgia almost all kinds of mineral water can be found, with more than 2,000 mineral springs, out of which 1700 are natural phenomena and 300 are boreholes. Their estimated total yield per day is 120 million liters. The most common kind is a carbonic acid mineral water, the daily yield of which amounts to approximately 60 million liters.

[19][1]Structural geologic and hydrochemical properties of the so-called geotechtonic zones account for the distribution of various kinds of mineral waters in Georgia. For instance, within the limits of the Main Range and the Southern slope of the Greater Caucasus – cold, mostly carbonic and hydrocarbonated waters predominate. On Georgian Block the typical water includes cold as well as thermal sulphide-methane and nitric-methane, chloride and sulphate. Within the Adjara –Trialeti system and the adjoining Somkhiti Block the following kinds of water predominate: carbonic acid hydrocarbonated or chloride-hydrocarbonated as well as weak sulphide nitric, sulphate-chloride or carbonate-bicarbonate.

Georgia has large reserves of thermal water of various chemical compositions. The territory occupied by Georgian Block and Adjara Trialeti System is especially rich in them. Thermal radioactive (Radonic) mineral waters are the main natural curative factors of the Tskaltubo and Tkvarcheli Resorts. So-called hyperthermal waters, forming a class by themselves are extracted from the earth’s deep levels by boring. The main pools of these waters are: Tsaishi (Temp 81-82 C), Kvaloni (Temp 94 C), Kindghi (103 C), Khorga (Temp 110 C). Hyperthermal waters are mostly used for heating purposes.

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 19th 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[20][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

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