Jul 1, 2011

Georgia: Bloc-Buster Treatment

CNBC BUSINESS - In a bid to shake off the last vestiges of communism, Georgia is rooting out corruption, courting Westerners and marketing itself as a tourist playground. Matthew Lee reports

If the disastrous war with Russia in August 2008 was a sucker punch for Georgia’s tourism industry, the global financial crisis that followed completed a devastating double whammy. All the talk of a tourism boom that had been gathering momentum in the first half of the decade suddenly seemed wildly optimistic.

Almost three years on and it is some of the grand tourism projects in what was once known as the ‘Riviera of the Soviet Union’ that seem wild. These range from the construction of a major Black Sea resort town to the opening of a ski resort in the remote mountains of Svaneti. After banishing all lingering signs of Sovietness after two tumultuous decades of independence, the government is eager to show off the qualities that made Georgia the USSR’s playground – beautiful beaches, stunning mountains, a cosmopolitan capital with a well-preserved old town, and the best food and wine east of the Iron Curtain.

The number of visitors to Georgia jumped almost 40% in 2009 from the previous blighted year and 3 million are expected in 2011. Last year, the World Bank ranked Georgia as the 12th easiest place in the world to do business, up from 112th in 2005.

Taxes are low: personal income tax is a flat 20% and corporate taxes are a flat 15%. It offers a strategic location between Europe and Asia, import and export tariffs are low (as are labour costs) and the workforce is well educated. Most crucially, corruption, which was rife 10 years ago, has been contained. “The government’s anti-corruption drive has been so successful Transparency International currently ranks the country highest among the former Soviet economies, not including the Baltics,” says Venla Siplia, a senior economist at analyst firm HIS Global Insight.

But the main reason for such a turnaround may be Mikheil Saakashvili, Georgia’s ebullient president, and his obsession with modernity. Arriving in the capital, Tbilisi, tourists don’t have to stray far from the airport to find evidence of how the former New York lawyer has aligned his country with the West – the main road into town is George W Bush Avenue. In the city, fast-food joints and vast hypermarkets sit alongside police stations and new glass-fronted government buildings.

Yet for all its efforts to be perceived as a forward-thinking, dynamic country, Georgia’s reputation took a battering in August 2008. Not only did the war reinforce the idea that this part of the world is unstable and dangerous, a report commissioned by the EU concluded that Georgia must accept some of the blame for starting it. Having attracted sufficient foreign investment over the past few years to embark on a meaningful number of infrastructure projects, the biggest challenge to Georgia’s tourism officials will be changing perceptions.

Misha, as the president is affectionately known by his supporters, has declared that tourism is one of the three pillars of the Georgian economy, along with agriculture and infrastructure. He’s hands-on when it comes to flagship projects such as the construction of the resort town in Batumi on the Black Sea coast. Thanks to his persistent cheerleading on the global stage, not to mention attractive tax rates, foreign investment has poured in from the South Caucasus, the Gulf states, China, the UK and the US. A Canadian airline, Kenn Borek Air, runs the flights from Tbilisi to Svaneti. German architects designed the new airport. The Black Sea port of Poti was sold to Dutch company APM Terminals. But the headline-grabbing story has been American showman and tycoon Donald Trump’s announcement of a $300m deal to open two eponymous skyscrapers in Tbilisi and Batumi.

Vera Kobalia, the minister of economy and sustainable development, is in charge of enticing such investors and developing Georgia’s tourism infrastructure. She is a softly spoken 29-year-old with a North American accent from her 15 years in Canada. Many of the country’s ministers are in their early 30s because, she explains, Saakashvili wants to work with people who are untainted with the murk of the Soviet Union. Saakashvili was barely 36 when he became president.

“Tourism is a great way to create jobs and showcase your country,” says Kobalia, adding that it is also the fastest-rising sector of Georgia’s economy. Half its visitors come from neighbours Turkey, Armenia and Azerbaijan. Near the top of the other half is, surprisingly, Israel – a souring in relations between Tel Aviv and Ankara created a gap for short-haul adventure travel that Georgia’s been savvy to exploit. Tbilisi even has an Israeli fast-food restaurant. There’s a determination to attract more Western Europeans but progress is hampered by poor connections. The government says it’s in talks with low-cost airlines and is willing to open a dedicated low-cost airport to accommodate budget flights.

Saakashvili’s latest pet project is a new ski resort – Georgia’s third – in Svaneti, a remote and unspoilt mountain region where the locals have their own language and distinctive culture.

The president announced that a new airport would be built in Mestia, Svaneti’s biggest town, last summer and it was open by Christmas, bringing new possibilities to an area used to being cut off for half the year when heavy snow forces the road to close. “We’ve created job opportunities there so that people no longer have to leave the region,” says Kobalia.

There’s also a new highway due to open in August, as well as several hotels and three more ski lifts. Last year 20,000 tourists visited and Saakashvili is shooting for 500,000 within four years, although clearly a lot more beds are needed. Ia Tabagari, president of the Georgian Incoming Tour Operators Association, says: “Last year during high season you couldn’t find any rooms. The Svan people want development and it will give them an income, but if the number of tourists in Upper Svaneti is doubled, where will the food come from? They barely have enough now.”

Marc Leaderman, head of operations at Wild Frontiers, one of the few UK tour operators to work in Georgia, says: “Its major draws are its charm and its people, and I worry when they try and move away from homestays and simple accommodation and build five-star, five-storey hotels. Better roads and base-level investment is a good thing, but five-star hotels won’t help us sell the country to British travellers.”

As well as infrastructural concerns, there has been controversy over land rights. Protesters claim they have been forced off their land to make way for the hotels, roads and amenities. In the Soviet era, land ownership was prohibited and 20 years on, many don’t possess documents proving they own the land they live and work on. “In terms of property rights, the municipal government is working closely with the locals to make sure everything is done legally and, if there are any issues, that people are compensated for the land,” Kobalia insists. She’s confident the vast majority welcome the development, citing a letter calling for the government’s help in building the ski resort that was signed by 3,000 Svaneti residents in 2008.

Another concern is the impact of tourism on the environment: Upper Svaneti is a World Heritage Site and has been lauded by UNESCO for “preserving to a remarkable degree its original medieval appearance”. Kobalia stresses that sustainability tops her agenda, a view shared by one of her recent hires, Maia Sidamonidze, who runs Georgia’s tourism authority. “We want Georgia to be green in the future and we will work closely with the World Tourism Organization on sustainability,” says the 26-year-old, who until last summer was a sales manager for a London hotel.

Batumi, also being rapidly developed to handle a large influx of tourists, is the capital of Adjara, an autonomous republic in the west of the country which was governed by the authoritarian, pro-Russian Aslan Abashidze until Saakashvili’s ‘Second Rose Revolution’ in 2004. Then, Batumi seemed irrevocably corrupt and run down; today it represents the new Georgia, a country aiming to be the Singapore of the Caucasus. Almost 40 hotels have opened in Batumi since 2006, including a Sheraton, its first international five-star brand; a Radisson and a Hyatt are on the way. It is reminiscent of a nascent Dubai, a comparison the government is surprisingly comfortable with, despite the emirate’s much-publicised debts.

“Singapore is a small country that has to be very diverse in the sectors it concentrates on. Dubai is a small piece of land where they’ve managed to build a business hub. We’re not an oil or gas country so we have to be creative,” says Kobalia.

There’s another reason why Batumi’s success matters to Georgians. In 1989, Sukhumi, the capital of Abkhazia, was one of Georgia’s most prosperous cities thanks to its beach resort. Abkhazia remains a disputed territory and the city is neglected. Batumi isn’t merely a quick-fix to satisfy Tbilisians’ needs for a resort, it is a message to Abkhazians. Kobalia, who is of Abkhaz origin, says: “If Russia wouldn’t try to get involved in Georgian politics, Abkhazia would be as developed [as Batumi], if not more.”

Abkhazia and South Ossetia remain off-limits to Georgians and tricky for adventurous tourists to enter. There remains a strong Russian military presence in both regions and tourists visiting Gori, an hour’s drive from Tbilisi, can see the scars of Russia’s 10-day occupation. Ironically, Gori has long been a quirky pitstop due to its huge statue and timewarp museum celebrating the achievements – and whitewashing the crimes – of Stalin, born here in 1878. The statue was quietly removed a few months ago and is to be replaced by a memorial to those who lost their lives in the 2008 war. The museum, which fails to inform guests about the purges or the gulags, remains open but Kobalia says the government plans to change its contents so that “it shows the true face of Stalin and what really happened”.

Along with the marshrutkas (the beat-up, overcrowded Soviet- era minibuses that backpackers still endure), the Stalin Museum is a rare anachronism in a country that’s hauled its infrastructure into the 21st century in such a short period. Roads are improving rapidly and power cuts are no more. EU flags flutter in front of every government building, even though Georgia is a long way from even being considered for membership. Like everything else in this country, they symbolise ambition.

Source: cnbcmagazine.com/business