Threats from Russia and Response
Having banned air flights to Georgia and introduced a tourism embargo, the Russian Federation plans to set up sanctions against Georgian wines, too. RosPotrebNadzor plans to implement tight control over strong drinks from Georgia.
According to the January-May 2019 indicators, Georgia exported 218.6 million USD of products to Russia, up 28% year on year. The country mainly exports ferroalloys, mineral waters, and wines of natural grapes. If Russia sanctions a certain category of Georgian products, these specific items will face problems with sales. As for our trade with the EU, during the reporting period Georgia exported products worth more than 360 million USD to EU.
In 2018, Georgia sold more than 56 million bottles of wine to Russia, which are more than 62% of total exports. This year, the country has already sold 21 million bottles.
The Caucasus Business Week has inquired as to how the Georgian business sector appraises the current situation, and what they expect in terms of national economic development.
Shalva Alaverdashvili, founder of the Georgian Federation of Hotels and Restaurants, explains that the Georgian economy will lose about 750 million USD from the tourism embargo, and the effect will be particularly dramatic in Adjara.
All challenges will be overcome over the long-term. Free shuttles will run from Baku, Yerevan and Trabzon, and tourists entrance procedures will also be simplified, he said. These measures are determined in a 10-clause document that Shalva Alaverdashvili submitted to the Minister of the Economy, Natia Turnava, and tourism sector representatives. Both the Economy Ministry and Foreign Ministry will work on surviving these challenges, he added.
“One of the key requirements is to simplify border-crossing procedures in order to attract tourists from other countries, as this segment will bear serious losses, especially in the Black Sea region, where dramatic effects are reported. Another clause of the document calls for arranging shuttles from Baku, Yerevan and Trabzon to convey Russian tourists to Georgia more easily. Today, the representatives of more than 100 hotels assembled. They express their intention to arrive in Georgia, and they ask for assistance in finding alternative routes”, Alaverdashvili said.
Additional charter flights should be also scheduled from other countries, he added.
“We should think of appointing additional charter flights. Many countries have expressed readiness, including Baltic countries, Ukraine, Kazakhstan, from where inflows may increase in order to attract more tourists”, Shalva Alaverdashvili said.
Zurab Margvelashvili, founder of the TbilVino winemaking company noted: “At this stage we have a growing sale ratio based on stable and important markets. Currently, it is too early to say when, and which markets will replace Russian Federation”.
Besik Tsertsvadze, head of the Sheri Hothouse Complex noted:
“We will have to overcome problems, because the majority of our products are exported to Russia, where we have to compete with Uzbek and Iranian greens. Therefore, European market as an alternative is of the utmost importance for our development”.
Levan Silagava, head of the Association of Entrepreneurs: “Both wines and other products are our of strategic value, and we can readdress them to EU markets. It is important to determine alternative paths, and form a legislative basis to orient us towards stable markets”.
Businessman David Begiashvili, founder of the Vake5 Holding Company, and the Albatros Group says that this specific case is a provocation, and the country will have a bad outcome.
“These restrictions will be reflected on the economy in proportion, including investors. Russia’s ban on air flights will significantly damage the economy. Money transfers will decline, and the GEL exchange rate will be affected. The Tourism sector will face serious challenges, as well as the agricultural sector”, Begiashvili said.
How will Georgia-Russian tensions affect the mood of international investors? Begiashvili explains that FDI inflows may decline, and money transfers from Russia may also decrease. As a result, GEL exchange rates may plunge.
This reality will pause the implementation of investment projects, he added. “Some of my plans will be paused. I mean the tourism sector. I own both hotels and food outlets. I had plans for their development and expansion, but it seems these plans will face obstacles”, Begiashvili said.
Businessman Temur Chkonia appraised the latest developments. For 20 years, we have said that Russia is a hostile country, and Russia’s activities should mot be a surprise for us. We should always be cautious in terms of our business-economic relations with Russia.
From a strategic point of view, Russia is not a long-term and reliable partner. Should we expect serious losses from the Russian embargo? Chkonia explains that the country will bear certain losses, but in the long-term, these challenges may bring positive outcomes, Chkonia said.
“Today, we learned that about 200,000 tourists will arrive from Israel in 2019, and the state budget will raise 200 million USD. Many other countries will take the same steps. There are a lot of hostile countries around Russia. Nobody likes this country in Europe. Only several countries respect Russia. Russia is not an exemplary country. Regretfully, these developments happen during the summer. Therefore, it may be difficult to revise tourism sector plans, but the damage will be of a temporary nature”, Temur Chkonia noted.
In life, as well as in business, some things go wrong, and some things go better. Therefore, our people should be ready for any challenges in terms of our mindset, knowledge, experience, Chkonia added.
“When a communist sits in the seat of the Parliament’s Chairperson and then you suffer from a tourism embargo, this means that you should not think of implementing a long-term project with this country”, Chkonia noted.
Darina Iakobidze, administrator of the Palma Hotel in Batumi, explains that Russian clients cancelled bookings. This fact will further motivate hotel management to become stronger, and replenish these losses through attracting visitors from other countries.
If Russian tourists decide to stay at our hotel, we will take all efforts to persuade them that their safety is guaranteed. The share of Russian tourists in our hotel accounted for around 40%, Darina Iakobidze noted.
Mariana Paliani, owner of the Mariana Guesthouse in Mestia, says that the ratio of Russian tourists makes up 50%. Consequently, the current situation will lower the income of hotels- however, resort season will not be frustrated. The hospitality sector should prepare a joint strategy for offering discounts for domestic tourists, she noted.
“I offer a 40-50% discounts to Georgian tourists. The price of a one-bedroom, without breakfast, makes up 30 GEL, but I serve domestic tourists for 15 GEL. I will bear less losses in this way”, Paliani noted.
At this stage, clients have already made orders for July and August. Interest is growing from Europe, including from Poland, the Czech Republic. We will genuinely overcome the Russian embargo”, Paliani said.
Zaur Mughrashvili, head of the Tkupebi Hotel in Signaghi, told Commersant that 80-90% of tourists used to arrive from Russia, and the last developments made Russian visitors leave the hotel. All bookings were annulled. We hope the resort season will not be thwarted, and hotels will receive even minimal revenues, Mughrashvili said.
“Russians used to make orders from Booking.com. I used to host them, mostly. The ratio of Georgians was insignificant, because they couldn’t pay… If Russians do not arrive, the hotel would be empty”, Mughrashvili noted.
The Georgian Business Association also appraises the current situation. “We absolutely agree with the frank and just protest of Georgian society that broke out after the Russian Duma’s representatives occupied the seat of the Chairman of the Georgia Parliament. At the same time, the association members, like our compatriots, worry about dramatic developments that took place on Rustaveli Avenue on June 20. Naturally, injured young people, abused and beaten journalists and policemen, have shaped a dramatic reality.
At the same time, we believe that amid developments in Tbilisi, the Russian authorities have provided an inadequate reaction, and the decision to ban flights to Georgia and introducing various artificial barriers to Russian tourists. We also suppose that the export of Georgian products may be restricted temporarily, including certain measures that may be taken against Georgian wines. Similar steps will create additional problems between our countries in terms of humanitarian and economic relations, and will bring bilateral losses for ordinary citizens.
Georgia and Georgian people are famous for their tolerance and hospitality, and we always welcome Russian citizens, and other citizens who respect our country and the Georgian people. It is clear that there is nothing threatening Russian tourists in Georgia, and I am sure the current developments will end peacefully, and tourists from the Russian Federation will be maintained”, the Business Association representatives noted.