Georgia as a Transit Hub and its Meaning for the UK

For the UK, Georgia might be a small market, but this can be substantiated by the country’s location. Georgia has historically been at the edge of both empires and entire continents – Asia and Europe. This has been both an asset and a hindrance to the development of the country. A hindrance because it attracted foreign invaders, and an asset because Georgia’s location allowed the country to position itself as a major transit hub between Europe and Central Asia.

Since 1991, a new Silk Road initiative has been emerging gradually around the borders of Georgia. In fact, a closer look at historical sources from the ancient, medieval or even 15th-19th century history of Georgia shows an unchanged pattern of major trade routes running to the south, west, east and north of Georgia. These routes were usually connected to the Middle East, Central Asia, and the Russian hinterland. Only rarely did the routes include parts of Georgia and, when it did, it lasted for a short period of time as geography precluded transit through Georgia: the Caucasus Mountains and seas constrained movement, while general geographic knowledge remained limited for centuries.

After the break-up of the Soviet Union, Georgia returned to its position as a major route between the Black and Caspian seas, and between Central Asia and Eastern Europe. Major roads, pipelines and railway lines run through Georgian territory. What’s more, major work is being done to expand and build existing and new Georgian ports on the Black Sea, with the potential to transform Georgia into a sea trade hub.

A good example of Georgia’s rising position on the Silk Road is the major bi-annual event, The Silk Road Forum, held in Tbilisi since 2015. The hosting of the event underscores how Georgia has recently upped its historical role as a regional hub connecting Europe and Asia. On the map, it is in fact the shortest route between China and Europe, which could in turn make the country an increasingly attractive destination for foreign investment. Indeed, the regional context also helps Tbilisi to position itself, as Georgia has Free Trade Agreements with Turkey, the CIS countries, the EFTA and China and a DCFTA with the European Union. These are some of the advantages which can be used by UK businesses in their quest to reach the far-flung regions of Central Asia and the Middle East.

Another asset for the UK is the newly built Baku–Tbilisi–Kars (BTK) railway, which was opened in 2017 by Azerbaijan’s President Ilham Aliyev, Turkish President Erdogan, as well as then-Georgian Prime Minister Giorgi Kvirikashvili, at a ceremony to launch the railway which stretches from the Caspian Sea port of Alat, to the city of Kars in eastern Turkey.

This set the scene for improved connections not only in the South Caucasus, but also for the landlocked Central Asian states. The project opens a rail corridor potentially connecting Central Asia with European markets through the South Caucasus.

And Central Asia matters. For the UK to reach the region, Georgia and its infrastructure is pivotal. What is crucial here is that the shortest route to ship freight to Europe from Central Asia is across the Caspian to Azerbaijan, Georgia and the Black Sea. Steady growth of shipments from China will further boost the fragile South Caucasus transport and energy corridor, which struggles to compete with the enormous trade routes which run through Russia and elsewhere.

An improvement of infrastructure is also taking place along the rest of the South Caucasus corridor. The Georgian government granted the APM Terminals permission to start the expansion of Poti port. Essentially the project, which will provide more than 1000 local jobs, involves the construction of a separate new deep-water multifunctional port.

The expansion of Poti will have regional implications. The port already enjoys the role of the largest gateway in the country, and acts as a major outlet for Azerbaijan and Armenia’s trade with Europe. For instance, liquids, passenger ferries, dry bulk materials and container traffic go through Poti. Moreover, Poti port also serves as an alternative route for export from Central Asia to the Black Sea and elsewhere.

Similar developments are taking place in Batumi. In 2019, Wondernet Express, Trammo and the government of Georgia announced plans to build a new terminal with a total investment cap of 17.5 million euros. More importantly, the new facility will store up to tens of thousands of tons of mineral fertilisers coming from Central Asia through Azerbaijan.

Overall, these connectivity trends will reinvigorate Trans-Caspian shipping. There is more to the story. Europe and Turkey share an identical position. All parties are interested in breaking Russia’s grip on gas export routes from Central Asia. Support for the east-west corridor across the South Caucasus has been present since the break-up of the Soviet Union, but rarely have there been such promising trends as there are now: steadily increasing China-Europe shipping; Chinese Belt and Road Initiative’s expansion into Central Asia; and gradually improving rail-road and ports infrastructure in Georgia and Azerbaijan.

By Emil Avdaliani

Georgian Distributors Business Association: Interview with President Iva Chkonia

Over the years, the distribution business sector has become an integral part of Georgia’s economic development and state economic policy. Within the context of globalisation and Georgia’s Westernisation in particular, it is entities like the Georgian Distributors Business Association (GDBA) that act as the key to opening international doors for Georgia. Iva Chkonia, who has been with the Association since its founding in 2016, in an interview with Made in Georgia Magazine, talks about the GDBA, its significance, challenges and successes, and British-Georgian ties.

Tell us the history of the establishment of the Georgian Distributors Business Association.

Distribution business is one of the important components of Georgia’s economic development and state economic policy. In order to respond to the challenges of modern distribution business and to solve the current problems in the field, the Georgian Distributors Business Association was established in 2016, and its main goals and objectives are:

     Development and promotion of distribution business as a sector and in Georgia;

     Sharing international experience on the local market;

    Preparing proposals and recommendations for legislative and executive authorities to promote the distribution business environment;

     Conducting seminars and training to increase qualifications of employees;

     Maintaining a register of unscrupulous entrepreneurial entities and providing information to the members of the Association;

Together, with the support of international organisations and the state, the Association aims to take the necessary effective steps to develop a common policy that will facilitate the development of distribution business as a sector.

How does an entity join the Distributors Business Association? How many members does it consist of and what are the benefits associated with being a GDBA association member?

The Distributors Association unites more than 80 small, medium and large businesses on the market. The vast majority of member companies of the Association represent world brands on the Georgian market and provide high quality products to customers. Members also include local manufacturing companies that distribute / export outside of the Georgian local market.

Membership of the Association is based on an application submitted by the company, followed by a face-to-face meeting and discussion on future collaboration. The Association provides its members with important information for the business sector on a daily basis. GDBA helps companies establish and expand business relationships, both locally and internationally. GDBA, with the support of international partners, actively advocates for issues important to the distribution business to be resolved.

How long have you worked for GDBA and what do you think has changed / improved during this time?

I have been leading the Distributors Business Association since its foundation, so I can confidently and sincerely say that the distribution business has undergone a great transformation during this time. Business culture was introduced, trade relations were improved, the partnership network was expanded and international cooperation was strengthened.

The Association and its members were actively involved in the legislative review process. Meetings organised by GDBA made it possible to share experiences, as well as discuss common challenges, identify ways to solve them and develop a unified action plan. With the mutual cooperation of the Association and the Parliament of Georgia, the Competition Agency and other state structures, it became possible to implement a number of important changes for distributor companies.

For a long time, companies had a hard time sourcing qualified staff. Because of this, the Association decided to engage in a vocational education program and, together with experts in this field, develop an educational program that would provide the distribution sector with

qualified professionals. The program has successfully completed several vocational training courses, and successful graduates have been employed by member companies of the Association.

After several years of tireless work, today the distribution business holds an important position on the Georgian market. However, with develo-

pment comes challenges. The main challenge in the field of distribution is its relationship with the retail sector. GDBA is actively working with international donor organisations – as well as overseas and local partners – on this issue, and we hope to soon be able to establish a business environment based on healthy competition and good practice between distribution and manufacturing companies.

what are the statistics of organisations that import to Georgia and the Georgian companies that export their products?

At this stage, the majority of Association members (90%) import to Georgia. Only a small part (approximately 10%) is engaged in exporting its own products from the country. Finding new markets and trading partners certainly encourages an increase of exports.

How important is the existence of such an association in Georgia, or in general, for the economic climate?

The existence of business associations is vital, both for the development of a particular business sector and for the country’s economy in general. Developed countries show that business associations play a major role in their economic development. The importance and necessity of associations was especially evident in the context of the COVID Pandemic, when business entities suffered the greatest economic damage, moreover, many of them were in danger of bankruptcy.

What are the challenges facing the sector due to the pandemic and how do you deal with them?

The pandemic turned out to be a big test for the distribution business. The distribution business is largely linked to the field of tourism. A significant number of companies use foreign, imported raw materials for their products. Accordingly, due to reduced tourism, distribution companies had to use their financial reserves as much as possible in order to keep the production and supply of products going.

Due to the restrictions caused by the pandemic, the entire Georgian population was at risk of shortages of basic products. It was the Association that played a crucial role in ensuring timely, safe and uninterrupted delivery of products throughout Georgia.

The state of emergency highlighted the role of the Association as the most competent entity in ensuring the continuity of business activities. In addition, the Distributors Association has been actively advocating its own initiatives to government representatives, in order to minimise the expected economic damage. Some of them were considered as part of the state anti-crisis plan, which alleviated the current situation to some extent.

Despite great efforts, the global pandemic has hit the world hard and caused an economic crisis. Georgia is no exception in this regard. Therefore, cooperation between the business sector and the government is crucial.

In your opinion and experience, what is the business connection between Georgia and the United Kingdom? How did the establishment of the British-Georgian trade hub affect the business relationship between the two countries?

For Georgian businesses as well as for the economy as a whole, it is important to diversify trade and business partnerships, and accordingly, to find additional markets and strengthen existing relationships. The British-Georgian trade hub is a new project, which makes it difficult to talk about the results at this stage. The Georgian Distributors Business Association welcomes any kind of trade partnership with the UK, which has emerged as an individual market since Brexit. We actively support both local producers who want to export their products to the British market, as well as British companies interested in the Georgian market, in order to connect business entities and establish trade relations.

Interview by Nini Dakhundaridze