By Joanne Bladd
Levan Varshalomidze, governor of Adjara, on how Gulf petrodollars are poised to transform his tiny Black Sea state into a thriving commercial hub.
Levan Varshalomidze, governor of the republic of Adjara, on how Gulf petrodollars are poised to transform his tiny Black Sea state into a thriving commercial hub.
If you haven’t heard of Adjara, you’re not alone. The tiny state, a republic set in the south-west hook of Georgia, is conspicuous by its absence from any major economic group. It’s a fraction of the size of Qatar, churns out a drop of Georgia’s $20.75bn GDP and attracted just $98m in foreign direct investment last year. Now, the chairman of its government, Levan Varshalomidze, has grand plans to change all that and he is banking on the Gulf’s petrodollars to bankroll it.
“Our aim is to become a destination for business,” the Georgia-born politician says, speaking from his office in Batumi. “With our location, our legal framework and our industries, we think it’s a real opportunity to investors. We’re looking west and east for investment, but the Gulf is a target market for us.”
Perched on the crossroads where Europe meets Asia, Adjara has geography on its side. Its Black Sea port in the capital, Batumi, was in the past one of the world’s busiest, handling oil shipments from Kazakhstan and Turkmenistan and processing goods headed for Georgia, Azerbaijan and Armenia. However, civil unrest in past years, coupled with the fallout from disastrous hostilities between Georgia and Russia in 2008, has taken its toll on the city. Adjara today has gaps in infrastructure, underdeveloped industry and a fledgling tourism industry that is ripe for investment. The bill is poised to run into billions of dollars, and Adjara’s door is wide open to investors.
“We have opportunities in tourism, in construction, in agriculture, in energy,” Varshalomidze ticks through the list. “We have a strong foundation to build on. FDI is still rising for us and I don’t think it will slow down.”
He adds that the state has already been in talks with Qatar, Kuwait and Saudi Arabia for investments in sectors ranging from energy, to farming.
“We have not confirmed the contracts yet, but we have had held discussions with them,” says Varshalomidze, who has led the state since 2004.
In total, Adjara hopes to lure in some $158m in FDI this year, up from $98m in 2009 and is doing its best to smooth the path for commercial players. In recent years it has overhauled its financial laws, introduced zero percent profit tax in certain cases and scrapped duties on a string of goods. The republic has plans to launch an industrial freezone, close to the Georgia-Turkey highway, in the hope its low operating costs and relatively cheap labour will tempt firms eyeing easy entry to the thriving Asian markets.
“As a destination, it is right on the doorstep of Europe and Asia and a population of millions. It has all the benefits of a free zone, transparent regulations and low costs,” says Varshalomidze.
The government itself has been investing aggressively in infrastructure. Some 100km of federal roads and 150km of local roads were constructed between 2005 and 2009, and there are plans to open up the state with two new bypass roads. A new airport opened for business in Batumi in 2007, forging routes to Istanbul, Ukraine and Armenia and helping to push Turkey’s investment in the state to a — then record — $250m the following year.
In payoff, this push to lure investment has sparked an uptick in home-grown entrepreneurialism, as Adjarians rush to capitalise on new opportunities. In 2008, the state’s dozen banks and trio of micro-financing institutes underwrote $280m in loans for small and medium businesses.
If Adjara is looking for an economic success story to emulate, it could do worse than neighbouring Georgia. The former Soviet republic has stepped up its efforts to revive FDI, after it plummeted to $759m in 2009; a 51 percent drop on the year-earlier period. President Mikheil Saakashvili has been at the forefront of fundraising efforts, pressing the flesh in trips to the Gulf, the US and parts of Europe.
The Gulf has become a particular focus for Georgia, as the global economic slump has dampened investor appetite for emerging markets. In October, Saakashvili said he had netted as much as $1bn of investment from the UAE within the next two to three years. A month later, a trip to Qatar yielded a pledge to “invest heavily” in Georgia.
Qatari Diar Real Estate Investment Co, the property arm of the country’s sovereign wealth fund, has conducted a fact-finding trip, though the company hasn’t announced its investment plans.
Arguably Georgia’s most profitable commercial relationship, however, has been with the emirate of Ras Al Khaimah. The city’s sovereign wealth fund, Rakia, in 2008 bought the Black Sea port of Poti and 300 hectares of land to develop an industrial free zone; a replica of its existing park in Ras Al Khaimah. The fund paid $150m in cash for the port and, according to is CEO Khater Massaad, 15 percent of the sum was returned in profit last year. “It is a fantastic, strategic business,” he told Arabian Business earlier this year.
In July, Massaad said the fund is planning an initial public offering for the Georgia port in 2011. Though he declined to give a specific date, he said: “We will go for an IPO definitely in 2011.”
For Adjara, the priority is to attract funding to its tourism sector. The industry is anticipated as a major source of revenue for the pretty coastal state, and a ready source of jobs for its 400,000-strong population. Commercial players have also been quick to scent returns — some 68 percent of investment in 2009 targeted the tourism market. Earlier this year a five-star Sheraton Hotel opened in the capital, and plans for a Radisson, a Kempinski and a Hyatt are reportedly underway in a bid to grow luxury tourism outside the borders of Tbilisi.
This rise in funding has been matched by a rise in visitor numbers, according to Temur Diasamidze, head of the region’s tourism board. “We’re expecting 800,000 tourists this year, that’s up 135 percent on last year, and the figure should rise to 1.7 million by 2012,” he said in comments quoted by Business New Europe.
By 2012, revenue from tourism is predicted to hit GEL62.2m ($33.72m), up from GEL45.4m ($24.62m) this year. A portion of this revenue is expected to come from Gulf tourists, Varshalomidze says.
“We have a good relationship with the region, and Batumi is a beautiful city. The Gulf is one of our key target markets and we are keen to promote our tourism there,” he says.
Should Gulf residents need any persuading, the fact that billionaire property tycoon Donald Trump is eyeing a venture in the state should be enough to convince them of its luxury credentials. In July, the executive vice president of the Trump Organisation toured Adjara as part of a three-day fact finding tour in Georgia.
According to market talk, the US tycoon is planning a string of real estate investments including a five-star hotel resort and 19-hole golf course.
Varshalomidze, for the moment, is staying tightlipped on the scale of any deals. “He is definitely interested but we have not signed anything yet,” he says. “We will have to wait and see.”