ISET

On Wednesday, September 7, ISET hosted Dr. Jon Hanf, Head of the Wine Economics Program at Geisenheim University, Germany, who spoke about the prospects of Georgian wine in the highly competitive German market.

Dr. Hanf started his presentation by stating the obvious – the world market is saturated with wine as global supply steadily exceeds demand by more than 30 million hectoliters. Cutthroat competition results in average prices remaining extremely low, way below Georgian production costs. The German market – the largest and perhaps one of the most competitive wine markets in the world – is a good case in point. For example, very reasonable wines offered by major German discounters, such as Aldi and Lidl (controlling more than 35% of total wine sales in Germany) retail about 1,90-2 Euro per bottle. Premium wines average 8-9 Euro. For comparison, Georgian wines attempt to enter the German market at 12-15 Euro per bottle, way above competition.

Congestion in electricity transmission systems is a common problem all around the world, Georgia included. Two types of congestion are observed in the power sector; physical and economic. Physical congestion occurs when a transmission system is not adequate to supply an increasing amount of electricity. Economic congestion appears when prices in one region are different from those in another region, while cheaper electricity cannot be sold to the region with high prices. Both types of congestion are problematic for Georgia.

Physical congestion is prevalent in Georgia because electricity is heavily used in the eastern part of the country, while most power plants are in the west (such as large HPPs). Economic congestion occurs because cheap electricity in western Georgia cannot always be delivered to eastern Georgia, where power plants produce more expensive electricity.

On May 13, 2016 ISET hosted the head of the IMF in Georgia, Azim Sadikov, who delivered a lecture for participants of ISET’s Finance Course for Professionals. The subject of his lecture was “Macro-economic challenges in Georgia and the strengths and weaknesses of its emerging capital markets”.

During his presentation, Mr. Sadikov discussed existing macroeconomic challenges for Georgia. He emphasized the current account deficit as the most important problem for the Georgian economy, which resulted in one of the highest net foreign liabilities to GDP ratio (136%) in Central and Western Asia. In order to finance this deficit, Georgia borrows from abroad, increasing the NFL of the country. The good news, however, is that this NFL is made up of FDI, which is considered to be a very stable source of funding. Mr. Sadikov then highlighted the importance of FDI in productive labor-intensive sectors, which will ensure production growth and accumulation of incomes from these investments in Georgia.

Looking down from the famous cross-path of the Georgian Military Highway, you will notice a beautiful little lake that was not there six years ago. The lake is a small reservoir that supplies power to the 8 MW Aragvi HPP. On May 19, the ISET community and guests from professional circles in energy sector heard the story behind this hydro power plant in a seminar entitled “Small Hydro power – what’s special about it and how to implement it?” delivered by Hanness Posch, a civil engineer and entrepreneur working on hydropower projects in Georgia.

Mr. Posch’s engagement with Georgia started soon after Austrian investors rebuilt the Gudauri Ski resort in 1986. Mr. Posch was invited as an engineer to prepare a hydropower project to ensure a stable power supply for the resort. In the meantime, while preparing the project on the Aragvi river, Gudauri investors sold their shares in the resort and Mr. Posch was left as the sole participant in the project without enough resources to implement it. After finding Georgian partners, a company was registered and long search for the necessary funding started. Years later in 2011, the Austro-Georgian company found the money and commenced construction of their first 8 MW Aragvi HPP project.

On May 6, ISET hosted Shang-Jin Wei, Chief Economist at the Asian Development Bank. He gave a presentation entitled 'Asian Development Outlook 2016 – Asia’s Potential Growth'.

According to the key messages of the presentation, development growth in Asia softens to 5.7% in 2016 and 2017 from last year. Furthermore, while CPI (Consumer Price Index) inflation subdued, many economies face harmful PPI (Producer Price Index) deflation. In addition, reforms to raise labor productivity can invigorate developing Asia’s potential growth.

Given the data of the outlook, Asia still accounts for 60% of global growth in PPP (Purchasing Power Parity) terms, or 40% in market exchange rate terms. Moreover, slow recovery in global commodity prices will keep CPI (Consumer Price Index) at a low level in Asia.

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