“It’s a Challenging Year, although it is Not Over Yet” 

“It’s a Challenging Year, although it is Not Over Yet” 

The FINANCIAL -- Georgian American Alloys (GAA), Inc., headquartered in Miami, Florida, manufactures and supplies ferroalloys used in the manufacturing of iron and steel through wholly-owned US based subsidiaries Felman Production, LLC, Felman Trading, Inc., CC Metals & Alloys, LLC, and Eastern European-based Georgian Manganese, LLC, which is comprised of Chiatura Manganese Mine, Zestafoni Ferroalloy Plant, and Vartsikhe Hydroelectric facility.

Georgian Manganese is a major producer of high-grade and regular-grade silicomanganese in Georgia. Georgian Manganese’s mining operation includes seven mines and eight quarries. Vartsikhe 2005, LLC is a hydroelectric power plant that supplies power to its affiliated companies Chiatura Manganese Mine and Zestafoni Ferroalloys Plant.

GAA is the largest Georgian exporter. In 2014, the company invested USD 15 million. Out of this, USD 5 million has been issued for the construction of a hydro separation district, and USD 3 million - for Zestafoni power plant.

Q. The year 2015 has been quite tough for the business community, how would you evaluate the current year for Georgian American Alloys?

A. It’s a challenging year, although it is not over yet. World raw materials are falling apart, every week the prices are going down. Right now we are somewhere in the middle of 2009 and things are getting worse every week.

There are no positive results. I don’t know if in the real economy world or raw material world anything positive exists. One of my colleagues was recently at a ferroalloys conference and it was like 3 days of visiting a cemetery, nobody had anything positive to share.

Nobody has any positive information, any positive news, everybody expects the year 2016 to be even worse than 2015 and nobody has any idea what has to happen for a comeback to be possible.

Q. The investment climate hasn’t been very good lately in Georgia. Has that affected your company?

A. It’s not about the investment climate, it’s just about what’s going on in the world with the oil price falling down, raw material prices falling down; everything that people are digging out of the earth is going for very low prices. When oil companies are cutting their budgets I think it affects the steel industry. The steel industry is closing plants, which in turn affects us. The steel industry is cutting consumption, so are the truck producers, and so too the heavy equipment manufacturers. They are shutting down their facilities. China’s consumption is going down as well, while in steel production the Chinese make up about 55% of the world market so everything depends on them as well. Manganese and oil prices are also falling every week.

Q. GAA was going to construct a mining factory in Chiatura in 2015. Did you manage to stick to your plan as scheduled?

A. Actually we are still planning to construct that factory. That’s the future of Chiatura - doing what has to be done, no matter the situation, but unfortunately nothing is getting done on time in Georgia and we are in the middle of getting paperwork sorted between ministries. Basically we are stuck in the middle of getting permits, environmental and construction papers. The plan has been pushed back to 2016 but it’s still in the works.

Q. What was the impact of the GEL’s devaluation on your business?

A. The Georgian Lari’s devaluation was actually one of the problems that helped the business, not damaged it. If you ask me, personally I think it should be more devalued. I think 2,4 is not such a number if you compare it with our neighbours. One and a half years ago the GEL and Turkish Lira were 1 to 1; now the Turkish Lira is 3,1, and the GEL - 2,4. We as an exporter have interests in the currency being devalued. We actually benefit from it.

Q. In 2014 GAA was the largest Georgian exporter. Which figures are you expecting to reach this year?

A. The 2015 figure will for sure be less for 2 reasons; the price of the material export is lower, and also the amounts are getting lower as well. We should be about 65% of 2014, and in 2016 we cannot predict the price, but volume-wise we should be about 60% of 2014 as well

Q. GAA is an American company operating in Georgia. What are the main things that need to be improved to attract more US businesses here?

A. First of all, a direct flight. It is very difficult to fly from America to Georgia and I think Alitalia doesn’t fly anymore either so it’s getting a little difficult, but the good news is that Turkish Airlines has started to fly to Miami and our headquarters are in Miami which is useful for us. I think the overall climate is good, maybe what should be improved is quality of Tax and Revenue Service, the rest is fine I think.

Q. How has the business environment of Georgia changed since 2012?

A. I think in terms of the pressure. All businesses were under pressure before the parliamentary elections, and since then there has been no pressure from the Government, so it’s kind of a relief. There is less interference from the Government and I think sometimes there should be more involvement than there is now, but we have definitely got more freedom.

Q. Have you witnessed anything positive in regard to the country’s business growth?

A. It’s hard to say, but as they say - “no bad news is good news”. However, it’s hard to recall something so positive that has happened in the last 5 years that has really changed something. But the fact that the French supermarket network Carrefour came to the country makes life a little better.

What I can say about our company is that we have continued to grow. We are investing, changing things for the better. Every day we are doing something interesting. Lately we have started doing weekly news announcements on the local TV channels in Chiatura and Zestafoni where we always have something happening.

Q. Companies like GAA carry extra responsibility in dealing with environmental issues, as well as the healthcare of your employees. What can you say about CSR issues?

A. From a corporate point of view and social responsibility we try to help the community as much as we can. Both of the towns Zestafoni and Chiatura kind of depend on us a lot and we are helping everybody. For example, right now we have a project in Zestafoni with 3 private schools where we subsidise the tuition fees for the children of our workers. We also have a hospital in Zestafoni and we have a small clinic in Chiatura as well. All our workers, including their families, have insurance. People’s expenses are covered in the event of an emergency. We also have an outsourced network of food-stores. Our workers get slightly cheaper food, and also if they want they can use credit, and not have to pay straightaway. We are helping provide a water supply in Zestafoni and Chiatura. Additionally, for some villages we provide transportation for our employees to get to and from work. So there is a big list of CSR.

In regard to caring for the environment, we are trying to bring in the most western technologies possible, and I think anybody in Zestafoni nowadays doesn’t see the big black cloud that there used to be. There is a big project for Chiatura, to build a new beneficiation plant that would eliminate the water pollution that exists right now and also the recovery of the big open mines together with the Ministry of Environment Protection.

Q. What are your company’s advantages over other competitors?

A. The biggest advantage is that we have a production complex; it is a mine plant and hydropower plant which operate together. Therefore we will always have the advantage of being able to produce our own electricity and use it to make our product. Georgia has a very free economy with very low tax system, so the low tax has also been an advantage. The history of the plant is that it is 80 years old, which means we have some skilled workers.

Q. What are your expectations for the year 2016?

A. We are scared that it will be a very difficult year and as we see what’s going on with the economy, we expect it to be very difficult and we are going to have to fight for every person’s job. It’s not going to be easy, that’s for sure.

Q. What will be the key plans of GAA in 2016?

A. Besides the Chiatura beneficiation plant that we still have planned, I don’t think we will be doing much. With the cut expenses, we have to survive. When the world is pushing you to the wall that’s what you do.

Q. There are concerning results from the NDI poll showing that Russian influence over the population is growing. Is this trend reflected in the plans of American investors?

A. Russia is a part of the western world. Even though Russia doesn’t want to admit it, they use Apple products, they drive western cars, their kids are in Western schools. They couldn't live without the Western world.