The FINANCIAL -- Alliance Group Holding (AGH), which has already attracted USD 200 million for the Georgian economy, recommends developing the capital market and boosting the country’s sovereign rating in order to maintain the investment attractiveness of Georgia.
On behalf of Alliance Group Capital (AGC), Mr. Kukava talked with The FINANCIAL about the investment climate of Georgia. During the interview he gave his advice on how to retain one’s competitive edge during the challenging periods, such as now, when there is a pattern of foreign investors withdrawing from emerging markets.
Alliance Group Holding was established as an investment and consulting company in 2005. The Holding incorporates: Alliance Group Leasing; Alliance Group Capital; Alliance Group Microfinance; National Credit Information Bureau; Alliance Energy; Alliance Group Property. Alliance Group IT.
“Bringing value to the country’s economy has always been the main goal of the company. This approach is unique, rarely companies use this as a mission. We have always realised that bringing long-term value to the economy is directly linked to the company’s future solid prospects. We managed to make significant progressive impact all of the seven industries which are incorporated under our holding.”
“In regard to investment banking service, through Alliance Group Capital we managed to attract huge resources for various business fields of Georgia. We are also actively participating in different international investment forums. We do our best to introduce and promote Georgia to potential investors. Georgia has great potential to attract billions of FDI annually,” Mr. Kukava said.
However, as Mr. Kukava has said, there are some serious obstacles in the Georgian investment environment. He cited the non-investment grade sovereign rating of the country and lack of development of its capital market as the main problems.
“Development of the capital market would help to attract not only direct investments, but would play significant role in decreasing of unemployment. Thousands of youngsters would thence be involved in brokerage firms, consulting firms, investment banks, stock exchange, audit, legal firms and market research companies would benefit and increase the number of personnel as well. However, as such a prerequisite does not exist, the volume of attracted capital will always be significantly lower than the potential.”
Q. Some foreign academic professors believe that Georgia’s strong civil society, which is constantly criticising the Government, is dampening its motivation to start new projects. Can we consider this to be a valid argument and reason for why we haven’t heard about the establishment of any new investment projects recently?
A. Before presenting any business project you need to work everything out in full and find out in advance the answers to any questions that may arise. I can tell you that from the experience of our company. Over the course of nine years we had lots of projects which no one believed in. We had to hear a great deal of scepticism in that time from potential investors, partners, clients, society. However, the projects later proved to have been worth the risk. That is because we believed in their future and had already prepared responses to any questions that were thrown our way. Therefore, one has to be sure of themselves, which is useful for moving the country forward. The Government should be able to assure its citizens of the importance of any new project it initiates. Also, one should take the risks of moving in the direction he/she believes and prove that the risks were worth taking.
Q. AGC is actively cooperating with foreign investors. Which are the most attractive Georgian sectors for investing in?
We have attracted solid capital for business sectors in heavy production, transport, real estate, food production, tourism, communication, energy others. We are proud to have supported the development of these sectors. It is important that foreign investors, in addition to capital, are bringing their know-how to Georgia. It strengthens the business ability and competitiveness of our country.
Out of a total USD 200 million of attracted capital, the main part, more than 90%, is made up by foreign investors. Local banks and investors make up less than 10%. The most attractive business sectors for investors are: energy, real estate, tourism, communication, the financial sector, logistics, transport, agriculture and IT.
The Georgian energy sector has a significant potential. As well as the local market, Georgia has neighbouring Turkey, which can become its potential importer. Cheap electricity helps to develop energy intensive local production and attract more investors with know-how and modern technology.
The Georgian tourism sector has been developing from year to year. However, huge opportunities still remain for its further development. We have assisted development and finance of various projects in this direction, including infrastructure, hotels and travel agencies.
A number of investments have been issued in communication, transport and logistics. One of our partner investors has invested USD 40 million for one Georgian operator company. Our active cooperation in logistics has brought huge benefits to local companies that previously failed to attract loans from commercial banks. We are quite courageous for taking risks in this regard.
Each of the sectors mentioned has substantial growth potential.
Q. The past two years have been quite turbulent for the global economy, not only due to the Ukrainian crisis, but also the Chinese market. What has the impact on Georgia been?
A. The Chinese economic slowdown has had an impact on all developing countries. While witnessing these conditions, investors started withdrawing capital from emerging countries. At this point I do not foresee them returning to these markets in the short-term. Currently the valuations of huge global companies’ stocks has been amended and has gone down. Accordingly, many investors would prefer to invest in stocks, bonds or other developed market instruments. So, why would they therefore prefer to invest in Georgia, a country with a young government, low sovereign credit rating and threat being neighbour of Russia? All the emerging markets are our competitors today. We have to try hard to compete with them in attracting FDI. In this regard we need more activity and better-packaged investment projects in order to better position ourselves.
Q. AGC is actively supporting start-up entrepreneurs. Meanwhile, many businessmen consider this segment to be risky. What encourages you to take such risk?
A. The core direction of AGC is: managing M&A deals, fundraising and consulting projects from start-ups to grown corporations, structuring projects; and financial engineering. We aim to help companies to reduce cost of capital annually and increase capacity, expand their activity and assist them to buy or sell companies. Companies that are not focused on increase and development are destined for failure. AGC does not receive significant profit in the initial stages. On the contrary, we are taking risks. The profit comes on a later stage.
We would like to see more entrepreneurs and do our best to assist them. Start-ups mostly apply to us with their business ideas. We later transform them into a business plan and try to attract investors for them. We consider start-up ideas on a case by case basis. We do not have strict rules that they need to meet. We are motivated to support entrepreneurship. We do not want bright minds going to work for already-developed industries. There are lots of fields that are lacking human capital in Georgia.
Q. AGH is the only Georgian company which is a member of Globalscope. What does it mean to our economy?
A. AGH is indeed the only Georgian company, and third in the region, that is a member of the international M&A adviser network Globalscope. Using this network we can attract strategic investors for our clients, assist and finance mergers, dissolutions, taking out of various units, and purchasing competitors. We are unique in terms of the services we offer on the market.
In addition to that our business information subsidiary BIA, is the leading organization in Georgia to focus on developing, processing, issuing and distributing business catalogues. BIA has developed its position of leader and sole provider of accurate business information services to both foreign and local market. These services provides a solid platform for attracting new business investments. Using BIA services local companies can also get access and evaluate potential partners, over 250 million companies across the globe.
Q. How optimistic are you about the current economic conditions?
A. The current year has been quite positive for AGH. We made number of strategic decisions last year that we successfully implemented this year. We expect better numbers than last year. Diversification of our services is the main contributor to this increase.
Meanwhile, further success of our company is directly linked to the economy. We have quite ambitious plans to bring a huge amount of investments into the country. We have capacity to support transactions worth billions. The accomplishment of our plans is directly linked to the Government’s performance, increase of sovereign rating on investment credits, simplification of regulations and development of the capital markets.
Q. People were surprised by the news that AGH will be hosting Wall Street’s “Wolf” Jordan Belfort in Tbilisi. What was the reasoning behind the decision to invite this individual?
A. We are devoted to raising the literacy of people involved in business, as well as ordinary citizens. Georgians should realise that saving every day is crucial habit for being prepared for a “rainy day”. The capital should be diversified. In this regard we are regularly organize various training and master classes in Georgia. As we are witnessing some progressive steps towards the development of the capital market, we decided to invite the “Wolf” of Wall Street Jordan Belfort to Tbilisi. He will be sharing his extensive experience with the audience. Incidentally, due to the high level of interest in Belfort we have decided to hold his master class in Tbilisi’s Philharmonic Hall.
The project is being implemented in line with the CSR activities of AGH. Taking care of future generations and contributing to economic and social development forms the groundwork of any of our activities. Bringing up the new generation in line with ethical business standards is one of our main goals. In this regard we have been actively cooperating with leading universities for years. The price of admission to the Wolf of Wall Street’s master-class was determined with these circumstances in mind. The cost is unprecedentedly low therefore. A total of 677 students will be attending the seminar for the competitive price of just USD 29. We are glad to see such big interest from students. By the time the deadline for registration had passed, more than 850 students had already signed up for it. The cost of tickets for business representatives range from USD 100 to USD 250. Jordan Belfort is one of the most exclusive trainers in the world. If we look at the prices of tickets from Belfort’s previous world tours we will see that the cost stated in Tbilisi is really very reasonable. Therefore, we call upon everyone to take advantage of this unique chance and not to miss the highest rated master-class of the year being held in Tbilisi.