EurasiaNet Business & Economics - Georgia Pins Investment Hopes on Kazakhstan

BUSINESS & ECONOMICS

GEORGIA PINS INVESTMENT HOPES ON KAZAKHSTAN
Diana Petriashvili 4/17/07

Georgia is actively courting investment from energy-rich Kazakhstan in a bid to maximize the benefits from its status as a key transportation link between Europe and Asia. The Central Asian state has been showing increased interest in the Georgian market, though one Georgian observer cautions that the relationship could have consequences for already strained Georgian-Russian relations.

At an April 4 meeting with Kazakh Prime Minister Karim Masimov in Tbilisi, Georgian Prime Minister Zurab Noghaideli predicted that Kazakhstan could become Georgia’s largest investor in 2007.

Kazakh President Nursultan Nazarbayev has stated that Kazakh companies put close to $300 million into the South Caucasus state in 2006, the state-run news agency KazInform reported.

Georgian government statistics put the size of Kazakh investment much lower -- $152 million in 2006; the third largest amount after the United Kingdom and the United States � but officials’ desire for growth is no less strong.

Transportation holds center stage in this campaign. Prime Minister Noghaideli told reporters on April 5 that Georgia has proposed that Kazakhstan invest in the Baku-Akhalkalaki-Kars railway, a strategic transportation route financed by Azerbaijan and Turkey with access to Europe via Georgia. The line is expected to be operational by 2010. [For details, see the Eurasia Insight archive].

Although details were not forthcoming, the proposal would have definite attractions for Kazakhstan, which has been exploring alternative ways to Russia for shipping its oil to foreign markets. "The Caucasus corridor to Europe and the Mediterranean is becoming very important for us, and Georgia is our very active partner," President Nazarbayev said at a March meeting in the Kazakh capital Astana with Georgian President Mikheil Saakashvili, Kazinform reported.

In Tbilisi, Kazakh Transportation and Communications Minister Serik Akhmetov noted that Kazakhstan expects to ship a minimum of 10 million tons of all types of cargo per year by the Baku-Akhalkalaki-Kars railway. To handle the freight, Kazakh companies are constructing an oil refinery plant at the Black Sea port of Batumi and a wheat storage terminal at Poti, a smaller Black Sea port to the north of Batumi.

"These are private companies, and they’re keeping their eye on business development in Georgia," commented Akhmetov at an April 2 news conference in Tbilisi.

Oil and gas, agriculture, tourism and real estate are among the areas attracting the greatest interest aside from transportation, Akhmetov said. A partial ban on gambling businesses in Kazakhstan has prompted Kazakh companies’ interest in Georgian tourism, he added, calling the market’s potential "huge."

The Georgian government cites tourism as its fastest growing economic sector, and points to a string of luxury hotels planned for Tbilisi to underline the growth. The $100 million construction of a 170-room Radisson Hotel, and renovation of an adjoining square, is being undertaken by a Kazakh-owned real estate developer. Kazakh Bank TuranAlem, which owns the developer, is also rebuilding several hotels in Batumi at a cost of some $200 million, RIA Novosti reported.

But one Georgian expert is skeptical about Kazakhstan’s increasing role in the Georgian economy. The size of the overall investment is "not very significant for Georgia, especially if we consider some of the recent projects announced, like the [Baku-Akhalkalaki-Kars] railway construction plan," commented Niko Orvelashvili, an independent economy expert in Tbilisi.

The larger significance, Orvelashvili continued, is for how those investments could affect Georgia’s already strained ties with northern neighbor Russia. [For details, see the Eurasia Insight archive]. "Russia’s goal is to sell its resources [to the West] as much as possible, but we play the American game, and, thus, we seriously irritate Russia," he said.

In Orvelashvili’s view, the "American game" is a push to decrease the influence of Russia and its energy resources in Europe. "This task can be accomplished if a big transportation corridor is laid in such a way as to avoid Russia," Orvelashvili said. "The more Kazakh assets are tied to Georgia, the less they will be tied to Russia."

Gia Khukhashvili, an economist who heads the Association of Economic Security non-governmental organization in Tbilisi, named investments in oil terminals and Georgia’s port infrastructure as the most critical of future Kazakh business projects. State-run KazTransGas’ $12.5 million purchase of indebted Tbilisi gas distributor Tbilgazi and Bank TuranAlem’s $90 million purchase of a controlling share in United Telecom of Georgia, the country’s largest telephone company, are the most serious investments to date, he said.

Nonetheless, with several major firms in Georgia’s energy field controlled by Russian companies, right now "Kazakhstan cannot be considered as a strategically important investor for Georgia," Khukhashvili stated. Though Russian investment in Georgia stands at just $27.87 million for 2006, Russian firms control the bulk of shares in Tbilisi’s electricity company, run several power stations and power lines, plus are the majority shareholders in the firm, Energy Invest, that imports Russian gas to Georgia. Russian companies also own or hold sizeable stakes in manganese-producing complex Chiaturmanganumi and United Georgian Bank.

Commented Khukhasvili: "[I]nvesting in tourism infrastructure does not make you strategically important."

Editor�s Note: Diana Petriashvili is a freelance business and political reporter in Tbilisi.

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