PRINT THIS STORY:

CHANGE TEXT SIZE:

AS OIL FLOWS, POST-SOVIET GEORGIA HAS RETAIL ON ITS MIND

By Curt Hazlett

Caravans hauling silk and spices from Asia once brought prosperity to the area of the Caucasus now known as Georgia. Today, Georgians hope oil and gas will repeat the favor.

The former Soviet state is a nation in the middle, with Russia to the north, Turkey to the south and Asia to the east. Just as the Silk Road’s entrepreneurs found it to be the shortest route between markets, so do the builders of new oil and gas pipelines linking the oilfields of Azerbaijan with ports in Turkey.

The promise of petrodollars couldn’t come at a better time. The South Carolina-size country of 4.2 million is in the midst of a reform program whose backers, the U.S. government included, say they hope will transform Georgia from one of the poorest countries in the former Soviet bloc into a model free-market economy.

So far, so good — gross domestic product rose 8.5 percent in the first quarter alone. And if construction cranes are any barometer, economic success is visible also in the ancient capital city of Tbilisi, at least, where apartment buildings are rising along with two large, mixed-use projects that could redefine the country’s commerce and retail. “They are among the first,” said Christopher Peters, head of research at the Moscow office of Cushman & Wakefield. “It’s a very undeveloped city, and it has yet to attract much international attention.”

Indeed, Georgia seems to be one of the few places on earth where the major hypermarket chains have yet to gain a foothold. “No Carrefours, Tescos, Safeways, Sainsburys or Wal-Marts here, not even an Ikea,” said Nick Shavishvili, general director of CI&D Architects, one of Georgia’s leading architectural firms, in an e-mail interview. “I did hear some large Russian retailers are interested, but no evidence yet.”

In Tbilisi, where a quarter of all Georgians live, street markets still rule retail. Some are massive, like the Eliava Street market, where residents can browse for appliances, tools, building materials and car parts, and the Kidobani market at the central railway station, where clothes, electronics and books are the main offerings.

But “shopping habits are changing rapidly,” said Shavishvili. Shopping centers have opened in the city center and next to the Eliava market, and supermarkets have begin to sprout, he says. There is even a hypermarket now, a store called Good Will, in the booming suburb of Didi Digomi.

These changes have coincided with an ambitious reform program started by Georgia’s 39-year-old president, Mikhail Saakashvili, who earned a law degree from Columbia University and is fluent in five languages. Saakashvili took office after the so-called Rose Revolution drove Eduard Shevardnadze from power in 2003.

The fall of the Soviet Union left Georgia disorganized, poor and vulnerable to a rampant corruption. In fact, home rule was something of a new concept in Georgia, which had been occupied by outsiders for much of its history. The country was regularly overrun by Mongols, Turks, Persians and, most recently, Russians, before finally obtaining independence in 1991.

Saakashvili fired many corrupt officials, slashed the bureaucracy and instituted a flat tax of 12 percent to encourage more Georgians to pay. That seems to have worked, because tax revenues are now four times what they were before.

But Georgia still needed an infusion of capital from outside. Saakashvili worked hard to get financial support from the U.S., the International Monetary Fund and the European Bank for Reconstruction and Development. He has also managed to secure private capital, mostly from Kazakhstan and Turkey. Some is funding development. A survey by the Institute for Polling and Marketing, a local market research company, found that 25 million square feet of new construction was either under permit, under construction or nearing completion in Tbilisi. Of that, some 60 percent is residential, 20 percent is retail and the rest is office, says Shavishvili.

Among the biggest nonresidential projects is going up on the site of the former Hotel Iveria, where local developer Silk Road Group is joining TuranAlem, a Kazakhstan bank, to build an SAS Radisson hotel and some retail and office space. The $100 million project is slated for completion next year. In terms of size, though, that project takes a backseat to one that will occupy 17 acres along the River Mtkvari. The development, with Shavishvili’s firm as designer and Georgian firm Centerpoint as builder, will consist of over 3 million square feet of residential, retail and office space. “This is the largest single civil development in the post-Soviet history of Georgia, and I can name at least a dozen projects ranging from 50,000 to 100,000 square meters [538,000 square feet-1.08 million square feet] that are bigger than Iveria,” Shavishvili said.

The force behind Georgia’s improvement is unquestionably President Saakashvili, but recent polls indicate that his popularity is declining because of a perception that he has used strong-arm tactics to achieve his goals.

Perhaps the biggest obstacle, though, is the country’s rocky relationship with Russia. This giant neighbor to the north has voiced opposition to new energy pipelines laid across Georgia, which are allowing producers in Azerbaijan to bypass Russian territory in moving their fuel to market. The biggest sore spot has come in two northern Georgia regions — South Ossetia and Abkazia — where long-simmering separatist movements have been protected by Russian troops. Tensions have grown in recent months, and bombings and assassinations have grown frequent.

Georgia’s best hope for continued economic development may be membership in the European Union, something it has long sought. As in other East European nations, membership could bring a rush of foreign investment. But before any of this can happen, Georgia must find a way to end the violence and threat of secession in the north, Peters says.