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Posted November 2008

Georgia on my mind

War and beer Mention Georgia, and with a few exceptions people will first think of the American state famous for peaches, Coca-Cola’s headquarters and the peanut farmer who became president. Few would have known that there is a country by the name of Georgia. Sadly but true, it took the recent Russian-Georgian war to make sure that Georgia is now firmly on everybody’s mind.

May 1968. In Paris barricades were burning. Students took to the streets shouting Egalité! Liberté! Sexualité! Or something to this effect. In Prague Soviet tanks put an end to a peaceful protest against Russian hegemony over Eastern Europe; while in Nigeria raged a bloody ethnic civil war, and the dictatorships in Latin American and Mediterranean Europe began to collapse under the pressure of democratisation. From Lagos to London and Lisbon to Lima people discussed politics and revolution. Did anyone fantasise about Georgian women? Err, no. And yet the Beatles sang their praises.  

You have to be getting on in age a bit to remember the song “Back in the U.S.S.R". If you don’t, listen to it on YouTube. Let me remind readers that it opens the White Album released in the autumn of 1968. The song describes a bad flight from the United States to the Soviet Union on board a British BOAC airplane. “I'm back in the U.S.S.R.” croons Paul McCartney, “You don't know how lucky you are boy/ Back in the U.S.S.R. / Well the Ukraine girls really knock me out / They leave the West behind./ And Moscow girls make me sing and shout/ That Georgia's always on my mind./ …/ Show me round your snow peaked mountains way down south /Take me to your daddy's farm/ Let me hear your balalaika's ringing out / Come and keep your comrade warm. / I'm back in the U.S.S.R. / You don't know how lucky you are boys / Back in the U.S.S.R.”

Obviously, the song was a parody of Chuck Berry's “Back in the U.S.A.” and the Beach Boys' “California Girls”. Alas, many Americans did not get the irony. They thought the song promoted lax morals and the evil communist empire at a time when the United States was fighting the Soviet-assisted Vietcong in Vietnam. A conservative American backlash against the song rapidly ensued, citing the song as evidence of the Beatles’ left-wing propaganda.

A flustered McCartney responded defensively: “Back In the U.S.S.R. is a hands-across-the-water-song ... They like us out there. Even though the bosses in the Kremlin may not, the kids do.” 45 years later, during a concert in Moscow, he added that back in 1968 he did not have a clue about Georgia. But it seemed like a mysterious and beautiful country then.

 

Imaginary Georgia

Actually, Mr McCartney was not alone in his ignorance. Russians, too, for centuries have nourished a romantic vision of Georgia as an exotic and far-removed place; a land of pristine beauty and noble savagery, where valiant heroes could test their mettle against obstacles both natural and man-made. Since the early 19th century generations of Russians have been convinced that the views purported by their classical literature on the Caucasus was true. If one can be blamed for this, it is Alexander Pushkin and his poem “Captive of the Caucasus” (1822), whose hero, tired of Mother Russia,”...quit the confines of his native land, and flew away to a far off strand with freedom’s cheerful apparition...” … Or its illusion. Pushkin’s hero gets kidnapped by locals, finds romance with a young maiden, and then escapes. As he returns to civilisation and his true liberation, the dejected woman throws herself into a river and drowns.

The poem inspired various other stories, operas, a ballet, books, plus a film or two--all with the same title. And it prompted thousands of restless Russians to “go south” and seek love, profit, epiphany, and adventure in the mountains.

Even during Soviet times, Georgia remained a peculiar kind of fantasy land: a place of freedom and liberation of sorts, but one that could be visited on workers’ holidays. People in the darkest and coldest corners of Siberia would dream of the “Red Riviera”, the Georgian coastline of the Black Sea, with its long sandy beaches and tropical hinterland. Thanks to Soviet tourist propaganda, cultures and their produce as diverse as the North Caucasus dance troupes with their tunics and fur hats, Georgian wine, Armenian brandy and Azeri carpets were rolled into one to become “Georgia” – or rather “the” aspirational Soviet way of life.      

November 2008. When I visited the country, three months after the brief but bloody Russian-Georgian war, Russian military vehicles were still patrolling the area around Alkhagori, outside the separatist region of South Ossetia, some 30 kilometres to the north of the capital Tbilisi. Georgia’s largest city, which had been planned for a million inhabitants, had swollen to almost two million people as impoverished farmers and desperate refugees, displaced by war and strife, sought to make a living on buying and selling everything from cigarettes to potato peelers.

The man-in-the-street went about his business as if shell-shocked, while the foreign-trained young idealists in the cafés complained bitterly about their government’s increasingly authoritarian proclivities.  

Whatever visions of Georgia we in the rest of the world could have harboured – they were shattered by Russian artillery during the eight days of war. The toll: an estimated 3,000 Georgians dead and 100,000 displaced.

The war has reminded us yet again that the Caucasus region is a theatre of complex international political tugs-of-war. For centuries, three Eurasian empires – the Russian, the Ottoman and the Persian – have vied for control over this stretch of land between the Black Sea in the west and the Caspian Sea in the east, lined by the mountains of the Greater Caucasus in the north and those of the Lesser Caucasus in the south. Hence, borders, allegiances and identities have often been on the move. Consider this: In the 13th century a kingdom called Georgia disappeared from the map to be replaced by an array of feuding kingdoms and principalities. It would take more than 100 years, from 1801 until 1921 for the Russian empire to gather them together again. Need I add “by force”?

In effect, for most of its history Georgia has been a geographical rather than a political entity. If we bear this in mind, we understand better why the cynical expression “theatre of conflicts” which is used by political commentators the world over to describe Georgian conditions, makes sense after all.

Taking the metaphor further: There are just too many people around who, after having watched a tragedy unfold, would call for an “encore”.  

Georgia, as used to be said about Northern Ireland, is a place of very long memories and very short tempers. Although the country of 4.6 million people (or 4.0 million, depending on your sources) gained independence in 1991, it has not experienced much stability or peace since. “Normal times? What’s that?” people in their thirties asked me, who remember only too well that their first post-independence ultra-nationalist president Zviad Gamsakhurdia was toppled just a few months into his job by a unholy alliance of mafia-type warlords and opposition forces. This led to the return of Eduard “turncoat” Shevardnadze - or “Shevy” as George Bush the Elder called him because he could not remember his complicated name. Having languished in Moscow without much to do, Mr Shevardnadze made the miraculous transformation from a hard-line communist to a dyed-in-the wool democrat within days – or so the rest of the world liked to believe – in order to return to his native Georgia and reclaim power, thus “crowning” his political career which had began more than 40 years previously with his long ascent through the cut-throat communist party bureaucracy.

Civil war over the secessionist region of Abkhazia broke out in 1993 and came to a halt in 1994 with the attendant flood of refugees. If people thought they would finally get a brief reprieve, they were proven wrong by the energy crises of 1995 and 1996 when electricity was so scarce that today’s twentysomethings had to do their homework by candlelight. Mr Shevardnadze’s fight against corruption was half-hearted – for example, major highways were controlled by brigands throughout his tenure – as were his attempts to expel Chechen fighters from northern Georgia where they had sought refuge. Russia responded by threatening to invade the country – both in 1999 and 2000.

As if this were not enough, Russia next began to level visa restrictions against 1.5 million or so “guest workers” from Georgia, thus endangering the USD 400 million in annual remittances (World Bank estimates) which these Georgians send home to help feed their families.

An attempt by the Georgian government to manipulate national elections in November 2003 touched off widespread protests that led to the resignation of Mr Shevardnadze. New elections in early 2004 swept U.S.-educated Mikheil Saakashvili into power along with his National Movement party. Since 2004 progress has been made on introducing market reforms and fighting corruption, but this progress has been undermined by the current government’s relapse into using authoritarian practices to bully businesses – which somewhat belies their liberal, free-market rhetoric.

And just as this country was beginning to enjoy sustained robust GDP growth of two-digit figures, Mr Saakashvili decided to aggravate the unresolved conflicts in Abkhazia and South Ossetia by engaging Russia in war.

Eventually, we will know the real course of events which led to the war. Suffice to say that this war has taught us that in this part of the world, at least, business is the continuation of war by other means. My apologies to the military theorist Carl von Clausewitz whose famous quote “war is a continuation of politics by other means” (1832) I have adapted to reflect the Caucasian reality.

 

Rewriting globalisation

It has become one of the tenets of liberalism that globalisation follows economic logic alone and has nothing to do with the nasty, politics-led imperialist practices of old. Imperialism is usually regarded as a policy of systematic domination and exploitation of one country by another country. Imperialism died its death in the trenches of Flanders in 1914. Therefore, to say that globalisation can have imperialist features turns you into one of those die-hard Marxists in the eyes of others and gets you evicted from polite academic society in no time.

However, I have come to notice that expansionist international businesses or those companies “who go international”, in business speak, are not as much removed from politics as it might seem.  

If you need proof for the claim that globalisation is imperialism in a contemporary disguise, look no further than Georgia. We will never understand Georgia and what goes on in this tiny country at the crossroads of Europe and Asia, if we close our eyes to the fact that investments by Russian businesses and “businessmeni” in Georgia have expressly been supported by Moscow’s powers-that be. It is for this very reason why Russia can simultaneously wield the carrot of FDIs (Foreign Direct Investments) and the whip of an embargo on Georgian wines and agricultural produce.  

Georgia, which is twice as large as Belgium and half as empty, is not exactly a hotspot of global alcohol production and consumption. The country’s beer output amounts to less than 700,000 hl per year. Imported beers represent 25 percent of consumption, translating into something like 20 litres of beer per capita. Bottled wine consumption is less than half a bottle per year. Which is a disgrace. After all, Georgia calls itself “the cradle of wine” (a skewed metaphor if ever there was one). We don't yet know if the modern winegrape has a single origin. But if it does, it appears that the most likely candidate is Georgia. Desiccated grape seeds, or pips, have been found there which are said to be 6,000 years old.

If bottled wine consumption in Georgia is low, home-made wine is the explanation. The jury is still out on how much home-made wine and moonshine grappa (which the locals call “chacha”) Georgians consume. Data collected by experts suggest that home-made wine production could be as high as 300 million litres. Divide that by 4.5 million inhabitants and you arrive at 66 litres per capita.

Discussing this issue with Georgians, my hosts were appalled when I boldly put forward “60 litres!” taking my lead from consumption patterns in France and Portugal. They always referred to official figures by the Ministry of Agriculture which indicate a per capita consumption of 12 litres.

It’s not that I am opinionated. But if you saw how much wine was consumed in the countryside by men – one litre per day on average plus 7 or 8 litres in the course of a Georgian feast, my figure must be considered a modest estimate. Home-made wine consumption in Tbilisi may the lower due to people drinking more vodka and beer. Yet, grapes are easily available everywhere. Or why would most Tbilisians seem to have a wine-making kit sit on their balconies?

Official vodka-consumption is four times that of brandy – aka very low. Yet the published alcohol figures cannot represent reality adequately. Otherwise all the people who told me stories of people drinking moonshine and going blind would have been telling me fibs.   

As said, in our grand scheme of things, which is the global alcohol industry, Georgia would fall through the cracks. To most analysts, the world’s beer markets and companies have already been carved up and sold. Whatever is left for purchase is insignificant and does not warrant their time and attention.

Still, I decided to take a closer look at Georgia and its alcohol industry. Call it a hunch. What has puzzled me for a while is this: Why should Turkish brewer Efes and the Russian brewer Baltika compete for dominance in Georgia and neighbouring Azerbaijan and spare no money to secure it? Why would Russia ban the import of Georgian wines and thus drive the Georgian wine industry into near bankruptcy yet condone/support/encourage – take your pick - Russian investments into the Georgian wine industry? Moreover, why would Russian corporations in the energy and transport sectors aggressively pursue opportunities in Georgia even though they would risk damages and losses during Russian warfare? Why indeed? Incidentally, Georgia’s Russian-owned electricity grid was not shut off during the August war.

Whatever your take on globalisation: the answer to these questions is that imperialism in the Caucasus is alive and kicking. You can place your money on the bet that Russia’s investments in Georgia have been politically motivated to counteract U.S. influence in the region. A bit like tit-for-tat. “You build a pipeline in Georgia and Azerbaijan? I buy the biggest brewery in Azerbaijan.” That’s how it goes. Georgia is Russia’s backyard in much of the same way Latin America has been the U.S.’s sphere of interest. To this day “business as usual” in the Caucasus can only mean one thing: the continuation of war by other means.

 

Coincidence, or what?

In February this year, Turkish brewer Efes announced that they intended to buy 100 percent of Lomisi Ltd, the leader in the Georgian beer market with an estimated market share of 42 percent. Having entered the Russian and Kazakh market, Efes was finally ready to penetrate into Georgia.

A few months later, at the Canadean Beer Conference in Madrid, Efes’ CEO Alejandro Jimenez hinted at further acquisitions in the Caucasus region. As purchases in Armenia are taboo for Turkish companies, this left pundits with only two potential targets: Azerbaijan’s major brewer, the privately-owned Baku-Castel and Georgia’s number two brewer, the likewise privately-owned Kazbegi brewery.

Yet, come May, and Russia’s Baltika Brewery said that they had come to an agreement to buy Baku-Castel. Rumour has it that Baltika was desperate to buy Baku-Castel. So desperate that they offered 10 percent on top of what Efes was prepared to pay.

You might argue: “Ok, the race is on. This is globalisation for you.” But bear with me. Baltika is not only Russia’s but Europe’s largest brewer with beer volumes of almost 36 million hl for the period January to October 2008. Each of their Russian breweries is a multi-million hl plant. In view of this, why would Baltika go after a piddly little outfit like Baku-Castel, which sells around 300,000 hl beer annually, if they had not received their marching orders from high places? Just look at the figures: 36 million hl compared with 300,000 hl.

Admittedly, beer consumption in Azerbaijan, an oil rich country of 7.5 million people, could be far in excess of the current 4 litres per capita. Baku Castel’s previous owners, the French Brasseries Internationales Holding (Eastern), had solely increased beer consumption over the years on the merit of their beer. Little money, if any, was spent on marketing or advertising their beer. Baku-Castel enjoyed the benefits of a near-monopoly in Azerbaijan’s beer market - if we ignore for a while that there are an estimated 17 or so breweries with only seasonal production and mostly vile beers.

If you need further proof of my claims that the consolidation of the Caucasus’ beverage markets answers as much to free-market reasoning as to plain old imperialist machinations – think about this. I heard it on the Caucasus grapevine that Baku-Castel is already in dire straights although the old guard only left four months ago. The best local talents are said to have left, and those left behind are struggling to cope with Baltika’s newly imposed processes and structures. Interestingly, no Carlsberg experts have been seen showing their faces around Baku. Isn’t this odd given that Carlsberg owns Baltika?

Of course, this is all rumour – or anti-Russian propaganda if you were to ask Baltika.          

In Georgia, on the other hand, Efes has been victorious in clinching a deal with Lomisi. Market observers agree that Efes has been the preferred buyer. Lomisi is Georgia’s most successful beer company. It was founded in 1992 by two Georgian families – or clans - with one brewery in Alkhagori which scraped by for years.

In 2005 Lomisi opened a brewery closer to the capital Tbilisi, at Natakhtari, which rapidly grew its capacity and output to almost 380,000 hl beer and 280,000 hl soft drinks this year, making the erstwhile 100,000 hl brewery at Alkhagori almost redundant.  

In August, production in Alkhagori came to a complete standstill. Following the Russian army’s push into Georgia proper, the Alkhagori brewery suddenly found itself surrounded by Russian soldiers and South Ossetian militia.

Efes have resigned themselves to the fact that the plant has been lost even though they have the brewery guarded by security guys. Still, no one really knows when (or if ever) the South Ossetians will retreat from the area and how much of the brewery will be left. Scrap metal is Georgia’s (and South Ossetia’s) major export.   

Efes’ executives have decided to put on a brave face: They say that this year their Alkhagori brewery contributed 3 percent to Lomisi’s beer volumes. This must be small consolation: after all, Efes paid for the brewery. And more importantly, the Alkhagori brewery provided much needed jobs. In Georgia, unemployment is high.

It should not surprise us that Pierre Castel thought he would buy a monopoly brewer when in the late 1990s he acquired the Soviet-era one million hl brewery to the east of Tbilisi which he named Castel-Sakartvelo. Lomisi was no threat back then.

At first, all seemed to go well between the octogenarian Mr Castel and his partner Prof George Topadze, 68, a former academic who in 1993 was awarded a state prize in literature and art for the book "Skiing in the Mountains" (no joke!). Prof Topadze was the director of the brewery acquired by Mr Castel, all the while having owned his own brewing company, Kazbegi, since 1994.

However, in no time Mr Castel fell out with Prof Topadze and they went their separate ways again. In retrospect, Mr Castel’s investment has not performed well. Change of management has been an almost yearly occurrence. People familiar with the situation say that the brewery has rarely sold more than 60,000 hl beer per year.

While Castel-Sakartvelo floundered, Kazbegi flourished, claiming market leadership in the early years of this decade. That’s when Lomisi’s owners decided to bring in foreign consultants. With their help, output rose to 100,000 hl beer in 2004. Expanding and modernising the Alkhagori brewery proved too expensive. Which was the reason why the owners agreed to build a new brewery at Natakhtari and take on the European Bank for Reconstruction and Development as an investor. In one year only, the brewery’s output climbed to 200,000 hl.

In the Caucasus, people automatically assume that Natakhtari’s sudden rise to riches is due to the family owners enjoying a “krysha” or “roof” (the Soviet euphemism for political protection) in the government. I cannot say how often I heard this mentioned when I talked to people about Natakhtari. Apparently, it is inconceivable to most Georgians that a company can be run successfully owing to its management expertise. But even if the allegations of favouritism or cronyism were true, it has to be added for honesty’s sake that Prof Topadze has also enjoyed some political clout as a Member of Parliament. As far as one can see he has not done too badly for himself since Georgia’s independence, given that he was a high-ranking member of the Soviet nomenklatura.

Efes’ ascent to true market dominance was supposed to be quick. In May 2008 Efes signed a letter of intent with Prof Topadze to buy his Kazbegi beer business. This would have given Efes a 70 percent market share. So far, nothing has come of this plan. Perhaps the war has made Prof Topadze change his mind. Or Efes changed their minds over the amount of money they were willing to spend on Kazbegi, whose beer sales have been tumbling this year. 

In any case, a lot has been on Georgians’ minds since August. But no one has had their plates quite as full as the Georgian wine companies. Not only has their business come crashing down after the Russians issued their embargo on Georgian wines in 2005. This year’s war also eradicated their summer sales. As if this were not enough, their own government next decided to lean on them heavily, twisting their arms so that would buy up this year’s grape harvest. Thus the Georgian government hoped to prevent the large-scale impoverisation of rural Georgia. But what about the wine companies and their tanks which were already full to the rim with unsold wines?

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