IMERETI REGION: SEEKING A VISION FOR ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 002991

SIPDIS

SIPDIS

STATE FOR EUR/CARC AND EB/TPP/ABT:TLERSTEN
COMMERCE FOR ITA/OTEXA:MDANDREA

E.O. 12958: DECL: 10/31/2016
TAGS: EIND ETRD GG
SUBJECT: IMERETI REGION: SEEKING A VISION FOR ECONOMIC
GROWTH

REF: TBILISI 02616

Classified By: Ambassador John F. Tefft, Reason 1.4(b) and (d).


1. (C) Summary. The Georgian city of Kutaisi and its
surrounding region, Imereti, are struggling to find a clear
direction for future economic growth. Regional leaders view
the city, and the region, as a transit and regional service
center for medicine, education, and trade, but seem to focus
more on past failures. Regional unemployment is about 15
percent. Local government leaders fret about the potential
economic fallout from poor Russia-Georgia relations as
approximately 20 to 30 percent of the population depends on
remittances from abroad. However, regional infrastructure
expenditures have doubled since the Rose Revolution. A local
sewing plant gives a glimpse of how, with good marketing,
Georgia could attract foreign companies with cheap labor and
proximity to European markets. The local hospital has been
outfitted with new, American-made equipment, but it
illustrates how good political connections still count in
Georgia.


2. (C) Economic and business leaders in the Imereti region
city of Kutaisi still struggle to get past the damage caused
by the post-Soviet economic collapse. Econoff visited Kutaisi
from October 12-13 to discuss with economic and business
leaders the region's economic growth prospects. Unemployment
is a high 26 percent in Kutaisi, and 15 percent in the
region, according to unofficial calculations by the Imereti
Economic Department. The average wage is only USD 85 per
month, and the region's population has decreased from 850,000
in 1998 to 700,000 now. Infrastructure improvements only
started after the Rose Revolution, and Econoff noted modest
upgrades in the roads from a visit one year ago. Almost
every meeting centered around Kutaisi's prospects as a
transit city, but it remains unclear how the city plans to
capitalize on its location. Some local leaders see Kutaisi
as a service center for all of Western Georgia in education,
hospitality, medicine, and trade. Two bright spots exist in
a successful sewing plant and a high-quality regional medical
center that looks to make money from medical tourism. The
medical center also hosts President Saakashvili whenever he
passes through the region, and is equipped so he can lead
emergency ministerial meetings. The center treated injured
soldiers from the Kodori Gorge operation in August.
Challenges for the region include a lack of skilled workers,
poor access to credit (interest rates hover at 22 percent),
problems attracting investment, obsolete equipment, and low
demand for existing production. End Summary.

Prospects for Economic Growth
--------------


3. (C) Econoff met with various economic and business leaders
in Imereti, including the region's Acting Governor, Zurab
Kajaia. In each meeting, when Econoff asked about prospects
for economic growth, the responses all centered around
lengthy historical descriptions of how badly the region has
fared since the breakup of the Soviet Union. Imereti was a
major industrial center until 1991, sending over 80 percent
of its industrial output to the rest of the Soviet Union.
When pressed about future economic growth prospects,
responses centered on Kutaisi's potential as a transit and
service center. Economic leaders see potential in food
processing and packaging, services, and cultural and
historical tourism. Local leaders see the need to improve
the infrastructure -- including establishing a Western
standard hotel -- in order to improve tourism prospects. To
that end, the region's budget for 2007 infrastructure
projects is $17 million, which is double the 2004-2005
amounts budgeted.


4. (C) Archil Pruidze of the Kutaisi Economic Department
presented us with a plan to promote the region's agriculture,
service, and tourism potential. It includes a local
government initiative to support small and medium enterprises
(SMEs) and to create a marketing bureau. The local
government plans to provide loans to local SMEs interest-free

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and will be the guarantor. However, Pruidze was unable to
explain what guarantee the local government has for loan
repayment. He expressed concern about Russia's threats to
stop money transfers to Georgia, and said that in the last
eight months, over USD 22 million was sent from Georgians in
Russia to banks in Kutaisi. He estimated that 20 to 30
percent of people in Kutaisi depend entirely on remittances.
See reftel.

A Successful Sewing Plant
--------------


5. (C) Econoff visited the successful sewing plant, Imeri,
which has contracts with various German clothing
manufacturers and also with the GoG to produce uniforms. One
German company, LEBEK, sells a woman's t-shirt in Germany for
33 euros, and pays Imeri 0.80 euros for each one. The
seamstresses make approximately USD 103 per month for a
five-day, 40-hour workweek. Working overtime can increase
the pay to about USD 125. Of the 380 employees, there are
only about 15 men, who work mainly in technical repair
positions. The company director laughed when Econoff asked
if any men work sewing products. He did say, however, that
about half of the seamstresses' husbands do not work.

Medical Center: High-tech Medical Tourism Prospects....
-------------- --------------


6. (C) Kakha Nuralidze, General Director of the West Georgian
National Center of Interventional Medicine proudly showed
Econoff around his hospital. It opened in January, and
started accepting patients six months ago. Of the 22,000
patients served, 700 were from Turkey, including the Turkish
Deputy Minister of Justice. The hospital boasts a surgical
unit for cardio, orthopedic, and neuro surgeries. The
hospital also has anesthesiology, intensive care, blood
transfusion and banking, and emergency units. According to
Kuralidze, the hospital is a leader in the former Soviet
Union and Eastern Europe, and boasted that "even Moscow
doesn't have equipment as good as ours." At times, he could
have been a sales rep for the GE and Johnson & Johnson
equipment his hospital uses, and made it clear that he
prefers the American equipment to European. Kuralidze and
his top surgeons spent time training in the U.S., France,
Germany, Moscow, and Austria. He said BP and the Red Cross
have started negotiations to use the center's services.
Total startup costs were USD 20 million. The GOG contributed
USD 4.5 million and USD 12.6 million to construction and
equipment costs, respectively. Annual operating costs are
expected to be about USD 4 million, most of which Nuralidze
said will come from the GOG central budget. He mentioned
that although the GoG will pay approximately 75% of the cost
of a patient's operation, most diagnostic procedures are paid
100% by the patient, which he says should help with
operational sustainability. The hospital boasts a 10-bed
hotel wing to house patients and their families traveling
from afar.

...And Emergency GoG Cabinet Operations
--------------


7. (C) The hospital tour took a political turn when Nuralidze
displayed the VIP wing, which houses a first-rate hotel room,
complete with a jacuzzi, adjacent to a large office with a
USD 10,000 crocodile-skin office chair. Nuralidze said
President Saakashvili uses the office and the room whenever
he passes through the region, and the Minister of Health uses
it almost monthly. Adjacent to the hotel room is a large,
fully-equipped conference room ready to be used at a moment's
notice for Ministerial-level meetings. Nuralidze expressed
allegiance to President Saakashvili's National Movement. He
boasted that the GOG's recent Kodori operation was managed
from the hospital's conference room. He said twelve wounded
soldiers came to the hospital for treatment after the Kodori
operation, two with life-threatening wounds. He then
presented a lengthy plea for the USG to help Georgia get to
NATO by 2008, which he believes would guarantee Georgia's
safety. He believes that Georgia is the United States' most

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reliable and strategic partner against Iran.

Medical Center's Sustainability is Somewhat Questionable
-------------- --------------


8. (C) While the hospital in general was clean, it is already
starting to look older than its six months of use would
suggest. Some of the public-use restrooms were missing
plumbing, were dirty, and generally unkempt. The private
patient bathrooms were not much better. Even though the
hospital prides itself on its highly trained medical staff,
basic cleanliness issues could prove to be an obstacle to
maintaining its high standards.

COMMENT
--------------


9. (C) Comment: In Kutaisi, local government and business
leaders still seem to be more focused on past difficulties
resulting from the breakup of the Soviet Union than they are
on establishing a clear direction for the economy of their
region. The sewing plant we visited demonstrates that there
is an opportunity for very profitable operations in Georgia,
based on the low cost of labor, augmented by Georgia's
proximity to Europe and recent pro-business reforms.
However, Georgia is only just beginning to market its
advantages to potential foreign investors and needs to do a
better job getting the message out. Our visit to Nuralidze's
new hospital demonstrates that political connections still
play a significant role in Georgian business. The hospital
has had a successful beginning, but it will require skillful
and dedicated management and marketing if it is to attract
the higher class clientele it desires from Georgia and
abroad. Keeping it running will be an expensive proposition
for the GOG otherwise. End Comment.

TEFFT