Kitlere Kadro Varmi

1 SESSION I: 11:30 12:30 Tourism and Communications Management 1) Success of Country s Branding in Motivator of Tourism Economy Around the World and the Case of Georgia Kakhaber DJAKELI, Associated Professor, International Black Sea University (IBSU) - Faculty of Business Administration, GEORGIA Success of Country s Branding in Motivator of Tourism Economy around the World and the Case of Georgia Abstract Everyone who works in Branding of Countries should choose some main Archetypes as a desired image of country and improve countries actual face step by step to this main objective this is main hypothesis of current article, being main part of very actual problem for developing countries, having troublesome points in branding. The hypothesis of this article was established on the basis of observational study of tourists have been going to visit some strong archetype places, like Egypt, country of Pyramids and ancient knowledge with the archetype meaning of Sage, or Kazakhstan, another world, still having the image of Borat, famous movie about funny tall man visiting western civilization. The hero of Borat, with the mixed archetypes of the Jester and Lover still works well for associations and brand mantras, attracting tourists to Kazakhstan. The archetypes as a New Freudian way to understand people s motivation, established by famous psychologist Jung, seems as an interesting and colorful way in country s branding, still not studied well, but worthy to be under comprehensive research of marketing theorists, and well used by marketing professionals. The target of this article is the study of Archetypes of Georgia and some other developing countries to support wholesome country branding of Georgia and improve its chances to attract more tourists, but not only them but sustainable partners, investors, friends and connoisseurs of Georgian culture. The objective, of this article to improve branding of Georgia, to achieve exactly planned or desired brand positioning, can be won, using comprehensive approaches of marketing and branding and marketing research. As a tool of marketing research, in this article are used observational marketing research and Delphi Marketing Research Approaches. Jel: M 31 Key words: tourism marketing, country marketing, branding, tourism Introduction Today country marketing plays great role in theory and practice of country development. In past history images and attitudes built by colonial governments, occupants and struggling nations are not enough to new type of Tourism system development. New era needs much more interesting and attractive country images than it was. Especially developing countries, long period struggling under the colonial or other type of rules can show their attractiveness to world. The paper is written to clarify marketing of nations as a way to transform face of country and attract more tourists. Writing this article marketing research of Georgian country branding approaches took place. The special table was established during the working process with some focus groups. Having brainstorming with several focus groups with the idea, how to rebrand Georgian country, this special table 1

2 established in the form of matrix supported the working process as a tool of planned activities with strategic brand management. The article gives some recommendations to Georgian tourism industry developers. The identity a national face linked to the place marketing Model of identity has a lot of things from James (1890) and Mead (1934). The first principle of identity is the desire to maintain personal distinctiveness can be linked to some living place. Overall, there are two ways in which place has been related to identity. The first is what we will call place identifications. This refers to a person s expressed identification with a place, e.g. a person from London may refer to themselves as a Londoner. In this sense place can be considered to be a social category and will be subject to the same rules as a social identification within social identity theory The second way in which place has been related identity is through the term place identity, which calls for a more radical re-evaluation of the construct of identity. (Twigger-Ross and Uzzel, 1996) It is in the context of tourism that a geographic location is (or includes) a destination brand. A destination brand is defined as name, symbol, logo, word or other graphic that both identifies and differentiates the destination; furthermore, it conveys the promise of a memorable travel experience that is uniquely associated with the destination; it also serves to consolidate and reinforce the recollection of pleasurable memories of destination experience (Kerr 2006, 277). This problem has big role in business too. In introducing a collection of articles on corporate identity in their book, John Balmer and Stephen Greyser (2003) offer a useful way of looking at the field of identity studies. They suggest regarding it as inhabiting three different worlds, a triquadriorbis in their words. It begins with the narrow world of graphic design, and what they call visual identification. Graphic presentation is an important consideration in developing as well as an IMC program The second world of identity is what Balmer and Greyser (2003) called organizational identity. As they put it, this reflects the use of corporate identity in answering the question who are we. This aspect of Corporate identity addresses the internal audience of the organization The third world of identity studies is corporate identity. It seeks to answer the questions what are we? As well as who are we? (Percy, 2009). Usually distinguished identity builds some incentives and opportunities for Branding of a country. A lot of similarities business branding and Country s branding can be found. Branding actually does have some relevance to countries and the ways they present themselvesto the rest of the world, but it is a humdrum business, which doesn t begin to justify the excitement about nation branding. Countries, through their many state agencies, have numerous dealings with various professional audiences around the world,and one can certainly argue that it gives a better impression of the country if all those agencies use consistent, well-designedmaterials when they carry out their transactions. A single logo, a professional look and feel on their stationery, business cards, corporate videos, information leaflets, communiqués, press releases, websites, and so forth, undoubtedly reinforces the impression of a well-organized, modern, self-respecting state with effective and efficient structures, processes, and mechanisms (Anholt, 2006). Country branding approaches actually are not new. During past time countries were building their image only through some other stimuli. Some countries around the world tried firstly to establish their visual identity and spread some awareness about them around the world. Especially through coins, and other exchanging values, countries, states and their leaders, were building their visual identity. In the example of Georgia it was a currency. Picture 1: Coins of Georgian King Bagrat IV

3 Description of the coin: GEORGIA, Kingdom. Bagrat IV AR Dram (1.84 g, 12h). Struck HA ΓI A O KOC ("The Holy Th[eoto]kos" in Greek), nimbate facing bust of the Virgin Mary, orans / Georgian "+God preserve Bagrat, King of the Abkhazians, Sebastos", in margin and continuing in central field. Kapanadze 46; Dobrovolsky -; Lang p. 19. Good VF, strong strike. One of the great rarities. Bagrat followed his father Giorgi I to the throne of Georgia at the age of nine, and his reign was a constant struggle with opponents seeking the throne and expansionist Byzantine emperors. Bagrat saw off two pretenders from other branches of the royal family, but the Duke of Kldekari, Liparit, was a constant thorn in his side, and in 1051 Bagrat had to flee to Constantinople, seeking Byzantine neutrality while he returned to deal with Liparit. Liparit fled in 1058, but only a few years later Georgia faced a greater threat the Seljuq sultan Alp Arslan who ravaged southern Georgia in a series of raids. Bagrat IV died in 1072, having fought the Seljuqs to a draw and preserved Georgian unity and independence. Source: Georgian State Museum. Activities to Country s rebranding to make it a destination for tourists The world consists from symbols, signs and sounds making humans to remember them. Larry Percy in his book Strategic Integrated Marketing Communications writes about two types of brand awareness: recognition and recall. The first one appears when person has some brand awareness but this sleeps in her/his mind and appears in the moment of recognition. Meaning that person recognizing some brand among others according some information slept in his mind. In such situation person firstly recognizes the brand and only after that he/she has some category need, or simple need to product. But in Recall Brand Awareness, person has already category need, for example demands interesting sea journey, and after that recalls about carnival cruise. The recall brand awareness is really better than recognition one. According to this type of Brand awareness, marketers of a country must be very active in identity innovation. Countries and Nations making their legislation, law, public administration, type of rules and court comfortable for citizens neighbors can increase its brand equity. One of very interesting rebranding took place in Lichtenstein. The monarch of this country hired marketing company and established the priorities of desired identity. They wanted distinct image for their country built on the better tourism, business, educational and cultural opportunities (Nokodemska-Wolowik, 2006). Previously the marketing research was made. According the research results 25% of citizens considered improvement of the image of the country as a top priority. The introductory point of this project was following six main features verified in this research: dialogue, finance, industry, home, nature, and principality. The image being constructed on the identity shows that it should be linked to positive feelings of accommodated persons. For example this city identity represents a distinctive life style usually coupled with a strong positive affect with regard to that lifestyle. Some people therefore, seem to use a place related self-referent in order to present themselves as distinct from others (Twigger-Ross and Uzzel, 1996). In one sense, despite all the mystique and complexity surrounding the concept of nation branding, the basic principle is actually a very simple one, and it comes from marketing: the consumer wants to know what s in it for me? (Anholt, 2007). Rapid advance of globalization means that whatever countries try to pull in (investors, aid, tourists, business visitors, students, major events, researchers, travel writers, and talented entrepreneurs) and whatever countries try to push out (products, services, policies, culture, and ideas) is done so with a discount if the country s image is weak or negative and at a premium if it s strong and positive (Anholt, 2007).Special Nation Brand index was established.conducted annually, the Anholt-GfK Roper Nation Brand Index examines the image of 50 nations. Each year, more than 15,000 adults aged 18 and up are interviewed online in 20 core panel nations. The Anholt - GfK Roper Nation Brands Index looks at a country s image by studying six dimensions of national competence: Exports, Governance, Culture, People, Tourism, and Investment and Immigration. This gives the picture of the country s reputation. Georgia as we know has some soviet inheritance. Under socialism, brand was almost by definition an attributeof goods from the Imaginary West (Yurchak, 2006).Hence, the category of indigenous brand would appearto be a contradiction in terms, unless such goods can beshown to have a dual lineage that is both Georgian and Western. According the vision of Mr. Saakashvili, Georgia started to turn into big reforming, reconstruction and renovation place: Georgia had undertaken economic reform program that has transformed the country's economy in following areas: Improved rule of law & property rights Minimal state fiscal footprint Few, low and flat taxes Minimal social security burden on businesses Lean and efficient civil service sector - providing value for taxpayers' money Limited government 3

4 Deep de-regulation Dramatically minimized and simplified licensing Aggressive privatization Flexible labor market, with minimal state interference in employer employee relations Sound money - inflation targeting Means-tested, focused state assistance to the poor Free trade, no customs tariffs or non-tariff barrier Health Insurance for poor population financed by government Reforming stage was encouraged by reconstruction and construction and renovation stages: New Parliament building was established in Kutaisi.During the reforms the new vision of Saakashvili, to make Georgia as a best resort place in black sea region appeared. President of Georgia had also some branding visions to some particular Cities. For example he wanted to make Batumi, as a Las Vegas of Black Sea. South Georgian cities were rebuilt in Kakhety, and some of them with some use of marketing. Especially little town Signagi, was established as a rest place and a wine center. Signagi, also were repositioned as a city of love. The auto roads from west to east and from north to south were constructed and some of them reconstructed. The centre of Tbilisi, capital of Georgia, Mtskheta-oldest capital of Georgian Kingdome, Batumi and a lot of other places were rebuilt. In The castle of Jakeli Family (in Akhaltsikhe RABATI) was reconstructed and admirably represented as a new brilliant image of Georgia. The vision of President, without special branding project has been implemented as a new objective. What kind of new identity, brand awareness, image, or even reputation the country received from these huge spending for reconstruction and rebuilding? Working on this article, special focus group marketing research was undertaken. 3 focus groups with eight persons were gathered during which we were speaking about past, current and future, desired images of Georgia. A lot of interesting facts appeared in this focus group sessions. We all together once again understood that we are Georgians, oldest followers of agricultural economy but today we have lost the understanding to relevance to our past archetypes. sustainable economic and social life. Problem solving country Strong, sustainable Country of Clean energy, organic agricultural products and great mountain resorts with healing water, wine motherland Top level awareness for some unique characteristics Trustful, hardworking, respectful, improving, Motherland of wine Strong and confident 4

5 Reputation Slogans or aphorisms Tamar I, Georgian Shrift, writing, Christian Culture, Worriers for independence Strong and trustful soldiers, agricultural workers, tolerant and good partners, great wine makers, steel makers. Georgian sword makers Sword of Messiah players, smart old boys, Stalin was Georgian. Almost no reputation who best are, are Georgians Looser, something between loose and success. Reputation of Revolutions and stress Almost no slogan what matches to current Georgian situation Hardworking to restore its own economy and social facilities Like polish creative tension Georgian can have as a slogan creativity will save us Intellectual, Trustful, honest, good neighbor and friend with good organic products Creativity will save us The table above shows the structure and the frame of Georgian brand, what it was and what it can be in future. If future Georgian government undertakes country rebranding activities, they should recognize that the historical frame of Georgian past period positioning and identity can be well used also in future. Some other relevant topics, as recommendations, can be seen from this Matrix of Georgian Rebranding: - To improve their brand, Georgians must restore their oldest reputation of Strong and trustful agricultural workers and good soldiers, tolerant and good partners, great wine makers. Partly this happens hence Georgian military units, successfully participating in different UN missions in Afghanistan, having reputation of best soldiers. But to agricultural business Georgians less effective. - For future archetype of Georgian nation as a big desire can be some mix of Sage and Warrior, hence history shows that warrior archetype mixed with Sage brings big chances for peace. If desired archetype is known branding process can be easier. - In rebranding of Georgia, professionals should be very sensible and attentive to Christian, orthodox values, and also to some values of multinational communities in Georgian landscape, and hence religious and national values are frames what should be respectfully involved into new modernization. - As a desired positioning country can choose Strong, sustainable Country of Clean energy, organic agricultural products and great mountain resorts with healing waters hence Georgia has great ground to be clean energy country using hydro resources, Mountain Rivers, energy of winds and some other resources. - Having mentioned in encyclopedias as a country of wine motherland Georgia must well use such a gift of Lord God, to recreate its own importance as a country where the wine was born and establish it as an umbrella brand over other Georgian products, healing mineral waters and great Georgian soil. Having worked with several focus groups with the idea, how to rebrand Georgian country, the table established in the form of matrix supported the working process as a tool of planned activities with strategic brand management. Undertake this first try in Georgian rebranding theory, I hope this direction of brand management will growth, attracting more marketing scientists and professionals taking into consideration rebranding theories from other nations and countries. This new face of Georgia, will attract tourist, especially those tourists coming to the country to taste its clean environment, green areas, health lifestyle, clean water and a food. Bibliography Anholt, S. (1998) Nation-Brands of the Twenty-First Century. Journal of Brand Management 5, no. 6, pp Anholt, S. (2007).Competitive Identity: New Brand Management for Nations, Cities and Regions, London, Palgrave Macmillan. 5

6 Anholt, S. (2010).Places: Identity, Image and Reputation, London, Palgrave Macmillan. Anholt, S. Anholt-GMI Nation Brands Index, 2006 Q4 General Report Nation Brands Index. Available at: Balmer J., Greyser S. (2003) Revealing the Corporation: Perspectives on Identity, Image, Reputation, Corporate Branding, and Corporate-level Marketing: an Anthology Selected and Interpreted Kerr, G From destination brand to location brand. Brand Management 13 (4 5): Breakwell, G. M. (1986). Coping with Threatened Identity, London, Methuen. Clare L. Twigger, R., &UZZELL, D. L. (1996). Place and Identity Processes,Department of Psychology, University of Surrey, Guildford, GU2 5XH, U.K. Journal of Environmental Psychology 16, /96/ $18.00/0, Academic Press Ltd Jorge de, Vicente. (2004).State Branding in the 21st Century, Master of Arts in Law anddiplomacy Thesis. Manning, P. &Uplisashvili, A. (2007). Our Beer, Ethnographic Brands in Post socialist Georgia.American Anthropologist, vol. 109, issue 4, pp , ISSN online ISSN C_ 2007 by the American Anthropological Association. Manning, P. (2006)The Epoch of Magna: Brand Totemism and the Imagined Transition/Translation from Socialism to Post-socialism in Georgia. Paper presented at the Society for Cultural Anthropology Meetings, Milwaukee, May 5 6. Nokodemska-Wolowik A. M. (2006). Flag Brands as a factor and result of a country Identity and Image Polish Experience, Pechvnia 2, pp Percy, L. (2009).Strategic Integrated Marketing Communications, Amsterdam, London. Wells, L. T. Wint,& Alvin, G. (2001). Marketing a Country: Promotion as a Tool forattracting Foreign Investment. World Bank Yurchak, A. (2006).Everything Was Forever, until It Was No More: The Last Soviet Generation. Princeton, Princeton University Press. Internet Sources: Classical Numismatic Group at: 6

7 2) Hotel Market Development Experience of Central Asian Countries to Asian Countries Abbas SHERMUKHAMEDOV, KH, Rector, AT, Prof. Dean of International Relation of Tashkent branch of Russian Economic University, UZBEKISTAN Experience of development of the hotel market of the Asian countries for the countries of the Central Asia The hotel market of Asia promptly grows, for example, in 2011 Asia had over 3 million numbers (14 % of world hotel fund), as it is known, the increase in growth of numbers was prevented world financially by an economic crisis. Rates of its growth in 2-3 times exceed среднемировые rates and reach % a year that deduces this continent on dynamics of growth in modern leaders. The basic areas where growth of the industry of hospitality of Asia (- South East Asia concentrates), the Near East and Southern Asia. The increase in a stream of tourists to South East Asia and Pacific region occurs at the expense of arrivals in China, Japan. The hotel economy in this region develops in 3 times faster, than as a whole in the world. However even at so high rates of development, the share of the given region in a world hotel economy makes only 11 %. The Near-Eastern region to the XXI-st century beginning on rates of increase in a tourist's stream became the leader. Tourists and pilgrims have from every corner of the globe directed in the historical and bible places connected with terrestrial life of Jesus Christ. However the Palestine-Israeli conflict has actually stopped a stream of tourists to Israel. Nevertheless the general indicators of growth of tourist's streams impress (in ,1 million against 14 million persons in 1996). These successes it is possible to charge to Arab Emirates, Qatar, Bahrain, Jordan, Iran. In the Asian countries growth of hotel chains has started to increase despite world financial and economic crisis. The characteristic of the largest hotel chains of Asia (among 150 worlds largest) is resulted on fig. 1 and Shangri-La Hotels & Resorts Jin Jiang Int l Hotel Mgmt. Corp. Prince Hotels Tokyu Hotel Management Co. JAL Hotels Company Ltd. ANA Hotels Fujita Kanko Washington Hotel Corporation Raffles International Sunroute Company Ltd. APA Hotel Ltd. Hankyu Group Kokusai Kogyo Hotel Group Taj Hotels, Resorts & Palaces Cham Palaces & Hotels Jianguo International Hotels Ltd. Okura Hotels New Otani Company Ltd. Mandarin Oriental Hotel Group Fig. 1. The largest Asian hotel chains by quantity of hotels entering into group, 2009 Number 150 of the largest hotel chains of the world includes 19 Asian chains, the great bulk from them is Japanese and Chinese. 7

8 Количество номеров Shangri-La Hotels & Resorts Jin Jiang Int l Hotel Mgmt. Corp. Prince Hotels Tokyu Hotel Management Co. JAL Hotels Company Ltd. ANA Hotels Fujita Kanko Washington Hotel Corporation Raffles International Sunroute Company Ltd. APA Hotel Ltd. Hankyu Group Kokusai Kogyo Hotel Group Taj Hotels, Resorts & Palaces Jianguo International Hotels Ltd. Okura Hotels Cham Palaces & Hotels New Otani Company Ltd. Mandarin Oriental Hotel Group Fig. 2. The largest Asian hotel chains on number of numbers entering into group, 2009 The largest national networks of Asia enter in 3-4 ten world leaders. Jin Jiang Int l Hotel Mgmt. Corp. Occupies 35 place in a world rating, this chain possess 120 hotels and rooms. The basic part of hotels of this chain concentrates in East and South East Asia. Hotel chains Prince Hotels, Tokyo Hotel Management Co. Both Shangri-La Hotels and Resorts enter into fourth ten in a world rating of the largest hotel chains of the world. These chains have from 40 to 90 hotels and number of rooms hardly more than 20 thousand for each group. As a whole the Asian hotel chains occupy the bottom part of a world rating, essentially conceding to the American and European hotel chains. So, the largest European chain operates in 30 times big number of hotels, than the largest Asian, and in comparison with the largest American hotel chain the Asian concedes in 60 times. However, rates with which develop hotel chains of Asia, therefore in the long term it is possible to predict that soon Asian hotel chains on the basic indicators will catch up European and American. Analyzing indicators of the largest Asian hotel networks it is possible to notice that the domination, one or several chains as it occurs in Europe and America here is not marked. The Asian market still develops, therefore, is characterized by fast mobility and variability. On the countries the characteristic of quantity of the largest (TOP-200) national hotel chains is spent on fig Япония Китай Индия Сингапур Сирия Таиланд ОАЭ Израиль. Fig. 3. Quantity of national hotel chains (2009) Four hotel chains function in China and on one national hotel chain in 6 countries of Asia. Good rates hotel chains - Australia (Ridges Hotel), New Zealand (Stamford H&R), South Korea (Hotel Lotte Company), Indonesia (Sahid Group of hotels), Malaysia (Hotel Equatorial), and India (Oberoi) develop, etc. As well as in Europe, by the best possibility for the international companies to be fixed in this market acquisition or cooperation with local chains and the companies is, such as Asia Pacific, Mandarin Oriental Hotel 8

9 Group, Shangri-La, etc. However, coming on the local market, hotel groups practically always from zero erect new buildings of hotels. A number of factors brakes activity of foreign investors: high level of taxes, difficult bank system and political instability in some states of Asian-Pacific region. Other large Asian hotel chains: Amari Hotels and Resorts - 15 hotels on Thai resorts and country big cities, APA Hotel - 52 hotels in Japan, Dusit Hotels and Resorts - 18 hotels with restaurants in Thailand, on Filipinas, in Myanmar and the United Arab Emirates, Evergreen International Hotels - have 9 modern hotels, 5 from which are on Taiwan, Ginger Hotels - offers hotels in 8 cities of India, Jin Jiang Hotels hotels in China. Taj Hotels, Resorts and Palaces has opened the first hotel in 1903 in Bombay. Since then, on an extent already more than centuries company Taj Hotels Resorts and Palaces constantly improves the art of hospitality. All hotels constructed in the western style. Now Taj by right it is considered one of роскошнейших and the largest hotel chains of Asia. It includes 77 hotels in 40 cities across all India and 16 hotels behind its limits: in Australia, Great Britain, the USA, and Africa and in the Near East, Mauritius, Maldives Islands, in Sri Lanka, Butane and Malaysia. Considering modern lines in international trade and tourism development, will easily foresee in what direction to develop the international hotel corporations. It is expected that the tourist stream in the countries of Pacific region will increase in the same scales, as during the last years. In this connection development of resort hotels in Indonesia, Malaysia, Thailand, Vietnam is planned. So, already leaders of the world hotel industry on rates of increase of hotel fund are such Asian countries, as Turkey, China, Malaysia, and Singapore. Thus, the Asian hotel chains develop, but, on the basic indicators they concede to the European and American hotel chains. Japan and China have the most developed national hotel chains, other countries lag behind. The greatest concentration of world hotel chains in Asia is marked in South East Asia and in the Near East. Considering high rates of increase of the industry of hospitality of Asia, at these region good prospects for development of national hotel chains. As a whole the national hotel chain promptly develops in Asia, but, basically this while the market is occupied with the European and American chains. Today in Uzbekistan function 359 hotels offering a high quality degree of service, and hotel houses for those who prefers a house cosines and simultaneously wishes to get acquainted with way of life of our people more close. Hotels, "Afrosiab-oriental carpet", "Bukhara-oriental carpet", «the Grandee Bukhara», «Shahrisabz star», "Registan" and other hotels отвечают answer to the world standards. Given privileges for foreign investors and businessmen in the country, especially in sphere of the international tourism, have drawn attention, both large hotel networks, and the small firms which are carrying out management of hotels. As result - prompt development of a hotel economy which replenishes with new objects. This year in Termez the new hotel «Silk Road Termez» is put in operation. Erected taking into account norms of modern architecture and national traditions of architecture, the hotel has all conditions for rendering of services at level of the world standards. Services the professional guide-translator here renders to foreign visitors, in their order there is a sauna, pool and a fitness studio. Man's and female beauty salons, a dry-cleaner operate also, high-speed access to the Internet is given. With introduction in a system of new hotel it has been employed an order of 20 persons. As a whole in the Surkhan-Darya area reconstruction of a hotel complex on the basis of private enterprises «Navruzbek Maftun Sevinch», "Meridian", "Premim-prof", "Shark" is till the end of the year planned. Also building of two new on 30 places and 25 places of hotel economy is planned. By a present tourist season the new hotel has appeared and in Samarkand.«Sogdiana Plaza»has been constructed at the expense of Open Company means«sugdiona golden tour»and calculated on 56 places. In it there are numbers lux, a bar-restaurant, a conference hall and other conveniences. Building of new hotels proceeds and in the Ferghana area. According to corresponding program of the further development of tourism and expansion of scale of tourist services to 2015 this year in Kokand the new hotel will be entered. In immediate prospects in Ferghana reconstruction of hotels "Dustlic", «Farghana "and" Shark»will be finished. And the tourist route across Margelan will replenish with new object - the Center of national workmanship. As a whole on the country building of 77 hotels and other similar means of placing, creation of 90 objects of tourist display, 70 objects of service of tourists, acquisition of 50 buses new more and minibuses for service of travelers is till the end of the year provided. For the countries of the Central Asia is to that to learn at the countries of Asia in the field of the hospitality and tourism industry. The literature 1. Filippovskij E.E., Shmarova Л.В Economy and the organization of a hotel economy. -М: the Finance and statistics Harris Г, Katz K.M. Stimulation of the international tourism in the XXI-st century. - М: the Finance and statistics, Chudnovskij A.D., Zhukov M. A. Management in tourism and a hotel economy. М: Knorus, Yurkin N.A. Introduction to a specialty «Welfare service and tourism». Manual. - М: GINFO

10 3) Creation of Tourism Information Training Center Yelena TOKAREVA, MBA, lecturer of Economic Sciences, faculty of Economic and Management, Turar Ryskulov Kazakh Economic University, KAZAKİSTAN Creation of Tourism Information Training Center Abstract Purpose - to analyse the information support organisation in tourism and to develop offers on creation of information centres. Methodology - methods of the system-structural and retrospective analysis, and also comparison and experience generalisation are used. Originality/value. Results of research can be used for creation of tourist information system, for the purpose of advancement of local tourist's products on the international market. Findings Thus, the organisation of work of the tourist information educational centre will allow to use more effectively available Almaty tourist potential, to recover the tourist market, to strengthen material resources, to reduce deficiency of qualified personnel and to get necessary support of development of tourism from party Akimat of a city of Almaty. Actions advertising-information support include: creation of information databanks and formation The Tourist Information Educational Centre at KazEU of T.Ryskulova for the purpose of formation of an image Almaty as the region favorable for tourism, preparation and the edition of the information-advertising catalogue about possibilities of the tourist market of a city, participation in the organisation and carrying out of the international and domestic tourist exhibitions; proforientacion work and educational base for students. The planned measures will promote expansion of inflow of foreign tourists and formation of an optimum parity of export-import transactions in tourist balance. At the expense of increase in incomes of realisation of rekreatsionno-tourist services and the interfaced branches of service budgetary receipts will increase. Performance of tourist projects, work The Tourist Information Educational Centre and actions will bring the essential contribution to structural reorganisation of training of students of a speciality«tourism». Keywords - information technology, the tourist information educational centre. Введение. С точки зрения технических достижений, компьютерная революция в сфере туристского бизнеса Казахстана превзошла все ожидания. С точки зрения экономических затрат на внедрение компьютерных технологий, нужно отметить, что в каждой компании выделяются различные средства на данные цели. Успех в применении компьютерных технологий не связан однозначно с уровнем расходов на них. Некоторые компании считают подобные расходы неоправданными; другие, наоборот, делают большие расходы, используя в работе новейшее программное обеспечение. Результаты анализа показали, что с точки зрения прибыльности, компьютеризация почти все компании сталкиваются с реальными трудностями. Большинство агентств уже успешно компьютеризировали основную часть их рутинного делопроизводства и форму ведения бухгалтерского учета. Многие руководители туристских агентств отмечают, что компьютеры оказали сильнейшее влияние на ключевые действия компаний. Практика показывает, что создание различных информационных систем может обернуться значительными прибылями для компаний, даже при высоких затратах на эксперименты. Но не следует внедрять программу в свою систему управления, предварительно не взвесив все факторы, включая стоимость обучения и переподготовки персонала или оценку степени риска при применении новшеств в областях, где выявлена наибольшая эффективность применяемого программного обеспечения. Как уже было сказано, электронные сети являются важным каналом передачи информации, к которому прибегают все больше организаций. Однако туристские предприятия по-прежнему далеко не полностью используют все возможности, которые предлагает электронная сеть. В отличие от традиционных туристских информационных систем (GDS), электронные сети уже доступны всем категориям потребителей и туристских организаций. Применение электронных сетей может приблизить потребителя к предложению, обеспечивая быстрый дешевый, организованный, двусторонний, прямой и независимый информационный канал. У Казахстана есть прекрасная возможность перекроить туристскую карту мира, поскольку традиционные места отдыха успели несколько поднадоесть путешествующим людям. У нас 10

11 безграничные возможности для развития экоприключенческого туризма, стремительно набирающего популярность среди иностранцев. Впрочем, самым лучшим карт-бланшем располагает Алматы и Талдыкорганская область. Это международный аэропорт, уникальные ландшафты, составляющие 20 процентов всего туристско-рекреационного потенциала страны, и 3/4 туркомпаний страны, сконцентрированных в южном мегаполисе. Правда, пока ещё туризм в Казахстане не стал статьей национального дохода, и Казахстан даже не входит в сотню мировых держав туризма. Главную роль в привлечении туристов играют и государство, и турагентства, и транспортные услуги, и гостиницы. Но если мы хотим вывести нашу страну в разряд туристских держав, то этой идеей должно проникнуться всё общество. Для продвижения туристского продукта турфирмы создают свои сайты в Интернете, осуществляют прямую рассылку рекламно-информационных материалов по электронной почте. Успешно работают глобальные системы бронирования. Популярными становятся электронные каталоги. Разрабатываются программные системы автоматизации туристского бизнеса. Информация и скорость ее предоставления являются ключевыми в списке факторов конкурентоспособности предприятия. Основная часть исследования. Информационные технологии сегодня играют исключительно важную роль в обеспечении информационного взаимодействия между людьми, а также в системах подготовки и распространения массовой информации. Эти средства быстро ассимилируются культурой нашего общества, так как они не только создают большие удобства, но снимают многие производственные, социальные и бытовые проблемы, вызываемые процессами глобализации и интеграции мирового сообщества, расширением внутренних, и международных экономических и культурных связей, миграцией населения и его всё более динамичным перемещением по планете. В дополнение ставшим уже традиционными средствам связи (телефон, телеграф, радио и телевидение), в социальной сфере все более широко используются системы электронных телекоммуникаций: электронная почта, факсимильная передача информации и другие виды связи. Устройство туристской отрасли очень похоже на организацию любой другой экономической сферы деятельности (рисунок 1) [1, c. 44]. Правительственные органы Туристские ассоциации Международные ассоциации Информация Регулирование Содействие Информация Регулирование Содействие Информация Регулирование Содействие Поставщики услуг Авиакомпании Гостиницы Услуги на месте Туроператоры Туристы Рисунок 1 - Структура туристской отрасли Турагенты Анализ рисунка 1 показывает, что туризм - информационно насыщенная деятельность. Существует немного других отраслей, в которых сбор, обработка, применение и передача информации были бы настолько же важны для ежедневного функционирования, как в туристской индустрии. Однако выделяется одна особенность - связующим центром, удерживающим различных производителей в 11

12 рамках туристской отрасли, является информация. Именно информационные потоки, а не товары обеспечивают связи между производителями туристских услуг; они идут не только в виде потоков данных, но выступают также в форме услуг и платежей. Услуги, например, ночевка в гостинице, аренда автомобиля комплексные туры и места в самолетах, не пересылаются турагентам, которые, в свою очередь, не хранят их до тех пор, пока не продадут потребителям. Передается и используется информация о наличии, стоимости и качествах этих услуг. Точно так же реальные платежи не переводятся от турагентовтурпоставщикам, а комиссионные - от турпоставщиковтурагентам. На самом деле переводится информация о платежах и поступлениях (рисунок 2) [1, c. 63]. Авиакомпании Гостиницы Продукция: воздушные перевозки Информация о ценах, времени прибытия и отправления, наличии мест, Продукция: ночевки в гостиницах Информация о ценах, классе, размещении, наличии мест, обслуживании Доходы и информация Информация, услуги, комиссионные Доходы и информация Информация, услуги, комиссионные Турагенты Продукция: розничный продавецраспространитель информации от авиакомпаний, гостиниц и туроператоров консультации Резевирование мест в гостинице Доходы и информация Информация, услуги комиссионные Туроператоры Продукция: пакетированные туры, информация о месте пребывания, продолжительности остановки, времени прибытия и отправления, цены, компоненты отдыха Доходы Авиабилеты Туристы Рисунок 2 - Информация как связующий материал туристского бизнеса Анализ рисунка 2 показывает, что можно выделить три характерные черты туризма. Во-первых, это разнообразная и интегрированная торговля услугами. Во-вторых, это комплексная услуга, как с точки зрения производителя, так и потребителя. Наконец, этоинформационно насыщенная услуга. Поэтому туризм - как международный, так и внутренний, - сфера растущего применения информационных технологий [2, c. 80]. Система информационных технологий, используемых в туризме, состоит из компьютерной системы резервирования, системы проведения телеконференций, видеосистем, компьютеров, информационных систем управления, электронных информационных систем авиалиний, электронной пересылки денег, телефонных сетей, подвижных средств сообщения и т.д. При этом необходимо отметить, что эта система технологий развертывается не турагентами, гостиницами или авиакомпаниями каждым в отдельности, а всеми ими. Более того, использование каждым сегментом туризма системы информационных технологий имеет значение для всех остальных частей. Например, системы 12

13 внутреннего управления гостиницей могут быть связаны с компьютерными глобальными сетями, которые обеспечивают, в свою очередь, основу для связи с гостиничными системами резервирования, которые, уже в обратном направлении, могут быть доступны турагентам через их компьютеры. Следовательно, мы имеем дело с интегрированной системой информационных технологий, которая распространяется в туризме. Из вышеизложенного становится ясно, что в туристской индустрии распространяются не компьютеры, не телефоны, не видеотерминалы сами по себе - здесь функционирует система взаимосвязанных компьютерных и коммуникационных технологий. Кроме того, отдельные компоненты туристской отрасли тесно взаимосвязаны друг с другом - ведь многие турпроизводители вертикально или горизонтально вовлечены в деятельность друг друга. Все это позволяет рассматривать туризм как высоко интегрированную услугу, что делает его еще более восприимчивым для применения информационных технологий в организации и управлении. Сфера туризма является одной из наиболее быстро развивающихся отраслей экономики многих государств. Туризм сегодня - интеллектоемкое и информоемкое производство услуг, что во многом связано со спецификой деятельности современной турфирмы. Огромный массив разнообразной информации, ее подбор и отбор, хранение, обработка и передача являются ключевым фактором развития и деятельности любого туристического предприятия. Именно поэтому успех в современной туристической индустрии - это умелое использование новейших ИТ при создании, предложении и продвижении туристического продукта [3, c. 52]. Сегодня ИТ являются одним из главных факторов повышения конкурентоспособности турфирмы. Основными направлениями применения ИТ в деятельности туристической отрасли и каждого отдельного туристического предприятия являются использование специализированных программных продуктов и возможностей глобальных компьютерных сетей. Сегодня в индустрии туризма нашли широкое применение современные ИТ в сфере бронирования, резервирования, интегрированные коммуникационные сети, системы мультимедиа, SmartCards, информационные системы менеджмента и др. [4, c. 64]. Но главенствующее влияние на развитие туристического рынка оказывают технологии продвижениятуристических продуктов и услуг, т.е. маркетинг и реклама туристических предприятий в сети Интернет. Представленность (самопрезентация) компании в Мировой сети обеспечивает туристическому пред приятию возможность расширения потенциальной клиентской базы. Туристские информационные системы - еще один вид ИТ, который позволяет осуществлять ввод, редактирование и хранение информации о турах, гостиницах, клиентах, о состоянии заявок. Эти системы работают с различными типами электронных документов - с анкетами, ваучерами, списками туристов, описаниями туров, гостиниц и т.д. Информационные системы данного типа производят расчет стоимости туров с учетом курса валют, скидок, контролируют оплату туров, формируют финансовую отчетность, осуществляют экспорт-импорт данных в программные продукты Word, Excel и т.д. Автоматизация и широкое применение электронной техники становятся одной из актуальнейших задач в отрасли туризма. Создание мощных компьютерных систем бронирования средств размещения и транспорта, экскурсионного и культурно-оздоровительного обслуживания, внедрение новейшей технологии в сферу туризма, информация о наличии и доступности тех или иных видов поездок, маршрутов, туристского потенциала стран и регионов - весь комплекс этих вопросов с учетом развития интеграционных процессов ставится в повестку дня текущей и будущей деятельности Всемирной туристской организации. Казахстан, являясь действительным членов ЮН ВТО, к сожалению не так известен как туристское государство как того предполагает потенциальные возможности предоставляя разнообразные виды туризма познавательный, развлекательный, этнический, экологический, оздоровительный, детский, спортивный, охотничий, конный и приключенческий. Для туристов предлагается более 700 маршрутов путешествий по всей территории Казахстана. В начале XXI века туризм в РК впервые определён как отрасль экономики. Постановлением Правительства была принята «Программа развития туристской отрасли на годы». Главная цель Программы - создание современного высокоэффективного и конкурентоспособного туристского комплекса, обеспечивающего широкие возможности для удовлетворения потребностей казахстанских и иностранных граждан в разнообразных туристских услугах, разработка экономических и правовых механизмов развития отрасли и реализация мер на государственном уровне по обеспечению качества турпродукта Казахстана, как привлекательного туристского объекта, национального турпродукта и обеспечение его качества в соответствии с мировым уровнем, на комплексное развитие туризма на основе поддержки и выбора оптимальных методов государственного регулирования [5, c. 50]. Создание привлекательного туристского имиджа Казахстана и развитие въездного туризма требует организации туристских информационных центров в первую очередь в Алматы, в регионах Республики и за рубежом. Необходимо издание и активное распространение высококачественных полиграфических и 13

14 аудиовизуальных рекламных материалов о Казахстане. Привлечению туристов в Казахстан будут способствовать краеведческие публикации, рекламно-издательская деятельность, в том числе туристских фирм и гостиниц. Особое внимание следует уделить использованию новейших информационных технологий, в том числе создание веб-сайтов туристских фирм Казахстана в сети Интернет. Большое внимание для формирования туристского имиджа Казахстана будет иметь упрощение порядка въезда, выезда и пребывания на территории республики иностранных граждан, визовых и таможенных процедур с введением в действие единой компьютеризованной системы учёта. Мы предлагаем создать ТУРИСТСКИЙ ИНФОРМАЦИОННЫЙ УЧЕБНЫЙ ЦЕНТР на базе кафедры «Туризм» Казахского экономического университета им. Т.Рыскулова. Какой деятельностью должен заниматься ТИУЦ? Это, на наш взгляд, прежде всего консолидация рекламно-информационной работы различных участников туррынка в руках независимой от влияния отдельных компаний структуре - Туристском информационном учебном центре, - в целях оказания информационно-справочных, туристских и деловых услуг приезжающим туристам, для ведения рекламной и маркетинговой деятельности, ну и конечно в качестве учебной базы для студентов. Причем мы предлагаем создание ТИУЦ на базе включения материала пользователя, аналогичного технологии Интернет энциклопедии Википедии, то есть чтобы студенты имели возможность пополнения базы самостоятельно, и вместе с руководителями. Строительство ТИУЦ можно осуществить общей площадью кв. м. с созданием сети унифицированных информационных бюро ТИЦ общей площадью 600 кв. метров. В целях информационно-справочной деятельности необходимо организовать создание и регулярное обновление информационных баз данных для туристов. База данных "Путеводитель". Обзорная информация об Алматы (история города, статистика, достопримечательности, культурная программа, развлечения, шопинг, праздники, события, специальные мероприятия, карта Алматы, виртуальные камеры прямой трансляции на разных объектах турпоказа). База данных "Планирование и бронирование". Информация об организации поездки и пребывания в Алматы. Возможность ознакомиться с казахстанскими агентствами, вариантами перелета, размещения в гостиницах, получить консультацию, разместить заказ, забронировать, арендовать и т.д. Этим задачам соответствуют "Белый список" турагентств; система бронирования; формирование заказа для турагентства. Особое место занимает "Система планирования поездки", когда турист вводит определенную информацию о себе, а система обрабатывает эти данные и выдает оптимальные варианты поездки с учетом особенностей клиента. База данных "Дневник алматинской жизни". Сбор, обработка и классификация всей информации о том, что происходит в городе: какие события, где, когда, и т.д. Репертуары театров, программы ночных клубов, где развлечься, чем заняться, экскурсии и т.д. Предоставление актуальной и достоверной информации о работе объектов туристской индустрии Алматы, туристских ресурсах, туристских продуктах, событиях в культурной и общественной жизни города. База данных "Дневник студенческой жизни". Сбор, обработка и классификация всей информации о том, что происходит в студенческом сообществе: какие события, где, когда, и т.д. Репертуары театров, программы ночных клубов, где развлечься, чем заняться, экскурсии и т.д. Предоставление актуальной и достоверной информации о работе объектов туристской индустрии Алматы, но с учетом каникулярного времени студентов, с учетом различных скидок, возможность работать по программам ВОРК энд ТРАВЕЛ и т.д. Следующим моментом служит создание службы справок и консультаций, в деятельность которой должен входить перечень услуг: 1) предоставление справок по телефону на трех языках; 2) личные консультации (face-to-face); 3) приём заказов на бронирование услуг, с последующим получением заказчиком ваучера на заказанную услугу; 4) переадресация звонков в адрес поставщиков услуг; 5) круглосуточное предоставление справок с помощью системы интерактивного голосового ответа в голосовом режиме и в режиме "факс по запросу". Для обеспечения маркетинговой деятельности важно: 1) создание и распространение рекламных и пропагандистских материалов о туристском комплексе Алматы, о планируемых в городе событиях и о самом ТИЦ; 2) проведение специальных мероприятий в Алматы и других странах по формированию общественного мнения о городе как международном туристском центре; 3) изучение туристских ресурсов Алматы, отслеживание достоверности данных о ресурсах, хранимых в базах данных центра; 4) продвижение новых туристских ресурсов; 5) организация презентаций новых турпродуктов с приглашением их владельцев, инвесторов, а 14

15 также туроператоров и турагентств. Для активизации коммерческой деятельности необходимо организовать обслуживание в местах, наиболее часто посещаемых туристами: 1) выписка ваучеров на размещение, прокат автомобиля, посещение культурномассовых мероприятий, ресторанов, экскурсионное обслуживание и гида и т.д - в Алматы; 2) выписка ваучера на тур для выездного туриста; 3) оформление визы, бронирование билетов для отправки за рубеж; 4) продажа рекламных площадей в информационно-справочной продукции ТИЦ; 5) продажа чековых книжек и дисконтных карточек "Карта гостя"; продажа карт, путеводителей, брошюр и подарочных изданий, видео и CD и т.д; продажа сувенирной продукции. Необходима организация работы на международных выставках и ярмарках, сопровождаемой рекламными и промоушн-кампаниями: 1) организация конференций по туризму с участием зарубежных фирм. Проведение в Алматы конгрессов международных туристских организаций (это может быть Всемирная ассоциация туристских агентств, Всемирная федерация ассоциаций туристских агентств, Международная гостиничная ассоциация и др.Также необходимо выявить и установить прямые отношения с основными зарубежными туроператорами, специализирующимися на направлении "Казахстан". Организационно-управленческая структура информационного центра. Слабое развитие индустрии туризма в Казахстане оправдывается отчасти и неквалифицированным менеджментом, особенно на уровне туристских организаций. Успех деятельности ТИУЦ во многом будет зависеть от коллектива, деловых качеств работников, их подготовки, компетентности, ответственности за порученное дело и, в первую очередь, от руководителя, который возглавит его. Весь процесс деятельности туристского предприятия должен строиться в соответствии с главными функциями управления: прогнозированием, планированием, организацией, принятием решений, передачей информации, мотивацией и контролем. Для успеха деятельности турпредприятия важны все функции [6, c. 42]. Одним из важнейших факторов успеха в туристском бизнесе является правильный подбор и расстановка кадров. Среди профессий, насчитанных ЮНЕСКО, несколько десятков относится туристской сфере. Интенсивный рост туризма привлёк к нему большое количество людей. Разгосударствление туризма в РК привело к тому, что на туррынок попали тысячи людей совершенно не подготовленных к данному виду деятельности. В настоящее время изменилось отношение работодателя к приёму специалистов, выработались определённые требования: владение иностранными языками, умение работать с компьютером, быстрота печатания, знание туристских центров и географических регионов, навыки по маркетингу и продаже. Помимо профессиональных знаний к специалистам предъявляются и личностные требования. В зависимости от вида деятельности это: хорошие коммуникативные навыки; позитивное отношение к турпродукту и людям; умение вести переговоры; наблюдательность и динамичность; 15

16 Директор любезность и предупредительность; эрудиция и стремление к новому; артистизм и отличная эрудиция (для экскурсоводов); аккуратная внешность; скрупулёзность и ответственность; стремление к совершенствованию, росту на службе и др. Поэтому заметно повышается и роль кадровой политики требовательность к будущим работникам. Многие турфирмы уже научились планировать потребность в персонале: при увеличении объёма услуг с осторожностью принимают людей на работу с испытательным сроком. Временную или сезонную. Администрациям турфирм не следует жалеть времени на изучение резюме для отбора наиболее достойных и талантливых претендентов. Можно сделать вывод о том, что сам руководитель предприятия должен быть грамотным специалистом и обладать такими же качествами, которые требует от своих специалистов [7, c. 38]. Цель создания ТИУЦ - развитие информационной инфраструктуры, предоставление туристам полной информации по организации поездки, бронированию различного рода услуг и консультационносправочное обслуживание. В этом направлении необходимо будет работать информационным бюро, разбросанных по городу. Благодаря работе бюро можно будет получить справку по телефону или лично на трех языках, забронировать билет на самолет или номер в гостинице, взять в прокат автомобиль или найти гида-переводчика. Задачей ТИУЦ является привлечение в Алматы иностранных и казахстанских туристов, создание благоприятной информационной среды для иногородних и иностранных граждан. С этой задачей успешно сможет справиться отдел маркетинга (рисунок 3). На основе ТИУЦ можно будет создать аналитический центр, позволяющий поддерживать единую статистическую базу данных и осуществлять мониторинг потоков въездного туризма в Алматы. До сих пор не существовало единой базы учета въезжающих в столицу визитеров (как с деловыми, так и с туристскими целями). До настоящего времени статистика въезда велась по учету в гостиницах и данным пограничного контроля. Отдел маркетинга Веб-дизайнер Маркетолог Заместитель директора Аналитический центр Менеджеры по мониторингу Помощник директора Информационное бюро Служба справок и консультаций Менеджер по Алматы и Алматинской области Менеджер по Казахстану Рисунок 3 - Организационно-управленческая структура ТИУЦ Анализ рисунка 3 показывает, что своевременное и полное информирование своих партнеров и клиентов по вопросам путешествия и обслуживания является безусловным требованием к созданию турпродукта и его успешному продвижению и реализации. Соответственно, информационное сопровождение туров должно стать частью продуктовой политики туроператора. Во многих странах туристско-информационная служба имеет государственный статус: за счет государственного бюджета функционирует сеть информационных бюро, консультирующих туристов [8, c. 63]. 16

17 Вместе с тем, в рамках каждого туристского предприятия целесообразно создавать систему информационного обслуживания клиентов. Цель системы - обеспечение информационной поддержки предлагаемым турам. Информационное сопровождение включает сбор и систематизацию справочных материалов по всем вопросам, связанным с организацией приема и обслуживания туристов и предоставление их партнерам и клиентам по первому запросу, часто на бесплатной основе. К таким материалам относится следующая информация: о паспортно-визовом, таможенном и валютном регулировании; об условиях автотуризма на автобусах, собственных или арендованных автомобилях (аренда, автомаршруты, заказ такси); о средства размещения (отели, мотели и т.д.), их адреса. Категории, тарифы; об экскурсионных и культурно-зрелищных услугах и мероприятиях (музеи, картинные галереи, памятники, выставки и т.д.); о ресторанах, кафе, барах и других предприятиях питания; о природных достопримечательностях (национальные парки, заповедники, ботанические сады, водопады, гроты и т.д.); о видах туризма (познавательный, отдых, лечение и т.д.); о маршрутах путешествий; о медицинской помощи, видах страхования, почтово-телеграфных услугах; о других возможных дополнительных услугах; метеорологические справки; календарь национальных, религиозных праздников и культурных событий; обменный курс валют, размеры чаевых и т.д. Носителями такого рода информации могут быть различные справочники, путеводители, планы, карты городов, памятки, устные ответы персонала ТИУЦ. Выводы. Таким образом, организация работы туристского информационного учебного центра позволит более эффективно использовать имеющийся Алматинский туристский потенциал, оживить туристский рынок, укрепить материальную базу, сократить дефицит квалифицированных кадров и получить необходимую поддержку развития туризма со стороны Акимата города Алматы. Мероприятия рекламно-информационного обеспечения включают: создание информационных банков данных и образование ТИУЦ при КазЭУ им. Т. Рыскулова с целью формирования образа Алматы как региона, благоприятного для туризма, подготовку и издание информационно-рекламного каталога о возможностях туристского рынка города, участие в организации и проведении международных и отечественных туристских выставок; профоринтационной работой и учебной базой для студентов. Намеченные меры будут способствовать расширению притока иностранных туристов и формированию оптимального соотношения экспортно-импортных операций в туристском балансе. За счет увеличения доходов от реализации рекреационно-туристских услуг и сопряженных отраслей обслуживания возрастут бюджетные поступления. Выполнение туристских проектов, работа ТИУЦ и мероприятий внесёт существенный вклад в структурную перестройку обучения студентов специальности «Туризм». Bibliography Esaulova S.P. Informacionnyetehnologii v turisticheskoiindustrii. Uchebnoeposobie.- M.: «Dashkovi K», 2010, s. 315 Plotnikova N. I. Kompleksnayaavtomatizaciyaturistskogobiznesa. Chast' 1. Informacionnyetehnologii v turfirme. - M.: «Sovetskii sport», 2001, -s RobertsMaryLou. Internet Marketing: Integrating Online and Offline Strategies, McGraw-Hill, p.250. Held D., Goldblatt D. Global transformations. Oxford, p Ushakov D.S. Transnacionalizaciyaturistskogobiznesa: evolyuciyaisovremennost'. - M.: «INION RAN», s.261 Garanin N. I., Zabave Yu. V., Seselkin A. I. Informacionnyetehnologii v turizme. -M., s Gulyaev V. G. Novyeinformacionnyetehnologiiv turizme. - M.: «PRIOR», S Kvartal'noe V. A. Strategicheskiimenedzhment v turizme: Sovremennyiopytupravleniya. - M.: «Finansy i statistika», s

18 Economic Development and Transition Economies 1) The Investment Opportunities in Non-Oil Sector of Azerbaijan Republic in Modern World Rasim ABUTALIBOV, Assoc. Prof. University of Qafqaz, Lecturer, Baku / AZERBAIJAN, Rufat MAMMADOV University of Qafqaz, Lecturer, Baku / AZERBAIJAN ABSTRACT After collapsing of Soviet Union in 1990 Azerbaijan Republic passed into the new period of development like any other post-soviet countries. Thus Azerbaijan made the transition into market economic system from planned economy. The first years of transition into the market economy Azerbaijan Republic experienced instability in the economic system. During this period the social and market infrastructures were destroyed thus leading to the destruction of the economy. Foreign investors avoided Azerbaijan and they were not interested in opening new businesses in the regions. But the economic and social reforms that were carried on in the country solved this problem in a very short time. The volume of the investments in the economy of Azerbaijan increased very rapidly after the signature of the Contract of the Century. According to the official information the volume of the investment to the economy of Azerbaijan from 1994 exceeded $100 billion dollars. Thus, the invested capital in the first periods was mainly accumulated in the oil and gas sector, i.e. in energy sector. Azerbaijan Republic has already moved into a new stage of development. If the investments in non-oil sectors in the first periods were directed to the establishment of social infrastructure, nowadays they are directed to the establishment of new enterprises. Till 2005 foreign investments over passed the local investments but recently the local investment volume over passes the foreign investments. There are nutritious conditions for the development of non-oil sector in Azerbaijan Republic. Key words: Azerbaijan, investment, non-oil sector, foreign investment, development. INTRODUCTION After gaining its sovernigty approximatelly all of the industries in Azerbaijan Republic declined and most of them stopped their operations. However, new era started for the development of market economy. Economical stability was attained in Because of economical and political stability from investment point of view Azerbaijan became one of the most interested countries in the world. Thanks to successful political and economical projects Azerbaijan Government could realize one of the most expensive projects in the world. With the participation of 25 world countries the Contract of the Century was signed. Huge investment was required to rebuild the devastated industrial enterprises and equip them with the new technology. Our country took successful actions and signed numerous editcs and firmans in order to increase the interest of foreign investors to the country and to give them stimulations (Osman and Elchin, 2010:237). If we pay attention to the economic situation of Azerbaijan Republic in near future we may see that most investments by entrepreneurs were gathered in Baku and the economical region of Absheron. The main reasons 18

19 for that were the lack of humid environment for the investments in the regions and the insufficient level of infrastructure or least developed. But successful application of State Program for Socio-Economic Development of Azerbaijan Republic Regions between led to high developments in macroeconomic indicators, the infrastructure in the regions were rebuilt and developed. The adequate geographical position of Azerbaijan Republic, natural environment, rich of underground and on the ground resources give great opportunities for formulation and development of different sectors of the economy in the regions. There is humid environment in the regions of Azerbaijan Republic for either local or foreign investments. In general, in the last five years the volume of basic investments including all financial sources for the development of country s economy exceeded 33.5 billion manats (national currency of Azerbaijan Republic) and %53,2 fell on local investors and %46,8 fell on foreign invesment (stat.gov.az, 2013). In Azerbaijan in order to prosper the investment environment in Azerbaijan Republic, to develop entrepreneurship, to improve non-oil sectors and to open new vacancies 9 general tax forms were eliminated, the agricultural entrepreneurs were exempt from other taxes except land rents. The licsensing system in the country was completely changed, the number of licsensed activity areas was reduced and the expiry date of licsenses was prolonged. The Government applies open door strategy for stimulating the investment. Production of high qualitative and competitive products by means of attracting foreign investments, modern technologies and equipments, using high management experiences in the country economy is main part of development strategy of Azerbaijan Republic. By implementing vital economic and regulatory reforms Azerbaijan significantly improved its economic performance and is considered nowadays increasingly competitive worldwide. As such, the World Economic Forum places Azerbaijan 55 th in the world in its Global Competitiveness Report According to this index, Azerbaijan is the most competitive economy in CIS (AZPROMO, 2012). In Azerbaijan Republic tourism, agriculture, food, textile, and auto industries have great opportunities for either local or foreign investments (Rasim, 2010:45). Tourism industry: In many countries there are no required conditions for the joint development of resort, travel and natural treatment characteristics in tourism. Only some countries have such required conditions for the development of different types of tourism. And Azerbaijan is also included to such countries. If we pay attention to the development of tourism in the regions, in Absheron economic region Baku and near Baku areas have the required infrastructure for sea tourism, forest and mountaineous tourism in Sheki-Zagatala economic region, winter and summer tourism in Mountaineous Shirvan and Gusar economic region, and some economic regions have the infrastructure for medical tourism. Except these regions, Nakhchevan and Lankaran economic regions have great foreign investment opportunities in tourism industry (Rasim, 2009:80). Agriculture industry: Existence of regions with different climate zones and useful areas for agriculture in Azerbaijan give the opportunity to manufacture various, qualitative products. Difference in climate varies from subtropic to tundra climate zones. This allows to cultivate crops more than one time in the season. The different climate zones of the country let the farmers and entrepreners grow various crops. The main basic agricultural products are wheat, cotton, tobacco, tea, olive, fruit and vegetables. The agriculture is mainly spread over the north-eastern, the south-eastern and western regions. Guba-Khachmaz and Sheki-Zagatala economic regions are 19

20 specialized in fruit, Lankaran economic region is specialized in tea plantation and vegetables, the Mountaineous Shirvan is specialized in grapes, and Aran economic region is specialized in farming. In these regions there are vast opportunities for investment and private discounts by the government, and economically it is adequate. Auto industry: Notwithstanding to the existence of adequate environment for this industry, most of its areas have not been developed. Baku city, Absheron and Ganca-Gazakh economic regions have opportunities for the development of auto industry. To solve the flaws in auto industry and metal manufacturing and rebuild them, provide technological and production equipments are the main issues. Food industry: Food industry occupies 30% of general industry production and one third of enterprises are concentrated here. In all regions of Azerbaijan Republic there are adequate environment for the investment in food industry. Textile industry: Azerbaijan has raw materials, labour and market for the production of light industry products. But unfortunatelly this industry was not invested properly. As the consequence, clothes, shoes and other textile products are imported to the country with high prices. Besides there are opportunities for preliminary manufacturing of clothes from cotton, silk and wool and make them the final goods. Thus, these goods are exported from Azerbaijan Republic as raw materials. Basicly, this industry can be developed in Aran, Ganca- Gazakh and Absheron economic regions. CONCLUSION Thus we can understand that investment is very important for the development of regions. These investments must be increased day by day. The development of regions can be realized with the following actions: Local and foreing investments must be attracted to the regions; The investments for agricultural sector and for the development of private sector in the regions must be increased; New measures should be taken in order to develop social infrastructure, education and health care systems in the regions; The industrial enterprises adequate to the potentials of the regions must be established; The development of tourism sector in the regions must be provided So all these steps and measures will lead to the development of not only the regions economy but also the whole economy of the country. REFERENCE LIST Osman N. Aras and Elchin Suleymanov, Azerbaijan Economy, Baku, Rasim Abutalibov, The Consentration of Production and Regional Socio-Economic Development, Published PhD dissertation, Baku, Rasim Abutalibov, The Investment Opportunities in the Regions of Azerbaijan Republic (Инвестиционные возможности в регионах Азербайджанской Республики), НАУЧНОЕ ОБОЗРЕНИЕ, Russia, 2009, p Asef Nadirov, Azerbaijan Economy, Baku, AZPROMO, Azerbaijan Report, stat.gov.az,

21 2) Economic Growth and Economic Development: Qualitative & Quantitative Determinants Teimuraz BERIDZE Invited Professor Iv. Javakhishvili Tbilisi State University, Professor, International Black Sea University, GEORGIA Economic Growth and Economic Development: Quantitative and Qualitative Determinants Summary The modern world economy represents a quite complicated system of closely interrelated units (states, countries, international organizations and institutions, transnational companies, individual firms, households, individuals). On the verge of XX-XXI centuries the system acquired the completely new feature a global contents, which besides economy proper, embraces politics, society, culture, religion, education etc. These components of the social life have very important influence on economy as well; economy to a considerable and certain degree calls forth their contents. Moreover, dissolution of the socialist system and arising of completely new phenomenon - transitional countries, transitional economies - imparts new contents to the globalization. Arising of these countries made even more actual the issue on interrelation between the economic growth and the economic development in a globalized world. What is the difference between economic growth and economic development? By which indices they may be assessed? Is it possible to consider the model of economic development in the analysis of economies of transitional countries, or it is characteristic only for countries of the so called third world? Why some countries develop in short-run, but another needs sometime a very long-run period? What are the basic grounds of difference? The economic development is a wider concept, then the economic growth (gross domestic product per capita), because it is concentrated mainly on the issue; how the growth of economy is reflected in the development of the society, standard of life, i.e. economical development is more socially oriented. The indices of the economic development are: real income per capita of population; level of education standards and enlightenment; level of healthcare (e.g. number of doctors per 1000 people; level of observance of environmental standards; level of social technology; quality and availability of dwelling; level of infrastructure (transport, communications); corruption level; level of productivity of labor and mobility of labor force; volume of foreign investments; level of savings and investments etc. An answer on the above mentioned questions needs sufficiently vast and deep study. In the present paper we will touch upon several directions of the study (and as a statement of a question). Keywords: Economic Growth; Economic Development; Types and Indices of Economic Growth and Development; Post-communist Economics; Social economics. Once more about economic growth The phenomenon of economic growth is not a new issue in the economic theory and practice. From the very beginning of economic activity of people it was in the center of attention of the society due to a very simple cause: the results of economic growth are reflected in the development of the country and increasing of the standard of life, and factors that cause the growth always are the object of research of politicians and scientists economists. The representatives of ideologically opposite camps of economic theory studied the issues of economic growth in the XIX century - K.Marx (theory of reproduction, that made important contribution to the study of the mentioned issue) and in the XX century the known representatives of the theory of economic growth (J.Keynes, S.Kuznetz, R. Garaudy, E.Domar, J.Robinson, etc.), which gave much attention to the importance of growth of national income, taking into account only one factor a norm of capital accumulation. The importance of government spending for economic growth and the regulation of business cycles with the fiscal policy was main idea of Keynesian Economics. A country s economic growth may be defined as a long-term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity based on advantage technology and the institutional and ideological adjustments that it demands (Simon Kuznets). W.Rostow related this phenomenon to the phased development of the society. Later the author of the neoclassic model of economic growth J.Meade concentrated his attention on all its factors (capital, savings, labor power, investments); he believed 21

22 that only in this case the economic growth will have a stable and sustainable character. 1 Joseph A. Schumpeter in the beginning of twentieth century firstly emphasized the difference between economic growth and economic development. The economic growth, based on Schumpeterian approach, is quantitative changes the growth of production and consumption during the certain time period (mainly in short-run period); in contrary, economic development is a sum of positive qualitative changes in the process of production of goods, services, management and humanity life, mainly in long-run period. Basically Schumpeter s cornerstone idea for economic development is innovation and entrepreneurial resource which determine demand and supply and determine economic development in long-run period. All academic researchers of the mentioned problem tried to answer the following questions: what is the economic growth? What causes the economic growth and how is it measured? It is known that the macroeconomic textbooks 2 give answers to all these questions; however, we think that there is a certain range of questions that still needs an explanation and development. It is known that economists mainly evaluate economic growth by the dynamics of real (excluding inflation) gross domestic product (GDP) Though we will mention here that the index does not describe economic growth un fully extent, because it does not show a quality of country s life and effect of distributive relationships, at the same time it does not cover volumes of operations of financial mediating, does not reflect a growth in the real sector of economy. Taking into account these circumstances, the economists use other indices as well - gross national product (GNP); net national product; personal income, net personal income or disposable income. The social components of making of gross national product are also to be taken into consideration. What determines the growth of the gross national product? The answer is at first sight simple: the level of productivity in the country (it is to be said that the index during the recent two decades is not calculated by statistical bodies). What are its determinants? These are: the physical capital (equipment and buildings, used for production of goods and services), the human capital (skills and knowledge, acquired by people through education and practical experience), the natural resources (materials used in production of goods and services, given by nature), the technological knowledge (introduction of up-to-the-minute technology and know-how). All factors of production participate in the economic growth, but, naturally, unequally (they have not one and the same weight), since any country has advantage of using this or that factor, that gives her an advantage in the foreign trade. Naturally, the more optimal would be a combination of these factors, the higher is economic growth and its stability (in the Soviet period the economists and mathematicians even had developed the so called system of optimal functioning of economy). What is the situation in the present-day Georgia from this point of view? Unfortunately, we are obliged to mention that in Georgia all these determinants (factors) practically are more and more deteriorating during the recent 20 years! The average annual growth of GDP (7%) in recent years does not mean Let s consider physical capital. It is mainly depreciated, it is not replaced; the re-equipment is not fulfilled (as a rule, it must be made every 20 years). But industrial equipment and production lines are the basis of the modern economy. The import policy of the country is to be revised from this point of view. As to a human capital more than a million people (mainly in the age years) have left the country, and education (especially, technical) is in unenviable condition. The system of professions and specialties and preparation of specialists taking into account the interests of the country are to be revised. Natural resources - the environmental balance in the country is disturbed, whereas the ecosystem is an important component of the social economical system and promotes public health. As to the two-digit rate of growth of the gross domestic product (in and 2004), it was caused only by the so called effect of fast growth (according to the terminology by Gregory Mankiw) and by the reconstruction growth (according to the terminology by the Russian economist Ye.Gaidar). The economical policy of the country is to be developed taking into account these above-mentioned circumstances. The Essence and Indices of Economic Development The economic development is a relatively new concept and is much wider than the economic growth. It is reflected in textbooks and is studied in many institutions of the world. 3 Therefore, first of all, it is important to distinguish between the economic growth and economic development. On the first sight, such statement of a question is a tautology. However, in more deep study we will see principal differences between them that result from the difference between technical economical and social economical aspects. The first implies a 1 Экономическая энциклопедия. Политическая экономия. М., 1980, с (Economic encyclopedia. Political Economy. Moscow., P ) 2 Karl E. Case, Ray C. Fair. Principles of Economics. Eighth Edition. Pearson Prentice Hall P Hayami Y. and Godo Y. Development Economics. From the Poverty to the Wealth of Nations. Third Edition

23 development of the economy from the point of view of development of its industrial potential, and the secondemphasizes on the social results of development of the economy. From this point of view, the model of economic development to some extent is a continuation of the model of socially oriented economy that took place in West Germany and Scandinavian countries since the second half of the XX-th century. It is known that the economic growth is evaluated by the index of real output of gross domestic product (including per capita), and the economic development is much wider, than the economic growth. It is rather socially oriented and reflects many layers of development of the country. The Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area. The economic development shows, what is the effect of economic growth directly on population, how the standard of living increases in the country and, respectively, it is measured by such indices as real income (GDP) per capita; education level, level of public health (e.g. number of doctors per 1000 people); observance of environmental standards. At the same time, the economic development to a considerable degree is determined by: level of infrastructure (transport, communication); efficiency of service sector; 4 low level of corruption; productivity of labor; mobility of labor force; flows of foreign investments and foreign aid; level of savings and investments etc. As economist Amartya Sen points out: economic growth is one aspect of the process of economic development. One growing understanding in economic development is the promotion of regional clusters for regional development and a thriving metropolitan economy. In modern globalized world location is vitally important and becomes a key in competitive advantage. The cluster of similar industries, specialties, skilled labor force, and technologies help to lower transaction costs and foster a growing environment of commerce, entrepreneurship, exports and other market productive activities (M.Porter). Now let s consider, what may be the economic growth without development: 1. The results of the economic growth are reflected on the condition of a small part (may be elite) of the population. For example, in oil-rich country an increasing of GDP takes place. In such case incomes of a firm may drastically increase, but this does not mean absolutely, that this wealth is equally reflected on the entire population. This problem raise the importance of fiscal policy; 2. Corruption. A country may have high level of GDP, but the efficiency of its growth may be reflected only in bank accounts of politicians. There is an urgent question, how we can measure the level of corruption in Georgia. There is no common view how to measure the level of corruption. The judicial statistics gives only a number of corruption crimes, but it is only one side of the coin; much more urgent is the question, what is the damage of corruption to the country, in particular, in tax-budget system; 5 3. Environmental problems. Production of toxic chemicals (and other harmful products) increases GDP, but incorrect regulation of their production may damage environment and public health, that costs much more to the society and, in general, to the country. One of the most important spheres in modern economics is environmental (ecological) economics (Herman Daly), he suggested the concept of sustainable economic conditions, when the physical components are limited and are not changing during the time-period. The Canadian economist Peter A. Victor offer the interactive model which gives a possibility to study the potential for stable, but not growing economy; 4. Overloading. Emphasizing only on technical economical aspect of the economic growth may cause overconsumption of resources in the economy, and damage the structure of the economy, that is also inacceptable for stable development in long-run; 5. Improper level of use of produced production. It sounds paradoxically on the first sight, but it is very urgent issue and is related, on the one hand, to efficiency of distributive relationships and, on the other hand, with inadequate allocation of resources; 6. Expenditures for armaments. Optimal planning of expenditures in the budget and their incurring is very important for development of the country (this was very urgent in the recent years, because increasing of expenditures for armaments significantly reduced the social expenses). This question is also urgent in modern times. Finally, let s try to answer the question: is it possible to use the model of economic development in the analysis of transitive (post-communist) economies, or for their future development? Using of the mentioned model on the modern stage is expedient from the point of view, that the economic reforms of the recent years in fact destroyed the social orientation of the post-communist countries and set forth 4 In this connection R.Asatiani s monograph - Service and market system. Tbilisi, Tbilisi University press, is to be mentioned. 5 K. Shevardnadze, R. Chechelashvili, V. Chocheli, N. Khaduri. Papava Indexes of Tax Corruption. Tbilisi, Publisher Company Imperial Ltd.,

24 as objective only her technical economical growth. Therefore it is necessary to use this index. The economic policy of Georgia must be directed at overcoming of the existing lag. Bibliography: 1. J.M. Keynes, The General Theory of Employment, Interest and Money. 1936; 2. Joseph A. Schumpeter. Capitalism, Socialism and Democracy S.Kuznets s Nobel Prize lecture. From Nobel Lectures, Economics , Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992; 4. Walt W. Rostow. The Stages of Economic Growth: A non-communist manifesto. 1960; 5. Joan Robinson, Contributions to Modern Economics (1978) (Basil Blackwell, Oxford, ISBN ); 6. Development Economics through the Decades: A Critical look at 30 Years of the World Development Report. World Bank Publications, Washington D.C. (2009), ISBN ; 7. The Complete World Development Report, (Single User DVD): 30 th Anniversary Edition. World Bank Publications, Washington D.C., (2009). ISBN ; 8. Michael Todaro and Stephen C. Smith, Economic Development. 10 th Ed., Addison-Wesly, Description; 9. Peter A. Victor, Managing without Growth. Slower by design, not Disaster [ Edward Elgar Publishing]. 10. Папава Владимер. Экономический рост в странах Центральной Кавказии в условиях нивелирования эффекта быстрого старта //Центральная Азия и Кавказ. Том. 15. Выпуск 4, 2012, стр ; 11. Beridze, T., The National Economic Model and Globalization (the Case of Georgia). Georgia in Transition, L. King, and G. Khubua, eds. Frankfurt am Main: Peter Lang. 12. Porter, M.E. (1998). Clusters and the New Economics of Competition. Harward Business Review. Pp Sen, A. (1983). Development: Which Way Now? Economic Journal, Vol. 93 issue 372. Pp William Easterly. The Elusive Quest for Growth. Economists adventures and misadventures in the tropics. The MIT Press. Cambridge, Massachusetts. London, England. 24

25 3) The Challenges and Opportunities for Central Asia Countries Experience of Republic of Turkey Giorgi BAGATURIA, PhD, Associate professor of International Black Sea University (IBSU), Management program coordinator, GEORGIA The Challenges and Opportunities for Central Asia Countries. Experience of Republic of Turkey Introduction As a result of the USSR collapsed the former Soviet republics of Central Asia had achieved the independence. For successful economic and political development the new independent countries had to overcome inheritance of the Soviet totalitarian governance. It was quite complex and difficult challenge. On the other hand, there was a possibility of use of natural riches, fossils, minerals, gas, oil products, cotton for the benefit of own people, own needs. Some countries could use skillfully these opportunities and they began to develop successfully (Kazakhstan, Turkmenistan, partially Uzbekistan) generally thanking to rich natural resources. Others (Kyrgyzstan, Tajikistan) appeared in whirlpool of the political and economic problems permission of which will demand long-term efforts. Because of the influence of various external and internal interested forces the same problems can arise and in the successful countries as well. At the same time before eyes the experience of the Republic of Turkey, which for a short period could turn from the backward country into one of roughly developing, strong and influential states. Studying and judgment of experience of Turkey has to be very useful for the states of Central Asia, especially as between these states there are much similarity and their population can be considered as the related people. From this point of view in the report the reasons of success of Turkey as a possible example of successful development of the new independent countries in a transition period are analyzed. Short economic characteristics of the Central Asia countries 25

26 For the general assessment of the countries position is useful to consider some economic indicators, mainly GDP, GDP per capita. According to data of the UN of GDP for the countries of Central Asia and South Caucasus, the USA, China and Turkey are presented as follows Table 1. Gross domestic product for the countries of Central Asia and South Caucasus, the USA, China and Turkey ( GDP List by the United Nations (2011) Rank Country/Region GDP (Millions of $US) World 70,201,920 1 United States 14,991,300 2 China 7,203, Turkey 774, Kazakhstan 186, Azerbaijan 63, Uzbekistan 45, Turkmenistan 25, Georgia 14, Armenia 10, Tajikistan 6, Kyrgyzstan 5,919 Data are provided in the table for the countries considered in this article, and also the USA and China (the highest indicators), Turkey and Transcaucasia for GDP comparison purposes. Data are provided in the table for the countries considered in this article, and also the USA and China (the highest indicators), Turkey and Transcaucasia for comparison purposes sizes gross domestic product. As we see, among the countries of Central Asia leading positions are taken by Kazakhstan, the 49th place in the world, it is followed by Uzbekistan and Turkmenistan, and Tajikistan and Kyrgyzstan are closing in a leaf from 195 countries, which are followed by the backward African and island countries. GDP per capita to 187 countries are more interesting Data refer mostly to the year World Economic Outlook Database-April 2013, International Monetary Fund. Accessed on 16 April 2013 (табл. 2) GDP per capita (PPP) 2012 IMF International Monetary Fund ( ) Rank Country International $ 1 Qatar 102,211 2 Luxemburg 79,785 3 Singapore 60,410 4 Norway 55,009 26

27 6 USA 49, Turkey `15, Kazakhstan 13, Azerbaijan 10, China 9, Turkmenistan 8, Uzbekistan 3, Georgia 5, Armenia 5, Kyrgyzstan 2, Tajikistan 2,229 As we see again Kazakhstan is the leader, but it is followed now not by Uzbekistan, but Turkmenistan. Tajikistan and Kyrgyzstan are again closing in a leaf from 187 countries. And according to GDP_PPP_per_capita_2007_IMF.png Kazakhstan belongs to the countries with high rate, Turkmenistan has moderate, Uzbekistan has a low rete and the others - Kyrgyzstan and Tajikistan - are close to dangerous treats category of the countries. These data give rich food for reflections. The main issue how to manage the country for achievement of economic welfare and political stability Democracy vs Authoritarian system. The history of development of the countries shows that the most acceptable and effective form of government is the democratic system, because, it is possible to say that the democratic system is self-sufficient and selfdevelopment system. If not to take into account the Arab countries rich with oil in which the authoritative system of governance dominates, it is possible to say that a basis of successful development of the countries is the democratic system of governance. But the democracy can't win in the poor countries (in an extreme cases - can win and keep an existence for a very short time). Poverty of the country creates favorable circumstances for 27

28 dictatorship establishment. On the other hand the dictatorial form of government of poor countries turns sooner or later into chaos, or, if it is not poor, is transformed into democratic system (e.g. Taiwan Republic of China). Thus for achievement of economic welfare and political stability eventually is necessary the achievements of democratic system of governance. Democracy also means a liberal system of economic managing. But thus, it is extremely important to consider specifics of a country, its traditional values, to reach a national consent between various sectors of society and on the other hand, between society and the government. In this sense development of Turkey gives a bright example, worthy imitations. Short characteristics of Republic of Turkey The most significant phenomenon of the beginning of 21 st century undoubtedly is substantial economic successes of Turkish republic. In the recent past economically backward country now is one of the most dynamically developing states. Now economic growth of Turkey advances almost all the most developed states of the world (including the countries of G-20). Growth of Turkish economy is especially remarkable, that it occurs on a background of not stopping crisis of the developed European countries which are characterized by approximately similar economic structure (Greece, Spain, Portugal, partially - Italy). In the Europe - crisis, in Turkey - prosperity. In accordance with the World Bank data ( Turkey is the most dynamically developing country (see Fig. 1). Fig Real GDP Growth (%) Moreover, According to the OECD, Turkey is expected to be the fastest growing economy of the OECD members during , with an annual average growth rate of 6.7%. (see Fig. 2). 28

29 Fig. 2. Expected annual average growth rate It is possible to list shortly the main signs of success of Turkey Institutionalized economy fueled by $ 94 billion of FDI th most attractive FDI destination for th largest economy in the world 6 th largest economy compared with EU countries in Robust economic growth over the last seven years with an average annual real GDP growth of 4%. Booming economy : Sound economic policies with tight fiscal discipline GDP in 2002 = $ 231 billion, in 2010 = $736 billion Strong financial structure resilient to the global financial crisis. Rapid recovery from the global financial crisis Sustainable economic growth (4.8 % annual average GDP increase ) What are the REASONS of Turkey success? We can introduce some preliminary foundations The reasons of Turkey success are: a wise and effective policy of the government, the national consent of a society, diligenceof people of Turkey, its entrepreneurships spirit, etc. the purposeful reforming of the country during the last twenty years. So, we have to say about Turkish Miracle - an example for many countries. Economic model Question is: how does Turkey achieved so significant results? Which economic model should be used? Commonly there are considered three economic models The first is so called Leftism direction (model) that means authoritarian system of governing. In this case everything has been planned by super authority committee, which organizes strong Influence on the economy. The plans must be realized in spite of market conditions. One of the followers of this system was USSR, which followed to leftism direction (based on Marx theory) without any doubt and at the end this on of the richest country was collapsed. Its collapsing has to show the effectiveness of such system. This model is comfortable for the governors, but not for a country and its population. Nevertheless, there are a lot of followers to this 29

30 system in the world, partially European countries (with socialist governments). Still, there are leftism model in communist countries. The second system is possible to introduce as a Right-wing that means. It is mostly liberal system that means small (or no) Influence of the government in the economic processes, business. Nowadays welfare countries are the followers of the liberal (Right-wing) directions. The third one is an extreme cases of Liberalism - Libertarian, that means No governmental Influence on the business - State is only Night Watchman and The Invisible Hand of Market Corrects Everything In this case we don t need any forecasting, but when a crisis happened once again the arisen problems will be more heavy. But, problem is which economic model should be selected in order to manage a country? As a history of economic development shows any sophisticated economic model is not successful. There are a lot of scientist economic research which are devoted to the problems of world economic development and the reasons of economic crisis but these problems have no real solution Actually the existing economic theories can t explain the nature of modern economic relations and forecast economic crisis. As a results economic crisises are happened suddenly and only afterwards various economist 30

31 experts tried to explain their reasons. But these explainings are too late, the economic crisis have grave consequences, especially for the pure and small countries with transient economy. In accordance with the opinion of the author of this article Turkish success is founded on two fundaments General political direction Democracy. General Economic direction Market economy. One of the best implementation of market economy is USA Economic System, which includes : Free entrepreneurship, supporting of private property, freedom of contacts, profit motivation, consumer s sovereignty (see fig. 3) Fig. 3. American Economic System What is possible to do by new countries of transition economy? The simple recommendation is: Do optimal management using cybernetic approach, Study of Experience. Including Turkey experience, that is practical implementation of the cybernetic approach in real life. The essence of a cybernetic approach is shown at Fig. 4 Fig. 4. Cybernetic method of management Historical samples- Common Sense and Economic Theory History shows interesting samples of economic governance while crisis situations. In the thirties of the 20th century in the USA the cruel economic crisis raged. Then, Roosevelt could rectify situation thanking reasonable decisions. Later some experts said that Roosevelt used Keynes's recipes. However 31

32 they didn't know each other at all. Moreover, when they had acquainted and Keynes gave long lecture about methods of economy control, Roosevelt remained very dissatisfied. He stated surprise and responded about Keynes that he isn't a political economist, but the mathematician, which drew different schedules and wrote formulas which in general have no any relations to the created situation. Franklin Delano Roosevelt the 32 nd president USA during Validly formulas and schemes can't be operated economic processes. Roughly speaking, Roosevelt was guided by common sense and the intuition that helped America to finish quickly crisis and to develop fast rates. Finally, economic development of America was promoted by the WW2. John Maynard Keynes, well known economist, founder of macroeconomic theory called as Keynesian economics.. Cherchill spoke a very characteristic quotation concerning Keynes: If you put in a room 2 economists you ll have 2 opinions, unless one of them is Lord Keynes, in which case you ll have 3 opinions 32

33 Sir Winston Leonard Spencer-Churchill, one of the greatest wartime leaders of the 20th century, Prime Minister of the United Kingdom from 1940 to 1945 and again from 1951 to Такое неопределенные рекомендации экономистов заставило Трумена воскликнуть (поскольку разные экономисты предлагали разные вараинты с одной руки так, а с другой - иначе) Such uncertain recommendations of economists forced to exclaim later Truman: I need One Hand economist (as different economists offered different variants during implementation of the Marshall plan rehabilitation of Europe after WW2- from one hand so, and with another hand - differently) Harry S. Truman: the 33 rd president USA during And in the conclusion it is necessary to point to the main difference between economic theories and practical affairs on what Drucker so formulated Keynes brilliant students are interesting in goods behavior, me peoples behavior Peter F. Drucker: well-known management consultant, educator, and author, a leader in the development of management education, author of the concept of management by objectives Really it is necessary to be engaged in people (in more narrow sense customers), to think and care of their interests for achievement of success. Thus it is possible to specify finally on necessary the directions in management of economy and the country.. The key strategy of governing is common sense and experience of successfully economics with taking into account the specific characteristics of a country And we can ask: What is the main goals of commercial company? Profit? Of coursed Profit is vital but main goal is Creation of Client, Customer. Only on the basis of clients, customers, peoples interest a company has to achieve success. And another question What is the main goal of a state leader? Strengthen of his/her power? According to key strategy the main goal of a state leader should be welfare of the people and on this basis welfare of the country and Strengthen of his/her power. 33

34 From this point of view Republic of Turkey is a case for successful development during in world (European) Crisis Main Foundations of Turkey s Success The success (or failure) of any country is the result of the coincidence of a lot of reasons: global political and economic events, historical development of the world, concurrent policy and interests of leader states, policy of the country and so on. But, in according to our opinion most important is the activity of the leaders of a country during turning points of history, their wisdom, courage, ability to face danger without fear, their understanding of interests and needs of the country and the society, all of the people, and ability to lead the entire country, all of society, the entire people. We suggest that the authors of the nowadays Turkish Miracle are: Atatürk, Turgut Özal, Recep Tayyip Erdoğan and Fethullah Gülen. Atatürk has laid the foundation for Turkish state, the foundation on which it was possible to build a grandiose building of a truly democratic, ready to evolve statehood. Mustafa Kemal Atatürk. Founder of the democratic Republic of Turkey. Author of the Political, economic, cultural reforms Turgut Özal inspired a new breath of life into the Republic of Turkey, has prepared a framework for the future economic miracle based on the nonexistence business style with the observance of the ethical norms and humanity standards (and not to rob people, as it usually happened at an early stages of capitalism formation - so called Jungle Capitalism ). Turgut Özal Prime Minister of Turkey ( ) and President of Turkey ( ). Author of transformation Turkey economy by privatization, liberal reforms, market economy development, Recep Tayyip Erdoğan completed the construction of the magnificent buildings of Republic of Turkey, giving it a completely new view, creating a unique type of statehood based on the broadest national consent expressed, in our view, on the ideology of Islamic Socialism and achieved unprecedented socio-political and economic success and welfare. The activity of Erdoğan is connected with Numerous Reforms on the basis of Common Sense. Short list of Erdoğan s achievement is as follow: Association with the EU; The foreign and domestic confidence; Reducing Military influence; Free entrepreneurship & strong fiscal policy; Banking system (Inflation under control); Social policy; Development of tourism, textile, agriculture industry; Building of Roads (Via Est Vital Road is 34

35 Life); speedily development of educational system. Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector. Special attention to bank system, Turkey s Central Bank & solid financial system support stable development of the country. (The role of the bank system of Turkey is shown more effectively if we remember Icelandic financial crisis. It was a major economic and political crisis in Iceland that involved the collapse of all three of the country's major privately owned commercial banks, following their difficulties in refinancing their short-term debt and a run on deposits in the Netherlands and the United Kingdom. Relative to the size of its economy, Iceland s systemic banking collapse is the largest suffered by any country in economic history) Recep Tayyip Erdoğan current Prime Minister of Turkey, since The role of Fethullah Gülen is quite unique. His multifaceted activities made the basis for spiritual unification of the people of Turkey, the faith of the people (or its large part, including businessmen) in the permanence of the light and airy ideals become stronger. This society is able to get the great success in any area of activity. Gülen s activity supports Interreligious dialogues, establishment of Multi-party democracy, Service to the common good (hizmet), development of Education, ("Studying physics, mathematics, and chemistry is worshipping God ). Gulen's followers have built schools around the world, expensive modern facilities, equal gender treatment and English taught from the first grade Fethullah Gülen one of the world's most important Muslim figures author, educator, and Muslim scholar, the founder of the Gülen movement. As a good sample of Turkey foreign activity for establishment of piece and democracy around the world is, for instance, Chaglar network which develops in Georgia highest level of education and social cultural advance of the youth. 35

36 International Black Sea University ( is one of the best Universities in Georgia, its slogan is: International Education, International Employment and in reality IBSU ensures best results of the students education and their career achievements. Conclusion Life and activities of these illustrious sons of Turkey is widely known. Nevertheless, we will try to emphasize their most important, in our view, achievements as the components of a single historical process of Turkey s development. Of course, the other leaders of the people of Turkey have done much (not a bit) to the country, which is at least the preservation of the peace in Turkey during the WW2, but all the same, their activities didn t appear to be as significant as compared with them, the above mentioned great leaders, thinkers and policy makers. Nowadays Turkey has the strong advantages - The unity of society and the state (government). Of course, the Unity creates the Strength and prosperity of Turkey. Other countries can do the same if they are able to follow this example of transformation of the country and the society. A wise and effective policy of the government of Turkey, liberal reforms, fiscal & social policy, market economy with the reasonable regulations, the national consent of a society, hardworking people, with entrepreneurship spirit and ethical norms, the purposeful reforming of the country and society during the last years and the Unity of the State and the Society makes success of Turkey - Turkish Miracle - an example for many countries. 36

37 4) Georgia s Paradox: Growth without Employment Tatiana PAPIASHVILI, Prof. Dr. International Black Sea University, Tbilisi, GEORGIA Georgia s Paradox: Growth without Employment 6 ABSTRACT Jobless growth or growth without employment was recognized in developing world long ago. Based on statistical analysis, the paper shows that in Georgia the last decade unemployment rate has been stably high while GDP grows. This growth paradox and factors behind it (weak private sector and, especially, small/medium businesses) are analyzed and the way forward is specified. INTRODUCTION Georgian economy is growing economy with GDP (Gross Domestic Product) growth rate of average of 5.3 percent in Despite the great achievements in economic performance, the number of unemployed/employed does not change significantly. This statistical phenomenon is usually called as paradox of growth. The result of the paradox is that poverty and unemployment are still the most painful issues for the Georgian government and most Georgians (Poll: Georgia's, 2009), the situation that is dangerous in both economic and political aspects because any economy that fails to provide jobs for the majority of the citizens at any point has failed. The paper investigates the proximate explanatory factors behind the Georgia s growth paradox. We focus on one specific domain, namely analysis of unemployment. Relationships between GDP growth and poverty incidence reduction or the quality of living are not, for the moment, the subject of the interest. GDP GROWTH THEORIES AND EMPLOYMENT: LITERATURE REVIEW One of the parameters used in assessing the success of any administration is the level of the economic growth attained measuring as growth rate of RGDP (Real Gross Domestic Product) and/or of GNI (Gross National Income) and/or RGDP per capita, the like within the period. The GDP growth figure is considered as the leading indicator to decline in poverty incidence through reduced unemployment, increased household income and reduced inequality. Theoretically this approach is based on Okun s famous hypothesis regarding the relationship between employment/ unemployment and economic growth, on one side, and the Say s law on another. As the Say s law postulates the cycle of growth starts with consistent rise in output. It could be caused by new technology, policy actions (fiscal and/or monetary) and discovery and exploitation of natural resources. The output growth then translates into higher income and hence higher market demand which posits that supply creates its own demand on the aggregate. Even if the increased income is not consumed, the higher the income, the higher the potential savings and investment. The increased investment creates additional demand for resources, that is, the increased employment of idle resources. Therefore, as investment increases, especially in small and medium scale businesses which is the biggest employers of labour the world over, new jobs would be created, more people earn additional income and are lifted out of poverty, output rises, further increase in demand is created and the cycle begin again until the economy reaches a level where resources are optimally engaged. Thus, the orthodox economic theory states that economic growth is accompanied with increase in employment (or decrease in unemployment). In an ideal, it should be sufficient for poverty reduction and social progress. In other words, economic growth tends to be incomplete without improving social indicators like education, health, women's participation in economic activities, and etc. 6 Prof. Dr. Tatiana Papiashvili, Faculty of Social Sciences at International Black Sea University, Tbilisi, Georgia 37

38 But sometimes growth may be not adequate to achieve this goal. Moreover, there is practical evidence when high economic growth residing side by side with high unemployment of resources (human, natural and material), infrastructural decay, low manufacturing and agricultural productivity and ultimately high incidence of poverty. The phenomenon known as growth without development or jobless growth is usually called as a paradox of growth ( Gregg, 2011; Jeroen, 2009; Ghani, 2011;etc.) and it became a feature of, first of all, developing economies long ago. Particularly, this paradox has been recognized in whole region, for instance, Eurasian region (Åslund & Jenish, 2006), and in particular countries, for instance, in Philippines s economy (Shahani & Inquirer, 2011a; 2011b; etc.), in Indian s economy (Banerjee, 2006; Ghosal, 2012; Ghani, 2011; etc.), in Nigerian economy (The Nigeria s, n/d; Adekoya, 2012; Gaskia, n/d; Oluwa, 2012a; Oluwa, 2012b), in Jordan s economy (Rad, 2011), in Burkina Faso (Grimm & Günther, 2005) and other countries. Even more, South Africa experiences double paradox of growth: an increase in economic growth is accompanied by increase in both unemployment and employment. (Biyase & Bonga-Bonga, n/d) Remarkably, jobless growth was registered in some advanced countries, for instance in Sweden (Sweden s, 2006). Opposite situation was observed in UK: for the 3 months to March of 2011 the paradox was noted that a stagnant economy as measured by GDP growth co-existing with an apparently booming labour market (Gregg, 2011). This paper focuses on short run period relations between growth and employment (unemployment) because in the long run causation and correlation would be different as there is a belief that GDP growth generally achieves full employment level (or natural rate of unemployment). However, the empirical evidence for this view is weak (Saget, 2000). Instead, the long run equilibrium employment rate is likely to depend on other factors rather than the rate of GDP growth, notably effects of search time (jobs and employees), structural mismatches between education and work, the gap between gross and net income, the gap between income and unemployment benefits (Stevenson & Wolfers, 2008). Further, GDP growth does not necessarily reduce unemployment for several other reasons: it may involve outsourcing associated with retaining much of GDP domestically while moving jobs to elsewhere; growth often goes along with creative destruction, i.e. disruption of old economic activities, which in turn implies (temporary) unemployment in specific sectors or job types (Pissarides, 2006). ECONOMIC GROWTH AND EMPLOYMENT IN GEORGIA: STATISTICAL OVERVIEW According to the National Statistics Office (GeoStat) Georgia has relatively strong economic growth and good macroeconomic performance over the last decade. Despite this fact, as Figure 1 depicts unemployment rate has been stably high while GDP grows. Figure 1. Dynamic of GDP growth and unemployment rate in Georgia, percent Source: GeoStat GDP real growth 9,6 9,4 12,3 2,3-3,8 6,3 7,2 Unemployment rate 13,8 13,6 13,3 16,5 16,9 16,3 15,1 Number of employed and unemployed people is relatively stable and, in fact, and it follows the changes in GDP with minor alterations (Figure 2). In short, here is a paradox of growth in this country. From 2005 to 2011, the economy grew by an average of 5.3 percent and yet, instead of fluctuate with economic growth, the number of unemployed/employed does not change significantly. What factors are behind the statistics? Several explanations might be given for such a 38 GDP real growth Unemployment rate

39 paradox. To find the answer there is sense to distinguish GDP growth, on one side, and unemployment/employment issues, on another. Figure 2. Employment and unemployment in Georgia (thousand persons) Source: GeoStat Question of GDP growth factors is complex and needs special investigation, and, for the moment, it is out of the research interest. The paper focuses on labour contribution to GDP. As the statistics of GDP by income categories show, monetary payment to employees in form of compensations, wages, and salaries steadily grow from year to year even in the crisis (Figure 3), while employment fluctuates and even it grows insignificantly. In other words, this improvement in growth has failed to lead to the kind of economic diversification that could generate widespread productive employment. Figure 3. Compensations of employees, wages and salaries as a percentage of GDP Source: GeoStat At first sight, Georgia s unemployment rate is at around the mid-level for emerging countries. But in reality it understates the labor picture as many people who are statistically considered to be employed are in fact also underemployed. For example, they are (a) hindered by insufficient pay, (b) irregular or seasonal employed, (c) hidden unemployed, or being in the group that includes hopeless or discourage workers; (d) selfemployed (55%-65% of employed). This last group includes people who possess homesteads and mostly cultivate only for their family needs. Because their products are not marketable, they cannot be included into GDP and the effectiveness of such employment is low. Besides, most of these people consider themselves as unemployed and are ready to work. The problem of unemployment becomes disturbing when the youth unemployment is added to consideration. In 2011, 36.3% of Georgians of age and 25.0% of those between ages could not find work (GeoStat). That is why actual unemployment worsened rather than decrease, even with the high economic growth rates. Sometimes voluntary unemployment is discussed as a source of country s unemployment. For Georgia it is not the case just because country has no system of unemployment benefits. And the last, but not the least, important aspect of employment/unemployment issue should be taken into account. This is migration process that has been intensive in the country since the declaration of independence in In particular, as Figure 4 shows since 2000 Net migration has been positive only in yeas of Rose 39

40 revolution of (due to population s optimistic expectations) and after the Russian-Georgian war of 2008 (due to extradition of Georgian labor migrates from Russia). Figure 4. Net migration (thousands) Source: GeoStat Therefore, brief analysis of economic growth of Georgia finds out that, despite the successful FDI policy and impressive GDP growth in (9.4% and 12.3%, respectively ), and the recovery (6.3% and 7.2%, respectively), with about 7% in 2012 (GeoStat), there is still a limited pool of job opportunities available. Taking into account statistical data, it is clear that actual unemployment that includes all types of hidden unemployment, increased. In this circumstance, there is one sector of economy that has the capacities to generate employment opportunities and absorb ever-rising number of job seekers without additional investment. This is sector of small and medium enterprises (SMEs). All over the world employment is mostly generated by SMEs. For example, in OECD economies SMEs and microenterprises account for over 95% of firms, 60-70% of employment, 55% of GDP and generate the lion s share of new jobs. In developing countries, more than 90% of all firms outside the agricultural sector are SMEs and microenterprises, generating a significant portion of GDP (Promoting Small; 2007). In fact, the relationship between jobs creation and firms size is more comprehensive. As the latest researches show the negative relationship between firm size and employment growth is very general case. More precisely, the fact is that not only size but age of the firms is matter (Haltiwanger, et al, 2010; p.31); on another hand, it is important to distinguish between job creation vs. share in employment. Taking into account these assumptions, the research highlights the important role of business startups and young businesses in U.S. job creation (Haltiwanger, 2006). EXPLAINING THE GROWTH PARADOX: WEAK SME SECTOR Georgia s economy is largely private sector economy not only according to the number of registered enterprises but according to the main macroeconomic indicators such as turnover, output, value added and number of employed (Table 1). Table 1. The share of non-state enterprises, percent Registered enterprises Turnover Output Value added Employment Source: Entrepreneurship in Georgia, 2012; Entrepreneurship in Georgia, 2011; Entrepreneurship in Georgia, 2010; Entrepreneurship in Georgia, In turn, among the registered enterprises the most numerous group is small and medium enterprises (Table 2). 40

41 Table 2. The share of SMEs, percent Registered enterprises Turnover Output Value added Employment Source: Own calculation based on GeoStat In Georgia there is no official legal definition of small or medium enterprises. As the National Statistics Office of Georgia states, until 2002 different criteria were used for determining size of enterprises. Thus, current classification of large, medium and small enterprises was not in place (GeoStat). The National Statistics Office of Georgia provides the following interpretation (Entrepreneurship, 2012; p.18-19). Small and medium enterprises are defined as entities of any organizational-legal form which do not exceed following limits for number of employees and annual turnover, respectively: For small enterprises - 20 employees and 500 thousand GEL; For medium enterprises employees and 1500 thousand GEL; For large enterprise more than 100 employees and more than 1500 thousand GEL. The new Tax Code of Georgia which entered into force in 2011, stipulates a new specification of businesses in Georgia as: micro-, small, medium, and large based on workforce and annual turnover output (Tax Code of Georgia; p ). In particular, Micro business is an entity with an income less than to GEL 30,000 and no employees. Small business is entity with an income less than GEL 100,000 Thus, due to the absence of legal definition of a SME, there is no relevant statistical information on Georgian SMEs. Besides, significant part of enterprises is classified as unknown (Figure 4). Figure 4. The number of enterprises by number of employees (2011) Source: Geostat The fulfilled short statistical analysis has shown that, despite SMEs constitute a considerable number of business enterprises in Georgia, an inadequate growing of SMEs quality relevant to SMEs number, should be emphasized specially. In other words, SMEs have constituted an insignificant segment of Georgian economy according to their contribution to the main macroeconomic indicators - turnover, output, value added, national income, and even employment in comparison to the statistics of advanced countries. In Georgia the number of employed/unemployed is more or less stable despite the fluctuation of GDP. While GDP and related variables are mostly generated by large enterprises, employment is generated by both large businesses and SMEs. CONCLUDING REMARKS unknown over 100 Despite high rates of growth last decade, Georgian economy created relatively few new productive jobs and, as a result, actual unemployment increased because many Georgians have remained officially unemployed or economically inactive or have emigrated. In other words, growth process that the country has experienced since 41

42 the inception of reforms from 2004 has produced a mixed picture and failed to engender desirable impact on employment. The situation that is typically classified as paradox of growth or growth without employment. The role of small and medium businesses as employment generator is worldwide recognized. In contrast, in Georgia SME sector role in the development of national economy and as a factor of employment growth is, generally, under evaluated by the government and policymakers. Moreover, for local communities SMEs may be an important source of employment for low skilled workers, women, and young people or, particular, for the groups of unemployed that are more numerous in the country. Additionally, small size and flat management structure make them more flexible in response to the changing market environment and help to keep number of employees more or less stable. These challenges facing the Georgian labour market call for structural shifts in the government s economic policies or policy priorities. REFERENCE Adekoya, F. (2012). Paradox of growth without development, declining naira value. Retrieved March 19, 2013 from Åslund, A. & Jenish, N. (2006). The Eurasian Growth Paradox. Working Paper Series. Retrieved February 16, 2013 from Banerjee, A.V. (2006). The paradox of Indian growth: A comment on Kochhar et al. Journal of Monetary Economics, 53 (2006), p Biyase M. & Bonga-Bonga L.(n/d). South Africa s growth paradox. Retrieved February 7, 2013 from Entrepreneurship in Georgia: Statistical Publication (2009). Ministry of Economic Development of Georgia, Department of Statistics.Tbilisi, Georgia. Entrepreneurship in Georgia: Statistical Publication (2010). Ministry of Econom Development of Georgia, Department of Statistics. Entrepreneurship in Georgia: Statistical Publication (2011). Ministry of Econom Development of Georgia, Department of Statistics. Entrepreneurship in Georgia: Statistical Publication (2012). Ministry of Econom Development of Georgia, Department of Statistics. Gaskia, J. (n/d). The Nigerian economy: a paradox of growth without development! Retrieved March 9, 2013 from Ghani, E. (2011). Is growth incomplete without social progress? India s development paradox. Retrieved February 16, 2013 from Ghosal, R. (2012). Growth, Poverty and Inequality Paradox in India: A Panel Data Approach. Retrieved February 15, 2013 from Gregg, P. (2011). Employment and Growth Paradox. Retrieved April 3, 2013 from Grimm, M. & Günther, I. (2005). Growth and Poverty in Burkina Faso. A Reassessment of the Paradox. Retrieved January 25, 2013 from Haltiwanger, J. (2006). Entrepreneurship and Job Growth). Retrieved March 22, 2013 from Haltiwanger, J., Jarmin, R., Miranda, J. (2010). Who creates jobs? Small vs. Large vs. Young. Retrieved January, 2013 from Jeroen C.J.M. van den Bergh (2009). The GDP paradox. Journal of Economic Psychology, #30, p Oluwa K. (2012a). Paradox of growth without development: Nigerian experience. Retrieved March 19, 2013 from Oluwa K. (2012b). Paradox of growth without development. Retrieved March 15, 2013 from Pissarides, C. (2006). Labor Market Search Theory: A Basic Model. Retrieved January 25, 2013 from 42

43 Poll: Georgia's main problem unemployment. ( ). Georgia Times. Retrieved June 14, 2011 from Promoting Small and Medium Enterprises for Sustainable Development (2007), World Business Council for Sustainable Development. Saget, C. (2000). Can the level of employment be explained by GDP growth in transition countries? Theory versus the quality of data. Labour, 14(4), Rad, S.T. (2011). Jordan s Paradox of Growth without Employment: A Microcosm of the Middle East? Retrieved March 17, 2013 from Shahani, L.R. & Inquirer, P.D. (2011a). Paradox of growth. Retrieved March 22, 2013 from Shahani, L.R. & Inquirer, P.D. (2011b). The paradox of growth and persistent poverty. Retrieved March 22, 2013 from Stevenson, B. & Wolfers, J. (2008). Economic growth and subjective well-being: Reassessing the Easterlin paradox.nber Working Paper Retrieved March 3, 2013 from Sweden s growth paradox (2006). Mc Kinsey on economics. Retrieved March 22, 2013 from wnload.aspx?ar=1807 Tax Code of Georgia (In Georgian) (n/d). Retrieved June 1, 2011 from The Nigeria s Paradox of Growth amidst High Poverty Incidence (n/d). Retrieved January 25, 2013 from Nigeria's%20Paradox%20of%20Growth%20amidst%20high%20incidence%20of%20Poverty.pdf 43

44 Transition Period to Market Economy 1) Value Based Management in Joint Ventures of Uzbekistan Rustam ABDURAUPOV, Tashkent Financial Institute, Department of Financial Analysis, UZBEKISTAN, Abstract Value Based Management in Joint Ventures of Uzbekistan In the modern world, when the effective usage of available possibilities is the basic priority of all the entities and economy of the countries in general, international joint ventures (JV) are in a special niche as a rather new form of the international cooperation and attraction of direct foreign investments. Thus, JV companies have become an integral part of the national economy of Uzbekistan, and their proportion in Gross Domestic Product (GDP) has been doubled since the last decade. As the most part of the JV are successful, according to the history of the leading companies of the world, it appears that there is a need to transit to the next step of development creating value of the JV companies. However, Value Based Management (VBM) is a quite new concept for the local professionals in accounting and finance fields. Considering the peculiarities of the national economy, we suppose that, it is irrelevant to apply all the variety of tools that are included in VBM. Consequently, it is necessary to determine the most relevant tools that should be used during the current stage of development of the JVs, and the national economy. In this paper we show the basic aspects of the development of JVs of Uzbekistan, their role in the national economy. We attract the fundamental principles of VBM, and examine the advantages and disadvantages of the tools used in VBM by tables and illustrations according to the literature review. Having analyzed the research papers of the scientists and professionals, we emphasized the most applicable tools for the current conditions of the national economy, and set the ways for the further research. Key words: Value Based Management (VBM), Joint Ventures (JV), Economic Value Added (EVA), Market Value Added (MVA), comparative analysis. 1. Introduction The centuries-old history of development of world economy system shows a huge role of the investment factor in economic growth, rational resource allocation and provision of development of all the industries in economic complex, economic relations of the separate countries and production cooperation. Moreover, the volume of the attracted investments is one of the factors that illustrate the stability of the national economy. According to the statistics given by the World Bank, during the period from 2003 to 2011 net inflows of Foreign Direct Investment (FDI) to Uzbekistan increased by 17 times. Moreover, the analysis shows that correlation rate between FDI and Gross Domestic Product (GDP) of Uzbekistan is 0.95 (Abduraupov, 2011). The figures for the calculated rates indicate that there are a very strong relation between FDI and GDP of Uzbekistan. The consecutive realization of the principles which are based on the own model of the economic development, that has been adopted in the Republic of Uzbekistan, has allowed to lower essentially negative influence of world financial and economical crisis on economy, financial and banking systems of the state. As a result, stability in economic growth rates and macroeconomic balance were provided. These facts, in turn, lead to the increasing interest of foreign investors to the economy of Uzbekistan. Especially, in a form of creating JV as the strategic cooperation and the organization joint ventures involves not only high profits on as effective usage of principles of the international distribution of work, but also it positively influences on interstate relations. The percentage of GDP created by the JVs in the Republic of Uzbekistan doubled from more than 7% to more than 14% between 2003 and 2012 (Figure 1). This fact shows that this form of enterprise has a rapid development rate in Uzbekistan. Economists consider that one of the most important problems in the activity of JVs is a financing problem (Fomina, Smirnova, 2008). VBM is a system of tools that can help managers to make decision on financing issues. The author supposes that it is time to start applying the VBM tools in JVs of Uzbekistan, and set the aim of creating value, not just profit maximization for the managers. However, the main question is: What is the most relevant tool that can be used in JVs nowadays, considering the peculiarities of national economy of Uzbekistan? In order to answer the question the author determines the main conditions for the usage of VBM tools in the next chapter, and then provides with the research results on comparative analysis of the appropriate tools based on the literature review. The author assumes that the paper will be useful for the researchers, students and practitioners as accountants and managers of JVs. 44

45 2. Conditions for the usage of VBM tools The author believes that the performance indicators must first be relevant with the certain stage of development (life cycle) of the JV. In this sense, the updated financial goals of the organization can be represented as a pyramid of financial development stages, each stage of which has its own set of indicators of performance, the most appropriate for this stage. In the most general form of the pyramid of financial development stages and performance indicators is shown in Figure 2. While drawing the pyramid, the following were considered: First of all, the updated financial goals depend on two main factors: the growth of capital intensity of the JVs, which determines the need for asset balance (fixed and working capital); the degree of the need to take into account the long-term prospects for development of JVs. The latter is defined by a high probability of significant changes in the industry related to technology, government regulation, competition, investment cycle, structure of the modern corporation. It is significant that the former of these factors is related to the internal environment of the business (the optimal size factor), and the latter to the external environment (the business environment). The researchers from McKinsey & Co were one of the first who noted above mentioned factor and key financial performance indicators (Copeland, Koller, Murrin, 1995). Secondly, we assume that the transition from one stage of development to another is strictly deterministic. Moreover, there may be a possibility of contradiction between the actual declared goals of the organization and the stages of its life cycle. In this research paper, we focus on the performance indicators corresponding to a certain level of long-term vision for the development and the level of capital intensity of the JVs. However, we will not consider such traditional accounting indicators of economic efficiency, as net income, return on assets (ROA), return on equity (ROE), Earnings per Share (EPS) etc. Recognizing the importance of traditional accounting indicators, we note that making a profit, and even its growth is a necessary but not sufficient condition for growth of shareholder value. The main difference between VBM-performance and traditional accounting indicators of effectiveness is in the fact that they are designed to signal a change in value for the providers of capital (primarily the owners or shareholders) for the appropriate reporting period. In other words, VBM-figure should clearly and unambiguously characterize how well the company during the period satisfies the goals of maximizing the wealth of its owners (shareholders). The particular difficulty of choosing the main performance indicator is in a variety of indicators. Because of this variety of performance metrics the situation in the consulting market has been accurately picked the name of a classic article in the Journal of CFO Magazine (October 1996) Metric wars (Myers, 1996). Note that in the past almost seventeen years since the publication of this situation has only worsened. Therefore, when choosing the main performance indicator (set of indicators) there is a problem posed in the title of the paper magazine CFO Magazine (November 1997) Measure for measure, the essence of which reads as follows: The universe VBM-performance indicators is expanding rapidly. As the financial manager of the company it is hard to determine: which of these indicators is the best specifically for the company? (Myers, 1997). 3. Comparative analysis of the most popular VBM-performance indicators Having analyzed the procedure for calculating the most popular performance indicators, we return to the fundamental question: which of the indicators most accurately reflects the creation of new value for shareholders, that is, which of the indicators is better? It should be noted that there is no, by definition, good and bad indicators, each of them has its own scope, its pros and cons, and therefore companies should be guided by some set of performance indicators. But what indicator should the JVs start applying? To answer the questions we will continue to conduct comparative analysis. There is a number of approaches to compare performance indicators in the scientific literature. So, R. Morin and S. Jarell (Morin, Jarell, 2001) propose the following distribution of performance indicators in terms of their accuracy and complexity (Figure 3). More complex comparison of performance indicators for the same parameters (accuracy vs. complexity) is presented, in particular, by J. Knight (Knight, 1998) (Figure 4). Comparing the approaches Morin, Jarell and Knight, you may notice some depressing regularity: a figure that has been promoted by the author, is always in the north-eastern segment of the frame (in the first case, there is SVA, in the second - CFROI). It is particularly note that the above mentioned comparisons are carried out solely on the basis of logical analysis, based on the premise that any accounting figures are bad by definition. It seems that these approaches are flawed in principle. Moreover, it appears that if the degree of difficulty of calculating a performance indicator can be really noticeable, then the degree of accuracy should not be logically justified, but based on appropriate econometric studies. In this paper the author attempted to compare the figures that were discussed in this article in three ways: the 45

46 degree of complexity of the indicator, the formation of a new value, inclusion in the index of expectations regarding future results of current operations (Table 1). It is assumed that the more complex the score, the worse it is. Preferably, of course, if an indicator is easy to understand for the manager (employee) who does not have special financial education. The possibility of formation of a system based on creating a new value, which is defined as, firstly, the factorization of periodic indicator into drivers (factors), which, in turn, can be brought to every division of the JV, and secondly, testing the resulting periodic indicator for whether or not it indicates changes in the value for the shareholders (owners) in the reporting period. Inclusion of expectations makes some contradictory views of the nature of value creation: on the one hand, the value created expectations of future benefits, on the other hand, periodic performance indicator should not signal more about future expectations, but about the benefits actually received (the question arises: should managers be rewarded - for what they want to do, or what they actually did?). Therefore, the more in the periodic performance measure includes expectations of future benefits, the more it may be correct (in terms of creating future value), but the less it may be appropriate to determine the actual results achieved (in terms of determine the success of certain businesses and, therefore, a basis for remuneration of managers). 4. Conclusion The majority of the JVs in Uzbekistan are not listed companies. As the most of the attention is paid to the small business and entrepreneurship by the government of the country, the development of the corporate finance is tend to be the next stage. There is no doubt will the JVs be among them. Obviously, creating a scientific base for the VBM is a crucial moment. The surveys conducted among the accountants and managers of JVs resulted the need for a simple VBM tool, that does not requires capital market to be as developed as in the leading countries of the world. According to the conducted analysis, the table and the figures shown, advantages and disadvantages of each performance indicator, there is a decision to start with an EVA (Abduraupov, 2012). A number of JVs have already begun applying this indicator, and financial position of them is becoming better. The further research papers will provide with the numerical analysis of the current paper s conclusions REFERENCES Abduraupov, R Joint Ventures the Perspective Form of Business Entity. Scientific Journal of Finance 5-6: Tashkent (Абдураупов Р Қўшма корхоналар хўжалик юритишнинг истиқболли шакли. Молия: илмий журнал 5-6. Тошкент) Abduraupov, R EVA and its Role in Evaluating the Efficiency of the Activity of a Company. Scientific Journal of Finance 4: Tashkent (Абдураупов Р Иқтисодий қўшилган баҳо ва унинг компния фаолияти самарадрлигини аниқлашдаги роли. Молия: илмий журнал 4. Тошкент) Abduraupov, R., Abduraupova, G Executing Financial Strategy with the Balanced Scorecard. Banking- Finance Academy of the Republic Uzbekistan: Tashkent Copeland, T., Koller, T., Murrin, J Valuation: Measuring and Managing the Value of Companies. John Wiley & Sons: N. Y. Fomina, A., Smirnova, N Attracting Financing: from Zero to Infinity. Barator Publishing Knight, J Value-Based Management: Developing a Systematic Approach to Creating Shareholder Value. McGraw-Hill: N. Y. Morin, R., Jarell, S Driving Shareholder Value: Value-Building Techniques for Creating Shareholder Wealth. McGraw-Hill: N. Y. Myers, R Metric wars. CFO Magazine 12 (10) Myers, R Measure for measure. CFO Magazine 13 (11) Stern Stewart & Co WWW home page. [Online] Available: ttp:// 46

47 Level of Taking into Account Internal & External Factors Traditional Performance Indicators Performance Indicators Based on VBM % Figure 1: Share of Joint Ventures in GDP of Uzbekistan (%, ) (" 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 y = 6,5643e 0,0935x R² = 0, years Share of JVs in GDP Üstel (Share of JVs in GDP) Figure 2: Pyramid of Financial Development Stages and Performance Indicators VI. Steady Valuecreating: Valuecreating Indicators Growth V. Creating Value: Value-creating Indicators: Economic Value Added, Cash Flow Return on Investment, Cash Value Added etc. IV. Steady Growth: Net Income Growth, Return on Assets Growth, Return on Equity Growth III. Self-financing: Net Income, Return on Assets, Return on Equity II. Self-sufficiency: Operating Profit Growth, Operating Cash Flow Growth I. Survival: Gross Profit, Operating Profit, Operating Cash Flow Figure 3. Distribution of Performance Indicators in Terms of their Accuracy and Complexity (Morin, Jarell, 2001) 47

48 accuracy TSR NPV SVA MVA TBR CFROI EVA Traditional Accounting Performance Indicators BSC complexity Traditional Accounting Performance Indicators: ROE, EPS, ROA, NI, EBI (NOPAT) etc. EVA Economic Value Added (Stern Stewart & Co., 2000) MVA Market Value Added BSC Balanced Scorecard (Abduraupov, 2013) CFROI Cash Flow Return on Investment NPV Net Present Value SVA Shareholder Value Added TSR Total Shareholder Return TBR Total Business Return 48

49 Primary Adjustments accuracy Figure 4. Comparison of Performance Indicators (Knight, 1998). CVA CFROI EVA ROGA Sales EPS EBITDA ROE RONA complexity Income Statement Balance Sheet Risk Adjustments EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization EPS Earnings per Share ROE Return on Equity RONA Return on Net Assets EVA Economic Value Added ROGA Return on Gross Assests CVA Cash Value Added CFROI Cash Flow Return on Investment Based on Cash Flow Based on Real Currency Accounts Asset Usage Period 49

50 Table 1. Comparison of Performance Indicators Performance Indicators Degree of Complexity of the Indicator Comparison Options Inclusion of Expectations Cash Value Added Medium Partially included Market Value Added Medium Included Economic Value Added Residual Operating Income Total Shareholder Return Residual Income Based on the Market Value Shareholder Value Added Cash Flow Return on Investment Medium Easy Easy Partially included Partially included Included Possibility of Creating a System of Drivers High. Easy to decompose into a system of drivers Low. Aggregate performance indicator that can be used at the corporate level High. Easy to decompose into a system of drivers High. Easy to decompose into a system of drivers Low. Aggregate performance indicator that can be used at the corporate level Hard Included Medium Hard Very hard Included Included Residual Income Easy Not included Net Economic Income High. Easy to decompose into a system of drivers Low. It is hard to decompose into a system of drivers High. Easy to decompose into a system of drivers Medium Partially included Medium 50

51 2) Factors Influencing the Return and Volatility of Georgian Stock Market Ilia BOTSVADZE, lecturer on business management faculty at International Black Sea University, Tbilisi, GEORGIA Metin MERCAN, Assoc. Prof. Dr, lecturer on business management faculty at International Black Sea University, Tbilisi, GEORGIA Factors Influencıng the Return and Volatılıty of Georgıan Stock Market ABSTRACT In the literature, there are many empirical studies to explore the causal side of relationship between stock returns and macroeconomic variables. However, neither the signs relationship nor the direction of causality is resolved both in theory and in empiric. This study seeks to address the causal relationship between stock prices and macroeconomic factors such as interest rate, inflation, exchange rates and money supply, applying monthly data covering the period of 2001:01 to 2010:12 from Georgia. Paper consists of three parts, in first part generally nature and characteristics of volatility is explained. The second part is review of Georgian capital and stock market. Chapter three is empirical evidence on Georgian Stock Exchange, exploring the causal side of relationship between stock returns and macroeconomic variables. Granger causality model is employed to explore such relationships. The results of the study indicate that interest rate (INT), inflation (CPI), money supply (M2, M1), and exchange rate (EXR) do not Granger cause stock returns, as well stock returns do not Granger cause macroeconomic variables in Georgian case, except money supply (M2). Furthermore, the analysis of the results infers that interest rates and exchange rate are the negative determinants of stock prices, while money supply and inflation are the positive determinants of stock prices in Georgia. Finally, the evidence related to predict macroeconomic factors by using stock returns is a little stronger than the evidence related to predict stock returns by applying macroeconomic variables. Key words: Stock Returns, Macroeconomic Factors, Granger Causality, Correlation. 1. INTRODUCTION In recent years there has been a significant increase in the volatility of returns of many financial assets which has attracted the interest of participants, regulators and academics. Stock market volatility illustrates the degree of price variation between the share prices during a specific period. A certain degree of market volatility is inevitable even desirable. Because the stock price fluctuation indicates changing values across economic activities and it facilitates better resource allocation. But continual and wide stock market price movements cause uncertainty about the value of an asset and affect the confidence of the investor. High volatility disrupts the regular functioning of the stock market. Stock markets are often labeled by periodic sessions of volatility, in which prices rise and fall sharply and unevenly. This volatility is often impelled by economic sources, which affects investor confidence in the listed companies, causing them to move their money into and out of stocks. Stock prices change every day in the market. Buyers and sellers deciding how valuable each stock is cause stock prices to change. Volatility in the stock return is an integral part of stock market with the bull and bear phases. In the bullish market, the share prices rise quickly and high and in the bearish market share prices fall down. These movements, ups and downs determine the return and volatility of the stock market. Volatility is a syndrome of a highly liquid stock market. Volatility of asset influences pricing of securities. An increase in stock market volatility causes a large stock price change of advances or declines. Investors interpret such big movements in share prices as an increase in the risk of equity investment. Thereby, they shift their funds to less risky assets. Changes in local or global economic and political environment impact the stock price movements and exhibit the state of stock market to the general public. Stock market volatility tends to be continual. The periods of high 51

52 volatility as well as low volatility tend to last for months. Generally, periods of high volatility occur when stock prices are falling and during recessions. Stock market volatility also is positively related to volatility in economic variables, such as inflation, industrial production, interest rate, many supply, exchange rate, volatility of bond markets 7. The continuance in volatility is characteristic: stock market volatility should depend on the overall health of the economy. The continuance of stock market return volatility has two implications. First, volatility is a alternate for investment risk. Continuance in volatility implies that the risk and return trade-off changes in a predictable way over the business cycle. Second, the continuance in volatility can be used to predict future economic variables. For example, Campbell (2001) shows that stock market volatility helps predict GDP growth 8. Volatility of stock prices is one of the empirical factor of stock market development which has received reasonable attention in the literature. Afar, volatility of stock returns is not an indicator of stock market development. Despite, high levels of volatility can significantly affect the return on investment and growth by affecting average portfolio risk. There is a variety of channels through which high volatility can have a negative impact on investment and growth: It causes great instability of the financial system as a whole. It decreases the supply of financial funds, and raises the cost of access to capital by discouraging savings from risk averse individuals. To the extent that equity markets help to channel resources towards the most profitable investment through price signaling, highly volatile stock prices cause miss-allocation of resources because prices do not correctly indicate return on investments. These arguments suggest that high volatility negatively affects growth and capital accumulation. Singh (1997) supports that because of high volatility, the large expansion of stock markets in developing countries, far from helping industrialization and fostering capital accumulation, can obstruct economic growth. Indeed, according to Singh, the expansion of stock markets in developing countries since the beginning of the 1980s has not been caused by the endogenous evolution of financial systems, but by means of ad hoc governmental programs of privatization and financial liberalization. This financial de-repression, as denoted by Singh, however, has occurred without a change in the regulatory system or infrastructure, which remains inadequate to support well functioning equity markets. The result is very volatile stock markets that are unable to accomplish the roles they carry out in advanced economies such as monitoring, screening, and information gathering - which is how they promote growth GEORGIAN CAPITAL MARKET AN OVERVIEW To a large extent, the businesses lack of interest in the markets is due to these markets somewhat sorry state. On GSE the levels of activity are low even by emerging market standards. Around 250 companies are listed on the exchange, but most of them have done so only to comply with regulatory requirements (listing is legally required of companies with more than 100 shareholders). The stocks of only a few of them are actually traded with any regularity (Bank of Georgia, Teliani, and United Georgian Telecom are among the more popular ones). To give a better idea of the volume of trading on the GSE, consider that the exchange only recorded GEL 38m ($23.9m) in turnover in all of 2007 a far cry from what is traded in countries of similar size. For example, Croatia s stock exchange showed $13 billion turnover in the same year 10. The capitalization of the market remains low as well: GSE s total market cap hovers around $1.5 billion, 70% of which is due to one stock Bank of Georgia. To give a sense of perspective, Croatia s stock exchange had a capitalization of $79 billion at the end of 2007, and even in Macedonia, population 2 million, the total market cap has recently touched $3.5bn Schwert, G.W. (1989), Why Does Stock Market Volatility Change Over Time, The Journal of Finance, Vol. 44, No. 5, pp Campbell J., M. Lettau, B. Malkiel, and Y. Xu. (2001). Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk, Journal of Finance 56, pp Singh, A. (1997). Financial liberalization, stock markets and economic development, Economic Journal, 107: 77, pp Annual Report 2007, National Bank of Georgia, pp.4-26, 11 Annual Report 2007, National Bank of Georgia, pp

53 In the case of the GSE, the lack of liquidity and low levels of capitalization are creating a vicious circle: companies will not see a reason to go public unless there is active trading going on, but then, of course, there will be no active trading if companies choose not to go public to begin with. In this situation, the stock exchange does not play the role of a place where prices are determined instead, it just serves as a clearing house for deals that the market players strike in advance 12. Not that there are too many players: although GSE reports the existence of 8 Brokerage Company s continuous activity on Stock Market, from which 3 are branches of Commercial Banks. A single brokerage company BG Capital (formerly Galt & Taggart Securities), owned by the Bank of Georgia is responsible for 64% of trading on the GSE 13. BG Capital is also the only major player in the (rather small) Georgian market for investment banking services. Although TBC, the country s second largest bank, has recently created an IBD division, its footprint so far has remained limited. For both BG Capital and TBC IBD, much business comes from their respective parent banks and not local companies; other banks have shown even less interest in capital market development. In the more exotic sectors, the level of activity is lower yet leveraged buy-outs, for example, are yet to come to Georgia, even though another division of Bank of Georgia called BG Capital is trying to make inroads in the sector. The only instances of buyouts have so far occurred when banks snapped up their heavily indebted clients. The situation is similar for other financial instruments: Georgia has neither derivatives nor variable-rate bonds and mortgages. The success of capital markets depends strongly on an appropriate and effective functioning of joint stock companies. Despite the fact that currently their number in the economy is 1773 forming 2% of all legal persons registered at the tax department 14, GSE could not transform into the alternative to banking sector and the means of efficient fund-raising. Georgian business environment is not yet ready for participation in capital markets. The reason for this is that the managers lack the knowledge of capital market functions and fail to use all the fundraising benefits it provides. Thereby security emissions and exchange activity levels remain low. At present Georgian financial system follows German model, where bank loans are mostly preferred at corporate level. Further improvement of corporate governance is one of the country's main interests. The GSE leadership has organized Corporate Governance training program aiming to increase the awareness of benefits an organized stock exchange provides. The very structure of Georgian business supports the logic of the current state of affairs: most companies in the country are very closely held and see no need to go public. TBC Bank, already mentioned above, is a good example: although it is Georgia s second largest bank by volume of assets, it only has six shareholders. Of those, two are minor, two are Georgian physical persons, and two are foreign investment funds. Reportedly, only one of the key shareholders has an interest in going public everyone else is either ambivalent or disinterested. Then, what is necessary for the development of Georgian capital markets is not so much good laws or good infrastructure those are largely in place (USAID helped draft the capital market regulations a few years ago, and the trading system at GSE is working well based on Russia s RTS software). Instead, local business has to develop in an interest in moving away from the status quo but so far, they have not had any reasons to do so. There are a few historical explanations: in the last fifteen years, the government has not done all that much to promote market development. It never really used the markets to privatize state-owned companies (preferring to dispose of them through direct auctions instead), and it drained a lot of liquidity from the debt markets when it abruptly stopped to issue T-bills a few years ago. The mass privatization scheme that was initiated in Georgia did not act as a factor for promoting development of stock exchanges in the country. Privatization vouchers were not listed at stock exchanges and transfers of ownership rights were mostly arranged through individual direct transactions. Approximately 1300 joint stock companies and half a million shareholders emerged, but the role of capital markets in this process was minimal. Even at the second line of privatization capital markets were left outside of the process and major part of 12 That also makes it much more difficult to deal with insider trading issues because the market is so inefficient, prices fluctuate wildly, and it is impossible to say whether or not someone acted on insider information when conducting a trade. 13 Annual Report 2008, Bank of Georgia, 14 Elliot Clark, Georgian Capital Market (2010), pp. 3-8, htt:// 53

54 privatization was done mainly through auctions and direct-sale methods. Only in 2002 first medium-scale transaction on the sale of shares (10148 GEL) was made on stock exchange 15. But the far bigger problem for market development is the lack of awareness among the Georgian businessmen: far too many are still in the dark about how capital markets operate. When local businesses need money, they would much rather call up their banker than issue corporate bonds. The entrance of foreign players into the Georgian market could be a sign of impending changes as well. The Georgian Stock Exchange is in talks with Nasdaq OMX, a large global stock exchange operator; the talks are likely to end up in GSE s acquisition by the latter. The company already owns stock exchanges in Northern Europe and the Baltics and has also purchased the Armenian stock exchange in a recent transaction. Nasdaq OMX says it has no plans as of yet to create a unified trading platform in the Caucasus, but its technology and expertise would still be helpful. Year 2008 was especially difficult and dramatic both for Georgian Stock Market and for the whole economy of Georgia itself. Russian military invasion, occupation of 20% of Georgian territory and ethnic cleansing of Georgian population, World Economic Crisis, internal instability in Georgia deeply damaged economic life in Georgia and business activity. The Georgian financial markets suffered negative consequences as Fitch Ratings lowered Georgia's debt ratings from BB- to B+, commenting that there are increased risks to Georgian sovereign creditworthiness, while Standard and Poor's also lowered Georgian credit ratings 16. Partially, the negative influence was decreased by financial assistance, provided by world community to Georgia, but situation is still difficult. While the United States and the European Union have already announced major aid packages for Georgia, some specialists believe the money will not be enough to stop the country's economic slide. In general, Georgia has all the preconditions for successful capital market development. All that is needed is a critical mass of publicly traded companies that would stimulate trading on the GSE and convince others to follow suit. 3. LITERATURE REVIEW & INTRODUCTION TO ANALYSIS The role of macroeconomic policies in determining the growth of stock market activities in Georgia has been a subject of debate among the economists. Investors are interesting in discovering variables that can help forecast stock prices. Because it can help more appropriately manage their positions and portfolios by increasing returns and lowering risks; trying to answer, if macroeconomic news releases can be used as reliable indicators for the price movements on stock market. The relationship between the stock market returns and macroeconomic variables has been subjected to intensive economic research. The collapse of the stock market generally initiates financial crisis and push the economy into recession. Most of the major stock markets in the world were affected by recent global financial crisis. One can safely say that the volatility of stock markets is the most important factor in the economic growth in not only developed economies, but also developing economies like Georgia. There is no surprise that a large body of literature is centered to the study of the stock market and its effects on macroeconomic variables. Dropsy and Nazarian-Ibrahimi (1994) investigated the influence of basic macroeconomic policies on stock returns using monthly data from 1970 to 1990 for 11 industrialized countries. They conclude that predictable macroeconomic policies failed to predict stock returns 17. Mukhopadhyay and Sarkar (2003) had run a systematic analysis of Indian stock market returns prior to and after market liberalization and the influence of macroeconomic factors on returns. The result show that for the postliberalization period, real economic activity, inflation, money supply growth, foreign direct investment, and the NASDAQ index were convincing in explaining variations in Indian stock returns Elliot Clark, Georgian Capital Market (2010), pp Georgian Stock Market Annual Review, Georgian Investment Group, httpwww.investgroup.gepadminenweekly_reviewfiles2011georgian_stock_market_annualreview.pdf 17 Dropsy V. Nazarian-Ibrahimi, F. (1994). Macroeconomic policies, exchange rate regimes and national stock markets. International Review of Economics and Finance, 3, pp Mukhopadhyay D., Sarkar, N. (2003). Stock return and macroeconomic fundamentals in 54

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