Posted November 2008
Georgia on my mind
War and beer Mention
Georgia, and with a few exceptions people will first think of
the American state famous for peaches, Coca-Cola’s headquarters
and the peanut farmer who became president. Few would have known
that there is a country by the name of Georgia. Sadly but true,
it took the recent Russian-Georgian war to make sure that
Georgia is now firmly on everybody’s mind.
May 1968. In Paris barricades
were burning. Students took to the streets shouting Egalité!
Liberté! Sexualité! Or something to this effect. In Prague
Soviet tanks put an end to a peaceful protest against Russian
hegemony over Eastern Europe; while in Nigeria raged a bloody
ethnic civil war, and the dictatorships in Latin American and
Mediterranean Europe began to collapse under the pressure of
democratisation. From Lagos to London and Lisbon to Lima people
discussed politics and revolution. Did anyone fantasise about
Georgian women? Err, no. And yet the Beatles sang their
praises.
You have to be getting on in
age a bit to remember the song “Back in the U.S.S.R". If you
don’t, listen to it on YouTube. Let me remind readers that it
opens the White Album released in the autumn of 1968. The song
describes a bad flight from the United States to the Soviet
Union on board a British BOAC airplane. “I'm back in the U.S.S.R.”
croons Paul McCartney, “You don't know how lucky you are boy/
Back in the U.S.S.R. / Well the Ukraine girls really knock me
out / They leave the West behind./ And Moscow girls make me sing
and shout/ That Georgia's always on my mind./ …/ Show me round
your snow peaked mountains way down south /Take me to your
daddy's farm/ Let me hear your balalaika's ringing out / Come
and keep your comrade warm. / I'm back in the U.S.S.R. / You
don't know how lucky you are boys / Back in the U.S.S.R.”
Obviously, the song was a
parody of Chuck Berry's “Back in the U.S.A.” and the Beach Boys'
“California Girls”. Alas, many Americans did not get the irony.
They thought the song promoted lax morals and the evil communist
empire at a time when the United States was fighting the
Soviet-assisted Vietcong in Vietnam. A conservative American
backlash against the song rapidly ensued, citing the song as
evidence of the Beatles’ left-wing propaganda.
A flustered McCartney
responded defensively: “Back In the U.S.S.R. is a
hands-across-the-water-song ... They like us out there. Even
though the bosses in the Kremlin may not, the kids do.” 45 years
later, during a concert in Moscow, he added that back in 1968 he
did not have a clue about Georgia. But it seemed like a
mysterious and beautiful country then.
Imaginary Georgia
Actually, Mr McCartney was not
alone in his ignorance. Russians, too, for centuries have
nourished a romantic vision of Georgia as an exotic and
far-removed place; a land of pristine beauty and noble savagery,
where valiant heroes could test their mettle against obstacles
both natural and man-made. Since the early 19th century
generations of Russians have been convinced that the views
purported by their classical literature on the Caucasus was
true. If one can be blamed for this, it is Alexander Pushkin and
his poem “Captive of the Caucasus” (1822), whose hero, tired of
Mother Russia,”...quit the confines of his native land, and flew
away to a far off strand with freedom’s cheerful apparition...”
… Or its illusion. Pushkin’s hero gets kidnapped by locals,
finds romance with a young maiden, and then escapes. As he
returns to civilisation and his true liberation, the dejected
woman throws herself into a river and drowns.
The poem inspired various
other stories, operas, a ballet, books, plus a film or two--all
with the same title. And it prompted thousands of restless
Russians to “go south” and seek love, profit, epiphany, and
adventure in the mountains.
Even during Soviet times,
Georgia remained a peculiar kind of fantasy land: a place of
freedom and liberation of sorts, but one that could be visited
on workers’ holidays. People in the darkest and coldest corners
of Siberia would dream of the “Red Riviera”, the Georgian
coastline of the Black Sea, with its long sandy beaches and
tropical hinterland. Thanks to Soviet tourist propaganda,
cultures and their produce as diverse as the North Caucasus
dance troupes with their tunics and fur hats, Georgian wine,
Armenian brandy and Azeri carpets were rolled into one to become
“Georgia” – or rather “the” aspirational Soviet way of life.
November 2008. When I visited
the country, three months after the brief but bloody
Russian-Georgian war, Russian military vehicles were still
patrolling the area around Alkhagori, outside the separatist
region of South Ossetia, some 30 kilometres to the north of the
capital Tbilisi. Georgia’s largest city, which had been planned
for a million inhabitants, had swollen to almost two million
people as impoverished farmers and desperate refugees, displaced
by war and strife, sought to make a living on buying and selling
everything from cigarettes to potato peelers.
The man-in-the-street went
about his business as if shell-shocked, while the
foreign-trained young idealists in the cafés complained bitterly
about their government’s increasingly authoritarian
proclivities.
Whatever visions of Georgia we
in the rest of the world could have harboured – they were
shattered by Russian artillery during the eight days of war. The
toll: an estimated 3,000 Georgians dead and 100,000 displaced.
The war has reminded us yet
again that the Caucasus region is a theatre of complex
international political tugs-of-war. For centuries, three
Eurasian empires – the Russian, the Ottoman and the Persian –
have vied for control over this stretch of land between the
Black Sea in the west and the Caspian Sea in the east, lined by
the mountains of the Greater Caucasus in the north and those of
the Lesser Caucasus in the south. Hence, borders, allegiances
and identities have often been on the move. Consider this: In
the 13th century a kingdom called Georgia disappeared from the
map to be replaced by an array of feuding kingdoms and
principalities. It would take more than 100 years, from 1801
until 1921 for the Russian empire to gather them together again.
Need I add “by force”?
In effect, for most of its
history Georgia has been a geographical rather than a political
entity. If we bear this in mind, we understand better why the
cynical expression “theatre of conflicts” which is used by
political commentators the world over to describe Georgian
conditions, makes sense after all.
Taking the metaphor further:
There are just too many people around who, after having watched
a tragedy unfold, would call for an “encore”.
Georgia, as used to be said
about Northern Ireland, is a place of very long memories and
very short tempers. Although the country of 4.6 million people
(or 4.0 million, depending on your sources) gained independence
in 1991, it has not experienced much stability or peace since.
“Normal times? What’s that?” people in their thirties asked me,
who remember only too well that their first post-independence
ultra-nationalist president Zviad Gamsakhurdia was toppled just
a few months into his job by a unholy alliance of mafia-type
warlords and opposition forces. This led to the return of Eduard
“turncoat” Shevardnadze - or “Shevy” as George Bush the Elder
called him because he could not remember his complicated name.
Having languished in Moscow without much to do, Mr Shevardnadze
made the miraculous transformation from a hard-line communist to
a dyed-in-the wool democrat within days – or so the rest of the
world liked to believe – in order to return to his native
Georgia and reclaim power, thus “crowning” his political career
which had began more than 40 years previously with his long
ascent through the cut-throat communist party bureaucracy.
Civil war over the
secessionist region of Abkhazia broke out in 1993 and came to a
halt in 1994 with the attendant flood of refugees. If people
thought they would finally get a brief reprieve, they were
proven wrong by the energy crises of 1995 and 1996 when
electricity was so scarce that today’s twentysomethings had to
do their homework by candlelight. Mr Shevardnadze’s fight
against corruption was half-hearted – for example, major
highways were controlled by brigands throughout his tenure – as
were his attempts to expel Chechen fighters from northern
Georgia where they had sought refuge. Russia responded by
threatening to invade the country – both in 1999 and 2000.
As if this were not enough,
Russia next began to level visa restrictions against 1.5 million
or so “guest workers” from Georgia, thus endangering the USD 400
million in annual remittances (World Bank estimates) which these
Georgians send home to help feed their families.
An attempt by the Georgian
government to manipulate national elections in November 2003
touched off widespread protests that led to the resignation of
Mr Shevardnadze. New elections in early 2004 swept U.S.-educated
Mikheil Saakashvili into power along with his National Movement
party. Since 2004 progress has been made on introducing market
reforms and fighting corruption, but this progress has been
undermined by the current government’s relapse into using
authoritarian practices to bully businesses – which somewhat
belies their liberal, free-market rhetoric.
And just as this country was
beginning to enjoy sustained robust GDP growth of two-digit
figures, Mr Saakashvili decided to aggravate the unresolved
conflicts in Abkhazia and South Ossetia by engaging Russia in
war.
Eventually, we will know the
real course of events which led to the war. Suffice to say that
this war has taught us that in this part of the world, at least,
business is the continuation of war by other means. My apologies
to the military theorist Carl von Clausewitz whose famous quote
“war is a continuation of politics by other means” (1832) I have
adapted to reflect the Caucasian reality.
Rewriting globalisation
It has become one of the
tenets of liberalism that globalisation follows economic logic
alone and has nothing to do with the nasty, politics-led
imperialist practices of old. Imperialism is usually regarded as
a policy of systematic domination and exploitation of one
country by another country. Imperialism died its death in the
trenches of Flanders in 1914. Therefore, to say that
globalisation can have imperialist features turns you into one
of those die-hard Marxists in the eyes of others and gets you
evicted from polite academic society in no time.
However, I have come to notice
that expansionist international businesses or those companies
“who go international”, in business speak, are not as much
removed from politics as it might seem.
If you need proof for the
claim that globalisation is imperialism in a contemporary
disguise, look no further than Georgia. We will never understand
Georgia and what goes on in this tiny country at the crossroads
of Europe and Asia, if we close our eyes to the fact that
investments by Russian businesses and “businessmeni” in Georgia
have expressly been supported by Moscow’s powers-that be. It is
for this very reason why Russia can simultaneously wield the
carrot of FDIs (Foreign Direct Investments) and the whip of an
embargo on Georgian wines and agricultural produce.
Georgia, which is twice as
large as Belgium and half as empty, is not exactly a hotspot of
global alcohol production and consumption. The country’s beer
output amounts to less than 700,000 hl per year. Imported beers
represent 25 percent of consumption, translating into something
like 20 litres of beer per capita. Bottled wine consumption is
less than half a bottle per year. Which is a disgrace. After
all, Georgia calls itself “the cradle of wine” (a skewed
metaphor if ever there was one). We don't yet know if the modern
winegrape has a single origin. But if it does, it appears that
the most likely candidate is Georgia. Desiccated grape seeds, or
pips, have been found there which are said to be 6,000 years
old.
If bottled wine consumption in
Georgia is low, home-made wine is the explanation. The jury is
still out on how much home-made wine and moonshine grappa (which
the locals call “chacha”) Georgians consume. Data collected by
experts suggest that home-made wine production could be as high
as 300 million litres. Divide that by 4.5 million inhabitants
and you arrive at 66 litres per capita.
Discussing this issue with
Georgians, my hosts were appalled when I boldly put forward “60
litres!” taking my lead from consumption patterns in France and
Portugal. They always referred to official figures by the
Ministry of Agriculture which indicate a per capita consumption
of 12 litres.
It’s not that I am
opinionated. But if you saw how much wine was consumed in the
countryside by men – one litre per day on average plus 7 or 8
litres in the course of a Georgian feast, my figure must be
considered a modest estimate. Home-made wine consumption in
Tbilisi may the lower due to people drinking more vodka and
beer. Yet, grapes are easily available everywhere. Or why would
most Tbilisians seem to have a wine-making kit sit on their
balconies?
Official vodka-consumption is
four times that of brandy – aka very low. Yet the published
alcohol figures cannot represent reality adequately. Otherwise
all the people who told me stories of people drinking moonshine
and going blind would have been telling me fibs.
As said, in our grand scheme
of things, which is the global alcohol industry, Georgia would
fall through the cracks. To most analysts, the world’s beer
markets and companies have already been carved up and sold.
Whatever is left for purchase is insignificant and does not
warrant their time and attention.
Still, I decided to take a
closer look at Georgia and its alcohol industry. Call it a
hunch. What has puzzled me for a while is this: Why should
Turkish brewer Efes and the Russian brewer Baltika compete for
dominance in Georgia and neighbouring Azerbaijan and spare no
money to secure it? Why would Russia ban the import of Georgian
wines and thus drive the Georgian wine industry into near
bankruptcy yet condone/support/encourage – take your pick -
Russian investments into the Georgian wine industry? Moreover,
why would Russian corporations in the energy and transport
sectors aggressively pursue opportunities in Georgia even though
they would risk damages and losses during Russian warfare? Why
indeed? Incidentally, Georgia’s Russian-owned electricity grid
was not shut off during the August war.
Whatever your take on
globalisation: the answer to these questions is that imperialism
in the Caucasus is alive and kicking. You can place your money
on the bet that Russia’s investments in Georgia have been
politically motivated to counteract U.S. influence in the
region. A bit like tit-for-tat. “You build a pipeline in Georgia
and Azerbaijan? I buy the biggest brewery in Azerbaijan.” That’s
how it goes. Georgia is Russia’s backyard in much of the same
way Latin America has been the U.S.’s sphere of interest. To
this day “business as usual” in the Caucasus can only mean one
thing: the continuation of war by other means.
Coincidence, or what?
In February this year, Turkish
brewer Efes announced that they intended to buy 100 percent of
Lomisi Ltd, the leader in the Georgian beer market with an
estimated market share of 42 percent. Having entered the Russian
and Kazakh market, Efes was finally ready to penetrate into
Georgia.
A few months later, at the
Canadean Beer Conference in Madrid, Efes’ CEO Alejandro Jimenez
hinted at further acquisitions in the Caucasus region. As
purchases in Armenia are taboo for Turkish companies, this left
pundits with only two potential targets: Azerbaijan’s major
brewer, the privately-owned Baku-Castel and Georgia’s number two
brewer, the likewise privately-owned Kazbegi brewery.
Yet, come May, and Russia’s
Baltika Brewery said that they had come to an agreement to buy
Baku-Castel. Rumour has it that Baltika was desperate to buy
Baku-Castel. So desperate that they offered 10 percent on top of
what Efes was prepared to pay.
You might argue: “Ok, the race
is on. This is globalisation for you.” But bear with me. Baltika
is not only Russia’s but Europe’s largest brewer with beer
volumes of almost 36 million hl for the period January to
October 2008. Each of their Russian breweries is a multi-million
hl plant. In view of this, why would Baltika go after a piddly
little outfit like Baku-Castel, which sells around 300,000 hl
beer annually, if they had not received their marching orders
from high places? Just look at the figures: 36 million hl
compared with 300,000 hl.
Admittedly, beer consumption
in Azerbaijan, an oil rich country of 7.5 million people, could
be far in excess of the current 4 litres per capita. Baku
Castel’s previous owners, the French Brasseries Internationales
Holding (Eastern), had solely increased beer consumption over
the years on the merit of their beer. Little money, if any, was
spent on marketing or advertising their beer. Baku-Castel
enjoyed the benefits of a near-monopoly in Azerbaijan’s beer
market - if we ignore for a while that there are an estimated 17
or so breweries with only seasonal production and mostly vile
beers.
If you need further proof of
my claims that the consolidation of the Caucasus’ beverage
markets answers as much to free-market reasoning as to plain old
imperialist machinations – think about this. I heard it on the
Caucasus grapevine that Baku-Castel is already in dire straights
although the old guard only left four months ago. The best local
talents are said to have left, and those left behind are
struggling to cope with Baltika’s newly imposed processes and
structures. Interestingly, no Carlsberg experts have been seen
showing their faces around Baku. Isn’t this odd given that
Carlsberg owns Baltika?
Of course, this is all rumour
– or anti-Russian propaganda if you were to ask Baltika.
In Georgia, on the other hand,
Efes has been victorious in clinching a deal with Lomisi. Market
observers agree that Efes has been the preferred buyer. Lomisi
is Georgia’s most successful beer company. It was founded in
1992 by two Georgian families – or clans - with one brewery in
Alkhagori which scraped by for years.
In 2005 Lomisi opened a
brewery closer to the capital Tbilisi, at Natakhtari, which
rapidly grew its capacity and output to almost 380,000 hl beer
and 280,000 hl soft drinks this year, making the erstwhile
100,000 hl brewery at Alkhagori almost redundant.
In August, production in
Alkhagori came to a complete standstill. Following the Russian
army’s push into Georgia proper, the Alkhagori brewery suddenly
found itself surrounded by Russian soldiers and South Ossetian
militia.
Efes have resigned themselves
to the fact that the plant has been lost even though they have
the brewery guarded by security guys. Still, no one really knows
when (or if ever) the South Ossetians will retreat from the area
and how much of the brewery will be left. Scrap metal is
Georgia’s (and South Ossetia’s) major export.
Efes’ executives have decided
to put on a brave face: They say that this year their Alkhagori
brewery contributed 3 percent to Lomisi’s beer volumes. This
must be small consolation: after all, Efes paid for the brewery.
And more importantly, the Alkhagori brewery provided much needed
jobs. In Georgia, unemployment is high.
It should not surprise us that
Pierre Castel thought he would buy a monopoly brewer when in the
late 1990s he acquired the Soviet-era one million hl brewery to
the east of Tbilisi which he named Castel-Sakartvelo. Lomisi was
no threat back then.
At first, all seemed to go
well between the octogenarian Mr Castel and his partner Prof
George Topadze, 68, a former academic who in 1993 was awarded a
state prize in literature and art for the book "Skiing in the
Mountains" (no joke!). Prof Topadze was the director of the
brewery acquired by Mr Castel, all the while having owned his
own brewing company, Kazbegi, since 1994.
However, in no time Mr Castel
fell out with Prof Topadze and they went their separate ways
again. In retrospect, Mr Castel’s investment has not performed
well. Change of management has been an almost yearly occurrence.
People familiar with the situation say that the brewery has
rarely sold more than 60,000 hl beer per year.
While Castel-Sakartvelo
floundered, Kazbegi flourished, claiming market leadership in
the early years of this decade. That’s when Lomisi’s owners
decided to bring in foreign consultants. With their help, output
rose to 100,000 hl beer in 2004. Expanding and modernising the
Alkhagori brewery proved too expensive. Which was the reason why
the owners agreed to build a new brewery at Natakhtari and take
on the European Bank for Reconstruction and Development as an
investor. In one year only, the brewery’s output climbed to
200,000 hl.
In the Caucasus, people
automatically assume that Natakhtari’s sudden rise to riches is
due to the family owners enjoying a “krysha” or “roof” (the
Soviet euphemism for political protection) in the government. I
cannot say how often I heard this mentioned when I talked to
people about Natakhtari. Apparently, it is inconceivable to most
Georgians that a company can be run successfully owing to its
management expertise. But even if the allegations of favouritism
or cronyism were true, it has to be added for honesty’s sake
that Prof Topadze has also enjoyed some political clout as a
Member of Parliament. As far as one can see he has not done too
badly for himself since Georgia’s independence, given that he
was a high-ranking member of the Soviet nomenklatura.
Efes’ ascent to true market
dominance was supposed to be quick. In May 2008 Efes signed a
letter of intent with Prof Topadze to buy his Kazbegi beer
business. This would have given Efes a 70 percent market share.
So far, nothing has come of this plan. Perhaps the war has made
Prof Topadze change his mind. Or Efes changed their minds over
the amount of money they were willing to spend on Kazbegi, whose
beer sales have been tumbling this year.
In any case, a lot has been on
Georgians’ minds since August. But no one has had their plates
quite as full as the Georgian wine companies. Not only has their
business come crashing down after the Russians issued their
embargo on Georgian wines in 2005. This year’s war also
eradicated their summer sales. As if this were not enough, their
own government next decided to lean on them heavily, twisting
their arms so that would buy up this year’s grape harvest. Thus
the Georgian government hoped to prevent the large-scale
impoverisation of rural Georgia. But what about the wine
companies and their tanks which were already full to the rim
with unsold wines?
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