A Conversation with Irakli Gilauri, CEO and Chairman of GCAP Board of Directors on Investments

I think that it's a fascinating story of Georgia capital the last five years, when we are trying to form the professional investor, institutional investor, which in this country is pretty unusual. It's a young country and we don't have many professional or institutional investors. So we've been creating this as a local, Georgia-focused investor. And it's been very interesting how this also has been involved. We went through different phases of how we should go about it. I think in the end we have arrived on a very simple formula: that we need to help our portfolio companies with strategy, we need to form the right management teams, and we need to sign off on the investments on capital allocations. We are a professional capital allocator: investments and divestments, where should we invest, what we should divest. And that's all about Georgia capital. Simple approach: we are 25 people in this office, and these 25 people decide only on these three very limited things, and the rest we let our really excellent management team operate and deliver results. And that's a very simple truth. Especially it's very difficult when my background with these operations has been operating the companies all my life, and it's difficult to discontinue it. Basically, I have managed to force myself not to operate and to look at our portfolio companies as an investor, not as an operator.

We still have some existing challenges, and I will not open or create anything new. We all had a big hope just one year ago that the pandemic was by its end, but then this disaster has happened on the 24th of February, and the world has changed again.

Yeah, basically, when we thought that the pandemic was over and we were on the route of changing our habits and doing business differently, this war started, which obviously was a horrible war. We obviously got worried how we are going to go about it. Fortunately, Georgia showed stability. Fortunately, economic progress has been achieved. We have double-digit, 10-plus percent GDP growth this year. In 2021 we had another 10% growth, so two consecutive years of double-digit GDP growth is unprecedented for Georgia in its history. So that's been a big achievement. Another big achievement is that the current account deficit has shrunk to close to zero, which is another big structural change of the Georgian economy. Before, we had a big current account deficit which was balanced by FDI. Now the FDI is a bonus on top of the current account being at zero. That's why you have a lot of appreciation and that's why investor confidence is even greater. And this investor confidence brings more investments. Recently we've seen strategic investors coming to Georgia, big names are coming to Georgia, and they will continue to come because they see a growth opportunity. The world is in fears of recession, fears of inflation, stagflation, etc. Georgia is a safe haven for finding growth opportunities. So I think that trend will continue. And this policy of investing in infrastructure from the government side, to do this Middle Corridor where more throughput through our railways will happen, where we have a Plexi cable going to EU to Romania basically, and the government signing PPAs with the investors to build more renewable energy in this country, is extremely important. So basically, even though we had very strong growth, we have investor confidence, but we also have plans. The government has plans where the investment should go, and that obviously brings big confidence to investors.

Obviously, obviously. And basically, the war created further sanctions. The sanction effect is there, and obviously the energy deficit is going to continue to happen. It's a new world, it's a new setting that the energy will be in deficit. And I think that Georgia is stepping up investment in renewable energy, stepping up the connecting high voltage line to Europe. That's the right absolute right policy. Also logistically, Central Asia to connect with Europe, there is a limited way of connecting now. Therefore, investment in enlarging the Middle Corridor, the logistic corridor, is extremely important project for the country and also brings a lot of investor confidence.

They're performing quite well. And I mean all the profile and outlook what you have just described, that's how we should find the reasons why Georgia Capital shares are doing so well, am I right? Absolutely. I mean, Georgia offers the growth to Georgia Capital. Georgia Capital is a proxy of the Georgian economy. Georgia Capital portfolio companies and the economy are intertwined. One cannot do well without the other and vice versa, I guess, right? So we are pretty much dependent, and that growth of the economy brings growth to our companies. And the investors obviously are in search of growth, especially in this environment we discussed: fears of recession in the US, in Europe, fears of inflation, even greater fears of stagflation. All of these things obviously bring investors to search for growth opportunities. And Georgia offers great growth opportunity, not only offers the track record of growth opportunity, but also offers the future projects which will bring the growth and solidify it. And current account is another health measurement of the economics. And obviously the exchange rate in Lari, the way it behaves, it's a first measurement, first sign of the healthiness of the Georgian economy.

Education, yes, definitely. It's going to be energy sector, yes, and healthcare and healthcare management systems, yes, mainly the outpatient clinics. That's where we think that the growth opportunities are. Renewable energies, we talked about it. It's a no-brainer to invest in renewable energy, especially in renewable energy. And the schools, it's one of our favorite areas of investment because we are not only helping the business to grow and develop, but we are helping the kids to get a good education. And this is kind of double fulfilling.

Definitely before that. Good luck. Thanks again. Thank you.