Matthew Collin in Tbilisi -
The view from Nicholas Enukidze's office at Bank of Georgia's headquarters in Tbilisi offers a snapshot of the country's fast-moving development. There's a Marriott hotel, an immaculately renovated public square, and around the corner an upmarket fashion mall is under construction. But, in an indication of how far this former Soviet republic still has to travel, some of the pavements are lined with impoverished street vendors eking out a living by selling fruit, dusty second-hand books and miscellaneous bric-a-brac.
Enukidze took over as the chairman of the supervisory board of the bank after his highly successful predecessor, Lado Gurgenidze, was appointed prime minister of Georgia in November with a brief to boost economic growth and external investment while implementing programmes to tackle poverty. Under Gurgenidze's leadership, Bank of Georgia was transformed from what Enukidze describes as an "average former Soviet bank with average former-Soviet approach to business," into a dynamic force in the Georgian market with a distinctly Western style of working. It's now the largest bank by assets in the country and the only Georgian lender listed on the London Stock Exchange. It raised $160m in an IPO in 2006 and its net profit in 2007 hit $47.7m.
Last year, in an indication of its growing ambitions in similar frontier markets of the former Soviet Union, Bank of Georgia acquired the Kyiv-based Ukrainian Bank of Development and Partnership (UBDP). Then in May, under Enukidze's leadership, it paid $34.2m for a 70% stake in the Minsk-based Bekaruskiy Narodniy Bank, entering the underdeveloped Belarus market. Enukidze suggests that Bank of Georgia's experience in its home country, coupled with its understanding of the business culture of the former Soviet region, makes it ideally poised to exploit the possibilities of frontier markets. "Bank of Georgia grew here, in a country which went from nowhere to become a new frontier destination," he says. "We went through that process and were very successful, so it's natural for us to go to countries which are undergoing or will undergo this same dynamic over the next few years."
Belarus and beyond
Hence the move into Belarus, which Enukidze describes as an attractive market with lots of potential. "The state of the market in Belarus, especially on the retail side, is very similar to where Georgia was roughly three years ago," he reckons. "There is a very clear retail banking boom coming there, and having gone through the same process in Georgia in a similar market, we want to capitalise on that experience and do the same thing in Belarus. On the corporate side as well, I believe Belarus is on the verge of becoming a very popular investment destination. It's like Ukraine four years ago, no one knew where it was and people didn't put money into it, but now everybody's looking for exposure there."
Nevertheless, Belarus is arguably the least open of Eastern European countries, with an authoritarian political system which US Secretary of State Condoleezza Rice once described as an "outpost of tyranny" and an economy which still retains elements of the Soviet state-planning system. "I'm not going to comment on the political side of it," Enukidze cautions, "but economically Belarus is actually quite a dynamic place. Yes, the state controls a large part of the economy, but the privatisation process is starting and you have a tier of privately-owned enterprises which are very rapidly growing."
Frontier markets are, of course, not without risk, and the competition is getting fiercer, as Enukidze admits. "In Ukraine, it's a very competitive market with probably dozens of foreign banks with large resources and a lot of experience. In Belarus, it's much less intense, but of course it's not going to stay that way. If you have high returns, more people are likely to come in."
Enukidze is part of a generation of Western-educated Georgians who were living abroad during the chaotic and corrupt post-Soviet years. But sensing new opportunities, they returned to their country when the reformist government of President Mikheil Saakashvili came to power after the "Rose Revolution" in 2003. The Bank of Georgia chief got his MBA in the US, worked for ABN AMRO Corporate Finance in Moscow and London, and then for the Ukrainian investment bank Concorde Capital in Kyiv. "If you'd asked me four years ago if I would come back to Georgia, I would have said it was highly unlikely," he says. "But look, in the last four years, Georgia has changed tremendously, it's been through an amazing transformation."
In some ways, Bank of Georgia's expansion outside its home country is a symbol of that transformation. But after its acquisitions in Ukraine and Belarus, Enukidze explains that the bank is currently focusing most intently on its core business in Georgia, to maintain its position as the market leader. "Maybe we'll grow our market share in Georgia a bit, maybe not, but clearly we have to continue providing everything to everyone," he says. "This is a small country, and if you want to have enough clientele and enough revenue potential, that's what you have to do."
"Retail is our main focus; we are a very important corporate bank here but our market share in corporate is lower than in retail. Then there's diversification, selling more products to the same customers, and intensifying the investment banking. We basically want to stay the dominant player in Georgia, and increase our dominance."
But that doesn't mean the bank will set aside its ambitions to become a significant player in the former Soviet region too; the potential rewards are simply too attractive. Enukidze cites Armenia, Azerbaijan and Moldova as countries that could have the right kind of potential - and in the longer term, perhaps Central Asian states like Uzbekistan. As he explains, the appeal of these frontier markets is very simple indeed: "It's growth - clearly, it's massive growth. We've been growing by more than 100% for three years in a row. You can't find many places where you can credibly sustain such growth. Right now, frontier markets are the only ones where you can find that."
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