Eng
Eng
Research Analyst
Every morning my child starts the morning with a milk breakfast. Of course, when purchasing dairy products, I try to make the best choice, no matter how much they cost.
Well, in the evening, when purchasing repair materials for the house, I often give preference to those markets where there are various preferential promotions and where the price is acceptable to me. This is the best choice for me.
When buying, there are often cases when we physically or mentally sort the desired product by price and thus come to the optimal choice. Therefore, the price of a product is an important lever that a business can control.
Price, in addition to determining the market value of a product, is used as the primary means of communication in today's rapidly changing business environment. Depending on how the price is relevant to the solvency of the segment, brands interact with customers, "befriend" or, conversely, build a "wall" between the product/service and the customer.
Now, in times of war, inflation, and post-pandemic, price and related communications are becoming increasingly important for the modern market, as prices are constantly changing along with the global agenda. Prices are rising for everything: bread, fuel, gold, both basic necessities and luxuries, goods and services.
However, according to the latest market research conducted by ACT, in many industries, price is the leading factor for consumers. For example, if we look at the pharmaceutical market, then a quarter of its buyers (24-26%) decide to choose a pharmacy that offers an acceptable price. Thus, for almost a third of consumers in the retail market, price is the most important factor when making a purchase decision.
Price changes, of course, often lead to negative/critical feedback from the consumer, which business in Georgia, as well as in the world, in some cases tries to neutralize with well-known marketing "tricks":
These tactics are worn out in today's market and can be said to be "deciphered" by the user. For brands seeking to connect emotionally with customers, transparent and timely pricing information must be the key link.
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Offer value, not price. The cost repeats the brand and its identity. The customer needs an idea, status, or emotional benefit that he will receive in exchange for paying a certain amount. Businesses that sell a product/service sell the benefits that the end-user will receive through it. Depending on the value of the product/service, brands tell customers what they can become the owners of after purchasing their product/service. This means that when buying Apple products, we buy status, when buying Nike boots, we buy victory and energy, and Reiban glasses for us are a journey and a good mood. When stating the price, we must emphasize what life/everyday problem the consumer will solve with it. At the same time, in branding and communications, the emphasis on values increases the consumer's resistance to possible price changes, making the segment more emotionally attached to the product/service. For example, Coca-Cola is a happiness/family holiday, do you remember its price?
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Find out the best price for your customers. To achieve this goal, price elasticity research is effective, which gives the business information about what price will be acceptable/optimal for its audience, in other words, in which case they buy a product/service. Research is critical:
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Remember the communication triangle. Price communication is just as important as the end-user:
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Tell the cause, not just the result. Now, with constant changes in public life, the economy, everyday life, and a sense of instability, price changes can be perceived by consumers more painfully than business thinks. In the event that a business changes its price/sets a new price, it is important for healthy communication to provide the customer with a reason for the new price. It is understood that the audience is interested in why the price is changing, will it change again? Because of what? This gives him emotional comfort and readiness. In order for communication to be as transparent as possible for him, the business should try to imagine that price communication is not a monologue of the brand, but a dialogue with the buyer. Follow the rules of the dialogue:
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Finally, it is important for businesses to be prepared for any feedback, since the audience, among other characteristics, is distinguished by its loyalty and degree of price stability. However, the dialogue should be ongoing and the next steps the brand should determine in addition to other important metrics based on the feedback received. Thus, price is an important communication channel. As a result of dialogue with customers, the business receives information for improvement, and this process is continuous and iterative.
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From the very beginning of the war in Ukraine, it was difficult for the whole world to imagine what courage, courage, patriotism, and desire for freedom the Ukrainian people have. Although the strategy of the Russian aggressors was to capture Kyiv within 72 hours after the invasion of Ukraine, and according to American experts, it should have taken 96 hours for the occupiers, Ukraine has achieved success and continues to fight for independence and national values for 4x days.
Thanks to their incredible courage and patriotism, they are able to repulse the enemy, and return objects of strategic importance, often at the cost of their own lives delaying or slowing down the advance of the Russian invaders. Beyond the perseverance and heroism of the Ukrainian people, we see the impact of effective leadership.
Every person has the potential to become a hero, and we see this every day in the example of Ukrainians. It is also important to note that in a crisis situation in the minds of every person there is a constant struggle between fear and courage, and in this case, the greatest importance is attached to leaders, i.e. people who show initiative and do not surrender to the enemy, fighting for their freedom and, in this case, their country. We can say that it was President Volodymyr Zelensky who turned out to be such a courageous and unshakable leader, who ignited in the Ukrainian people the desire and attitude to fight for freedom and the defense of the Motherland. In addition, regardless of our origin, social status, or any other data, watching the ongoing events, each of us is convinced that anyone has the opportunity to become a true leader.
Given the current situation, it is noteworthy that business industry leaders can see many interesting and useful insights in Zelensky's leadership style. If you observe Zelensky's actions during the hostilities, you can identify the characteristics of his leadership effectiveness, which strengthens the Ukrainian people and, despite the victims, does not reduce the fighting spirit.
After the escalation of the situation, Zelensky’s negative response to the proposal to leave the country for security reasons became one of the cornerstones of the Ukrainian spirit. The President addressed the West with the following words: “The battle is going on here [in Kyiv]; I need ammunition, not help to escape" ["the fight is here [in Kyiv]; I need ammunition, not a ride" (source)]. It was a great opportunity to inspire others by your example. After all, the leader, inspiring his own courage, inspire others to show courage. It is clear that his attention is not focused on fear and fueling his own ego, but on strengthening the capabilities of Ukrainians.
Amid misunderstandings and misinformation by Russian propaganda, Zelensky and his team are actively trying to stop any attempts at speculation and deliberate misrepresentation of people, as Russian leaders are constantly trying to bring confusion and chaos into society. The President of Ukraine and members of the government team are broadcasting live from the streets of different cities in order to directly inform citizens about what is really happening. Thus, they call on the citizens of their country to show courage and show their support and support not only in words but also in deeds. And they point out to the enemy that no one is going to run away from the front line, because not imperial goals are at stake, but the democratic state of Ukrainians.
The form of communication between Zelensky and his team is also characterized by a very direct, constructive, and leitmotiv style in the international arena. Whether it is online participation in parliamentary meetings of different countries, speeches at the summits of international organizations or just being active - the fact that the Ukrainian government team is well aware of the importance of strategic communication and is actively spreading the message - Ukraine will not stop fighting Russian aggression.
It is important for leaders to show empathy and perceive the emotions of other people. One only needs to listen to one speech to notice Zelensky's charismatic manner of speech and emotional words, which are even more acutely perceived in the crisis situation Ukraine is currently in as a result of the actions of Russian imperialism.
Despite the seriousness of the situation, President Zelensky retains his face, and remains authentic in any situation without any show or formality - whether it is a briefing with journalists, a speech in a military T-shirt at international summits, or a harmless joke about the phone calls he wants. He simply shows the Ukrainian people and the whole world that he is an ordinary person and experiences the usual emotions for everyone, which echoes with any person and also causes an emotional connection.
It is clear that this is not a complete picture and description of what leadership qualities Vladimir Zelensky showed, and much more can be said. However, for today's business leaders, you can really see interesting and powerful insights. Using the example of Ukraine, we can conclude that the charisma of leaders attracts attention, their courage is admired, and their dedication and perseverance inspire people to fight for their ideals and values. It is also clear that people support leaders who fight for them, but make sacrifices for the leaders who serve them.
In the light of the ongoing Russia-Ukraine war, due to the geopolitical and economic challenges, it is becoming critical to assess the probability of provision of Georgian population with a sufficient food supply. It is important to use the existing agri-food supply potential, maximizing its effective use while accurately planning for the country’s food supply chains.
It is known that the National Statistics Office of Georgia determined the following basic food products to be of strategic importance and essential for the human organism: wheat, corn, potatoes, vegetables, grapes, meat (including beef, pork, lamb, goat, poultry), milk, dairy products, and eggs. Analysis of existing data on the mentioned highly nutritious products, the current situation, and predictions enable us to answer the questions on whether the country has the potential to deal with the existing challenges and whether it should take steps to put a crisis plan in action.
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According to the Food and Agriculture Organization (FAO), food security can be assessed by the self-sufficiency ratio, which measures whether to what extent is the country capable to meet the demand for the given product by relying on local production. Food security is influenced by the economic and natural resources of the country.
While food makes up the highest portion (30.23%) of Georgia’s consumer basket (Geostat; Consumer basket product category weights 2022), it is of most interest to know whether the local economy can meet the supply-demand of the population on food containing the essential nutrients? How much does the country rely on imports, and for which products?
The self-sufficiency ratio is calculated by the following formula: Local production divided by, local production plus import, minus export, multiplied by 100. In the case of a positive trade balance (if the export value exceeds the import value), where other variables remain constant, the local production growth has a positive effect on the self-sufficiency ratio. In a configuration as such, an increase in imports causes a decrease in the self-sufficiency ratio, making us more dependent on other countries. As for the exports, the self-sufficiency ratio rises in line with the increase in export volumes. |
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As of data from 2020, in the list of the aforementioned highly nutritious products, grapes have the highest self-sufficiency ratio of 145%, as well as the highest export rate, which seems quite reasonable, as, in case of surplus production, the product can be exported abroad. Wheat takes the last position at the bottom of the list, with a self-sufficiency ratio of not more than 15%, compliant with the same 2020 data. While placing these data in a logical chain consisting of the following: (i) the raw material values and the frequency of their use; (ii) the negative expectations born by the war; (iii) the sanctions imposed on Russia being our main importer at this stage; and (iv) the new economic environment built in our country. Based on the aforementioned, it can be assumed that to avoid a sharp increase in bread price, it might be necessary to look for a new trading partner to compensate for the product shortfall.
According to the Food and Agriculture Organization (FAO), food security can be assessed by the self-sufficiency ratio, which measures whether to what extent is the country capable to meet the demand for the given product by relying on local production. Food security is influenced by the economic and natural resources of the country.
While food makes up the highest portion (30.23%) of Georgia’s consumer basket (Geostat; Consumer basket product category weights 2022), it is of most interest to know whether the local economy can meet the supply-demand of the population on food containing the essential nutrients? How much does the country rely on imports, and for which products?
The self-sufficiency ratio is calculated by the following formula: Local production divided by, local production plus import, minus export, multiplied by 100.
In the case of a positive trade balance (if the export value exceeds the import value), where other variables remain constant, the local production growth has a positive effect on the self-sufficiency ratio. In a configuration as such, an increase in imports causes a decrease in the self-sufficiency ratio, making us more dependent on other countries. As for the exports, the self-sufficiency ratio rises in line with the increase in export volumes.
As of data from 2020, in the list of the aforementioned highly nutritious products, grapes have the highest self-sufficiency ratio of 145%, as well as the highest export rate, which seems quite reasonable, as, in case of surplus production, the product can be exported abroad. Wheat takes the last position at the bottom of the list, with a self-sufficiency ratio of not more than 15%, compliant with the same 2020 data. While placing these data in a logical chain consisting of the following: (i) the raw material values and the frequency of their use; (ii) the negative expectations born by the war; (iii) the sanctions imposed on Russia being our main importer at this stage; and (iv) the new economic environment built in our country. Based on the aforementioned, it can be assumed that to avoid a sharp increase in bread price, it might be necessary to look for a new trading partner to compensate for the product shortfall.
According to research conducted by ACT in 2021, the majority of Tbilisi residents consume bread and breadstuff, vegetables, fruits, dairy products, and eggs on a regular basis (every day / multiple times a week). The consumer basket consisting of these products matches with most of the highly nutritious products on the list. The most significant factor here is the frequency of consumption of bread and breadstuff. Most individuals consume bread daily. Taking into account wheat’s low self-sufficiency ratio and the current scenario which makes the prospects related to wheat even more unpredictable, it is quite possible that individuals will either have to change their consumption patterns or pay a higher price for this essential consumer product.
The same applies to vegetables, which are the runner-ups in terms of frequency of consumption in the consumer basket. The self-sufficiency ratio does not get our hopes up either: according to 2020 data, the ratio is 63%, with imported goods making up one-third of all stocks.
The war between Russia and Ukraine brought to the table the importance of the role of the two warrior countries as our top food suppliers. As seen in the preceding data, Russia and Ukraine are often among the top importers and exporters of highly nutritious food products and appear as operating trade partners for Georgia. With economic activity plummeting since the beginning of the COVID-19 Pandemic in 2020, businesses and individuals have experienced steep economic plunges. Predictably, Georgia dealt with a few export countries. By 2021, businesses became capable of gradually adapting to the pandemic, responding to challenges, and increasing their economic activities as evidenced by the real GDP growth of 10.4% in 2021 (Geostat).
Russia still continues to be Georgia's primary wheat and corn supplier. In 2021, 94% of our wheat and 79% of our corn supply came from Russia.
Ukraine supplies Georgia mainly with dairy products (milk powder). Imports of these products from Ukraine and Belarus accounted for 37% in 2021. Ukraine is Georgia's third-largest importer of eggs and poultry and the second-largest importer of meat.
At this point, we have to consider the current state of both countries, as well as their potential as importer countries.
The major issue in Russia's case is the severe economic sanctions imposed on the country, the effects of which are already visible in Russia (disruption of the production chain, shortage of products, devaluation of national currency). Furthermore, a ban on other countries’ currency circulation in one of the trade partner countries creates a trade barrier. Here rises a question, which currency should we pay for the imported products?
Beyond the economic concerns lies the moral dilemma facing the country and pushing it to speed up the process of exploring alternative channels of import. The dilemma is obvious: the West believes that trading with Russia is what keeps the Russian army afloat, and it urges others to join the sanctions and cut off their economic ties with Russia to exclude dependency.
In the case of Ukraine, the nation being at war, it is logical that the chain of imports from the country can be interrupted, and in the long run, we could expect reduced volumes of supplied raw materials or increased prices. . In an interview with the BBC, the president of France Emmanuel Macron noted that a food crisis may be expected. According to him, "Ukraine and Russia are the two key players in food exports, but production has been hampered by the war. Because Ukrainian farmers may become disabled to sow new crops and the situation may deteriorate in 1-1.5 years." Particularly notable is the statement of Ukraine's Minister of Agriculture, Roman Leshchenko, who stated that the 2022 spring crop sowing area could be halved because of the Russian invasion.
A study by Galt & Taggart predicts that, in the worst-case scenario (considering the restrictions imposed by the US and the EU, including the cutting of Russia from the SWIFT system and the sanctions on Russian oil and gas, plus repercussions of the prolonged war situation), by 2022 in Georgia, imports may be reduced by 504 million dollars, with real GDP decrease (-1%) and inflation increase from its baseline of 4.9% to 9%.
Georgia's export activities face challenges of different scales, though with identical contexts. For example, grapes and grape products (including wine) are marked with high domestic production and export rates. Russia accounts for the majority of these products' total exports (up to 60%), while Ukraine and China claim significant shares (on average between 10% and 8%, respectively). It's worth noting that the share of other countries in the export of grapes and grape products, in general, is steadily increasing (from 21% in 2018 to 28% in 2021). Given current challenges, it becomes of utmost importance to look for more diversified export markets for grape products and move toward more intense trade patterns with other countries around the world.
The vegetables are also marked with a high level of export. The top exporter of vegetables (excluding potatoes), has been Russia (64%); Exports of potatoes (85%) and corn (39) have been heading to Russia as well.
When it comes to exports, based on the same study by Galt & Taggart, it is anticipated that in the worst-case scenario discussed earlier (restrictions imposed on Russia by the US and the EU, including the cutting off Russia from the SWIFT system and the sanctions on Russian oil and gas, plus repercussions of the prolonged war situation), Georgia may face a reduction in exports by 462 million US dollars by 2022 in comparison with 2021. At the same time, the current account deficit is expected to increase from a baseline of 7.9% to 10.9%. According to Galt & Taggart, the overall external flows from Russia and Ukraine (exports, remittances, tourism, and FDI) constituted 9.6% of Georgia's GDP in 2021. According to the assessment of these flows, exports and tourism may be exposed to the largest negative impact. As for the remittances, Russia's share of remittances has dropped drastically in recent years, while Russia and Ukraine's shares in foreign direct investment (FDI) in Georgia remain at an average annual low indicator.
The fact is that, even in the case where the supply of the foreign product does not shrink, the prices will still undoubtedly increase, as it will be much more expensive to build an alternative supply chain. As a result, it is critical that the essential consumer basket, stocked with highly nutritious food, is somehow maintained.
This graph displays that the Self-sufficiency ratios of the key agri-food products, such as wheat and poultry rank below 50% representing the main challenge for Georgia in ensuring sustainable food security. In a pre-pandemic or pandemic context, observations in dynamics reveal that the Self-sufficiency ratio for the majority of products keeps floating around the same benchmark.
The choice is ours – (i) we can be optimistic and assume that food security and the Self-sufficiency ratio in 2022 will remain at least unchanged and the population will not have challenges related to their daily consumer basket due to product shortages or higher prices; or, (ii) we can be realistic and start insuring against the risks retroactively.
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The present material is prepared by ACT's team of economists:
 Lika Goderdzishvili |
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 Nestan Gaprindashvili |
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 Akaki Mosakhlishvili |
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 & Nino Kalandia Strategic Communications Expert |
Ukraine has been defending its homeland and freedom for 22 days now, with the rest of the world virtually involved in the war. Activation of mass media enabled bringing more clarity about the ongoing war in Ukraine to all parts of the world. It is obvious that the world has already shaped out the winner of this war and this is Ukraine.
The world is descent and radical in its actions. Since the beginning of the war, Russia has been subjected to unprecedentedly high-ranking and large-scale sanctions, and the process has not yet stopped.
All the said above created an expectation that sanctions would have rapid and devastating effects and the war would stop immediately. However, the reality showed up differently – though the imposed sanctions are disastrous for Russia, the war is still going on.
As defined by experts, the purpose of the sanctions is twofold - in the short run, they would cause an economic shock to Russia and lead to the awakening of Russian citizens by exposing them to terrible discomfort, while the citizens in their turn are supposed to force their government to step back.
In the long run, the sanctions aim to derail the Russian economy in order to completely tip the economic balance for an extended period of time, through reducing Russia’s military strengths as its key priority – distracting Russia’s military reinforcement, and killing the ambition of rebuilding the Soviet Union.
Let us see how did both of the above goals translate into the results: the Russian economy is already facing a technical default. According to Fitch (www.fitchratings.com), the risk of possible Russian default in 2022 constitutes 71%. Default is of technical nature as Russia cannot be able to meet its foreign liabilities promptly, not because of lack of finances (at this point) but because of its inability to manage its existing finances as the country's central bank accounts are frozen.
Russia has considered 175 billion of its reserve fund as a security cushion. Part of the money preserved in this fund is placed in the bonds of the countries that imposed sanctions on Russia, therefore, it is inaccessible. The rest part is kept in gold, while the current image of Russia makes finding its buyer in today's market almost unthinkable.
Russia, trying to maintain a spark of optimism at least within the country, started discussing the Ministry of Finance’s "smart plan", according to which certain new accounts will be set up to accumulate the sums required for the payment of debts in Rubles. Russia plans to address its "debtors" telling them that “the requested money is in place but it is in their national currency (though Rubles are not accepted anymore). The challenge is that if they want to receive it in other currency, then they need to unblock foreign currency accounts for Russia."
Experts of the Russian ‘Empire’ believe in this plan, while independent Russian experts, on the other hand, clearly realize that these tricks cannot help the country to avoid its nearing economic collapse. As the independent experts predict, the economic downturn is inevitable, where Russia's economic indicators may drop to that of the early 90s.
The sanctions have already born their short-term consequences in Russia - the production chains are broken; the manufacturers depending on imports of products from other countries have to stop or rush to find alternate suppliers. Reassembling the chain may take time but experts believe the sanctions will affect this process as well, and here’s why: If earlier, Russia could choose the most lucrative of several offers, now the reality has changed considering the new restrictions and the country is forced to choose whatever is accessible, while that option can be far more expensive. In supplement, each delayed or unsuccessful chain will lead to a drop in production and raise the unemployment in the country.
The long-term perspective looks even more hopeless for Russia. It is expected that after the end of the war, the sanctions will not be lifted for yet undetermined period of time though even in case they are lifted, the risks now exposed will be necessarily taken into account while planning any financial transactions. This, in turn, will hinder possible major investment or partnership opportunities.
As a result of the sanctions, any economic activity in Russia will become more expensive, and people will face more and more poverty. Certainly, such a prospect does not look attractive to those already anticipating the effects of sanctions.
This is why some Russian citizens decided not to lose time and immediately flee from the country, some trying to escape poverty and others to maintain their financial status.
According to the Minister of Internal Affairs of Georgia - Vakhtang Gomelauri, up to 25,000 Russian citizens crossed the Georgian border in the last two weeks, of which 3,000 are still staying in the country.
Shortly after the start of the war, Levan Kiladze, the founder of one of the largest real estate platforms in Georgia (ss.ge), presented data stating that "the number of website visitors from Russia increased sharply after the start of the war in Ukraine." Furthermore, more than 300 companies owned by Russian citizens have officially registered in the National Agency of Public Registry of Georgia.
The following question arises: Why did Russian citizens decide to use Georgia as “an economic parking zone”, the country they are in a long-term conflict with (20% of Georgian territory is currently occupied by Russia). What is the reason? Could it be the effect of a position “not to join the sanctions” and the declared list of “non-friendly countries to Russia” (where Georgia is not listed)? With this in mind, could they get the impression that Georgia can serve as a cozy nest for Russian "migratory birds"?
We do not have a clear answer to this question, though we own the reliable data confirming that 7 out of 10 residents in Georgia assume that the flow of people wishing to move to Georgia from Russia will definitely increase.
According to the research, the biggest concern of the population is the possible prospects and plans of Russian citizens for staying in Georgia. In total, 70% of the population stands in favor of imposing at least one or more restrictions on Russian citizens with regard to entering the country.
The aforementioned cautious attitude seemingly formed within the country of Georgia is not accidental. Russia's actions push those civilized countries under the potential Russian threat, to be more cautious due to Russia’s habit to “track” Russian citizens living in other countries and, based on fake threats proposedly they are exposed to from the host country, invades the foreign country’s territory to “liberate” Russian citizens. Having said that, the authorities of many countries keep imposing cautious restrictions on Russian citizens, on one hand, for security reasons, and on the other hand, in order to avoid collaboration with the aggressor.
„At the moment, Russians are not much-desired guests here”, said the State Secretary for Asylum and Migration in Belgium – Sammy Mahdi, referring to the restriction of visas for Russian citizens, and called on the European Union to do the same.
Later on, the Baltic states - Estonia and Lithuania - also restricted tourist visas while as an exception, only those who travel to their relatives or for medical treatment are allowed.
The people of Georgia agree that the sanctions imposed on Russia by the Western countries are effective. According to ACT poll, 70% of citizens consider these sanctions to be very or somewhat effective.
Believing in the effectiveness of sanctions and taking into account the impending threats, the population of Georgia demands protective mechanisms, specifically those allowing to impose more control over the property issues and strict filtering of inflows from Russia. International demand is to impose sharing sanctions which could become a clear signal coming from a country standing at the doorstep to EU membership.
Those who believe in the effectiveness of sanctions, keep in mind the old Chinese proverb - If you wait by the river long enough, the bodies of your enemies will float by. Let us remind you what the ACT survey shows: 84% of the Georgian population is well aware of who is expected to show up in the river.