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Reference ID Created Released Classification Origin
06TBILISI2991 2006-11-09 15:01 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

DE RUEHSI #2991/01 3131501
R 091501Z NOV 06

C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 002991 
E.O. 12958: DECL: 10/31/2016 
Classified By: Ambassador John F. Tefft, Reason 1.4(b) and (d). 
1. (C) Summary. The Georgian city of Kutaisi and its 
surrounding region, Imereti, are struggling to find a clear 
direction for future economic growth.  Regional leaders view 
the city, and the region, as a transit and regional service 
center for medicine, education, and trade, but seem to focus 
more on past failures.  Regional unemployment is about 15 
percent.  Local government leaders fret about the potential 
economic fallout from poor Russia-Georgia relations as 
approximately 20 to 30 percent of the population depends on 
remittances from abroad.  However, regional infrastructure 
expenditures have doubled since the Rose Revolution.  A local 
sewing plant gives a glimpse of how, with good marketing, 
Georgia could attract foreign companies with cheap labor and 
proximity to European markets.  The local hospital has been 
outfitted with new, American-made equipment, but it 
illustrates how good political connections still count in 
2. (C) Economic and business leaders in the Imereti region 
city of Kutaisi still struggle to get past the damage caused 
by the post-Soviet economic collapse. Econoff visited Kutaisi 
from October 12-13 to discuss with economic and business 
leaders the region's economic growth prospects. Unemployment 
is a high 26 percent in Kutaisi, and 15 percent in the 
region, according to unofficial calculations by the Imereti 
Economic Department.  The average wage is only USD 85 per 
month, and the region's population has decreased from 850,000 
in 1998 to 700,000 now.  Infrastructure improvements only 
started after the Rose Revolution, and Econoff noted modest 
upgrades in the roads from a visit one year ago.  Almost 
every meeting centered around Kutaisi's prospects as a 
transit city, but it remains unclear how the city plans to 
capitalize on its location.  Some local leaders see Kutaisi 
as a service center for all of Western Georgia in education, 
hospitality, medicine, and trade.  Two bright spots exist in 
a successful sewing plant and a high-quality regional medical 
center that looks to make money from medical tourism.  The 
medical center also hosts President Saakashvili whenever he 
passes through the region, and is equipped so he can lead 
emergency ministerial meetings.  The center treated injured 
soldiers from the Kodori Gorge operation in August. 
Challenges for the region include a lack of skilled workers, 
poor access to credit (interest rates hover at 22 percent), 
problems attracting investment, obsolete equipment, and low 
demand for existing production.  End Summary. 
Prospects for Economic Growth 
3. (C) Econoff met with various economic and business leaders 
in Imereti, including the region's Acting Governor, Zurab 
Kajaia.  In each meeting, when Econoff asked about prospects 
for economic growth, the responses all centered around 
lengthy historical descriptions of how badly the region has 
fared since the breakup of the Soviet Union.  Imereti was a 
major industrial center until 1991, sending over 80 percent 
of its industrial output to the rest of the Soviet Union. 
When pressed about future economic growth prospects, 
responses centered on Kutaisi's potential as a transit and 
service center.  Economic leaders see potential in food 
processing and packaging, services, and cultural and 
historical tourism.  Local leaders see the need to improve 
the infrastructure -- including establishing a Western 
standard hotel -- in order to improve tourism prospects.  To 
that end, the region's budget for 2007 infrastructure 
projects is $17 million, which is double the 2004-2005 
amounts budgeted. 
4. (C) Archil Pruidze of the Kutaisi Economic Department 
presented us with a plan to promote the region's agriculture, 
service, and tourism potential.  It includes a local 
government initiative to support small and medium enterprises 
(SMEs) and to create a marketing bureau.  The local 
government plans to provide loans to local SMEs interest-free 
TBILISI 00002991  002 OF 003 
and will be the guarantor.  However, Pruidze was unable to 
explain what guarantee the local government has for loan 
repayment.  He expressed concern about Russia's threats to 
stop money transfers to Georgia, and said that in the last 
eight months, over USD 22 million was sent from Georgians in 
Russia to banks in Kutaisi.  He estimated that 20 to 30 
percent of people in Kutaisi depend entirely on remittances. 
See reftel. 
A Successful Sewing Plant 
5. (C) Econoff visited the successful sewing plant, Imeri, 
which has contracts with various German clothing 
manufacturers and also with the Go
G to produce uniforms.  One 
German company, LEBEK, sells a woman's t-shirt in Germany for 
33 euros, and pays Imeri 0.80 euros for each one. The 
seamstresses make approximately USD 103 per month for a 
five-day, 40-hour workweek.  Working overtime can increase 
the pay to about USD 125.  Of the 380 employees, there are 
only about 15 men, who work mainly in technical repair 
positions.  The company director laughed when Econoff asked 
if any men work sewing products.  He did say, however, that 
about half of the seamstresses' husbands do not work. 
Medical Center: High-tech Medical Tourism Prospects.... 
--------------------------------------------- ---------- 
6. (C) Kakha Nuralidze, General Director of the West Georgian 
National Center of Interventional Medicine proudly showed 
Econoff around his hospital.  It opened in January, and 
started accepting patients six months ago.  Of the 22,000 
patients served, 700 were from Turkey, including the Turkish 
Deputy Minister of Justice.  The hospital boasts a surgical 
unit for cardio, orthopedic, and neuro surgeries.  The 
hospital also has anesthesiology, intensive care, blood 
transfusion and banking, and emergency units.  According to 
Kuralidze, the hospital is a leader in the former Soviet 
Union and Eastern Europe, and boasted that "even Moscow 
doesn't have equipment as good as ours."  At times, he could 
have been a sales rep for the GE and Johnson & Johnson 
equipment his hospital uses, and made it clear that he 
prefers the American equipment to European.  Kuralidze and 
his top surgeons spent time training in the U.S., France, 
Germany, Moscow, and Austria.  He said BP and the Red Cross 
have started negotiations to use the center's services. 
Total startup costs were USD 20 million.  The GOG contributed 
USD 4.5 million and USD 12.6 million to construction and 
equipment costs, respectively.  Annual operating costs are 
expected to be about USD 4 million, most of which Nuralidze 
said will come from the GOG central budget.  He mentioned 
that although the GoG will pay approximately 75% of the cost 
of a patient's operation, most diagnostic procedures are paid 
100% by the patient, which he says should help with 
operational sustainability.  The hospital boasts a 10-bed 
hotel wing to house patients and their families traveling 
from afar. 
...And Emergency GoG Cabinet Operations 
7. (C) The hospital tour took a political turn when Nuralidze 
displayed the VIP wing, which houses a first-rate hotel room, 
complete with a jacuzzi, adjacent to a large office with a 
USD 10,000 crocodile-skin office chair.  Nuralidze said 
President Saakashvili uses the office and the room whenever 
he passes through the region, and the Minister of Health uses 
it almost monthly.  Adjacent to the hotel room is a large, 
fully-equipped conference room ready to be used at a moment's 
notice for Ministerial-level meetings.  Nuralidze expressed 
allegiance to President Saakashvili's National Movement.  He 
boasted that the GOG's recent Kodori operation was managed 
from the hospital's conference room.  He said twelve wounded 
soldiers came to the hospital for treatment after the Kodori 
operation, two with life-threatening wounds.  He then 
presented a lengthy plea for the USG to help Georgia get to 
NATO by 2008, which he believes would guarantee Georgia's 
safety.  He believes that Georgia is the United States' most 
TBILISI 00002991  003 OF 003 
reliable and strategic partner against Iran. 
Medical Center's Sustainability is Somewhat Questionable 
--------------------------------------------- ----------- 
8. (C) While the hospital in general was clean, it is already 
starting to look older than its six months of use would 
suggest.  Some of the public-use restrooms were missing 
plumbing, were dirty, and generally unkempt.  The private 
patient bathrooms were not much better.  Even though the 
hospital prides itself on its highly trained medical staff, 
basic cleanliness issues could prove to be an obstacle to 
maintaining its high standards. 
9. (C) Comment:  In Kutaisi, local government and business 
leaders still seem to be more focused on past difficulties 
resulting from the breakup of the Soviet Union than they are 
on establishing a clear direction for the economy of their 
region.  The sewing plant we visited demonstrates that there 
is an opportunity for very profitable operations in Georgia, 
based on the low cost of labor, augmented by Georgia's 
proximity to Europe and recent pro-business reforms. 
However, Georgia is only just beginning to market its 
advantages to potential foreign investors and needs to do a 
better job getting the message out.  Our visit to Nuralidze's 
new hospital demonstrates that political connections still 
play a significant role in Georgian business.  The hospital 
has had a successful beginning, but it will require skillful 
and dedicated management and marketing if it is to attract 
the higher class clientele it desires from Georgia and 
abroad.  Keeping it running will be an expensive proposition 
for the GOG otherwise.  End Comment. 


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