Issue 5, 2011. October-November

   

IT: A NEW FRONTIER FOR INVESTORS

Investor.ge continues its series of sector overviews to provide background, summaries and analysis of priority industries for investors in the Georgian economy. This is the first of three articles about the growing interest - and potential - of Georgia's IT sector. For more information, please contact Molly Corso, editor

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From a new computer factory to cutting edge IT classrooms, Georgia is awash with innovative programs geared to capture a piece of the growing technology industry. A government program to support IT free zones and a push to introduce IT education in primary schools both indicate support for technology and investment in technology is growing.

Mobile phones: the new wallet

Georgia's old-school economic reforms have created a fertile environment for new technology investments, noted Allen Gilstrap, the CEO of MobiPay.

MobiPay, the mobile payment platform created by U.S. investor OpenRevolution Georgia JSC, chose Georgia over a list of 50 possible destinations when it decided to open its headquarters in 2009. The technology, which is new to the region, required extensive investment in software development and marketing and could make Georgia a regional hub for electronic banking services.

MobiPay's innovation is that it enables people to put money into an ‘electronic wallet', similar to the credit people usually put on their phones to pay for phone calls. The innovation of the system is that this ‘e-money' can be transferred to other phones, used to buy goods and services and retrieved as cash - all without the need for an ATM, a point of sale device or a bank. Unlike more high-end mobile banking platforms, it can be done with the cheapest available mobile phones and does not need a bank account.

Similar systems have been enormously successful in both Africa and Asia, where they have provided access to bank-like services for millions of people in rural areas and facilitated huge intra-country financial transfers.

Bringing a similar platform to Georgia, MobiPay's Gilstrap said the company is a "poster child" for what the Georgian government is trying to do in IT development.

For MobiPay, the country's pro-business reforms, employable population and strong mobile networks made Georgia an obvious choice, he said and explained they were attracted to Georgia because of the "complete absence of business corruption, fervency of the government to promote foreign investment - Georgia has a fantastic future in front of it... we are a poster child for what we think they wanted to do."

The company's platform went online earlier this year and already has over 110 thousand customers. A network of 1800 merchants use the payment system and MobiPay is expanding to other cities around the country. They are also working on opening similar platforms in Poland and Ukraine.

The idea of transforming phones into bank branches has attracted interest from other potential investors, as well as from mobile phone operators.

Archil Bakuradze, the Project Coordinator at Crystal Fund/Mobile Finance Eurasia, is also gearing up to launch a mobile wallet system.

While the service will differ from MobiPay, he noted it would be a multicurrency wallet that will allow anyone to access funds from their telephone. Georgia, he said, is a fertile market for innovative banking solutions.

"Georgia has become really a place where all these stories are unfolding, like Kenya was in Africa and I think there is a combination of factors," Bakuradze said.

"First are the liberal regulations; regulators are stimulating the emergence of new business models. Plus Georgia definitely needs something for financial services to expand to the rural areas and this is definitely a state of the art solution."

David Lee, the general director of Magticom, said the potential is real - if developers can hit on the right product.

"I think the mobile platform has a lot of potential, but the situation in Georgia is closer to the one in the west, not like Africa where these things initially took hold," he said.

While Geocell, one of the largest cell phone operators in Georgia, has signed on with MobiPay, Magticom is working on its own platform. Lee noted that they launched a banking service earlier this year, but are still working on finding the right mobile payment solution for the Georgian market.

"I think the killer application that will work in Georgia is still not here yet," he said.

But the "dynamic" telecommunications sector in Georgia is creating a deep pool for possible investments in the country, Lee underscored.

"The digitization of Georgia is taking place and I think the telecommunications sector is one of the more dynamic sectors," he said.

"The next stage will be [digital] TV and probably the final stage will be making sure that everyone has high speed internet in the home and Magticom will again be part of that...I think the future looks pretty bright in the case of Georgia."

Bringing IT investors to Georgia

President Mikheil Saakashvili has praised the capability of technology to reenergize the job market and Economy Minister Vera Kobalia traveled to Silicon Valley in 2010 to lure software giants to the Georgian market. Giorgi Chirakadze, the founder and CEO of UGT a leading Georgian IT solutions company, said the government's efforts have paid off. He noted that large venders like Cisco, HP and Microsoft have all entered the market. Intel has even partnered with a local firm to produce computers.

Lee noted the government's efforts have produced some tangible results, like MobiPay's investment. He stressed, however, that policy making has been "disjointed". "[The government] seems to be doing a lot of good things and at the same time it is doing a lot of negative things," he said.

"On the good side, they are certainly consistently encouraging people to develop this sphere, but on the negative side they are taxing the mobile phone companies which are the most innovative IT companies."

Irakli Kashibadze, the head of the Communications, IT and Innovations Department at the Ministry of Economy and Sustainable Development, argued however, that the government's policy is focused on supporting innovation. "For us [the goal] is technology and innovation," he said. "That is why we are actively working to create policy that will support the e-commerce development in the country." A long-time advocate of IT development in Georgia, Chirakadze said officials have been particularly successful at getting the word out about Georgia's potential.

"The government is really trying to move forward; the government is really trying to find potential investors in IT and is pretty much reaching a lot of international companies who are potentially interested to invest, mainly in the services area, in software and outsourcing," he said.

"There are definitely some very positive movements."