Caucasus Business Forecast Report Q1 2008

Publication Date	November 2007
Publisher	Business Monitor
Product Type	Report
Pages	43
ISBN Number	1746-5743
Product Code	BMI01208

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£375.00
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Summary

Inflation And Elections Key Risks In 2008 The Caucasus region as a whole is forecast to continue exhibiting strong real GDP growth in 2008.

That said, the dynamics of the growth are expected to remain distinct among the three economies of the region. Azerbaijan will continue to be dominated by the energy sector, with planned output expansions underpinning double-digit economic expansion for the fourth straight year. Georgia will remain the main beneficiary of non-energy related foreign capital inflows, alongside the country's increasingly favourable business environment. Armenia will likely see a continuation of domesticdemand oriented growth, though with increasing emphasis placed on attracting FDI. In spite of the differences in growth dynamics, all Caucasus economies have faced increasing inflationary pressures in 2007, and this is likely to remain the core risk going forward. Not only will rising inflation hit real economic growth and private wealth levels but it also poses a political risk, with inflation likely to become major election issues in all three countries.

2008 is set to be a pivotal year for the region with presidential elections due to be held in all three Caucasus countries. While our core view is for the incumbents (or their close allies) to win each election, the campaigns are still likely to be contentious affairs and the results are by no means completely certain. This is especially the case in Georgia, where mass opposition-led protests over corruption and living standards during the latter part of 2007, have significantly undermined the stability of the current administration led by President Mikhail Saakashvili.

We remain positive on the Armenian dram, Georgian lari and Azeri manat with steady nominal appreciation forecast through the medium term. To be sure, part of the recent gains seen in these currencies has been due to persisting dollar weakness, though we also highlight the fundamentally positive macroeconomic profiles in the Caucasus region as the primary reason to be bullish these currencies. Indeed, foreign capital inflows, especially in Azerbaijan and Georgia are expected to remain robust going forward, sustaining high demand for locally-denominated securities and assets.

Opportunities to gain investment exposure to the Caucasus are forecast to continue improving through 2008. Azerbaijan will likely push forward on its long-planned Eurobond, estimated to be valued around US$500mn, sometime in the first half of the year, while a new Georgian corporate listing on the London Stock Exchange (LSE) will provide investors with a further equity opportunity.

Internet firm Caucasus Online has announced plans to raise US$100mn on the LSE in April 2008, making it the second Georgian firm to list on a foreign market. This is an encouraging development which will help to improve access to capital in Georgia as well as develop business practices along international best practices.

Content

BMI Risk Ratings - Armenia
BMI Risk Ratings - Azerbaijan
BMI Risk Ratings - Georgia
BMI Risk Ratings - Europe Europe - Ratings League Executive Summary
Inflation And Elections Key Risks In 2008
Chapter 1.1: Political Outlook, Armenia
Foreign Policy
Foreign Disputes To Continue Weighing On Ratings
Armenia's political risk profile is likely to remain hampered by foreign disputes going forward.
Armenia: Key Figures (as of November 2007)
Chapter 1.2: Economic Outlook, Armenia
Economic Activity
Robust Growth To Continue
The Armenian economy is forecast to continue expanding in the double digits in 2007 with our forecast for
annual real GDP growth at 11.8% this year.
Exchange Rate Policy
Dram To AMD300.00/US$
Underpinned by persisting dollar weakness over the coming year, the Armenian dram is forecast to continue
pushing higher over the medium term, reaching our AMD300.00/US$ target by the end of 2008.
Chapter 2.1: Political Outlook, Azerbaijan
Foreign Policy
Frozen Conflict To Thaw In 2008?
The prospects for a peace settlement between Azerbaijan and Armenia over Nagorno-Karabakh are likely to
improve in 2008 with the signing of a framework agreement for diplomatic negotiations.
Economic Outlook 2.2, Azerbaijan
Economic Activity
Economic Boom To Continue
We remain positive on the Azeri economy over the long term, with double-digit real GDP growth forecast until 2009.
Exchange Rate Policy
Spiralling Inflation Raises Appreciation Risks
After gaining 4.8% ytd against the US dollar to trade at AZN0.8500/US$ on October 9, we believe that the Azeri
manat still has further to go, with steady appreciation to AZN0.8300/US$ forecast for end-2007.
Chapter 3.1: Political Outlook, Georgia
Domestic Political Outlook
Political Tensions Could Elevate Further
An early presidential election in Georgia is unlikely to diminish political tensions between the government
and opposition groups.
Business Monitor International Ltd
Caucasus Q1 2008
Chapter 3.2 Economic Outlook, Georgia
Economic Activity
Structural Improvements Are Occurring
The Georgian economy is likely to be bolstered further over the medium-term alongside a recent
agreement with Azerbaijan which will double the export capacity of gas to Georgia.
Balance Of Payments
Double Digit Current Account Deficit Here To Stay
Latest balance of payments figures for Georgia reinforce our view that the current account deficit will
increase further in 2007, with our upwardly revised forecast at a whopping 18.0% of GDP.
Exchange Rate Policy
Steady Long-Term Appreciation For The Lari
The short-term technical picture for the Georgian lari is looking very healthy, with the unit breaching
a three-year trendline resistance level at GEL1.6400/US$ in October and at one point trading at
GEL1.6169/US$ on November 1.
Chapter 4: Special Report
Negative Oil Price Shock Scenario
List of Tables
- Table: Economic Activity
- Table: Exchange Rate Policy
- Table: Azerbaijan: Key Figures (as of May 2007)
- Table: Economic Activity
- Table: Exchange Rate Policy
- Table: Georgian Political Crisis Timeline
- Table: Economic Activty
- Table: Balance Of Payments
- Table: Excange Rate Policy
- Table: Top 10 Energy Producers, Consumers And Importers

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Product features / use

Scope	Expert Insight/Opinion
Level	General Industry Strategies
Data	Detailed Market Forecasts
Profiles	Profiles of Key Companies
Features	Contains SWOT Analysis
Extra Info	Consumer Trends Highlighted