Investor Tour to Abkhazia

Last week several investors, Mitch Hancock of Canada and an American representing several deep pocket and institutional investors, joined me on a tour of Abkhazia.  We met with officials from the government, including Prime Minister Shamba.  

First, we spent a few days in Moscow before heading to Sochi and Abkhazia.  Moscow was full of people for the Victory Day holiday weekend.  The streets in the center were blocked off to vehicular traffic on May 9 and with warm and sunny weather, millions of people were out to enjoy the day.  My guests were really impressed with the parades and the spectacle of Moscow on Victory Day.

May 10, we flew to Sochi and traveled to Abkhazia.  We drove down to Sukhum from the border. Both visitors were impressed with the beautiful coastline northwest of Gagra.  We stopped several times to take photos. On the way, we stopped at Pitsunda where I showed them the resort.  We spent about an hour walkng the grounds and beach of the resort.  The comments were very positive about the prospects for development at Pitsunda and nearby.  We had a long talk about how to draw in large investors for what appears to be mutliple resorts at the grounds of the current resort. 

After we arrived in Sukhum, we had dinner at Aqvafurta and talked about what we had seen in Abkhazia.  The next afternoon, I showed Novy Afon Monastery and Stalin's dacha to my guests.  The views from the dacha of the central coastline are very dramatic and both of my guests remarked on the beauty and development potential of the location.  

Later that day, we met with Prime Minister Shamba and his advisors in his office.  Tim Post traveled from Krasnodar for the meeting and he and I spoke about the English language tourist application that we have developed for Abkhazia.  Then the American investor spoke about the lack of credit and debit card processing and potential solutions in Abkhazia.  He also said that there was a dearth of English language information on the investment projects in the Republic of Abkhazia.  Then Mitch Hancock made a presentation on Canadian playground equipment.  Earlier, he read about President Bagapsh's interest in acquiring quality playground equipment for Abkhazia's children.  Mr. Hancock believes there are multiple opportunities to pursue in Abkhazia and said that if the government was prepared, he would put together proposals for modernizing the port facility.  Mr. Hancock has a long international track record working with transportation and shipping.

We planned on a helicopter trip to see Abkhazia's coastline and mountains, but weather did not permit. Still we spent several days in Abkhazia and everyone was impressed with the opportunities there.  Both of my North American guests felt that there is tremendous potential for development in Abkhazia.  There were favorable comments about the leadership "They plainly understand the issues and want their country to develop" and about individual projects "this is a winner" (on Pitsunda).  The spectacular beauty also impressed both visitors. After we visited Novy Afon, favorable comparisons to the southern California coastline were made.  All three of us believe there was the potential for a 5 star resort there.

I have spoken to both parties since they departed several days ago.  Mr. Hancock is interested in pursuing opportunities in import/export,shipping, port redevelopment and air service.  His American counterpart is talking to  investors in the US about real estate development projects in Abkhazia.

Abkhazia Projects

The Republic of Abkhazia needs investment to develop economically.  I am hearing that academics, journalists and foreign policy experts recognize that there shouldbe a dialogue with Abkhazia and that business and political ties need to be fostered.  Without this Abkhazia, remains isolated and this is does not promote peace, prosperity and stability in the region.  There is no question that Russia and Russian investors recognize what is obvious to me:  Abkhazia is ripe for development.  However, if the only outside investors are Russian, Abkhazia will not develop as quickly.  There needs to be money from a larger universe of investors and the Abkhaz authorities recognize this.

I see a number of great opportunities in Abkhazia.  A large, international infrastructure investment group contacted me last year.  They pointed out that the airport in Sukhum has an excellent geographic location and with the longest runway in the Caucasus it would be ideal for an international "hub and spoke" airport with flights on to Central Asia, the Persian Gulf and Russia.  

The port in Sukhum needs to be redeveloped also.  Currently, there are only Turkish merchant vessels docking there.  However, as Abkhazia grows ( reportedly the economy nearly doubled in 2009), there will be more trade and the small, out-dated facility needs to be rebuilt.

Abkhazia sits just across the border from the site of the 2014 Winter Olympics in Sochi, Russia.  Sochi will also host Formula 1 Racing starting in 2014 and World Cup football matches will be played there in 2018.  Sochi will be an international destination because of this and because of the appeal to beach-goers and skiers.  Because of its proximity to Sochi and the large number of Russian tourists who view it as the a subtropical vacation paradise, Abkhazia needs many hotels to replace the aged Soviet built structure on its beaches.   One of the most intriguing locations is Pitsunda, a few miles from Gagra.  The Soviet-era resort there sits on about 82 acres of beachfront property and with nearly 3,000 rooms is the largest resort in the country.  Views from the property include not only the beaches, but the spectacular snow-covered (even in hot summer) Caucasus Mountains.  

Abkhazia is also considering allowing Russian citizens the right to buy apartments.  When that happens, a lot of people will view it as an attractive place to own a vacation home.  There are good locations available to buy and build.

In the border zone, there are great locations available to build hotels.  Russia is planning to rebuild the border crossing to accommodate more cross border traffic and trade.  This will  make these locations that are only a few kilometers for the Olympic Village and the Formula ! course very attractive.

The mountains are a big draw for summertime tourism, but the winter potential of the Caucasus is even greater with skiing.  At this moment, there are no ski resorts in Abkhazia.  However, the mountains reach from the sea to altitudes of over 13,000 feet.  There are several potential ski resort locations close to the border with Russia and further down the coast.

Abkhazia shares the hydroelectric power station at Inguri with Georgia.  This provides the electricity for the country and about 40% of Georgia's electricity.  There is significant untapped potential in Abkhazia's rivers.  The Russian oil company, Rosneft,which recently sold a state to BP, is working on a site on Abkhazia's coastal shelft that is supposed to be significant.  The impact to Abkhazia s unknown, but probably significant.

This is only a small sample of the projects in the Republic of Abkhazia.

Abkhazia- Sochi

Over the last few days there has been an unusually strong storm in the region.  Typically winters are mild along the Russian Riviera and on Abkhazia's coast.  However, several days ago a Zanzibar flagged, Turkish owned ship broke apart off Sochi's beaches.  Last night an unusually substantial snowfall blanketed Abkhazia's coastal lowlands from Novy Afon to near Gagra.  Today was warmer and the snow will soon be gone,

Sochi

The progress at the Olympic Village in Sochi has been very rapid.  The Village is near the beach, but a high speed rail is being built to connect it to the site of the Alpine events in Krasnaya Polyana.  When completed, it will take 25 minutes to travel between the two locations.  Krasnaya Polyana is also being constructed rapidly.  The entire valley is the site of many construction projects related to the Winter Olympics and tourism.  It is clear that Krasnaya Polyana will soon be a world class destination for winter sports enthusiasts.

Also, around the Olympic Village, Formula 1 Racing will be held starting in the summer of 2014.  At the same site, the Russians are building a new football stadium to accommodate the World Cup matches that will be held in Sochi.  There is a tremendous amount of activity and clearly the Russian government's efforts to bring major sporting events to Russia is spurring a lot of growth and development.

The Olympic Village is only a few kilometers from the border with Abkhazia.  As Tijuana and the beach zone south has developed due to its proximity to the American border, it is easy to foresee a similar pattern in Abkhazia,especially with its spectacular beauty.  It is very close to Sochi, which draws millions of Russian beach tourists and will soon host the Winter Olympics, Formula 1 Racing and World Cup Football.  

Return to Sochi from Sukhum, December 3

I returned from Sukhum to Russia on Friday, December 3.  It takes between 1/12 and 2 hours to reach the border.  Fortunately, almost no one was at the border, so I quickly was over the bridge, through passport control and customs and on the Russian side.  

On the way from Sukhum to the border, I asked the taxi driver about the war in 1992-93 and if he had been in Abkhazia at the time.  He told me he had fought in the war, been wounded and evacuated to convalesce in a hospital for several months.  He also lost both his brother and father in the fighting.  In a country that lost about 4 % of its population in combat, almost no family was left untouched by tragedy.  

Despite this, Arsen was upbeat about the future in Abkhazia.  Like me, he believes that there are great changes coming to Abkhazia.  Like most Abkhaz, he is uncertain exactly what form it will take, but he believes that tourism is going to be the backbone of growth.  The day before in Sukhum, I explained at length to and accomplished local businessman about a contact I had with a well-known insurer of unusual risks.  I told him that if this firm would "rate" the political risk in Abkhazia and if the cost was economical, it would help draw investment capital at much lower cost.  Initially, he was unfamiliar because most Abkhaz have not been exposed to western capital market information.  However, he quickly grasped what this would mean.   Of course, this is not the only way forward and there are a lot of other scenarios for capital to enter the country. It is apparent that there are other investors who see what I see in Abkhazia.  I saw several foreign business groups and there are already Turkish entrepreneurs engaged in retail and restaurant businesses.  Tim Post, an American Krasnodar-based entrepreneur who has is becoming well-known in the Russian language internet and who developed BarCamp Krasnodar, toured Abkhazia with me the previous week.  Tim was very enthusiastic.  He said  "Abkhazia is what you get if Rancho Sante Fe "married" New Zealand."  and when talking about development possibilities Tim thought that Abkhazia "is analogous to discovering another Hawaii. If political events break favorably, this "middle earth" kingdom will be one of the most sought after in Europe."

When I got back across the border, I had to change my ticket for my return to the US at the airport before I went to the train station.  On the way, I was delayed by traffic due to Russian President Medvedev's arrival.  The Sochi/Adler Airport is an impressive and modern facility, by any standard.

I saw the new high speed rail connecting Sochi/Adler with Krasnaya Polayana, the site of the Alpine events.  I am often in the area, but even so I noticed a lot of progress since my last trip through in October.  Including event venues there ore than 200 new projects scheduled to be completed in time for 2014.  Watch for more information here on Sochi going forward.