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Recession? War? Gulf developer continues massive Georgia luxury project.

The recent war, plunging crude prices, and an economic crisis haven't derailed plans for a gated community in the Caucasus.

By Dan CatchpoleCorrespondent of The Christian Science Monitor / February 26, 2009

Rich Clabaugh/STAFF


TBILISI, Georgia

Despite a war and global financial crisis, Rakeen, an Arab real estate developer in Georgia, is pressing ahead with building hundreds of luxury villas in a gated community, complete with equestrian and falconry clubs.

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Since 2006, Rakeen has invested $2 billion in Georgia, which amounts to almost 20 percent of the country's prewar gross domestic product. The development company is indirectly owned by Ras al-Khaimah, one of the United Arab Emirates. Like the other emirates, Ras al-Kaimah has attempted to diversify its petroleum economy with overseas investment.

Rakeen says it has not been deterred by plunging crude oil prices or the August war between Russia and Georgia, despite the deaths of three employees and three contractors when the port city of Poti was bombed.

"Our construction work hasn't stopped," says Zaza Mikadze, Rakeen's general director in Georgia. Rakeen became sole owner of Poti's port in December; it opened a cement plant near Tbilisi in October to support construction.

The brief war with Russia in August over the breakaway region of South Ossetia hasn't stopped Rakeen's work, including two 40-story office buildings, several thousand apartments, 300 luxury villas, three five-star hotels, and a tax free industrial park at Poti, Georgia's major Black Sea port, which Rakeen owns.

Until the economy was chilled by the war, foreign direct investment had fueled robust growth in Georgia. Although the United States and European Union have been Georgia's largest political supporters, most foreign direct investment in Georgia comes from the Middle East, Russia, and Kazakhstan.

In 2007, foreign direct investment accounted for more than 15 percent of Georgia's GDP. After the war, projected foreign investment dropped by nearly half to $1.2 billion. Economic growth also hit the skids, plunging from 12 percent the year before the war to less than 2 percent.

Not surprisingly, the war halted most construction in Georgia – cranes and equipment now sit untouched beside gaping holes in the ground and naked building frames.

Mr. Mikadze says the slowdown raises the specter of domestic political instability or renewed conflict with Russia, not to mention separatists in Abkhazia and South Ossetia.

The global economic crisis has hurt developers in the UAE and across the world, but will not seriously affect Rakeen's projects, Mikadze added. The company expects to invest $2 billion in the country in the next five years, according to Bahrain's Gulf Daily News newspaper.

Flooded with high oil profits and surrounded by emerging markets, UAE investors in recent years eagerly poured money into projects in Central Asia, India, Africa, and even Latin America. But many UAE investors were hard hit by the economic crisis, says Kaleil Isaza Tuzman, a venture capitalist in Dubai.