The FINANCIAL -- Georgian political parties are being advised not to destroy the country’s image in the international arena in the process of demolishing each other. The political battle of parties for the 2016 elections is raising the level of nervousness in the business community. Court injunctions to freeze a company’s assets and tax audit are named the main concerns for businesses in Georgia. AmCham Georgia’s President calls on Georgia’s partners in the West to step up and help companies to understand and get the benefits of the AA and DCFTA deals, in order to halt growing Russian influence over Georgians.
“I hope that all of us in Georgia have learned lessons from the early years. All of the political parties should focus on promoting Georgia in a good way. I am not naïve enough to believe that it will definitely happen, but if it does, we should not see too much disruption in 2016. On the other hand, if the opposite happens it will be very difficult on the economy. Nobody feels comfortable investing, or even reinvesting- when there is political instability. Therefore, we hope that all the parties work hard to ensure stability for the 2016 parliamentary elections,” Sarah Williamson, President of the American Chamber of Commerce (AmCham) in Georgia, told The FINANCIAL.
According to Williamson, Georgia has clearly adopted its Westernisation agenda. “It has to make sure that it is seen as a democratic, transparent society; that its values are really standing on free market economy principles.”
Q. What was the most significant development in 2015 for businesses in Georgia?
A. The most significant thing for businesses and future investors is the recently formed Investors Council. The Council was sponsored by EBRD. The Georgian Prime Minister chairs the council. It’s members include leaders of the major business associations in the country, EBRD and the economic team of Ministers. Other IFI’s attend on a rotating basis. We had our first meeting last month. I believe this is going to be a very strategic means of direct communication with the highest levels of the government for businesses. The Council is in-place to discuss the current issues. At the first meeting we discussed very tough issues with the Government. In addition, we will talk about strategic objectives such as making Georgia a more attractive place to invest and how we can work together to do that. Overall, one of the things that businesses have been asking for is better communication with the high levels of the Government. With the PM chairing, and his economic team of ministers attending, I think this will provide an excellent means of improving public-private sector dialogue. We are also, at AmCham, excited about Georgia’s participation in a new Silk Road. The Silk Road Forum that took place here, in Georgia, was very important. There are lots of prospects that Georgia can gain through Asia and the FTA with China, combined with the already-achieved DCFTA with the EU. It provides lots of opportunities for bringing companies into Georgia to do soft repackaging and warehousing here, as well as other investments for transit and logistics along the Silk Road.
Q. Did legislation for entrepreneurs improve or worsen over the last three years?
A. Any business that has been here for many years certainly got accustomed to, and benefited from, the very libertarian position of the previous government. It was a very necessary thing for businesses to be able to grow. Georgia has a developing economy and businesses really needed the breathing room. At some point, as a country develops, there are some regulations and bureaucracy that will come back into play. That is what we see now with Georgia trying to amend its legislation and harmonize with the EU. You can call it reforms, but they are examples of more regulations. That is always difficult for to accept, and sometimes painful and costly. Both the Government of Georgia as well as its partner countries that have an interest in seeing it succeed, really need to do everything they can to make sure that the masses understand what the long-term benefits will be. They have to reassure people that they have access to financing and education that will enable them to take advantage of these benefits. In the long term, we certainly think that Westernization, including the EU DCFTA, is going to be worth it. Right now it is painful, especially for the local businesses that are not used to these kinds of regulations.
Q. What can Georgia do to attract more US investors?
A. The distance problem is the main reason you do not see more US businesses here. Georgia is too far away from the US and in most investors’ minds the market here is too small. Since we can’t bridge the distance issue, Georgia has to stay strong on it’s Westernisation agenda. It has to make sure that it is seen as a democratic, transparent society; that its values are really standing on free market economic principles. We, the private and the public sector, have to work together to promote Georgia more. Georgia is a regional hub. With its trade agreements with the EU and the countries in the region, it makes sense to position Georgia as a regional hub. Perhaps more needs to be done with neighbouring countries to ensure that they honor their trade agreements the way Georgia does. The country needs to promote its achievements, strategic placement and really make the economic case. It is not just about politics. We have some nervousness coming into the election year in 2016. No one does Georgia any favours when they go out into the international press, and destroys the country’s reputation in the process of destroying each other. It is really important to promote what Georgia has to offer economically and geographically.
Q. The World Bank has published its economic growth forecast for Georgia measured at just 3%. What are your expectations for 2016?
A. I think 3% is reasonable. However, a country like Georgia really needs at least 5% growth a year to be successful. It’s difficult to predict for 2016, but if we look back at recent history, when we had the last big elections in 2012, on the one hand, there was a huge positive for Georgia in that we were able to show investors that Georgia was the first country in this area to have had a peaceful transition of power. That was excellent. However, at the same time, the antics of both major parties leading into the elections and the uncertainty that comes with a changing government in this part of the world, in a developing country, were bad for business. It is not a comment on one party being better than the other. It’s simply a statement of hope that all of us in Georgia have learned lessons from years. All of the political parties should focus on promoting Georgia in a good way. I am not naïve enough to believe that it will definitely happen, but if it does, we should not see too much disruption in 2016. On the other hand, if the opposite happens it will be very difficult on the economy. Nobody feels comfortable investing, or even reinvesting- when there is political instability. Therefore, we hope that all the parties work hard to ensure stability for the 2016 parliamentary elections.
Q. How are US brands growing in Georgia?
A. US brands and franchises are popping up everywhere and as far as we know they are doing quite well. There is no street corner that does not have a Wendy’s or Dunkin’ Donuts. They are everywhere in Tbilisi and my children think that is fantastic. We have seen many restaurant chains opening with US franchises during the last year too. On the retail front there have been several US clothing stores, like Gap, Banana Republic, Tommy Hilfiger, and certain others that have opened in Tbilisi. It is a great time, especially for franchising US brands, as right now they seem to be very popular and successful.
Q. What are the main obstacles for investors in Georgia? What are the main complaints of AmCham member companies?
A. The biggest problems our members are having are court injunctions, where the court is able to freeze your assets based on another party making claims against you. It relates to even relatively small claims. Very large assets are frozen and it really cripples a company’s ability to function. Unfortunately, based on the legislation this is currently legal. This is legislation that has existed for many years and at AmCham we believe that there has to be changes to fix it. We raised this issue at the Investor Council meeting. We were pleased with the fact that the PM agreed that that has to be fixed quickly. The other big problem is the implementation of tax audit. Most of the problems raised are eventually sorted out through the appeals process in the Ministry of Finance. However, it has unimaginable and unacceptable consequences on companies, in the form of the time and financial resource allocation required to fight those appeals. It is extremely important for the Government to give new directions to the tax assessors. We have also raised this issue with the PM and Investor Council and have agreed to have a special meeting in December to speak about these issues. AmCham’s position is that there needs to be some kind of technical assistance and reform of the audit implementation process, along with some swift direction from the highest levels of government to limit the immediate troubles companies face. We hope we can convince the Government to do that as it is better for everyone. We hope the government realizes that it is not only inhibiting the private companies growth as they waste time and money on lengthy appeals processes that shouldn’t be necessary, but it is also a waste of the government’s resources when these tax claims should never have been made and should never have required their time and resources in the appeals process either. Fixing this problem will be a great bonus for Georgia. I believe that the best advertisers for getting investments to come to Georgia are the people that have already done so and are happy tell others that it is a good place to be.
Q. Starting direct communication with officials can be named a positive step. Meanwhile, it is crucial to get concrete results and solve problems that matter to the business community. How optimistic are you in this regard?
A. I agree. We are all eager to see how these more open discussions can bring about positive change and quickly. In AmCham we do not believe that the major problems, for example in the Revenue Service, is a matter of corruption. It is a matter of competency- having enough of the right people and giving them the proper instructions. It is a fixable problem and it needs to be fixed.
Q. There are concerning results from an NDI poll, showing that Russian influence is growing among the population. Do you consider it a problem?
A. It is a problem. However, it is not just a problem of Georgia, but also of the EU and our western partners. When I see that poll I can easily understand how the masses of Georgians may feel. Georgia has signed the AA and DCFTA with the EU. We hear of progress on the visa liberalization processes. All of these sound great when you are only hearing headlines. However, when you get into the business of what is actually required to achieve that, it is quite scary. These regulations can be expensive for businesses. Accordingly, it is very important for Georgia’s partners in the West to step up and help, especially small and medium companies in Georgia, to understand what the benefits will be and help them to get these benefits. If we do not do this we are going to see Georgians get even more fatigued by all of these new regulations. It is a wake up call to all of us to realize that Georgia’s westernisation and western integration is really important. I think the West has a huge responsibility to try to help everyone here understand and participate in the process of these things, going forward. To keep things in perspective, lets acknowledge that luckily we are not seeing a shift of great proportions. Still, this is a trend that we certainly hope does not continue.
Q. Georgia has been negotiating an FTA with the US for years. When should we expect this agreement to be reached?
A. Unfortunately I have no control over this process. AmCham, has strongly supported this agenda, both in Tbilisi and Washington DC, for many years. We will continue to do so. Realistically, there is so much going on in the world that it is that the US has recently made clear again that it cannot will start an FTA with Georgia in the nearest future. So, while I believe this would be a tangible, bilateral, thing that the US can do to show appreciation for the steps Georgia has made, I guess we’ll be waiting for a bit longer.
Q. Do you see the future of Georgia as a member of the EU and NATO?
A. If it was up to me Georgia would be a member of the EU and NATO tomorrow. I wish everyone saw it that way, but since they don’t Georgia and it’s partners have to be very careful moving forward. For example, I do not think that NATO’s membership action plan (MAP) will ever be good idea for Georgia because of Russia’s obvious response, as we saw in 2008 when they became afraid that Georgia was getting close to MAP. I hope that someday NATO will recognize Georgia as its member, skipping the MAP process. As for the EU, Georgia is a very European society and the country is taking every step to harmonize further with the EU, legislatively. So, while it is not on the table right now but I hope it will be some day.