The FINANCIAL -- The Georgian political climate is considered to be in a state of tension which is preventing businessmen from investing in Georgia. The harassment of opposition-affiliated businesses, the lack of real independence of the courts, the issuing of legislation left and right without consulting the business community - have been named the main obstacles that are currently hindering investors’ interest in Georgia, according to the International Chamber of Commerce (ICC) of Georgia.
“The prosecution of previous officials needs to stop. No one is stupid. Investors do come and speak to us. They speak to their embassies. They know about the tense political climate in the country. No investor will invest in a tense political climate when there is a sense of instability. It is the duty of the Government to secure stability so we can expand business. Without stability we will always be struggling and we have to leave behind this trend of vendetta politics that started during the previous government and is still continuing,” Fady Asly, Chairman of the International Chamber of Commerce of Georgia, told The FINANCIAL.
“Democrats and Republicans have been regularly replacing each other in the USA for more than 200 years. However, they manage to remain steadfast and loyal to their country’s best interests. They never terrorize each other’s businesses,” said businessman Lasha Papashvili.
“A businessman is like an artist that you must take care of. It is difficult to do business. There are few businessmen in Georgia and a bit of caution is required,” Papashvili added.
Last week business associations operating in Georgia: the Business Association of Georgia, American Chamber of Commerce in Georgia, Georgia Bankers Association, International Chamber of Commerce, EU-Georgia Business Council, Georgia Employers, and Association of Oil Products Importers and Distributors - all signed a joint MOU.
The MOU outlines the most significant outstanding issues for businesses within a short-term perspective addressing which should further advance the rapid development of the business environment and respective economic growth.
The goal of signing the Memorandum is to establish a working group, together with representatives of the executive and legislative government branches and all interested business stakeholders in order to partially de-criminalize and differentiate tax-related offences, to reform the Investigation Service of the Ministry of Finance of Georgia, and to develop effective mechanisms of tax disputes and improve the tax inspection mechanisms system. The MOU signing ceremony was attended by international organizations and around 100 representatives from leading private companies.
According to Asly, he has been fighting Georgian officials for sixteen years. “They fail to learn from the experiences of their predecessors because each of them has their own agenda, their own goals, their own directions. They might learn from some mistakes but then they do repeat others. Our job is to make them understand rather than repeat the mistakes made by previous governments. There are some things that have not changed since the beginning. Under Shevardnadze there was a criminal penalty tax code for example, which is ongoing. We want to decriminalize the tax code.”
“The Government should realize that force will be met with resistance. Do not resist the laws of physics. Businesses do not need pressure, they will pay the taxes themselves. I am against any kind of control. It should be controlled from a distance. It is better instead to have an analyst able to read a balance sheet and cash flow. It reflects everything, even discrepancies,” said Papashvili.
Papashvili recently left the position of Chairman of the Supervisory Board at Bank Republic, SocGen Group, in order to devote more time to his real estate business. In his words, working in the construction business has been more difficult than the bank, as “nothing has been done in the Georgian construction business during the post-soviet era. The industry is ruined. It does not exist, either in terms of specialists or other things.” The average cost of upcoming projects amounts to around USD 88 million.
“In May 2014 we will open an apartment hotel in Batumi worth USD 10 million. USD 6 million is the budget of the hotel in Tusheti, which we will be opening during the peak season this year. The total cost of the Hilton hotel is USD 60 million. We are also building another business centre at Leonidze 2, worth USD 12 million,” he said.
Asly is not sure whether the Government will listen to them. He sees his duty in delivering messages. “We do not want to blame ourselves for keeping silent and one day someone asking us ‘why did you not speak out?’ Our responsibility is to talk and we are talking.”
Michael Cowgill, AmCham First Vice-President, positively estimated the joining together of the seven associations. In his words, business representatives now have a better voice for interaction.
“The things that the PM initiated with the economic council, they are also providing a mechanism on the Government’s side; we have a better voice for interaction and so they are listening. And they want advice. It is not just to bring problems to, they have asked for suggested recommendations and solutions,” said Cowgill.
According to Cowgill, the Georgian economy needs big projects to give an incentive and jump start the rest of the investors. “One or two huge projects will see the flood gates open,” he said.
“We must create an environment that will enable any European companies to operate in Georgia. European companies may have minor problems, but they can be resolved. That’s why the seven associations gathered to create an attitude and atmosphere that will simplify starting business for foreign businessmen in Georgia. This is the most important thing. If the Government will have moderate assistance and intervention in business, it will be very good,” said Zviad Chumburidze, Secretary General at the EU-Georgia Business Council (EUGBC).
“Stability of the existing business environment and climate is the main priority for any company before starting up business. There are some problems in certain areas, but overall the dynamics are positive. A stable environment and normal tax system are what any business needs. The system must be adjusted for businesses and to create the desire to start a business,” Chumburidze told The FINANCIAL.