Outlook on Georgia Conference Held in London
On 20 November, the think-tank Emerging Europe co-hosted ‘Outlook on Georgia’, an investment conference, with the European Bank for Reconstruction and Development (EBRD) at the EBRD’s headquarters in London. What struck this Londoner from the outset is just how pro-business the Georgian government is: whilst there is a growing backlash against capitalism in the UK, with our nominally Conservative government doing little to buck the trend for excessive legal and economic regulation, in a desperate attempt to banish the looming spectre of a Jeremy Corbyn-led government, hearing politicians actively boast about their low-tax economy as a means of courting investment, was refreshing indeed.
Mattia Romani from the EBRD was the first to speak and gave an overview of Georgia’s economy as it appears today. Describing it as an example for the region with a “clear Western orientation,” he listed the key recent economic developments as being the focus on competition; social change; women and youth in the workplace; and investment in renewable energy. Giorgi Cherkezishvili extolled the virtues of a small economy reaping the benefits of recent reforms. Corruption is minimal, and Georgia is breathing down the UK’s neck in the Economic Freedom Index, coming 13th place just behind the UK’s 12th (Georgia notably increased by 3.4 points on last year whilst the UK remained the same), crime is low, and Moody’s recently upgraded Georgia’s credit rating from BA3 to BA2.
Both individual speakers have a vested interest in presenting Georgia in the best possible light, and it wasn’t until Maximilien Lambertson, from the Economist Intelligence Unit, spoke, that we heard a slightly more sober view. Georgia’s GDP is down from 2015-16 due to a downturn in global energy prices, but exports are up and the projected GDP for this year is regularly being revised upwards. The main problem cited in Lambertson’s talk was uncertainty: both on a global scale, with political risk being a factor in Turkey, Russia, the USA, and Europe; and domestically, with reference being made to the recent prohibition on foreigners buying agricultural land which was enshrined in the constitution this year. Theoretically, the government can grant exemptions to this rule, but uncertainty remains. Nevertheless, transport links such as the recently opened Baku-Tbilisi-Kars railway, and the great potential for hydro-electric investment, as well as the booming tourism industry, ensured that the content of the talk remained overwhelmingly positive.
The panel discussion on finance shined a light on improvements which have to be made in that sector: Koba Gvenetadze, governor of the National Bank of Georgia, explained that the financial sector in Georgia is 90% composed of commercial banks, but there is very little in terms of microfinance, and the capital market size is comparatively negligible. The solutions presented by Gventadze were the coming introduction of a corporate bonds market, harmonizing local regulation with EU and IOSCO regulation, and ensuring that proper market supervision is in place. Georgia can probably never become a huge capital market, but there is certainly plenty of room for it to grow, and the financial sector in general has become more open; Otari Sharikadze from Galt and Taggart made the point that there has been a tangible shift towards meritocracy and away from nepotism.
Most striking, however, was the discussion on the Anaklia Deep Sea Port, which aims to be operational by 2021. It’s a vast and ambitious project which aims to link Europe with the East by utilizing the above mentioned transport links with Georgia’s neighbors in order to transport cargo across the Black Sea. It also aims to become a focal-point for goods coming from Russia and eventually from India up through Iran. Keti Bochorishvili (CEO, Anaklia City) made the enticing point that through their position as a crossroads between North, South, East, and West, Georgia has the potential to act as a gateway to a market of around 2 billion people.
I suppose the Georgian government is building on its past successes with big international companies (Emily Olson from BP praised the “ease of doing business” there) by making the country as amenable as possible to business opportunities. Anaklia’s literature lists the Georgian government as “concessionaire” which shows shrewdness on the government’s part; they attract investors to help develop the infrastructure, charging them very little in tax until dividends start being paid, but they reap the end-benefits in terms of increased imports / exports. It’s a risk, of course; if it doesn’t work then they’ll have given away concessions for nothing, but if it does then it will be yet another example of trust and stability which business needs in order to function.
Karl Marx opined that history repeats itself “the first time as tragedy, the second as farce”. Thankfully, it would appear that the Georgians have had rather enough of Karl Marx and are taking a more optimistic view as they attempt to reposition themselves as a trade bridge between the Silk Road and the West.
Robert Edgar, London