The Messenger, Georgia
Nov 16 2004

Economic Analysis
Georgian government goes looking for investors

By M. Alkahzashvili

The Georgian leadership’s attempts to attract foreign investments in
the country have so far produced little visible results. Despite the
undoubted energy with which the government, led by Minister of
Economic Development Kakha Bendukidze, has set about persuading
foreign entrepreneurs to invest in Georgia – organizing business
forums and conferences to display what Georgia has to offer and
reiterate the administration’s guarantee of stability and support for
entrepreneurs – there has been very little in the way of private
foreign investments since the Rose Revolution.

The Rose government considers foreign investment as vital for the
country’s economic development and a major priority. Hence the
business forums that have been held this year along with discussions
with Russian, Armenian, Turkish, Israeli and Kazakh businessmen. The
government has also called on Georgian businessmen working abroad to
return to their country and invest in businesses here.

The government continued its pursuit of potential investors last
week, when Prime Minister Zurab Zhvania traveled to London with
Bendukidze and Finance Minister Zurab Nogaideli, as well as
representatives of such Georgian companies as Tbilvino, Bagrationi
1882, Tbilaviamsheni, and Batumi and Poti Ports, to try to persuade
foreign businessmen to come to Georgia. The ‘Invest in Georgia’
business forum opened on November 11, and will be followed by similar
events in Italy, later this month, and New York, in January 2005.

Whether or not such international conferences will result in
increased investments remains to be seen, but the fact is that up
until now the government’s attempts have been largely fruitless,
suggesting that private investors remain wary of setting up new
businesses in Georgia. The tense situation in South Ossetia (and
Abkhazia) and the possibility that it could develop into an armed
conflict, is one reason for hesitancy among businessmen.

But there are other factors too. Although the government repeatedly
stresses that investors in Georgia will receive protection and
support from the government and the law, there is still much to do to
persuade investors that this is in fact the case. Stamping out
corruption is one task for the government which is far from
completed; changes to the law, and equally importantly, to the
implementation of the law, are another.

The government hopes that the adoption of the new tax code, which
should come into effect from January 2005, will help to attract
foreign investors. Indeed, Akhali Taoba reports that the code has
been created solely with foreign businessmen, and less local
entrepreneurs, in mind.

However, analysts think that the adoption of the new tax code will
not be enough to change the situation to any great extent. Very much
depends on the law on financial amnesty, which needs to be
implemented quickly, but also needs to be improved so that there is
no possibility of entrepreneurs coming under pressure from the
government. If there remain possibilities for different punitive
institutions to continue attacking businessmen, the business
environment will continue to put off potential investors.

There is still little, if any, trust in law enforcement bodies –
prosecutors, police, or the court system – and entrepreneurs are well
aware of current cases of unlawful conduct, human rights violations,
bribery, and so on.

Georgia is still a high risk country for investors, and although the
government should be praised for its energetic attempts to lure
businessmen at such events as ‘Invest in Georgia,’ it also needs to
continue the long and hard fight to improve the country’s business
environment.

From: Emil Lazarian | Ararat NewsPress