Investment Fund Triggers Speculations
29 November, 2012
Investment Fund Triggers Speculations

Idea of Georgian Prime Minister to create an investment fund to support investors able to co-fund investment project by at least 25% triggered speculations. Some investors fear the premier-initiated fund poses interest conflict risks and will scare investors off. Others counter the fund follows the best world practice and may discharge the already monopolized market, cut down credits price and boost economic activity.


Bidzina Ivanishvili, Prime Minister of Georgia and a billionaire with around USD 6 billion in assets, intends
to create and investment fund together with other wealthy Georgian businessmen operating abroad at the moment. The fund will support all investors local and foreigners alike who will be able to co-fund their investment projects by at least 25%. A group of economists work over the idea already.
“This is my idea, attraction of interesting sums is possible here. This Fund will help all private investors willing to become a partner both Georgian citizens and foreign investors,” Ivanishvili stated at a press-conference on November 22, 2012. Rich Georgians will create the initial capital of the Fund. However attraction of founders will be based on a good will and not a crackdown.   He promised also to restore anti-trust service and discharge the market off trusts.
Fady Asly, President of International Commerce Chamber (ICC) incorporating around 100 members, appears wary over the Fund idea where Prime Minister will finance investors by 75%. He thinks the idea is a good move on the one hand, but on the other hand it begets big question marks leading to interest conflicts – very likely the head of government will become a market competitor and nobody will dare enter the economic sector where Premier himself, with political establishment and finances at his discretion, will be a rival. The ICC head sees this move as a replacement the ex-power by a new one inasmuch as former government has been largely involved in business.
Irakli Lekvinadze, an economic analyst, discerns no hazard in the investment fund creation. He thinks that the government-initiated fund is a usual practice worldwide as create more trust in potential investors that their investment will be secured.
“There were similar funds created in South Korea for example that entered certain businesses and privatized them gradually,” Lekvinadze told Georgian Journal. “You know investors shun the sectors with high risk and seek for alternative ways like this investments fund with bigger guarantees.”
What he questions is the inclination toward several funds creation that may overlap functions of each other. Ex-power created Partnership Fund that manages with the state assets like Georgian Railway, Georgian Oil and Gas Corporation, as well as over 24% of state shares at Tbilisi electricity distribution network Telasi. Partnership Fund also is entitled to attract investments for big agriculture and infrastructure projects that private businesses cannot afford, also to co-finance them from the state-budget.
New government plans to create an Agriculture Fund and attract at least GEL1billion of private investments there. Now this here Investment Fund comes on the way. Lekvinadze finds that many Funds are redundant and recommends setting up one unified stronger Fund instead.
Ditrikh Muller, a co-founder of Georgian Investment Group, downplays the interest conflict fears related with the recently initiated Investment Fund and believes it may make Georgian market only healthier if the Fund will be an open club and all information is transparent.
“The new fund idea is in full compliance with the law as it is a fund pooling financial resources from private investors and then redistributing it on business projects. It is not a business where Premier or any other state official is prohibited to have shares. This fund mechanism is adopted in all countries including developed ones: the World Bank, International Monetary Fund, or International Finance Corporation is nothing than similar funds Ivanishvili thinks to set up here. All of them pools money from governments and invests in private businesses, and their projects are transparent,” Muller elaborated.
He cannot understand the ICC concerns over creation of new market monopolies as a result of the Investment Fund inasmuch as Ivanishvili never said he intends to finance the Fund partners by 75%. He just said the least co-financing must be 25% that never restricts potential investors to have higher investments going to perhaps 100%.
“Besides Ivanishvili did not say he is putting money in this fund, he is just creating a guaranteed mechanism to investors,” Muller said. “Why is ICC concerned over this fund? It will be an open club let the ICC members join it too and get guarantees.”
Muller believes the Investment Fund is a good remedy to discharge Georgian market of monopolies backed by former government, cut down credit price and boost agriculture activity.
“Georgian market swarms with monopolies that are quite hard to dismantle unless to enable other investors to get stronger and have fair competition that the Investment Fund may give. It is an open secret that credits are too expensive in Georgia and if an investor gets cheaper funding at the Fund it becomes stronger competitor; banks would have to cut down interest rates to get clients back. Besides, agriculture is a very risky business that depends on weather in fact and nobody will undertake it if not provided by safe guarantees, and 75% financing of the Fund is a good guarantee. It can boost cooperation of farmers who may ultimately pay back the business completely,” Muller said.

 

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