Investment Funds – trap or remedy?
14 February, 2013
Investment Funds – trap or remedy?
The idea of creating four funds with the tentative volume of USD 5 billion, expected to handle both state and private assets and where Georgian Premier himself promises to put his money, diverges views in the public. Upholders of the idea view the Funds as the only way out at the given moment to attract investment against the backdrop of pestering global economic crisis. Skeptics discern a latent attempt to enhance the state interference in private business.
Four funds with
the expected USD 5 billion approximately, are to be created soon in Georgia, Bidzina Ivanishvili, Prime Minister of Georgia, trumpeted the idea during his press conference, where he reported the 100-day-work achievements of new government on February 5, 2013. Actually, the idea of investment funds is not new. Ivanishvili expressed his desire to set up investment funds aimed at attracting the private investors and donor organizations as soon as he stepped in his office-term in this past fall. He just elaborated the idea at the moment. Actually, two separate investment Funds will be created named a Sovereign Fund and an Agriculture Development Fund supposed to attract USD 1 billion to this sector.
The Sovereign Fund will incorporate three funds. The first one is the Sovereign Fund with the estimated assets of USD 2 billion will be based on Partnership Fund established by ex-power to handle with the state assets such as Georgian Railway, Electricity System Commercial Operator (ESCO), Georgian Gas and Oil Corporation, and around 24% at Tbilisi electricity distribution network Telasi owned by Inter Rao. The Sovereign Fund will be handling with the said state assets and management inherited form the Partnership Fund, as well as boost strategic projects and allocate free resources at international market.
The Junior Fund focused on innovation projects and financing young scientists and businessmen will be another Fund and a part of Sovereign Fund. The Junior Fund’s starting budget will be of USD 20-50 million and investments ranged from GEL 100 thousand to GEL 1.5 million will be allocated in each project oriented on innovation projects in high technologies, medicine and other interesting fields.
The Sovereign Fund [together with its Junior Fund] will be managed by independent investment council incorporating both local and international consultant groups, and will be accountable against Georgian parliament.
The third to be created fund is the Private Investment Fund with tentativel budget of USD 2 billion that is a follow up of the old idea expressed by Ivanishvili in fall of 2012 and worked out by group of experts since then. This Fund intends to attract private investments and will support all investors local and foreigners alike who will be able to co-fund their investment projects by at least 25% and 75% as maximum. The pay-back to the investors will be similar to the co-financing redistribution based on the said 25%-75% financing scheme.
“All foreign and local [investors] like who appear willing to implement a well-reasoned profitable investment project in Georgia will find a ready-made partner in the face of this Investment Fund,” Ivanishvili said adding that he never rules out to invest his own capital through this Fund inasmuch as it will be managed by independent supervisory council that will dispose with the trusted assets at its own discretion and Georgian premier cannot have any influence on it.
Ditrikh Muller, a co-founder of Georgian Investment Group, finds the Funds creation idea as the best remedy to attract investments to the investment-deficient Georgia that has less chances against the backdrop of upcoming second tide of economic crisis globe over. He believes that if Ivanishvili really invests in the Investment Fund it will be a trustful signal to investors that they can invest in this fund.
“This is a tested practice, the ex-president Bush’s family for example also had investments in funds like this that have independent council that is quite legal as much as the official person in this case does not dispose with own capital but hands over his/her capital into management of funds,” Muller said.
However, he finds the presented Fund project very scanty in details that stand on the general thesis level and cannot attract attention of serious investors if not elaborated further. Muller dislikes the idea of attracting foreign consultants as council-members as finds it very money-and-time-wasting.
“Foreigners take quite a long time to research the local situation while locals already do know the situation. Foreigners generally ask around local experts and base their opinions on local experts’ researches but take twice as much and needs double more time. Who needs this?” Muller wonders.
Paata Sheshelidze, Presdinet of New Economic School, thinks Ivanishvili’s participation in the Investment Fund illegal that rather will scare investors off than attract them.
“No private investor wants government as a partner. Officially Ivanishvili may not manage with the projects but informally of course he will make decisions and why this should attract anyone? Premiership post is quite short-term including four-year and what’s then? Are investors who have partnered the Premier supposed to lose their investments when another guy takes office?” Sheshelidze asks.
He has got a wide range of questions answers to which are not clear to him based on the presented projects.
“The Sovereign Fund has no liquid assets that are necessary for financing investment projects. How is it supposed to attract the sources for financing and how the loss will be paid if the project turns out not-profitable? How it will be managed exactly? Is it supposed to work in special conditions and why? if is it not to enjoy any special conditions why it is necessary then? And it the working conditions created for it should be good why they cannot cover other private companies? We should realize that if someone disburses something cheaper it means a loss and why the state company should go on loss I cannot understand,” Sheshelidze said in the interview to Georgian Journal.
He believes it as the latent attempt of government to penetrate in private business as much as possible and control it. Sheshelidze believes the Fund idea is not reasonable and it will not work ultimately as no business wants government to be a partner. He agrees that there were problems during the previous government like unjust court system and tax administration etc. Therefore he recommends new government just remove these obstacles and let private sector do its business without state support.
“Take a look at the statistics. There was around 8% of economic growth in October of 2012 in spite of all unfair problems the business faced. So let them remove those problems from the scene and the private sector will succeed I believe without any state support,” Sheshelidze said.
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