Dim Investment Prospects
28 March, 2013
Dim Investment Prospects
Inflow of Direct Foreign Investment in the politically tensed year of 2012 fell even below the data of 2008 when the country suffered the double impact of the August war with Russia and global financial crisis. This year investment prospects seem dim enough.
According the preliminary data of Geostat, Georgian statistics body, USD 865 million of Foreign Direct Investments (FDIs) entered the country past year that was full of political tension caused by fervent pre-election campaign that ended in the
first ever peaceful power-shift in the history of Georgian independence. The FDIs actual inflow for 2012 fell by GEL 135 million below the forecasted USD 1 billion and much below the 1.5 billion of the war and crisis-affected year of 2008. Economic analysts find that logical as in 2008 FDIs inflow reduced only the third and fourth quarter of the year after the war while in the first two quarters investments were flowing in the country. Besides, due to war EU countries contributed to Georgia USD 4.5 billion worth aid made of loans and grants and redistributed on three-years but the support significantly improved Georgia’s investments and general economic picture that year. The year of 2012, with parliamentary election ahead and with a serious opposition political party on the stage Georgian Dream that ultimately won the elections, was more difficult for investors to make decisions for nobody knew whether or not the power changes and what the new power may bring in the country that always matters for investors, Ditrikh Muller, a co-founder of Georgian Investment Group, said. Irakli Lekvinadze, an economic analyst also ascribes the FDIs slump to parliamentary elections held in October of 2012.
“The lowest FDIs inflow of USD 184 million entered in the last quarter of 2012 shortly after elections in October while generally the last quarters are most flushed. For comparison, USD 342 million entered in similar period in 2011. The reason for lower data in 2012 was the pre-and-post election political tension that made investors to hold projects. Whoever would be in power the result would have been the same,” he said.
Muller fears that the underway political instability expressed by permanent political battles between the new and ex-power headed by President of Georgia who acts like an opposition leader and blackmails the country is no good signal for investors both local and foreigners. Therefore Muller expects no big turnout of investors this year in Georgia until the President steps down in this fall. Government meantime appears hopeful and expects USD 2 billion of FDIs to enter in Georgia in 2013. USD 2 billion was a peak FDI figure to Georgia in fact attracted in 2007 afterwards the trend was dwindling due to August war and financial crisis impact in 2008 and post-crisis effects in 2009. This trend started recovering in 2010 and exceeded USD 1 billion in 2011. Economic analysts who appeared kind of optimistic on account of expected USD 2 billion in 2013 early this year now tend more pessimistic for new government lingers with projects really interesting to business and also sends alarming signals that business regulation will become stronger that frustrates potential investors. Muller thinks that the pestering economic crisis within the Euro zone especially the recent banking crisis in Cyprus that used to be one of the top investor-countries to Georgia starting 2004 through off-shore companies will affect FDIs inflow in Georgia in 2013. In 2012 Cyprus was number four biggest investor country to Georgia by 7% in the total FDIs inflow. Muller doubts that the money channeling in Georgia through Cypriot off-shore companies were either of Russian-origins or came from Georgian top officials-owned companies.
“Now Russian investors, who are losing USD 33 billion at average in Cyprus crisis, are scarcely supposed to take an interest in Georgia. And other off-shore companies very likely will have restricted resources. EU investors due to their problems are unlikely to think of us either, and we have to seriously think of our economic development prospects and be more creative,” Muller said.
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