Easy ratings for uneasy business
14 November, 2013
Easy ratings for uneasy business
Once again Georgia has improved more than any country in Europe and Central Asia in ease of doing business category, according to the World Bank/IFC annual report, Doing Business 2014. The Ease of Doing Business rating released past week promoted Georgia by one step to the eighth position in the world’s 189 economies. In terms of starting a business, dealing with construction permits, and getting credit, Georgia ranks in the top ten, and when it comes to ease of registering
property, Georgia is first.
But does that mean Georgian business has an easy life? The experience of the last eight years suggests that the answer is “no”.
Georgia may have been among the top global performers over the last four years, and well regarded since 2005, but since the 2008 financial crisis there has been a dwindling of investments, which reached a peak in 2007 (of around USD 2 billion, dropping to USD 648 million in 2009 and USD 911 million in 2012.) Also, the rights of investors were extremely infringed upon from 2003 to 2012, until a change of government took place.
Nevertheless, the previous government spent plenty of money on international ratings and often called attention to the ease of doing business in Georgia, even if it practiced property seizures and crackdowns on businesses that were regarded as outrageous. And though the new authorities have criticized its predecessor for misuse of government money, it too hailed the Doing Business 2014 ratings. But it does acknowledge that in spite of the progress Georgia has made, it still rates low in property protection and credit access, both of which should be improved.
Businessmen and economic analysts say that reality differs from that reflected by Georgia’s top ratings. Starting a business is easy, businessmen agree, but problems arise when the business operation faces unclear tax administration, difficult credit access, or unfair court and business liquidation procedures.
Moreover, even if Georgia ranks among the top ten countries in the Doing Business 2014 report, when it comes to getting credit, financial resources are less available than ever, economic analyst Demur Giorkhelidze says. “Banks are still monopolists and give credits only to their buddies, withholding credits to others,” he said.
Davit Aslanishvili, a co-founder of Georgian Investment Group +, believes that the best indicator of business health is securities market development – it enables investors to make clear calculations about where to invest, and quit businesses easily when necessary. But in Georgia the securities market is heavily corrupted by shadow deals, and it is not researched by the World Bank/IFC report, nor are infrastructure and court systems, also major concerns for investors.
Other problem areas include enforcing contracts, paying taxes, and protecting investors, in which Georgia ranks 33, 29, and 16, respectively. But according to analysts, these factors may be more relevant to ease of doing business than registration of property or starting a business itself, both of which are just first steps.
Lia Eliava, a financial market analyst, has little trust in any international ratings, including those of the giant agencies Fitch, Standard & Poor’s, and Moody’s. They are not charity organizations; they get money for their service, and cannot be unbiased.
“The international economic think tanks revise their approach toward rating companies,” she commented, sometimes “downgrading them as less reliable. The recent G20 summit held in Saint Petersburg discussed that political and economic development of countries should not be based on such ratings. For example, during the crisis of 2007, securities with the highest AAA rating of all the three leading agencies listed on the US stock exchanges fell flat the next day. And when the investigation of rating agencies asked why, they all pointed to a program mistake - that’s completely unbelievable,” Eliava said.
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