Loopholes in the moratorium on agriculture lands
26 December, 2013
Loopholes in the moratorium on agriculture lands
An exemption from the moratorium on agriculture land divesture will be granted soon to Georgian commercial banks and projects with special importance to the state; a bill has already been submitted to the parliament. But skeptics fear loopholes. The last July Georgian authorities put a moratorium on agriculture land sale to foreign firms and citizens until 31 December 2014. Government plans to work out laws regulating land divesture in the meanwhile.
The issue became acute after rural dwellers completely dependent on
agriculture appealed to the new government to return to them pasture and arable land sold by the previous government to foreign investors; they say this has deprived them of livelihood. The restrictions do not apply to farmland already acquired by foreigners, or non-agricultural land previously divested to them.
Nonetheless, some sector pundits disapproved of a moratorium that might set back investment in agriculture; likewise, even some supporters still find the measure belated, since in the past much land was sold without precise regulation and control.
To mitigate the effects of the moratorium, Georgia is permitting a 49-year rental of agriculture land to citizens and companies registered elsewhere. And according to Ditrikh Muller, a co-founder of Georgian Investment Group+, that time is long enough to allow foreign investors to see a profit and remain interested in Georgia.
However, recently government found the moratorium burdensome to local commercial banks. “Bank activity is frequently related to real estate, including the acquisition of agriculture lands into ownership. The moratorium on land sale may hamper this during the process [of the moratorium] and affect the banks’ activities,” a note explaining the bill states.
On the other hand, if a foreign investor or company will appeal to the Georgian government with a plausible argument that a purchase of agricultural land is crucial to their investment and also serves national interests, it may get an exemption from the moratorium if government approves the appeal. Authorities believe the upcoming change will mitigate the dilemma until the moratorium is lifted.
Irakli Lekvinadze, an economic analyst, told Georgian Journal that he approves of the change as investor-friendly, since it “lifts the moratorium that was very discomforting to my mind. Otherwise it is impossible to attract investors to Georgian agriculture. Of course, the 49-year rent opportunity enables investors’ activity but land acquisition is an additional lure.”
But he cannot understand how banks were restricted by the moratorium, nor does Muller. As a matter of fact banks operating in Georgia are local residents and completely allowed to transact sales of agricultural land. Besides, the agricultural land share is too insignificant in loan portfolios of Georgian banks to cause them much concern about how to handle these assets.
“This is a clear loophole to divest lands to foreigners through banks,” Muller elaborated. “Banks can sell lands to locals without restrictions, but very likely they prefer foreign clients who are richer and pay more.” And the suggested exceptions may lead to corruption.
“As soon as there is an exception in the law there is room for corruption immediately,” he said. “It comes out that government will be deciding who is a good guy and deserves preferences - this leads to lobbying and a selective approach toward investors, just like former government did. I cannot understand why investors cannot wait until the moratorium is lifted. The 49-year long rent is sufficient for investors to witness profits. Land divesture is absolutely redundant.”

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