At the 44th World Economic Forum in Davos attention was called to the risks of de-globalization and growing protectionism in the global economy – since the financial crisis of 2008, nations are focusing more on protecting rather than opening their own economies. According to the McKinsey Global Institute, in 2013 trans-border circulation of capital – an indicator of financial globalization - dropped by 60% compared to 2007.
The de-globalization approach poses risks to small and underdeveloped economies like Georgia that are far from skillful in protectionist policy: the former government opened the Georgian market, and now the country is dependent on imports by roughly 80%. The new government plans more market regulation and protectionism, but so far this has not taken effect.
Prime Minister Irakli Gharibashvili touted the Georgian business climate at the Davos Forum on January 22-25, and returned with certain expectations. In his speech he emphasized his hopes for free trade with the EU.
But some analysts beware unfettered trade with a Europe with developed industry and export potential. They fear EU exports may overwhelm underdeveloped Georgian industry if Georgian government does not develop protectionist tools. As of yet Georgia has no competition law, and in fact lacks proper legislation to regulate the Stock Exchange. Reform of both laws was halted in Parliament this past January.
Nevertheless, Giorgi Kvirikashvili, Minister of Economic and Sustainable Development of Georgia, said Georgians made some interesting suggestions regarding investment in real estate and resorts while in Davos; and he anticipates positive statistics for the second half of 2013 concerning the Georgian economy. But so far, for the first three quarters of the year, Foreign Direct Investments (FDIs) reached just USD 697.3 million.
Davos is a place to present yourself and make contacts, Kvirikashvili suggested, but no investor makes decisions there. The only response to pessimism about globalization is to be as business-friendly as possible, which is what some analysts call for Georgia to do.
Though Soso Archvadze, an economist, acknowledges that the smaller the economy the greater the vulnerability to global trends, he does not take de-globalization seriously.
“There are signs that the number of people influencing national economies support de-globalization after the crisis of 2008, but this is not the decisive trend in world economy and politics,” he said. Archvadze finds development of protectionist tools impossible for Georgia as a member of the World Trade Organization. The way out is to create a business climate that offers maximum comfort, with the primary emphasis on local business – that will send a positive signal.
“Nobody will invest in this country, that has no market economy in fact,” Demur Giorkhelidze said to Georgian Journal. “In the best case, we have a surrogate of the market economy. And nothing will change for the better if government that is tardy as of yet does not make efforts to improve the situation. As soon as the picture gets clear, I believe investors will be eagerly investing in Georgia.”