Land moratorium discriminates non-banking finance sector
08 May, 2014
Land moratorium discriminates non-banking finance sector
The exemption of the Georgian banking sector from the moratorium on the sale of agricultural lands puts banks into a privileged position and thus violates the principle of fair competition on the Georgian financial market. In order to put all market players in equal conditions, Transparency International Georgia, a non-governmental watchdog, appealed to the Georgian Parliament to honor the exemption to the entire financial sector. However, the legislative body turned down this suggestion as imperfect. Although, as Gigla Agulashvili, Head of
the Agriculture Committee at Parliament, explains that MPs spotted a speck of rationale in the TI Georgia suggestion. Therefore, his committee plans to consider this issue more in-depth in cooperation with TI Georgia. The Committee had already addressed the issue and held a working meeting with the non-governmental watchdog on 5 May. Agulashvili cannot specify, however, when the bill will be drafted and slated for parliamentary discussions. Meanwhile, the non-banking financial sector feels discriminated.
The previous authorities made the sale of agricultural lands free to foreign citizens since June 2012 which made the locals indignant and led to a loud public outcry. In July 2013, the current authorities put a moratorium on agricultural lands for sale to foreign firms and citizens until 31 December, 2014. Meanwhile, the government plans to work out a legal framework regulating land divesture issues in the country. The restrictions never covered the already acquired lands [by foreigners] or the divesture of non-agricultural lands from foreign citizens. Nonetheless, some sector pundits disapprove of the moratorium because it can be a possible setback for investments in agriculture. They believe that the adoption of certain restrictions could be much more reasonable and in line with international practice. Supporters of the moratorium found the restrictions to be late since a lot of agricultural lands were sold without precise investment projects and control.
To mitigate the effect of the moratorium on the investment climate the Georgian authorities admitted to a 49-year renting period of agricultural lands to any citizen and company registered elsewhere. According to Ditrikh Muller, co-founder of Georgian Investment Group+, the long land-renting term was sufficient for foreign investors to witness profit and be interested in Georgia.
However, later the authorities found the moratorium to be burdensome to local commercial banks and exempted them since February of this year. However, the exemption of banks made other financial market players like micro-finance organizations and international financial institutions [involved in investments in Georgia] feel discriminated. As a matter of fact, for the last seven years micro-finance organizations credited the agricultural sector much more willingly than the banks. Commensurately, before the launch of a preferential agricultural credit project co-financed by the state last spring, the share of agriculture loans stood at 1% in the portfolio of the commercial banks while it reached 27% in the portfolio of micro-finance organizations. According to Natia Kutivadze, a legal expert at TI Georgia, micro-financial organizations are equally affected by the moratorium since banks also issue credits which is the core business activity of micro-finance organizations. Therefore, like the banks, they also encounter problems when handling the purchase/sale of agricultural lands and using them as collateral loans.
However, within the year, the agricultural loans’ share increased almost seven times to more than 318 million, Agulashvili specifies. He does not agree that banks are poised by the privileged position, but independent analysts believe they are.
Lia Eliava, a financial analyst, believes the exemption of banks from the moratorium was a mistake and the result of strong lobbying. Now, the exemption of the remainder of the financial sector would be an even bigger mistake. However, once an exemption was made to certain market players it should cover all in order to keep the competition fair.
“The inconvenience derives from the moratorium,” she said. “It would be better to adopt the EU law on land sale which envisages strict restrictions of land sale and then no exceptions would be necessary.”

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