Of hot politics and a chilled economy
13 November, 2014
Of hot politics and a chilled economy
The intense political week that shuffled the cabinet of ministers of Georgia and sent alarming claims that Georgia’s western political vector is under threat is in the past already. But the Georgian economy may very likely will pay the real cost for wrongly or fairly made political decisions.

While political analysts judge whether or not there is real political crisis in Georgia and whether the country is shifting its focus to Russia, economic analysts fear the political uncertainty will have
its impact on the economy. After political passions fade away it is always economy that suffers or fares well both in the short and long-term. Opinions are divided whether this very hectic week is a real threat to the national economy or just a storm in a cup.
Dietrich Muller, a co-founder of Georgian Investment Group+, worries that the past week was a crown to the immature economic course of the new government, which entered office in the fall of 2012.
“The past week just crowned the process that has been going on since 2012 to this day,” Muller said in the interview with Georgian Journal.
“This government did not fulfill any of its pre-election promises like restoring violated property rights, putting competitive laws in place and improving quality of products. All these three issues are crucial for business and investors, and especially for Western ones. Protected property rights, healthy competition and high quality of products all are key features of European and Western markets, while it is an open secret that Russia does not care much for these values. So once we have none of these three features in place in Georgia, then where are we heading? To Russia, I guess. Because no Western investor will come to a country where competition and property rights are not protected and quality is not guaranteed. Plus the recent statements on the change of Georgia’s Western political course will set western investors on edge.”
According to Muller, the government did not apply much effort to give proper impetus to agriculture and production via cheap credits. On the other hand it creates state monopolies in the post and cargo shipping. Muller believes that government is artificially dragging Georgia into an economic crisis in order to prepare a situation for jumping into the Russian-led Eurasian Union.
“The state budget has a surplus because it cannot manage to spend money on infrastructure projects that should create jobs and build up roads, electricity lines or other infrastructure that are an essential for attraction investments. Who will invest in the country like this?” Muller wonders.
His company managed to attract around five to seven investors per month before the power shift of 2012 while currently this figure has dropped to zero.
“Yes, property rights were not protected during the ex-power and the competition was unfair but President Saakashvili himself acted like a guarantor and this lured some investors. The new power offers neither personal nor legal guarantees,” Muller said.
As a matter of fact, investments dwindled in Georgia since 2011 when the country managed to bottom up after the financial crisis and attract more than a billion of US dollars. In 2012 and 2013 Georgia hardly scraped 911.6 billion and 941.9 billion US dollars respectively. This year the figure looks like it will be decreasing. According to preliminary data, the Foreign Direct Investments (FDIs) totaled 415.8 million US dollars in the two quarters of this year that is below the similar data of 2013 [460.2 million US Dollars] and 478.9 million attracted in 2012.
Demur Giorkhelidze, an economic analyst, does not see any signs of a crisis. He expects no significant aftermath impacting the economy either.
“The retirement of the Defense Minister cannot change the political course of Georgia, for it is the choice of Georgian people not certain officials,” he told GJ. However, he acknowledges that the incumbent authority of Georgia is incompetent. He thinks situation was no better during the ex-power that scared many investors off.
“The wealth of oligarchs increased by 4.5 billion Lari lately while Georgian people do not feel any improvement. This is a result of the low professional skills of the new government. But investors did not rush in here during the ex-power either. The biggest inflow of FDIs was in 2007, which exceeded 2 billion US dollars. Yet Georgia needs at least 40-50 billion a year if we really want to grow. And this figure is quite realistic. Georgian businessmen who made their fortunes abroad have around 80 billion US dollars worth of assets and are just waiting for the chance to invest it in Georgia. But the investment climate is not ideal,” Giorkhelidze said.

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GEL Exchange
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EUR
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GBP
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RUB
100
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