Where Will the New Silk Road Lead Georgia?
26 March, 2015
Where Will the New Silk Road Lead Georgia?
Just recently, Georgia and China have signed an agreement within the framework of a joint project “New Silk Road.” Giorgi Kvirikashvili, Minister of Economy and Vice PM, who attended the official ceremony in Beijing, called the agreement historical. It is noteworthy that the project will be supported by a newly created “Silk Road Development Fund” with a capital of 40 billion USD. It is meant for involvement into large investment projects of member countries. We sat down with Giorgi Kvirikashvili,
Minister of Economy and Sustainable Development, to discuss the Georgian-Chinese project and its potential profits and risks.

“If Georgia incorporates even one percent of China’s international transportation into its transport corridor, our goods turnover will double.”

– Georgia has a very advantageous geographic position; it is a door between Europe and Asia. We have free trade agreements with all our neighbors and, starting last year, with the EU as well. We have very low taxes, a stable and welcoming business environment, low corruption and high quality of democracy. From this point of view, China becomes a very attractive and important source of boosting our economic growth.
To this day, our economy was directed mainly towards neighboring countries, Central Asia, Europe and the U.S., due to our strategic relationships. Our relations in China proceeded in rather restricted frameworks – until now. China’s active involvement in Transcaucasia changes the picture completely. If Georgia incorporates even one percent of China’s international transportation into its transport corridor, our goods turnover will double.
This is why our goal is to get China interested in transporting cargo through Georgia. Last month the first cargo train came from China, arriving in nine days – a very short time. We should also elicit China’s interest in our free trade agreement with the European Union, allowing it to use Georgia as a logistics and production hub. This is what our visit to China was about.geotv.ge
The perspective we have shown to China is quite similar to the one they have drawn up themselves. This much was obvious from Chinese President’s statement about unfreezing the New Silk Road project last year. Many people here think that Georgia is the only path between the West and the East. This is incorrect. Compare Eurasia to a heart, complete with coronary circulation. You will discover that the middle cardiac vein runs precisely through Georgia. Our duty is to make sure this vein is unclogged, easily traversable, and efficient. My meeting with the Silk Road Development Fund’s director proved very fruitful. He directly stated his desire to fund infrastructural projects currently underway in Georgia.

– Does the future trade- and economy-related cooperation between Georgia and China imply the signing of a free trade agreement?

– We have signed a declaration with China’s Trade Minister on researching feasibility of a free trade agreement between our countries. Results of this work will be very important. We need to evaluate the perspectives that a free trade agreement is going to open to us in this or that business field. In turn, China will evaluate benefits for itself and, hopefully, in the near future this agreement will be signed. We made this offer as far back as our visit last year to China; we were trying to facilitate and the support export of our wine there. The tax paid by Georgian winemakers for entry into the Chinese market is quite high at the moment. This is true for most other countries, excluding Chile, which has a trade agreement with China.

– According to widespread rumors, the Chinese state-owned company Power China will begin building a port in Anaklia in six months and the Chinese side is preparing a five million USD investment for this purpose. The port’s annual capacity is rumored to be up to 100 million tons. Is this true?

– I personally met the head of this respectable company. It owns more than 50 percent of the world’s hydroelectric stations and its opportunities are immense. However, this doesn’t mean that we can just bluntly say that it plans to start building a port here. But don’t think we have forgotten about this project, either. The tender is currently underway and several participating companies have progressed to the second stage, but it would be very unprofessional and illegal to say that something is set in stone already. Only a special commission, which is led by the Prime Minister, has a right to name the winner. As for turnover of goods, 100 million tons per year is a bit of a long shot. The port’s capacity at the first stage will be 500,000 TEU [twenty-foot equivalent unit, a standard cargo container]. In three years this figure will double, and in four years more the turnover is expected to reach 1.5 million TEU. In 12 years we will be able to talk about increasing the port’s capacity to three million TEU, which is approximately 40-42 million tons.

– The Georgian government is introducing a three-stage plan that is going to tackle short-term, mid-term and long-term problems. For example, short-term plans include the speeding up of privatization, promoting tourism, attracting additional investments, reduction of administrative expenses and so on. If, for some reason, the goals of this three-year plan are not achieved, are there any backup plans to compensate for this?

In November 2014, China announced it will contribute $40 billion to its new Silk Road fund designed to improve trade and transport links in Asia

– Yes, we do have a backup plan. We can outbalance things through tourism or maybe attract more foreign currency through donors or by increasing the extra budget portfolios for infrastructural projects.

– Direct investments have grown in 2014, but economists claim that investment of one billion USD is not enough for the Georgian economy’s sustainable development, naming a figure of four to five billion instead. What do you think is the minimum necessary volume of investment for Georgia?

– I agree that 4-5 billion would be great, but receiving so much was simply unrealistic in 2014. Even today it is hard to talk about such a figure, but I hope that the freedom our business environment offers will bring good results soon. All conditions have been created for this. Two or 2.5 billion USD or more annually would be a decent statistic for Georgia this year.

– If the government’s economic plans come true and the dollar’s exchange rate towards other currencies stops fluctuating, at what point should we start expecting the lari to stabilize and how long is this going to take?

– This is a very difficult question. I rule out the lari returning to the old exchange rate, but we do not expect any powerful fluctuations anytime soon. On the other hand, our currency’s exchange rate, in comparison to that of our neighboring countries should provide a basis for our economic competitiveness.

– This “promotion of export” has ended up becoming a heavy burden on the peoples’ pockets. Purposeful inflation should not affect the population’s purchasing power. How are you planning to explain to people to see benefit in the lari’s depreciation?

– Unfortunately, we do not have a mechanism to provide quick compensation for the damage people took from the inflation. The only thing that we can do and actually did was to ask commercial banks to keep their clients’ financial problems in mind as much as possible. Besides, we have provided certain financial leniency to companies involved in state procurement that took a hit. If depreciation during procurement factors in for more than 10 percent or purchases made in foreign currency exceed a certain limit, a special interdepartmental meeting format reviews every single such case, discussing it with Finance Ministry, a regional experts’ bureau and organizations participating in procurement in order to compensate the company that suffered from these effects.

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