Fund of Partnership urges country to socialism
10 March, 2011
Fund of Partnership urges country to socialism

To revive Georgian economy, the government is setting up a Fund of Partnership-kind of investment foundation incorporating the money of both the state and private sector. Part of experts finds the move right if it is properly executed. Some fear the state-based investment venture is a latent lobby of elite business and a step back to socialism.
To refurbish the investment-deficient economy of Georgia government decided to set up a state investment Fund of Partnership that will be attracting foreign

investors to finance sizable projects along with the state.  Neither the fund volume nor the target projects are defined as of yet.
Economic analysts think attraction of foreign investors through the government-supported investment fund bespeaks of inclement business climate of Georgia that fails to guarantee that the money of the investors will be paid back. 
Notwithstanding some economic analysts approve the Fund idea if it will be based on minutely defined program whence the money will be taken from, where be put exactly and what economic benefit can be expected as a result. But government does not provide with detailed program-description as of yet under the pretext that they work within the legal frameworks of the Fund at the moment and project-related details will be clear later.
To this point the bill for Fund of Partnership is under parliamentary procedures starting past week. 
According to Giorgi Khuroshvili, parliamentary secretary of government, the questioned investment fund will be attracting private investments to finance the suspended projects. He did not elaborate which ones however. But economic analysts suppose that most probably construction of a new oil refinery with 4. 5 million tons of productive capacity per year [calculated to meet Georgian demand on oil and oil products completely and also go on export] as well as Caucasus logistics center [expected to provide service to entire Caucasus region and even Middle East] will be topping the list of shortlisted projects. President of Georgia trumpeted meaning and importance of both projects in this past February.
Vakhtang Lezhava, the Chief Economic Advisor to Georgia’s Prime Minister, does not rule out this presumption but thinks it is too early to judge on target projects, details till the Fund legal mechanism is shaped out.
According to him, shares of co-financing and ownership of the enterprises [by the state and private investor] will be different in different projects “but two things will be crucial: the shortlisted projects must be very large-scale, and business must be interested in it,” He told Georgian Journal.
According to Khuroshvili, the Fund will be financing only projects that will not create artificial competition with the private sector and will require less financing. By preliminary decision agriculture projects requiring at least GEL 5 million investments and non-agriculture projects worth at least GEL 30 million will be eligible projects for the governmental investment fund. The Fund will never cover the service and real estate sectors.
Ditrikh Muller, an economic analyst with the Georgian Investment Group, approves the idea of supporting agriculture that cannot be developed without the state support as no big investor seems willing to invest in this sector scantly financed by banks. But he finds crucial where from the state is supposed to take money for this Fund, and where exactly to invest. 
“This kind of state investment funds are created in countries with the surplus in the budget like countries rich with oil and gas resources, but how Georgia is supposed to take extra resources for state investments. Are they gonna take more state loans? Right, but it must be well-reasoned where this money will be put and what economic benefit taken will be. I would approve if the state takes a loan to deploy small processing plants in regions to give an impetus to agriculture but they must provide with programs,” he said. 
According to Khuroshvili, the state financing most probably will be based on dividends of the state-owned enterprises,  international financial institutions [loans and grants] as well as on privatizations, and the Premier of Georgia will head the Fund supervisory council.
Levan Kalandadze, Director Executive of Georgian Small and Medium Business Association, also approves the state fund idea if it is based on three key principles: be transparent, not become an alternative to banking sector/investment funds,  and clearly stipulate who will be the decision maker while choosing target-projects and according to which criteria they will be selected.
“State interference in the business is bad but if it creates favorable conditions for certain businesses and then divests the shares it can be useful. Investors do not invest in Georgia because they lack guarantees, and state participation in projects will create such guarantees and attract investors. Commercial financial sector is not ready today to finance big projects and disburse for example GEL 100-120 million worth credits immediately. Since we have no investments the state money can be allowed along with foreign investors, but I find crucial to privatize the state share in the financed enterprise gradually so that in 10-15 years they would become completely private,” Kalandadze told GJ.
Paata Sheshelidze, President of Free Economic School of Georgia, advises government to make business environment more investor-friendly instead of pushing the country back to socialism.
“How can we call investor a guy who finances business through the state-based money,” Sheshelidze wonders.
He believes that financing business sector falls within competence of banks and investment funds alone and the state corrupts the climate.
“Let the banks and their clients to find solution themselves. I suppose that through this fund government will be financing its “own” corporate groups in certain sectors like they did in construction sector [City Hall supported suspended construction projects through its guarantee at banks] and insurance companies [that enjoyed 60% of profit margin thanks to the state-supported health-insurance], these groups alone are supposed to gain a profit in fact. This is a return to the socialist past and no attraction of investors,” Sheshelidze warns.

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