Georgian Government Is Advised to Pay More Attention to Economy
07 July, 2011

Investments inflow in Georgia in the first quarter of this year exceeded by 2.3 times similar data of past year. Experts find the trend positive but view the figure not as too significant and advise Georgian government to take more care of its economic development.

According to the preliminary data of Geostat, Georgian official statistics body, Foreign Direct Investments (FDIs) inflow in Georgia in the first quarter of 2011 accounted for USD 174 million that by 2.3 folds exceeds data of

similar reported period of 2010 [it stood at USD 75 million] and is by 1.5 times higher than the similar data of 2009 [USD 114 million]. The 86% of the total investments made in the first quarter of 2011 in Georgia is made by six major investors. Moreover, FDIs implemented by EU member states totaled USD 116 million that cuts 67% of the total investment figure. Positions of major investor countries redistributes as following: Cyprus leads the list of key investors by cutting 24% of total FDI inflow in Georgia that makes USD 41. 4 million. UK is a runner up by USD 28.7 million that covers 17% of total FDIs inflow, and Netherlands is the third top investor to Georgia in the reported period  by covering 15% of total investments [USD 25.1 million]. More major investors are Russia investing USD 19.8 million, Virginia Islands of UK- USD 19.6 million, Turkey – USD 13.9 million, Azerbaijan – USD 11. 7million, international organizations - USD 8.7 million and the other countries made USD 4.7 million.

Thomas De Vaal, British journalist and Karnegi Center expert in Caucasus, finds the FDI volume that entered in Georgia in the first quarter of 2011 miserable yet it is better than similar data of the past year. According to him, the key investor countries Cyprus, Virginia Islands of Great Britain, UK [its offshore part generally] are not in the best investing positions at the moment. And Georgia “should pay an attention to economic development and spend less time accusing enemies in everything,” he wrote in his article published by National Interests.

Ditrikh Muller, an expert of the Georgian Investment Group, thinks the recent rise of FDIs inflow compared to the crisis affecting 2009 and 2010 is a result of improved ratings of Georgia, it means that interest increased to Georgia however Georgian government has to go ahead with improvements and reforms and pay more attention on agriculture that becomes more priority not to Georgia alone that by 80% depends on imported product but to the entire world as food deficit looms in prospect.

“Yes, ratings did work but government should not stop on achieved results and have to improve economic climate. It is not perfect. The fact that Georgian Stock Exchange is underdeveloped scares petty investors off, I mean investors who do not make long-term investments that should be paid off in 20 years, just shorter smart investments. If Georgia had a developed agriculture infrastructure it might have enjoyed huge profit due to the recent infections of vegetables in EU. Let’s take care of it,” he said adding that if economic climate is attractive political risks cannot hamper FDIs inflow.

“There are countries with bigger political risk like Serbia, Cyprus, or Kosovo where investments are infesting irrespective political risks,” Muller said.

The thing that bigger portion in the structure of the FDI currency entering Georgia comes to offshore zones like Cyprus and Virginia Islands poses non-transparent risks as nobody can trail down the real origin of the capital inflowing in Georgia in fact. It may be Russian, Azeri, Armenian or Georgian capital itself that may be invested through offshore companies in Georgia. Oligarchs from all of the mentioned countries may have reasons to invest in Georgia but hide the origins of their capital. Georgia is attractive in the region to this end as it is relatively free of corruption than its neighbors, business registration is easy and banking sector is developed.

“But we should not compare ourselves with our neighbors, we have to follow Europe,” Muller said.

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