Georgian Investment Journal
15 September, 2011
Georgian Investment Journal

Investments inflow in the second quarter of this year accounted for USD 203 million that means 2.4% of reduction compared to the similar period of 2010, and exceeds the data of the previous quarter of this year by 17.3%.  Economic analysts doubt that Georgian investment inflow will be much behind the prognosis this year just like the past year forecast.

Nike Gilauri, Prime Ministry of Georgia, commanded Georgian diplomats at the ambassadorial held on September 13, 2011 to attract as much

investments as possible.

“The main task in economy is to attract more investments and companies, which predefines more job creation,” Gilauri said to the journalists after the Ambassadorial.

The commandment came shortly after releasing of preliminary statistics of Foreign Direct Investments (FDIs) in Georgia in the second quarter of 2011 published by Geostat, official statistics body of Georgia, on September 9, 2011 reporting that USD 203 million FDIs entered the country in the reported period. The figure exceeds the first quarter data of FDIs inflow by USD 30 million but lags behind the past year’s similar data by USD 5 million.

The current investments picture of Georgia seems quite sad and no gorgeous prospects unfold in the near future, Demur Giorkhelidze, an economic analyst, believes as far as the second tide of world financial crisis looms in prospect. Besides the investment climate of Georgia irrespective high Doing Business image as well as increased credit ratings of the country remains suspicious: judiciary system is still weak, property rights appear vulnerable and subjective opinion of incumbent authorities weighs down the legal point.

“Expectations of the second tide of crisis are quite high in Europe and the US, and I am not surprised that investors do not rush in Georgia,” he told Georgian Journal. “They never hurried here by the way, as no serious and reputable big brand entered this country in similar way they do in other more civilized parts of the world because in spite of PR campaign carried out by Georgian government international monitors closely study processes in Georgia and find its investment climate subjective and tailored to the ruling power’s interests.”

Past year government targeted at about USD 1.2 billion FDIs however less than half of that [USD 533 million] became available as a matter of fact. This year the target was lowered to USD 1billion and USD 800 million gradually.

Giorkhelidze sees no serious improvement this year [plus the upcoming crisis fears] therefore he does not expect any better FDIs result this year compared to the past year.

Shota Murghulia, an economic analyst with the Center for Economic Policy Research, thinks external political risks affected Georgian investment climate much more than the global financial crisis. To this end the single achievement of Georgia is that it got by couple of years further from the August war affected 2008.

According to Murghulia, there are two kinds of investors who invest in Georgia: the first one more or less cares for the internal investment climate and goes on higher risk to enjoy higher profit but wants to invest capital in relatively civilized manner. The other one does not care for internal risks and is ready to invest at higher risk to enjoy higher profit through securing governmental support. However both of them care for external political risks like August war of 2008 when nothing can secure their capital.

“No global crisis could affect Georgia like the August war, “Murghulia said. “On the reverse, there are some presumptions that  if there was a clement investment climate in Georgia during the global financial crisis investments might pool in Georgia as it was less integrated with the global market and more secured, but political conflict ruined this prospect.”

External political risks somewhat subdued as the time lapsed but another emerging risk is that 2011 is the pre-parliamentary and pre-presidential election year that are to come in 2012 and 2013 respectively.

“The point is that investors usually refrain from investing in the country before elections as they fear possible power and situation change. However I do not expect any serious change in ruling power and may be investors also calculate in this way. It is 50 to 50 whether or not this year prognosis will come true,” he said.

On the other hand some economic analysts think if country’s internal investment climate is based on fair legal system political risks are overseen. Political uncertainty does not hamper to Israel to attract more investments, Levan Kalandadze, an economic analyst, thinks and Georgia should think of it.

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