State Capitalism Ahead
17 November, 2011
State Capitalism Ahead

No more need in business for “State Inc”?

Recently we witnessed quite a number of occasions when the State agencies were effectively given the right of conducting business. Certainly, such “businesses” are motivated by financial gains. A question immediately props up: how fair could be the game rules used by these businesses in relation with their competitors, when their backs are oiled by the bulwark State agencies? This question is asked every time the news about creation of business institutions under this

or that State agency becomes known. The latest such news is about entitling the State- owned Samtrest to found private wine companies.

Grape and Wine Department of the Ministry of Agriculture takes care of state control in the sphere of viticulture and viniculture. A short while ago, the head of the state scolded the Samtrest Director for his poor performance and ordered the Minister of Agriculture to find “more competent” person to replace the Director. At the same time, the administration of the department was enhanced to both control wine companies and even entered the wine market as their competitor.

This news caused an immediate response from wine companies. They fear that this controversial move will provoke conflict of interests in the market. They refer to the international experience and absence of such precedence when similar governmental departments create their own wine companies. But the Minister of Agriculture has “strong-as-an-iron” argument. Namely, he alleges that the new state companies would enter unexplored markets where Georgian companies are not present (?!).

The Georgian Parliament also adopted the changes enabling the Chamber of Control to establish a legal entity of public law called the Institute of Public Audit. The Institute would offer commercial audit service to governmental organizations, municipalities and any interested person. On top of it, it would be able to use services of other audit firms. In other words, the Control Chamber is given an unprecedented power to control businesses officially.

Niko Tevdorashvili (Head of TMG Marketing Company): “Their decision about Samtrest is too hasty. They have not even calculated costs of constructing their own factory, as well as elaborating development strategy and marketing. I wonder where the Samtrest is going to get money to establish its own private wine company. I believe the role of Samtrest must be only that of regulatory to support wine popularization on world markets. By delivering the message of our country’s uniqueness to clients it could facilitate tourism, including wine tourism. But in case, when Samtrest acts as both regulatory body and wine producer, it would be destined to become a biased agency to take advantage of its superior market position in relation to competitors. If the state cannot get rid of the idea of creating private companies then let it create an LTD and openly admit that Samtrest is no longer alive in the country. Creation of public law persons by the state agencies will be discriminative for non-state producers. Accordingly, the Government will try to impose barriers for the alien producers to suffer and thereby help its progeny flourish without a hurdle. This is well tested method.”

Levan Kalandadze (economic expert): Naturally, it will cause awkwardness and create preferential environment for state-driven companies to the expense detriment of non-State players. These days, the country is suffering from ever so growing tax pressure. Hence, organizations will go to all lengths to avoid misunderstandings between them and the state agencies, be it the Control Chamber, Revenue Office or others. It’s a part of the State policy which moves in opposite direction to decentralization.

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