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You're reading: Business in Georgia pins hopes on new government, Russia ties

TBILISI - Power in Georgia has peacefully changed hands after a tense parliamentary election but as the next government takes shape under billionaire Bidzina Ivanishvili, the likely prime minister, businesspeople face political uncertainty.

Ivanishvili has no experience of government, presides over a
six-party coalition which he says could splinter in parliament,
and faces months of uneasy cohabitation with President Mikheil
Saakashvili, a political rival.

Business chiefs are therefore eager to know how he plans to
fulfil promises to relax government control of business, create
jobs, raise pensions and welfare benefits, offer free healthcare
and education, and improve ties with Russia.

“All businessmen have mixed feelings,” said Fadi Asli, head
of the International Chamber of Commerce in Georgia.

“On the one hand we are very optimistic, and on the other
hand very scared, because we don’t know what will happen
tomorrow.”

Ivanishvili, 56, is taking over an economy that has changed
enormously since Georgia – which lies on an oil and gas transit
route from the Caspian Sea to Europe – became independent as the
Soviet Union fell apart in 1991.

Saakashvili, a 44-year-old U.S. trained lawyer who rose to
power in the bloodless Rose Revolution of 2003 that swept aside
the former Soviet-old guard, implemented liberal economic
reforms, attacked corruption and attracted foreign investment.

Construction, tourism and financial services generated high
growth from 2004 to 2007 and 24-hour electricity was restored in
the country of 4.5 million.

Petty corruption was all but eliminated from the police and
customs service, public services improved and tax collection
became more efficient. In the World Bank’s latest Doing Business
Index Georgia was the top-rated country in transition.

CHALLENGES

But a disastrous 2008 five-day war with Russia – which used
to be one of Georgia’s biggest trading partners – and the global
financial crisis knocked the economy off course.

It has been growing again since 2010 and the government
expects 5.5-6.0 percent GDP growth this year and annual
inflation of 6 to 7 percent, after 7 percent growth and 2
percent inflation last year.

However, Georgia faces economic challenges, including a high
15 percent jobless rate and economic output per head that, at
$5,600 last year, was lower than many former Soviet countries.

Parts of Saakashvili’s business legacy are also seen as
toxic. Businesspeople criticised him for creating monopolies,
for establishing state control over firms and for failing to
provide clarity in tax law.

“Major businesses, like importers of oil products and food,
were in the hands of people with connections to senior
government officials,” Gogi Topadze, the head of the Kazbegi
beer-producing company, said.

“I’m sure it won’t be like that any more as it has been one
of the reasons for the ruling party’s defeat in the election.”

Topadze and others hope the government will make tax laws
clearer, cut business tax rates and promote small business.

Mikheil Chkuaseli, CEO of Geoplant, a tea-producing company,
says local businesses want a fairer deal from the new
government. “We have peace, but we want justice now,” he said.
“Monopolies should be eliminated.”

Ivanishvili has promised not to meddle in private business
and to create a strong even-handed anti-monopoly service.

“I promise that no one will be able to blackmail private
entrepreneurs,” Ivanishvili told businessmen at a meeting last
Friday. “An unprecedented business environment will be created
in Georgia.”

RUSSIA

Ivanishvili made most of his estimated $6.4 billion fortune
in Russia and has experience and contacts there which he says
offer Georgia a better chance of improved trade ties with Moscow
than under Saakashvili. He told business leaders he hoped trade
relations with Russia would be restored “quite quickly”.

If Georgia were to mend economic ties with Russia, it might
be able to rebuild bilateral trade which has slumped to just 5
percent of total trade from a peak of 20 percent in 2006, before
a Kremlin crackdown on Georgian wine and mineral water imports.

“We are at a point where there is no relationship with
Russia, but I think an upside (in relations) is there,” said
Irakly Gilauri, CEO of Bank of Georgia Holdings, the
country’s leading bank.

Gilauri saw scope for a rebound in foreign direct investment
(FDI) into Georgia, which at $1.1 billion last year was little
more than half its 2007 peak of $2 billion.

“The opportunities are quite wide. FDI may increase because
of the Russian market opening up. The market could open up on
every front,” he told investors on a conference call.

However, shares in Bank of Georgia, the only liquid Georgian
stock trading on the London Stock Exchange, slumped 6.6 percent
the day after the election. They have not yet recovered,
suggesting that investors may not share Gilauri’s upbeat view.

Yet others remain optimistic.

“If prospects for the Russian market opening up seemed
distant, recent political events in Georgia have made this more
realistic – we can only welcome this,” said Georgy
Margvelashvili, the president of wine maker Tbilvino.

The Russian market made up half of Tbilvino’s total sales
before relations between the two countries soured in 2006,
though the company has managed to reorient its exports towards
other countries and has doubled exports.

“I know that the Russian market is ready and the business
elite in Russia is waiting for Georgian wine. Trade will be
restored immediately once a political decision is taken.”

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