The FINANCIAL -- The
ban on land acquisition for foreigners is a bad signal to investors,
Tobias Baumann, Director of the International Department at the German
Chambers Union, told The FINANCIAL.
The bill that was adopted without
general public discussion is creating risks for the development of the
investment climate in Georgia.
On 19 July, the President signed and approved amendments to the Law on Ownership of Agricultural Land adopted by Parliament on 28 June, pursuant to which agricultural land cannot be acquired (including a title by inheritance) by a foreigner, a legal entity registered abroad or a legal entity incorporating a foreigner in Georgia. This right has been stripped from these persons until 31 December 2014. The Government of Georgia has been assigned to develop a uniform state policy on the ownership of agricultural land and organize an integrated system of the land cadastre and agronomics by 31 December 2013.
“If you are looking for investors in agriculture then the acquisition of land should be possible. This is the case in most developed and liberal market economies,” Tobias Baumann, Director of the International Department at The German Chambers Union, told The FINANCIAL. “This definitely makes it easier to attract foreign investment,” he said.
“We see a liberal business climate at risk. The fact that land acquisition for foreigners is no longer possible is a bad signal. It is important to keep the achievements in opening markets which Georgia has undoubtedly made since 2008. There is the need to keep the security situation stable and all corruption down,” Baumann said.
“Accountability, reliability and political stability are crucial for attracting FDI and fostering growth. An improved dialogue with business circles and signed Deep and Comprehensive Free Trade Area (DCFTA) agreements with the European Union would help a lot to promote Georgia as a business partner with future perspectives,” Bumann said.
“Remarkably, this restriction imposed on foreigners wishing to acquire agricultural land is found in several other states. Yet, it is noteworthy that their absolute majority applies this during a transitional period (for instance, when affiliating in the EU), in order to protect the socio-economic and agronomic structure from the shock that accompanies affiliation in the union of states,” Transparency International Georgia said in its official statement.
“One such ‘shock’ could be a difference between land prices of new and old member states, creating a non-competitive environment on the market. There is definitely no such transitional stage in Georgia, and therefore the introduction of such restrictions is totally unfounded,” TI Georgia said. Germany remains the leading investor country in Georgia. But the volume of investment has dropped from USD 133 million to 6.5 in the first half of 2013, in comparison with the same period of 2012.
There are about 300 German companies in total active on the Georgian market. Almost 100 of them are members of the German Business Association (DWVG).
Fifty new German companies will be established in Georgia by the end of 2013, according to the German Chambers Union. Many companies still wait for a clear political and economic strategy for the country. The Union estimated the Georgian business atmosphere to have deteriorated since the 2012 elections.
“Many companies are still waiting for a clear political and economic strategy for the country. The business atmosphere - in our perception - has deteriorated since the elections in 2012,” Tobias Baumann, Director of the International Department (Russia, East and South East Europe, Turkey, Central Asia) at The German Chambers Union, told The FINANCIAL.
“It is difficult to see at the moment which way Georgia will go and how the direction is defined.”
“It is difficult to see at the moment which way Georgia will go and how the direction is defined. Also dialogue between official authorities and the business community was lacking, behind its former and potential performance. In that situation companies normally remain reluctant,” said Baumann.
“Many positions in government administration and on the working level have been changed since the new government came to power. This was a loss in terms of expertise, competence and established communication lines. It takes time after such changes to re-establish communication and trust,” Baumann believes.
He said that security issues are very important and define the assessment of a market to a large extent. “This could of course influence an investor’s decision,” Baumann said.
Potential for Investments
“There is potential in water power, tourism, agriculture, trade and logistics. The last requires investment in infrastructure and could support the construction sector. As for logistics and trade in the Southern Caucasus region, Georgia is in a good position, because it has good relations with both its southern neighbours. This aspect is often underestimated. In addition there is a need for better quality management for agricultural products. It is important for Georgia to diversify export markets and to catch up to international and competitive quality standards. The use of modern techniques in agriculture could increase efficiency and output also,” Baumann said.
Baumann said last year that German companies showed interest in the Partnership Fund initiated by PM Ivanishvili. “One successful project has been made. However, since the elections last year there has been no further visible development on that front,” he said.