The FINANCIAL — Georgia should become the best place to do business among its major competitors when it comes to foreigners choosing where to invest, David Lee, the President of American Chamber of Commerce in Georgia believes. He says the country is competing with larger BRIC economies, represented by Brazil, Russia, India and China. Mr. Lee spoke with The FINANCIAL about the country’s investment climate and its role on the global market.
David Lee is the General Director of the American company Magticom, the largest telecommunication operator in Georgia. Mr. Lee was named new director of AmCham just 2 months before the August War in 2008.
The American Chamber of Commerce in Georgia, established in 1998, is a fast growing non-profit non-commercial organization uniting approximately 150 Georgian, American and international companies operating in Georgia.
“Since AmCham was first established 12 years ago everything has changed, particularly since the Rose Revolution, as the new Government has focussed on the business community by building a stronger economy, fighting corruption and making it easy to do business here,” Lee said.
“The worst period for AmCham was probably when it was first formed. It had a lot of problems in dealing with corruption as well as there being very few foreign investors here. Magticom was one of the earliest investors. So I think at that time AmCham was mainly focused on providing protection for business from corruption and now AmCham is working with the Government to help businesses grow and to get more businesses to come to the country,” Lee said.
“The best period has been since I became president in 2008, as that was the peak for foreign investment coming in to the country. AmCham has successfully turned itself in to a business that is very focused on bringing new investments to Georgia and working with the Georgian Government and US Embassy to improve the business climate,” Lee added.
In 2010 alone the company was joined by 29 new members including key companies in Georgia such as BG capital, JSC Madneuli, Georgian Lottery Company, Basis Bank JSC, Alliance Group Holding, and Microsoft Georgia Holding.
“AmCham continues to grow. Although there has been a lot of pressure on the economy the number of members continues to grow. In the last week three new companies joined AmCham: Goodwill, Holiday Inn and the software company Open Revolution,” Lee said.
AmCham is actively engaged in organizing trade delegations as well as meeting with foreigners who arrive in Georgia to do business. AmCham is actively cooperating with the US Embassy, as well as Georgian entities, in particular the Ministry of Economics and the Prime Minister’s office. “We provide the opportunity for new investors to meet with any of the 150 member company representatives,” Lee said.
Q. What was the main challenge that AmCham faced in 2010? And what will be the main challenge for AmCham im 2011?
A. The biggest challenge in 2010 was the discussion with Government to reduce the severity of the tax collection procedure. We understand that businesses need to pay tax and we believed that the methodology of interpreting tax law and making collections could be done better.
I think this is a reflection of the strength of the Georgian Government which is listening to our concerns. I think that appointment of Giorgi Pertaia as ombudsmen by the Prime Minister is a historical step. It is very important when the business community, through business associations like AmCham, can go to the Government, quietly express their concern and in a short term period have the concerns addressed not only by words but by a change of structure.
This year, we have already been working with Deloitte concerning the USAID Economic Progress Initiative, there are ongoing discussions with the United States Department of Commerce, the US Embassy and USAID to try to get more companies to come visit and invest. I think that’s the role AmCham has to play, to continue working with the Government and foreign agencies on these issues. Moreover, we should not forget the people who have already invested here and who we also need to support. We still see ourselves as the natural partner for any new foreign businesses wishing to invest in Georgia.
AmCham will help any reputable company from anywhere who wants to come to Georgia. I do not think that Georgia in any way is faced with the development where an additional player might create too much competition and cause problems for existing companies, there is room in every single sector. We will support any reputable company who wants to come and invest in Georgia and that’s our plan for this year and since I have been president.
Q. How have the strategies of US businesses changed since the post-war and post-crisis period?
A. I think the changes mainly have been due to the economic crisis in the US and Europe which had a negative effect on the rate which those existing businesses wanted to continue to invest. Moreover, it also has affected the ability of the companies who were in the US to come here and invest. However I do not think all the problems can be attributed to the war, it was more to do with the domestic problems and challenges facing foreign businesses.
Q. Georgia is advertised by IMF, World Bank and some other influential international organizations as the Top Business Friendly country of the world. It’s reported that Georgia is the best choice when it comes to the ease of doing business, and the recent report by Grant Thornton says Georgia leads in the Business Optimism rating. Unfortunately this is having no significant influence on investment volume. Can you explain why?
A. This is the problem that the Government together with the US Embassy and the business community is struggling with. The fact is true – Georgia is one of the easiest countries in the world to start business in, the Government is more focused on developing business than any other country in the world. Every week we read of Vera Kobalia, the Minister of the Economy and Nika Gilauri, the Prime Minister being at international events talking to business people. This reflects how the government strategy is to keep investment coming and to improve business climate for businesses to grow. So I think you have a case where Georgia is doing the right thing, but it’s still not getting the success we want.
The first thing is being in the Caucasus region, a part of the world in which people have historically been less interested in investing. The other challenge for Georgia is competing with other larger emerging economies like China, Russia, Brazil, India. The population in those countries is so high that every business has massive opportunities. Georgia with a population of 4.5 million people is the size of a large European city. So it’s always going to have that challenge. That’s why Georgia does not only have to be a great place to do business but has to be the best place.
I believe every Georgian in the country has the responsibility, whenever he has the opportunity, to sell Georgia, particularly those people who are educated, who speak foreign languages and travel. They should always present and promote Georgia to their foreign friends and partners.
Q. You have daily contact with your colleagues in the United States and other western countries. What is their perception of Georgia?
A. I came from Washington just last week where I spoke with the US state department, US Commerce Department and other interested agencies. The general mood towards Georgia was extremely positive. The thing that always amazes me about Georgia is that so many people in the US know about the country. Georgia is an extremely interesting place for US political and business communities. They understand that there is nowhere else like Georgia.
Georgia is really a huge success story of building a new social and economic order: An open economy, a strong democracy and an active civil society. You just do not see that in any other country in the region. Georgia is already way ahead compared to its neighbours in creating that source of truly open environment for business people. US diplomats and people speak with appreciation and understand that they have commitment to see that this continues.
Q. Which fields are the most attractive for US businesses currently? How has the tendency changed?
A. Georgia is into the second phase of economic development. The fist phase was characterized by large infrastructure investments and real estate which was good. We also saw certain key industries starting to develop during the last seven years. In my own industry, telecommunication, all the companies are continuing to invest. We should also remember there are still areas even in the telecommunication market that need to be developed. In the last two years Magticom has sold more than half a million MagtiFix telephones which shows there is still room to grow. But most of all, I want to see more internet investment and Magticom is urgently seeking permission from the government to build fibre optic ducting in the cities and across the country to accelerate this process.
There is real progress in tourism. If you look at the new Radisson, the new hotels in Batumi and the standard of their service, everything is perfect, the same standard as when I stay in NY and Washington. Georgian customer service staff working in the tourism field have come from a very low level seven years ago to what they are today.
However, I believe it’s the land that gives Georgia its true competitive advantage. There are three areas: agriculture, water power because of the 26,000 rivers and the strategic location, which need to be developed immediately. There is the opportunity to continue to develop strong ports in Poti and Batumi.
Most of all three I would focus on agriculture. I think the wine industry is doing a good job, but it’s completely wrong that Georgia imports 70% of its food. It is simply silly for Georgia to import tomatoes and fruits, as it has ecologically sound products. We should also remember that about 50% of the population are employed in agriculture.
Q. How often are issues related to political stability and security raised in negotiations with US investors and businesses interested in dealing with Georgian companies?
A. I have never had investors and businesses come to AmCham, even just after the war, asking “Do you think there’s going to be another war?”. It’s not something they focus on. In a country with a third of its territory occupied by Russians it is of course huge concern for the local population. However from an international point of view it is not the first thing to come to the mind of a potential investor in this country.
Foreigners are interested in several issues: number one is whether the country is corrupt and the answer is no, then comes the question “Is the Government difficult to deal with?”, again the answer is no, and finally whether there is market – and there is market in almost every sector here.
Political stability is an issue that potential investors ask about. I think particularly after some of the demonstrations in 2009 there is still a question about political stability. After the demonstrations on Freedom Square were dealt with satisfactorily and with no violence, the opposition parties seem to have taken a new strategy and are trying to look at their own capacity in building themselves rather than simply attacking the Government on every issue. Therefore these concerns can be easily addressed.
I think the Government is stable and I am pleased we have had the same President and Prime Minister for a long time, which presents a good face to the outside world. It’s not good when ministers are changing all the time and that’s not happening now. So when people ask about political stability I say I do not fear any kind of instability in the country.
Foreigners are interested in several issues: number one is whether the country is corrupt and the answer is no, then comes the question “Is the Government difficult to deal with?”, again the answer is no, and finally whether there is market – and there is market in almost every sector here.
Q. Which significant deals would you outline from the US side in 2010?
A. It is hard to outline any single particular deal in 2010, but The US brand Holiday Inn coming into the market is a significant. Some of the biggest deals do not necessarily hit the papers, the hundreds of millions of USD being spent each year on telecommunications which include US providers are not being reported.
We did not have that many great headline deals in 2010. But it is good to have ongoing projects such as Rakeen and BP who are also members of AmCham.
In the end we should not forget that there are many smaller American and Georgia businesses start-ups. Due to that fact AmCham together with the other large business associations created the Georgia SMEs Association 2010.
Q. There are rumours about the plans of Donald Trump to build a Trump Tower in Batumi. The recent visit of his advisors to Georgia gave some hope to industry players. Do you think that the Georgian real estate market has big potential and could attract American investments in the coming years?
A. I believe that a single deal is important but it is not as important as several deals. Batumi and the region of Adjara has been transformed during the period I have been in Georgia. This was a rundown seaside resort that has been turned into a kind of Las Vegas on the coast. Now we have seen the Sheraton Hotel, and Intourist working really well and the building of many new hotels is already going on right now. If Trump comes this would be a good investment and part of what’s going on, the vision of Varshalomidze to create Batumi and Adjara as a centre of tourism on the Black Sea coast is well underway.
I see that there are very few loans for properties, we have a population that really desires to own houses, as well as in the wider regional tourism as many people have the desire to own cottages on the black sea and in ski resorts.
When the crisis hit, Georgia was not affected as heavily as many other countries as the real estate sector was not over-developed. Prices are of course down, however, they are not down too much from the peak as we have never had ridiculous real estate prices.
Q. In your opinion, how attractive is Georgia as a tourism destination for US tourists?
A. The question is to whom are you directing your marketing? Here we have to talk about segmentation. Georgia will never compete with Florida and get American families with young children and a low budget to come to Batumi. American families will go to Florida. However a significant number of the 300 million plus US population, are interested in adventure and sports tourism, gambling and in holidays associated with culture, history, religion architecture and agriculture. Georgia is a fascinating and safe place to come and can offer a unique experience to such visitors.
Casinos and gambling are managed well in Las Vegas which makes it a very nice holiday place for middle class people and their families and I have been several times with my family. Whoever comes to Batumi will have a week of dancing, eating at restaurants and gambling and if that’s what you like to do, then yes Batumi can compete in the US Market by offering a different, exotic venue on the coat. The segment in the US is not small, there is a large number of people with money who are going to travel.
Whatever is attractive to the population of America can also be attractive for a large section of the population of Western and Central Europe. Moreover, we should never forget that countries around Georgia, traditional tourists from Armenia, Azerbaijan, Israel, Turkey and one day hopefully Russia will also return to this beautiful country.
Q. What should Americans that are thinking of investing in Georgia know beforehand?
A. The best way to get people to invest in Georgia is to get them to come to the country. I believe that the recent advertising campaign of the Government is useful but it won’t make people come and invest in Georgia. What we have got to do is get people to come to Georgia, because everyone who comes to Georgia is shocked by how different it is to what they expected. They fly into a beautiful airport, meet with friendly customs officers, get their luggage within two minutes get a proper metered taxi in to the city centre, and go to well constructed hotels like the Radisson, Marriott, Sheraton, Holiday Inn or Betsy’s. Then there is the really great food, friendly population, and a beautiful and ancient city. That’s what they do not expect now, so we have to get as many people to come here as we can, then explain the opportunities to them face to face.
Q. Which Georgian products could be made popular in the US?
A. High quality wine would be popular for the US market, as well as hazelnuts, fresh herbs and anything to do with naturally processed foodstuffs. If you go to US and EU capitals there is a very real growing tendency for people to purchase organic natural food and it does not get any better than that which you find in Georgia.
Georgia has the reputation of a country that produces quality wines and quality products and it was famous for that during the time of the Soviet Union. But it has to be of high quality that’s the challenge Georgia will face, certification, transportation, storage and developing the brands. The brand of Georgia is already good but we need to make it more widely known.
Q. What do Georgian businesses lack or what are the weak sides of Georgian businesses when it comes to expanding to foreign markets?
A. UGT and Bank of Georgia have expanded their businesses overseas. Moreover I see that other Georgian banks are seeking opportunities abroad. I would be delighted to see Magticom move overseas and I would never turn my back on that opportunity. One of the challenges has been the growth of these sectors within Georgia which reduces the urgency of finding new growth opportunities overseas. As for Magticom we still see huge opportunity to build out the internet and to continue with our massive growth in MagtiFix.
Q. How does the US benefit from investing in Georgia?
A. The US is a very close trading partner of Georgia. The American and Georgian people share a lot of common values. You can talk about many things in a similar way. America is extremely focused on business, so is Georgia. Georgia can give America what it wants; it is a stable and strong partner. Magticom is a perfect example of this. American investors came here 13 years ago. They have been in the country through very difficult transitions in that time: the Rose Revolution, the war with Russia and the occupation, the recent economic downturn and they are still here, still continue to invest and still believe in Georgia.
Q. In your opinion, which American franchises might be successful in Georgia? Why are global brands like Starbucks, Burger King or others not expanding their market to Georgia?
A. We have to be realistic in how many burger bars Georgia needs. McDonalds and Texas Chicken in Georgia are performing well and the quality is as good or better than anywhere else. Could you also have BurgerKing and Pizza Hut running as successfully? How many can you have at this stage of the economy’s development? However, it’s not the case that each brand you see on the streets of New York will suddenly appear in Georgia. Georgia is also a pretty tricky and difficult place to compete with what you call convenience food. I mean it’s the land of Khachapuri and Khinakali, and selling food to Georgians is not as easy as selling in other countries as this country has its own rich and natural cuisine.
Remember the Radisson, Marriott, and Holiday Inn are also franchises. I do not anticipate that Rustaveli Avenue will look like the average high street in American any time soon, but I do anticipated many more franchises in other sectors and the AmCham is currently arranging for a delegation of Georgian businessmen to go the America to explore franchising opportunities.
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