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Home USbusiness in Georgia

Fady Asly: ICC does not encourage tax hikes but Georgia is going through an exceptional challenge

Nikoloz Charkviani by Nikoloz Charkviani
December 12, 2016
in USbusiness in Georgia
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Fady Asly

Fady Asly, President of the International Chamber of Commerce of Georgia. The FINANCIAL photo.

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The FINANCIAL — “The Government has gone through its learning curve in their past term and therefore we no longer expect any ill-thought-out legislation; now is the time to boost growth and the Government understands this very well,” said Fady Asly, President of the International Chamber of Commerce of Georgia, to The FINANCIAL.

Despite the fact that ICC does not encourage tax growth and believes that low taxes are crucial for local business as well as for Foreign Direct Investments, if the Government’s new 10 point plan is fulfilled carefully, it will not harm business, stated Mr. Asly.

“Only GDP neutral or GDP positive legislation should be adopted and at the same time the Government should devote all its resources to boosting exports and bringing in FDI,” said Mr. Asly to The FINANCIAL.

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Q. The Government has introduced a 10 point plan for economic growth, what is your evaluation of the plan?

A. It seems obvious that the Government has been thinking for quite some time to come up with such an exhaustive plan. We also have to give the Government credit for taking the situation very seriously. As a matter of principle ICC does not encourage tax hikes but Georgia is going through an exceptional challenge and therefore we fully understand that exceptional steps need to be taken to curb the devaluation of the Lari.

ICC will support the Government in its efforts to curb devaluation, to boost exports and to increase FDI, we have a very good working relationship with the authorities and we will draw their attention to the few points that we believe should be tweaked to avoid any negative impact on FDI.

Q. What are the main obstacles for companies attempting to achieve growth, and are these taken into consideration in the Government’s plan?

A. Businesses need visibility and stability; the Government has gone through its learning curve in their past term and therefore we no longer expect any ill-thought-out legislation; now is the time to boost growth and the Government understands this very well. I guess that Georgian businesses will be going through a golden period in the coming years and this is amazing for Georgia.

Of course there will always be hiccups that will affect the business environment but we rely on our close cooperation with the Government to iron out any negative issue before it becomes a major problem.

Q. The Revenue Service still has problems which have been appealed by ICC several times. Has anything changed in 2016, or are there any plans for the issue according to your information?

A. There are several problems with the Revenue Service but the most lethal one is the practice of freezing bank accounts; in 2015 about 3300 bank accounts were frozen, out of which more than half of them were without any fundamental reason at all.

Fortunately, the Government, under the leadership of Prime Minister Kvirikashvili, tackled the problem in spring 2016 and issued legislation prohibiting the freezing of any bank account without a court order, but more importantly – only in exceptional cases.

The issue of the Revenue Service requires political will to improve things and we believe that there is a real political will to improve the relations between the Revenue Service and taxpayers.

To summarize it, we feel a sensible improvement in this sphere for the first time in about twenty years.

Q. The predictability and transparency of a country’s economy is one of the most important things for any business. In light of this, what recommendations would you provide to the Government?

A. We would strongly recommend to the Government to refrain from changing the legislation overnight; any changes have to be announced way before they happen. Overnight changes do send a very negative message to investors and give the impression of an unstable business environment.

Q. Georgia has moved forward in the Doing Business Index, what has changed practically?

A. In my opinion the Doing Business Index is an indicator of a country’s commitment to transparency and openness, however it has its own limitations in terms of dependability, and to illustrate this I would say that India, which is ranked 130 in the Index, will no doubt attract much more FDI in 2017 than New Zealand, which is ranked number one!

Now, as far as Georgia is concerned I can confirm that the Government is very committed to continuously improving the business environment by solving on a daily basis the various problems that arise.

What has changed in 2016 is the level of optimism shown by the business community. Businesses do trust the Government, and especially the Prime Minister, and this has resulted in many new projects that started within months of the appointment of Giorgi Kvirikashvili.

To be very honest with you I do not remember being as optimistic as I am right now, since 2007.

Q. What do investors require of Georgia in order for them to be interested in the country? What can the Government do?

A. Investors need predictability, stability and opportunities; the Government needs to keep its legislation stable, especially regarding taxation. The Government has to pursue its business-friendly attitude towards investors and assist them continuously through the process and especially once they start operating.

One of the main mistakes made since 2004 is that the Government would deploy serious efforts to bringing investors in, however, as soon as the investment was completed, harassment would start.

The Government has to understand that assisting investors to get into the country should not stop once the investment is done, but this should be a continuous process. It is very simple, a happy investor will attract other investors into the country, and it takes one unhappy investor to kill fifty success stories.

Q. In your opinion, are the benefits from the DCFTA promoted well enough among investors as well as local businesses, and what can be done further?

A. The Government started a special programme along with the private sector to educate businesses all over Georgia regarding the DCFTA, its regulations and its advantages; This is a great initiative and ICC is an active partner of this process through the participation of Nikoloz Khundzakishvili, the Chair of our DCFTA Commission.

Q. Which countries do you see as potential partners of Georgia in the trade sector as well as investments?

A. We have to target our immediate neighbours and this is basic common sense, I believe however that there is huge potential in the Gulf countries and we are currently actively involved in catalyzing the exports from Georgia to the GCC and bringing investors from the GCC to Georgia through Channel Georgia FZC, a company that I have recently established in the UAE.

Q. Because of a prolonged Visa Liberalization process, as well as obtaining MAP from NATO, don’t you think that these could increase Russian influence in Georgia?

A. I personally do not think that Georgia will be a NATO member anytime soon if ever, this is my personal opinion; as for the delay in obtaining the visa-free regime with the EU, this is surely creating a lot of internal frustration and undermining the credibility of the EU as a reliable partner that stands by its commitments.

I believe as well that it would be a strategic error for the EU to link both Georgia and Ukraine together for visa liberalization! Georgia did its homework and fulfilled all its obligations and therefore it would be very unfair to drag the process and wait for Ukraine that is way behind Georgia in the process, as this would set a very dangerous precedent.

Q. What are the reasons for the current currency fluctuation in your opinion and do you consider de-dollarization to be the solution to the problem?

A. There are several compounded reasons for the recent depreciation of the national currency, such as the strengthening of the US Dollar, poor economic performance of our traditional economic partners, low oil prices, our ill-thought-out economic policies between 2012 and 2015 that stalled the economy for three years, and a recent important increase in domestic investments that created a high demand for foreign currency.

As for de-dollarization, I personally believe that it is a double-edged sword. The process should be targeted surgically and designed in a way to avoid hurting foreign investments.

If the Government wants to issue high yielding bonds in Lari to encourage deposits in the local currency this is a great idea, however if, for example, the Government wants to impose the pricing of real estate in Lari exclusively this will surely keep investors away from the real estate sector.

Investors are by definition always wary of the stability of the local currency; an ill-thought-out Larification programme could become a real deterrent to foreign investment.

Foreign investors bring in hard currency and expect a stable return on their investment; the Larification of the economy with risks of devaluation could become a serious impediment to foreign direct investment in such cases.

I believe that the solution includes partial Larification such as government-issued bonds, and in parallel to that the Government has to make sure that any legislation issued is weighed against its impact on GDP growth. Only GDP neutral or GDP positive legislation should be adopted and at the same time the Government should devote all of its resources to boosting exports and bringing in FDI. All of this has to go hand in hand with serious cuts in administrative expenses such as merging ministries together thus leading to a smaller government and scrapping non-vital social programmes; this is, in my opinion, the way forward to stabilize the currency.

Author: Nikoloz Charkviani

 

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