Fady Asly, ICC Georgia President on difficulties related to doing business in Georgia

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The FINANCIAL — The biggest development that we had in 2015 was in July, when we declared a moratorium on criticizing the Government until October, to give a chance to the investors council under the Prime Minister to solve the problems that we have been talking about for about 3 years now. This was to be able to solve them far from the limelight, not to discredit anyone and not to give credit to anyone else. So we’ll see how this investor council is going to work. If it’s going to work well then there will be no need for us to go public. If it’s not going to work then we will definitely have to go back to the media and speak openly about the problem.

Q. What are the main complaints that ICC member companies have in Georgia?

There are 4 main complaints:

The first one relates to new legislation. Every few days we have a new piece of legislation that’s adopted without consultation with the business community. This is a real problem because we cannot keep up and then we don’t know what’s happening. And this is backfiring very negatively on the confidence of businesses and investors in the country.

The second issue is the revenue service. The revenue service is very aggressive with companies. Whenever they audit a company they decide arbitrary penalties that can be manifold what the company actually needs to be penalized for, if it needs to be penalized at all. They freeze bank accounts and totally paralyze the company.

The third issue relates to labour inspection. We are quite apprehensive about it. It’s a new controlling body that will be watching over businesses, in addition to the competition agency and the revenue service. This is not good news because it’s complicating the business climate.

Finally, the fourth issue relates to the courts. The courts are issuing injunctions against defendants requesting the freezing of assets that are manifold the value of the claim against those companies and thus totally paralyzing the companies.

Those are the 4 main issues that are of big concern to the business community and we hope that through the investment council we will be able to solve them.

Q. What are the main obstacles that foreign investors are facing in Georgia?

A. I can’t differentiate between foreign investors and Georgian businessmen. They face the same problems.

Unpredictability in legislation – as I have said before; any day the Government or parliament can come in with new legislation. There is no visibility towards the future. We don’t know where Georgia is going to be in 6 months, a year, in 2 years or 5.

Investors want predictability. They want visibility. Without visibility and predictability investors are not interested in a country, especially in a small one like Georgia. 

For the past 3 years the Government has issued a lot of business-unfriendly legislation that has cooled down investors and scared them off, so now they are looking for destinations other than Georgia.

Fortunately the Government has partially reversed this bad legislation. But it’s too late. I believe that the main problem now is restoring confidence. Confidence in the future of Georgia for businesses and investors has been lost in the past 3 years. What we need to do together with the Government now is make sure that that confidence is restored, so people invest in their own country and for foreign investors to invest in Georgia as well.

Q. It’s often said that doing businesses in Georgia is easy, would you agree?

A. On paper it’s easy, but practically it’s not that easy; especially when you have to deal with the revenue service, with the competition agency, with the Georgian courts, with the labour inspection. No, it is not as easy as you can read on paper. And this is a real problem, because it takes one failure to spoil 100 success stories, and since we don’t have 100 success stories, we shouldn’t be surprised by how Georgia has lost its reputation as a good place for business and investment.

Q. Does the Georgian Government do enough to attract foreign investors?

A. I cannot criticize the Government regarding their will to attract foreign investors. The will is there. What is not there is the understanding of what foreign investors need. This means that if you are in Saudi Arabia and you open a restaurant where the menu is beer and pork, don’t be surprised if you have no clients.

In Georgia the situation is exactly the same. The Government is not serving investors what investors want to eat. And the Government is unable to understand what the problems are that investors suffer from.

They don’t want to see it, we’ve been saying it a million times and I believe that it’s not the will that is lacking – they really want to get investors in, but they don’t know how to attract them. And they are not focusing on understanding what the problems are with attracting investors.

Q. What have they done properly?

A. What they have done properly is they have stopped using criminal courts to arrest businesses, put them in jail and then pre-bargain with them to take money from them. This, they have managed to do well. By the same token when the revenue service enters a company and fines the company GEL 1 million instead of GEL 10,000, and then freeze the bank account – this is just another way of persecuting an investor or business. The result is the same, but the tool has changed. Instead of jailing them, they freeze their bank account and put pressure on them. I can’t say that the result is better and there is more confidence than before. On the contrary, businesses were more confident about the future of the country then than they are now.

Q. In which sectors can new investors expect a rapid positive return?

A. I think tourism has huge potential. There is definitely a lack of infrastructure for tourism which investors can get involved in. Georgia is really booming tourism-wise. I don’t know anyone who has come to Georgia and not wanted to come back another time. So tourism is a definite, and then you have medium-sized industries.

Let’s say paint factories, paper tissue factories, not big factories of hundreds of millions of dollars, but anything between 5 to 20 million dollar industries, that’s what we are lacking here and we are really in a very comfortable position considering that Georgia has signed a DCFTA association agreement with the EU. We have cheap labour, the Lari is weak so we have all the parameters on hand to be successful for medium sized industries.

Q. You often meet with the Georgian Government. What percentage of these meetings get positive results?

A. It depends on the government official. For example, when Minister Kvirikashvili was the Minister of Economy I can say that 70 percent of our requests had positive results. He was fantastic as minister of economy and also as a person. Out of the whole government we had the best relations with him. He always listened very carefully, he understood what the problem was and took action. Unfortunately we lost him as minister of the economy but gained him as Minister of Foreign Affairs.

The situation with the Minister of Finance now is whenever we come with a problem he does his utmost to solve it. But this is a tactical approach. On a strategic level, considering that he oversees the revenue service, he never wanted to understand what the real problems with the revenue service were, and the cost of the actions of the revenue service on the economy. I always think of the minister of finance as someone who can be called blind; meaning, when you tell him “This is red,” he says: “No, it’s yellow.” He cannot see the problem because he has no experience of it, I mean from the perspective of businesses. Every time we have gone and talked to him about a particular issue he has always been extremely helpful but we can’t always tactically solve matters. The Economic Adviser to the Prime Minister Giorgi Gakharia is also always open. So, in general I can say that for tactical problems, for punctual problems the Government is solving them, but strategically there is a lack of vision, a lack of understanding, and this is the main issue. This is what we are trying to explain to them – that they need to change strategy.

Q. In a 10 points system what would you give the Georgian Government?

A. I would give them 3, referring to the economy. I’m not referring to social or other issues, just the economy.

Q. I have to ask you about Asian business in Georgia. We often hear hateful speech directed towards Asian investors. Do you think this is Georgians’ character or due to someone else’s manipulations?

A. No, I don’t think anyone is manipulating them. I think that Georgians are ambivalent regarding foreigners. They have something like a double approach to them. There is a social approach to foreigners where Georgians are extremely generous, extremely hospitable and extremely nice. And then there is a professional approach to foreigners where there is professional xenophobia. It means that Georgians don’t like to see foreign people operating in the country, working in the country. They are very happy to see them as tourists: drinking wine around a “supra”, enjoying the landscape. But they don’t want to see foreigners working in Georgia. This is generally speaking though, not all of them of course. Generally there is a xenophobic feeling in the country professionally-wise.

Q. There are constant speculations among local and international media about the country’s political course. Do you doubt Georgia’s western aspirations?

A. I think that Georgia today is still western-oriented, but if you compare the pure results of 2 years ago to the pure results of 3 months ago you will see that enthusiasm towards the West is fading. This is not because of Georgians. This is because of the attitude of the West towards Georgia. You know that NATO’s MAP has been postponed year after year, the visa facilitation also has been postponed. Georgians feel very frustrated. Georgians are very proud, they are not beggars, yet the message that they are receiving from the West is as though they are begging for something. So, for a proud nation I understand this feeling within the population. I mean if Europe doesn’t want us or they don’t want to give us visa facilitation, or if we cannot be on the map soon, then let’s forget about it. They think along these lines: “If we managed to survive for millennia without the EU, then we can survive without the EU for the next millennia,” especially as the EU has its own problems internally.

Q. Considering the current economic situation what do you fear the most?

A. I think that we are melting. We have lost our competitive advantage. There are many other emerging markets that are competing with Georgia and that are offering even better packages than Georgia – larger markets than Georgia as well. We are losing our competitive advantage and we have lost our momentum since 2012. We had a fantastic window of opportunity early in 2013. Unfortunately, the Government couldn’t take advantage of this window of opportunity and they turned to social programmes instead of focusing on the economy, on investment, on boosting, and this made us lose lots of momentum. So I believe that this is the main challenge now – to restore confidence and to put Georgia back on the map, because Georgia unfortunately is not on investors’ maps so much anymore. However, there is still a fantastic opportunity for Georgia now for everyone to be aware of.

What is going on in the Middle East now is that many Easterners from wealthy countries like Saudi Arabia, the Emirates, feel uneasy at home because of what is going on in the Middle East and are looking for other places to buy a house, to build a villa or make an investment – and they are looking to Georgia.

We know this because they come to us and they speak with us and this is a fantastic opportunity for the country. The Government needs to capitalize on it because they won’t have another opportunity like this one. We lost the opportunity with the Iranians; we shouldn’t lose this opportunity with the Middle Easterners.

Q. Looking ahead of developments around National Bank of Georgia, It seems like international donors are losing their control over the Georgian Government. Do you think that western partners should be stricter in their demands?

A. Frankly, I don’t think that the international community is losing its control over Georgia. First of all there should be no control that the international community has over Georgia. Why should there be any control? Georgia is a sovereign country with a sovereign policy so it shouldn’t be controlled. Now we were very much against the removal of the branch of controlling banks from the national bank into another entity. We think this is counterproductive and the risk of it is that it could be controlled by the Government to put pressure on the banks to control who is contributing to which political party and to bankrupt any bank any time if the bank is not following the Government’s policies. So this is what we don’t like about it.

If you were in Switzerland and they would have separated from the national bank no one would even talk about it, but the problem is that everyone knows that every administrative tool is used by the Government to strengthen itself and weaken the opposition. This is something that is not ethical and is not proper – this is where everyone got very twitchy about moving the bank controlling body to another body.

Q. As a Georgian citizen do you believe in a NATO or EU future?

A. I am going to answer that for myself, not on behalf of the International Chamber of Commerce.  Personally I don’t think that Georgia will be a member of NATO any time soon. And I don’t think that Georgia will integrate into the EU any time soon, at least not as long as I’m alive.

Let’s be pragmatic, regarding the EU, it has its own problem internally with Greece, Spain and Italy. They are not in the process now of enlarging themselves. Concerning NATO, we know the situation with the Russians, so I don’t think that NATO is going to impose membership on Russia. This is my personal opinion.

We need to be more pragmatic and not focus too much on it. I think Georgia needs to do good homework for itself, be a brilliant student for itself, not to get a reward from NATO or from the EU. Having said that though, I think that the EU needs to make an effort towards Georgia. Signing a DCFTA and an association agreement leads to a very high compliance cost for the economy.

You know we have to adapt our legislation according to the EU legislation. This will complicate doing business in the country. We need to see something in return. Because when you pay you want to take advantage of it. We want to use the advantage of having an association agreement with the EU now and pay over a period of 12 years. And this is the feeling that Georgians are getting now – frustration.

The EU needs to make a very serious effort regarding this issue. I believe that if Georgians at some stage change direction and head towards Russia (and it is possible), it will not be the Georgians’ fault but the fault of the EU and the West.

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