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Growing Fear of Political Instability

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The FINANCIAL — Georgian business consultants name today’s political instability as a key obstacle in the country’s economic growth, business development and companies’ activities.

 

The FINANCIAL — Georgian business consultants name today’s political instability as a key obstacle in the country’s economic growth, business development and companies’ activities.

 

Demonstrations, political scandals and street protests are all leading to potential unrest in Georgia. Despite that however, foreign investor companies as well as local ones have continued to invest in Georgia so far, although they have slowed down the pace of their work, business consultants say. Companies are refraining from starting any new campaigns until the tense political situation improves. In such a situation, business consultants worry about delays in the development of business.

“Usually in Georgia elections are characterized by street demonstrations, competition in terms of crowd numbers, scandals etc. This is a traditional pre-election campaign in Georgia, there is nothing special or new about that. I would not say that this will affect business significantly therefore, neither in the short-term nor long-term perspective,” Tariel Zivzivadze, professional business trainer and consultant said.

“During the post-election period, if instability and demonstrations last for a period of months then it will aggravate the business environment in the country the same as it did several years ago, when Rustaveli Avenue was covered with the tents of protesting opposition members,” said Tariel Zivzivadze. “In such a situation it is very difficult to switch peoples’ attention to any new products or innovations offered by companies when all of their attention is being drawn to political “products” instead. During the pre-election period TV networks are saturated with political advertisements and shows focusing on politics. The majority of advertisements on Facebook are political as well. Starting a new advertisement campaign or launching a new product at the moment will therefore be largely ineffective as it will simply not attract an adequate amount of peoples’ attention,” he added.

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“In my opinion only one thing could have a strong influence on business in Georgia – if one of the forces does not hold the majority in parliament. The situation is quite different when one party dominates and “sets the rules of the game”. I am sure that such a format would be preferable for the business environment in every direction. Those who are dependent on the government have a fear that they will lose everything they have. Expectations are better for those people who are currently under pressure,” said Zivzivadze.

“The business sector is very sensitive to political events. But we cannot say that temporary political instability, demonstrations and, in extreme cases, revolutions, have a negative impact on business development and new investments,” said Giorgi Mekerishvili, researcher at ISET. “For example, after the Rose Revolution in 2003 foreign direct investments were not diminished but rather increased by 300 percent. Two things could happen in the country. The first option is that the street protests will turn into unrest and political instability, political risks will rise and investors will lose their confidence in the system and business potential of the country. At the same time, people will avoid unnecessary expenditures and the general level of demand in the country will decrease. That will be followed by a sharp slowdown in economic growth and outflow of investments,” he added.

“Another option is that the government will not keep the status quo and its power will decrease. The opposition parties will be satisfied and destabilization will be eliminated. Investors will have more optimism as they hope the presidential elections will take place peacefully as well. The opposition parties will be more motivated to support attracting investments to the country.  Investments will be expected to grow, there will be growth in consumer spending and business conditions will improve,” he added.

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“One of the most important factors in influencing business is any kind of political processes and especially elections,” said Irakli Glonti, Director of The Group of Georgian Capital Management. “Investors perceive stability, having free industrial zones, flexible tax system and administration as a priority. Without political stability and firm legal guarantees I think it is absolutely ridiculous to consider any business operating in the country. Georgia should continue with the process of integration with NATO. The organization has a significant impact on business sector development because if a country’s foreign relations and safety is protected and stable, then the rate of business development is high,” he said.

“Economic growth and political stability are deeply interconnected,” said Eter Kharaishvili, economist. “Given that, the uncertainty associated with an unstable political environment may reduce investment and the speed of economic development. At the same time, poor economic performance may lead to government collapse and political unrest. So as not to lose foreign investors, who prefer a stable political environment with as little policy uncertainty and uncertainty about property rights as possible, it is important that the government, opposition parties and society take responsibility for every decision they make,” she added.

 

 

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