The FINANCIAL — 2012 was an eventful year for Georgia and for Georgian business. We witnessed the meteoric rise of Bidzina Ivanishvili’s Georgian Dream movement, and the first democratic transfer of power ever in the country’s history, followed by a reshaping of the country’s business landscape.
Companies that were close to the previous government suffered, while companies that are close to the new government did better. With the new year coming up, we are curious about what 2013 will bring for Georgian business. In this article, we’ll look at some of the key variables.
Economic growth. Georgia has had phenomenal GDP growth over the last few years: real GDP grew by 6.3% in 2010, 7.2% in 2011, and by 7.5% during the first three quarters of 2012. With the global economy still sputtering, keeping up this rate of growth would be a fantastic achievement, but there is a realistic possibility of this slowing down. In fact, a large part of the increase in GDP has been driven by increased government spending on construction and infrastructure, which we may expect to go down in the near future.
The labor code. On the one hand, the flexible Georgian labor code has contributed to making Georgia an attractive place to do business. On the other hand, it offers very few protection to employees, and because of that it is in the process of being revised by the parliament. This may make it more burdensome for Georgian business to hire and fire people, although the changes being proposed are not very far-reaching. Managing the transition to a new labor code in a gradual and sensible way will be crucial to maintaining a good business climate in Georgia.
Political stability. Political stability, is crucial for Georgian business. This means not letting internal political differences get out of hand beyond the political realm: healthy political competition is in fact the essence of a democracy, but a “winner-takes-all” approach can create instability. Foreign investors don’t like instability, and in fact, foreign direct investment has been subdued in 2012 compared to 2011, probably due to the uncertainty surrounding the elections. Maintaining political stability also means not using the courts or tax audits for political purposes.
New markets. There are clear signs of prospects of improved relations with the Russian Federation, and there are active discussions about allowing Georgian products to be sold on the Russian market. This would be a big boost for Georgian business, especially for companies that focus on export products that have traditionally been sold in Russia, such as mineral water, and wine.
The financial sector and availability of credit. Easy access to credit is hugely important for businesses to develop. At first glance, things are looking positive here: after the elections we have seen lower interest rates on bank loans, and financial institutions are competing fiercely. The sector is well-capitalized, profitable, and able to deal with shocks. However, for businesses that are not capital intensive, it is still hard to obtain credit, because of the stringent collateral requirements that banks usually have.
2013 will be an interesting year for the Georgian business community. There are interesting opportunities ahead, and although past results offer no guarantee for the future, the high economic growth that Georgia has enjoyed gives us hope for continuing growth in 2013. If the key decision makers do what they are supposed to do, and the global economy doesn’t falter, 2013 will be a good year.