The FINANCIAL — Finance tax charges and openness to bribes of judges in some regions has impacted on foreign investors operating in Georgia. The Swiss Ambassador calls on the Georgian Government to put a stop to this in order to continue promoting a business friendly environment.
Switzerland and Georgia are in talks to achieve a free trade agreement in the framework of EFTA. For economic development the Ambassador suggests having a policy for SMEs rather than for large projects mainly. As there appears to be no end in sight for the crisis in Ukraine, in order to minimize external shocks and to become more resilient Georgia may invest in national security, self-defence capacity and socio-economic strengths, including diversification of its international partners.
“There is a general perception that the wider region is affected by troubles, like potential conflicts, security risks and geopolitical polarization. Only if regional security and internal stability is achieved then the volume of investments will substantially rise again. As for internal risks some unexpected tax issues or fines may be seen as a main risk for investors. Foreign investors complained that they are urged to pay taxes or penalties that are not justified or date back to obscure tax disputes during the former government. If this is true it influences the decisions of investors and does certainly not help the government which tries everything to get more investments for the future of Georgia on board. I also heard complaints of foreign investors losing court cases on very strange grounds or evidence. There is a growing number of stories about judges in the regions that may act on the basis of bribes rather than evidence and legal provisions. If this is the case I can only ask the Government to stop this as soon as possible since this may become the main risk factor for foreign investors that are desperately needed as partners, supporters, and innovative pathfinders. I do know that the government is aware of this and promised to be firm on such practices”, Guenther Baechler, Ambassador Extraordinary and Plenipotentiary of the Swiss Confederation to Georgia, told The FINANCIAL.
Georgia would avoid external risks more easily if it had stronger and unifying internal policy, the Ambassador believes. “As Switzerland remains strong inside, we face fewer challenges from abroad and from difficult European developments; that is why Switzerland seems to be quite attractive for many people from neighbouring countries. Likewise, if Georgia uses all its potentials to become more attractive than anybody else in the region it will not only help internal integration or communication with Abkhazians and South Ossetians but also with all the neighbouring countries.”
The volume of Swiss FDI to Georgia amounted to USD 4.7 million in 2014, down from USD 17 million from the previous year’s data. However, the Ambassador is rather optimistic that during the coming years Swiss FDI in Georgia will grow substantially. The meat production company Max Blauenstein is still growing, Anka hazelnut factory is about to establish a whole value chain on hazelnuts in Samegrelo. Marneuli Food Factory together with Nabeghlavi plans huge investments for the next few years. More Swiss companies have shown interests in sectors like agriculture, food processing, green tourism, and high-tech products. The Ambassador’s optimism is based on the Swiss economy which is one of the most export oriented one in Europe.
“Economically speaking Switzerland is more integrated in the EU than some of its own member states. My country does have huge investments in and in exchange with neighbouring countries France, Germany, Italy, and Austria. At the same time it is only reasonable to focus on non-EU markets as well. On 1st of July 2014 a free trade agreement with China came into force. Swiss investors are strongly presented in countries like the USA, Russia, Poland, etc. In some of those countries we enter the list of the top ten investors. There is no reason not to be more active in the Southern Caucasus provided that Georgia takes a lead in creating more regional economic integration and trans-regional (East – West corridor) functions.
In order to attract more long-term foreign investments the Ambassador recommends having a viable strategy and action plan for (trans-)regional development: “If we consider the East-West corridor both, Azerbaijan and Georgia are in the same boat; both of them can benefit from it. The natural resources of Azerbaijan proved to be an advantage in the past. Meanwhile and in the long run this may tremendously change. Unfortunately regional development and economic integration is being challenged, too. National markets prevail although national economies are pretty small. In order for Georgia to become a hub it has to cope with security issues, global competition, diverging interests in the region etc. Since for really big investors the markets are too small whereas investors in the SME sector might be frightened by the lack of security and predictability Georgia may use her strengths in order to attract both big shots and small ones: democracy, openness, liberal freedoms, and educated citizens are certainly a huge asset for attractiveness in difficult environments.”
Q. What are your main suggestions for improving the existing economic situation?
A. Georgia needs to have a policy for SMEs. Switzerland can and shall be a partner for such strategy since my country’s wealth is based on SMEs and innovative educated people. So if there were to be partnership any platform or space, bilateral cooperation, or business exchange could bring fruitful results in the IT sector. Georgia might not have oil and gas but the country has human resources that are to be further shaped and enabled in a democratic and open environment. Issuing big investments for one project, like a hydro power plant, is of course important – however not sufficient in order to bring income to the local people. Take again Western Europe: why are Germany, Switzerland, and the Scandinavian countries among the most successful economies? The main reason is that both income and growth as well as local wealth are structured around the SMEs. They are the backbone of a successful economy; while a single large company may fail the SME sector as a whole is too big to fail.
Q. How the situation both, political and economic, has been changing in Georgia since the 2012 elections?
A. In terms of space for democratic development, like freedom of media and of expression we have been witnessing real progress. What I can see daily is that citizens think that the situation has improved significantly. There is more of a positive environment for human and business development. At the same time, when it comes to economic development, in particular regional development and socioeconomic issues, the poverty line still remains quite problematic. So, in this direction we have not seen major breakthroughs yet. Of course there is a basis for improvements and as I pointed out above I am optimistic that options and potentials will merge in the years to come.
Q. One of the harshest legislative changes in Georgia since 2012 has been the visa and migration policy and the prohibition of land being sold to foreigners. How would you evaluate it and did it impact on Swiss investors?
A. The Georgian Government as any other government is free to design a national policy when it comes to land, immigration, and visa policies. Such policies are in accordance with national interests which of course may vary from country to country. Hence, Georgia shall have a modern visa policy and land legislation. At the same time any responsible government may reflect on the impact of its policies; whether or not it will help it to strengthen the country and national interests. For example, Switzerland has a visa-free regime with certain countries, and at the same time we do have a visa regime with others, too. Such diversity is built in line with our nation’s interests. Also, in the case of land, there are different approaches. We are living in a globalized world with all its challenges and benefits. In Switzerland we do not sell agricultural land to foreigners. We have local farmers who are engaged in agriculture. Selling land and creating conflict between locals and foreigners in rural areas is definitely problematic. That’s why the Georgian government rightly decided to amend the land legislation. There must be a balanced approach that helps the development of the country – that desperately needs foreign investments – and the local people. The new land legislation may provide such space – if not it may easily be amended or reformed again. That’s why we need a parliamentary democracy.
As for the visa policy the previous approach was a very liberal one and not based on reciprocity – what we normally do. It was based on the idea to attract interesting people from all walks of life in order to partner with Georgian people and to come up with something meaningful. I guess Georgia does not want to break with this “tradition” or wants to get rid of all these innovative and friendly people. Again in comparison with my country things may be different: there are more than 25% foreigners in my country – a potential that is highly validated in many ways. At the same time we do have sometimes harsh rules when it comes to illegal immigration or other irregularities.
Q. There is a belief among social scientists that building a democracy and economic development at the same time is hard. As an example we can cite Georgia during the previous government’s rule (it prospered economically but failed to meet democratic values), and Ukraine under President Yushenko. As we are currently witnessing economic problems in Georgia but a stronger attitude of implementing democratic values, can we say that those social scientists are right?
A. Democracy and economic development belong together. There is an interaction between them. So both the spheres cannot be seen separately. We can put an emphasis in a certain period of time on one thing or the other but we cannot disconnect them. Even more, when it comes to hard choices I would rather go for democracy first. A liberal world provides more chances for economic development than an authoritarian one. There is only one value system and standard for democracy whereas there can be more or less economic development. An authoritarian “development state” that does not know democratic values or pluralism is bound to fail. This is our experience throughout the world. E.g., all the donor countries made a huge mistake in Rwanda in the ‘90s. Rwanda was a darling of the donors and a kind of showcase for African development. The President of Rwanda underscored that Rwanda is the development state par excellence. In April 1994 we all together woke up with a shock about the genocide in the former paradise of the “milles collines”. We missed to properly analyse the situation beforehand. Hence, while taking care of the economic transformation in particular in rural areas the democratic principles have been ignored completely; by the way I did my PhD on a conflict model that involved Rwanda before and after the genocide.
Q. It is hard to predict how the crisis in Ukraine will proceed to develop. However, while the ongoing processes continue to have a negative impact on each county in the region, what would you suggest Georgia should do to minimize the impact?
A. It is hard to predict what the situation will be in two to three years ahead. This crisis came to us as a shock, too. There might be some other shocks to come, who does really know, but positive developments may also occur. What we see from the analyses now is that things are not going to improve quickly. First, we altogether do have to stop the violence and armed conflicts. We have to end violence in order to create an environment for talks and recovery, and for humanitarian assistance as well. We do have to help Ukraine from a financial perspective to avoid any collapse of the system. Based on the experience of the Ukraine each and every country is now requested to have a sound national security policy and to enhance its resilience in order to avoid the impact of external shocks that go down through whole countries. It basically means strengthening one’s own national unity, based on democratic discourse and society’s participation. This must include national security, defence capacity, economic development and strength which are not dependent fully on one partner or one sector. Diversification of economic ties and also of the sectors is crucial for all countries. When it comes to resilience the good news is that the Georgian Lari has proved to be more stable than many would have expected. Depreciation causes problems for many people. At the same time the weakness of the currency was caused by external shocks. Both financial institutes, governments and people are bound to enhance trust in their own currency and not panic by fleeing into foreign currencies. The Georgian Government is quite aware of that and is trying to cope with it. However, there should be much more done to strengthen local markets, production etc. in order to strengthen economic ties, exports, lending in national currency; such measures may stabilize the situation and enhance trust in the Lari as well.
Q. You have been working for peaceful conflict resolution throughout your professional career. You also welcomed the restoration of political and economic relations with Russia. Meanwhile, from our history we remember that tough relations with Russia (during President Gamsakhurdia’s time) ended with the occupation of South Ossetia; and during more friendly relations (during Shevardnadze) Georgia lost Abkhazia. Don’t you think that while talking about Russia, peaceful conflict resolution is not a good option?
A. Conflict resolution has to be peaceful that is the main objective. We are here to help solve conflicts in a peaceful way. On your question: Russia is a big country, a strong regional power with large scale interests. The national interests of Russia do of course not depend on or respond to the behaviour of individual governments of small neighbouring countries. Having said this, at the same time the way Russia implements her interests in a specific way, in a specific region and on specific topics does of course very much depend also on the behaviour and capacities of a particular government in the neighbourhood. In this regards Georgia can shape the relations with the big neighbour through clear strategies, constant negotiations and mutual problem solving in specific domains.
Q. How can Georgia return Abkhazia and Ossetia?
A. This is a long-term project that has a lot to do with mutual respect. This also means the project must be a voluntary act from both the sides. Creating respect must be based on long-term understanding and dialogue on problem-solving. Beyond, rapprochement shall provide a growing space for opening up Abkhazia and South Ossetia to the world. Both are not just occupied territories but a potential for engagement of future generations on both sides of the ABL. Let me repeat again: a lot will depend on how attractive Georgia is going to be.
“There were and there will be occasional cases of corruption,”
“There were and there will be occasional cases of corruption,” – stated the former Prime Minister in response to the request made by the Swiss ambassador in Georgia.
The former prime minister and the “first citizen” Bidzina Ivanishvili said that there is corruption in other countries as well
The Swiss ambassador talked about finance tax charges and openness to bribes of judges in some regions in Georgia in theinterview to the newspaper Financial.
Chairman of Supreme Court answers to Swiss Ambassador
The Chairman of Supreme Court answered to the Ambassador of Switzerland and stated that she would like to meet with him. Nino Gvenetadze wants to receive comprehensive information on the facts, but the ambassador isn`t currently in Georgia so the meeting couldn`t be appointed.
” The Chairman of Supreme Court is ready for open dialogue and conversation on problems.”- is stated in the announcement published by Supreme Court.