The FINANCIAL — Ease of doing business and the strategy of using public debt are considered the most significant achievements in Georgia that Germany should learn from, says Axel Eismann, Chair of Business Administration at Friedrich-Schiller-Universit Jena.
“Pay attention to how a business works after its initial registration and in terms of paying public debt – take the taxes and pay back some debt so as to remain stable over time,” Eismann advises the Government in turn.
“Georgia is much better ranked in the ‘ease of doing business’ category by the World Bank than Germany. That surprised me,” Axel Eismann told The FINANCIAL. “I did not expect Georgia to be so much better. In investor protection, which is one category, Germany is much worse than Georgia. We are ranked 98 and Georgia is ranked 16. Things like starting a business, I agree, are much easier in Georgia. This is because in Germany there are a lot of regulations, you have to go to different state departments and the taxation is much more complex in Germany. I accept that the starting point is easy in Georgia, but there are some other things which are considered “easy” in Georgia which I don’t understand. For example, doing business is not so easy here if we do not take into consideration the part about its registration or start-up. Doing business means protecting the investors day by day,” he said.
“Germany can learn from Georgia in regard to all the aspects of regulation which are created for starting a business or tax law, which is very flexible here. In Germany there are so many different tax laws which a company has to fulfil, that nobody can do it themselves. When you are starting a business, you do not have money to pay for a tax consultant or someone who does your financial reporting. Germany should change that, maybe not for big companies but for start-ups. If we look at the history, the law was not specialized in Georgia. In Germany the development started a long time ago and they kept adding and adding new parts. Now nobody wants to erase it. Georgia did not have a developed law system, they built it from scratch and did it correctly. That is Georgia’s biggest problem and yet the biggest advantage at the same time,” Eismann said.
“Germany can also learn from Georgia in relation to the strategy of public debt. Georgia has a public debt that is 35 percent of Georgia’s GDP, which is really good. The USA has over 100 percent of public debt compared to its GDP. In Germany we have 82 percent, the reason for which is the financial crisis in the whole EU. We can give Georgia advice to not do the same as we did and to not take on too much debt. The previous government was securing its financial need from foreign countries; it was based on foreign debt. And the current government is switching to public debt, collecting money from within. I think the right way is for that both the debt from within and that from the outside should be almost equal,” he said.
“Georgia can be an example to other countries, in how it is not spending on everything, it is not taking on more and more debt. Georgia has understood, and Germany still has to understand, that the only strategy is to invest in sensible projects, which seem likely to be successful in coming years, and not just invest in everything. Then, if you have good times you can also pay back all the debt. In Germany politicians often promise to pay back debt but they never do. Then other crises come along and we have to take on more debt. If Georgia’s economy grows fast, take the taxes and pay back some debt to ensure stability over time,” Eismann said.
“It is of course attractive to go to Eastern Europe and to have a plant with a labour force which is much cheaper. But a business always needs a situation where it has a big market around it which buys its products. Cement and electricity-producing through water could be of interest to German companies, for example in Georgia. Georgia has to show to foreign investors that it is specialized in some areas and it can do certain things better than other countries around. I do not think that Russia is very green in terms of its technology. All the countries who are in the Eastern Partnership programme could be competitors of Georgia’s, because they are in the same situation at the moment, have the same contracts with the EU, and are at almost the same level.”
“At this moment in time, the business environment in Georgia is good because of the privatization of public organizations. There are a lot of chances for private investors to run a private business in Georgia.
The risks that investors mainly face in Georgia are political risks. If we look at the example of Russia and think about the stop of the export of wine to there, this could always happen again, especially if we look at the current situation in Ukraine. It will be a problem for local businesses or maybe even for some international companies who have divisions here,” Eismann said.
The risk for European countries is not that big, because we had some regulation between the EU and Georgia and with some other states, which is called the Eastern Partnership, where investors from Germany or all over Europe are very well protected if they have companies in Georgia. But if they produce goods here which are supposed to go to Russia and Russia stops their import, then it will become a challenge for European investors as well,” Eismann commented.
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