The FINANCIAL — “The sectors in which US investors are most interested are: tourism – especially hotels; the medical sector with hospitals and clinics; infrastructure, such as the Anaklia Port; and of course energy, with a focus on hydropower generation,” said Michael Cowgill, President of the American Chamber of Commerce in Georgia, to The FINANCIAL.
Georgia has always had support from both Democrats and Republicans, additionally, Mr. Trump has already been to Georgia and he is believed to have a positive attitude towards the country’s business as well as investment climate, said Mr. Cowgill.
AmCham is continuing its active cooperation with the Government on improving the investment environment and is currently working on two crucially important issues, the tax system and judiciary.
“Both tax regulation and the judiciary have seen considerable improvement in recent years. All sides agree that corruption in these areas is rarely an issue. However, unpredictable interpretations of the tax code by Revenue Service auditors and unpredictable judgements on contracts by the judiciary continue to create uncertainty that is unhelpful,” said Mr. Cowgill to The FINANCIAL.
Q. Political stability is considered one of the main obstacles for foreign investors – what is the current situation according to your evaluation? Also, there were concerns about the elections, which we have now already gone through – therefore how has the process, as well as the result, affected the economy?
A. I truly believe that political stability is one of Georgia’s strengths and not an obstacle for foreign investors, especially compared to the volatility in the rest of the region. Georgia had another successful election this year and there is a continuation of the governmental economic team which all of the business community, and especially AmCham, has worked together with for implementing reforms.
The success of the election process has given investors greater confidence that Georgia has a sustainable political climate that will continue to support the business sector.
Q. How was 2016 for the business sector? Can you compare it to 2015?
A. I don’t want to repeat statistics here, but rather discuss what AmCham’s members are saying. There was a general improvement in business in 2016 compared to 2015, especially in the tourism sector, though there is no doubt that the global and regional economy continue to face major challenges and we feel that in Georgia as well. We were happy to see that the parliamentary elections did not seem to have disrupted the economy. Obviously, continued pressure on the GEL is a problem for many businesses, particularly importers, but that is generally the result of regional problems and the fact that the USD is currently facing a 13-year high valuation.
Q. Has the Investors Council, which was established last year, made any significant changes to the field?
A. Absolutely. The Investors Council has been a fantastic platform for dialogue. I would particularly highlight discussions that we have had on public dialogue issues – that has seen far greater engagement on legislative issues generally, discussion on tax reforms which are helping to push reform in the Revenue Service and our work on new initiatives such as the Business House (the 1-stop shop for all business-related processes) and Pensions, that are moving forward next year.
Q. In your opinion, are the benefits from the DCFTA well-enough promoted among investors as well as local businesses, and what can be done further?
A. As is the case with most major international agreements, the larger companies are in a position to understand the details of the DCFTA. However, it is the SMEs that often lack the resources to determine the benefits (and costs of compliance) the DCFTA can bring. There are some governmental and donor-funded programmes in place to bring a better understanding of all aspects of the DCFTA to the broader business community.
Q. What are your expectations and attitudes towards changes in the corporate income tax system?
A. We are very enthusiastic about the change generally, as it will encourage greater re-investment, should help to attract FDI, and will keep Georgia in the international press as a leading international reformer. Our one concern is that, in the short-term, it could create confusion, as it will require changes in companies’ monthly filings. We are currently talking to the Revenue Service about this issue and are confident that this will generate good results.
Q. Georgia intends to become a regional hub, what can be done to strengthen its position?
A. We are encouraged by the emphasis the Government is placing on infrastructure, including ports, roads, tunnels, railway, etc. These projects will definitely strengthen Georgia’s role as a regional hub.
Q. Despite having made significant progress in the Doing Business Index, obstacles for investors still remain, so which specific fields need reforming?
A. Business growth, whether from local companies and investors or foreign direct investment (FDI) remains a constant priority and challenge for the country. AmCham’s ability to support this growth is very important, both in working to ensure that Georgia has a favourable business climate, as well as supporting individual companies and investors. At the current time, the two broad issues that the Chamber continues to work on are the tax system and the judiciary. Both tax regulation and the judiciary have seen considerable improvement in recent years. All sides agree that corruption in these areas is rarely an issue. However, unpredictable interpretations of the tax code by Revenue Service auditors and unpredictable judgements on contracts by the judiciary, continue to create uncertainty that is unhelpful. To help resolve these issues we have been working on a tax project funded by USAID’s G4G project and we continue to work with the Investors Council on general tax and judicial reform.
Q. Which regulations can you highlight that are the most distracting to businesses?
A. The business sector through the various business associations has already worked closely with the relevant governmental entities to revise regulations to create a better business climate. Our focus going forward is more on fair and proper implementation of the current regulations.
Q. The US has now elected a President who is currently working on recruiting members to his administration. What aspects might possibly change in the US and Georgia’s political and economic relations?
A. America has a very strong system of governing institutions and checks & balances that ensure that it is not only the President that decides policy. Georgia has always had bi-partisan support from both Democrats and Republicans in the US Congress and we at AmCham have witnessed this from delegations coming to Georgia as well as in meetings with US Government officials in DC. Georgia has a very strong team in the Embassy in DC and we are very supportive of the new Ambassador, David Bakradze. We also have great confidence in the PM and his team and are assured that they and the new Parliament will do all they can to work with the new US Government. Furthermore, the US Embassy team here in Georgia is excellent and we work very closely with them on issues critical to the Georgian business climate. Lastly, it is important that President-Elect Trump has already been to Georgia and we believe he is very positive about our business/investment climate.
Q. Why should Americans invest in Georgia?
A. There is no doubt that rankings, such as Ease of Doing Business, Tax Rates, Corruption Index, etc. are important – especially to those that are looking at Georgia from afar. But they are a starting point. We find that investors are more excited and willing to invest once they actually come here, see Georgia, and its people and existing businesses. One of our previous US Ambassadors had a great saying, “Georgia looks a lot better close up!” So we at AmCham work with our US and Georgian Government colleagues to get more investors actually here on the ground.
Q. What are the political risks related to Georgia in the eyes of investors?
A. It’s my perception that within Georgia, investors see few if any political risks. The risks are more attributable to the general volatility in the region as a whole.
Q. Which sectors have better opportunities for development?
A. The sectors in which US investors are most interested are: tourism – especially hotels; the medical sector with hospitals and clinics; infrastructure, such as the Anaklia Port; and of course energy, with a focus on hydropower generation.
Q. How are companies at AmCham dealing with the GEL devaluation?
A. Our member companies are fairly resilient and can adapt to a variety of issues and situations. Any variation in the GEL is a real risk for those companies that purchase goods and services in USD with revenues in GEL, or those that have large dollarized debt and revenues in GEL. Beyond that group, the problem with the GEL devaluation is its unpredictability. The companies are looking for some stability or predictability over time.
Author: Nikoloz Charkviani