The FINANCIAL — The gloomy outlook for the European and global economy in 2014 can affect foreign direct investments as well as Georgia’s export potential, Michael Cowgill, AmCham First Vice-President, told The FINANCIAL.
In his words, there is some uncertainty about how the new government and the Georgian Dream coalition will function after current Prime Minister Ivanishvili leaves office.
Make a clear rejection of the Eurasian Customs Union and ensure that the strategic assets remain within Georgia’s control, these are one of the main messages delivered by Michael Cowgill, during an interview with The FINANCIAL newspaper.
“Relations with Russia will continue to be difficult. Russia’s attitude towards Georgia could be even more unpredictable following the Sochi Olympics,” Mr. Cowgill said.
Meanwhile the United States continues making significant investments in Georgia.
“The U.S. Millennium Challenge Compact will begin funding projects from its total compact amount of USD 140 million in the educational sector. In 2014, BP plans to begin the actual expansion of its SCP gas pipeline which will bring a considerable amount of FDI into the country. SEAF plans on investing another USD 20 million in additional projects in Georgia. Although nothing specific as of yet, we are aware of some interest from U.S. companies to participate with the Georgian Government’s new Co-Investment Fund (GCF) in 2014,” said Cowgill.
In November AmCham’s President, Sarah Williamson, will be leading a business delegation to Washington DC.
Q. Low corruption has been frequently cited as the main advantage of Georgia’s in attracting investors. Meanwhile, since the October 2012 elections we have witnessed numerous complaints from local businessmen regarding pressure from officials. Do you see significant changes in this regard?
A. First, let me say that there are many advantages that Georgia has for attracting investors, low corruption being one of them. There is no doubt that much of the mid-level and almost systemic corruption, pervasive before the Rose Revolution, was eradicated under the previous administration. Most of us consider that this previous corruption was in the form of bribes: to Patrol; to expedite normal governmental services; for entrance and grades in the universities, to name just a few. Pressure from officials is a different type of corruption. It is sometimes characterized as elite or high-level corruption which includes favouritism and unnatural monopolies, selective justice (and selective non-justice for competitors) – all of which can occur when the Government becomes too close and either partners or competes with certain businesses in a non-transparent manner. I must say that elite corruption is not unique to Georgia. Who might have been involved or affected by this type of corruption in Georgia is really up to the courts. However, after the October 2012 election, the new Government made it very clear that it has a mandate of being supportive of businesses, but would also serve in a more traditional regulatory role with respect to those businesses.
Q. What were the main mistakes of the previous government that the new one should not repeat?
A. The new government has already been more willing to involve business associations early in the process of drafting new legislation. The new government must continue to enforce the rule of law and promote an independent judiciary. Similarly, there needs to be the concept of checks and balances between the branches of government. The new government should not compete with private business. The new government should do all it can to ensure that civil society and constituencies are heard and represented.
Q. How have the political changes of October 2012 affected U.S. companies operating in Georgia?
A. We still have a very favourable business climate, and one which is supported by a very active and engaged U.S. Embassy. As mentioned above, the political changes have served to create a more balanced labour code, further the rule of law and independent judiciary and ensure that the business community is involved in drafting new legislation relevant to the economy. Of course, with any major political change, all companies, not just U.S. companies, have had to work hard to understand what those changes meant to normal operations and investment decisions.
Q. Which new U.S. companies were established in 2013?
A. We are aware of at least 5 new larger U.S. businesses established in Georgia in 2013 in the restaurant & fast food sector(s) and the legal and financial services areas. SEAF (a U.S. investment fund) invested over USD 20 million in hydropower and retail projects in 2013. The U.S. Overseas Private Investment Corp. (OPIC) provided multi-million USD loans in the tourism (restaurant) and educational (university) sectors.
Q. Many foreigners stated that the existing cohabitation carried a negative impact on investments. Do you agree with that and will the newly elected president bring stability for foreign investors?
A. Cohabitation created a situation where decision-makers and investors, including those in the U.S., were receiving mixed messages about the (past/current/future) business climate, political stability etc. resulting in much confusion on the part of potential (and current) investors. We believe that the newly elected president, together with the PM and his ministers, will ensure that the messages about Georgia will be cohesive, coordinated, positive and accurate. To further this concept, AmCham’s President, Sarah Williamson, will be leading a business delegation to DC in November to deliver a similar message to relevant decision-makers.
Q. In 2013, Georgia resumed exporting products to Russia. Can we consider it a positive sign between the two countries?
A. The return of exports to Russia has been profitable for many businesses and can be viewed as a positive sign between the two countries. However, we cannot ignore the continuing issues regarding territorial integrity and the provocations at the border – so the relations with our northern neighbour will continue to be sensitive and difficult. We should also remember that even during the embargo of products to Russia, Russian companies were actively working in Georgia.
Q. What are the main risks behind Russian-Georgian relations?
A. With the unpredictably of Russian policies, companies must be cautious in relying too heavily on the Russian market. I do believe that the companies exporting to Russia now fully understand that risk.
Another potential risk is that Georgia can’t be perceived as leaning towards Russia and away from the West and Georgia must make a clear rejection of the Eurasian Customs Union. The Georgian Government has already made such declarations.
Another risk that seems to be well understood is to ensure that strategic assets remain within Georgia’s control.
Q. The Georgian Government under Saakashvili’s presidency was active in regard to promoting Georgia. However, the new government stopped promoting Georgia on international channels. What is the best way to promote Georgia right now?
A. The situation is a little different now. The initial promotions of Georgia on CNN and BBC did help to raise the awareness of Georgia on the international stage. Now the messages can be developed a little differently. This is one of the areas where the Government and the business community can work together to assure potential investors that Georgia is a safe and profitable country for investment. The business delegation to DC later this month is a prime example of this type of effort.
Q. Recently EU ministers urged Ivanishvili to avoid ‘politics of revenge’ in Georgia. Do you think that the arrests of officials will have a negative impact on the investment climate?
A. There have already been many negative comments from outside the country regarding arrests of officials. However, as we have already mentioned, “rule of law” is one of the most important aspects for Georgia going forward. It would be even more difficult to understand why officials, if ultimately found guilty in a fair and open judicial process, should not have been brought to trial in the first place. Further, the Government must continue to do all it can to ensure due process and transparency in any such cases.
Q. What are the main risks that Georgia will face in 2014?
A. There is a rather gloomy outlook for the European and global economy in 2014 which could affect FDI coming into Georgia as well as Georgia’s export potential. There is some uncertainty as to how the new Government and the Georgian Dream coalition will function when Mr. Ivanishvili leaves. Unrealistic expectations of the electorate can also be problematic in 2014. Another potential risk is that Russia’s attitude towards Georgia could be even more unpredictable following the Sochi Olympics.
Q. What is your attitude towards the co-investment fund founded by PM Ivanishvili? Can you name any U.S. companies or businessmen that are interested in participation?
A. We have had a few briefings on the new fund. While we are awaiting additional details, there is no doubt that the country can benefit from an influx of investment in sound viable projects. Identifying USD 6 billion worth of bankable projects may prove to be a challenge. We also see the need for proper oversight and control of the fund to ensure it is managed in an efficient and transparent manner. As mentioned above, although nothing specific as of yet, there appears to be interest from some U.S. companies in participating with the fund.
