Several days ago, US Ambassador to Georgia Ian Kelly held a news conference for media agencies and talked about fines and penalty sanctions that the Georgian court had imposed on American companies. Georgia should enhance its protection of investors, he said.
“We should multiply trade volumes between the USA and Georgia. Moreover, investment inflows should also increase to Georgia. Georgia is a lesser-known country in the USA, and this factor hinders attracting new investments.
This situation can be improved thanks to your active and smart representation in Washington, and Georgia has a similar ambassador in the USA. You should intensify efforts so American businessmen perceive your country as one of the leaders in business simplicity. I do not think many Americans know about this.
Georgia should also enhance the level of investors’ comfort. Investors should know that their investments are protected in the country. I have discussed this issue with the Prime Minister of Georgia, too. There are certain considerations that Georgian courts do not follow an unbiased strategy in disputes between the government and private businesses. The Prime Minister recognizes this circumstance and is trying to accelerate the process of shaping the Court Chamber of Commercial Disputes with judges who have knowledge in this area.
There were problems with Philip Morris and Georgian American Alloys (Georgian Manganese). I think the qualifications of judges are a key problem, and they do not have the skills to fully grasp all the details of these cases.
I think the key problem is that judges give priority to the government’s arguments rather than foreign business arguments. If the Court Chamber of Commercial Disputes is shaped, which will resolve disputes between businesses with professionalism and unbiased positions, I think this will have a positive influence on Georgia’s investment attractiveness and will draw more investments.
It is my duty to advocate for American business in Georgia, where the government argues for huge tax debts and fines against companies. My work responds to the interests of the USA. We say that we want to attract more American investments to Georgia, but if they read that penalty sanctions are imposed on American investors in Georgia, they will give preference to other countries and this does not respond to your interests. You should hope the world knows Georgia as a country where investments are protected.
Therefore, I believe that the Prime Minister is following the right strategy in creating a special Court Chamber of Commercial Disputes,” Kelly said.
Both disputes mentioned by Ian Kelly have been already resolved. The Tbilisi Court of Appeals found the $93 million fine imposed on Philip Morris International Tobacco Company ungrounded, and annulled the Tbilisi City Court decision. Moreover, the Kutaisi Court of Appeals abolished the $200 million fine on Georgian Manganese.
Caucasus Business Week (CBW) has inquired into how investors’ rights are protected and whether investors feel genuinely comfortable in the country.
“All problems should be resolved to ensure a comfortable environment for investors and protect their interests in the country. First of all, this refers to the court system. The only solution is that the government should dismiss the current judges. They should leave the system and a new qualified and honest team should be shaped. There is no other solution,” Fady Asly, the president of the national committee of International Chamber of Commerce (ICC), said in his comments on the US Ambassador Ian Kelly’s statement.
“Creating only a Court Chamber for Commercial Disputes cannot resolve problems in Georgia’s judicial system. Investors’ rights will be protected if the problems are resolved on an institutional and system-wide level,” he added.
“There are two problems in the court system. The discussion of business disputes are protracted for many years. Another problem is related to the general distrust of courts. Therefore, the formation of only a commercial chamber is not sufficient. The whole system should be changed. No previous government has managed this, but this is possible,” said Asly.
The president of the ICC national committee agrees with Kelly that the investors’ comfort level should increase. Besides a more transparent court, Asly emphasized the importance of direct communication with foreign investors.
“The government should keep in constant communication with foreign investors, so investors feel comfortable and protected. The government should show interest whether specific investors face any problems in business operations and offer support for their promotion. If the government shows this approach and investors feel they are protected, then, believe me, the inflow of foreign investments will increase quickly,” Asly said.
Professor of Economics Rati Abuladze said that FDI inflows to Georgia have increased to $1.86 billion from $1.6 billion over the past four years (in reality, the country needs five to six times this investment to for the economic welfare of Georgian society).
Major investor countries include Azerbaijan, Turkey, the United Kingdom, the Netherlands, the Czech Republic, the USA, the United Arab Emirates and China. The investment activity of each country is directly related to the effect of economic diplomacy, judiciary system and administration.
Abuladze noted that the government of Georgia enhances the attractiveness of the business environment, the simplicity of doing business, the safety of the country, competitive capacity, communication with business, services and friendly investment environment. Naturally, intense efforts increase interest from businessmen and their intention to invest capital. However, there are certain questions for some state institutions. These questions are related to political and governance aspects and to the environment, because:
- Their ability to adapt to modern challenges and administer are not assessed positively;
- Political conflict, activity and economic policy trajectory do not generate satisfactory results;
- The reputation of institutions has not increased.
Activity on the global political arena is low, while approaches for resolving national problems only result in maintaining personal positions and relegating responsibility to others.
Increasing foreign debt has an influence on the global role of the country.
Regarding Kelly’s statement that investors feel less comfortable in Georgia because of the low qualification of judges, Abuladze said:
“I would like to express gratitude for ready programs given by friendly countries and international organizations, guidebooks for reforms, recommendations and intellectual support. However, it should be stressed that we get partly effect from these programs and reforms and the reason is not the programs or the reforms guidebooks, but their executors and responsible bodies. The fact is that problem resolution depends on the human resources of our country. These people should possess academic, reformatory and administering skills. In practice, we lack this resource in both the executive and legislative environments, not in our society.
Regretfully, it should be noted that the new energy of intelligence is paralyzed, especially as an academic and political resource, because of political and administrative resources. Therefore, persons with questionable qualifications maintain their positions.
Finally, I would like to note that our country is able to shape a new political and governance profile (we, the new generation, hold this resource). This profile with strict political calligraphy and reformatory leverage will legitimately upgrade the image of state institutions, implement global policy, introduce domestic and foreign resources and make global cooperation effective and bilaterally beneficial.”
Paata Bairakhtari, an analyst for the Association of Young Financiers and Businessmen (AYFB) explained that if we appraise Georgia’s investment environment, despite all those components and steps taken by the Government for this sector’s development, it should be noted that this sector remains as a risk group for the investors.
“For example, we have improved positions in many ratings. This is a positive signal, however, in the country we face such cases like the Sakdrisi situation, where 13 political parties absolutely groundlessly took part in an auction. This company was hindered in using this territory. The company wanted to use this territory for further development. Similar activities are a negative signal for investors,” Bairakhtari said.
The positive steps taken are, to a certain degree, diminished in the eyes of investors. “When an investor enters the country, they need several criteria to be satisfied, and private property inviolability is one of these criteria,” Bairakhtari said.
According to him, the government of Georgia should take counterweight steps, because the investment environment is very important.