Posted: 3 years ago

Business Sector on the IRI Report – National Bank Fails Mission

According to a report by the International Republican Institute (IRI), the majority of Georgian citizens negatively appraises the National Bank’s activities: 62% voice discontent with the NBG’s performance,  25% have positive attitudes, and  13% have a more neutral position. 

How do the business sector and experts appraise NBG performance, especially amid the depreciation of the GEL exchange rate? 

Irakli Gurchiani, founder of Toyota Center Tbilisi, explains that the NBG fails to properly fulfill its various functions, in this instance to regulate the GEL exchange rate, yet  it is taking no steps.

GEL volatility will have a quite negative effect on business, including a halt to sales. There are problems with economic development in the country. The economy is not well developed, and consequently, the business sector sees no progress either, he said. 

“0.1% GDP growth brings positive effect for our business, because the company’s sales rise. Regretfully, similar changes rarely take place in the country. The solvency of our citizens is declining”, the Toyota Center’s founder noted. 

“The NBG is tasked with carrying out interventions on the money-credit market. Today, they have announced a floating exchange rate, but the regulator is able to take other steps, too, and to protect the currency market. No additional legislative records are required for stabilizing the situation. First of all, the government’s economic team and the NBG should take all due decisions. Amid similar shocks in the country, naturally, the regulator should take the proper steps”, Edisher Mamaladze, head of the Supervisory Board of Saqkabeli noted. 

The business sector cannot be developed amid GEL exchange rate volatility, he said. 

“We have domestic production, but some raw materials are imported from abroad, and its cost is reflected in the production value. The unstable GEL does not frustrate our production, but in the future, specific projects will be revised  in terms of investments and budgeting”, Mamaladze said. 

The businessman notes that it is unpleasant when the GEL exchange rate shows similar volatility. The year of 2018 ended with the exchange rate at 1USD=2.64 GEL, and now the rate has fallen to almost 3 GEL. The current situation will provoke inflation, price hikes, and so on, he added. 

“At this stage, this price growth is not sensible, but in the near future the GEL’s devaluation will influence prices. Georgia is an import-dependent country. Our exports are much lower compared to imports, and the negative balance will grow”, Mamaladze noted. 

Coca-Cola Bottlers Georgia founder Temur Chkonia says that the NBG’s functions should be revised. 

“Today, the GEL exchange rate aggravates the general situation. We face instability and a lack of information. The NBG’s president shows indifference, provides  confident speeches that nothing bad happens in the country. This cannot be continued. I believe the NBG President should provide profound and serious explanations for the business sector, and the whole country asks what plans the NBG has, and whether the regulator should intervene. 

If the NBG does not interfere by strengthening the GEL, and it only releases information about market realities, then the NBG’s functions should be revised. The fact is, certain problems exist in the NBG, and therefore, somebody should provide due explanations”, Chkonia noted. 

Kula Cannery founder Vano Goglidze explains that such instability in the GEL rate should cease, and the higher but stable exchange rate is better. An unstable rate confuses the business sector, and has paused planned and new investment projects, he said.

“Prices on everything are growing, including raw materials, public utilities, electricity, gas, water. When the exchange rate decreases, prices remain high anyway. Instability leaves the situation unclear for tomorrow. In this situation, any business strategy does not work. 

Those who have launched projects will finish them, but new projects may be revised by 10%-15%. If risks are calculated well, the ongoing projects will not be put on hold. We also implement new projects, including a new plant construction project, and at this stage, we are trying to maintain this 10%-15% margin”, Goglidze said. 

The USA-based financier Temur Basilia is not surprised at this public position against the NBG, because over the past 10 years, various public surveys have shown a  negative attitude to the NBG. 

The financier notes that this is an unfortunate reality, because the average investor and older generations remember that the NBG was one of the bright spots 15-20 years ago. It used to carry out reasonable money-credit policy to ensure financial stability. The NBG used to keep continuous contact with society, bear responsibility, and consequently, our society had an essential trust here, Basilia noted. 

‘Regretfully, over the past 10-12 years, the NBG’s degradation has continued. We remind you that the then authorities intended to entirely abolish the NBG. After this, the banking sector was politicized, and this sector became not an engine to stimulate the economy, but an obstacle for economic development (entitling ownership of non core assets killed the competitive environment, as well as refinancing loan instruments and so on). Regretfully, this process continues even today”, Basilia said. 

Georgian society realizes very well how the NBG manipulates the GEL exchange rate by order of the so-called dominant commercial banks. A lot of questions remain unanswered. Regretfully, in this instance, it avoids answering these questions and effective communication with the society, he said.