Posted: 3 years ago

Irakli Lekvinadze: Expected Impact of Russian Tourism Embargo and GEL Exchange Rate Volatility are Real Challenges for Business Environment

Irakli Lekvinadze, Business Ombudsman of Georgia, has introduced a report on the 2019 January-June performance to media agencies and overviewed issues that were outlined in the reporting period, based on analysis of applications that the business sector representatives have submitted to the Business Ombudsman’s Office.

How many and what kind of applications were submitted to the Business Ombudsman’s office in January-June? How many cases were discussed? what results have you received and what are your future plans? – Business Ombudsman of Georgia Irakli Lekvinadze widely discusses these issues in his interview for the Caucasus Business Week (CBW).

-Mr. Irakli, according to your statistics, in January-June 2019, your office received 171 applications and your office has provided reaction to 90 ones. Which regions and fields apply to your office most frequently and how efficiently do you assist the applicants?

-Based on entrepreneurs’ applications, the Business Ombudsman’s office has prepared 44 solicitations, 29 recommendations and 17 legal conclusions in January-June 2019. We finished working on 42 cases and the Government offices have fully or partly satisfied our position in 78% of the cases. 40% of the applications were submitted by companies from production, retail and wholesale trade sectors. The main part of applications are related to Ministry of Finance and its agencies. The majority of applications are submitted by small and medium companies regarding tax administration issues.

Tbilisi is the most active location in terms of number of applications. In January-June 2019 the Business Ombudsman’s Office registered 60% of applications from Tbilisi (100 applications). Adjara region ranks second with 29 applications (20%),  of which 30% refer to construction and infrastructure development issues asking for mediation before Batumi City hall. We provide active job and have good results at the Finance Ministry Board for Disputes, where the board have partly or fully satisfied our position in 14 cases out of 15 ones.

-You have noted that your office has prepared 44 soliciations, 29 recommendations and 17 legal conclusions and real results were received in 42 cases. Besides specific companies, are there system aspects in these applications and how efficiently do you treat these system aspects?

-We work on both specific companies and system issues that are reflected on entrepreneurship process in Georgia, including the existing and planned new regulations. Among our solicitations, mediations, recommendations and legal conclusions, there are also business ombudsman’s conclusion regarding exports and transit goods and this conclusion was fully approved by the Parliament. As a result, services related to exports and transit goods will not be subjected to  VAT taxation any more. Furthermore, the mentioned amendment will apply to legal relations arisen after November 23, 2011. Moreover, the Georgian business ombudsman’s office has forwarded remarks regarding the organic law on Ownership of Agriculture Lands and the draft law on Determination of Purpose of Land and Sustainable Management of Agriculture Lands.

Parliament of Georgia has approved our recommendations in a number of cases. As a result, regulations for submitting investment plans and decision-making were improved. Moreover, our representative has taken part in the workgroup that was established for developing a bill on Consumer Rights Protection. The workgroup has approved many  our remarks. It is also important that Ministry of Environment Protection and Agriculture has partly satisfied our legal conclusion on approval of “technical regulations for biodegradable plastic bags”. As a result, amendments were reflected into the bill on technical regulations, under which production and sales of biodegradable plastic bags are allowed on the territory of Georgia.

-Based on analysis of applications to the Business Ombudsman’s office, which challenges were named in terms of protection of business interests? What aspects and directions are accentuated as key challenges before the business sector?

-Today key challenge comes from expected outcomes of Russian tourism embargo. Flight ban and essential contraction in tourist inflows have already affected tourism industry and related fields. In this situation, the markets should be further diversified as part of the international free trade agreements. Based on the mentioned factors, GEL exchange rate volatility remains a key challenge for business environment, because effect on clients’ solvency, losses from exchange rate volatility grows expenses in the business sector. In this reality, it is important to neutralize the pressure on political process and the National Bank of Georgia (NBG) should intensify coordination and communication with business to minimize the effect of negative expectations on the GEL exchange rate formation process. Moreover, tobacco control regulations remain relevant, as well as the effect of new banking regulations on development and home appliances sector. At the same time, the Business Ombudsman’s office works on exempting dairy products from VAT. We have also forwarded our legal conclusion to the Ministry of Finance for initiating legislative amendments for entitling the crediting institutions to regain the profits tax paid before 2019, under the so-called Estonian model.

-Which important projects would you name in the reporting period that you have implemented for business sector advancement?

-We made essential progress when the function of a court friend was added to the Business Ombudsman as part of the common courts system. This function enables us to strengthen business sector positions during trials against government offices, based on the business ombudsman’s conclusion. Moreover, for improving communication between local governments and business sector, regional business forums were held in Tskaltubo, Telavi and Tbilisi with the engagement of the Business Ombudsman’s Office. A series of regional meetings were held for local businessmen in Kutaisi, Poti, Akhaltsikhe and Telavi for rising awareness about advantages of mediation and arbitration, with the support of UN Development Program (UNDP). Memorandum on cooperation was signed with Georgia-France Chamber of Commerce and Industry, Georgia-Switzerland Business Association and European Business Association. We have actively engaged in communication between the government and construction sector regarding new legislative regulations on labor safety.

-And finally, what are your plans on international arena? Do you plan to deepen cooperation with colleague institutions in other countries?

-The business ombudsman’s office keeps deepening cooperation with colleague institutions abroad and we plan to sign cooperation memorandums with business ombudsman’s offices of Ukraine, Uzbekistan and Kazakhstan. Moreover, we have participated in a joint event of World Bank and European Commission on strengthening and developing investments. Promoting Investment Retention and Expansion P2P learning Event was held in Kuala Lumpur, Malaysia. Georgia is one of the first countries, which has established the business ombudsman’s electronic portal with the support of World Bank. We have updated representatives of participant countries about our experience in this direction. We have also actively engaged in the 2019-2020 National Anti-corruption Action Plan developed by recommendations of Organization for Economic Cooperation and Development (OECD). Our office plays a leader’s role in this process in terms of Business Integrity aspects. As part of the Anti-Corruption week , at the OECD head office in Paris, we have participated in sessions as part of the round table format and received information about the experience that East Asia and Central Europe countries have accumulated in the field of Business Integrity.