EurasiaNet Business & Economics - Post-Crackdown, Georgia Keeps Eye on Foreign Investment

BUSINESS & ECONOMICS

POST-CRACKDOWN, GEORGIA KEEPS EYE ON FOREIGN INVESTMENT
Nino Patsuria 11/12/07

As Georgia scrambles to restore a sense of normalcy following the November 7 crackdown on opposition protestors, chief among the government’s concerns is the country’s image among foreign investors.

The concern is critical for the country’s economic health. Between 2005 and 2006, foreign direct investment in Georgia more than doubled, to stand at $1.147 billion, roughly 15 percent of its 2006 Gross Domestic Product. In its Doing Business 2007 report, a document that grades international business climates, the World Bank ranked Georgia as the top reformer in the Commonwealth of Independent States. For 2008, Georgia entered the list’s top 25 countries worldwide.

At a November 10 gathering with Georgian business people in Tbilisi, Georgian President Mikheil Saakashvili was quick to step in with damage control, laying the blame for any souring in investor interest squarely on opposition supporter Badri Patarkatsishvili, who recently declared his intention to run for president. [For background see the Eurasia Insight archive].

Since the November 7 clash between police and protestors, the government has consistently portrayed the tycoon � who in late October announced his intention to temporarily transfer his controlling interest in the country’s largest pro-opposition media company to Rupert Murdoch-led News Corp. � as a lead character in an alleged plot with Russian intelligence to overthrow the government. [For background see the Eurasia Insight archive].

Speaking of Patarkatsishvili’s activities at a recent Invest in Georgia conference in London, Saakashvili claimed that "a certain Russian oligarch remade as a Georgian went from investor to investor saying �You are crazy investing money in Georgia, investing money in Georgia is very dangerous.’"

The goal, the president alleged, was to push down the price of Georgian companies up for sale or interested in outside investment and "be able to buy all of Georgia for dirt cheap."

"But I want to tell you that we passed this test. We stood so tall that after January 5, we as a country will get back this money ten-fold, there will be ten-fold more investment, there will be tenfold more success, tenfold more optimism," Saakashvili said in reference to the early presidential elections in January 2008.

Whether those expectations have yet taken hold with foreign investors, however, remains to be seen. Bank of Georgia Supervisory Board Chairman Lado Gurgenidze claimed at the November 10 meeting that the price of Bank of Georgia shares on the London stock exchange declined by 10 percent during the days immediately following the start of opposition protests on November 2. Georgia’s Standard & Poor’s credit rating, though, remains unchanged at a B+, Thomson Financial News reported on November 8.

How the government handles its investigation of Imedi Media Holding will play into investor confidence. Government officials have indicated that the company, now contoled by News Corp., will need to go to court to seek compensation for damages incurred during the November 7 raid of its premises. News Corp. representatives have indicated that the media conglomerate has no plans to leave Georgia.

The government maintains that the qualities that initially attracted investors � commitment to market economic reform, and encouraging respect for rule of law � remain unchanged. Nonetheless, some officials are nervous, including Deputy Minister of Economic Development Vano Nakaidze. "The investment climate will not bear a long-term crisis," Nakaidze said. "All countries have their credit histories and the fact that Georgia changed its government through revolution three times in 17 years doesn’t speak in favor of our country. Nevertheless, we managed to attract quite an impressive amount of investment within these four years [since the 2003 Rose Revolution]. Four years, [however,] are not enough to make up for all the defects."

Retaining interest in Georgia’s private sector is key, he added. The sector accounted for two-thirds of the $1.2 billion of investment in Georgia in 2006, Nakaidze said.

Ironically, one of Georgia’s largest private investors was Badri Patarkatsishvili. At the time of his departure for London in March 2007, Patarkatsishvili’s portfolio included widespread real estate investments and a Black Sea oil terminal (later sold) in addition to Imedi Media Holding.

One independent economic expert terms "selective" the government’s campaign against Patarkatsishvili, once much touted for his philanthropy and support for Georgian athletes as head of the Georgian National Olympic Committee. The Committee voted him out as chairman on October 9 after officials charged that he had been conspiring with former Defense Minister Irakli Okruashvili, who had leveled charges of corruption and attempted murder against the president.

"[The government] raised a claim against Patarkatsishvili, blamed him in an attempt to overthrow the government, and declared him to be wanted by the Georgian government," commented Soso Tsiskarishvili, who ran Georgia’s External Economic Relationships Department under ex-President Eduard Shevardnadze. "On the other hand, it woos [Kakha] Bendukidze as a state minister, who is apparently a Russian-made oligarch, who made his millions in Russia and has Russian-based businesses."

Bendukidze, the State Minister for Economic Reforms, is the founder and former Chief Executive Officer of OMZ, or United Machine Plants. As of 2005, however, he has not held a stake in the company.

As have other analysts, Tsiskarishvili contends that the state of emergency will do little to assuage investor jitters about the country’s stability. Non-governmental organizations echo that position.

In a best-case senario, commented Transparency International Georgia Executive Director Tamuna Karosanidze, the events of November 7 will make foreign investors alert.

"When . . . meetings are held in a country and they are dispersed the way that they were, and when the special police . . . intrudes into a TV station and officials declare that the action was carried out within the frameworks of a state of emergency � introduced much later than when the intrusion took place, actually � any businessman will think whether or not it is worth investing money in such a country," Karosanidze argued.

Editor�s Note: Nino Patsuria is a freelance reporter based in Tbilisi. Molly Corso, also based in Tbilisi, contributed reporting to this story.

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