The Messenger, Georgia
April 15 2005

Reviving business in Georgia
By Mary Makharashvili

Business leaders and economists at Thursday’s forum
How to stimulate investment and the establishment of new businesses
was the focus of a round table discussion on Reviving Business in
Georgia on Thursday.

Economists, businessmen and government officials met in the Courtyard
Marriott hotel to discuss how to stimulate business activity, why
there is so little direct investment, and what the Georgian
government should do to increase exports to European markets

Economist Ivan Samson from the University of Grenoble in France
explained that the aim of the discussion was to understand and
classify the obstacles to setting up new enterprises and investment
more generally, particularly in areas where domestic demand exists,
but tends to initiate more trade than production.

“Another major issue is to identify the incentives for legalizing
gray or semi-gray activities,” he added.

He recommended that in Georgia small enterprises should become the
engine of economic growth: “They will become the basis of the birth
of medium size firms, which are currently totally absent.”

“Business needs a sound, transparent and stable economic environment
for working. This is what a strong state, supported by a large amount
of its population, is available to provide,” Samson said.

The new Tax Code, the conference participants felt, was a step
forward, but they said it still needs refinement, particularly
regarding the simplification of rules.

Executive Director of the American Chamber of Commerce Georgia Amy
Denman added that other aspects of the government’s work had helped
too.

“I do think that the government was successful in working with
businesses in order to weed out corruption and help them to do
business more legally. I think that the new customs code will help as
well,” she said.

However, Denman added that, “the long term step is to relieve fiscal
pressure. We understand that the country is desperately looking for
revenues, but it also needs to look long term and reduce the fiscal
pressure and create incentives to compete with neighboring
countries.”

According to her, companies that are currently working on the ground
have seen a number of changes over the past year. She says that the
Tax Code and an Amnesty initiative have together allowed businesses
to work more legally.

“This is good for business and good for government. There is more
work to be done because, in general, in order to attract new
investment you need to make current investors happy,” she said.

Talking with The Messenger General Manager of Nestle Georgia &
Armenia Esben Emborg said that good legislation is essential.

“It is important to have a level playing field; conditions have to be
the same for everyone. Businesses are impatient but the government is
definitely on the right track,” he said.

One particular area he felt the government had done well was to work
together with business. “I think what was very interesting about the
tax code was that the government and business sat down and worked out
a tax code, which was far from perfect, but it’s not bad. It is much
better in comparison with the old one. We are moving forward,” he
said.

Speaking with The Messenger Deputy State Minister for European
Integration Tamar Beruchashvili said that the government clearly
understands that a stable environment is one of the main components
for stimulating business in Georgia.

“We know that a number of legislative acts needs to be changed, but
on the other hand the changes, even though positive, create a very
unstable environment. That is why it is very important that business
be actively involved in not only the decision-making, but also in the
process of formulating this decision,” she said.

According to her, a second important issue is deregulation, which she
says also has “its rules of the game.” She says that deregulation
should not be understood as anarchy, as those issues which concern
the security of people’s lives and health will always remain under
the subordination of the state.

Nevertheless, there is a need for deregulation, and changes to
legislation, Beruchashvili said, citing the Customs code as one
example.

“Creating a Customs Code according to international norms and
standards is vitally important. The functions of customs should be
clearly determined and the procedures should be maximally simple.
There should be no discrimination,” she said.

Formulating new laws is not enough, however, the deputy state
minister said, admitting, “unfortunately our weak point is that the
written laws are much better on paper than in implementation.”

Talking about the European market Beruchashvili said that this is the
most attractive market for Georgia. “Georgian mineral waters, fruits,
vegetables and honey have real perspective of entering the European
market,” she said.

Unfortunately, it is also one of the hardest to enter. For example,
she said that it took a full year for Georgian wine to pass through
all the procedures to be formally recognized and legally sold on the
European market.

Deputy Minister for Economic Development Tamar Kovziridze, meanwhile,
highlighted three areas in which the government can support business.

“The first is legislative changes with regard to deregulation and
more concretely the issuing of licenses and permits. Our ministry is
now working on how to simplify legislation. This will be a very
important legislative package,” she declared.

“The second component is institutional. The prime minister has
started regular meetings with businessmen – the so-called Investment
Council. It is very important that certain decisions will be made
within the framework of this council and based on such discussions.”

The third component highlighted by Kovziridze relates to
international PR. “I mean the regular investment forums in different
countries organized by the ministry. It is known that the first
investment forum was held in London and then in Rome. At the end of
May a similar forum is planned in Berlin and Vienna, and in September
in Japan,” she said.

“At this forum there will be a presentation of the country’s economic
and financial policy. Over 200-250 people will participate in these
forums and I think this is one of the most important initiatives to
get the representatives of international business acquainted with
everything that is taking place in Georgia,” the deputy minister
added.